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customer-centric sales

Customer-centric Sales is the New Competitive Advantage

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This Veracle explains why customer-centric sales is the new competitive advantage.

Earlier, we recognised the need for a new frontier for sustainable competitive advantage.

We explored if product differentiation can be that frontier.

The car, coffee, and cosmetic examples illustrate that product differentiation is ephemeral. It has become transient. It is now more a hygiene factor than a source of sustainable competitive advantage.

So, if product differentiation is merely a hygiene factor, how to compete in the cut-throat marketplace?

To answer this question, let us go back to basics.

Consider our typical sales situation. Three entities are present here: the seller, the product (or service), and the buyer (or customer).

Here, many salespeople focus on the first two:

  • How they as seller are different
  • How their product is different

This is the seller-centric approach.

It focuses on sellers and their products.

It reminds me of a captivating scene in the movie The Wolf of Wall Street. When Jordan Belfort (Leo DiCaprio) asks some conference attendees to “sell me this pen”, they take this same approach.

Sell me this pen” from the movie The Wolf of Wall Street

However, this seller-centric approach is suboptimal.

It may work in certain situations. But it isn’t ideal for building long-term customer relationships. Hence, it is not sustainable.

That brings us to the third entity present in the sales process – the customer.

Today, the customer has access to a lot more information at the touch of a screen. They can easily compare products and prices. If they don’t like something in a product, they switch just as easily. They know what is best for them.

In short, customers want to be in control of their buying process.

The problem is, the seller-centric sales does not do that.

A working strategy is ‘CUSTOMER-CENTRIC SALES.’

What is customer-centric sales?

In customer-centric sales, you don’t try to get people to buy your stuff they don’t need, by dwelling on seller or product differentiation.

Instead, you focus on knowing customers better. Make it data-driven. We call it developing customer intelligence. You strive to understand customers at a much deeper level.

Generally, salespeople know which customers buy their products?

But many times, they do not know ‘WHY do those customers buy their products.’ Unfortunately, this is more common than we think.

The key is to know the real reason and motive behind the purchase.

But, why is THE WHY important?

Because, customer’s reason to buy your product is likely to be different from your reason to sell it.

And guess what?

Your reasons to sell do not matter; while customers’ reasons to buy do.

This may sound harsh. But it is true.

You may be selling dog food because it is so good in quality that you can also eat. Whereas, the customer may be buying it because it is cheap and convenient.

You may be selling expensive maple wood furniture because the wood is durable and sourced from hardwood forests of North America. The customer may be buying it simply because it is lighter.

You may be selling homemade food as you have fresh organic homegrown ingredients. But the customer may be buying your homemade food because they can get it customised.

The point is this.

Customers buy anything for THEIR own reasons, not yours.

Businesses that get this insight embrace customer-centric sales approach and thrive.

Others that fixate on their own seller-centric differentiation without concern to customers’ reasons struggle.

Consider examples of a few companies where a seller-centric sales approach failed them.

Example 1: A video rental company closed because of not knowing their customer’s why.

You guessed it right.

Blockbuster was in the business of ‘renting out DVDs’. Their competitor Netflix also started ‘renting out DVDs’ in 1997.

Blockbuster’s model was seller-centric. It focused heavily on high street retail sales. Apart from other things, they maximised revenues by charging late returns (of DVDs). Blockbuster made 16% of their revenues in late fees.

On the contrary, Netflix pursued customer-centric sales strategy and studied customers. They enabled consumers to watch videos for a flat monthly fee without worrying about returns.

Blockbuster’s seller-centric model frustrated customers. Netflix’s customer-centric approach eased customers about returns.

Blockbuster vs Netflix

Meanwhile, faster internet allowed online streaming. It enabled customers to watch videos online. Ergo, customer buying preferences changed. They stopped going to stores altogether.

As a result, blockbusters seller-centric model collapsed. Whereas, Netflix re-aligned with customer’s watching preferences by offering videos online on-demand.

Eventually, Blockbuster ended up bankrupt. And Netflix emerged as one of the top ‘over-the-top content platforms.’

customer-centric sales
Source credit: Strategyjourney.com

According to the UK CMO of blockbuster Bryn Owen, Blockbuster’s sales-driven model did them in.

Example 2: “Share memories, Share life.” A Kodak moment (in 2012) that saddened everyone.

George Eastman, Kodak’s founder, invented roll film in 1888.

Kodak was primarily in the photographic film business. They prided on their silver-halide film technology.

Listening to customer demand, Fujifilm started selling film in 1934.

Meanwhile, the digital revolution started in the 1960s.

Steve Sasson, the Kodak engineer, developed the first digital camera in 1975.
Source credit: James Rajotte for The New York Times

By the late 1990s, the demand for photographic films dropped in line with the growing popularity of digital cameras.

Source: PMA, Business 2 community

The rapid spread of digital technology disrupted the photographic equipment industry.

Fujifilm invested in knowing customer’s changing preferences. They adapted to this shift by switching to digital lines of business.

Despite that, Kodak focused on film.

Not just that.

Kodak had acquired a photo-sharing site called Ofoto in 2001. If they were customer-centric, they would have been the pioneer of something like present-day Instagram.

Instead, Kodak used Ofoto to try to get more people to print digital images.

In the end, Kodak filed for chapter 11 bankruptcy in January-2012.

customer-centric sales
Kodak and Fujifilm stock performance comparison with key events.

Don Strickland, a former vice-president of Kodak, said: “We developed the world’s first consumer digital camera but we could not get approval to launch or sell it because of fear of the effects on the film market.”

Once the world’s biggest film company, Kodak became a posterchild for failure due to not being customer-centric.

Unfortunately, these aren’t isolated examples of companies stuck with seller-centric sales approach. GM, Nokia, Xerox, JCPenney, Palm, Sony are but to name a few.

Building a new competitive advantage with customer centric-sales

Building a true competitive advantage requires implementing customer-centric sales strategy. This strategy has these three benefits:

  1. You give customers, control in their buying process
  2. Customers get what they want
  3. It is sustainable

Most internet-age companies that are growing rapidly are customer-centric.

Amazon obsesses over customers as they want to be known as Earth’s most customer-centric company. Everyone knows about customer-centricity of Google, Nordstrom, and Southwest.

Companies like Lululemon, John Lewis, and Target have invested in developing customer intelligence to be customer-centric.

So, how are these successful businesses pursuing this deliberate strategy of customer-centric sales?

We will discuss in the next Veracle.

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Product Differentiation

Product Differentiation: Why it isn’t enough anymore

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Product Differentiation – why?

Generally, salespeople highlight their differentiation advantage to customers in two ways:

  • Our company is unique and special. Buy from our company.
    • This is seller differentiation.
  • Our product is unique and special. Buy our product.
    • This is product differentiation.

We will analyse seller differentiation later.

In product differentiation, special typically means high quality. The source of uniqueness and high quality in a product could be varied. Some of them are rare raw materials, advanced technology, distinctive design, superior personnel, or unusual methods. These become the sources of product differentiation. Customers perceive such products as high performance or exclusive. So, they are willing to pay a higher price for them.

Up until now, product differentiation helped businesses sell, and charge premium to their customers.

However, this is changing.

In a recent conversation with the CEO of a cosmetics company in Europe, he gave a thought-provoking perspective in the context of their product differentiation.

The CEO: “[First] it was ‘natural’. Then we introduced ‘natural fruit-based’. Then it became ‘natural fruit-based paraben-free allergen-free’. And it went on like that… Whenever I try to differentiate my product further, I feel I am narrowing my customer base. It is a big problem because my loyal customer base keeps shifting…

Evidently, his concern is not misplaced.

In an online survey in Europe, 900 women aged 25-65 years buying cosmetics and being interested in organic and natural cosmetics associated different characteristics and qualities with organic and natural cosmetics (see EXHIBIT 1).

Source: Statista 2021, Veravizion analysis

To be honest, this finding isn’t surprising.

There are so many ways to differentiate a product within a category. They may not appear truly differentiated at all.

It appears, product differentiation as a source of competitive advantage is losing its sheen. It may not be enough going forward to compete.

Wonder why it is so?

To find out, we analysed the sources of product differentiation. Our analysis yielded these insights.

In our increasingly global and digital world, the sources of product differentiation have become pervasive.

  • Global supply chains make it easy to procure raw materials from any place on the Earth. That too fairly quickly.
  • A free market economy facilitates the effortless movement of goods and expert personnel.
  • The Internet makes it simple to share information and technology.

Basically, it has become easy to procure stuff and change. This helps your rivals achieve parity with your products in no time.

Let’s see how.

Consider examples from three diverse product categories: cosmetics, coffee, and car. Notice how a product that once appeared differentiated from their competitors’ doesn’t seem so anymore.

Example 1: The Body Shop – the first natural and organic cosmetic brand?

The Body Shop is perhaps the first global company to popularise the use of ‘natural ingredients’ in cosmetics. Anita Roddick, an activist, founded it to also promote ethical consumerism. The business’s original vision was to sell products with ethically-sourced, cruelty-free, and natural ingredients. The company was one of the first to prohibit the use of ingredients tested on animals. The Body Shop truly differentiated itself at the time. And it thrived. This was in the eighties and early nineties.

Product Differentiation
Source: The Body Shop

However, competitors followed suit soon after. Every cosmetic company wanted to show natural ingredients in their product. So much so that, it might be difficult to find a cosmetic company that does not seek to differentiate itself as natural or organic. Looks like, Natural is a hygiene factor in cosmetics now.

Example 2: Kopi Luwak – world’s most expensive coffee

Product Differentiation
Source: Pinterest

Civet coffee, also called Luwark coffee (or Kopi Luwak), is advertised as the world’s most expensive coffee. It is expensive because of an uncommon method of producing it. Civet coffee is produced from the coffee beans digested by civet cat. The faeces of this cat are collected, processed, and sold. A unique process indeed!

Civet coffee is originally from Indonesia. But, it is now produced across many countries in South East Asia, and even in India. It may only be a matter of time before we see this coffee in our favourite coffee shops. Moreover, there are other coffee brands such as Black Ivory, Finca El Injerto, Hacienda La Esmeralda, Saint Helena, and Jamaican Blue Mountain that are touted as the world’s most expensive coffee. Apparently, Kopi Luwak seems to have lost its flavour as world’s most expensive coffee.

Example 3: Exotic and handmade Phantom – an epitome of luxury

Product Differentiation
Source: Caranddriver.com

Rolls-Royce Phantom Coupé gained fame as your own bespoke exotic car handmade by expert craftsmen. Rolls-Royce claims that no two Phantoms in the world are exactly the same.

Finally, a true differentiator? We thought so too.

Only, there are at least ten other cars which take pride in calling themselves most exotic and handmade. Lamborghini, Bugatti, Pagani trump the track where Aston Martin is not even in the top-3.

Therefore, that forces us to ask.

Product Differentiation: is it a competitive advantage or a hygiene factor?

The point from the above examples is this.

The Body Shop might be natural and organic; Kopi Luwak might be a billionaire’s brew; Rolls-Royce Phantom might be exotic and handmade.

But they are not the only ones doing it in their industry. Rather, they join the crowd by competing on product differentiation.

Ironic, isn’t it!

The truth is this. The more you pursue product differentiation, the more you risk looking like the scores of your competitors doing the same.

