business advice | Paul Wallbank - Communications Professional

The four why’s of Sam Palmisano

Basic questions drive effective business strategies

The New York Times’ profile of IBM’s outgoing CEO, Sam Palmisano, is an interesting study of how an established business can make well thought out long term plans through asking some basic questions.

Under Palmisano, IBM moved a large part of their business from manufacturing and distributing computers to more Internet based products and services.

A key part in IBM’s reinvention was recognising the PC hardware business was in decline as commoditisation of the computers and associated components eroded margins.

To counter this, IBM looked at the areas where they believed the margins would be for the next decade and decided they lay in “on-demand” computing – what we now call “cloud computing”.

What is particularly notable with IBM’s move to the cloud is this renting time on mainframes was the mainstay of their business up until the 1990s so the culture of reliable, accessible services backed by well priced plans is something not unknown to IBM.

Having decided on the on-demand computing strategy, IBM then looked at who would buy their hardware division. Here they acted strategically and rather than selling to the highest bidder – someone like Dell or a private equity firm – they sold to China’s Lenovo which enhanced IBM’s standing within the Chinese markets.

The notable thing with all of these plans is that they were made strategically and executed without the dithering we see at other companies struggling with similar issues. Yahoo! and HP being the two standouts in this area.

While smaller businesses can’t execute on the same scale companies the size of IBM can should they choose, Sam Palmisano’s thinking was guided by four key questions;

“Why would someone spend their money with you — so what is unique about you?”
“Why would somebody work for you?”
“Why would society allow you to operate in their defined geography — their country?”
“Why would somebody invest their money with you?”

These four are something all of us could ask of ourselves and those around us. The answers to those questions are will guide what we do, where we do it and how we do it.

For IBM, the future is fascinating as a new CEO comes in and they apply their investments in cloud computing, consulting and data mining to bigger picture projects like the Smarter Planet initiative.

How this works for IBM and the other large technology companies remains to be seen although it’s quite clear that unlike many of their contemporaries, IBM’s management has a vision of where their business fits in the 21st Century.

The importance of transparency

The US Federal Reserve has announced they will release more details from the information they use on determining official interest rates. On the same day the social networking site Twitter is embarrassed when its opaque verified account policy fails.

Being open and honest is the key component in trust and in turn trust is the bedrock of society. If you can’t trust your neighbour, the local cop or the grocer at the shops then society quickly starts breaking down.

Many big businesses, particularly those in markets where they are one of a small group of incumbents get away with abusing your trust; they tell an illegal surcharge can’t be waived because “that’s their policy, you can’t change an account because of the “terms and conditions” and that the call centre’s operators name is Janet even though it’s Rajiv and you know that when you call back asking for “Janet” you’ll be told”there’s 35 Janets working in the department right now”.

All of this we’ve come to expect from big bureaucratic organisations like the phone company, the bank and the tax office. The interesting thing is how many new businesses that are adopting this anti-customer model of operating.

Rules and policies are fine – as long as everyone knows them, they aren’t too onerous and they are applied fairly and consistently.

The challenge for all businesses – particularly those taking on incumbents – is they have to show they are more trustworthy than the existing operators. If you can’t show that, then maybe it’s time to think about how you operate.

What’s a Twitterer worth?

How business can put a value on social media

$2.50 per month is what Phone Dog think a Twitter follower is worth in their lawsuit against a former employee.

As nebulous and ambiguous as Phone Dog’s claim seems to be it appears some price is being created on the business value of social media users.

To date we’ve seen services like Empire Avenue, Klout and Kred try to measure social media users’ real influence on the different web platforms which in turn allows businesses to allocate some sort of value.

As social media and the web mature, we’ll see businesses spend more time understand where the value lies online.

Each platform is going to have a different value to a business. Depending on the market, one person may be worth more on Twitter than on Facebook and similarly a business may put more value on members of a specific LinkedIn group or industry forum.

