Archive for August, 2014|Monthly archive page

The crowd makes the decision

Watch out Howard Stern: your role as judge on America’s Got Talent could be in jeopardy, thanks to Crowdsourcing — a proven, web-powered way to raise money and troubleshoot problems. And, this may be just the beginning. Research published in the K@W newsletter (a Wharton Business School publication) shows organizations can now gain significant value by leveraging the crowd to make important decisions on which projects to focus on or which creative execution to choose.

Crowdsourcing is the online process of obtaining needed services, ideas, or funding by soliciting contributions from a large group of people outside of an organization or its supplier network. Raising money, in particular, is very popular. One of its leading platforms, Kickstarter has raised more than $1-billion in pledges for 135,000 projects from 5.7 million donors, a Wikipedia posting notes. Offering an alternative to bank or venture financing is one thing, but can the wisdom of the crowd compete with experts to decide which projects to pursue or talent to back?

New research Professors Ethan Mollick (Wharton) and Ramana Nanda (Harvard) looked at this question by analyzing how theatre projects get funded, and later performed in market. Studying these types of decisions is a good test of crowdsourcing’s potential because they require both a subjective (i.e. artistic taste) and objective assessment (i.e. determine the long-run success of the project). Importantly, the U.S. arts world is a good test bed for evaluating crowdsourcing decisions. Since 2012, more money has gone to the arts through crowdfunding than the government-run National Endowment of the Arts.

The researchers compared the funding decisions by theatre experts and the crowd on six projects. The experts were experienced judges who worked for the NEA. The crowd was participants in a Kickstarter campaign. The findings were thought-provoking. The decisions of the experts and crowd were very similar with a 57% to 62% concurrence on the choices. Yet, decision alignment does not automatically translate into good decisions.

To measure the quality of the choices, the researchers also analyzed the economic impact of the successful theater projects. They found that many of them evolved from a one-night only event into recurring performances that, in some cases, provided dozens of employment opportunities not to mention long-term revenues.

Implications for companies Crowdsourcing decision-making is an appealing tack for many companies. Many decisions, especially ones with subjective criteria, can benefit from multiple lenses that remove the bias of internal experts (e.g., the ‘not invented here’ syndrome), or produce additional opinions when expertise is lacking. Tapping the crowd can be faster and less expensive than finding subject matter experts or using consultants. Finally, relying on the crowd could avoid the internal politicking that comes with high-stakes choices that lack objective data.

A variety of decisions can be made by the crowd. For example, marketers can use it to help them choose the brand messages or advertising creative that best resonates with their target audience. Furthermore, venture capitalists can leverage a community of technologists or consumers to help them decide which startups to fund. Importantly, tapping the crowd does not negate the importance of internal experts, who can still be used to make sure the crowd’s choice passes the ‘common sense test’ and that decisions incorporate all the data.

Tapping an external community, however, will not be ideal in every situation. Many leaders will be unwilling to outsource major decisions given their egos or risk aversion. Furthermore, using the crowd for smaller decisions like picking advertising creative could be impractical and demotivating to staff. Finally, leveraging the crowd may lead to poor results if not properly executed.

Starting out While this research is encouraging, its conclusions should be validated for different situations and industries. One way to do this is to compare the internal decision with the crowd’s choice. To do this, it is best to begin with a pilot. The pilot would have a clear objective with well-defined and articulated choices. To maximize the crowd’s value, the target decision should integrate both subjective and objective evaluations. Managers should also carefully pick the community they want to leverage, within the right online platform. Special attention should be paid to maintaining confidentiality and intellectual property requirements before reaching out publicly. When the pilot is finished, managers should compare the results of each decision and the impact of each process.

For now, Howard Stern can rest easy. Crowdsourcing decisions will never replace thorough analysis, time-tested judgment and gut feel. However, these qualities come with a price, which is often high in terms of cost, time and hassle. If crowdsourcing can be validated for other use cases, then tapping wisdom of the crowd will become an important decision support tool.

