Today's blog post is Persona Pain/Gain Analysis from the perspective of a health insurance company (e.g. Aetna, United Health, etc) and how my business plan group's product "The One Goal Console" may affect them. Since the insurance company would be paying medical bills related to services performed at hospitals that may or may not use the console they are affected indirectly, however, as I will show below they can persuade hospitals to purchase or reject our product so they are an important market for us to engage.
What Does a Bad Day Look Like?
For a health insurance company a bad day can vary but the most common kind of bad day is one where a lot of cash is paid out (this is intuitive). However, the worst kind of bad day is most likely one where a lot of cash is paid out for services that could have been mitigated or avoided had an alternative provider or alternative clinical intervention been utilized.
What is Their Fear?
A health insurance company, like most insurance companies, has one complex and multi-faceted threat which is insolvency. When an insurance company is insolvent it means that its liabilities exceed its ability to pay. While a properly underwritten and risk pooled insurance company should be able to avoid this, it is possible to have operational loss ratios (i.e. losses/premiums) decay over time, especially if underwriting and pricing methodology is not up to date. A prior employer of mine used to follow a business model that allowed for operational loss ratios over 100% (i.e. they paid more in claims than premiums) and could sustain this due to a very bullish stock market and very high return on investments. When the market tanked in late 2008 so did the comprehensive loss ratio (i.e. losses/total income) and the company suffered. Most successful insurance companies run at a 85% or better operational loss ratio since the stock crash in the 1980s to help reduce the dependency on investments to remain solvent. Insolvency for an insurance company is essentially a death blow to the organization so that is a very serious and very real fear for any insurance company. Tying this back to health insurance, an anomalous number of "shock losses" (single cases over $100K is the typical threshold) can cause an insurance company to fold. Examples of shock losses are premature babies, organ transplants, renal failure, and readmission (i.e. someone having 2 or more hospital stays within 30-90 days).
What is Their Responsibility?
A health insurance company's responsibility to their members is to pay for services as outlined in the contract that the plan lays out. A health insurance company's responsibility to its network providers is to pay for services rendered at the rates agreed upon by both parties. In some cases, the insurance company is also responsible to its share holders to return a profit (i.e. a good loss ratio). There has been some growing tension in the public regarding the responsibility to shareholders as adversarial to the responsibility to members and providers. This is intuitive since covering more procedures at more generous costs cuts into profits. Part of this tension is addressed by PPACA (aka "Obamacare"), and is a tangent unto itself. This blog post simply lays out the 3 responsibilities.
What are the Obstacles?
Aside from the tension that arises due to responsibility to shareholders being at odds at times with responsibilities to members and providers the biggest obstacle to an health insurance company is cost containment. Leaving out the legislative impact of PPACA on health insurance companies and focusing on how things have been there are many drivers of healthcare cost that insurance companies have to confront. A population that has a large aging component (baby boomers), a population that is growing progressively unhealthier due to poor diet and lack of exercise, continued inappropriate use of emergency rooms, delayed pregnancies (i.e. older mothers), and medical R&D all contribute to escalating medical costs. This is further exacerbated by the risk of fraud, whether bill for unperformed services or performing useless services, and societal pressure to cover more and more procedures and expenses at little to no cost to the members. In addition the sluggish economy places extra strain on insurance company revenue since investment income (a very large and important component of revenue stream) is hamstrung relative to growth several years ago. All of these factors assault the company's operational and comprehensive loss ratios and make satisfying their 3 responsibilities more difficult.
What are Their Wants and Aspirations?
While it might seem naive to say that they want a healthy and productive population, that is not logically far off from the truth. A healthy population consumes fewer services which improves operational loss ratios and returns to shareholders. A health insurance company should want the best clinical outcomes for their members (i.e. the highest level of health possible) for the best price, or in other words, they want the maximum value for their healthcare expenditures. Value is defined as healthiness of membership.
How is Success Measured?
Loss ratios measure underwriting performance. Charlson Co-Morbidity Index and Verisk Health Risk Score measure the healthiness of a population. Earnings per share measures return to shareholders. Membership and provider satisfaction can be extrapolated from participation. If a lot of providers stop participating in network than the responsibility to providers has not been satisfied, if a lot of members leave for other providers than the responsibility to members has not been satisfied.
What Do We Offer?
The One Goal Console is a product that is sold to hospitals, not insurance companies, so how do we help insurance companies. First a quick aside on lesser known relationship between hospitals and insurance companies. Most large insurance companies designate specific hospitals as centers of excellence (or some synonym) for specific conditions. When a hospital is designated a center of excellence several important consequences emerge. First, the hospital gets a slightly better compensation rate (for example they may get $11,000 for a broken leg instead of $10,000) but in addition they also get a lot more traffic from the membership of that insurance company. Most surgical intervention has a pre-authorization requirement to ensure that it is medically necessary, during pre-authorization, a case manager or other insurance company employee has an opportunity to recommend an alternative doctor or alternative hospital. For example, in Rhode Island, a prospective knee surgery patient may be referred to Miriam Hospital instead of Memorial Hospital. This leads to Miriam Hospital getting more traffic, more surgeries, and more revenue per surgery. For the health insurance company they want to steer members to centers of excellence because the designation is earned through clinical excellence. If Miriam hospital costs $11,000 for a knee surgery that almost never requires further intervention but Memorial hospital costs $10,000 for a knee surgery that has a 5% complication rate (and complications can be extremely costly) then it would behoove the insurance company to send its knee surgery candidates to Miriam since in the long run it is more profitable (good for shareholders) but it also means better health outcomes for the members (good for members). In essence, when a health insurance company steers members to centers of excellence it is ameliorating the tension between its two "dueling" responsibilities.