It makes one wonder whether ‘our product is high quality’ has become a hygiene factor. It will not guarantee you sales, let alone premium prices. But not having it will definitely hurt sales.

But wait!

Apple pursues a product differentiation strategy. And Apple continues selling humongous numbers of iPhones and iOS devices. In fact, iOS had more than 50% of the market share in the US as of May-2020 (see EXHIBIT 2).

Source: Statista

How do we explain this?

Clearly, something is at play here.

Is product differentiation a source of competitive advantage? Or has it merely become a hygiene factor?

If the latter, then how can you compete in the fiercely competitive marketplace?

What are your thoughts on this?

Let us analyse this aspect in the next Veracle.

Cover Photo courtesy: Vix.com

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Competitive Advantage

Competitive Advantage: you have one? Is it sustainable?

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In a sales situation, a salesperson looks to convince a customer to buy their (product or service) offering. To do that, they must showcase how their offering creates value for the customer. They are aware that the customer would be comparing their offering with those of their competitors. This is where the competitive advantage comes into the picture.

Competitive advantage renders you an edge over your rivals. A company’s competitive advantage makes their (product or service) offering more desirable to customers than those of their competitors.

According to Investopedia, competitive advantage refers to factors that allow a company to produce goods or services better or more cheaply than its rivals.

The factors could be price, product quality, delivery speed, customer service, location, and so on.

Among these, the price factor is different from the other factors.

Let’s see how.

Competitive Advantage: the ‘Price factor’

When a business competes on price, they price their products lower than their competitors’ prices. Therefore, they must produce the product at a low cost to sell it at a profit.

Source: Walmart.com

For example, Walmart competes on price. Their slogan is “everyday low prices”. They must produce or procure products at a very low cost to sell at a profit.

Competitive Advantage: the ‘Other factors’

When a business competes on factors other than price, they must ensure high differentiation from the competitors on that factor. Their slogan would be the best quality, higher speed, better customer service, and so on. However, it takes additional resources, and thus higher costs, to create differentiation. Hence, they must price the product at a premium to sell it at a profit.

Competitive Advantage
Source: Christies.com

For example, dubbed as the world’s most coveted handbags, Hermès Birkin bags are super-expensive. Each bag is handmade by a single artisan craftsman using premium materials like calf skin, alligator skin, and even ostrich skin. And there is a waiting list for the top ones like the one shown here.

This low cost and high differentiation form the basis of business strategy for firms.

Porter defined these two ways in which an organization can achieve a competitive advantage over its rivals as cost advantage and differentiation advantage.

Cost advantage & differentiation advantage served us well.

Thus far.

However, competitive advantage must be sustainable. It should help us sell in today’s fiercely competitive markets and tomorrows. In the absence of sustainable competitive advantage, your product may not continue to sell for long.

This is where the challenge is.

Both these sources of competitive advantage are seller-centric. They talk about seller’s cost advantage and seller’s differentiation advantage.

The thing is, competitive advantage for a business is the factor (or reason) for which the business wants customers to buy their products.

And the truth is, customers buy anything for THEIR own reasons, not yours.

Please do let the above two insights sink-in before you read ahead.

Therefore, it follows that, the factor for which a business wants customers to buy their products should be customer-centric.

That is, the source of competitive advantage for a business should be customer-centric (and not seller-centric).

This is like the movement of scientific theory from the Ptolemaic system (the earth at the centre of the universe) to the Copernican system (the sun at the centre of the universe).

It is a paradigm shift.

When that happens, a business will always be aligned with customer-needs. As and when the customer buying preference changes, a business will be able to respond to the change by correspondingly aligning their source of competitive advantage.

Savvy?! But wait.

What is the significance of this finding?

This signifies that the existing ways of building competitive advantage – cost and differentiation advantage – alone may not suffice.

The evidence is in the huge number of businesses shutting down, like Arcadia group, Chuck E. Cheese, Debenhams, J. Crew, JC Penny, Mamas & Papas, Mothercare, Neiman Marcus, and Wallis to name a few. Some of them are (sorry, were) iconic retailers. The list is long. Many of them are permanently closing most of their stores. Don’t we know that all of them had built competitive advantage the traditional way?

In short, we need to build the next frontier for developing sustainable competitive advantage.

And how do we do that?

Can we do it through product differentiation?

We do it by putting in place a mechanism to understand your customers like never before.

This doesn’t sound anything new, right?

Except, the ways of understanding a customer have undergone a sea-change. There is a lot more we can learn about a customer to help them.

Let us summarise the whole thing.

In the internet age, when brick-and-mortar businesses are finding it difficult to compete and are closing down, companies cannot rely only on the traditional meaning and sources of competitive advantage.

There is a need to build new frontier.

Developing your customer intelligence is the first step in that direction. That entails understanding many more things than we have ever known until now. This new frontier of competitive advantage helps you build a solid platform to grow further and beyond.

Besides, who has ever gone wrong knowing more about their customers?

Cover Photo courtesy: Rob Wingate on Unsplash

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e-Retail Innovations

e-Retail Innovations – How e-Retail is Changing?

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e-Retail Innovations and Growth

Over the last 15 years, the share of online retail (or e-retail) has increased steadily all over the world. The graph below shows the percentage of e-retail sales out of total sales for the US.

*Note: Data of first 2 quarters of 2020 is taken
Source: United States Census Bureau

In 2019, e-retail sales accounted for only 10.9% of total retail sales. This shows that e-retail has good potential to grow in the coming years.

A major reason for low e-retail sales is customer shopping behaviour. In fact, physical retail and e-retail KPIs are also different.

Notably, there is a basic difference between how customers shop offline and online. It is down to how customers interact with products while purchasing.

Why e-Retail is less than traditional retail?

According to KPMG, the top-three reasons people go to physical shops are to do with touching or trying the product. 56% of customers prefer shopping offline for the ability to see and touch the product. These are limitations of e-Retail.

Now, e-retail businesses like Amazon have grown with continuous innovations. In 2018 alone, Amazon spent 12.7% of their revenue on R&D. Over the years, many e-retail businesses have disrupted the retail industry with innovations like chatbot, voice search, and drone delivery, to name a few.

The e-retail innovations we discuss here expect to overcome the top-three limitations of e-retail. The aim is to improve the engagement of customers with the products they intend to purchase.

So, what are the most recent e-retail innovations?

Here are three of them:

  1. 3D Models (and videos of product)
  2. Livestreaming
  3. Augmented-reality (AR)

3D Models (and videos of product)

On 14th March 2020, Shopify announced that merchants could upload 3D models or videos directly to their product pages. Fashion merchants selling on Shopify were happy with this new technology. Results showed that the visitors who interacted with a 3D model were 44% more likely to add a product to their shopping cart and 27% more likely to place an order than visitors that did not. 

After implementing 3D models in their store, Bumbleride saw a conversion rate increase of 33% for strollers and increased time on page by up to 21%.

Advantage:

In traditional retail, customers can ‘see’ and ‘feel’ a product before buying. By using a 3D model of products in e-retail, customers can virtually ‘see’ a product interacting with their home or office environment. This feature increases the engagement rate and ultimately leads to more sales.

Livestreaming

Taobao Live is a live streaming service integrated into the Taobao App of Alibaba Group. On 1st June 2020, Taobao Live sold goods worth $280 million in the initial 90 minutes. Merchants can apply on Taobao app for free and start live streaming of their products. Customers can ask queries, buy, and pay on the same app.

Advantages:

  • It is similar to a traditional store being open for customers. But in this case, customers who are interested in the category will join the Livestream. This is a significant advantage as users are already lower down the sales funnel.

  • In digital media, brands have to hire celebrities and tap their brand equity to sell their products. However, in Livestream, anyone can display the products.

  • Users watching Livestream can ask queries related to product and host can answer them or display in real-time. For example, a user might ask ‘can you show how size 7 will fit me?’ The host can then try on size 7 shoe in real-time during Livestream. Subsequently, this increases the engagement of products with potential customers.

Augmented Reality (AR)

In May 2020, Kendra Scott, a jewelry brand, introduced virtual try-on. This feature implements augmented reality and allows users to preview products.

AR is also being used by furniture retailers like Wayfair and Ikea for displaying how furniture will look in their homes after purchase.

In December 2019, L’Oreal announced a virtual try-on that lets shoppers try on makeup virtually using their phone. Garnier (owned by L’Oreal) also launched a virtual try-on named “Garnier hair colour”. Using the Google Lens image-recognition mobile app made by Google Inc., shoppers can point their phone cameras at the hair-colour boxes to activate the virtual try-on service.

Advantage:

  • In e-retail, users can only visually see 2D product images. But with AR, users can virtually try-on products. They can also get some idea of how the products will look in their surroundings.

As e-commerce and e-retail industry matures, innovations are likely to continue in this space.

Author: Sumit Patil

Cover Photo courtesy: Vectary

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Online Business Growth

Online Business Growth – The Easy or The Right Way?

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Online business growth – the easy way or the right way?

Onine business growth is a topic concerning most retailers. How can retailers grow their business in these times? The key message is at the very end.

Consider this scenario.

You are the owner of a mid-sized retail business. You presently sell your product to your customers in physical stores. A typical sale goes like this: Customers show up at your store. They specify their needs, you give options. You counsel, they choose. You pack, they pay, and you complete the transaction.  

Thus far, you have been successful in your current brick-and-mortar model. Your business has a loyal customer base. The net profit margin is in the range of 15%-20%. And, the cash flow is good too.

So, you decide to take your business to the next level.

How would you do it?

The answer is ‘you go omnichannel’.

The internet penetration of above 90% in most developed countries makes it a no-brainer. Among the developing countries, the internet has grown by over 5000% since year 2000 to around 59%. Moreover, customers now prefer to buy in an omnichannel environment.

In omnichannel retail, the focus is on providing seamless shopping experience to the customer across multiple channels. Omnichannel strategy helps you integrate physical store, online store, mobile app, and social media.

In-short, your business growth strategy now revolves around selling online.

To sell online, there are two main options:

  1. Create your ‘own online channel’
  2. Sell through existing ‘online marketplaces’

This decision determines the future course of your business.

Let us dissect each option.

Option-1: Create your own online channel

Creating your own online channel includes two things: first, setting up an e-store – an e-commerce website – to display products and receive customer orders. Second, you need to have an efficient and trustworthy logistics system to fulfil the customer orders. The entire order-to-fulfilment process must run smoothly to give customers a seamless shopping experience.

Having your own online channel has several benefits.

Top three benefits are:

  • You can create bespoke personalised experience for your customers. It allows you to ensure stronger connection and engagement with them.
  • You have total control over your business throughout the customer buying process. So, you decide how customers interact with your brand while being on your website. Also, you can create relevant content around your offerings to engage with target customers.
  • Most importantly, you gain direct access to your customers and their data. You can leverage advanced analytical techniques to analyse this data. This analysis can give you crucial insights about the type of visitors, their visiting trends, and their buying patterns. These insights help you decode the online customer behaviour. Using that, you can make appropriate changes to the way you sell online. This data-driven online selling strategy promises to help you grow your online sales.

What do top-brands do?

While it is not a surprise that top brands like Apple, Starbucks, Disney, and Under Armour have their own online channels, most mid-size businesses have also launched their own online stores. It helps them create unique customer experience. The successful ones have implemented advanced analytics to reveal insights about their customer buying behaviour.