What we shouldn’t confuse “value” with is how the services themselves make money. For Facebook, the value comes from the marketing opportunities presented by people sharing their lives while for LinkedIn it’s largely coming from employment related advertising and search.

Other social media platforms are finding other ways to make money and each will have a different attraction to users, businesses and advertisers. All of which will affect their perceived value.

That perceived value is the most important part of social media. If users don’t think a site adds something to their lives, then that service has no value to anyone.

It’s tempting to think that people will object to having a “value” placed on their heads as users, but most folk understand the commercial TV and radio that does pretty much the same thing.

The real question of how much people are prepared to share online will come when they understand the value of the data they are giving the social media platforms. When users start to understand this, they may ask for more service from these companies.

What a Twitter user is worth right now is probably different to what they will be worth this time next year, but there’s no doubt we’ll all have a better idea.

The social maze

What are the risks in business social media?

Towards the end of 2011 we saw a surge of stories about companies and employees fighting over the ownership of corporate social media accounts like LinkedIn contacts and Twitter feeds.

For the social media community this is encouraging as it shows that businesses are beginning understand there the value in online networks. It also illustrates the risks for both businesses and employees when these tools aren’t properly understood in the workplace.

The employer’s risks

As social media sites are one of ways businesses communicate with the public, managers have to understand these services are an asset too important to be left to the intern or youngest staff member in the office.

Should that intern move on – possibly at the next college semester – the business may find they are locked out of the account or it is even deleted.

Business pages and accounts should be set up in the name of senior people in the organisation and, where possible, administration should be shared by the relevant unit in the organisation (customer support, marketing or whatever).

The nominal owner and administrators should understand that the account is the property of the business and all posts on it will be work related and not personal.

When one of the administrators or owners leave the organisation, login details should be handed over and passwords need to be changed. Where possible, the ownership should be changed to another employee – this is one of the current problems with Google+ accounts at the moment.

Employers need to understand that the professional contacts individuals make during the course of their work isn’t their property, so trying to claim the personal LinkedIn contacts and Twitter followers of an employee’s private account probably will not be successful.

Similarly social media services like LinkedIn are not Customer Relationship Management programs (CRMs) and using them that way, as a company called Edcomm did, will almost certainly end up with problems and a possible dispute.

Traps for employees

When given a work social media account to maintain, it’s best to consider it as being like your work email – it’s best to use it for business related purposes only and you’ll have to give it up when you leave the organisation.

If you’re being held out as a representative of the business, as we see in the Phonedog_Noah dispute over a business Twitter account, then it’s best to set up a private account for your own use and not use the business account after leaving the organisation, even if they don’t ask for it when you leave.

On sites like LinkedIn and Facebook you should change your employment status as soon as you leave an organisation to make it clear you’re no longer working there. If you’ve left on bad terms, resist the temptation to insult your former employer when you change your details.

Staff using social media have to be aware that can be held accountable in the workplace for things they do on their personal online accounts; sexual harassment, abusing customers and workplace bullying through a Facebook or Twitter account can all result in disciplinary action.

In many ways the disputes we’re seeing on social media services reflect what we’ve seen in many other fields over the years – the ownership of intellectual property, professional contacts and even access to websites have all been thoroughly covered by the courts over the years and there’s little in these disagreements that would surprise a good lawyer.

With all business disputes though, it’s best to resolve them before lawyers and writs start being involved. Clearly defining and understanding what is expected of both employers and staff can save a lot of cost and stress.

It’s you, not them

Sometimes management are the problem, not the staff

An article in Bloomberg on The Three Types of People To Fire Immediately is a classic example of mistaking symptoms for the cause of an organisation’s problems.

G. Michael Maddock and Raphael Louis Vitón write that the biggest blockers to innovation in a business are the employees who can be roughly divided into four groups; the ones who welcome innovation and the three groups who block it – “the victims”, “the non-believers” and “the know it alls.”

Vitón’s and Maddock’s advice is to sack those in the three groups of blockers.