What the One Goal Console offers is a way for hospitals to improve clinical outcomes for admitted patients. Faster updates allow nurses to intervene during a crisis sooner, fewer beeps and wires mean less patient stress (affects outcomes/recovery), better recording/tracking reduces medical error, and so on. Conceivably this product could be a key differentiator for hospitals that want to either attain or maintain their center of excellence rating with insurance companies. Insurance companies, always sensitive to cost and clinical outcomes, may pressure network hospitals to adopt this technology once it is shown to signigficantly improve clinical outcomes. Ultimately while our customers are medical providers and hospitals, the value of our product permeates the entire medical and healthcare industry. Center of excellence designation increases hospital revenue and profitability, it leads to better clinical outcomes which leads to better loss ratios for insurance companies and better health outcomes for members, healthier members further improve medical insurance loss ratios and eventually shareholder value. This is the value of the One Goal Console, and this is what we offer to insurance companies, a way to improve health outcomes of their membership and financial outcomes of their operations.
Saturday, September 29, 2012
Wednesday, September 26, 2012
The Power of Defining The Problem (Article Analysis)
My latest article analysis comes today from the Harvard Business Review. The article is called "The Power of Defining the Problem" and it was written by Dwayne Spradlin, here's the link (http://blogs.hbr.org/cs/2012/09/the_power_of_defining_the_prob.html).
So What's the Problem Man?
In a previous post I defined entrepreneurship as problem solving at its most fundamental level. With this as my thesis it seems obvious why today's article was relevant. As a clinical researcher and statistician this topic also hits very close to home for me outside of the classroom. Defining the problem before you start to work at a solution is so straight forward it is almost taken for granted, and yet I see poorly defined problems being tackled by poorly designed methodologies on a somewhat regular basis. This could be a major reason why start ups falter, to borrow from fellow ETR500 blogger John Levin, you can not start with a solution and back into a problem. There are plenty of examples of this behavior; developing a product then trying to "create" its market, presupposing that a clinical intervention works before you start doing an actual ROI analysis, or inventing an entire new footwear paradigm that nobody was looking for (Timberland case). These are examples of solutions that either failed to address a real problem, or facilitated poor problem solving with questionable methodologies. How can someone arrive at a destination without first ensuring that the destination is a real place and then determining the logistics for getting there?
Your Problem is Finding Your Problem!
Now that we appreciate the value of a well-defined problem, how do you define it. The article highlights 3 examples of simply asking the right question. Rather than say "we need a way to handle this frozen oil" Exxon said "we need a way to move work with extremely viscous liquids". I do this at work quite a bit, whether it is converting a business question into a data question, or finding additional insights within the data for management (the mythical unasked question). For example, I recently conducted research on racial disparity in healthcare; the question from management was a very open, very vague "do we have any disparities" however, that is a poorly defined problem. To make the problem more tangible I isolated several key metrics that would be reflective of racial disparities and then investigated those and reported results. So not only does management get a simple "yes, there are disparities", which should have been expected given the research by Johns Hopkins University, but now they know what specific disparities exist, how to mitigate them, and where to focus their efforts. That is like the Exxon problem; we knew something needed to change, however, through refinement we were able to pinpoint not only what needs to change but also how to change it.
So Do I Still Have a Problem After I Define My Problem?
One of the biggest pitfalls in research is bad experiment design. While this topic is probably worthy of its own blog post, I will touch on it briefly. Experiment design is so important my master's program at Northeastern dedicated an entire course to it, to put it in perspective. A good experiment, a good investigation, has to be freed from bias. For example, when you conduct an ROI analysis motivated by the question "so how big was our ROI" instead of "did we produce an ROI at all" the mentality of the analyst is going to be different. This is a very easy trap to fall into and there are several logical fallacies that address and attempt to combat this. For brevity I will distill experiment design to a single nugget; a good control group is the absolute most important thing for a good experiment. It does not matter how sophisticated your statistical tools, or how many best practices you want to leverage, if the control group is bad or even worse, non-existent, then your problem-solving methodology has a very serious problem.
Bottom Line For Entrepreneurs:
Without a clearly defined problem, you can not solve it. If you are not solving problems as an entrepreneur then what are you doing? The nature of entrepreneurship is to solve problems, sloppily defined problems get sloppily designed solutions, but how many people are in the market for sloppy? If you want to succeed your mission, your motivation, your raison d'etre has to be clearly defined. You can not win at step 10 if you botched step 0, step 0 is clearly defining your problem. Once the problem is defined, the methodology can emerge, and the solution can reach fruition. Problem-solving does not have to be problematic.
So What's the Problem Man?
In a previous post I defined entrepreneurship as problem solving at its most fundamental level. With this as my thesis it seems obvious why today's article was relevant. As a clinical researcher and statistician this topic also hits very close to home for me outside of the classroom. Defining the problem before you start to work at a solution is so straight forward it is almost taken for granted, and yet I see poorly defined problems being tackled by poorly designed methodologies on a somewhat regular basis. This could be a major reason why start ups falter, to borrow from fellow ETR500 blogger John Levin, you can not start with a solution and back into a problem. There are plenty of examples of this behavior; developing a product then trying to "create" its market, presupposing that a clinical intervention works before you start doing an actual ROI analysis, or inventing an entire new footwear paradigm that nobody was looking for (Timberland case). These are examples of solutions that either failed to address a real problem, or facilitated poor problem solving with questionable methodologies. How can someone arrive at a destination without first ensuring that the destination is a real place and then determining the logistics for getting there?
