Start Early, Start Small, and Demand Early Success

Discussion Point 3: Chapter 9: There Is Good Money and There Is Bad Money

Key passage: “We suggest three particular policies for keeping the growth engine running. Taken together the policies force the organization to start early, start small, and demand early success. (Page 246)

Key Takeaway: The time to work on growth is while the firm is still growing.

Start Early.  Christensen’s point here is that a firm should not wait until the signs of a crisis emerge to think of how it will remain competitive.  Though Christensen does not mention him by name, a few of his critiques of management literature are undoubtedly addressed to Jim Collins, famed author of Built to Last, Good to Great and most recently How the Mighty Fall and Great by Choice.  Though Christensen’s caveats of Collins’ conclusions and recommendations are noteworthy, there are still a lot of valuable insights in Collins’ work.   In his book, How The Might Fall, Collins writes: “Every institution is vulnerable, no matter how great. No matter how much you’ve achieved, no matter how far you’ve gone, no matter how much power you’ve garnered, you are vulnerable to decline… Anyone can fall, and most eventually do.”⁹ Despite extensive literature warning managers of the hubris of success, too many firms still fail to pro-actively, and in a disciplined fashion, seek new opportunities.  Collins and Christensen agree that firms can never rest on their latest achievements, and both theories do complement each other well.  When a firm does not become blinded by the hubris of its success, does not enter an undisciplined pursuit for more and acknowledges the risk and peril it faces⁹, it is more likely to “launch new –growth businesses regularly, [while] the core is still healthy.”¹⁰ I really like what Collins writes on this subject, as he encourages firms to ask the following three questions as they pursue disciplined continuous (Christensen would say “rhythmic”) leaps.  These questions are: “1. Do [the moves] ignite passion and fit the company’s core values? 2. Can the organization be the best in the world at these activities or in these arenas? 3. Will these activities help drive the organization’s economic or resource engine?”¹¹ For all their differences, both authors agree that firms should start early.

Start Small.  The idea of “start small” really relates to firms remaining decentralized, more entrepreneurial, as “more managers [seek] disruptive growth opportunities.”¹² Though Christensen only discusses the idea in a very narrow sense, and only over the course of one page, Jason Jennings, in his book “Think Big, Act Small,” expands on the idea and offers a compelling case as to why this is indeed a really good idea.  Using a research and writing style similar to that of Jim Collins, Jennings was able to identify several behaviors successful companies demonstrate, and he generalizes these into a theory where a long-term future is achieved through meeting short-term objectives.   In the chapter most closely related to Christensen’s context of new business creation, Jennings describes how “acting small” translates into the arena of new business invention.  Companies that “act small” mind their resources, maintain utilitarian facilities, put the people with the most to gain or lose on the front lines (this one sounds like what we read in the M-Tronics case, doesn’t it?), let volume drive the need for expansion, never forget their roots, control their growth and stay true to their principles and values.¹³ Jennings’ concrete steps help elaborate on Christensen more general point.  Additionally, there is well-documented research, British anthropologist Robin Dunbar’s in particular, that indicates that groups or organization should be careful when surpassing 150 members.   Malcolm Gladwell recounts Dunbar’s work and, in reference to the 150 member tipping point, writes: “above that point, there begin to be structural impediments to the ability of the group to agree and act as one voice.”¹⁴ This is certainly another good reason to keep new ventures initially small in order to leverage flexibility and adaptability.

