Information Digest – Research on tap

Information Digest - Research on tap

E-commerceNetworked incubators: hothouses of the new economyBusiness incubators such as Hotbank, CMGI, and Idealab! are a booming industry. Offering office space, funding, and basic services to start-ups, these organisations have become the hottest way to nurture and grow fledgling businesses. But are incubators a fleeting phenomenon born of an overheated stock market, or a lasting way of creating value and wealth in the new economy?

The authors argue that one type, a networked incubator, represents a fundamentally new and enduring organisational model uniquely suited to growing businesses in the Internet economy. It fosters a spirit of entrepreneurship and offers economies of scale. But its key distinguishing feature is its ability to give start-ups preferential access to a network of potential partners.

Such incubators institutionalise their networking – they have systems in place to encourage networking, helping start-ups, for example, to meet with potential business allies. That doesn’t mean incubatees get preferential treatment but that they have built-in access to partnerships that might not have existed without the incubator.

To succeed they must create a portfolio of companies and advisers that their incubatees can leverage. That can be done by strategically investing in portfolio firms and by enlisting a large set of business allies. It can also be done by establishing relationships that are anchored more to the incubator than to particular individuals.

Harvard Business Review

Beyond the exchange: the future of B2B

Using the Internet to facilitate business-to-business commerce promises many benefits, such as dramatic cost reductions and greater access to buyers and sellers. Yet little is known about how B2B e-commerce will evolve. The authors argue that changes in the financial services industry over the past two decades provide important clues. Exchanges, they say, are not the primary source of value in information-intensive markets; value tends to accumulate among a diverse group of specialists that focus on such tasks as packaging, standard setting and information management.

Because scale and liquidity are vitally important to efficient trading, today’s exchanges will consolidate into a relatively small set of mega-exchanges. Originators will handle the origination and aggregation of complex transactions before sending them on to mega-exchanges for execution.

E-speculators, seeking to capitalise on an abundance of market information, will tend to concentrate where relatively standardised products can be transferred easily among a large group of buyers. In many markets, a handful of independent solution providers with well-known brand names and solid reputations will thrive alongside mega-exchanges. Sell-side asset exchanges will create the networks and provide the tools to allow suppliers to trade orders among themselves, sometimes after initial transactions with customers are made on the mega-exchanges.

For many companies the ability to understand and capitalise on market dynamics may become more important than traditional skills in product development, manufacturing or marketing.

Harvard Business Review

Contextual marketing: the real business of the Internet

The painful truth is that the Internet has been a letdown for most companies – largely because the dominant model for Internet commerce, the destination website, doesn’t suit the needs of those companies or their customers. Most consumer product companies don’t provide enough value or dynamic information to induce customers to make the repeat visits – and disclose the detailed information – that make such sites profitable.

In this article, David Kenny and John F Marshall suggest that companies discard the notion that a website equals an Internet strategy. Instead of trying to create destinations that people will come to, companies need to use the power and reach of the Internet to deliver tailored messages and information to customers. Companies have to become what the authors call “contextual marketers”.

Delivering the most relevant information to consumers in the most timely manner will become feasible, the authors say, as access moves beyond the PC to shopping centres, retail stores, airports, bus stations, and even cars. The authors describe how the ubiquitous Internet will hasten the demise of the destination website – and open up scads of opportunities to reach customers through marketing “mobilemediaries”, such as smart cards and bar code scanners.

The companies that master the complexity of the ubiquitous Internet will gain greater intimacy with customers and target market segments more efficiently. The ones that don’t will be dismissed as nuisances, the authors conclude.

Harvard Business Review

Placing trust at the centre of your Internet strategy

When consumers visit a retail website, how do they know that the information describing the products or services on sale is accurate and unbiased?

How do they know that their order will be fulfilled correctly and on time or that their financial records, purchasing and web-viewing habits will be protected from prying eyes? The answer is they often don’t know. They largely base their purchasing decisions on trust. As they become more savvy, they will only do business with web companies they trust.

While the Internet enables consumers to research competing companies, products and services, most manufacturers design and deploy their websites as if such information were largely unavailable. They promote their products in a biased way – using high-pressure sales tactics that do little to inspire trust – while neglecting to provide consumers with the tools they need to make informed purchasing decisions. Some undermine trust by secretly collecting data about their customers’ web usage and selling it to third-party marketing firms. Others lose trust by failing to support their products or deliver them on time. Such sites rarely provide honest comparisons to competing products. Instead, customers must find the information themselves in order to make a sound decision, or rely on brands they trust.

According to the authors, web trust is built in a three-stage cumulative process that establishes (1) trust in the Internet and the specific website, (2) trust in the information displayed and (3) trust in delivery fulfilment and service.

