After taking the Strategy course at Babson, I realized that my business needed to shift focus away from doing so many festivals and markets (selling fudge and ice cream and a vendor), and (at least for this year) away from actively wholesaling to retail stores – and instead focus on our restaurant, online fudge sales and fundraising program for schools.

While this seems relatively straightforward, the implementation of this new focus was (and remains) challenging. There was resistance from employees who were used to doing things a certain way, from my business partners who were concerned about lost income from not doing as many festival/markets. It also meant not registering for a number of events, which directly affected revenue streams for a number of markets. This took some explaining, and continues to be a challenge to stay focused on our new focus areas. Ultimately though, everyone came to understand the reason for the strategic shift and supported the re-focusing.

There are many types of innovation: product innovation, process innovation, marketing innovation, business model innovation, etc. It  may not be clear as the best type of innovation to focus on.

In determining which type of innovation to focus on, a manager should consider:

  • What type of problem is most important and urgent to solve? Innovation solves problems, so the innovation focus must be aligned with the problem.
  • Business life-cycle (including department and product life-cycles.) Specially, match innovation type with state in life-cycle. E.g. If you’re a startup, product innovation makes sense. If you’re in a growth stage, you may have a marketing problem, and thus need marketing innovation.
  • Lowest hanging fruit – where can you get the most value/revenue/cost savings for the smallest investment of resources?

Ultimately, choose your focus for the short-term, but make note of future innovation needed to solve less pressing problems, or problems the company has yet to face.

If the innovation focus needs to change, there will be organizational and structural challenges, including:

  • Inertia – “For most executive teams, battling the inertia demon is the biggest challenge they face.” Processes in motion like to stay in motion and processes at rest like to stay at rest. So, don’t mess with the status quo! But do! Just work for it.
  • Resource transfer requires non-focal areas to give up resources. The people associated with the unit that is giving up resources will resist to protect themselves.
  • Executives see value (or revenue) from legacy systems, and may not fully understand new initiatives.
  • Innovation, if successful, will lead to new systems that will have to be learned, which means new learning curves, which are typically challenging compared to the status quo.
  • Legacy systems that will be destroyed will disappoint any partners/vendors associated with old focus area, which will take organization time to explain and transition.

 

waiting time rule

I’ve started my next two classes! Measuring and Managing Strategic Performance and… Technology and Operations Management.

This post is from the Operations class.

Here are some rules to reduce the perceived wait time.  These are the same rules that Disney uses to make their guests not feel like they’re waiting too long.

For a funny (and very poor quality production) illustration of some of these rules, watch this student YouTube video.

Some other key takeaways so far regarding Operations:

- Set your operations strategy to help fulfill your business strategy. For example, if you’re all about high quality (with products and service), make sure you have an operations strategy to ensure that the strategy is implemented.

Every business struggles with finding the balance between capacity and demand.

- Manage capacity carefully.  For my business, the question is always: do we have enough staff on a shift, but not too many? Or, do we have enough fudge on hand, but not too much. Determine current capacity and decide how you’ll expand it when the time comes.

- Project demand as best you can. Will you pre-empt increased demand or play catch up? How will you manage the peak times of demand? For example, do you have a way to add extra staff at the last minute if you see demand spike more than you projected? Come up with creative ideas to use under-utilized assets to add value.

The passage below is copied for educational purposes from this website: http://www.inc.com/guides/writing-marketing-plan.html

“Experts know that careful planning is integral to marketing success. Here’s your guide to crafting a thorough marketing plan – and learning more about your customers along the way.

There’s no question that most entrepreneurs thrive on action. But as the Roman philosopher Marcus Tullius Cicero so aptly put it: “Before beginning, plan carefully.” Careful planning is precisely the goal you should have in mind when crafting a marketing plan for your company’s products or services.

“A marketing plan is good for focusing your energy towards the right actions that will deliver on what you want to accomplish,” says Deb Roberts, CEO of Synapse Marketing Solutions based in Denver. “The whole idea of doing one is to try and understand your customers and take action towards delivering your product or service to them.”

And there’s no need to over-think it, Roberts says. For small businesses, it’s best to think of a marketing plan as a way to tell a concise story that covers all the key points of your strategy going forward. So keep it brief: The best plans can be told in 15 pages or fewer.

Before you begin, it could be helpful to establish three items:

A completion date: A deadline you set in advance for when you want to complete your first draft of the plan. It’s important to remember that establishing an effective plan will be an iterative process. You can count on your plan changing.

The responsible parties: Establish your team’s roles and responsibility. In other words, make sure you identify who is doing what and when they need it completed.

Your budget: When it comes to putting together a marketing strategy, it’s critical to establish ahead of time how much do you have to spend, as that can have a major impact on the strategies you decide to implement.

Once you have these items in hand, you’re ready to put your plan together.”

Read rest of the article here: http://www.inc.com/guides/writing-marketing-plan.html

How and to what extent do economies of scale and scope and learning economies affect the company’s cost competitiveness?