Demand Early Success.  What Christensen really means by “early success” is early financial returns.  Indeed, Christensen writes that “being impatient for profit is a virtuous characteristic of corporate capital.”¹⁵ Christensen expands on this idea in his latest book, How Will You Measure Your Life?, and gives another reason why this rule is fundamental.  He writes:  “Good money from investors needs to be patient for growth but impatient for profit.  It demands that a new company figures out a viable strategy as fast as and with as little investment as possible—so that the entrepreneur don’t spend a lot of money in pursuit of the wrong strategy… Once a profitable and viable way forward has been discovered—success now depends on scaling out this model.”¹⁶ This line of thought aligns very well with the self-reinforcing spirals from adequate and inadequate growth Christensen describes in figure 9-2. McGrath and McMillan echo Christensen’s exhortation to built profitability into the venture early. They also provide concrete advice on how to achieve this goal using “discovery-driven planning.”  The initial step is the generation of a reverse income statement.  McGrath and MacMillan explain: “Instead of starting with estimates of revenues and working down the income statement to derive profits, we start with required profits…  The underlying philosophy is to impose revenue and cost disciplines by baking profitability into the plan at the outset.”¹⁷ Discovery driven planning is a thought-provoking process that should help companies identify flags early in the venturing process.

Notes

9.     J. Collins, How the Mighty Fall, HaperCollins, New York, 2009, p. 8, 20-22

10.  C. Christensen, The Innovator’s Solution, Harvard Business Review Press, Boston, 2003, p. 246

11.  J. Collins, How the Mighty Fall, HaperCollins, New York, 2009, p. 8, 63

12.  C. Christensen, The Innovator’s Solution, Harvard Business Review Press, Boston, 2003, p. 250

13.  J. Jennings, Think Big, Act Small, Portfolio, New York, 2005, p. 103-105

14.  M. Gladwell, The Tipping Point, First Back Bay, New York, 2002, p. 182

15.  C. Christensen, The Innovator’s Solution, Harvard Business Review Press, Boston, 2003, p. 254

16.  C. Christensen, How Will You Measure Your Life?, Harper Business, New York, 2012, p. 87-88

17.  R. McGrath and I. MacMillan, Discovery-Driven Planning, Harvard Business Review, Boston, 1995, p. 5

Law of Conservation of Attractive Profits

Discussion Point 2:  Chapter Six: How to Avoid Commoditization

Key passages:  “A company that finds itself in the more-than-good-enough circumstance simply can’t win: Either disruption will steal its markets, or commoditization will steal its profits.” (Page 152) and “The bedrock principle bears repeating: The companies that are positioned at a spot in a value chain where performance is not yet good enough will capture the profit. That is the circumstance where differentiated products, scale-based cost advantages, and high entry barriers can be created.” (Page158)

Key Take-away:  Firms ought to use the law of conservation of attractive profits to identify high profitability areas.

The two sentences in this key passage are very rich in insights, as they really tell us where to dig to strike gold.  In this chapter, Christensen sets up his argument using two extremes on the spectrum of product/service fulfillment of the customers need to help us understand the benefits of one, and the problems with the other.

The More-Than-Good-Enough Circumstance

To delve deeper into this idea, it is useful to refer to Richard D’Aveni’s work on hyper-competition.  He echoes Christensen’s assessment when he writes: “Thus, the process of competition forces firms to offer a line of high-quality, low-priced goods that eventually make high quality and lower prices a necessity for survival.”⁴ This concept relates to what Christensen calls commoditization, and clearly supports the idea of dwindling profitability.  Furthermore, as described in the first discussion point, mature industries are susceptible to creative destruction, which addresses the threat of disruption.  So if well-served markets are problematic, Christensen offers an alternative, which can help both new ventures and established firms to improve their odds of growth and profitability.  He makes a very well supported point that the best avenue for growth and profitability is to deliver quality where quality has been lacking up to this point.  This is consistent with D’Aveni’s price-quality competition escalation ladder, which culminates with a “need to move to a new arena of competition.”⁵ This ladder of escalation when competition is based on cost-quality advantages is similar to the process of commoditization and de-commoditization Christensen describes on pages 151 to 154. 

