Update on "the economic edge '09" - Canadian Chamber of Commerce

I attended the Canadian Chamber of Commerce's 'the economic edge' conference yesterday. (http://www.chamber.ca/index.php/en/upcoming-events/C159/the-economic-edge/)

It was an incredibly insightful and inspiring day discussing the competitiveness of Canada, the productivity imperative, and the critical importance of investing in technology, R&D, and commercializing Canadian innovation. In a globally competitive marketplace, we discussed how "Brand Canada" needs to be improved. Hosted by the Honorable Perrin Beatty, we were joined by Prime Minister Harper to close the day.

The Globe and Mail has initial coverage here: http://www.theglobeandmail.com/report-on-business/crash-and-recovery/economy-number-one-priority-stephen-harper/article1332815/

Please contact me at alan@wunsche.com to discuss directly and also see my Twitter feed at www.twitter.com/alanwunsche for individual tweets.

Coca-Cola innovates delivery and generates new usage data (#innovation @cocacola)

As reported by Innosight in this month's issue of Strategy and Innovation, Coca-Cola is introducing the Freestyle dispensing machine. It's not only an innovative and versatile product dispenser, it's also a data generator, allowing for the device to communicate directly with Coca-Cola.

According to Coca-Cola's press release:

Coca-Cola North America today revealed that "Coca-Cola Freestyle™" is the brand name and logo for its new proprietary fountain dispenser entering market testing this summer. The fountain’s brand name captures its ability to deliver unprecedented beverage variety to suit any consumer taste -- all packaged in an innovative and interactive fountain experience.

"Coca-Cola Freestyle brings to life the refreshingly positive outlook that has always been associated with Coca-Cola," said Chandra Stephens-Albright, Senior Director of Marketing and Business Development for the brand. "It brings back the magic of the fountain of the past, re-imagines it for the future and then takes it a step farther by celebrating the idea that consumers can truly have their say at fountain -- with choices tailored completely for them."

The new self-serve fountains -- which represent a complete departure from equipment The Coca-Cola Company has offered before -- have been in development for nearly four years. The sleek new units being tested are touch screen operated, enabling consumers to select from more than 100 calorie and no-calorie brands – including varieties of waters, juices, teas and sparkling beverages that have never been sold in the United States.

The Coca-Cola Freestyle dispenser uses proprietary PurePour Technology™ to make dozens of branded beverages fresh to order, in the same amount of space as the current eight-valve machine. It will be tested in select quick-serve restaurants in Orange County, Calif., and Atlanta this summer before a wider introduction currently planned for early next year.

The particular exciting part of this story is the data side. The new dispenser helps Coca-Cola enhance its new product testing process and helps its retailers manage inventory. InformationWeek describes it here:

Freestyle will let Coke more easily test new drink flavors and new beverage concepts, such as adding various vitamin combinations to flavored waters and juices. The dispensers each contain 30 cartridges of flavorings that mix up 100 different drink combinations. The cartridges are tagged with radio frequency ID chips, and each dispenser contains an RFID reader. The dispensers collect data on what customers are drinking and how much, and transmit that information each night over a private Verizon wireless network to Coke's SAP data warehouse system in Atlanta. The company will use the data to develop reports that assess how new drinks are doing in the market, identify differences in regional tastes, and help fast-food outlets decide which drinks to serve.

Test marketing via Freestyle will be a lot cheaper than the model Coke's been using: bottling and bringing to market new products that sometimes don't gain traction and get canceled after a year or two. "This is a huge jump from our current fountain dispensers," says Christopher Dennis, Coke's IT director of e-business transformation. "It's like going from the dial phone to the BlackBerry."

Besides collecting data on what customers are drinking, Freestyle also lets Coke know what flavor cartridges each dispenser holds, so the company can advise outlets on when to order more. Coke also will use the wireless network to send out new drink formulas to the beverage machines with instructions on how to mix them up. And should the soda company ever need to recall a flavor cartridge, the network also lets it instantly disable dispensers across the nation.

Finally, here's a video by the mobile technology supplier that partnered with Coca-Cola.

I suppose that pretty soon machines like these will have their own twitter accounts!