Fudge and Ice Cream Manufacturing is hugely affected by economies of scale:

  • Ingredient and supplier costs – The more quantity we produce, the more ingredients we need. The more ingredients we need, the lower the price we can get and the more market power we possess to negotiate with suppliers. E.g. Just today I began negotiation with UPS to shift what we spend on shipping with the US Postal Service to UPS, and the UPS pricing matrix is explicitly designed around a rolling average of our revenue to UPS per week. The more we spend, the more we save.
  • Batch size – Say it takes 2 hours to make 15 pounds of fudge and 2.5 hours to make 25 pounds. Labor time per pound with a smaller batch = .13 hrs/lb. vs. labor time per pound with larger batch = .1 hrs/lb. The larger the batch size the lower the average costs.

It is also greatly affected by economies of scope:

  • New product development – We already make fudge so we already have all of the equipment and ingredients on hand to also make toffee. Our marginal cost to make a batch of toffee is MUCH lower than the marginal cost for a new start-up interested in starting a toffee business.
  • Customer acquisition and cross/upselling – Say we pay an estimated $10 marketing costs to acquire a single customer. They’ve arrived in our shop, or at our website. If we had a smaller scope of products, and they only buy 2 equally priced products, the marketing cost per product sold would be $5. If we instead had 4 equally priced complimenting products (ice cream AND hot fudge sauce), and a customer instead purchases 4 products, the marketing cost per product sold would fall to $2.5.

Give an example of your company experiencing learning economies.

Lessons learned (whether they are R&D, costing, marketing, or operationally related) are often very applicable to new ventures, thus reducing mistakes in the future and saving time and money. For example, when we conducted a fudge fundraiser with one school, we learned the importance of incentives as participation and thus average revenue per participant was low. The next fundraiser we setup, we provided more incentives and the AR went up significantly.

What methods can you use to speed up the process of learning related cost reduction?

To ensure continuity and speed up the process of learning, we use thorough documentation and continual updating of operational processes in a central manual. This manual can then be updated with new lessons learned and used for training new staff.

What are the core competencies of your company?

Product innovation through a creative and scientific process, customer service standards, and a culture rooted in teamwork, fun and fulfilling our purpose to make people happy.

What kind of investments has your firm made to develop and maintain its core competency?

Training manual, purpose statement, R&D trials with careful documentation, customer surveys, regular staff meetings and annual staff celebrations.

 

Doing some interesting reading about pricing, which raises some interesting questions about how prices are set and factors to consider in setting your price. My hope is that these questions make you think in ways you may not have previously. 

Too often pricing is set arbitrarily or in response to limited information. Here are some questions to consider to set pricing more holistically, and determine the right price for the right market – so you can maximize profits by optimizing the balance of quantity sold and margins captured:

Image

  • Do you price a product based on variable cost plus a margin? What margin are you aiming to achieve? For this one product and in context of all your products?
  • What is the product’s average fixed cost, or AFC? (Your total fixed costs divided by number of units produced) 
  • As you grow your business and the volume increases, how will the AFC decrease, and how will this influence your pricing decisions?
  • How many weeks/months/years did it take to develop the product? How do you price in a way that accounts for the invested time? If you can’t because the market won’t bear it, then how long (or how many products will you need to sell) to fully recover the sunk costs? 
  • Do you give discounts on your base price? If so, do you always give those discounts? If so, then on average, what is your true net price? Is this still giving you enough margins grow your business? Are discounts the exception or the other way around?
  • Do you price a product based on what your competition is priced at? Who exactly is your competition and how do you monitor their pricing?
  • Should you price differently for different segments of the market?
  • Can you price one product as a basic option and another as a premium customizable option? What margins should you aim to achieve with each? How many of each type will you likely sell and how does that affect your average margin for all types of product, or all products overall? 
  • How can you setup a “pricing infrastructure” that allows you easily monitor all these variables in setting price over time as they change?

How have you approached pricing in your business or career? Please comment with any insights into this difficult element of marketing and economics.

Live Update: Currently listening to the VP of Marketing for this soup company: Imagehttp://www.kettlecuisine.com/ Very interesting.

“At Kettle Cuisine, we make soup the right way, every step of the way, with no shortcuts and nothing artificial. One taste and we are sure you will become as passionate about serving our premium-quality, all natural soups as we are about making them. Please take a look around our website to discover our points of difference that have consistently exceeded the expectations of many of the country’s most discerning chefs, restaurateurs and retailers.”

Top advice and notes from his talk:

- Be a phenomenal listener (talk and listen to everybody about anything)

- Learn to tell your value propositions through compelling stories (DO NOT use “5 reasons why you should buy”)

- Success is 99% execution and 1% strategy

- Value EVERY customer interaction, especially first-time customers. You mess up the first interaction, you lose the life-time value of that customer.

- When you get an important meeting, you have 30 seconds to get your audience excited, 30 minutes to get them hooked.

- If something goes wrong and it negatively affects a customer, it might be a good idea to bring that unhappy customer into the company and have them share with the appropriate employees so they can see the impact and importance of their jobs.

- Wrong idea: if you’re not getting complaints, you’re doing the right thing. Right idea: how can we always improve what we’re doing?

- You can’t market something you don’t love. You need to know (as a business) who you are (what you can delivery, 10% importance), and most importantly why do they care (90% of the importance). If you understand who you are and who will care about which things about who you are – everything else will take care of itself. Invest in those things aggressively.

- In larger organizations, it’s very important to understand all the stakeholders involved internally in order to inform marketing decisions. Mainly CFO, Board of Directors, etc. If you don’t convince key people that marketing is NOT just overhead, you’ll run into problems. Marketing is at the core of all strategy for any company.