The Not-Yet-Good-Enough Circumstance

As firms uncover “not-yet-good enough” products of processes, Christensen explains that they can pursue a differentiation strategy, leverage scale-based cost advantages, and establish high barriers to entry.  He is a little short on details here, so let us turn to D’Aveni’s work and develop these ideas further. These three ideas actually parallel his research, as they correspond to the three arenas of competition he identified in addition to cost-quality.  What Christensen calls “differentiated products,” D’Aveni defines as “timing and know-how.”  D’Aveni does a really good job showing how the first mover has the choice between using a “leapfrog strategy” (successive investments in innovation) or moving downstream into higher value-added products. Sony is a good example of former: “Early on, it built tape recorders and used the know-how and resources from that project to fuel it production of transistor radios.  It brought out a pocket-sized transistor radio… Then Sony built on that success with the development of the Trinitron television in the late 1960s… Sony used and extended its skills in miniaturization and audio technology to develop this next innovation.”⁶   Christensen uses the computer industry in the 1990s to illustrate how money can flow when following the latter strategy.  Next, when addressing cost advantages, D’Aveni looks at competitors with “deep-pockets,” where resource escalation is one of the strategic options for the incumbent.  Finally, we get to barriers of entry.  Some strategies that D’Aveni gives to building barriers are customer familiarity, customer loyalty to a local brand, government barriers to foreign entry, control over domestic distribution systems, local customs, unique factor advantages (lower cost of labor or capital), and dominance of domestic market share.⁷   In every case however, D’Aveni, also gives possible course of action for new entrants to address and overcome these tactics.

Law of Conservation of Attractive Profits

Ultimately, Christensen wraps this chapter in the book by giving us law of conservation of attractive profits.  This law, inspired from famous laws of physics, states that: “When the modularity and commoditization cause attractive profits to disappear at one stage in the value chain, the opportunity to earn attractive profits with proprietary products will emerge at an adjacent stage.”⁸ This can actually be seen as good news, since this opportunity is equally available to both the incumbent and the new entrant.  

Notes
4.     R. D’Aveni, Hyper-Competitive Rivalries, The Free Press, New York, 1995, p.29 
5.     R. D’Aveni, Hyper-Competitive Rivalries, The Free Press, New York, 1995, p.36 
6.     R. D’Aveni, Hyper-Competitive Rivalries, The Free Press, New York, 1995, p.71 
7.     R. D’Aveni, Hyper-Competitive Rivalries, The Free Press, New York, 1995, p.99-100 
8.     C. Christensen, The Innovator’s Solution, Harvard Business Review Press, Boston, 2003, p. 168

The Innovator's Solutions Discussion Points - Part I of III

Discussion Point 1: Chapter Two: How Can We Beat Our Most Powerful Competitors?

Key passage: “The Innovator’s dilemma identified two distinct categories–sustaining and disruptive–based on the circumstances of innovation. In sustaining circumstances–when the race entails making better products that can be sold for more money to attractive customers–we found that incumbents almost always prevail. In disruptive circumstances–when the challenge is to commercialize a simpler, more convenient product that sells for less money and appeals to a new or unattractive customer set–the entrants are likely to beat the incumbents.  This is the phenomenon that so frequently defeats successful companies. It implies, of course, that the best way for upstarts to attack established competitors is to disrupt them.” (Page 32)

Key Take-away:  Firms can and must adapt to the type of innovation that is occurring at the moment. 

The idea Christensen develops here is initially useful in guiding innovation in firms at various stages of maturity.  A firm’s context has a large impact on which strategies will and will not be successful.  Since there are so many business books published, it can be very tempting for a leader to take a concept or idea that resonates with him or her, and has been successful at this or that company, and decide to execute the same strategy, wrongly expecting the same results under different circumstances.  Focusing on innovation, Christensen gives a simple, yet profound rule of thumb.  Incumbents are better positioned when innovation is of a sustaining nature and at a disadvantage when innovation is disruptive.  He gives two examples in particular that help strengthen his model. 

The first relevant example Christensen gives is that of Honda penetrating the US motorcycle market.  This example demonstrates his point about new comers having to focus on disruption.  Honda tried to go toe to toe with Harley Davidson using sustaining innovation and could not break into the market.  However, when it serendipitously stumbled onto the off-road bike market, it created a disruption and was able to establish a foothold from which it could then establish itself and grow.