The authors review current trust-building practices used on the web and propose the use of new, software-enabled advisors that engender trust by engaging customers in a dialogue to discern their needs and provide unbiased recommendations on a range of possible solutions. The authors tested their hypothesis by creating Truck Town, a website featuring software-enabled advisors that mimic the behaviour of unbiased human experts. The advisors consult with customers on purchasing decisions, providing honest comparisons of competing products. More than 75% of Truck Town’s visitors said that they trusted these virtual advisors more than the dealer from whom they last purchased a vehicle.

The companies that earn real profits in the world of Internet marketing will be trust generators selling products that deliver the best value in a complete, unbiased, competitive comparison.

Sloan Management Review


How increasing value to customers improves business results

Companies such as Lego, British Petroleum, Baxter, Virgin and Unilever are reversing the law of diminishing returns. How? By redefining what business they are in and then practising a powerful kind of customer focus.

The author, an international marketing professor at the University of London, defines customer focus as obtaining value for customers (even if you sometimes help them buy from your competitors) and from customers (who voluntarily continue to patronise your company because of that value).

Lego, for example, must see itself as being in the “edutainment” business, not the construction-toy business. Focusing on what customers want in the edutainment space, Lego can find numerous growth opportunities – in amusement parks, web software, television and more. Instead of selling more Lego blocks and suffering ever decreasing returns, Lego can serve edutainment customers in ways that will inspire them to spend more with the company.

Increasing market share and moving more products is an approach that is easy for competitors to emulate, and cost advantages eventually diminish.

Virgin is proof that the new customer-focus approach works better. It has merged travel and leisure into an integrated customer experience, and in so doing, it has enjoyed an growing share of the same customers’ spending. It avoids the added expense of finding new customers and learning their preferences.

The author delves into the six vital components for a successful strategy: giving power to the customer; getting customers to choose a particular business over its competitors; articulating new market spaces; delivering an integrated experience; taking advantage of abundant and reusable resources such a knowledge and information; and creating reinforcing interactions.

She explains that, to use customer focus to their advantage, enterprises don’t have to be big, be inventors or even own anything. The only requirement is to leave behind transactional, linear thinking and focus on increasing returns.

Sloan Management Review

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Integration management

Integration managers: special leaders for special times

Although the integration of an acquired company with the parent organisation is a delicate and complicated process, traditionally no one has ever been responsible for that process.

Some enlightened companies have recognised this gap and have appointed a guide – the integration manager – to shepherd everyone through the rocky territory that two organisations must cross before they can function effectively together. The authors have interviewed a number of these leaders in depth, as well as some of the people with whom they’ve worked. They’ve determined that integration managers help the merger process in four principal ways: they speed it up, create a structure for it, forge social connections between the two organisations, and help engineer short-term successes.

The authors detail five acquisitions – at TI, General Cable, Meritor Automotive, Lucent, and Johnson & Johnson – and discuss the role that integration managers played in each. They describe the sort of person who should do this job.

He or she must be able to jump into complex situations quickly, relate to many levels of authority smoothly, and bridge gaps in culture and perception.

The ever-changing organisations of the Internet age will need leaders with similar skills. In fact, the authors contend, the integration manager should be a prototype for the leader of the future.

Harvard Business Review

Knowledge Management

Knowledge management’s social dimension: lessons from Nucor Steel

Unless an enterprise generates new knowledge and pumps it efficiently through its network, it will soon be playing tomorrow’s game with yesterday’s tools. How are companies facing that challenge?

Many rely on an IT infrastructure; but no matter how sophisticated, it is not the key to effective knowledge management. Success, say the authors, depends more on the social system in which people operate. Social ecology drives people’s expectations, defines who will fit in, shapes individuals’ freedom to pursue actions without prior approval, and affects how they interact with both insiders and outsiders.

Focusing on Nucor Steel’s success in the ’80s and ’90s, the authors suggest that it’s social ecology contributed to it becoming one of the world’s most efficient steel producers. Through effective management of knowledge, Nucor constantly upgraded its main strategic and proprietary competencies: plant construction and start-up know-how, manufacturing-process expertise and the ability to adopt breakthrough technologies earlier than rivals.

With financial incentives to improve efficiency, operating personnel developed exceptional mastery of manufacturing processes. And Nucor’s employee-oriented practices led to high retention. In recessions, a “share the pain” programme prevented layoffs through a shortened work week that affected everyone equally – and built loyalty.

Nucor’s social ecology also allowed excellence in the tasks associated with sharing and mobilising knowledge: identifying opportunities to share knowledge, encouraging individuals to share knowledge, building effective and efficient transmission channels, and convincing individuals to accept and use the knowledge received.

Routine measurement and distribution of performance data helped uncover opportunities to share best practices. Pay incentives for work groups rewarded sharing. Nucor also passed along unstructured knowledge through face-to-face communication in plants that were deliberately kept small and through the transfer of people.

The authors explain how others can maximise knowledge sharing by setting stretch goals, providing high-powered incentives, cultivating empowerment, equipping every unit with a well-defined “sandbox” for experimentation – and cultivating an internal market for ideas – creating a competitive advantage that rivals cannot beat merely by buying the same software.

Sloan Management Review

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