Canada's Innovation Gap (#innovation #Canada @globeandmail)

An excellent article by Konrad Yakabuski in the July 1 issue of the Globe and Mail describes why Canada is lagging in its innovation imperative. The key vital sign for Canada is a 20% drop in Canadian R&D spending as a percentage of GDP since 2001.

Other numbers mentioned in the article:

- 3.5% of Finland's GDP is spent on R&D, compared with less than 2 per cent in Canada

- 100, number of engineers employed in R&D by General Motors of Canada

General Motors of Canada Ltd. currently employs about 100 engineers engaged in R&D activities, according to spokesperson Stew Low. It has promised to spend "almost $1-billion" on R&D in Canada over the next seven years as part of its $10.6-billion bailout by the federal and Ontario governments. But even that amounts to barely 1 per cent of annual sales, based on GM Canada's pre-crash revenues.

Also cited is the report "Business Innovation in Canada" recently published by the Council of Canadian Academies. The report addresses the key questions:

• How should the innovation performance of Canadian firms be assessed?
• How innovative are Canadian firms, and what do we know about their innovation performance at a national, regional and sector level?
• Why is business demand for innovation inputs (for example, research and development, machinery and equipment, and skilled workers) weaker in Canada than in many other OECD countries?
• What are the contributing factors, and what is the relative importance of these contributing factors?

A few highlights from the report's 14 point summary include:

• Canada has a serious productivity growth problem. Since 1984, relative
  labour productivity in Canada’s business sector has fallen from more than
  90% of the U.S. level, to about 76% in 2007. Over the 1985-2006 period,
  Canada’s average labour productivity growth ranked 15th out of 18
  comparator countries in the OECD group.
  
• Canada’s relatively poor productivity growth is due mainly to weak growth
  of multifactor productivity (MFP), which measures broadly the effectiveness
  with which labour and capital are used in the economy. The problem is not
  caused by shortcomings in Canada’s workforce or inadequate capital
  investment (with the exception of significantly lagging investment in
  information and communications technology (ICT)).
  
• Investment at the leading edge of technology (which represents the indirect
  acquisition of innovation) has also lagged. Empirical evidence suggests a
  correlation between investment in machinery and equipment and MFP
  growth. The most significant and puzzling area of lagging investment has
  been in ICT where average investment per worker in Canada was only about
  60% of the U.S. level in 2007. Investment in ICT is an important driver of
  productivity growth, particularly in many service-producing industries that
  are the main source of job growth in advanced economies. The ICT
  investment picture is consistent with the view that Canadian businesses on
  the whole — but always with notable exceptions — are technology
  followers, not leaders.

It's an important article at an important time, as the world struggles to emerge from recession. One can only hope that this article is a wake up call for Canada on Canada Day!

Vital Signs Framework for Performance Management (Part1) #vitalsigns #innovation

What are your organization's vital signs? Are they clearly aligned to your strategy? Are they fully integrated?

I get asked by corporate clients to help align strategic objectives to performance measures in the context of a planning, budgeting, forecasting project. Over the past couple of years, I've been developing a concept of corporate "vital signs".

Depending on the scope of the engagement, I begin an assessment with one key question: "how healthy (along a variety of dimensions) is the organization/business unit/functional group?" The analogy comes from the human body metaphor for gauging the health of a person but I've taken some liberty to expand it to include not only health but competitiveness, process performance, the culture of the organization, effectiveness of the leadership team, and the skill sets of the people.

The concept of vital signs is even more important in today's turbulent times. Take for example the measuring of business health (think about the bank stress tests: "Banks Needs at Least $65B in Capital") to assess the state of the economic recovery.

Play this quick mind game: If I asked your key stakeholders to list your company's vital signs in relative importance, what would they say?

Use this definition: Vital signs are a limited set of internal and external performance and risk indicators that satisfy your stakeholder needs. Vital signs can be planned, forecasted, measured, and analyzed against your strategic objectives. Note this definition is more than standard scorecarding because it looks externally as well as looking at the risks.

In the true spirit of growing economic value, would your Board, as a proxy for shareholders and stakeholders say "revenue growth" is a vital sign to indicate that your business model is competitive and that you are serving more customers? Or would it say that "operating margin" is a vital sign to indicate that you are running a lean operation? They are very likely to point to strategic risk but would they know how to measure it?

Would the management team look at "% revenues from products/services introduced in the past 2 years" as an indicator of innovativeness?

