Thursday, June 29, 2006

RWE's problems with the water business--a personal perspective

In a Monday article (link), the Wall Street Journal wrote about the problems German utility conglomerate RWE has had with its private water-supply business, particularly in the US. The company plans to IPO its US water subsidiary, American Water, as part of its plan to divest itself of its worldwide water business.

In a related event, our area is in the fourth day of a boil advisory because our water has become contaminated (read a local news report here), ostensibly because of the heavy rains we experienced earlier in the week. Our provider? Pennsylvania-American Water, a unit of American Water.

This is the second such advisory we've had in the past six months. The WSJ article states:

Laurel Prussing, the mayor of Urbana, Ill., became interested in a municipal buyout after a growing number of "boil orders," when people are told they must boil their water to make it safe to drink. When she tried to investigate a boil order in February, she says she was put on hold for 25 minutes before being connected to a call center in another city. An American Water spokesman disputed that boil orders have risen in Urbana and said the company distributes special telephone numbers that municipal officials can call in an emergency.

Meanwhile, here in central Pennsylvania, no word from the company, on its web site or customer service hotline, of when this problem will be remedied.

When I tried to check RWE's web site today, I received the following message: "Our InterNet offer is not attainable at present due to technical maintenance work." Not attainable, indeed.

Clearly, to this observer, RWE is making the right decision to get out of the water business.

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Stuck in a consolidating business? To grow, look for the white space

I know very little about the banking business, but I find it fascinating in this respect: large banks continually acquire smaller banks, then invariably new small banks emerge (started by executives who left the acquired bank, sometimes occupying branches left by the big guys), grow, and are themselves acquired. And so on. It never stops. It seems that there is an unlimited potential to start and grow new banks.

I was thinking about this as I spent two days at the Yankee Group Wireless Leadership Summit in New York. The wireless telecom industry seems a lot like the banks in that the markets they serve are rapidly saturating (nearly 80% of Americans have a wireless phone). And consolidation has accelerated, resulting in four nationwide carriers and six to ten second-tier carriers of significant size.

Yet in spite of this, there is a great deal of activity in a wireless startups--Mobile Virtual Network Operators (MVNOs), companies that lease airtime and data capacity from the carriers and repackage and resell it to new customers.

The jury is out on whether MVNOs will be successful in the long run. And one could argue that the barriers to entry for the MVNO business are a lot higher than those for a startup local bank. However, it is clear that the bank model offers a strong indication that there is a market for MVNOs.

Startup banks typically focus on geographies or customer segments that the consolidating banks have left underserved--white space.

MVNOs have the opportunity to win customers in segments that the consolidating carriers have similarly left open--ethnic/immigrant, enterprise, local, content-sensitive and youth/elderly markets.

And the exit strategy for a lot of MVNOs is to be acquired by one of the big operators. Sound familiar?

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Tuesday, June 27, 2006

Lucent's vision of a completely connected world--it's scary!

I'm posting today from the Yankee Group Wireless Leadership Summit 2006 at the Roosevelt Hotel in New York. A very good roster of speakers, including Gary Forsee, CEO of Sprint Nextel, and Kris Rinne, Cingular's CTO.

Lots of talk of convergence (which we've heard before) and anytime, seamless networks. These things are coming, I guess, but today's reality of parallel networks and services with virtually no synergy between them makes me wonder how long it will take to reach this Xanadu.

On the point of seamless, converged services, Dave Dial, Vice President of Lucent Managed Services, showed a promotional video at the outset of his presentation today. The video showed a family-of-the-near-future managing their busy lives--first, there's a voice mail through the TV from the wife, saying she'd be home late and to pick up something for dinner. The husband bundles the little girl in the minivan for the trip to the store. Once at the store he receives an alert to his PDA that an accident has backed up traffic and suggesting an alternate route, etc. Typical promotional stuff.

The chilling part--the little girl never stops watching her TV show (the Discovery channel, by the way) the entire time. It pauses when the voice mail comes in, seamlessly transfers to the video screen in the minivan, then moves to Dad's PDA. She doesn't miss a minute despite all the interruptions.

Aaargh! I never thought I was a Luddite, but for goodness' sake. No video screens in the minivan for me. And if my kids' eyes are glued to LCD displays while they follow me through the grocery store... well, let's say that's not my ideal perfect vision of the future.

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Monday, June 26, 2006

The Product Development and Management Association has launched a blog

Check it out. It's excellent if you're interested in how to create and market new products. And who isn't?

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Thursday, June 22, 2006

Google search ads are like...

Today I went to the body shop to get an estimate to fix the damage someone's shopping cart did to my driver's side back door.

While I was in the office of the body shop, I found myself staring at a bulletin board on which were posted a couple of dozen business cards for local merchants, financial advisors, auto customizers, etc.