If anything sacking the “know it alls” means you will lose valuable corporate memory, the “non-believers” maybe the dissenters who are critical in keeping visions in contact with reality and the “victims” may actually be the most passionate people in your organisation.

Those “victims” are often the people who’ve tried to make a difference early in their careers, their attempts failed and they found themselves sidelined and embittered within the organisation.

I came across many of these when I was working with the state government, they’d had good ideas and continuously found themselves belittled when they’d tried to implement them.

To add insult to injury, many of those ideas would be adopted some years later to great fanfare with credit given to the same managers who’d stifled the earlier suggestio

Rather than giving those “victims” a pink slip, it might be worthwhile talking to those staff and finding why they are negative and where the system can be improved.

If you have a workplace full of negativity then the blame for a dysfunctional culture usually lies in the management suite.

Perhaps it’s the managers who need to be fired for creating a nay-sayer business culture of victims and non-believers.

My concern with Vitón’s and Maddock’s advice is that it seems to play to the conceit of executives who think they, and their organisations, are something they are not. That’s nice for management consultants stoking corporate egos but a lousy deal for shareholders, staff and customers.

Sometimes it’s better to understand what your business is and where the organisation’s strengths lie – both in management in and staff – before jumping on the innovation bandwagon.

Channel Conflict

How does a small business compete with a big supplier?

I first became aware of the term “Channel Conflict” in the late 1990s when running an IT business that was a Microsoft reseller.

A channel conflict is where a supplier starts competing with the merchants they supply, or promoting one group of their customers against another. A good example is Google’s Travel Search that is upsetting many of Google’s own advertising customers.

As a local IT support business my channel conflict came from Microsoft advertising their own direct sales and consulting services as well as promoting their premium “gold” partners.

Conflict with such a big channel partner was frustrating and unavoidable given Microsoft’s position in the market. We couldn’t do anything about it except work towards Gold Partner status and differentiate ourselves from the competitors who had the advantages of Microsoft’s marketing.

The web – in particular online commerce – is increasing these channel conflicts as the Internet sweeps away existing middlemen and allows others to develop.

A good example of how e-commerce is changing things was a tweet from Australian business broadcaster Brooke Corte where she found a swimsuits retailer’s prices were 40% cheaper through her shopping mall’s website.

Essentially the swimsuit retailer is being undercut by their own landlord’s e-commerce service – an incredibly difficult channel conflict.

For the retailer, they are up against Westfield; a big, multinational player with substantial market share and deep pockets who also happens to be their landlord in many high traffic locations.

It isn’t all bad news for the small retailer facing a channel conflict; Seth Godin has a good perspective of what happens when the big boys decide to play in your sandpit.

Seth’s situation was in 2008 Google launched a competitor – Knol – to his Squidoo businesses. This appeared to be the death knell, or Knol, for Squidoo.

Three years later, Google killed Knol.

In many cases channel conflict turns out not to be such a problem for the specialist retailer – big companies like Google, Microsoft and Westfield are good at what they do and dealing with the minutiae of retailing is not necessarily one of them.

Small businesses also have an advantage in the very online tools that are disrupting retail and other fields. TechCrunch recently looked at some of the mobile and price comparison tools and how local retailers can use them to compete with Amazon.

Coupling technology with service and focus – two factors that large companies usually struggle with – can define the battlefield for smaller businesses struggling with channel conflict.

As declining margins and new technologies tempt big suppliers into dabbling in areas they previously avoided channel conflict is only going to increase, though for the creative and confident businesses it isn’t the threat it first seems to be.

The death of the netbook

Is the cheap, ultra portable computer a dead product line?

“You don’t want to buy one of those of things,” said the electronics store assistant, “they don’t have much memory and the CPUs in the notebooks and ultra books are better.”

I was shopping for a cheap netbook for the kids, each of which had been saving up to buy one as they are sick of me yelling at them for playing Minecraft on my work system, and the consensus from the store staff was to do everything to steer folk away from the cheap systems.

