Strategy in the media

Citation

Henry, C. (2009), "Strategy in the media", Strategy & Leadership, Vol. 37 No. 4. https://doi.org/10.1108/sl.2009.26137dab.002

Strategy in the media

Article Type: CEO advisory From: Strategy & Leadership, Volume 37, Issue 4

Assessing competitors in strategic planning

Any executive will tell you that understanding how competitors will respond to your actions should be a critical component of strategic decision making. But ask that same person how seriously her company actually assesses competitor reaction, and she will probably roll her eyes. In a recent survey conducted by McKinsey & Company, two-thirds of strategic planners expressed a strong belief that companies should incorporate expected competitor reactions into strategic decisions …

Yet … the only rigorous framework for explaining rivals’ behavior – game theory (http://en.wikipedia.org/wiki/Game_theory) – often becomes unmanageable in the real world. For a start, most game theory models presume that all players use the basic principles of game theory – an assumption that is manifestly false. Further, game theory models become unwieldy when a competitor has many options, when the strategist is unsure which metrics his rival will use to evaluate them, or when there are multiple competitors, each of whom might react differently. But when strategists instead use ad hoc predictions or war-gaming exercises, the analysis can become almost entirely arbitrary. The number of qualitative considerations that enter the prediction process – personal biases and hidden agendas, for example – risk rendering the results suspect and make senior management more likely to reject counterintuitive results …

Our approach involves distilling all possible analyses of a rival’s response to a particular strategic move into a sequential consideration of three questions:

• •

  Will the competitor react at all?

• •

  What options will the competitor actively consider?

• •

  Which option will the competitor most likely choose?

Two facts make this simplified process possible. First, if your adversary uses rudimentary analytic techniques – which our survey shows to be the case for most companies – then you can use those techniques to predict his response. Second, most large companies, we found in our research, follow a predictable pattern in determining their reaction to a competitor’s move.

The payoffs from adopting the approach we advocate can be high – particularly compared with the cost of making no predictions at all. We helped the largest player in a transaction-processing industry recognize that a new direction in its strategy would probably provoke a constructive, rather than destructive, response from its biggest rival. The company implemented the strategy, the rival responded as predicted, and the result was a turnaround in the fortunes of the entire industry. We also watched from the sidelines as a telecom company failed to understand its rivals and so paid too much for a new telecom license – a mistake that cost the company $1 billion and contributed to its bankruptcy within a few years.

Kevin P. Coyne and John Horn, “Predicting your competitor’s reaction,” Harvard Business Review, April 2009.

Sustainability and design

Sustainable design is a hot topic. While most people applaud the idea of designers using ecofriendly materials, others insist that that’s missing the point – that by designing for mass consumption, designers are still part of the problem, not the solution. I disagree.

The Designers Accord, the global initiative that unites designers, engineers, educators and others around the idea of incorporating sustainability into all practices and production, is a remarkable achievement. Yet, before I signed on, I wanted to have a talk with Valerie Casey, the founder of the movement.

I told her that it bothers me that almost invariably, sustainability is framed as an “anti” movement. It mostly tells us what not to do. While that’s often right, I would add a caveat. For true sustainability, we need to make a more profound culture change – one that involves more than the right standards, specs, or agreements. We should harken back to design in its classical sense, in which an object is so beautiful or functional or otherwise pleasing that it elicits an emotional reaction.

Here’s an example. Remember GM’s EV1? Introduced in 1996, it was first modern production electric vehicle from a major automaker. After problems developed with its batteries in hot weather, the cars were discontinued and crushed. The EV1 was not the first electric vehicle, and it was not the first vehicle to be “killed” either. However, it was the first loved EV to be “killed”. It became a symbol – of the promise of what-could-have-been and a demonstration of what-GM-couldn’t-be. As I drove it back in the ’90s, I vividly remember thinking, “This is one cool car … I want one!” And that’s the role of design in our era: Encouraging people to change, by making products so beautiful that they’re tools of seduction to a new, better world. Design in that classical sense is missing in many sustainability discussions.