Would your employees say that "% customers highly satisfied" is a vital sign for how well you serve your customers?

What about your customers? Maybe they'd say that your company's vital signs should be your ability to solve customer problems or "% of customer problems resolved on the first call".

Would the public, as your ultimate stakeholder, insist it is your "carbon footprint"?

The fact is you may be saying "yes!" to all of these questions and you would be right. Depending on your stakeholder's perspective, there's a vital sign that's more important to them because it drives their decisions as they interact with or do work for your organization.

Clearly a hospital's vital signs are different from a car manufacturer's vital signs which are different from a professional services firm's vital signs.

How are these vital signs best identified? How do you know you've got the right ones? In future posts, I'll describe what I call the "Vital Signs Framework" for identifying and integrating your vital signs into the strategic and operational management process.

Acer Netbooks to run #Google #Android OS and threaten #Microsoft OS revenues

The Globe and Mail reported here that Acer will be selling netbooks with Google's Android free operating system (OS). The vital signs on this move mean that although today 80% of netbooks run the Windows OS today and Microsoft gets $15-$20 (U.S.) per machine for the OS software, this move can be viewed with a risk lens.

In a classic disruption described by Christensen and Raynor in Innovator's Solution, Google has moved over the years from offering a software with much less functionality to one that can hit at the core of Microsoft's cash cow operating system. Microsoft's core business is very likely at risk.

This is a very good example of the need for CFO's and corporate planners to start building risk drivers into their driver-based operating budgets. In this case, the volume [# of netbooks sold with the MS operating system installed] is a driver for Microsoft's budgets and the price rate is $15 per installation. While Acer's move was anticipated for some time, with this announcement those revenues are suddenly at risk and should be offset with a risk volume driver [# of netbooks sold that will sold with Google Android instead of an MS OS] to reflect the anticipated reduction in volume.

Future of Work | @Deloitte @Time

Any discussion about the innovation of management processes necessarily leads to the future of work, how work gets done and how to retain talent that will ensure the organization is agile, flexible and able to compete in the fast-changing global environment. Time is the latest to publish their insightful Future of Work online.

Deloitte's innovative employment practices are featured:

It's a shift, in other words, from a corporate ladder to the career-path metaphor long preferred by Deloitte vice chair Cathy Benko: a lattice.

At Deloitte, each employee's lattice is nailed together during twice-a-year evaluations focused not just on career targets but also on larger life goals. An employee can request to do more or less travel or client service, say, or to move laterally into a new role — changes that may or may not come with a pay cut. Deloitte's data from 2008 suggest that about 10% of employees choose to "dial up" or "dial down" at any given time. Deloitte's Mass Career Customization (MCC) program began as a way to keep talented women in the workforce, but it has quickly become clear that women are not the only ones seeking flexibility. Responding to millennials demanding better work-life balance, young parents needing time to share child-care duties and boomers looking to ease gradually toward retirement, Deloitte is scheduled to roll out MCC to all 42,000 U.S. employees by May 2010. Deloitte executives are in talks with more than 80 companies working on similar programs.

Time also mentioned labour trends in their report with these indicators:

According to consulting giant McKinsey & Co., nearly 85% of new jobs created between 1998 and 2006 involved complex "knowledge work" like problem-solving and concocting corporate strategy. Job opportunities in mathematics and across the sciences are also expected to expand. The U.S. Department of Labor spotlights network systems and data communications as well as computer-software engineering among the occupations projected to grow most explosively by 2016. Over the next seven years, the number of jobs in the information-technology sector is expected to swell 24% — a figure more than twice the overall job-growth rate.

P.S. For those noticing the title, it's an experiment with tags for updating this post on my twitter feed: www.twitter.com/alanwunsche

Googlenomics [@Wired]

Wired Magazine's "Secret of Googlenomics" article explains the math behind Google's AdWords, Google's online unique advertising auction.

The entire article by Stephen Levy is a great read but what I found particularly interesting is the following passage because it describes how every bit of data has potential value:

Keywords and click rates are their bread and butter. "We are trying to understand the mechanisms behind the metrics," says Qing Wu, one of Varian's minions. His specialty is forecasting, so now he predicts patterns of queries based on the season, the climate, international holidays, even the time of day. "We have temperature data, weather data, and queries data, so we can do correlation and statistical modeling," Wu says. The results all feed into Google's backend system, helping advertisers devise more-efficient campaigns.