Why do I bring this up? Because in the last few weeks a number of business acquaintances have asked me about Google search advertising. Does it work? Isn't it expensive? What the heck is it?

And it occurred to me today that Google search advertising is just like the bulletin board in the auto-body shop, except that

  • anyone on the internet can reach it with the click of a mouse
  • advertisers can select which part of the bulletin board they will be posted in
  • they pay, but only if someone contacts them
  • and people actively seek out the bulletin board tens of millions of times a day

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Wednesday, June 21, 2006

Make some mistakes--and profit from it

In this month's Harvard Business Review, Paul Schoemaker and Robert Gunther write about ways companies get bound up in their own assumptions, and thereby miss important opportunities for growth or improvement.

Their proposal? Deliberately make a "mistake" by doing something that violates an assumption you hold, to test whether the assumption needs to be altered. (Their article can be found here. Note: you need to be a subscriber to access it online. A brief newspaper article by Schoemaker and Gunther on this topic can be found here.)

Schoemaker and Gunther cite an example where the Bell System decided to forgo security deposits from some customers their systems had identified as credit risks. This was done in a controlled way, with a small but significant sample size, in order to test their approach to dealing with credit-risky customers. They found that their rules for requiring deposits were too strict, and that many of the customers who otherwise would have not opened an account (because they couldn't afford the up-front deposit) turned out to be reliable payers. Adjusting the processes based on the test added, according to the article, $137 million per year to the Bell System's profits.

Here are some highlights from the article:

Although organizations need to make mistakes in order to improve, they go to great lengths to avoid anything resembling an error. That’s because most companies are designed for optimum performance rather than learning, and mistakes are seen as defects that need to be minimized. Executives, moreover, perceive that flawless execution is what makes them valuable to the organization. In business (with the possible exception of venture capital firms and entrepreneurial start-ups), an executive’s reputation and rewards are typically based on the height of his or her successes, not on the depth of learning from failures.


Many managers recognize the value of experimentation, but they usually design experiments to confirm their initial assumptions. An advertising company typically may try different approaches to see which tactics work best but won’t run an ad that it presumes will fail. Experiments of this type aren’t deliberate mistakes. True deliberate mistakes are expected, on the basis of current assumptions, to fail and not be worth the cost of the experiment. According to conventional wisdom, they have a negative expected value. But if such a mistake unexpectedly succeeds, then it has undermined at least one current assumption (and, often, more). That is what creates opportunities for profitable learning.

Have you upended any of your assumptions recently? Perhaps it's time you made a few more mistakes.

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Tuesday, June 20, 2006

Let customers develop your product?

The above-linked article from Sunday's New York Times highlights how certain companies have engaged users to help design their products. An excerpt:

Over the last few years, though, [designer John] Fluevog hasn't just been presenting ideas about shoes and style to customers; he has also been soliciting ideas from them — encouraging brand enthusiasts to submit their own sketches for leather boots, high-heeled dress shoes, even sneakers with flair. He posts the submissions on his company's Web site (, invites visitors to vote for their favorites and manufactures and sells the most promising designs. He calls it all "open source footwear."

Now, that's interesting and new from a consumer-products standpoint--building relationships with your customers by inviting them inside and allowing them to contribute to the products they use every day--perhaps the packaging, or the product itself (the article mentions, which uses customers' submitted artwork to adorn its t-shirts).

What about IT products for business customers? In one way, having your customer design the product is very 1980s, when consultants approached large companies with a 8.5"x11" pad of paper and said, "Tell us what you want, and we'll build it for you."

By the 1990s, customers had had enough of that. After downsizing and other cost-cutting, they told companies, "You're the expert. You build it, and we'll evaluate whether we like it." And thus application developers like SAP, Peoplesoft and Amdocs grew and thrived.

Now, though, at another level, customers are developing the products again. With the flexbility of web-services architecture and easily-customizable business process automation tools, vendors are selling components, and customers are assembling them (with help) to their own needs. And so, just like in music, the 80s are back... only better.

And that creates a problem for marketing--how do you promote and sell a product that looks completely different in each installation?--which is a subject for a later post.

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Monday, June 19, 2006

Wikipedia controversy? No matter how you look at it, the product is what matters

The New York Times was the latest to weigh in on whether Wikipedia's use of editors (they call them administrators) and exempting certain articles from free editing violates the "wisdom of crowds" vision that Wikipedia was founded on.

To me, that criticism is beside the point. How about the product itself?

Is it useful? 1.2 million entries, many times that of any conventional encyclopedia.

Is it accurate? According to the journal Nature, roughly as accurate as the Encyclopedia Brittanica (an assertion bitterly contested by Brittanica).

Easy to use? As long as you've got an internet connection, it's easy as pie.

If the answers to the above three questions remains the same, the vast majority of Wikipedia users will have the following response to criticisms of the site's purity as a social experiment: "Who cares?"