Second, the advent of mini-mill in the steel industry created a disruptive innovation known as thin-slab continuous casting technology.  As the established steel giants continued to improve their processes, they did so focusing on sustaining innovations.  Now this brings up an interesting point.  The steel mills could have prevailed: though one can frame Christensen ideas as a rule of thumb for focusing on what strategy is more appropriate for a new or established firm, it is really the nature of the innovation that dictates what a successful strategy will be, regardless of whether it used by a newcomer or an incumbent. 

The role of technology in the long-term success of firms has become huge.  As long as all the innovation is confined to the sustaining circumstance, incumbents will continue to prevail.  But incumbents had better watch out when disruptive technologies emerge.  The problem (or opportunity) lies in the fact that disruptive innovation is ultimately inevitable.  It is this realization that led Joseph Schumpeter to formulate his theory of creative disruption: “The…process of industrial mutation…incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.  This process of creative destruction is the essential fact of capitalism.  It is not [price and output] competition that counts, but competition from the new commodity, the new technology, the new source of supply, the new type of organization.”¹  From Christensen’s point of view, this means that as long as a new breakthrough is not discovered, incumbents will tend to prosper, but that eventually new technologies will come about to disrupt and challenge their hegemony.  So what can an industry-leading firm do to prevent this inevitable challenge?  If destruction is inevitable, then it needs to find a way of doing the destroying.  One strategy is to foster an entrepreneurial culture.  The benefits of such a culture are many, but first and foremost come creativity and a pioneering spirit.  This often translates into corporately funded new-ventures, such as was seen at Boeing and Xerox (Internal Venture Divisions) and Chase and Intel (Corporate Venture Capital)². Alternatively (or concurrently), firms can offer structures that allow employees to devote time to side projects, like at 3M or Google.  Speaking of the “15 percent time” at 3M, Daniel Pink writes: “These walled gardens of autonomy soon became fertile fields for a harvest of innovations—including Post-it notes. Scientist Art Fry came up with this idea for the ubiquitous stickie not in one of his regular assignments, but during his 15 percent time.  Today, Post-its are a monumental business: 3M offers more than six hundred Post-it products in more than one hundred countries.”³ Neither strategy (entrepreneurial ventures or time for autonomous creativity) was present at US Steel and as a result, the biggest challenge US Steel faced was its blindness to fundamental changes in the industry.  The cause of its blindness? A deeply seated paradigm and unfounded faith that what had made them successful in the past would continue to make them successful…   To highjack Paul Revere’s famous words, “Disruption is coming!”  Successful firms must be primed and ready when it emerges.

 

Notes

1.     J. Schumpeter, Capitalism, Socialism and Democracy. Harper, New York, 1950, p. 83

2.     D. Garvin, A Note on Corporate Venturing and New Business Creation, Harvard Business Review, Boston, 2002, p. 9-11

3.     D. Pink, Drive, Riverhead Books, New York, 2009, p.95

#501 - Week VI - "I'm Feeling Lucky"

Well, this week, after reading the "Secret of Googlenomics" (twice), I decided to focus on Google...

We saw in the Breeze session that digital advertising only accounts at this point for 16% of all advertising spend.  Of that 16%, 55% goes to Google, and 75% of all advertisement $ goes to search-based ads, not display ads.  Search-based ads are were Adwords comes in, as Adwords generate 98% of revenue at Google, says Eric Schmidt, Google CEO.

The Secret of Googlenomics


The highlights of the article for me were the following:
1. "Anything that increases Internet ultimately enriches Google"
2. "Selling ads doesn't generate only profits; it also generated torrents of data about users' tastes and habits..."
3. Revolutionizing ads pricing by using the second-price auction model - Like the folks at Heineken would say, "Brilliant!"
4. "The bids themselves are only a part of what ultimately determines the auction winner."  Whether it is fair or not (see Not everyone's a fan of Google), Google supplements the bid with a "quality score" which is determined based on the relevance to specific key words, quality of the landing page, click throughs and other things.  Theoretically, this should be a win-win: the users finds what he is looking for, the advertiser realizes a sale.  Does this give Google too much control?