Online Business Growth
How top brands ensure unique and enjoyable customer experience through their e-stores

However, a common perception among small retailers is that there are a few disadvantages with this option, viz. higher upfront investment, additional analysis and marketing costs, and higher lead-time for online business growth. Perhaps, that is why, almost one-third of small businesses in the US do not have a website of their own.

That brings us to the second option.

Option-2: Sell through existing ‘online marketplaces’

Online marketplaces allow you to sell products without you having to set up your own online store. The marketplaces host many sellers on their website. Marketplaces are popular among buyers because they allow to buy different products across categories without having to leave the site.

The marketplace owns everything on their website. They take care of the marketing too. In return, you pay them product listing fees and a commission on every product sold.

There are many online marketplaces around. A few are global, some are regional, and many of them are national. The popular ones are Amazon, eBay, Flipkart, AliExpress, Rakuten, Etsy, and Target, amongst many others.

Many retailers tend to choose this second option over the first. It seems easier to them. Ostensibly, they see the following ‘advantages’ in this option – no upfront set-up cost, reduced marketing costs, and no waiting for online business growth.

Except, these advantages hide the real disadvantages.

Let us explain by listing out six key disadvantages of ‘selling through marketplaces’ option:

No Upfront cost = Lose control over sales

You don’t incur upfront cost if you don’t invest in your own e-commerce set-up. Instead, you use the marketplace’s infrastructure to sell. You use their e-commerce applications, their algorithms, and their processes. You depend on them for the sales.

Sure, the sales can increase, but you may not know why. [GE executives recall how Mr. Jack Welch would get angry when the sales went high and they couldn’t explain why.]

In a way, you lose control over your sales process and data to the marketplace.

Why is it a big problem?

Because, if the sales go down, you would be clueless about it. And so, would not know how to fix the problem.

Let us see an example of what it means by not having control.

When you are selling on marketplaces, you cannot control what products are being sold beside yours. Worse, what if the other product looks identical to yours but is from your competitor. Worse still, what if the other product being sold has the same brand-name as yours, but in altogether different category.

It DOES happen!

Here is a real example* of a brand selling at one of the top marketplaces:

The organic soft-cotton baby onesie, is selling alongside

woman’s cocktail dress of the ‘same’ brand-name (but from a competitor); selling alongside

motor flush oil of the ‘same brand-name; selling alongside

a music label of the ‘sam-e brand-name

– all of them in the same window.

And you cannot do anything about it.

Reduced analysis and marketing costs = Risking business survival

Generally, marketplaces own the data on your product sales. The minute a retailer signs up to a seller’s account on a marketplace, they give permission to the marketplace to use their sales data however they choose. Most marketplaces don’t share that data back with the sellers.

So, in reality, when you choose to sell through a marketplace, you don’t just pay listing fees and a commission per transaction. You also pay with your sales data, and future sales.

[I would re-read that last sentence to let it sink in.]

Marketplaces can use your sales data to gather your customer intelligence. They can leverage it to offer your customers better deals through their in-house labels.

Sellers have shared stories about how this has impacted their business.

In short, you risk losing your loyal customers to your competitors if you do not leverage your sales data yourself.

No waiting for sales-success = Less opportunity to build your brand

Online marketplaces try to make the seller onboarding process easy to bring more offline sellers on their e-commerce platform. They try to make it smooth and quick. You can start selling in a few days [and you may stop selling in fewer days if you violate their policies].

Not just that, you may also start realising sales quickly on marketplaces. However, the presence of many other products makes it difficult for consumer to register your brand among so many others in their minds.

You are successful quickly = Threat of getting undercut on prices

If you start doing really well, someone will notice and one of the two things may happen – they may offer to buy you out or they may undercut you on price and terms, eventually killing you.

Online Business Growth

Remember Zappos? Zappos was extremely customer-centric, very successful. It was the first company that sold shoes online, at scale. They put a lot of importance on understanding shoes, their culture and customer centricity.

When Amazon wasn’t going anywhere with its own online shoe store, Endless.com, they made their first attempt to acquire Zappos in 2005. Zappos declined. What happened later is not up in public domain. However, Amazon eventually acquired Zappos in July-2009.

Hyper-competitiveness – Forced to sell on price, not differentiation

Conservative estimates put the number of active sellers on Amazon at 2.3 million as of 2019. Chances are, many of them are selling the same products as you do. This makes it difficult for you to compete, if you do not have aggressive [read: less] pricing, that helps the algorithm pick your product ahead of the competitors’.

Diapers.com may be the case in point. They built a $100 million business selling diapers online. They offered free delivery of diapers and other products to parents. But they couldn’t sustain the competitive pressures and ceased to exist in 2017.

Restrictive TnC on how you can communicate with customers = Limits brand building

There may be marketplace limitations on how your business can brand and communicate itself on the marketplace. Moreover, any slightest hint of violating the strict policies will earn you the dreaded ‘seller suspension’ message.

Does that mean marketplaces are bad?

NO! Not at all.

In fact, they have disrupted some aspects of retail for the better.

For example, online shoppers love Amazon. Amazon is allowing them to have wider selection, shop-anytime-anywhere convenience, and enjoyable shopping experience, all at a cheaper price. They have developed a world-class e-commerce platform over the years.

Marketplaces can be good for small retailers, that do not have resources to have their own e-store. Also, marketplaces may be useful for those businesses not aiming to create an enduring brand.

But they may not be for everyone.

You need to figure out whether marketplaces are right for you.

Then, what is the way forward to online business growth?

Companies are waking up to the risk of increasing their dependency on marketplaces. More and more mid- and large-sized companies are embracing “direct-to-consumer” sales model.

Almost all large businesses and brands have their own e-commerce stores. Some of them were tempted initially but then recovered themselves from increasing their dependency on the marketplaces.

Nike – just doing it without a marketplace!

Nike is one such example. Recently, Nike confirmed to CNBC that it will stop selling merchandise directly to Amazon, as part of its push to sell more directly to consumers.

To quote CNBC, “Prior to 2017, Nike had resisted such a deal with Amazon, focusing its attention on its own online marketplace and stores. The fear for many brands has always been that, by partnering with Amazon, a company loses control over how its brand is represented on the site.”

This Veracle makes a point that mid-sized businesses should strive to have their own e-commerce set-up. They should attempt to leverage their sales data using analytics. This could be the right way for their online business growth.

What do you think? Have you seen a mid-sized business struggle with this dilemma?

*name withheld on request.

Cover Photo courtesy: Pradnya Design Consultants

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customer shopping behaviour in e-retail

Know customer shopping behaviour KPIs in e-retail?

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Customer shopping behaviour is an important concept in retail.

This is why.

How do you grow your retail business? You sell what customers want. How do you know what customers want? Well, you observe how they buy.

When customers buy a product or service, they do certain things. First, they search for the product online or in stores. Next, they try to seek more information and compare prices. Then, they check product ratings and seek feedback from friends. Over time, they engage with brands through social media.

All the actions mentioned above describe customer shopping behaviour.

Customer shopping behaviour in e-retail refers to how customers interact with your website. It involves understanding the actions a customer performs between landing on your website and leaving.

So, how exactly do we “observe customers”?

We do this using the various Key Performance Indicators (KPIs). KPIs help us get a sense of real-situation quantitatively.

Previously, we saw that e-retail and physical retail have different KPIs.

Now, we can measure the customer shopping behaviour in e-retail using the following KPIs:

  • Total visits
  • Bounce rate
  • Shopping cart abandonment rate
  • Shopping cart conversion rate
  • Sales conversion rate
  • Average duration on page

The flowchart in the figure below illustrates these actions. The little boxes on the right of each process show the corresponding KPI.

customer shopping behaviour flowchart
Flowchart depicting customer shopping behaviour in e-retail

Customer Shopping Behaviour KPIs in e-retail

Here is a brief explanation of each KPI.

Total Customer Visits

Total visits KPI is the total number of visitor landings on a website.

According to Google, 63% of all shopping begins online. That makes ‘Total Visits’ the vital first KPI for an e-retail sale. E-retailers try to increase this KPI to increase sales.

Bounce Rate

Bounce rate is the proportion of visitors landing on your website and leaving without taking any action.

If the website is engaging for customers, they interact with it. More the interaction, lower is the bounce rate, and better are the prospects of making a sale.

There are various reasons for a high bounce rate. Moreover, a high bounce rate doesn’t tell the entire story. Also, there are ways to improve it.

Shopping cart abandonment rate

This KPI means a customer added products in their e-retail shopping cart but later abandoned the order.

According to Statista, 63% carts were abandoned because shipping cost was too high. While these customers have not yet purchased, they are most easy to convert to a sale.

Shopping cart conversion rate

Similarly, this metric helps e-retailers measure the number of completed orders compared to the total number of shopping carts initiated by potential customers.

It is calculated as a ratio of number of visitors who placed an order, to the total number of visitors who started a shopping cart. It is expressed as a percentage.

Sales conversion rate

Google defines sales conversion rate as the ratio of transactions to sessions, expressed as a percentage.

The recent Adobe Digital Index 2020 report pegs average global conversion rate in retail at 3% of the total visits. The sales conversion rate varies across various retail categories. Conversion of consumer electronics is only half at 1.4%. Gifts, and Health & Pharmacy generate the highest conversion rates at around 4.9%.

Average duration per page

One e-retail KPI to measure is the time spent on each webpage. This is tracked as ‘average duration per page’.

This KPIs is based on similar one in traditional retail. In physical retail store, more the time a customer spends inside a shop, higher are the chances of purchase.

So, what do you think? Do you track these metrics? If yes, which ones do you think are the most important for your business?

Author: Sumit Patil

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E-Retail KPIs

How E-Retail KPIs different from traditional Retail KPIs?

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How are E-Retail KPIs different from traditional Retail KPIs?

E-retail is online website of a retail store. Let’s call their KPIs, e-retail KPIs.

Traditional retail is physical brick-and-mortar retail store. Let’s call their KPIs, traditional retail KPIs.

E-retail and traditional retail by their nature are different. The difference exists from both perspectives: customer perspective and the retailer perspective.

The customer perspective drives their shopping preferences and buying behaviour. Customers who value convenience, price comparison, time-saving, and ability to shop 24×7 prefer to shop online. Whereas, customers who want to touch, feel, and try the product first tend to shop in physical stores. Increasingly, customers are buying in Omnichannel environment. That is, they discover a product in one channel, check it out in another one, and buy through a third (see Figure).

E-Retail KPIs
Omnichannel shopping is becoming the norm

The retailer perspective influences their business operating behaviour. Traditional retailers focus on maximising in-store experience for their customers while optimising store space. While e-retailers focus on online shopping experience and user personalisation.

Therefore, this influences their KPIs, or Key Performance Indicators.

E-Retail KPIs

Many e-retail KPIs are common with traditional KPIs. Some of these are the various financial ratios, customer retention, and conversion rate. However, e-retail KPIs are different from traditional retail KPIs in two major areas:

  1. Customer Acquisition Channels
  2. Customer Shopping Behaviour

Let us see how.

Customer Acquisition Channels

This is the source of customer traffic to your business. Understanding where your customers are coming from is extremely important for business growth.