This is understandable as most electronic store staff are on commissions, and these are lean on cheap computers. It’s much better to sell a thousand dollar unit – with upgraded warranties and accessories – than a low margin, one off unit.

For manufacturers, similar problems exists; these cheap unit cannibilised their higher priced products with better margins. Dell recently announced they are getting out the netbook market and others are following.

Netbooks themselves are in trouble as the market they addressed for cheap, portable, Internet connected devices is now largely covered by smart phones and tablets which offer better battery life and usability.

Interestingly, the battery life argument was even used by the computer store salesfolk who pointed out – correctly – that the newer laptops have better power management than their cheaper netbook cousins.

While the netbook as a category is dead; the concept itself isn’t. As the uptake of tablet computers like the iPad show, Internet connected portable devices are becoming the computer of choice for many people and the advantages of a laptop form factor; a proper tactile keyboard, USB ports and other external connectors are still attractive.

Probably the worse thing for the manufacturers and retailers is the price points are now established in customers’ minds – $400 is what people want to pay for laptops, which doesn’t bode well for those higher priced systems.

Those manufacturers can’t even get into the tablet computer market as Apple now own that sector that the PC vendors and Microsoft squandered a decade’s lead with substandard equipment and badly designed software.

Despite the best efforts of the electronic store’s salesfolk, my kids ended up buying cheap, low specced netbooks out of their savings and those systems run Minecraft quite nicely. Which is another problem for shops and manufacturers stuck with a 1990s business model.

The year of the cloud

2011 was the year cloud computing took off.

This post originally appeared in Smart Company on December 23, 2011.

I was asked last week to join Stilgherrian and Jeff Waugh on ZDNet’s Patch Monday reviewing the year that was in technology. One of the things that came out of the session was much of what happened in the tech world over the last year was really a continuation of 2010’s trends.

That’s certainly true and the biggest buzzword in business tech for the last two years has been “the cloud”.

Over the last year we’ve seen a lot more providers getting on the cloud bandwagon with Microsoft responding to the Google Docs threat with their Office 365 product, MYOB launching Live Accounts, to respond to threats like Xero Accounting Software and Saasu and a whole range of vendors proclaiming they are ditching the desktop and moving onto the web.

Despite the hype businesses are slow to respond as they evaluate the various risks with moving to web-based services. Partly this is due to suspicion of the more outrageous claims such as “saving 80% of your costs by going onto the cloud” that have been peddled by some vendors.

A lot of that suspicion is fair enough, too. Many business owners – along with CEOs and government ministers – have been burned over the years by IT salespeople claiming big savings available if the gadget or software of the day is purchased.

Unlike corporate leaders and government minsters, the managers and owners of smaller businesses tend to learn from their mistakes and so they are waiting to see if the cloud services really deliver.

Eventually businesses will move a lot of their computing applications to the cloud as the cost-benefit equation is better for most services than running it in your own office as it eliminates the overheads of buying computer hardware and hiring some geeks to look after the things.

Given the real advantages of cloud services – not just in terms of cost savings but also in business flexibility, productivity, security and reliability – it’s worthwhile using the quiet January period to have a look at where your organisation can benefit from moving online.

Some of the other buzzwords like social media, collaboration and site optimisation are worth having a look at too. The holidays are an opportunity to see where these can be used better in your business.

One thing is for sure – next year you’ll be hearing more about cloud computing as vendors are gearing up for some big marketing campaigns next year. So knowing what you want for your business may well pay dividends.

How group buying can work for a business

Online vouchers can be good for a business when planned well

Online deal finding site The Dealmix has an excellent blog post analysing how daily deals can work for a business.

As the Dealmix points out, “daily deals can either hurt or help small businesses, depending on how they’re structured.”

In figuring out whether a deal will work, Dealmix breaks a group buying deal into four elements; expiration, quantity, terms and price;

Pricing the deal

Of all the areas, the pricing is the most critical. Get this wrong and you won’t achieve your objectives and it could be very quickly drive you out of business.