Gadi Amit, “Want true sustainability? then design to seduce,” Fast Company Blog, April 9, 2009, www.fastcompany.com/blog/gadi-amit/new-deal/want-true-sustainability-then-design-seduce

Innovation on the cheap

The problem is the recession. It is hurting businesses large and small. The answer is innovation. Innovation can help you to cut costs, improve margins, retain customers, acquire new customers, gain market share and ultimately to survive. But when you are cutting costs and squeezing resources in all areas how can you find the people, time and money for innovation? Since experiments are not guaranteed to succeed, it can look wasteful to fund large innovation projects.

Here are five tips to help you innovate on slender means:

1. 1.

   Tell people that you want their ideas. Tell your staff, tell your customers and tell your suppliers that you want ideas that will help streamline the business, improve service, cut costs or delight customers. If you do not have an effective suggestions scheme then set one up. Listen to all suggestions with an open mind and evaluate them constructively.

2. 2.

   Allocate a budget for innovation. You do not get innovation for free. You have to allocate time, people and money but you do not have to be extravagant. The most important thing is to give people some time to generate, evaluate, select and test ideas …

3. 3.

   Move rapidly to prototypes. Once you have selected a promising idea move rapidly to building a model that you can show to people and review …

4. 4.

   Kill the losers. Set standards for innovations – e.g. Can we make money at this? Is there a real need? Can we make it work? Can we win with this? If the answers are negative then be prepared to cancel the project and move onto something else …

5. 5.

   Pinch other people’s ideas. A cheap way to innovate is to copy ideas from other industries or other places and to try them in your business. What are they doing in Singapore or Holland or California to solve this kind of problem? What can you copy that is new for you but tested elsewhere?

Paul Sloane, “Innovating on slender means,” BQF Innovation, 1 April 2009, www.bqf.org.uk/innovation/2009/04/01/innovating-on-slender-means/

Open Source innovation

Open innovation has become an important management trend over the past decade. Yet, despite great initial success, some of the most prominent examples of open innovation have had serious limitations. We are now on the brink of a major evolution of open innovation.

Henry Chesbrough, a professor at the University of California at Berkeley, coined the term “open innovation” to describe a growing number of initiatives by companies to reach beyond their own walls to use talent and ideas from others. Perhaps the poster child of open innovation, inevitably mentioned in any discussion of the topic, is InnoCentive, a Waltham (Mass.) company spun out from Eli Lilly in 2001.

InnoCentive was the brainchild of two Lilly executives, Alpheus Bingham and Aaron Schacht, who were seeking to exploit the power of the Internet in discovering solutions to challenging research problems. InnoCentive, which now has 32 employees, became the first global Internet-based platform designed to help connect Seekers, those who had difficult research problems, with Solvers, those who came up with creative solutions to these problems.

Matching Questions to Answers

There were many keys to the early success of InnoCentive. First, it carefully defined a governance structure designed to protect intellectual property from both the Seeker and the Solver perspective. Second, it reduced barriers to participation so that it could scale quickly. Third, it reached out to a very diverse group of Solvers, increasing the likelihood of solutions coming from very unexpected directions …

Since 2001, more than 170,000 participants from over 175 different countries have registered as Solvers. More than 800 problems have been posted, and almost 400 solutions have been found. This represents almost a 50% success rate on problems that had stumped internal research and development staffs. Almost $20 million in awards have been posted, while almost $4 million in awards have been paid out to successful Solvers. Given this success rate, InnoCentive has attracted a large and diverse set of organizations as Seekers, including Eli Lilly, Procter & Gamble, Avery Dennison, Janssen, and the Rockefeller Foundation.

John Hagel and John Seely Brown, “The next wave of open innovation,” Business Week, 8 April 2009.

Cutting the cost of failure

I had an interesting dialogue with an innovation practitioner in a large corporation the other day. We were talking about how the high rate of innovation failure can hamstring innovation.

“The failure rate is actually irrelevant,” he said. “It’s the risk associated with those failures that gets you into trouble.”