Not everyone's a fan of Google


In his post on TechCrunch titled "Why advertising is failing on the internet" Eric Clemons ascribes Google's business model to "misdirection."  He writes: " Misdirection most frequently takes the form of diverting customers to companies that they do not wish to find, simply because the customer’s preferred company underbid."  This is certainly a risk, and this concern is likely one of the elements fueling the anti-trust charges Google is facing.

Google and Daily Deals Models

Another area Google has toyed with is partnering/competing with Groupon, or the "499" Groupon copycats as Andrew Mason reported to Matt Lauer this past January.  Indeed, the business model is very easily copyable, and many have.  I was intrigued, and googled the key words "Google Groupon." I uncovered some interesting information.  The first link I followed talked about the launch on July 19, 2011 of a "new deals platform" " named "Link, Like, Love" powered by American Express and Facebook.  You link your Amex account to Facebook, register for the deal, and the deal appears on your credit card bill in the form of a credit. (http://techcrunch.com/2011/07/19/160-year-old-american-express-out-innovates-google-and-groupon/) . Another link I clicked was a blog post on Wired.com introducing Google Offers, Google's daily deal site, in April 2011. (http://www.wired.com/epicenter/2011/04/google-groupon-2/).  The battle is heating up.  It appears all these websites are still primarily focus on large urban areas.  The areas closest to me served by Groupon are Springfield, MO, about 70 miles East on I-44, and Tulsa, OK about 100 miles West on I-44.  And yes, I signed up...

Google in the words of its CEO

The interview of Eric Schmidt by Charlie Rose was very interesting, though the link ended a few seconds past the 19 minute mark...  I also decided to explore the Google website a little.  I stumbled upon the Adwords new-user training video, where it explained a lot of the same things Schmidt and the article shared about how it works, and how to set it up.  I'm finally starting to understand...
First, I thought it was very interesting that Charlie Rose's line of questions paralleled somewhat the summary of findings of the "Future of the Internet III" by Pew Internet and ALP we saw last week.  Schmidt  agreed that "the mobile device will be the primary connection tool to the internet." In our lifetime, and I paraphrase, he recognizes that we've gone from a world of zero communication ability to nearly 100% communication, from zero access to references to access to nearly every resource ever created.  Spotify claims that it gives us access to every song ever recorded...  He also touched on the role of transparency, and the world's increased transparency in consequence of the development of the internet.  I liked his joke about working on a Politician BS Detector, cross-referencing anything they've ever said for consistency...  He also addressed what his intellectual property philosophy/model is, which is also one of the issues raised by Pew and ALP.  his stance reminded me of Pandora's Tim Westergren, where the royalties would flow straight to the right holders, on a per unit basis.
Second, Schmidt discussed Google on a more societal level...  He recognizes the proliferation of user-generated content, which we talked about in a previous blog.  He sees this content generation as a "defining expression of humanity."  He came back to that when later in the interview, he discussed the turn the internet and media in general is taking to make our experiences more "personal."  As more and more elaborate models are created to understand us, at the individual level, the more spot on the advertisement is likely to become.  Ads will be less and less an annoyance, more and more a help in finding what we are looking for.  As Levy writes, Page and Brin "also believed that ads should be useful and welcome - not annoying intrusions."
Finally, one cannot talk online business models without trying to figure out the monetization piece.  Schmidt describes a very simple tiered model, based on page views.  He proposes that 2 billion+ views should use ads to generate revenue, 2 million+ views should use micro-payments (a few cents per view), while highly specialized sites ought to use a subscription mechanism.  He does not give any details on how this would work, and the logistics behind a micro-payment model seem daunting...

All in all, this week has allowed me to become more familiar with Google, and the impact it has on the internet.  I do hope Schmidt is wrong on at least one point, namely that "great entrepreneurs break out early."

#501 - Week V - Part II - The Future of the Internet

The Pew Internet and American Life Project have produced their third and most recent report on the future of the internet in 2020.  They surveyed Internet specialists and analysts, proposing a variety of scenarios, and assessing their responses.