E-retail channels are primarily organic search, direct search, referral, e-mails, and social media. These channels actually lead customers to e-retail store (i.e. the website). So, e-retailers can easily measure the percent of customers acquired from these different channels. They can then devise their deliberate strategy around these insights.

For example, Facebook generates 13.9% of e-retail website traffic, but actual sale happens in only 4.7% of cases. This is a critical piece of information as it will allow you to allocate resources efficiently and ultimately improve ROI.

Traditional retail channels are mainly word of mouth or advertisements in print, television, radio, and social media. For traditional retailers, it is nearly impossible to accurately calculate the percent of customers acquired from these different channels. This is because, these channels do not ‘redirect’ them to store.

For example, a customer actually visiting a store may have seen an ad or may have been referred by word of mouth. Moreover, they may not even remember this information when they visit the store.

Customer Shopping Behaviour

Customer behaviour varies a lot between in-store purchase and online purchase. Understanding customer behaviour is central to acquiring more customers.

In e-retail, KPIs like Shopping Cart Abandonment (SCA) and Customer Lifetime Value (CLV) are important and helpful. The analysis of shopping cart abandonment rate and the list of discarded items can help improve our understanding of purchase intent of customers. Similarly, understanding a customer’s lifetime value helps in targeting profitable customers more effectively.

Whereas for traditional retail, understanding shopping behaviour for every customer is problematic and costly. We can only perform market basket analysis. This will only analyse the products added together in cart. But there is no definite way to measure discarded items from cart in physical store. Moreover, physical space oriented KPIs like sales per square foot are not relevant to e-retail.  

In a nutshell, it is essential for retailers to rethink the right KPIs while taking the retail business online. More so, considering that omni-channel shopping is becoming the norm.

Author: Sumit Patil

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Growth-oriented

Are you survival-oriented or a growth-oriented executive?

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Are you a survival-oriented or a growth-oriented executive?

Top executives at any organisation are responsible for growth of the business. Their professional careers grow (only) if their business grows.

The responsibility lies squarely on the chief executive officer. They are in charge to set the strategic direction and align everyone to it to achieve their goals.

However, the chief executive officer role is a complex one to shoulder.

Over the years, the top executive failure rate has varied from 30% to as high as 60% leading to CEO turnover. Significant proportion of this attrition is involuntary. According to The Conference Board, a staggering 30.5 percent CEOs were sacked by their boards in 2019. PwC’s Strategy and CEO Success study puts the lost market value due to this forced attrition at an estimated $112 billion annually.

One reason for this high CEO turnover is failure to deliver desired results in line with stated strategic goals.

These CEOs often have best ivy-league-education and rich execution experience. They have consistently delivered high performance in their previous roles. Yet, they fail in meeting the objectives as CEO.

While there are various reasons behind it, there is one that is less obvious.

The reason has come to the fore more prominently in the current China-virus pandemic.

It is CEOs’ inherent attitude to managing business strategy.

CEOs fall in two categories based on their mindset towards business strategy.

  1. Survival-oriented CEOs
  2. Growth-oriented CEOs

Survival-oriented CEOs are cost-focused. They believe in maintaining profitability by driving the expenses down. They do not think of investing in growth stimulating actions.

During times of crisis, survival-oriented CEOs follow survive-today-grow-tomorrow principle. They shift focus to short-term. As part of that, they cut costs and downsize operations. These actions help them show good short-term results. But long-term growth prospects of the organisation fall in jeopardy.

Their focus, tactical rather than strategic, can be hope strategy at best.

Being a survival-oriented CEO is justified in some exceptionally challenging situations. This is especially true if the actions are temporary taken just to tide over the crisis.

But this is where it gets counter-intuitive.

A CEO is successful when they achieve long-term results despite the challenges, whatsoever.

On the contrary, Growth-oriented CEOs are revenue-focused. They stay committed to achieving their long-term goals despite the challenges.

The growth-oriented CEOs usually follow a very deliberate strategy to grow. They employ innovation and data-driven strategy for future growth. Most importantly, they commit resources to achieve the business goals while adapting to any changes the challenges may present.

Even during crisis, the growth-oriented CEOs do not lose sight of the strategic goals. They fervently keep long-term outlook. The short-term results may suffer in their tenure, but they are more likely to show good results in the longer term.

Such CEOs spend their time and efforts towards planning and pursuing a working business strategy.

Mr. Bezos is one such CEO. Data science and innovation are hallmarks of his growth strategy. In his words:

We can’t be in Survival mode. We have to be in Growth mode.

You can find out your attitude as a chief executive. Take the CEO Genome quiz.

So, have you noticed a survival-oriented or a growth-oriented behaviour recently? What actions did they take that made you think so?

You can also subscribe to our blog – Veracles – to receive interesting articles and insights in email. We would love to read your perspectives and comments on that.

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management consultants making decisions

Why do Businesses hire Management Consultants?

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To succeed in business and your professional goals, you need to be able to do two things:

  1. Make the right decisions
  2. To be able to justify the right decisions to stakeholders to take them forward

Making right decisions helps because it saves time, money, and heartburn resulting out of the consequences of making wrong decisions. This is especially true when there is a lot at stake on that decision.

It is equally important to be able to justify the right decisions so that they can be implemented.

A well-thought out decision that cannot be executed because you cannot justify it, is no better than a bad decision itself.

Do all situations require decision-making?

No, not all.

There is no decision to make in a TINA (“There is no alternative”) situation.

However, the decision-making process kicks-in when you have two or more options.

Businesses routinely have to make decisions like Buy-Build, Invest-Hold-Divest, or Strategic Transformation-Operational Excellence.

It becomes hard, complex, and stressful, if the options are similar to one another.

Some examples:

  • Introduce a new product line or stretch the existing product line.
  • Whether your company should invest in improving existing technical capabilities or hiring technical talent from outside.
  • Consulting firms in online retail having to decide whether to advise a client to invest more in technology or in physical stores.

Decision-Making

In essence, decision making process involves the following five aspects – Objectives, Options, Process, Timelines, and Stakeholders:

  • Why do you need to make a decision – the objective(s)?
    • Are your objectives clear? Do your objectives align with those of your colleagues or do they contradict?
  • What different choices do you have – the options?
    • Have you considered all possible available options for evaluation? Are these options very similar to one another?
  • How do you make the decision – the process?
    • Is it opinion-based (aka gut-feel based) or facts-based (aka data-driven)?
  • When do you need to make the decision – the timeline?
    • Is your decision-making quick enough or is it time-consuming?
  • Who do you need to get the buy-in from – the stakeholders?
    • Can you justify your decision to the stakeholders to get their approval for implementation?

Ideally, businesses must make decisions that are organisation-objective-oriented, facts-based, quick and efficient, and unbiased. Such decisions are invariably optimal for the business.

However, in real-life business situations, decision-making can be tricky:

The objectives of people involved in decision-making may not always align. Thus, they may not arrive at a decision at all.

Personal biases may interfere with business objectives, so the end decision may be unfairly influenced.

The time taken to make a decision may be so long that the particular business situation itself might change in the course of taking the decision, rendering the decision irrelevant.

The subjective process – basing decision on people-opinions rather than data – is difficult to justify to get a buy-in.

Thus, in reality, businesses tend to make decisions that are subjective, opinion-based, time-consuming, and biased.

Such decisions tend to be highly sub-optimal. They do not invoke the confidence required to invest time, money, and resources to take them forward for implementation.

A decision made in this manner is full of risk and uncertainty.

Guess what?

Risk and Uncertainty are the two things business executives do not like, and want to minimise.

That is why, businesses and other organisations look to external management consultants for help in making decisions.

It helps them manage the risk and uncertainty involved in the decision-making process and in the aftermath.

How management consultants help in decision-making?

Management consultants are extremely objective-oriented. They are adept at working with specific details keeping the big-picture in mind, and leaving out extraneous details.

They are highly analytical. It is their job to ensure completeness and correctness of analysis. They apply specialised skills, tools, and techniques designed to analyse different options. Moreover, they leverage their cross-domain expertise acquired from executing similar engagements from the past.

They bring external, objective perspective. They trust data and facts more than people opinions. Relying on data removes any personal (emotional) bias.

They are particularly sensitive to the urgency of making a decision. They acknowledge that a timely decision is more important than a perfect one*.

Very importantly, management consultants arrive at a decision in an analytical and logical manner. Moreover, they help in explaining and justifying the decision to stakeholders with the help of facts and data.

A decision made in this manner raises the confidence level to commit organisational resources towards its implementation.

This is why, businesses and other organisations hire consultants in their decision-making.

How do you make decisions in your business or professional world?

*One important side-note here:

In this aspect, American decision making differs from German decision-making. In the American business context, external forces like customer request or market need often guide decision-making. So, they think that it is better to make a suboptimal decision quickly, rather than make a better or optimal decision too slow or too late.

On the contrary, Germans believe that the time allotted to a decision should be determined by the nature of the decision. They believe that it is not dictated by external pressures such as customer request or market need or competitor actions. [Source: commentator John Otto Magee on differences in American and German decision-making process]

Author: Sumit Patil

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Cover photo credit: Kan Chana

How Deliberate Strategy can be your working strategy

How Deliberate Strategy Can Be the Working Strategy!

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The article “Does your business have a working strategy” mentioned three types of strategies that organisations employ to grow and prosper. The subsequent Veracles discussed the first two strategies – Nope and Hope. In this post, we talk about the third type. It is called Deliberate Strategy. It focuses on developing a working strategy for your organisation. Here we discuss “How deliberate strategy can be the working strategy for your business.”

What is Deliberate Strategy?

Deliberate Strategy is employed in an organization where business-executives show the following behaviour:

  • They are growth-oriented and are looking for new areas of growth, and
  • They have a risk propensity to commit resources to new approach

In this approach, businesses invest resources to develop a bespoke strategy tailored specifically to their business context.

In other words, businesses take deliberate steps within the context of their business situation to increase the likelihood of achieving long-term goals.

In short, the business outcome is not left to chance. Every aspect of operating and growing the business is deliberately and meticulously planned.

It is like a journey one undertakes to reach a destination.

Now, a journey constitutes a starting point, a destination to reach, the route that takes from the starting point to the destination, and the resources required to undertake and complete the journey under any eventuality.

Likewise, developing deliberate strategy requires the following actions to be taken:

  1. Understand the current business context.
  2. Define business goals to be achieved.
  3. Develop plan to achieve the business goals from the current business situation.
  4. Commit resources to achieve the business goals while adapting to any changes.

Let us look at these four steps in more detail:

1. Understand the current business context.

The business-executives developing a deliberate strategy need to develop a complete understanding of the current business context with respect to the external business environment.

This involves obtaining customer intelligence, acknowledging operational capabilities, understanding product portfolio, acquiring competitor insights, and baselining financial metrics. This step will help you get a sense of your core ideology, financial and operational resources, organization strengths, weaknesses, and problem areas.

Why is understanding the business context important?

An organisation has to first clearly define a business objective in order to achieve the objective. The business context provides a frame of reference to define appropriate business objectives. For example, a firm with annual sales of $10million grappling with scale-up challenges cannot directly aim to become a $1billion organisation.

Moreover, the business context serves as the baseline against which the firm can measure and compare the progress.

2. Define business goals to be achieved.

Organizational purpose and vision are the guiding-light for business-executives defining business goals. Therefore, it is necessary that business goals are clearly defined. Doing so helps the executives to communicate them unambiguously to all layers of the organization.