Your Problem is Finding Your Problem!
Now that we appreciate the value of a well-defined problem, how do you define it. The article highlights 3 examples of simply asking the right question. Rather than say "we need a way to handle this frozen oil" Exxon said "we need a way to move work with extremely viscous liquids". I do this at work quite a bit, whether it is converting a business question into a data question, or finding additional insights within the data for management (the mythical unasked question). For example, I recently conducted research on racial disparity in healthcare; the question from management was a very open, very vague "do we have any disparities" however, that is a poorly defined problem. To make the problem more tangible I isolated several key metrics that would be reflective of racial disparities and then investigated those and reported results. So not only does management get a simple "yes, there are disparities", which should have been expected given the research by Johns Hopkins University, but now they know what specific disparities exist, how to mitigate them, and where to focus their efforts. That is like the Exxon problem; we knew something needed to change, however, through refinement we were able to pinpoint not only what needs to change but also how to change it.
So Do I Still Have a Problem After I Define My Problem?
One of the biggest pitfalls in research is bad experiment design. While this topic is probably worthy of its own blog post, I will touch on it briefly. Experiment design is so important my master's program at Northeastern dedicated an entire course to it, to put it in perspective. A good experiment, a good investigation, has to be freed from bias. For example, when you conduct an ROI analysis motivated by the question "so how big was our ROI" instead of "did we produce an ROI at all" the mentality of the analyst is going to be different. This is a very easy trap to fall into and there are several logical fallacies that address and attempt to combat this. For brevity I will distill experiment design to a single nugget; a good control group is the absolute most important thing for a good experiment. It does not matter how sophisticated your statistical tools, or how many best practices you want to leverage, if the control group is bad or even worse, non-existent, then your problem-solving methodology has a very serious problem.
Bottom Line For Entrepreneurs:
Without a clearly defined problem, you can not solve it. If you are not solving problems as an entrepreneur then what are you doing? The nature of entrepreneurship is to solve problems, sloppily defined problems get sloppily designed solutions, but how many people are in the market for sloppy? If you want to succeed your mission, your motivation, your raison d'etre has to be clearly defined. You can not win at step 10 if you botched step 0, step 0 is clearly defining your problem. Once the problem is defined, the methodology can emerge, and the solution can reach fruition. Problem-solving does not have to be problematic.
Thursday, September 20, 2012
A3 Report for Healthcare Strategy
For this week's formal assignment I decided to do an A3 Report as if my elevator pitch were rolled out to a single company. My elevator pitch was for a company idea called "Invigorate Health Strategy" and below is the essential framework that would be applied to a client company faced with progressively increasing healthcare costs. The perceived problem/challenge is the healthcare costs and deteriorating wellness associated with the current healthcare system. The proposed solution is to switch paradigms away from "repairing the sick" to "keeping the healthy people healthy". Given that the vast majority of people are healthy from birth, that most chronic (and costly) conditions are preventable, and that it costs far less to prevent a condition than to treat it, this radically different approach should have tremendous ROI and much better outcomes in terms of quality of life and productivity. I do not have the nifty graphics from the MIT Sloan article, but the objective is similar.
Essentially the objective of this proposed framework is to restructure health and wellness strategies around keeping healthy people healthy instead of treating the sick as cheaply as possible. My strategy was heavily inspired by Dr. Dee Eddington of the University of Michigan and his research on public health, health strategy, and healthcare cost management. This strategy was adapted from his book "Zero Percent Trend" and most the credit behind framing the problem and seeing the path towards the solution belongs to him. To say his work has been inspirational for me in my capacity as a healthcare and clinical program analyst would be a serious understatement. The aforementioned book "Zero Percent Trend" has shown me the possibilities and opportunities within the healthcare industry and gave me a huge boost to motivation and enthusiasm to try to make a difference, in all honesty it may have helped me find my true calling/vocation.
Essentially the objective of this proposed framework is to restructure health and wellness strategies around keeping healthy people healthy instead of treating the sick as cheaply as possible. My strategy was heavily inspired by Dr. Dee Eddington of the University of Michigan and his research on public health, health strategy, and healthcare cost management. This strategy was adapted from his book "Zero Percent Trend" and most the credit behind framing the problem and seeing the path towards the solution belongs to him. To say his work has been inspirational for me in my capacity as a healthcare and clinical program analyst would be a serious understatement. The aforementioned book "Zero Percent Trend" has shown me the possibilities and opportunities within the healthcare industry and gave me a huge boost to motivation and enthusiasm to try to make a difference, in all honesty it may have helped me find my true calling/vocation.
Wednesday, September 19, 2012
Who Doesn't Love Data? (Article Analysis)
I stumbled upon this gem today on Harvard Business Review's site (http://blogs.hbr.org/cs/2012/09/will_big_data_kill_all_but_the.html?cm_mmc=SocialHub-_-3271-_--_-6807223796479021584). The article focuses on my area of expertise, business intelligence and data mining. To be very blunt it's a great time to be a math person. To be honest, I think the author is making a lot of fuss about something that is not particularly fuss worthy, the commenter Simon Karpen actually had the best observation, in my opinion, which was basically that if a retailer does nothing but sell stuff, it will lose to Amazon. My employer and a previous employer both use extensive data mining to match customers to products and help drive bigger basket sizes/orders/etc. Ultimately however, if a retailer does not provide something besides the widget in my basket, I am probably just going to order it off of Amazon, unless I need it now.