For more information on our services and work, please visit the Quanta Consulting Inc., web site.

How winning companies go digital

Whether it is creating a winning online experience or enabling mobile commerce, digital marketing is a hot topic, with most companies either revamping or implementing new strategies.

Through consulting experience and research, Quanta has uncovered some industry and technology-wide learnings that can improve your odds of market and financial success. Consider the following best practices in your digital design and planning:

Power to the people

“In the next five years, traditional marketing will shift to digital channels to capitalize on the ‘power of the people’ phenomenon to displace brand-centric strategies in favour of buyer-driven everything,” research firm Gartner says. Buyers can control the marketing messages they receive and are only a click away from a competitive product.

That means the onus is on companies to provide a digital experience that powerfully delivers on their customer’s needs. All technology choices must be driven by customer needs and their desired experience as opposed to organizational or IT considerations.

This buyer-driven world requires personalization and location-based services. Consumers want to be treated as an individual with bespoke interactions and services based on their past experiences with the firm, the device or platform they are on, and the information they require at the moment.

Social not transactional

The buying journey is no longer linear — i.e. build awareness, generate interest and trigger purchase. Now, consumers rely more on peer recommendations, are less iterative and more information-driven.

Knowing that, companies should carefully consider what information, tools and functionality are needed. For example, to leverage the power of word-of-mouth endorsements, marketers need to understand how and when their customers are using social media and target them differently by platform at each stage of the customer life cycle — from awareness building and information gathering to seeking out peer recommendations and finding timely support.

One brand, many channels

Market researcher Forrester reports that companies in 2014 “overwhelmingly plan to continue investing in DX [digital experience] technologies, with a clear emphasis on multichannel delivery and analytics.”

New technologies, applications and platforms have dramatically increased the number of channels between customers and firms, and the potential for misaligned strategies and programs. Marketers are challenged to offer a compelling omni-channel experience that delivers a consistent and competitive brand message, price and service experience. This requires management to view their businesses in non-traditional ways, master new skills sets and define new organizational structures.

Structure follows strategy

From the outset, senior leaders will need to acknowledge the traditional marketing model may no longer be ideal for a digitally driven organization. Where the function is going is difficult to say. IDC, a research firm, contends that “by 2020, marketing organizations will be radically reshaped into three organizational systems — content, channels, and consumption [data]. The core fabric of marketing execution will be ripped up and rewoven by data and marketing technology.”

The best practice marketers we see are: team-focused incorporating a variety of skill sets including data analytics; tightly integrated with other functions including IT and operations and; are intrapreneurial in nature with free-flowing data, flat decision-making and rapid experimentation.

One common barrier to going digital is the need to satisfy the traditional business case. It is often difficult to generate sufficient return on investment when quality market and costing data is unavailable, revenue and usage is unpredictable and senior managers lack the technical confidence to place important bets.

In a recent survey, roughly one-quarter of respondents named “inability to prove ROI” the top barrier to budget increases, outpacing other concerns such as lack of overall revenue (18%), lack of buy-in from management (15%), and lack of clear strategy (15%),” web research firm Marketing Charts said. Digital pacesetters, on the other hand, make greater use of lower-risk market experiments, as well as employ more advanced approaches to evaluating strategic, time-sensitive investments.

Get it right and fast

In high-stakes industries such as banking, airlines and retail, the days of introducing beta-level technology and fixing it on the fly is quickly coming to an end. Most consumers will not tolerate shoddy products or a confusing online experience; product alternatives are often well-known and immediately available and; serious threats such as cyber crime are no longer rare. To cope, firms are adopting a variety of methods to improving digital quality, performance and agility including co-creating products with customers, integrating development and testing activities and; bringing in-house strategic parts of the value chain.

There is no magic bullet to digitally enabling marketing. Successful firms are choosing their technologies and channels based on consumer needs and habits, leveraging the power of social influence, developing the right organizational alchemy and learning from their pilots and other’s experiences.