I will go over the 8 scenarios proposed, and in one or two sentences describe why I do or do not agree with it, and compare that to the prevailing thought.  I'll formulate my opinion before looking to see how the experts felt.

1.  The mobile phone is the primary connection tool for most people in the world.  Whether it is a phone, or another mobile device, this seems inevitable.  The increase in computation power of these devices alone makes it likely that they'll be able to meet the needs of most.  77% of the experts also agreed

2.  Social tolerance has advanced significantly due in great part to the internet.  I'm having a hard time seeing a strong relation there.  To the contrary, the internet could be a way to anonymously associate with people of like persuasion, and exacerbate intolerance.  Only 32% agreed, while 56% disagreed.

3.  Content control through copyright-protection technology dominates.  I do not see that happening either.  I believe as user-generated content continue to grow, the power of collective knowledge will dominate, and that we will see less and less copyright-protection sought.  Once again, 60% of experts also disagreed.

4.  Transparency heightens individual integrity and forgiveness.  No doubt on the first one, as I believe it is already happening.  I find it incredibly arrogant for celebrities or politicians to misbehave and think they can get away with it in this day and age.  I would love for forgiveness to be on the rise also... Experts are split, 45% agreeing, 44% disagreeing, mostly citing wrongful accusations, and the need to rebuild one's wrongly tarnished reputation... not convinced.Wiener is one example of the former.  When it comes to the latter, maybe, The jury is still out on IMF's DSK.

5.  Many lives are touched by the use of augmented reality or spent interacting in artificial spaces.  I guess this is where the movie "Surrogate" comes in. Great movie.  That extreme will not be here by 2020, but I can see this as being appealing to many.  So I think the idea valid.  55% of experts agree.

6.  Talk and Touch are common technology interfaces.  I think of all the scenarios so far, this is the easiest to see coming to reality very soon.  Touch for sure will be the primary means to control interfaces.  The days of the mouse are counted.  People I know already use voice recognition technology to write essays and documents.  I love the voice commands in my 2006 car.  If we can do 3D, no doubt, this will happen.  I am surprised that as many as 21% of experts disagree. 

7.  Next-generation research will be used to improve they current internet; it won't replace it.  I think it depends how you define the internet.  Is the Cloud still the internet?  Wow, slam-dunk: 78% of expert agree! It seems they see the internet like a car, starting as a model T and always getting better, without changing its basic components...  Unless you think more along the lines of David Hakken, a professor of anthropology at the Indiana University School of Informatics who studies social change and the use of automated information and communication technologies who predicts “By 2020, two major advances will have significant impact. The first is bioengineering and nanotechnology, allowing the Net to be ‘embedded’ into individual humans (scary, eh?); the second is quantum computing that will significantly alter the current electrically loaded computing engines.”

8.  Few lines divide professional time from personal time, and that's OK.  If we are all to become free-agents, then I guess this is true.  I do not see us all becoming free-agents by 2020.  Another reason I do not see this happening by 2020 is the fact that today devices are still really strong in one area: the iphone is great for surfing the internet, the blackberry is still the "professional" platform for e-mail.  However, 56% of experts agree, seeing a "net-positive" impact.  I'm not yet convinced...

X501 - Week V - Part I - Using Six Sigma to Model Human Behavior

The main idea behind web analytics is solving Y = f(x), where Y is our behavior, and x are all the inputs that lead us to behave the way the do.

In that regard, numerati and web analysts use many of the same tools six sigma practitioners, in particular black belts use as they go through the 5 step DMAIC process.  That is a key reason I agree with the 10/90 rule.  Analytics software is a lot like a vending machine.  You plug in numbers, and it will spit out statistics.  However, if you do not ask the right question, you will not collect the right data, and will not be able to use any output generated by the software.  It is not about data, it is about the right data, collected the right way, to answer the right questions.  You need people (six sigma black belts or analysts) to figure out the right questions, and build the data collection plans.  As Avinash Kaushik writes in Web Analytics: An Hour a Day: "How data is captured is perhaps the most critical part of an analyst's ability to process the data and find insights."