All of those key tags and club cards that every single retailer wants you to sign up for is basically a way to suck data into a database for mining. This mining goes beyond circulars and emails and starts to get into individualized coupons and other specials. For example, if a customer is consistently hovering around a $20 basket, most retailers will start hitting them with $5 off of $25 in an effort to try to force the basket size to drift up and stabilize at a new higher equilibrium point. These approaches to marketing eliminate the proverbial cherry picker and also help minimize cannibalization. Why give $5 off of $25 to the shopper that consistently hits a $25 basket when you could give them $10 off of $40?
The author seems to believe that "big data" will give big retailers even bigger advantages over small retailers and ultimately squash them. While small retailers can not directly compete with big retailers, since by the nature of the size difference the data would be more robust for large retailers, they can be fast followers in many cases. Since retail margins are very narrow, if the smaller (and usually more agile) little guys can successfully play the role of the fast follower they can emulate or recreate the insights provided by the big retailers data bases without having to foot the bill for the data gathering or analyzing. Furthermore, as stated above, if the only differentiation is price, then the lowest price merchant will usually win the business in the end anyway. Smaller retailers already have trouble competing on price anyway so it's not like the insights from data will widen the gulf between the huge retailers and the small retailers or add new axes upon which to compete.
What data can not do however is provide a different customer experience, and this is where smaller retailers can still attack the big guys, especially for goods that are less price driven. While Walmart, Krogers, Target, et al may be able to give me a $5 off of $25 coupon to entice me to buy more their staff can not provide the same level of service that smaller niche retailers can. Your local tailor can take the time to help you pick out a matching tie for your new shirt, the staff at Whole Foods will drop whatever they are doing to help you find exactly what you are looking for, the local bicycle shop will take the time to fit you for a bike and help you navigate the options, and so on. These are the kinds of user experience differentiators that larger and by consequence, more austere and impersonal retailers can not provide.
Take Away For Entrepreneurs:
This is a little bit of a stretch to tie into start ups, since a new company most likely will not have access to "big data" however, it does provide some perspective. The first is that the article touches upon the power of data and data-mining. Considering we just discussed Lean Start Up and the need to contemplate "pivot, perish, or persevere" being able to understand and utilize data effectively is invaluable. This article reinforces that notion, but from a different angle, as these firms are not necessarily facing "P-P-P". However the lesson to use data to add insights and solve problems is still here. The second lesson from the article is more so an awareness of the threat/advantage that large firms possess in their ability to acquire and mine enormous data sets. A start up, by its very nature, can not compete along that axis as the resources and infrastructure will just not be in place. This places an even greater need for sufficient differentiation from established firms, and while this article focuses on retail it is not a stretch to take this lesson into other markets and industries. It is this lesson that is most important to take away from the article. Since the course focuses on innovation, and difficult to copy strategies, value propositions, etc are all part and parcel to innovation and by extension differentiation, this article just reinforced how important these qualities are for start ups trying to get off the ground.
All of those key tags and club cards that every single retailer wants you to sign up for is basically a way to suck data into a database for mining. This mining goes beyond circulars and emails and starts to get into individualized coupons and other specials. For example, if a customer is consistently hovering around a $20 basket, most retailers will start hitting them with $5 off of $25 in an effort to try to force the basket size to drift up and stabilize at a new higher equilibrium point. These approaches to marketing eliminate the proverbial cherry picker and also help minimize cannibalization. Why give $5 off of $25 to the shopper that consistently hits a $25 basket when you could give them $10 off of $40?
The author seems to believe that "big data" will give big retailers even bigger advantages over small retailers and ultimately squash them. While small retailers can not directly compete with big retailers, since by the nature of the size difference the data would be more robust for large retailers, they can be fast followers in many cases. Since retail margins are very narrow, if the smaller (and usually more agile) little guys can successfully play the role of the fast follower they can emulate or recreate the insights provided by the big retailers data bases without having to foot the bill for the data gathering or analyzing. Furthermore, as stated above, if the only differentiation is price, then the lowest price merchant will usually win the business in the end anyway. Smaller retailers already have trouble competing on price anyway so it's not like the insights from data will widen the gulf between the huge retailers and the small retailers or add new axes upon which to compete.
What data can not do however is provide a different customer experience, and this is where smaller retailers can still attack the big guys, especially for goods that are less price driven. While Walmart, Krogers, Target, et al may be able to give me a $5 off of $25 coupon to entice me to buy more their staff can not provide the same level of service that smaller niche retailers can. Your local tailor can take the time to help you pick out a matching tie for your new shirt, the staff at Whole Foods will drop whatever they are doing to help you find exactly what you are looking for, the local bicycle shop will take the time to fit you for a bike and help you navigate the options, and so on. These are the kinds of user experience differentiators that larger and by consequence, more austere and impersonal retailers can not provide.
Take Away For Entrepreneurs:
This is a little bit of a stretch to tie into start ups, since a new company most likely will not have access to "big data" however, it does provide some perspective. The first is that the article touches upon the power of data and data-mining. Considering we just discussed Lean Start Up and the need to contemplate "pivot, perish, or persevere" being able to understand and utilize data effectively is invaluable. This article reinforces that notion, but from a different angle, as these firms are not necessarily facing "P-P-P". However the lesson to use data to add insights and solve problems is still here. The second lesson from the article is more so an awareness of the threat/advantage that large firms possess in their ability to acquire and mine enormous data sets. A start up, by its very nature, can not compete along that axis as the resources and infrastructure will just not be in place. This places an even greater need for sufficient differentiation from established firms, and while this article focuses on retail it is not a stretch to take this lesson into other markets and industries. It is this lesson that is most important to take away from the article. Since the course focuses on innovation, and difficult to copy strategies, value propositions, etc are all part and parcel to innovation and by extension differentiation, this article just reinforced how important these qualities are for start ups trying to get off the ground.