A well-defined business goal adheres to the QTR [read: Quarter] principle:

  • Quantitative – it is measurable
  • Timebound – it has a definite time frame within which to achieve it
  • Reasonable – it is realistic, even if difficult, to achieve in the given time frame

Here are some examples of some meaningful business goals (set by real-life firms):

  • Grow annual revenues to $865 million at a CAGR of 20% within three years
  • Conquer 5% more market share in our target market by the end of the year
  • Reduce operational costs to realize 15% profitability YoY within two years

A QTR-based business goal establishes the destination for a business to reach within a stipulated time.

3. Identify the route to reach the business objectives.

Once the business goal is defined, the CEO and the top management need to put together a route to that end. A customer-centric plan acts as the route.

This step is crucial to developing a deliberate strategy. In fact, this is where a Deliberate Strategy differs from a Hope strategy (or any other best practices strategy).

A Hope strategy is forward-designed and forward-implemented.

Whereas, a Deliberate strategy is backward-designed but forward-implemented.

Let me explain.

A Hope strategy involves employing strategies and best practices that have worked for other businesses. Naturally, these strategies are picked up by an organization, customized for their use, and implemented to reach the business goals. Thus, it follows a forward path.

On the contrary, a Deliberate strategy starts from the end-point, i.e. the business goals. It involves figuring out what is required to reach that state, and then coming backwards by designing a slew of bespoke actions to reach that state. This is how it is backward-designed.

This is the key difference between the two.

4. Commit resources to achieve the business goals while adapting to any changes.

Once the business goal is defined and the business strategy is rolled-out, the organization commits to the implementation journey along the strategic route.

A business strategy for an organization exists within the context of its current business situation. The business situation is part of the larger business environment, which includes the market (which buys) and the industry (which sells) among other stakeholders, like suppliers, regulators, government and technology.

And the business environment is constantly changing.

Buyers (or customers), sellers (or competitors) and suppliers keep entering and leaving the business environment, like new passengers en route your journey.

Like you, your competitors are also persistently working on their own strategies to grow and capture market share.

Governments keep looking for newer ways to tax businesses, and regulators are bringing new regulations to safeguard fair competition.

Among all this, technology disrupts the way of doing business.

To reiterate the point, the business environment is continually changing.

Therefore, it is imperative to keep looking for any changes that risk execution of your bespoke strategy. The business needs to keep collecting data points and reviewing its strategy at regular intervals to ensure that the journey is on the right track.

These are the actions that make for a working strategy.

How Veravizion implements Deliberate Strategy?

At Veravizion, we have developed our own framework that we call contextual problem solving with deliberate strategy. This framework facilitates development of deliberate strategy using a Context-Drivers-Solution-Impact cycle. This framework applies to any business across industries.

There are many companies that have employed Deliberate Strategies in the past to grow predictably. Some examples (from across the industries) are 3M, Amazon, Apple, Boeing, Google, Nike, Nordstrom, Procter & Gamble, among many others.

While reading the names of these well-known companies as examples of businesses succeeding with deliberate strategy, it is easy to think that deliberate strategy works only for the big ones.

This is a classic logical fallacy.

In reality, most of these companies were virtually a nobody before they implemented deliberate strategies.

Deliberate Strategy

3M were miners. Their earlier venture, started in 1902, to mine corundum failed. 3M tried their hands at other things like making sandpaper. They failed less, yet did not succeed like success.

Later, they chose to embrace “innovation and collaboration” as their Deliberate strategy.Today, 3M is known as world’s most innovative company.

More Examples…

The following example has been taken from “Built to Last”, the bestselling book by Jim Collin and Jerry Porras.

Boeing, until 1952, had been building aircrafts primarily for the military, and had virtually no presence in the commercial aircraft market. Boeing relied heavily on orders from their only major client – the U.S. Air Force – to survive. Nobody knew Boeing. Back then, their competitors Douglas Aircraft dominated and ruled the commercial market with their propeller-driven planes. Boeing wanted to enter the commercial market with a big, fast, advanced, and better-performing aircraft.

If Boeing had followed Nope strategy, we would never have known of them.

If Boeing had followed Hope strategy, they would have probably leveraged the competitor strategies of the time, and would have built a better propeller plane at best.

Instead, Boeing embraced a Deliberate Strategy.

Taking inspiration from their purpose and vision – to be on the leading edge of aeronautics pioneering aviation – Boeing announced their goal to make a jet plane for the commercial market. No other aircraft company had proved that there was a commercial market for jet aircraft. Moreover, such a project was going to cost them about three times their average annual after-tax profit – roughly a quarter of their entire corporate net worth – to develop a prototype for the jet. But Boeing committed to it. The strategy resulted in such fine planes as 707, 727, 737, 747, and 777. Douglas aircraft could never quite catch-up to Boeing. Douglas struggled to survive by merging with McDonnell aircraft in 1967. Eventually, Boeing acquired McDonnell Douglas in 1997.

Apple is a more recent example of a business that became successful by devising and implementing Deliberate Strategy. Apple believes in “breaking the status-quo”.

The strategy helped them differentiate in the crowded smartphone market and created an enviable position for them. As a result, Apple was the most valuable brands in the world for eight straight years.

To sum it up with key insights…

Deliberate Strategy helps an organization achieve their business objectives in a decisive and predictable manner.

The predictability comes only by acting deliberately.

The whole process is highly intentional, methodical, and purposeful.

And Deliberate Strategy is universal. The above framework would still work if you replace organization by an individual or an institution.

There are many examples of successful implementation of deliberate strategy in all spheres of life.

Deliberate strategy is the difference between many successes and failures.

An organization’s strategy is its source of sustainable competitive advantage. Should one squander it away by following someone else’s strategy? What do you think?

You can also subscribe to our blog – Veracles – to receive interesting articles and insights in email. We would love to read your perspectives and comments on that.

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Cover photo credit: Brad Wetzler

Other photos: 3M.com, Boeing.com, Apple.com

Analytics in Healthcare - A Case study. Image of a medical professional using analytics in complex medical procedures

Analytics in Healthcare: A Veravizion Case Study

Veravizion one comments

This article isn’t just about the application of analytics in healthcare. This is more about how analytics is being harnessed to evaluate the latest innovations in healthcare technology in order to help leaders in healthcare make policy decisions about embracing the new technology.

 

Techno-medical innovations

Over the last couple of decades, there have been quite a few noteworthy technological advancements in healthcare industry. Electronic health records (EHRs), HAART for HIV combined drug therapy, minimally invasive surgery, needle-free injection technology, MRI, genomics, and non-invasive diagnostics are just to name a few. These innovations are extraordinary because they are transforming the way patients are being diagnosed and treated in a better, faster, and safer way.

One such technological advancement was endoscopic surgery or minimally invasive surgery. This innovation revolutionized the way surgeries are performed. Knowledge@Wharton once ranked it tenth among the “Top 30 Innovations of the Last 30 Years” list. The conventional surgical procedures were highly invasive, riskier, painful, and time-consuming. They required long post-operative hospital stays and longer recovery times. Thanks to technological innovations, today, patients have an option of choosing either robotic surgery or endoscopic (non-robotic) surgery, which result in much shorter recovery times, less pain and dramatically reduced scarring.  This augurs well for patients who are looking to return back to work quickly.

Minimally Invasive Cardiac Surgery

Many hospitals and cardiac care centers worldwide are evaluating the efficacy of the newer – minimal invasive approach – for specific cardiac surgical procedures. The conventional cardiac valve repair/replacement surgery involved opening up a patient with an 18 -20 cm vertical incision at the sternum. The newer minimally invasive procedure involves approaching the heart through a much smaller (horizontal up to 7cm or a key-hole) incision under the right breast. The new cardiac procedures are more complex for surgeons to perform as the area of access (to heart) narrows down drastically compared to the wider access that the conventional surgery allows. Nevertheless, the new procedure is believed to involve less bleeding, lower risk of infection, faster recovery times, and lesser expenses for patients.

MinInv-mod

 

Analytics in Healthcare – A Case Study

Our client# had been studying the effectiveness of the new method of cardiac surgery compared to the conventional way of performing the same procedure. The study allowed them to enroll patients for one of the two types of procedures depending upon a number of physiological and health factors of each patient. They performed the study over a period of three years and recorded the observations. The observed data included the type of procedure performed along with a number of associated output parameters such as hospital stay duration and pain levels experienced, among many others. A power of 80% was chosen; the data was collated and randomized for detailed analysis. Our analysts collaborated closely with the client to understand the nature and significance of each output parameter. We identified the right statistical tools and techniques to be applied based on the nature and type of the data to be analysed. The analyses were performed with a statistical significance level of 5%. The results were examined in detail both for statistical and clinical significance. The statistical test results were cross-checked quantitatively as well as qualitatively with subject matter experts for completeness and correctness in order to arrive at unambiguous conclusions. Each conclusion shared with the client was solidly backed with data. The results would help them make a fact-based policy decision to embrace the newer procedure for their center. Going beyond the statistical analysis, a predictive model was developed based on the results of the initial study. The predictive model would assist the client in determining the right approach to adopt for a future patient depending upon a number of factors. This is expected to improve the cardiac procedural outcome at the healthcare center.

 

Application of analytics in healthcare

Predictive modeling using machine learning is a powerful technique that helps in forecasting a probable outcome based on empirical data. Predictive modeling and analytics has tremendous potential in healthcare to improve the overall quality of patient care services. Analytics has shown promise to all the constituents involved in the healthcare sector viz. patients, physicians/surgeons, hospitals, pharmaceutical companies, insurance companies, and public health professionals.

  • Patients – be more aware of self-health

Some of the uses of predictive analytics include increased accuracy of diagnosis, early detection of a disease condition in at-risk patients using genomics, and evidence based medicine. In general, with the proliferation of wearables, patients can be more aware and assured of their own physical conditions.

  • Physicians/Surgeons – increase diagnostic accuracy

When a patient is visiting a physician complaining chest pain, it is often difficult for the physician to know whether the person needs hospitalization. If the doctor is using a well-tested predictive diagnostic system, in which he can accurately input the patient’s physical and clinical condition, then the system can assist the physician make an informed judgement.

On the treatment side, a physician can follow a patient’s data (or EHRs) for many years and can prescribe a treatment regime tailored to the patient’s specific condition. This fact-based treatment reduces the probability of causing any major side effects.

  • Hospitals – improve patient care with low mortality rates

Like the case study narrated above, predictive analytics can help hospitals and research centers in evaluating the efficacy of various procedures and treatments in order to improve the mortality and morbidity rates during the post-op period.

  • Pharmaceutical Companies – bring new more effective drugs to market faster

Researching a new drug and conducting a clinical trial for the new drug are two very lengthy, costly and resource intensive processes for pharma companies. The R&D process for pharma companies can become more productive by leveraging the power of machine learning to systematically test the mixtures of existing proven molecular components. This may help in identifying new drugs with higher probability for success. Moreover, predictive modeling can be implemented to test the effectiveness of new drugs in a faster and less expensive manner. This will not only help them bring the drug to the market more quickly, but will also reduce the overall healthcare costs per patient significantly.