In other words, failure would be fine, if it wasn’t so darn expensive. Because failures cost money (and time), high failure rates can cause corporations to become very gun shy about innovation …

The real answer is to dramatically decrease the cost of failure. A leadership team seeking to achieve this aim has three levers at its disposal:

1. 1.

   Lower the costs of experiments …

2. 2.

   Change the order of experiments …

3. 3.

   Increase the pace of decision making …

Pulling these levers requires embracing the notion of “good enough.” Experiments are often expensive because companies seek perfection in their own eyes before they run any sort of test. Remember, the less you’ve spent, the more freedom you have to change your approach.

And finally, remember that failure is not a dirty word. The odds are pretty high that your first idea is wrong along some meaningful dimension. If you fail fast and fail cheap, you can accelerate discovering a winning idea. Successful innovation and fast-cycle iteration go hand in glove.

Scott Anthony, “3 ways to fail cheap,” Innovation Insights, 30 March 2009, http://blogs.harvardbusiness.org/anthony/2009/03/why_focusing_on_innovation_suc.html

Marketing after the meltdown

Congratulations. Your business is surviving the recession … Now, you are waiting for the recovery, the chance to again have some fun and make some money. Here are my seven top recommendations for marketers looking to plan ahead:

• •

  Focus on high-potential customers. Make sure you focus on building relationships with ambitious customers in growth industries where pent-up demand is going to be unleashed once the economy turns the corner. If you’re running a B2C business, focus on cash-rich or long-term-oriented consumers to lead you into recovery.

• •

  Don’t assume a return to normal. The longer and deeper the recession, the more likely consumers will adjust their attitudes and behaviors permanently.

• •

  Assess your target customers’ trust in your brand. Clearly, trust in financial services brands has taken a beating. Many well-known brands like Merrill Lynch will simply never win back consumer confidence; if you are working for such a brand, dust off your CV and move on. But bad behavior in the financial services sector has bruised trust in all corporate brands. Confirm that your target customers still trust you but plan to add service support and hold their hand more firmly in the short term, even though your service quality, measured objectively, has remained constant.

• •

  Stay focused on costs. Many manufacturing industries (as opposed to services industries) are plagued by global overcapacity, relative even to pre-recession demand. Combined with excess inventories in the supply chain, especially in consumer durables, the result will be continuing downward pressure on prices.

• •

  Know your lead indicators. Every good marketer knows the specific indicators, macro or micro, that predict demand for his or her product in the next period.

• •

  Develop scenarios. How long the current recession will last is widely debated. And whether the eventual economic recovery will be gradual or dramatic is equally unknown. Marketers planning for 2009 and 2010 should bear in mind Peter Drucker’s wise advice: “A strategy is a sense of direction around which to improvise.”

• •

  Don’t wait for permission. Most companies will not begin reinvesting until the Wall Street Journal or Ben Bernanke officially declare the recovery underway. Get ahead of the crowd.

John Quelch, “Marketing after the recession,”, HBS Working Knowledge, 18 March 2009, http://hbswk.hbs.edu/item/6139.html

Hard times and opportunity

America’s financial panics have often been the periods of its most interesting commercial and logistical innovations. Plummeting commodity prices combined with new observations about manufacturing or trade often suggest new solutions to old problems. Some of our most storied brands today were born in depressions a century or more ago …

The Great Depression of 1873 saw banks around the world paralyzed, making loans to industries impossible. France, Prussia and Austria-Hungary responded to the crisis by imposing tariffs on cheap American grain. They neglected to impose tariffs on manufactured food: tins of beef, beef extract, fruits, and vegetables. That made it possible for half a dozen industrial canners, who had made fortunes during the Civil War providing canned goods to Union soldiers, to create national and international markets …

The names fill our pantries today – Van Camp, Libby, Swift, Heinz, and Armour. They advertised heavily, and relied on federally supported railways to transport their food over long distances. These canned goods fed the British Navy, allowed the settlement of Argentina, Western Canada, and the Australian outback. And so the American manufactured food industry succeeded where most others failed in the 1870s. Two bankers tightly connected to the beef industry – the Lehman Brothers and Marcus Goldman – rode out the financial storm and prospered because they were not diversified, but clung to the Anglo-American cattle market.