Wednesday, September 12, 2012
More On Innovation (Article Analysis)
I came upon this article in my twitter today: Marissa Mayer's 9 Priciniples of Innovation
Since my last posting was about innovation I decided to follow up with another innovator's take on innovation. What I liked about this article was a heavy emphasis on how to innovate, innovation best practices, as opposed to Drucker's "Sources of Innovation". My rationale here is a little bit selfish, my employer has tasked each person with the objective of "innovating" on any scale as often as possible. In a vacuum that is certainly well and good but that is like telling people to "win" or "succeed". Sure, these are worthy goals, but they can be esoteric at the same time. Telling someone to "win" does not help them find the way to do so, it merely states the obviously good outcome that they are probably already striving for. Similarly, telling someone to innovate leaves them hanging a bit. Now innovation is obviously different from winning but the vague "do good stuff" without any further concrete guidance can be its own obstacle to that very objective.
The challenge in guiding innovation however is that any effort to steer it may inadvertently limit it, throttle it, or stifle it. So I can appreciate a hands off approach to bringing innovation to fruition, but just like you can not harvest a crop without first tilling the earth, you can not just demand the end product without making the environment conducive to its creation.
Mayer's nine principles lays out, for all intents and purposes the blue print to foster innovation without excessive steerage, that said #3 "A License to Pursue Your Dreams" is probably the best and most conducive to innovation. The 20% time allotted to any productive pursuit allows employees to separate from their day to day and explore. Exploration leads to discovery, experimentation, and innovation. Sometimes the innovation is even fruitful and marketable. I also liked #1 "Innovation, not Perfection" where she warns against building castles. By innovating incrementally things can be accomplished, tested, and finished in non-linear patterns with lots of opportunities to "pivot" as we are discussing this week in our course.
Taking the lessons from these 9 principles helps me personally get into a bit of an innovative mood. Thinking about my organic benchmarking algorithm I can see how I used some of these ideas from my perception of the problem, weak benchmarking, and my envisioned solution, strong benchmarking, and all of the interim steps that got me from perception to delivery. The solution to the problem I had came to me at a Healthcare Business Intelligence Conference in May. I was unplugged, literally since the internet did not work, and the complete separation plus the energy of the conference unlocked the solution that was hiding in my subconscious the entire time.
Bottom Line For Entrepreneurs:
Reading this article should help open up the mind a little and most importantly break us out of linear thought processes. While my previous post argued that entrepreneurism is fundamentally about solving problems, and that innovation is how we figure out how to solve them, this article helps us find the path between perception of the problem, conception of the solution, and delivery of the solution via innovation. Pivoting, collaboration, aggressively probing the box so you can think outside of it, and so are all things that foster innovation, whether it comes in small or large increments, you are still moving forward, even if you have to zig zag.
Since my last posting was about innovation I decided to follow up with another innovator's take on innovation. What I liked about this article was a heavy emphasis on how to innovate, innovation best practices, as opposed to Drucker's "Sources of Innovation". My rationale here is a little bit selfish, my employer has tasked each person with the objective of "innovating" on any scale as often as possible. In a vacuum that is certainly well and good but that is like telling people to "win" or "succeed". Sure, these are worthy goals, but they can be esoteric at the same time. Telling someone to "win" does not help them find the way to do so, it merely states the obviously good outcome that they are probably already striving for. Similarly, telling someone to innovate leaves them hanging a bit. Now innovation is obviously different from winning but the vague "do good stuff" without any further concrete guidance can be its own obstacle to that very objective.
The challenge in guiding innovation however is that any effort to steer it may inadvertently limit it, throttle it, or stifle it. So I can appreciate a hands off approach to bringing innovation to fruition, but just like you can not harvest a crop without first tilling the earth, you can not just demand the end product without making the environment conducive to its creation.
Mayer's nine principles lays out, for all intents and purposes the blue print to foster innovation without excessive steerage, that said #3 "A License to Pursue Your Dreams" is probably the best and most conducive to innovation. The 20% time allotted to any productive pursuit allows employees to separate from their day to day and explore. Exploration leads to discovery, experimentation, and innovation. Sometimes the innovation is even fruitful and marketable. I also liked #1 "Innovation, not Perfection" where she warns against building castles. By innovating incrementally things can be accomplished, tested, and finished in non-linear patterns with lots of opportunities to "pivot" as we are discussing this week in our course.
Taking the lessons from these 9 principles helps me personally get into a bit of an innovative mood. Thinking about my organic benchmarking algorithm I can see how I used some of these ideas from my perception of the problem, weak benchmarking, and my envisioned solution, strong benchmarking, and all of the interim steps that got me from perception to delivery. The solution to the problem I had came to me at a Healthcare Business Intelligence Conference in May. I was unplugged, literally since the internet did not work, and the complete separation plus the energy of the conference unlocked the solution that was hiding in my subconscious the entire time.
Bottom Line For Entrepreneurs:
Reading this article should help open up the mind a little and most importantly break us out of linear thought processes. While my previous post argued that entrepreneurism is fundamentally about solving problems, and that innovation is how we figure out how to solve them, this article helps us find the path between perception of the problem, conception of the solution, and delivery of the solution via innovation. Pivoting, collaboration, aggressively probing the box so you can think outside of it, and so are all things that foster innovation, whether it comes in small or large increments, you are still moving forward, even if you have to zig zag.