  • Insurance Companies – reduce cost of insurance

Healthcare insurance service providers can implement predictive analytics models to better forecast insurance cost for individuals. Presently, the insurance cost is more a function of a person’s age, current medical condition, and the ‘plan’ they are opting for. Now, advancements in medical technology have made it possible to make genetic information and other healthcare related data easily available. Insurance providers can make use of this information to arrive at future medical expenses for a person, and make more informed decisions about the insurance costs associated with that individual. This will be a more realistic assessment of insurance needs for a person and will be beneficial to both sides in terms of provisions to be made.

  • Public Health (Professionals)

The World Health Organization defines public health as all privately and publicly sponsored measures to prevent disease, promote health, and prolong life among the population as a whole. Its activities aim to provide conditions in which people can be healthy and focus on entire populations, not on individual patients or diseases. Here, analytics can be implemented in predicting early detection of pandemics and flu outbreaks. GoogleFlu was a project which estimated Flu and Dengue fever based on search patterns. While the project is not publishing anymore, empirical data is available for research purposes.

 

Conclusion

While application of analytics in healthcare is possible in all spheres of patient care, it is more about leveraging the power of analytics in rapidly evaluating the true value of techno-medical innovations for human benefits. Analytics makes it possible to make fact-based decisions about adopting and internalizing these latest technological advancements that promises to help us lead a quality life for a few years more.

 

 

References:

http://knowledge.wharton.upenn.edu: a-world-transformed-what-are-the-top-30-innovations-of-the-last-30-years/

http://pharmajet.com: significant medical innovations of the past 20 years

 

 

Cover image credit: ©Pharmajet

# Client names and other details are confidential


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Most Popular Perspectives from 2015

Most Popular Perspectives from 2015

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It’s New Year again – Happy New Year 2016!

Thanks for your overwhelming response to our insights shared with you over the last year.  We are excited to announce the most popular perspectives from 2015 published at Veravizion/Perspectives. These are our biggest stories of 2015 in case you missed them.

One of the wonderful aspects about sharing our insights is appreciating the incredible business acumen, diversity, and depth of thinking of our readers. Our articles, which we call our perspectives, are written after carrying out thorough research on every topic. Our belief is that these articles will push you into thinking about how the (business) world is transforming before our eyes, and how some long-standing business principles may not necessarily hold true today.

As the year is over, take a quick glance at how the world is getting used to being data-driven. Enjoy these stories and let us know about your top content in the comments. In the next one, we will see how the analytics world is likely to unfold in 2016.

Most Popular Perspectives from 2015

Story# 13 Lessons Every Executive Must Learn From Wimbledon Centre Court For Business Success

Most Popular perspectives from 2015 - Lessons from Wimbledon

Sports has always had many lessons to share for business success; and everyone and their grandpa knows this. Nevertheless, its relevance has never been as great as it is in today’s analytics age.

This article illustrates this phenomenon by drawing lessons for business success from 2015 Wimbledon final between Djokovich and Federer.

 

 

Story# 2Data Science: The Next Frontier For Business Competitiveness

Most Popular Perspectives from 2015

This article on Data Science by Veravizion was originally published as the cover story in the July-2015 edition of Computer Society of India – Communications magazine. You can also read this article at its source at http://www.csi-india.org (Link path: http://www.csi-india.org->PUBLICATIONS->CSI Communications->CSIC 2015->CSIC 2015(July)).“

 

 

Story# 3The Digital Transformation Imperative: Why Businesses Must Have Online Presence – An INFOGRAPHIC

Most Popular perspectives from 2015

INFOGRAPHIC: click to enlarge

The business world is fast going online, so what’s the big deal? The big deal is in grasping the fact that it may replace your business if you do not become a part of the change, soon.

The infographic in this article gives a glimpse of how fast the consumer purchasing trends are changing from physical to digital, and what you can do about it.

 

 

Story# 4How Do You Achieve Strategic Transformation For Enduring Growth Of Your Company? – Part-I

Most Popular perspectives from 2015

Historically, leaders of cities, communities, and organizations have been embracing strategic initiatives to ensure long term sustenance and growth of their respective ecosystems. Many a times, these initiatives were ‘intentionally’ directed at bringing about long term transformation of their systems. But do such initiatives specifically aimed at strategic transformation always result in the lasting growth of the entity? We discuss it in this article.

 

Story# 5What Does Digital Maturity Really Mean?

Most Popular perspectives from 2015

This is the last article in the Digital Business series in which we illustrate how small and medium businesses can transform themselves from mere-physical to also-digital, and be more competitive. We do this by taking a visual example of a fictitious light business of our lovable businessman Bobstick.

 

 

 

We hope you enjoy these stories!

 

 

Strategic transformation photo credit: businessinsider

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What Does Digital Maturity Really Mean

What Does Digital Maturity Really Mean?

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When I went to medical school, the term 'digital' applied only to rectal exams.” - Dr. Eric Topol

Well, things have certainly changed since! The previous article – an infographic – discussed about the urgent need for businesses to achieve digital maturity in order to survive and thrive. But exactly what does digital maturity really mean for a small and medium business organization that thus far has focused primarily on serving local customers?

You might be thinking whether this question – what does digital maturity really mean – is really relevant in today’s digital age. Our implicit hypothesis is that most businesses, especially those in the developed countries, are already digital by now, and so they must know what digital maturity really means.

Well, evidence shows that the above assumption is far from true.

Consider these stats from the UK Business Digital Index 2015 report which states that almost a quarter of UK businesses still lack basic digital skills:

  • Almost 35% of around 5.2 million organisations in the UK have a very low level of digital understanding and capability – they do not make use of the internet for their business and do not have any web or social media presence
  • Barely 53% of the businesses have their own website
  • Only 46% organizations have a medium level of digital maturity – i.e. they use basic e-commerce tools, perform some banking transactions online, and have basic social media presence.

Therefore our question is extremely relevant even today!

 

So what does digital maturity really mean?

To understand this, let us quickly recapitulate why businesses want (or need) to go online in the first place.

Businesses go online for a variety of reasons (read: benefits) such as expanding markets to grow business, deepening engagement with target customers, broadening product and service offerings, leveraging multi-channel capabilities, and in general staying competitive amidst the changing global business landscape.

All these reasons can be summed-up in one simple line: Business organizations, like yours, are going digital because your customers are increasingly seeing, hearing, feeling, searching, interacting, sharing, and buying stuff online.

The above sentence encapsulates the entire online activity happening today in the business world. [tweet this]

In short, your market has gone online and it would serve you better if you do, too.

So what takes you there?

Here are the 5-stages on your journey to achieving digital maturity for your business:

  1. Digital Apathy
  2. Digital Literacy
  3. Digital Transactions
  4. Digital Engagement
  5. Digital Maturity

 

Let us look at each one a bit more closely with an illustrative pictorial example for each:

 

  1. Digital Apathy:

This is the initial (or default) stage of any organization typically born before internet. This company mostly sells their products mainly to customers in its neighbourhood through its physical stores. There is a passive resistance (or indifference at best) in accepting digital strategy due to inertia mixed with scepticism towards going digital. There is absolutely no online or any beyond-the-shop interaction with the customers. The business owner is unmindful about going out of business in this increasingly digital world, and apparently suffers from ‘it won’t happen to me’ syndrome.

 

What Does Digital Maturity Really Mean?

 

  1. Digital Literacy:

There is (almost) a reluctant acceptance to the changing business scenario. The business has a (mostly passive) website that displays the products and services on offer but hardly anything beyond that. On the positive side, customers now have a gateway to your offerings and can find information about your products and services. There is a new one-way channel to update customers about new product and service offerings – a good beginning to say the least.

What Does Digital Maturity Really Mean?

 

  1. Digital Transactions:

The business finally wakes up to enormous possibilities the e-commerce world offers and introduces online transactions to sell its products online. There is a conscious effort to implement basic customer analytics to understand buying customer profile to grow revenues. The business also tends to apply e-commerce intelligence to provide leads reports to sales teams to grow further. There is an emphasis on generating and distributing user-oriented content in order to draw target customers to purchase online. Businesses may introduce their own inventory management and service fulfilment back offices to excel in their customer service to build customer loyalty. The business starts learning about rule based prioritization as they explore the benefits of implementing analytics for revenue and profitability growth.

What Does Digital Maturity Really Mean?

 

  1. Digital Engagement:

When a business establishes itself on the various social media platforms, there is a step change in the way it perceives customer interaction, customer engagement, and marketing. Old channels and methods of one-way communication are renounced in favour of digital channels which enable listening to customers’ feedback first-hand and responding in their preferred channel to facilitate effective customer engagement. One important aspect of increasing engagement is to create product touch-points across all channels vis. physical, desktop, mobile, kiosks, catalogue, direct mail, and social media. The order in these cross-channel chaos is set by the use of marketing analytics which helps to mine hidden consumer insights, understand customer purchasing journeys, optimize advertising spend, and engage with prospective customers at early st(age) to nurture them into loyal followers.

 

What Does Digital Maturity Really Mean?

 

 

  1. Digital Maturity

The focus at this stage is on innovating the existing business model and on integrating the overall strategy. Personalization is the key here! Customers have 24x7x365 access to the products and services across different digital channels but still have an Omni-channel experience. For example, a customer becomes aware of your product in one channel, say Pinterest, actively searches for it online on his office desktop, physically touches and considers buying it in-store, ends-up purchasing the stuff on their mobile, and shares his new purchase with Facebook friends. Matured businesses (like P&G and Amazon) have institutionalized integrated use of analytics services to study individual consumer behaviour through comprehensive understanding of customer interests, affinities, and actions. They are drawing intelligence trends to predict customers’ future wants and needs before customers themselves realize it. Considering the enormity of data getting generated every day, matured businesses are implementing advanced algorithms to auto-analyse data at its source for more real-time application.

 

What Does Digital Maturity Really Mean?

 

 

Achieving digital maturity is not the end; rather a beginning of the implementation of a truly personalized digital strategy for each consumer. Businesses embracing digital strategy will eventually lead the way.

We are in the throes of a transition where every publication has to think of their digital strategy” - Bill Gates

 

 

Cover photo credit: yourgenome.org

 

If you liked this article then you may also like to read The Digital Transformation Imperative: Why Businesses Must Have Online Presence – AN INFOGRAPHIC.

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The Digital Transformation Imperative

The Digital Transformation Imperative: Why Businesses Must Have Online Presence – An INFOGRAPHIC

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“81% of US consumers turn to search engines to find information on products, services, and businesses before making a purchase,” according to GE Capital Retail Bank’s second annual Major Purchase Shopper Study. The digital transformation imperative study performed by Veravizion indicates that this observation is not much different in other parts of the world.

Less than 20 years back, Google (or an online search engine in its current form) did not exist. Most commercial transactions took place at a brick-and-mortar store. People booked long distance train tickets standing in a long queue at the ticket counter, bought airline tickets from travel agents, rented DVDs in video stores, read about new fashion in a print magazine, and purchased music CDs in record stores.

Today, 70% of all the travel bookings and hotel reservations take place online.

Music CD shops selling LPs, Vinyl records, and CDs have ceased to exist.

DVD stores have virtually disappeared from the streets.

Paper magazines and print advertisements have given way to their online cousins.