In 1819, 1873 and the 1970s, new products helped pull particular regions of the nation out of depression. New marketing and branding tactics and government support of new infrastructure helped make innovation possible.

Scott Reynolds Nelson,”Wool suits, canned goods and the PC”, New York Times, 13 March 2009.

Hard times and opportunity (II)

In the late nineteen-twenties, two companies – Kellogg and Post – dominated the market for packaged cereal. It was still a relatively new market: ready-to-eat cereal had been around for decades, but Americans didn’t see it as a real alternative to oatmeal or cream of wheat until the twenties. So, when the Depression hit, no one knew what would happen to consumer demand. Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. (Snap, Crackle, and Pop first appeared in the thirties.) By 1933, even as the economy cratered, Kellogg’s profits had risen almost thirty per cent and it had become what it remains today: the industry’s dominant player.

… Numerous studies have shown that companies that keep spending on acquisition, advertising, and R&D during recessions do significantly better than those which make big cuts. In 1927, the economist Roland Vaile found that firms that kept ad spending stable or increased it during the recession of 1921-22 saw their sales hold up significantly better than those which didn’t. A study of advertising during the 1981-82 recession found that sales at firms that increased advertising or held steady grew precipitously in the next three years, compared with only slight increases at firms that had slashed their budgets. And a McKinsey study of the 1990-91 recession found that companies that remained market leaders or became serious challengers during the downturn had increased their acquisition, R&D, and ad budgets, while companies at the bottom of the pile had reduced them.

James Surowiecki “Hanging tough,” The New Yorker, 20 April 2009.

Better risk management – culture not models

It is clear now that too many banks, during the years leading up to the credit crunch, employed a strategy combining a strong offense (aggressive investments) and a weak defense (little scrutiny). But a strong defense need not impede aggressive business growth. A robust risk management culture is marked by three characteristics:

Sustainable risk/return thinking. Top management and the front office itself must demonstrate clear thinking about risk/return trade-offs. Risk managers have two primary responsibilities: developing sustainable strategies and tactics to keep risk and return proportional, and providing top management with an independent control mechanism if front-office discipline fails.

To earn respect from the front office, risk managers must be of the highest caliber. They must be capable not just of challenging any negative swings in performance, but of helping executives understand the causes of peaks. Price limits for investment purchases or sales and other basic controls must be respected. Limit setting and limit monitoring must be accompanied by mechanisms with teeth; for example, risk managers must have the ability to fire regular violators of risk limits rather than just slapping their wrists. And traders must be forced to take holidays; rogue activities are much easier to check when the perpetrators aren’t on site to cover them up.

Usable, up-to-date information. Both the front office and top management must have reliable and consistent information on the positions and risks they are taking. Above all, risk managers must understand how the front office is or is not making money. Deconstructing the drivers of profit or loss needs to become the prevailing mentality. Discussions about new products, existing and new positions, and other issues must be broad and not restricted to methods for meeting quarterly targets or other short-term goals.

To go beyond the traditional role of “limit cop,” risk managers need to develop a deep understanding of whether the bank’s portfolio is overly concentrated in particular investments and whether the relationship between investments and their underlying value is transparent.

An in-depth oversight process. The auditing function often fails to provide independent and objective oversight. Instead, auditors see their assignment as a box-ticking exercise to ensure compliance, with limited critical review of potential weaknesses. That must change. A strong critical approach to each functional discipline must also be developed, involving far more insight and internal consultation beyond simply “checking the checkers.”

Charles Teschner, Peter T. Golder, and Thorsten Liebert, “A cultural fix for risk management failure,” strategy+business, Spring 2009.

Risk management 2.0

Given recent events, “What I see now is a new risk architecture emerging for organizations,” says Erwann Michel-Kerjan, managing director of Wharton’s Risk Management and Decision Processes Center. “Whatever industry you consider, it is always the same pattern. Things are getting faster, and therefore we need to make decisions faster, but based on information that we often don’t have. Of course, we would like to have time to get all the information, but the reality is that managers have to make decisions under uncertainty, if not outright ignorance.”