Monday, September 10, 2012
Seven Sources of Innovation
For this post I am going to take a look at the 7 sources of innovation as defined by Peter Drucker. A quick link for the unfamiliar: 7 Sources of Innovation
What is Entrepreneurism?
For me, the purest essence of entrepreneurism is problem solving. A firm that is not solving a problem is probably not one that will blow the doors off the market and thrive. The greatest innovations of recent memory and some of the most successful new companies solved problems, some of which customers did not even know existed. Take the automobile, invented by Ford. While he famously quipped that had he asked customers what they wanted they would have asked for faster horses, his invention solved the problem that was unstated but pervasive and tangible. The problem he tackled was faster travel. Later when the Wright Brothers invented airplanes and gave the world flight, they too tackled the problem of faster travel. Even more recently something as novel and creative as Facebook seems to not solve any problems, right? This is wrong, as Facebook solves the problem of communication between humans. It was a novel way to communicate in the sense that flight was a novel way to get from point A to point B, however, at its more fundamental level, it is communication, and it solved a problem.
Successful entrepreneurism is the application of innovation to problems. This is why Facebook thrived while MySpace died, or why Google dominates Internet search while Yahoo struggles to remain relevant. They innovated successfully, solving the same problem but in a different way. While the actual implementation is the final deciding factor that determines success or failure, the innovations and the implementations all originate with perceiving a problem and attacking it. There is a reason why corporate lingo likes to call challenges and problems "opportunities"; it is because they are the problems that your organization has an opportunity to solve, and it is problem solving that leads to commercial success.
The reason for this tangent is to tie the 7 sources of innovation to entrepreneurism and in distilling entrepreneurism to such a simple definition the connections become obvious immediately, it also facilitates prioritization of the 7 sources for new businesses.
Seven is Five Too Many
If we distill entrepreneurism down to problem-solving, then we should be able to distill "7 Sources of Innovation" as well.
The Unexpected - This is accidentally discovering something useful, for example, the coating placed on automobile glass that makes it pulverize was discovered by a chemist who dropped a beaker. The linked article accidentally discovered that the compound he was working on was sweet. There is an urban legend that one of the greatest medical breakthroughs of all time, penicillin, was also discovered by accident in a garbage can with a moldy sandwich in it. There are myriad scientific breakthroughs that if you dig a little were probably stumbled upon unintentionally or accidentally. While this is not intentionally solving problems, the other major part of innovation, the implementation, is critical here as any of the aforementioned breakthroughs could have been discarded had their discoverers not had the perception and awareness of what they had found. Due to its uniqueness I would leave "The Unexpected" as its own special category where the proverbial cosmos or "fate" decide a discovery's time has come.
Incongruities, Process Needs, Industry and Market Structure, Demographics, Perception, and New Knowledge - These are all ways to rediscover existing fundamental problems or new ways to attack them but at the bottom we come full circle to problem solving. Incongruities, Process Needs, and Demographics pose the challenges and problems to entrepreneurs and innovators, here is something that the market or part of the market wants or needs and how can you satisfy that want or fulfill that need? Tata's CEO noticed that his people were traveling on mopeds built for 1 or 2 as families of 3-4+, he saw an incongruity between what was available (mopeds) and what people truly needed (safe transportation), as a result he launched the Tata Nano. Industry Structure, Perception, and New Knowledge give innovators and entrepreneurs new ways to approach standard problems to lead to new solutions. The new knowledge of the internal combustion engine allowed Ford to tackle the old problem of transportation with a new tool which led to a new solution that he profited from.
Bottom Line For Entrepreneurs:
According to Drucker there are 7 sources of innovation, however, I would argue that there are really two; serendipity and human ingenuity in the face of problems. The reason we have persevered as a species is because of our ability to solve problems, society rewards problem solvers with praise and financial rewards. The lesson here is that as entrepreneurs we do not have to be transfixed on "innovating" as innovation for the sake of innovation is pointless, however, if we go looking for problems are focus on devising solutions to them, then we are on the path to success. Dividing and labeling problems or sources of solutions is distracting and takes away time from the most important endeavor, solving the actual problems.
What is Entrepreneurism?
For me, the purest essence of entrepreneurism is problem solving. A firm that is not solving a problem is probably not one that will blow the doors off the market and thrive. The greatest innovations of recent memory and some of the most successful new companies solved problems, some of which customers did not even know existed. Take the automobile, invented by Ford. While he famously quipped that had he asked customers what they wanted they would have asked for faster horses, his invention solved the problem that was unstated but pervasive and tangible. The problem he tackled was faster travel. Later when the Wright Brothers invented airplanes and gave the world flight, they too tackled the problem of faster travel. Even more recently something as novel and creative as Facebook seems to not solve any problems, right? This is wrong, as Facebook solves the problem of communication between humans. It was a novel way to communicate in the sense that flight was a novel way to get from point A to point B, however, at its more fundamental level, it is communication, and it solved a problem.
Successful entrepreneurism is the application of innovation to problems. This is why Facebook thrived while MySpace died, or why Google dominates Internet search while Yahoo struggles to remain relevant. They innovated successfully, solving the same problem but in a different way. While the actual implementation is the final deciding factor that determines success or failure, the innovations and the implementations all originate with perceiving a problem and attacking it. There is a reason why corporate lingo likes to call challenges and problems "opportunities"; it is because they are the problems that your organization has an opportunity to solve, and it is problem solving that leads to commercial success.