 

‘In the present day, if your customer cannot find your business on Google, you probably don’t exist for them.’ In a relatively short span of time, this has come to be one of glaring truths that business leaders must accept. Today’s consumer seems to have too many things to do, and appears to have become impatient because of limited time at hand. She wants to get everything done at the snap of a finger.

The digital world allows them this convenience of having (almost) everything in just one-click or touch. In fact, customers are adapting to this technology-driven shopping so well that they are touching every screen – even ‘dumb terminals’ – looking for an interactive touch-screen experience. Recent research on e-commerce points to a growing trend of digitalization of businesses and even non-profit social organizations.

Many industries like flowers and footwear, where customers’ need to touch and feel the product was considered important, now have above average online penetration. The grocery and general merchandise retailer Tesco is a case in point. It was one of the chains that saw an increasing role of technology in day-to-day household shopping and launched their online operations; it is now world’s second-largest retailer by revenues. A few industries like online grocery and pet foods (remember Webvan.com and Pets.com?) had a false start because of issues with their online business models, but are now being resurrected by the likes of Amazon and FreshDirect. Slowly but surely, every industry is joining the digital bandwagon.

Consumers on their part are enjoying the omni-channel shopping experience. Omni-channel purchase means a customer buying across multiple channels – online through mobile or desktop, call centre, catalogue, direct mail, kiosks, physical stores, and social media – and having a seamless shopping experience. So a customer may discover a great product offer while browsing Facebook during breakfast, search more information about it online via desktop after reaching office, ring a few call-centres to compare prices during lunch, check the product out at a nearby physical shop on the way back home, and finally purchase it online from their home using a smartphone. Once the product arrives, they may update their friends on social media posting pictures of their new purchase. The entire shopping experience becomes conveniently embedded in their routine and is fun.

Thus, internet is playing a key role in how businesses are run today. Nevertheless, it still has some way to go. An e-commerce foundation report shows that a disproportionately high percentage of businesses, even in developed countries with high internet penetration, are yet to go digital. For example, almost one in four businesses in UK has none to low digital maturity, while the ratio is reversed in some of the developing countries in Asia-Pacific, where the rate of digital transformation is much higher.

The attached infographic presents a quick glimpse of how business landscape is rapidly changing. It implores, with substantial evidence, why business (and social) organizations must have an online presence to survive and thrive in this third millennium.

What has been your experience of going digital? We would love to hear.

The Digital Transformation Imperative

The digital transformation imperative

Click above infographic for enlarged view in new window

 

 

Share this Infographic On Your Site


References:

 

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Shifting focus of universities - analogy of flowers

Shifting Focus of Universities

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M  any educational institutions, that were founded long ago, would have started as a class of few students taught by a single master, covering maybe a couple of subjects. Harvard University started with nine students and a single master. Likewise, Samuel Johnson held the first classes in Columbia University with eight students in the class. Gradually, these institutions came to be revered next only to religious institutions as they grew in stature, size, and the number of disciplines offered. Over time, most of these institutions were offering all of the same courses; some of the courses might have lost their relevance but they still stayed.

Shifting focus of universities

Innovation in technologies and increasing globalization are the two major factors changing the face of education in the 21st century. The change is visible on both sides of the university admission counter. On one side, the student profiles enrolling in universities are changing rapidly – becoming more diverse demographically and geographically. On the other side, the universities are looking to keep-up with time, scrambling to stay relevant in this constantly-moving world. They are doing this by shifting their priorities on two key fronts:
The programs and courses being offered
The way these programs and courses are being delivered

The first point of concern for universities is the relevance of their programs and courses on offer.

Old technology or concepts either become obsolete or take a new shape and form every few decades. The first decade of twenty-first century has seen a sea-change in computing technology that has had a cascading effect on a lot of businesses. For example, social media and e-commerce – virtually non-existent over better part of the last century – are mainstays of today’s business world. With the advent of new technology, companies are under pressure to produce more for less to be able to compete effectively in the global marketplace. Companies continually question the relevance of old concepts, and try to invent new ones that can result in more quality and productivity. Industries share their feedback with universities on curricula either directly through industry-academia forums or indirectly through reduced job-offers to their students. Besides, they explicitly mention their requirements for the right skills in various job advertisements aimed at attracting prospective employees currently studying in universities.

For students seeking admission in prestigious universities, employability-post-education is a primary concern. Naturally they are looking to learn the skills expected of them by their future employers. So, the students prefer skill-based courses, which will make them ready for the job market, to basic knowledge-based courses, which are apparently lesser in demand by most industrial employers looking for ‘job-ready’ employees.

The academic institutions are expected to actively listen to feedbacks from students and employers, their prime stakeholders, and offer curricula in line with their requirements. A number of universities have swiftly responded to these changing preferences, and have undertaken comprehensive reviews of their programs and courses. For example, some universities are shifting their focus from courses based on art and culture to vocational courses. One such data point, observed by The Guardian, is the rate at which language degree courses are closing in the U.K. universities. Exhibit A shows the steady rate at which the courses pertaining to French, German, Italian, and Spanish languages have been closing down since 1998.
Shifting focus of universities - Language courses shifting trend

Universities cannot sustain the ongoing costs of modules that are less in demand. Unfortunately, easy targets for culling are those modules that are less biased in fetching jobs and are more expensive because you cannot replace say, a language teacher by a music teacher. Although, this shift in the focus is strongly debated by experts who say it is not a right thing to do, it seems to be the order of the day.

The second consideration for the educational institutions is the way their programs and courses are delivered.

The emergence and rapid percolation of internet worldwide has enabled the delivery of knowledge through a new channel – online – that was unheard of until the last decade. The name given to such a course delivered online over internet by education service providers is massive open online course (MOOC). One such organization that has taken MOOCs to a new level is Coursera (see www.coursera.org) that was launched barely a couple of years back. They have shown impressive growth within a short time-span and have already crossed enrolments of 10 million users. This splendid arrival can be attributed to the birth of a new demographic profile of students – an older professional desiring to pursue education but unable to do so in a traditional classroom setting. This new breed of students wants to be able to study anytime, anywhere at their own pace and convenience. Money is not their first concern as they are working professionals but moving away from job and family is, as they have family and kids.

Despite this overwhelming evidence, very few universities are offering online or even a blend of classroom and online teaching in their curricula. Universities simply can no longer close their eyes to the online presence. The new adult learner has money to dispense on tuition and fees, something that the universities are looking for with increasing privatization. What’s more, this new student is ready to learn at a fraction of the costs required of universities to spend on a traditional student learning in a college classroom. Suddenly, this seems like a very lucrative proposition for the universities. Also, they have the incredible performance of Coursera to vouch for. But hold on before you hurriedly join the MOOC bandwagon! Many universities have made a name for themselves because of a number of factors that are closely associated with physically attending the university. In some reputed campuses, it is more about the overall ‘student experience in these places’ than just the classroom learning. So, hastily shifting the scale in favour of MOOCs can spoil the party even before it can start.

This is where universities differ from one another and need to employ analytics to do a thorough study of their competitive advantage. The deep insights on why students prefer them can help them identify the right course offerings to be delivered online without cannibalizing their flagship courses. It will pave a way for their continued success in the future.


If you liked this article then you may also like to read Changing Student Demographics, Funding and ROI Challenges: How Universities Can Respond, and MOOC and the Education System Continuum.

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Changing Student Demographics

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U  p until the nineteenth century, higher education used to be pursued primarily by those from elite background. So demographically speaking, young men predominantly from affluent well-connected families largely formed the pool of such students. Many factors have caused this demographic profile to shift from privileged few to general mass. It is anticipated that by 2020, almost 50% of students studying in the U.S. and U.K. universities will be from diverse cultures, backgrounds, age-groups, and nationalities.

Latest UN data indicates that there is a direct correlation between mean-years-in-school and income-per-person (GDP per capita). As shown in exhibit 1, people from developed countries having better avenues at taking up higher education are generally better-off financially. They appear on the upper-right end of the chart. On the other hand, people from poorer countries with lower education levels languish at the bottom-left of the chart. There seems to be a widespread perception that higher levels of knowledge and skills open doors to higher-paying jobs and thus result in better quality of life.
Changing Student Demographics - Mean_years_in_school chart

The outcome is that people from diverse cultures worldwide are pursuing higher education in the courses relevant across the world today. There is an increasing trend to study in prestigious universities in the developed countries, especially in the U.S. and the U.K, for higher education.

Let us briefly analyze how the higher education landscape is panning out in terms of nationality, age, and gender diversity.

Compared to a decade ago, 30% more international students were studying at U.S. colleges and universities, and 5% more international students were studying at U.K. universities in 2011-12 (see exhibit 2 for the trend in U.K. universities). The most noticeable increases in international students are from Asia, the Middle East, and other emerging economies. This trend of greater participation of ethnically diverse population points toward globalization in the education sector.
Changing Student Demographics - International-students_trend over time

There is one other interesting trend that has been noticed recently. Universities in the U.S. are witnessing an increase in the older (typically aged 25-34) students than in the past. In today’s information age, innovation is happening fast and things are becoming obsolete faster. People are feeling the need to learn new technology, new business models, and new skills, to stay tuned with the changing times. This perceived need to keep the knowledge current and to remain relevant in the job market is prompting students from various backgrounds to return to school. These are the older students, a.k.a. students of non-traditional age-group, that could not continue their education earlier due to various reasons such as low income, lack of suitable avenues, family obligations, and other socio-economic reasons. With the advent of internet and online education options especially in the U.S., there are an increasing number of older, even married, students with more varying demographics joining higher education, thereby skewing the overall demographic profile of students. By contrast, universities in the U.K. are experiencing an increase in the number of younger students and decrease in those aged over 30. This may be explained by the fact that online channel as an effective medium of learning is yet to get widespread acceptance in the U.K. Most of the well-known providers of online education today, for example, Coursera, Udacity, and edX, are based in the U.S. Online medium of education is typically preferred by older students having jobs and families.

Finally, gender diversity is playing a big role in the changing trends. Female students are fast occupying the seats in classrooms that once were occupied by their male counterparts. In the latest report published by HESA (UK), more than 50% of students studying in U.K. universities in 2011-12 were female. The trend is not much different in the U.S. universities either. There were interesting trends within region-wide distributions too, such as lower female students population from countries considered conservative. However, in general, there is an evidence of definite increase in participation of female students in higher education.

But why are student demographics important to universities?

Students are the main stakeholders in the success of an educational institution. Students’ curricular and extracurricular activities, interests, and opinions are driven by their beliefs, faiths, likes, and dislikes which in turn are based on their cultures and ethnicity. Thus, their demographic profile directly affects the way their experiences will shape-up in any educational institution. The universities can no longer assume that students from diverse communities will participate in courses and activities traditionally offered by them. This calls for detailed analysis and deep reflection on part of university leaders to design and offer an ideal educational experience for this shifting student demography.

How leaders are acting in response to the changing demographic trend?