To overcome the problem, Michel-Kerjan sees some companies moving beyond traditional risk management practices, which have largely been internally focused. Call it “Risk Management 1.0” – essentially, looking at a company’s existing position or investments and analyzing what could go wrong. However, organizations need to look beyond the boundaries of the firm and consider what is happening elsewhere. In recent years, businesses around the globe have become increasingly interdependent, which brings great benefits in both efficiency and innovation but also increases companies’ exposure to risks – in many cases, risks that they don’t even know about. Indeed, it is the systemic nature of the current crisis and how widespread the impact has been that caught most people by surprise..

… Risk Management 2.0 is [going] beyond the known issues to look at the links and interdependencies … The key, Michel-Kerjan adds, is to have knowledgeable people in the organization who are looking broadly and challenging assumptions about the future. “Form a team of people and mandate that they come back with two or three major links that the company has not yet thought about,” he suggests. “Not 25 links – three links that they believe are important but not fully visible. And then bring some data about that to prove to you that it is something the company has to think about.”

“Re-thinking risk management: why the mindset matters more than the model,” Knowledge@Wharton, 15 April 2009, http://knowledge.wharton.upenn.edu/article.cfm?articleid=2205

How entrepreneurs plan

In large corporations, plans and the use of plans is often symptomatic of deeply dysfunctional behavior when it comes to operating under uncertainty. Plans are often simply devices to persuade those who have resources to hand them over. The measure of the goodness of a plan, likewise, is how close the projections came to being “right.” Honestly, does that make any sense in an environment in which no one knows what tomorrow holds, let alone a 3-year business plan?

Further, in large corporations, it is entirely possible to get enough resources to run a project for quite some time before anybody goes back and checks the assumptions in the plan. You can be wildly off-base and exposed to substantial risks before the program gets reined in.

Entrepreneurs, in contrast, use plans to focus their thinking and create a framework out of a blank sheet of paper. The measure of the quality of a plan is not necessarily whether it worked out as they thought - rather, it’s whether the plan helped them learn what they needed to learn to move to the next phase of the business.

Rita McGrath “Plan like an entrepreneur,” Dynamic Strategies, 24 February 2009, http://blogs.harvardbusiness.org/mcgrath/2009/02/plan-like-an-entrepreneur.html

How to handle toxic banks

There is a simpler, sounder and fairer way to recapitalize an insolvent bank. The government should seize it, as it is already authorized – indeed, compelled – to do. Then it could inject cash (in the form of Treasury notes) as equity in the bank and, at the same time, remove the toxic assets the bank holds. Bank regulators might perhaps swap Treasury securities for toxic assets “at par” – that is, in an amount equal to the original purchase price of the assets removed. This would be a fair transaction, and it would cost nothing, because the government would own both the bank and the bonds. The toxic assets could then be placed in the basement of the Treasury building while we wait to see what they turn out to be worth.

The government could then quickly – say within a month – auction off the bank. Speed would be critical: If Treasury were to hold a large bank for a long time, it would be difficult to retain the most talented employees, and it is the people, along with a clean balance sheet, that make a bank valuable.

If markets work at all (and if they don’t, Treasury’s new plan is doomed to fail), such an auction would produce a new privately owned “clean” bank, with ample capital to lend. It would also generate proceeds from the sale that would be at least as great as the value of the securities injected into the bank as equity – and likely greater.

If the recapitalized bank could not be sold at a price that amounts to (at least) the new cash injected, then the bank would be worthless, but not because of the toxic asset problem. It would be because the bank has been mismanaged or has other bad loans unrelated to the mortgage crisis, and such a bank should be allowed to fail.

If the sale succeeds, however, the government would have created a fully financed private bank at essentially no incremental cost to taxpayers, and Treasury would still hold the toxic assets on its books – to be sold whenever it becomes economical to do so.

Andrew Rosenfield “ How to clean a dirty bank,” New York Times, 5 April 2009.