The reason for this tangent is to tie the 7 sources of innovation to entrepreneurism and in distilling entrepreneurism to such a simple definition the connections become obvious immediately, it also facilitates prioritization of the 7 sources for new businesses.
Seven is Five Too Many
If we distill entrepreneurism down to problem-solving, then we should be able to distill "7 Sources of Innovation" as well.
The Unexpected - This is accidentally discovering something useful, for example, the coating placed on automobile glass that makes it pulverize was discovered by a chemist who dropped a beaker. The linked article accidentally discovered that the compound he was working on was sweet. There is an urban legend that one of the greatest medical breakthroughs of all time, penicillin, was also discovered by accident in a garbage can with a moldy sandwich in it. There are myriad scientific breakthroughs that if you dig a little were probably stumbled upon unintentionally or accidentally. While this is not intentionally solving problems, the other major part of innovation, the implementation, is critical here as any of the aforementioned breakthroughs could have been discarded had their discoverers not had the perception and awareness of what they had found. Due to its uniqueness I would leave "The Unexpected" as its own special category where the proverbial cosmos or "fate" decide a discovery's time has come.
Incongruities, Process Needs, Industry and Market Structure, Demographics, Perception, and New Knowledge - These are all ways to rediscover existing fundamental problems or new ways to attack them but at the bottom we come full circle to problem solving. Incongruities, Process Needs, and Demographics pose the challenges and problems to entrepreneurs and innovators, here is something that the market or part of the market wants or needs and how can you satisfy that want or fulfill that need? Tata's CEO noticed that his people were traveling on mopeds built for 1 or 2 as families of 3-4+, he saw an incongruity between what was available (mopeds) and what people truly needed (safe transportation), as a result he launched the Tata Nano. Industry Structure, Perception, and New Knowledge give innovators and entrepreneurs new ways to approach standard problems to lead to new solutions. The new knowledge of the internal combustion engine allowed Ford to tackle the old problem of transportation with a new tool which led to a new solution that he profited from.
Bottom Line For Entrepreneurs:
According to Drucker there are 7 sources of innovation, however, I would argue that there are really two; serendipity and human ingenuity in the face of problems. The reason we have persevered as a species is because of our ability to solve problems, society rewards problem solvers with praise and financial rewards. The lesson here is that as entrepreneurs we do not have to be transfixed on "innovating" as innovation for the sake of innovation is pointless, however, if we go looking for problems are focus on devising solutions to them, then we are on the path to success. Dividing and labeling problems or sources of solutions is distracting and takes away time from the most important endeavor, solving the actual problems.
Wednesday, September 5, 2012
Strategy and The Singular Focus
A follow up to yesterday's blog post regarding singular focus, I took the following excerpt from an interview with highly regarded Harvard Professor Cynthia Montgomery by Dan Schawbel at Forbes.com. The full interview can be found here: http://www.forbes.com/sites/danschawbel/2012/09/03/how-to-become-the-strategist-your-company-needs/
The selected excerpt:
"If a firm’s strategy is not clear, people throughout the organizations have a right and a duty to press for clarity. If the answers aren’t forthcoming or satisfying, there’s reason to doubt the business’ prospects and whether one is likely to thrive in that environment."
Reinforcing the Value of A Singular Focus:
Consider for a moment how this relates to yesterday's post about Singularity of Focus. By having a single focus that is deployed throughout the firm and woven into its very essence you provide the clarity that helps stakeholders (employees, shareholders, business partners) determine the business' prospects and ability to thrive. The singular focus guides the strategy and by transparently presenting both eliminates wasteful and distracting conflicts of interests or priorities.
Additional Insight for Entrepreneurs:
The interview also mentions the human component to strategy, and makes the observation that becoming a strategist allows one to develop effective strategies. Professor Montgomery's students tend to be entrepreneurs and business owners, not so dissimilar to the students in ETR500. A secondary lesson here is for aspiring entrepreneurs and leaders to start thinking strategically at their current level, to start to see how the cogs and gears interconnect and iteratively build upon this strategic thinking until becoming strategists. Once one becomes a strategist then one can finally make worthwhile strategies.
The selected excerpt:
"If a firm’s strategy is not clear, people throughout the organizations have a right and a duty to press for clarity. If the answers aren’t forthcoming or satisfying, there’s reason to doubt the business’ prospects and whether one is likely to thrive in that environment."
Reinforcing the Value of A Singular Focus:
Consider for a moment how this relates to yesterday's post about Singularity of Focus. By having a single focus that is deployed throughout the firm and woven into its very essence you provide the clarity that helps stakeholders (employees, shareholders, business partners) determine the business' prospects and ability to thrive. The singular focus guides the strategy and by transparently presenting both eliminates wasteful and distracting conflicts of interests or priorities.
Additional Insight for Entrepreneurs:
The interview also mentions the human component to strategy, and makes the observation that becoming a strategist allows one to develop effective strategies. Professor Montgomery's students tend to be entrepreneurs and business owners, not so dissimilar to the students in ETR500. A secondary lesson here is for aspiring entrepreneurs and leaders to start thinking strategically at their current level, to start to see how the cogs and gears interconnect and iteratively build upon this strategic thinking until becoming strategists. Once one becomes a strategist then one can finally make worthwhile strategies.
Tuesday, September 4, 2012
Singularity of Focus - Article Analysis
As I plan to do for most of the semester, I would like to analyze an article that I feel provides insight into the Entrepreneurial Process. Today's article was written by Steve Denning and published by Forbes.com. The link to the original article http://www.forbes.com/sites/stevedenning/2012/09/03/whole-foods-and-the-triumph-of-customer-capitalism/
As a frequent patron of Whole Foods (WF) I found the article very easy to relate to, and I prefer WF over Stop and Shop or Shaws for the same reasons as the Mr. Denning, better selection and better customer service. This article was intended to guide management however it provides some insight to entrepreneurship as well, and since that is the focus on the blog that will be focus of the analysis.