To track and test their predictions, Wu and his colleagues use dozens of onscreen dashboards that continuously stream information, a sort of Bloomberg terminal for the Googlesphere. Wu checks obsessively to see whether reality is matching the forecasts: "With a dashboard, you can monitor the queries, the amount of money you make, how many advertisers you have, how many keywords they're bidding on, what the rate of return is for each advertiser."

Wu calls Google "the barometer of the world." Indeed, studying the clicks is like looking through a window with a panoramic view of everything. You can see the change of seasons—clicks gravitating toward skiing and heavy clothes in winter, bikinis and sunscreen in summer—and you can track who's up and down in pop culture. Most of us remember news events from television or newspapers; Googlers recall them as spikes in their graphs. "One of the big things a few years ago was the SARS epidemic," Tang says. Wu didn't even have to read the papers to know about the financial meltdown—he saw the jump in people Googling for gold. And since prediction and analysis are so crucial to AdWords, every bit of data, no matter how seemingly trivial, has potential value.

Innovating through a Recession

Professor Andrew Razeghi (www.andrewrazeghi.com) of Kellog School of Management has written a compelling piece called "Innovating through a Recession, When the going gets tough, the tough innovate" - it's available as a download here: PDF Download

Taking lessons from history and the Great Depression, Razeghi provides insights into how NYTimes, Fortune, Kraft (Miracle Whip), Motorala, Texas Instruments, La-Z-Boy, and Apple innovated and succeeded when others pulled back on their efforts.

He also shows how companies like Vlasic reduced their prices in the hopes of making it up on volume but in the end it damaged their brand.

Razeghi's 7 Principles:

1. Listen to the market.  It's quieter when it's less crowded.  Unmet needs abound.

2. Invest in your csutomers  Now they need you most.  Loyalty hangs in the balance.

3. Rather than reduce price, offer more value to your customers and demand greater value from vendors.

4. Increase communications with your customers.

5. Move longer-term projects forward not back.  Now is the time to grab market share.

6. In recession, not all costs are create equal.  Maintain or increase investment in "good costs"; prune "bad costs"; use judgment on "it depends costs".

7. If you don't have money at least spend the time.

- "Now is the time to unleash corporate creativity.  The greatest mistake you can make now is to mortgage your future by failing to innovate"

It's a very good piece for innovators looking for inspiration in challenging times.  I highly recommend it.

Vital Signs: IMF World Economic Outlook Update (January 2009)

At the WEF Davos January 2009 Meeting, the session called "Rebooting the Global Economy" began with Matthew A. Winkler (Editor-in-Chief, Bloomberg News, USA) providing a rundown of the International Monetary Fund's (IMF) latest outlook. Going to the source January 2009 World Economic Outlook Update, the IMF gives us this summary:

"World growth is projected to fall to ½ percent in 2009, its lowest rate since World War II. Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy. A sustained economic recovery will not be possible until the financial sector's functionality is restored and credit markets are unclogged. For this purpose, new policy initiatives are needed to produce credible loan loss recognition; sort financial companies according to their medium-run viability; and provide public support to viable institutions by injecting capital and carving out bad assets. Monetary and fiscal policies need to become even more supportive of aggregate demand and sustain this stance over the foreseeable future, while developing strategies to ensure long-term fiscal sustainability. Moreover, international cooperation will be critical in designing and implementing these policies."

For those of us who lead strategic planning efforts, we work through a rigorous process of establishing a range of possible future scenarios (reference "Managing Amid Uncertainty"/PDF by author Michael Raynor of The Strategy Paradox) and build strategies that are consistent with those scenarios. We use macro economic factors and more industry specific factors.

