On Quantifying Ideas

 

Traditionally, ideas came in two shades: good and bad. And while it used to be easy to discern between the two, the increasingly diverse and complex marketplace many business are facing is making it harder to put labels like those on ideas. Now the undeniable bleed of digital into traditional business models and practices is making it harder still for leadership to make informed decisions. 

Here’s a good idea: evaluate each of your strategic actions with a quantitative framework.

Every action a company takes impacts two areas: equity and earnings. The effects can be positive or negative. Note that I use the terms “equity” and “earnings” loosely: a change in equity implies a quantifiable change in assets, tangible or otherwise (like brand affinity or awareness); earnings refers to any direct financial impact on the business, in terms of revenues or costs. 

Here’s an example. A small apple farm is interested in developing e-commerce on their website, affecting both equity and earnings.

Equity:
(-) brand; an e-commerce site reduces the farm’s appeal to its niche clients that seek out organic, traditional experiences;
(+) dot com; the new site attracts more visitors that are seeking to buy apples, not just research apples;
(+) infrastructure; the farmer may expand his apple production capacity with more equipment;

Earnings:
(+) existing markets; now more convenient, local customers may choose to buy apples more frequently;
(+) new markets; customers further away from the farm may buy apples online;
(-) development and maintenance costs; the new website has new costs associated;
(+/-) sale price; the farmer may choose to price apples online higher to compete with high-end holiday gift e-tailers or lower to compete with online grocers;
(-) shipping costs; new shipping costs are introduced.

Each of these items are quantifiable in real dollar and cents. If the benefits outweigh the costs, e-commerce may be a good idea for the farmer.

Operating with a limited investment budget, businesses can evaluate and decide which initiatives consist a priority based on the expected impact on the business. Market estimates and brand equity measurements are the norm in all businesses, but detailing the impact of each strategic action favors decision transparency and accountability. Here is an example of what the portfolio of ideas may look like for our apple farmer.



The estimates and predictions required to map out the strategic portfolio of a complex global business are not easy to calculate, and supporting data may be scarce or non-existing in some categories. Despite this, I believe that making the right choice in tough times is worth the extra work.

Please share your thoughts on twitter with @vladimirpick

The Dynamics of Outsiders

Have you ever travelled to a country where you were required to drive on the side of the road opposite to the one you are used to? And did you get many dirty looks, honks, and obscene gestures?

Any new element introduced to an existing system is likely to cause tensions. The topic of cultural integration is widely explored, but I thought I’d share the four main approaches to successful integration as I see them.

Note that the principles outlined here are explored from the perspective of cultural integration, but can ultimately apply to any organized or organic system integration.

@vladimirpick

On Scale

Solutions don’t always scale with challenges. And this is about scope as much as it is about scale.

Take a simple example of an apple farmer and say the farmer wants to grow more apples. He will need some helping hands. He may need a bigger truck or to make more trips to the market.

Photo credit: Migliorelli Farms, Tivoli, NY

Now imagine the local apple market does not need more apples, so the farmer would want to sell their apples in a different state. For many reasons (increased time and costs, volatility of various kinds, farmhand structure, and available capital) the farmer’s approach to hire more people and get more trucks will no longer work as well. 

A clever farmer would review their approach and perhaps decide to diversify or change distribution methods instead of expanding.

Photo credit: Migliorelli Farms, Tivoli, NY

I often see opportunities for complex global organizations to apply similar principles to their growth. Evolving a team or a business to tackle more ambitious goals and broader geographies comes with new types of challenges and problems that require new thinking. 

I feel that digital approaches will play an increasing part in changing how we do business. I may be biased, but I’m really wondering what that mix should look like for the blue chips of the world.

@vladimirpick