The Dealmix recommends two ways of pricing an offer – by making a net profit on the deal or structuring it a way that the customer’s total spend offsets the cost of the offer.

Using Average Customer Spend, or ACS, to estimate how much a customer will spend is problematic with specials and group buying deals as the takers are not going to be your average customers.

It’s likely group buying customers are going to be far less open with their wallets than your regulars. Trying to upsell price conscious is probably what brings cafes and restaurants unstuck with many of these deals.

Both methods rely on knowing the Cost Of Goods Sold and the Average Customer Spend. Notable in the stories of group buying disasters is just how many business owners don’t understand these basics.

If you don’t know what the total cost is to your business in providing the goods or services, you should be talking to an accountant before going near these deals.

Also keep in mind the group buying service is going to take their cut which will be between 15 and 100% depending on the size and nature of the deal. For many businesses the commission is a deal breaker.

Quantity

The biggest complaint from customers about group buying offers is the deals are booked out for months – it’s also how service businesses find themselves overwhelmed by the response to a keenly priced offer.

Again, before launching a group buying offer, understand the spare capacity of your business and ensure there is a maximum limit to the number of deals available – as The Dealmix points out, a sold out deal is a great marketing tool.

Terms

Conditions are probably the trickiest; put in too many gotchas and you’ll scare customers away or find yourself fighting with the 90% of clients who buy the deal without reading the T&Cs.

You can guarantee some of those fights will end up being public and it’s unlikely your business will win the public relations battle. This is not your business objective.

Make sure key terms like what days the deal is available on, maximum limits, types of service are reasonable and clearly defined at the time of the offer.

Expiration

When the deal expires is the key condition, it’s madness offering deals that never expires as they can come back to haunt you for years and it may even affect the resale value of your business.

The Dealmix suggests not restricting it to a month as you’ll be overwhelmed with customers while leaving it too long will dilute the value and any measurements.

Ideally the deal will last three to six months, which is another reason for understanding your business’ capacity at various times of the year.

Timing the expiry is important to, as The Dealmix suggests, the deal shouldn’t finish on a busy day and equally you should consider when your business is the quietest. If things are slow during school holidays, summer or Christmas then that might be the time you want to have the last minute rush of redemptions happening.

Business Planning

Probably the most important aspect of a group buying deal is how does it fit into your business objectives. Are you intending to build a customer base, contact list, pubicise your business, clear stock or give sales a boost? Those objectives are going to determine how you structure the offer.

As The Dealmix’s diagram shows, group buying deals are complex and the merchant has to give some thought on getting the offer right. Those business who do get the mix right can do very well from a well thought out online offer.

Like all business tools, group buying sites can be really useful when done well. The key is understanding what you’re doing with that tool.

We discuss group buying and building your own campaign in e-business, Seven Steps to Online Success. If you need help or advice in building an offer, Netsmarts can help you.

All hail the vacuum tube

Predictions don’t always turn out how we expect

In 1931, the New York Times celebrated its 80th anniversary and invited some of the era’s greatest minds to speculate on what the world would like in the next 80 years.

80 years on, Business Insider looked at those predictions and few interesting things stood out that show us how, even when we are right, things don’t turn out the way we expect.

Sir Arthur Keith – a doctor, scientist and prodigious writer who was one of the pioneers in popularising science – correctly forecast that medicine would become increasing specialised, predicting “I tremble when I think what its (The New York Times’) readers will find on their doorsteps every Sunday morning.”

Those very advances have contributed to the slimming down of the New York Times and the that many readers don’t collect it from their doorstep each morning, threatening the very future of the organisation.

William Ogburn was the prominent sociologist of the day, and predicted “Humanity’s most versatile servant will be the electron tube” and that “labor displacement will proceed even to automatic factories.” All of which was true.

The “electron tube” – or vacuum tube – is an interesting allusion to the prevailing technology of the day. Vacuum tubes were changing the world with the first wave of electronics and digitalisation.