Lesson 1: Customer Focus
The author makes a very interesting comparison between Safeway (SW) and WF, showing how the cost-focus of SW leads to a reduced customer experience while WF's customer-centric goal enriches the customer experience. The correlation between their respective strategies and stock prices speaks for itself. When one considers that goods that are not unique to WF can be acquired for less at Walmart, SW, or Stop and Shop there must be more to the value added to the customers than the food in their basket. The singular focus on the customer and its subsequent improvement of the shopping experience helps create long term repeat business, which leads to long term and consistent profitability. These are the kinds of results that keep shareholders happy, even if they are not the sole focus of the organization's endeavors. The fact that this customer-first culture is woven throughout the very fabric of WF ensures that all stakeholders at all levels are fully aware of this goal and working towards it, which adds more stability and consistency to both the customer experience (shopping), partner experience (suppliers and employees), and shareholder experience (consistent stock price growth).
When starting a new company, as entrepreneurs do, committing to customer focus from day one is a great way to ensure that it becomes a cornerstone of the culture. Customers are the ones that provide you with revenue; repeat customers give you repeat revenue. The best way to ensure repeat customers is to offer a rich and rewarding customer experience, regardless of market segment or product. Whole Foods provides an excellent example of this and aspiring entrepreneurs should consider it strongly.
Lesson 2: Singular Focus
The author also points out the benefit to all levels of Whole Foods when a singular goal or focus is accepted and worked towards by the organization. By establishing the singular focus of customer value from the beginning Whole Foods eliminates distractions, debates, inconsistencies, and confusion. When faced with a challenge, each employee at every level of the organization can think critically and find the answer to dilemma by simply finding the course of action that maximizes customer value. This adds consistency since the same solution should be reached regardless of who is deciding or where the dilemma occurs, so the outcome at the Providence, RI WF should mirror that of the Boston, MA market.
The lesson for entrepreneurs seeking to establish their company's culture is to find a singular focus and let it shape the culture and by extension govern operations. It does not necessarily have to be customer value, as noted by the author, but it does have to be the one overriding goal that provides frame work for decisions at the most microscopic of levels. By removing the obstacle of balancing interests, whether they conflict or not, logically effectiveness and efficiency go up. If time per decision goes down then more decisions get made per day, and if each decision is intended to maximize the company goal, then you have more decisions snowballing into more aggregate progress towards the one goal.
As a frequent patron of Whole Foods (WF) I found the article very easy to relate to, and I prefer WF over Stop and Shop or Shaws for the same reasons as the Mr. Denning, better selection and better customer service. This article was intended to guide management however it provides some insight to entrepreneurship as well, and since that is the focus on the blog that will be focus of the analysis.
Lesson 1: Customer Focus
The author makes a very interesting comparison between Safeway (SW) and WF, showing how the cost-focus of SW leads to a reduced customer experience while WF's customer-centric goal enriches the customer experience. The correlation between their respective strategies and stock prices speaks for itself. When one considers that goods that are not unique to WF can be acquired for less at Walmart, SW, or Stop and Shop there must be more to the value added to the customers than the food in their basket. The singular focus on the customer and its subsequent improvement of the shopping experience helps create long term repeat business, which leads to long term and consistent profitability. These are the kinds of results that keep shareholders happy, even if they are not the sole focus of the organization's endeavors. The fact that this customer-first culture is woven throughout the very fabric of WF ensures that all stakeholders at all levels are fully aware of this goal and working towards it, which adds more stability and consistency to both the customer experience (shopping), partner experience (suppliers and employees), and shareholder experience (consistent stock price growth).
When starting a new company, as entrepreneurs do, committing to customer focus from day one is a great way to ensure that it becomes a cornerstone of the culture. Customers are the ones that provide you with revenue; repeat customers give you repeat revenue. The best way to ensure repeat customers is to offer a rich and rewarding customer experience, regardless of market segment or product. Whole Foods provides an excellent example of this and aspiring entrepreneurs should consider it strongly.
Lesson 2: Singular Focus
The author also points out the benefit to all levels of Whole Foods when a singular goal or focus is accepted and worked towards by the organization. By establishing the singular focus of customer value from the beginning Whole Foods eliminates distractions, debates, inconsistencies, and confusion. When faced with a challenge, each employee at every level of the organization can think critically and find the answer to dilemma by simply finding the course of action that maximizes customer value. This adds consistency since the same solution should be reached regardless of who is deciding or where the dilemma occurs, so the outcome at the Providence, RI WF should mirror that of the Boston, MA market.
The lesson for entrepreneurs seeking to establish their company's culture is to find a singular focus and let it shape the culture and by extension govern operations. It does not necessarily have to be customer value, as noted by the author, but it does have to be the one overriding goal that provides frame work for decisions at the most microscopic of levels. By removing the obstacle of balancing interests, whether they conflict or not, logically effectiveness and efficiency go up. If time per decision goes down then more decisions get made per day, and if each decision is intended to maximize the company goal, then you have more decisions snowballing into more aggregate progress towards the one goal.
Monday, September 3, 2012
Google SWOT Analysis
Here is my first SWOT strategy analysis (technically a TOWS, I guess) this was done in open office and MS Paint. Please feel free to comment and debate in the comics.
Sunday, September 2, 2012
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