I will now show how web analytics parallel the six sigma DMAIC process

1. Define - What is the practical business question we are asking, what is the problem we want to solve?
That's the starting point of any scientific inquiry.  Since the purpose of analytics is solving Y=f(x), we need to define Y!  The question can be very specific, like "why do romantic-movie lovers click on rental car ads," or more universal, as in "what drives consumer purchasing decisions?"

2. Measure - You start collecting data on your website.  Kaushik writes: "Measuring how your website is delivering for your customers will help you focus your web analytics program and cause you to radically rethink the metrics that you need to measure to rate the performance of a website."  You also start mapping the process by which you currently use analytics. 

3.  Analyze - In a typical six sigma sense, this is where you look for the root causes of your output performance.  At this point, you are turning your practical business problem into a statistical problem.  You begin by using divergent thinking to identify all the potential inputs into your process.  There are millions of bits of information to sift through.  Tacoda "harvests 20 billion of these behavioral clues every day." You begin to collect all the x's that may make up your model.  Next, you go into convergent thinking, where you narrow down all your inputs to the critical few, foregoing the trivial many.  The skill comes in finding correlation between the inputs and the outputs, and starting to build theoretical models of behavior, based on these inputs, or, as Stephen Baker writes in The Numerati, "the key to this process is to find similarities and patterns."  One of the most intriguing points in the introduction to Numerati is how correlations can be built through indirect relationships and assumptions.  Using the movies (Netflix, Hulu, Youtube?) or the music we listen to (say Pandora, Spotify), one could make an assumption about our mood, and use our mood to figure out what products we may be interested in... There are so many opportunities for discovery.  A pioneering book on behavioral economics is Dan Ariely's "Predictably Irrational."  Ariely writes on his blog:
"Good news. There is a science called Behavioral Economics.  This attempts to understand people’s day to day decisions (where do I get my morning coffee?) and people’s big decisions (How much should I save for retirement?). Understanding HOW your users make decisions and WHY they make them is powerful. With this knowledge, companies can build more effective products, governments can create impactful policies and new ideas can gain faster traction."

4.  Improve - At this point, you have an hypothesized model, and you must evaluate its accuracy, or more correctly, its usefulness.  As statistician George Box said, "all models are wrong, some are useful."  The criteria for a good model are, as described by Baker, that "they [the variables] must interact with one another mathematically just the way they do in the real world."   Experimentation is the role of this stage in the development of models.

5.  Control - Once you have a statistical model that works, you need to convert that statistical knowledge, or solution, to a practical solution, and use it in your marketing strategy.  As you continue to refine this solution set, it is likely that the statistical equation you derive gets simplified.  "All things being equal, the simplest solutions tends to be the best one."  Will one model be enough?  Of course not, as each model is only valid within the dataset it was developed with, i.e. its inference space.  Baker alludes to this when he writes: "In the coming decade... we'll be modeled as workers, patients, soldiers, lovers, shoppers, and voters."

Baker goes even further, hinting at the idea of the "long tail," when he writes: "The trick is now to deliver to each of us the precise flavor and texture and color we want, at just the right price."  Analytics are key, and Six Sigma can help!

Week 5 - Plan of Attack

Alright, Klout Score up to 32 - Makes me a Socializer. Sweet!

So this week's topic is Web Metrics and Marketing Research...

Yesterday, I watched a couple of videos on the history of the Internet.  After watching the 8 minute Brief History of the Internet on Youtube, it was much easier to follow Frank Acito on his more detailed review... Vaguely reminds me of a movie, can't remember... oh yes Terminator...  More on this later this week.

Got some reading left to do, namely the intro to "The Numerati" (Da Vinci Code anyone?), and the chapter about the "Critical Components of a Successful Web Analytics Strategy" since I dabble in business analytics professionally...

Finally, since I started the week looking at the past of the internet, it seems fitting that I end the week looking at what experts expect the future of the internet to be...

I'll Be Back!