The IMF's report provides the following macro economic factors:

• Global growth in 2009 is expected to fall to ½ percent when measured in terms of purchasing power parity and to turn negative when measured in terms of market exchange rates.
• The global economy is projected to experience a gradual recovery in 2010, with growth picking up to 3 percent.
• Financial markets are expected to remain strained during 2009. In the advanced economies, market conditions will likely continue to be difficult until forceful policy actions are implemented to restructure the financial sector, resolve the uncertainty about losses, and break the adverse feedback loop with the slowing real economy. In emerging economies, financing conditions will likely remain acute for some time—especially for corporate sectors that have very high rollover requirements.
• Growth in emerging and developing economies is expected to slow sharply from 6¼ percent in 2008 to 3¼ percent in 2009, under the drag of falling export demand and financing, lower commodity prices, and much tighter external financing constraints (especially for economies with large external imbalances).
• The IMF's baseline petroleum price projection has been revised down to $50 a barrel for 2009 and $60 a barrel for 2010 (from $68 and $78, respectively, in the November WEO Update), and risks to this projection are on the downside.
• In the advanced economies, headline inflation is expected to decline from 3½ percent in 2008 to a record low ¼ percent in 2009, before edging up to ¾ percent in 2010. Moreover, some advanced economies are expected to experience a period of very low (or even negative) consumer price increases. In emerging and developing economies, inflation is also expected to subside to 5¾ percent in 2009 and 5 percent in 2010, down from 9½ percent in 2008.

References: IMF World Economic Outlook Update 28 January 2009, PDF)

The World is Your Think Tank

In a recent paper, "The World is Your Think Tank - How to Harness Idea Flow and Top Talent for Competitive Advantage" I wrote about a new business model that can harness both internal and external talent more effectively, including references to Dell, IBM, and Innocentive :

To compete against Asian organizations, North American companies need to continually become more competitive and innovative. As the world becomes increasingly “flat” and hypercompetitive, labour advantages will tip the scales in favour of companies in developing nations. A key determinant of future success for western European and North American organizations will be the ability to attract creative, problem-solving talent.

The world is your think tank proposes a new HR-finance innovation management team and decision-making model to successfully translate idea flow into cash flow. This new model uses an enterprise-wide process for tapping the creativity of employees and the global talent pool. Only the organizations with access to the best ideas and the best-integrated idea management processes will achieve long-term survival.

Organizations must also take the crucial next step of managing the idea flow so they can identify and bring the best ones to fruition. By tightly integrating the HR and finance functions into a new role that sparks and manages idea flow, global talent from anywhere can be transformed into cash flow and balance sheet value.

As the financial crisis has resulted in a global recession in 2009, I am even more convinced that both the HR organization and the CFO have significant responsibilities to ensuring that the best ideas are surfaced and acted upon.

Vital Signs: HP's environmental goals

On the topic of vital signs relating to corporate sustainability initiatives, HP is setting a strong example of how global organizations can contribute to the reduction of their carbon footprint:

Picking up on the Davos call for investments needed to develop a clean energy infrastructure and move to towards a low-carbon economy, the following recent post was higlighted by the "Green SOCH @ ISBR" blog:

"Sustainable computing - As part of this program, they are upgrading the core sites in a phased approach, with new technology and more efficient use of space. Through this and other energy efficiency initiatives, they reduced absolute energy use from operations by 1% in 2006. That equals savings of approximately 35 million kWh and reduction of the carbon footprint by 18,000 tons of greenhouse gases. HP has set a goal to reduce the combined energy consumption of HP operations and products 20% below 2005 levels by 2010."

More specifically from HP's 2008 Global Citizenship Report, HP has set the following target metrics:

2010

HP will reduce the combined energy consumption and associated GHG emissions of HP operations and products by 25 percent below 2005 levels¹ by achieving the following:

• Operations: HP will reduce energy consumption and the resulting GHG emissions from HP-owned and HP-leased facilities worldwide to 16 percent below 2005 levels.²


• Products: HP will reduce the energy consumption of HP products³ and associated GHG emissions through specific goals for representative product categories, including the following goals for some of HP’s highest-volume PCs, printers and servers families:
• Improve energy efficiency for high-volume server families by 50 percent, relative to 2005⁴
• Reduce the energy consumption of volume desktop and notebook PC families by 25 percent, relative to 2005⁵

2011

• Products: Improve energy efficiency for high-volume printer families by 40 percent, relative to 2005⁶

Progress: We reached 19.2 percent reduction in our combined operations and products energy use at the end of October 2007, the end of HP’s reporting year. We are confident that we surpassed the 20 percent mark by February 2008, more than two and a half years early.