For more information on our services and work, please visit the Quanta Consulting Inc. web site

The dangers of outsourcing

Conventional wisdom says companies should outsource manufacturing and operations to take advantage of lower wages and faster operational scalability. Aside from the question of whether this strategy (particularly when it involves offshoring) always delivers the promised benefits, you may also wonder whether outsourcing makes long-term strategic sense. The demise of Kodak, the iconic U.S. photography company, suggests organizations need to be wary of outsourcing strategic business activities. Outsourcing has been occurring for decades, based on the idea that moving labour-intensive work offshore would significantly reduce cost, without jeopardizing a firm’s competitiveness.

Kodak’s fall shows this is a dangerous assumption. Companies can unknowingly reduce their competitiveness when strategic work such as manufacturing and product design is outsourced. In other words, they stand a good chance of loosing the secret sauce that drives meaningful differentiation. Moreover, outsourcing accelerates the diffusion of knowledge and talent to outsiders thereby lowering barriers to entry. The result is higher levels of competition and a lower return on invested capital.In addition, many operations that were once performed more economically offshore can now be in-sourced at a similar cost and much lower risk.

Founded in 1893, Kodak was the dominant player in the camera, film and processing business with a strong reputation for product and manufacturing innovation. Ironically, Kodak developed the world’s first digital camera in 1975, yet was never able to leverage that early success to take advantage of the market shift to digital photography. Instead, the way Kodak expanded its digital business sowed the seeds of its demise. In 2013 the firm declared bankruptcy.

Harvard Business School Professor Willy Shih had a front row seat, having served as president of Kodak’s Digital & Applied Imaging business through the turn of the 21st century. “Much of the camera technology was invented in the United States, but U.S. companies gave it all up,” Shih said. He contends that when Kodak moved pieces of their operations overseas many years before, they lost technical expertise, product innovation and manufacturing skills. When digital cameras became the rage, Kodak had lost the ability to put together a compelling digital camera solution. As a result, they were unable to compete in this rapidly growing market. Coincidentally or not, other companies such as Dell, Blackberry/RIM and HP saw their fortunes decline during the same time they aggressively offshored major parts of their value chain.

From a strategic perspective, manufacturing a product can trigger new ideas that lead to improved operational efficiencies and product innovation, especially when there is close contact between users and designers at the production level. Maintaining key operations also allows companies to retain vital research and development, support and manufacturing knowledge, which are key to producing next-generation products. These long-term spillover effects can explain why successful consumer technology companies such as Apple and Google limit outsourcing to manufacturing, and keep product design, branding and customer support in-house.

Outsourcing need not be a risky strategy. The following are three things leaders should consider in deciding which activities are performed internally and which can be left to others:

Focus on what’s important

Many of the managers we speak with do not know what makes their organizations tick. Leaders need to know the key capabilities (e.g., assets, brands, people, knowledge, and resources) that deliver their unique value proposition so they can safeguard them.

They also need to understand what new capabilities (e.g., digital competencies) are required to generate growth three to five years out.

Double down on the core

Continue or increase investment in your differentiating, core capabilities that drive your market position and return on assets. These areas would include innovation, brand building, customer service or employee training.

Take steps to in-source strategic activities (those that are needed for growth) from external vendors.

Optimize existing relationships

For the foreseeable future, outsourcing is here to stay. It is unrealistic for companies to do everything in-house. In other cases, it is essential to unwind outsourcing arrangements or build up internal capabilities.

For these ‘sticky’ deals, managers should review and optimize their existing relationships to: Insist on and enable providers to deliver continuous improvement in terms of innovation, service levels or cost savings; ensure the company has mechanisms to capture the same learnings in areas such as product manufacturability and process efficiencies as their outsourcer; consider a dual outsourcing and in-house strategy for some activities to maintain flexibility and knowledge accumulation.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.