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Complex sales - it's all about the negatives

Sales and marketing people are, by their nature, optimists. Who but an optimist could spend his days calling people who don't need or want what they are selling?

Nevertheless, a key to success in sales has to do with understanding and managing pessimism--the pessimism of your prospect.

People who buy things for their business are not happy people. They don't look forward to the day when your stuff will make their lives easier.

Instead, they dread the day when your stuff goes live and causes all sorts of problems. Perhaps a day or a week of complaints from annoyed users. Perhaps a month or quarter of poor processing. Perhaps--God forbid--a failed project that could cost the prospect her job.

With the negative mentality around buying, it's a wonder that any deals close at all.

Effective salespeople understand and manage the prospect's negative emotions. They emphasize reference accounts, company reputation, the salesperson's personal record. They bring in executives who will commit to put the company's resources behind the project. All to help the client feel comfortable enough to close the deal.

They also, then, follow through on delivery, so they get more good references to use with the next prospect.

Click the title link for the sales program that introduced me to the buyer's-negative-emotion concept.

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Friday, June 16, 2006

Want a new product to sell well? Pile on the benefits, yet don't change the customer experience

June's Harvard Business Review features an article from John Gourville, associate professor of Marketing at Harvard Business School, that discusses how end-customer psychology affects the adoption of new products.

Citing research from behavioral economists such as Nobel laureate Daniel Kahneman, Gourville shows that customers view changes in products in terms of gains and losses. A new benefit is a gain. A change in how they use the product is a loss.

Customers and product developers see these tradeoffs very differently. Customers value losses up to 3x the value of a similar gain, while product developers, being so intimate with the benefits of the new capability as well as the drawbacks of the present solution, undervalue losses vs. the gains.

The result? New product adoption rates that far undershoot projections. And lots of head-scratching among product managers.

Gourville's simple prescription is to focus on maximizing the value of new features while minimizing customer behavior changes required to use the product.

A useful example, cited in the article, is the Toyota Prius vs. the GM Insight electric car. The Prius offered significantly higher gas mileage while allowing customers to drive and fill up the cars as they always had. While the Insight offered limited mileage between recharges and very few recharging stations. Which one was more successful in the marketplace?

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Thursday, June 15, 2006

Apple Owns Their Own Stores--Why?

Apple Computer is everyone's favorite case study right now, and for good reason. The iPod is a roaring success, the Intel-based Macs are gaining traction, and Steve Jobs just made $billions selling Pixar to Disney.

I went into the Apple store yesterday near Philadelphia, and was amazed at what I saw. At around 11am, when the rest of the mall was sleepy at best, the Apple store was packed with customers. Some people were trying out the new Macbooks, others were getting help with application programs, still others seemed to be milling around, just taking in the scene--like I was.

Apple earned more than $2 billion from its retail operations last year, according to the Wall Street Journal. In an industry where most competitors wouldn't think of investing in their own retail channel, Apple is doing so and thriving. Why?

Well, for one thing, Apple really understands what a brand is. The sum total of the products and the experiences the customer has around the products. And when you use an indirect channel, you have a third party between you and the customer. While in most cases it's worth it (Apple supplies other retailers, too), it does have a cost. Apple outfits and staffs its stores (see the folks with the black polo shirts? They work there) in a way that utterly reinforces their brand image--cool, hip and progressive.

It makes you want to buy an Apple, right then, when you're in the store. I barely got out with my wallet intact.

But I think I'll be back.

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Innovation: doing it all yourself is so twentieth century

My most recent work experience involved a smaller company that, with limited resources, relied significantly on partners for technology innovation and software product development. Our company focused on the service wrappers around the software, as well as sales, marketing and customer support. Software development, maintenance, etc., were all outsourced.

This worked well for us, and I felt this kind of partnering/outsourcing was a good option for smaller companies wanting to tackle bigger products and bigger opportunities.

So, imagine my surprise when I read the March 2006 issue of the Harvard Business Review, and featured was an article on how Procter & Gamble was using external resources to improve their innovation yield. The authors, Larry Huston and Nabil Sakkab, are two of the top innovation executives at P&G.

Huston and Sakkab write, "By 2000, it was clear to us that our invent-it-ourselves model was not capable of sustaining high levels of top-line growth." CEO A.G. Lafley made it a goal to source 50% of innovations outside the company. From invent-it-ourselves, P&G has shifted to "connect and develop" as their innovation mantra--a lot like our small company had shifted.

A question for companies looking to increase their new-product-development performance: if this approach works for P&G, might you want to consider it as well?

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What we're here for

This blog will look at trends and issues in strategic marketing, product strategy and partnerships/alliances, with a particular focus on new media, auch as mobile and broadband content. Stay tuned for more.