The student population will become more ethnically diverse in the years to come. Educational institutions are now getting accustomed to the rapidly changing student demographics in the sector. Leaders from the top universities are making the most of this opportunity by putting in place such mechanisms that will ensure responsiveness to the needs of these new learners. The development of this yet untapped student demography means new avenues of revenues for the universities already grappling with funding issues. One of the first steps the leaders are taking is to institutionalize analytics at individual student and course level. This will help them in the following three ways: First, student-level-analytics includes a well-defined feedback seeking mechanism from students that let the leaders feel running pulse of the students’ preferences, likes-dislikes, and attitudes. Second, course-level-analytics gives inputs on performance of teaching faculties on all courses, research activities, and course-effectiveness index, and checks the courses’ continued relevance. The combination of these two analytics can be very effective in keeping a tab on ‘drop-out-risk’ of students. Last and most important, the leaders now have hard-data to take quick information-driven decisions with less gut-feeling and less uncertainty. Better still, they are able to be accountable with more confidence and can utilize the information to win over their sponsors and stakeholders. They are able to apply it in a day-to-day decision making so that the educational institutions become ready to embrace the future with welcoming arms.

 

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Funding and ROI Challenges: How Universities Can Respond

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T  raditionally, universities in the U.S. have earned their revenues through state (government) funding, tuition and fees, research and development grants, returns from endowments, and philanthropic donations.

Funding and ROI Challenges

The prolonged cash-crunch due to the long-winded recession of 2008 forced the policymakers to make some nearsighted (and some say misguided) policy changes like cut in public spending on higher education. The policy changes caused steady decline in state funding to universities and many universities found themselves grappling with financial sustenance. The slump in economy also caused research grants and philanthropic donations to shrink. In the face of volatile and unreliable nature of returns from endowments, universities were compelled to shift the burden of additional costs to students in the form of increased tuition and fees.

Universities in the U.K. too are facing similar funding challenges. According to the data published by Higher Education Statistics Agency (HESA) and the Universities UK (UUK), the public spending in U.K. on higher education reduced by 6.9% post the recession. Over the last few years there has been a reduction in the proportion of income from funding body grants to total income. The funding from Higher Education Funding Council for England (HEFCE) is expected to reduce further. The recession has also contributed to a large decrease in the ratio of research income from research grants and contracts. Nevertheless, the past three years have seen relative stability in terms of the total amount of money flowing to institutions. HESA data also points to 38.6 per cent decrease in endowment and investment income over 2009-10 and it decreased by 25 per cent across the U.K. over the period 2000-01 to 2009-10. Gradually, the universities in U.K. too increased tuition and other fees to cover for the costs. One major difference between universities in U.S. and U.K. is that, the private expenditure on higher education is much greater than public expenditure in the U.S. universities.

Overall, the balance between the funding grants, and tuition and fees is moving towards fees, a trend seen in the U.S. universities too. Gradually, the rise in tuition and other fees are becoming unsustainable, especially for postgraduate students, already under huge debt from undergraduate studies. Exhibit 1 shows the comparative trend between changes in college tuition and fees vis-à-vis the changes in the cost of all consumer items in the U.S.. Starting at the same level in 1978, the tuition and fees cost seems to have increased five-fold as compared to consumer prices over the last few decades.

Funding and ROI Challenges: Exhibit-1 college tuition and fees cost trends

Moreover, the rates at which people’s incomes have gone up have not been able to catch up with this high rate of increase in college fees. The rate of change of college tuition has overshadowed the inflation rate consistently since 1981 as shown in exhibit 2. Considering that students join higher education primarily for higher pay packages, this unsustainable rise in the cost of college fees in the face of high unemployment is impacting universities’ enrolments adversely.

Funding and ROI Challenges: Exhibit 2 - college tuition vs inflation graph

From the perspective of the universities, the costs are steadily increasing. The costs such as faculty salaries, college infrastructure budgets, administrative expenses, IT infrastructure costs, and marketing overheads form the fixed costs that are incurred irrespective of any student taking admission. If the number of students enrolled goes down, the average cost per student goes up. This situation makes it unsustainable to run the famed institutions delivering the same level of quality. This results in pressure to achieve surplus funds, after accounting for staff, administration, and operating expenses. While the universities in the U.K. have managed to achieve a surplus in the last couple of years, it is not before raising the income from other services rendered such as, residences and catering operations, grants from local authorities, income from health and hospital authorities, and income from intellectual property rights.

So how can universities respond?

Universities can take a series of steps that will help them stand-up to these multi-dimensional challenges to save costs and increase incomes.

Firstly, in order to save costs, university leaders need to improve productivity on teaching related activities. This can be done by rationalizing the programs and courses offered, integrating departments to normalize instructional costs, streamlining operational processes to leverage synergies, and outsourcing non-instructional activities to specialized vendors. Many universities accept that the programs and courses offered by them have experienced proliferation over the period of time. Thus, merging similar programs will not only make them more effective but also save costs for the colleges. On the same lines, integrating departments and streamlining operational processes that are similar in nature will help making the operations leaner, faster, and cost effective. Most importantly, institutions must focus on providing value in the area of their competitive advantages. This entails outsourcing non-core activities to reduce non-instructional expenditure. Analytics can come very handy in helping to understand the potential levers to realize savings from taking up these activities.

Secondly, ensuring enrolments of the ‘right’ students will pave ways for improving incomes. In addition to bringing tuition and fees, the right students can help make the universities look good through their research and development activities, which in turn will help the institutions to attract funding from existing and other green-field sources. One big aspect of improving income is to retain existing students from dropping out. High drop-out rates has become an area of serious concern for many universities. Reasonably so, every dropped-out student creates a hole in tuition fees that invariably remains unfilled. Moreover a high drop-out rate impacts twice, in lost revenues and sunk costs. Therefore, student retention should be looked-at through the same lens as businesses look at customer churn, and earnest measures should be implemented to control the high drop-out rates.

To summarize, universities need to take unconventional actions to effectively overcome the funding challenges and strive to be lean in order to embrace the opportunities of the future.


If you liked this article then you may also like to read Shifting Focus of Universities

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MOOC and the Education System Continuum: Which System(s) Should Universities Adopt?

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T  he rapid penetration of internet across the world coupled with the brisk pace of innovation in telecom technology enabling higher speed of access is changing the way people operate in various fields. Education is one such area that is undergoing huge transformation at the moment. The last decade has seen the advent of online delivery of educational courses that are open for registration free of cost and are accessible by millions at any given time. Popularly called MOOC - massive open online course – it promises to change the landscape of the current education system continuum.

The education system continuum comprises of multiple approaches of imparting knowledge that are only slightly different from one another. It stretches from teaching an individual at one end of the spectrum to self-learning at the other. We have analyzed the various modes of teaching on this continuum based on several parameters such as the method of teaching, types of courses offered, level of interaction between students and teacher, level of rigour, and most importantly, perceived merits and demerits of each.

MOOC - The education system continuum

Teaching Individuals (aka tutorial system)

This is the most individual-oriented teaching system in which a student and a teacher share a personal tutor-tutee relationship. It is also the most traditional system of imparting education that existed in the ancient world. Some of the oldest universities in the modern world still follow it in the form of ‘tutorial system’ or ‘supervision system’. The student and the teacher meet regularly to discuss a topic threadbare. The teacher is typically an expert in her field and the focus of interaction on her part is to encourage new thinking rather than teaching. This type of education seems more ideal for research oriented learning that requires deep reflections, detailed dialogues, insightful analyses, and constructive criticisms. This is an extremely demanding routine that entails complete dedication on part of the pupil. While it is highly rigorous and academically challenging, it is also highly recognized and reputed worldwide for the same reasons. There is a constant flow of feedback between the tutor and the tutee because of the focused learning process. Thus, there is a high probability that one will make good use of the learning opportunity, thanks to the personalized attention. The overall experience is geared towards making the man ready to take on the world, and not just for survival, and hence the stress is on guiding the pupil to educate himself and helping him attain his own mental growth.

Small group teaching

In this system, students are taught by faculty fellows in groups of one to a few (typically not more than five) students. So, in a way, this one too is individual-focused to a great extent. Most of the characteristics of the tutorial system are applicable to small group teaching. It is more suitable for research oriented courses, and for courses like medicine where there is a lot of stress on experimentation within a close group. This is also highly recognized worldwide and is a rigorous system demanding great discipline and initiative from the students involved. The objective of this education system is directed toward grooming the select few and thus is quite flexible to needs of those individuals. Students can assimilate the subject and get opportunities to ask questions of the tutor so as to completely understand the subject. However, a laidback student afflicted with inertia may lose out in a group of students and gradually the teacher may lose interest in him.

Classroom teaching

This is currently the most popular system prevalent in universities. In this method, teachers, expert in their field, facilitate interactive and constructive discussion on a given topic in a class of many students. The teacher and the entire class learn from the experiences exchanged in the class. Such a system is ideal for studying and learning the courses in which communication with a fellow student is immensely beneficial. All courses that require interpersonal collaboration and practical experimentation are best served by this type of an arrangement. Engineering and management are some such courses where students need to learn from past experiences, collaborative interactions, and each-others’ knowledge. While the structure of classroom teaching is most popular and is offered by almost all the educational institutions, it lacks the rigour of the previous two structures, despite its competitiveness. Nonetheless, this method offers the benefit of sharing thoughts and inputs with teachers and fellow students, which is unique. A student enjoys an opportunity to see various viewpoints and experiences from multiple individuals that helps broaden their perspective about the given topic and assists learning by sharing others’ experiences. The responsibility of seeking feedback rests entirely with an individual because of the practical limitation that teachers cannot attend to each individual in a class of many students. Thus, the learning experience is only as good as an individual – the proactive ones tend to maximize their learning while the lethargic ones may end-up losing out.

Blend of classroom and online learning

In recent years, a new demographic segment, of working professionals returning to school, has emerged. These (student) professionals are keen to get themselves exposed to new ideas and latest developments to keep their knowledge current. However, they are unable to stay away from their base location because of their work and personal commitments. Hence they are looking for partial-instructional teaching method in which they will need to visit school only at specific intervals to attend classroom lectures and can complete their remaining course online. They can ask queries of the instructors and seek feedback from them during the on-site discourses. Students can decide when to complete their online learning sessions as long as they accomplish it within the stipulated time. There is not much opportunity for students to cultivate individual relationships with the tutors because of only a small window of presence in the school. The self-disciplined students, who keep the feedback channel open with their tutors, benefit the most in this style of learning. The nature of these courses is such that they are fairly comfortable to complete with no rigour in terms of time and contents. It is one of the reasons that these courses, having a balanced portion of on-site learning, are gaining more recognition. Typically, vocational courses where physical experimentation is not required and where only a cursory supervision might help are good candidates for such type of learning system.

MOOC – 100% online learning

Massive open online course or MOOC forms the other end of the education system continuum in which the entire course is delivered online without any physical interaction with the faculty. There are some professionals that cannot afford to stay away from their work and family even for a small duration. MOOC serves as a great alternative for such students as there is no rigour in terms of time. It provides them with complete flexibility where the pace of learning can be managed by the students themselves. This anytime-anywhere learning experience is very narrowly focused on ‘teaching’ a particular skill, primarily a vocational subject. It facilitates only a limited exposure to practical aspects of the course and hence is more suitable for skill-oriented topics than knowledge-oriented ones. The feedback mechanism is highly dependent on how the course is designed and delivered. Presently, these courses are offered by only the most reputed universities that are most sought-after by professionals worldwide.

MOOC is still, relatively, a nascent system. Each system has its own pros and cons. The education system continuum is likely to undergo further change with more innovations in technology and changing preferences of students. What is important is for the universities and their leaders to reflect upon their specific competitive advantage, and embark upon a system that serves their students (and them) best.

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