Reference:
Green Soch @ ISBR

World Economic Forum Report: US $515 Billion needed in Green Investments

The WEF's Green Investing: Towards a Clean Energy Infrastructure report was released on 29 January 2009 and it contains some vital signs for Green investments:

"New Energy Finance, which collaborated with the World Economic Forum on the report, warns that unless at least US$ 515 billion per annum is invested in clean energy between now and 2030, carbon emissions will reach a level deemed unsustainable by scientists, causing temperatures to rise by two degrees globally."

"The report identifies eight emerging, large-scale clean energy sectors that are expected to significantly contribute in the move to a clean energy infrastructure of the future: onshore wind, offshore wind, solar photovoltaic, solar thermal electricity generation, municipal solar waste-to-energy, sugar-based ethanol, cellulosic and next generation biofuels, and geothermal power."

"Clean energy opportunities have the potential to generate significant economic returns. The report shows that even after a tumultuous 2008, an index of the world’s 90 leading clean energy companies had a five-year compounded annualized return of almost 10%, unmatched by the world’s major stock indices."

Other highlights from the report include:
• Clean energy investments increased from around US$ 30 billion in 2004 to over US$ 140 billion by 2008. Investments in 2008 exceeded expectations at US$ 155 billion (the report is based on projections for 2008 – which suggests that US$ 142 billion would be invested by year-end).
• Investment in clean energy has not only increased, but has also diversified geographically. Developing countries attracted 23% (US$ 26 billion) of asset financing in 2007, compared to 13% (US$ 1.8 billion) in 2004.
• In addition, four key enablers for a shift to clean energy will be energy efficiency, smart grids, energy storage, and carbon capture and storage.
• Well-developed conditions for innovation, markets for clean energy through public procurement, energy efficiency standards and stable and simple policies are essential to meet the climate change challenge

The report provides a solid foundation for scenario planning for clean energy initiatives.

References:
Press Release: World Economic Forum Report: US $ 515 Billion needed in Green Investments;

Shaping an Opportunity Out of Crisis: A message to participants in the World Economic Forum Annual Meeting 2009 from Members of the Global Agenda Council on Climate Change

WEF 2009 (Davos) - "Shaping the Post-Crisis World"

The 2009 World Economic Forum, the overall them being 'Shaping the Post-Crisis World', is under way in Davos, Switzerland 28 January 2009 to 1 February 2009. The WEF backgrounder is summarized here:

"The World Economic Forum Annual Meeting 2009 promises to be one of the most important events in the Forum’s history. The significance of the Meeting is such that 42 heads of state and government have already confirmed their participation in Davos-Klosters where they will join business leaders as well as NGOs, Trade Unions and experts from a wide range of fields. The Meeting will be focused on managing the current crisis and shaping the entire post-crisis agenda, from economic reform to climate change. Participation is by invitation only and strictly limited to the criteria and quota of each stakeholder group. The World Economic Forum Annual Meeting 2009 is characterized by the unparalleled quality of its business participation. This year, over 2,500 participants from the business, political and cultural communities will address the Annual Meeting’s overall theme − Shaping the Post-Crisis World. There is a unique opportunity at the beginning of 2009 for leaders from industry, government and civil society to shape this transformation at an early stage for the benefit of all stakeholders. The objective of the Annual Meeting 2009 is to catalyse a holistic and systematic approach to improve the state of the world in a manner that integrates all stakeholders of global society. An important preparatory conference convened the most comprehensive network of experts in the world in Dubai in November. Over 700 members of 69 Global Agenda Councils met to advance solutions to the most critical challenges facing humanity. Their insights and recommendations have helped to catalyse solutions for the manifold challenges we face in 2009."

The webcasts are provided at the following link: http://gaia.world-television.com/wef/worldeconomicforum_annualmeeting2009/

For those looking for a English mainstream media view of the conference, check these links: CNN http://edition.cnn.com/SPECIALS/2009/news/davos/ and The Times(UK) http://business.timesonline.co.uk/tol/business/economics/wef/

The panel sessions this year are a rich source of metrics necessary for forward looking executives when planning future business scenarios. In a series of forthcoming entries, I will be reviewing the sessions with a specific look at the global economic metrics and vital signs mentioned.

WEF References: WEF Global Risks Report 2008, Session Summaries