Morse Code’s system of dots and dashes could be replaced with Zeros and Ones that allowed the technologies to be applied to radio sets, machinery and telephones.

The real benefits of these technologies had to wait until the vacuum tube was replaced with the transistor in the 1970s. Transistors were even more portable and as integrated circuit and manufacturing processes evolve, we saw “Moore’s Law” develop where computer power doubles every eighteen months.

Both William Obburn and Sir Arthur Keith were proved right, but not quite in the way anyone could have foreseen at the time.

Which shows how fraught predictions are; even if we are correct how things turn out might not be quite what we expect. It’s worthwhile considering this when we look at how trends and innovations may affect our businesses.

The Business Insider article on the original predictions is worth reading, along with its sister article on how the world will look in 2050.

Lords of the digital manor

How free content and expensive management can’t live together

There is something fundamentally wrong with AOL’s media business states a Business Insider headline.

What is fundamentally wrong is quite basic to anyone who has owned or managed a business – money.

The problems at AOL illustrate the deep flaws in the “digital sharecropper” business model of putting free or cheap content on the web to harvest online advertising.

Lords of the digital manor

Sites like Demand Media and Huffington Post can’t make money from content if too many staff expect to get paid. Chris Anderson illustrated this in a rebuttal to Malcolm Gladwell where he examined the economics of his GeekDad blog and the work of its manager, Ken;

So here’s the calculus:

Wired.com makes good money selling ads on GeekDad (it’s very popular with advertisers)
Ken gets a nominal retainer, but has also managed to parlay GeekDad into a book deal and a lifelong dream of being a writer
The other contributors largely write for free, although if one of their posts becomes insanely popular they’ll get a few bucks. None of them are doing it for the money, but instead for the fun, audience and satisfaction of writing about something they love and getting read by a lot of people.

It’s almost touching to picture the modern day digital serf touching his flat cap and murmuring “thank you m’lud” on receiving a ha’penny from the lord of the digital manor before scampering back to working on becoming a well read, but unpaid writer.

We don’t pay writers

The business model of the Geek Dad blog or the Huffington Post relies upon these unpaid writers donating their work and time –the digital sharecroppers as described by Jeff Attwood.

Low paid or free labour is essential to the success of these site, when the bulk of advertising income goes straight to the proprietors the digital aristocrats – Lord Chris of Wired or Duchess Arianna – can live well.

The business model falls apart when management starts taking a cut of the profits; install a highly paid CEO and management team with their squadrons of Executive Vice Presidents or Group General Managers with the Medici-esque perks and entitlements these folk demand and the profits disappear.

AOL’s problem is it has too many highly paid managers extracting wealth from the company’s cashflow.

This is exactly the same problem print and television media empires have, once the rich rivers of gold allowed them to build up well paid management castes that are now crippling the businesses as revenues can’t support their financial burden.

Paying for digital media’s future

Over time, online media revenues are improving. As Morgan Stanley analyst Mary Meeker pointed out in 2010 that U.S. consumers spend 28 percent of their media time online, yet in 2010 only 13 percent of ad spending goes to the Internet. As advertisers follow consumers, publishing on the web will become more profitable.

The risk for big media organisations is their money will run out before the digital renaissance arrives and when it does, they may have squandered their natural advantages by shedding quality journalists, experienced sub-editors and good editors in an effort to prop up executive bonuses.

AOL’s management problem is part of a much bigger problem across markets and industries, we can call it managerialism – there are too many highly paid managers getting in the way of the writers, engineers, scientists, artists and tradesman who add real value to their organisations.

Strangely, it may be Chris Anderson’s “free” model that kills the managerial culture as enterprises that can’t afford to pay product creators certainly won’t pay an Executive Vice President’s entitlements.

The employer’s risks

Traps for employees

Pricing the deal

Quantity

Terms

Expiration

Business Planning

Example 1

Example 2

Example 3

Why rules can be a problem

Lords of the digital manor

We don’t pay writers

Paying for digital media’s future