Success through the right kind of persistence

As the world looks to the titans of capitalism to hit the “reset” button on the global economy, what can we learn from entrepreneurs about the principles and practices needed to survive – or even thrive – in a downturn? How can we keep our heads above water when so many institutions are cratering and so many people are panicking?

One of the key themes that came through in our interviews with 55 leading business and social entrepreneurs worldwide – many of whom started their enterprises during or in the wake of a recession – is what we call “adaptive persistence.”

What marks the successful entrepreneur is relentless persistence, a refusal to give up when things go south. But that doesn’t mean being bull-headed and knocking on the same door over and over. It means going around the back door one day and the side door the next until we find the right way in. That’s all the more essential in a recession.

Persistence is about refusing to give up even in the face of adversity. Adaptation is about shortening the time to success through ingenuity and flexibility. “Adaptive persistence” entails alternating between anticipation, changing course, and sticking with it, deftly navigating that paradox with aplomb.

Christopher Gergen and Gregg Vanourek, “Fending off the recession with ‘adaptive persistence’”, Leading a Life, 7 April 2009, http://blogs.harvardbusiness.org/gergen-vanourek/2009/04/fending-off-the-recession-with.html

The crisis and management education

From where I sit, management education appears to be a significant part of this problem. For years, the business schools have been promoting an excessively analytical, detached style of management that has been dragging down organizations …

Management is a practice, learned in context. No manager, let alone leader, has ever been created in a classroom. Programs that claim to do so promote hubris instead. And that has been carried from the business schools into corporate America on a massive scale.

Harvard Business School, according to its MBA website, is “focused on one purpose – developing leaders.” At Harvard, you become such a leader by reading hundreds of brief case studies, each the day before you or your colleagues are called on to pronounce on what that company should do. Yesterday, you knew nothing about Acme Inc.; today, you’re pretending to decide its future. What kind of leader does that create?

… Joseph Lampel and I found a list of Harvard Business School superstars, published in a 1990 book by a long-term insider. We tracked the performance of the 19 corporate chief executives on that list, many of them famous, across more than a decade. Ten were outright failures (the company went bankrupt, the CEO was fired, a major merger backfired etc.); another four had questionable records at best. Five out of the 19 seemed to do fine. These figures, limited as they were, sounded pretty damning …

How much discussion has there been at Harvard about the role it might have played in forming the management styles of graduates who, over the past eight years, have been running America and what used to be its largest company? The school is now reviewing its MBA program, but the dean has made it clear that questioning the case-study method will not be on the agenda.

Henry Mintzberg, “America’s monumental failure of management,” Globe and Mail, 16 March 2009.

Banking after the meltdowns

Less risky, less profitable, and probably a lot smaller – that is the prognosis for the world’s banks as they attempt to rebound from the worst financial crisis of the postwar era.

This epochal shift in the financial climate means that even those institutions that come through the downturn intact will face a struggle to adapt to the new environment. Amid the turmoil, it might seem futile to sketch out the future banking landscape. Most banks are struggling to forecast their performance over the next three months, let alone the coming five years. Bad loan charges are still rising …

Regulators are drawing up plans to force banks to hold greater levels of capital and stronger buffers of liquidity, though it remains far from clear how these will work in practice. Some central bankers and policymakers, especially in the US, are advocating a complete separation of investment banking from retail banking …

Nevertheless, a few trends are clear. First, returns are going to be lower. According to analysts at Citigroup, European banks earned a return on equity of 18-23 per cent between 2003 and 2007 compared with 12-15 per cent in the mid-1990s. This shift mainly reflected more borrowing: European banks’ leverage – the value of their assets as a proportion of their equity – rose from 24 times on average in 1995 to 39 times in 2007. That trend is now going into reverse. Banks will need to hold more assets on their balance sheets, and keep them there longer – a change that will further depress profitability.

Peter Thai Larsen and Francesco Gerbera in “Harsh environment awaits banking survivors”, Financial Times, 31 March 2009.

What can physics teach economists

Anyone who read Nazism Nicholas Tale’s bestseller The Black Swan will probably regard the global financial meltdown as proof of Tale’s point. He argued that it’s not the normal events – the mundane and expected “white swans” – that drive socioeconomic history but the magnificent outliers, the completely unexpected “black swans.” Think September 11, 2001, or the invention of the internet. Human history pivots on the rare seismic shifts that no one predicts or even has a chance of predicting.

Maybe not.

A small but growing cadre of scientists are arguing that our current crisis was in fact predictable and that the technology exists to make sure that it won’t happen again. The problem may be that we’ve used only economists to try to solve our economic predicaments. Instead, the solution may be found by physicists and other scientists accustomed to studying complex systems.

To anticipate the next crisis and find our way out of this one, we may have to cast off economic and financial dogma and adopt ideas inspired by physics and other natural sciences, disciplines in which the notion of unstable and unpredictable systems is nothing new. For instance, the technology now exists to go beyond economics to build a massive, complete computer model of the modern economy, from the corner store to the city bank and the Federal Reserve.

With such a model, physicists would be able to track changes in the economy dynamically. There have even been calls for an ambitious effort akin to the Manhattan Project, which built the atomic bomb, to bring the most sophisticated mathematics and computer modeling to bear on managing the world’s economies more aggressively than has ever been attempted.

Mark Buchanan, “The crash-test solution,” Portfolio, April 2009.

What’s the return on Web 2.0

Despite recent statistics showing that Enterprise 2.0 tools have spread to about a third of businesses globally, there remain ongoing questions being asked in the enterprise software community about the real returns that they provide to businesses that deploy them. Many IT solutions create value only after traveling through an indirect chain of cause and effect. Certainly bogs, wakes, and social networks are popular on public networks, but does that translate to meaningful bottom line value to organizations? In other words, is Enterprise 2.0 truly strategic in the unique way that information technology can so often be?

… However, a key aspect of the ROI issue is that the strategic capabilities represented by Enterprise 2.0 are primarily emergent (http://en.wikipedia.org/wiki/Emergence) in nature, instead of carefully aimed at and unleashed at specific problems. Classical technology investments such as assembly lines and industrial automation could be quantified because their most significant effect was direct and measurable. Many IT solutions (think e-mail or service-oriented architecture) are general purpose and tend to be indirect and create value only after traveling through an indirect chain of cause and effect to enable a positive business outcome. The problem with this is that it’s very hard to either measure or predict accurately, especially since IT solutions tend to have longer chains of cause and effect than other technologies. While this often builds up accumulated value by its ability to cascade across a business, it’s very unsatisfying from the traditional perspective of investment in X by spending Y to achieve a predicted return Z …

Innovation often comes from where you least expect it and harnessing collective intelligence, the core principle of Web 2.0 as well as Enterprise 2.0, is the very art of eliciting value from emergent systems such as the Web and our intranets. That this value is forming the bulk of the networked economy (open source software, social networks, social media sharing, etc.) is one of the signature lessons of the era of open business models and 2.0.

Deon Hinchcliffe “ Determining the ROI of Enterprise 2.0,” Enterprise Web 2.0, 12 April 2009, http://blogs.zdnet.com/Hinchcliffe/?p=334

Dead tree media is not dead yet

All generally accepted truths notwithstanding, more than 96 percent of newspaper reading is still done in the print editions, and the online share of the newspaper audience attention is only a bit more than 3 percent …

So, US daily newspapers deliver a total of 90.3 billion page impressions per month, print and online. The online share of these pages is only 3.5 percent – 96.5 percent of page impressions delivered by newspapers are in print …

In terms of attention span, newspapers hold readers a total of 99.5 billion minutes per month, of which only 3.0 percent is online …

Is it any wonder then, that online revenue is stuck at less than 10 percent of the print revenue?

Martin Langeveld, “Print is still king: only 3 percent of newspaper reading happens online,” The Nieman Journalism Lab, www.niemanlab.org/2009/04/print-is-still-king-only-3-percent-of-newspaper-reading-actually-happens-online/more-3994

Craig HenryStrategy & Leadership’s intrepid media explorer, collected these sightings of strategic management in the news. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (Craighenry@aol.com).