Know the numbers, know your business!
Numbers are the fundamental language of business. The bottom-line on the income statement is a number. The business plan is expressed specifically as numbers on the operating budget, numbers that may derive largely from statistical projections of revenues and costs.
Decisions to invest in assets that can accelerate the growth of the business are usually based on numbers that reflect the expected profits and risks of each alternative use of invested funds.
Success or failure of the business or any of its parts typically comes down to numbers. It has been well established that quality is the key to long-run growth in revenues. However measuring quality is not enough.
Controlling the quality of productions in a manufacturing plant or the quality of customer service by inspecting and measuring goods and customer satisfaction does not eliminate the need for commitment-to-excellence programs, thorough training of production and service personnel, and preventive maintenance of equipment.
Regression analyses and moving average methods of time series analysis are two of the most commonly applied forecasting tools used in business, largely because they are robust yet easy to use. Other forecasting techniques range from qualitative approaches, such as juries of expert opinion, and subjective estimates of the sales staff, to highly sophisticate statistical methods of time series analysis, such as the box-Jenkins and spectral analysis method.
They are important in strategic planning to project consumer demographics that can prove critical in your ability to anticipate future consumption patterns.
They are useful in marketing to estimate the effects of changes in pricing policy on sales volume and market share.
No matter how you look at it, effective management is much more than just a matter of working with numbers.
The successful manager relies on common sense and intuition; sensitivity to human factors that defy quantification, and creativity that transcends the numbers.
When the numbers send up a red flag, the successful manager looks beneath them to find out what is going on.
Most successful managers also know that the business cannot thrive without close attention to the numbers, and that tools designed to work with the numbers can be indispensable.
Today there are other numbers to consider derived by social media reach, influence, sentiments and tone; all which need to be measured, and put into the call for action operating model. Today’s successful manager understands that quantitative methods can be powerful agents for solving the problems of human institutions, and in some cases human beings.
In capitalist economies such as that of the United States, Canada, and the Western European countries, managers of firms are continuously faced with numerous choices.
Managers of firms are assumed to have certain objectives, such as the maximization of profits of shareholder wealth, or the minimization of the cost of producing a given level of output.
Because managers and consumers are pursuing their own private interests and decisions are made in a decentralized manner, rather than by a central planner, a very important question concerning the coordination of economic activities arises.
This long debated problem has been solved today with the explosion of access to real time data that can be derived out of social media, and big-data. Yet there are a few ways to manage this further, one is microeconomics, which seeks to provide a general theory to explain how the quantities and prices of individual commodities are determined.
The development of such a theory will enable us to predict the effects of various events, such as industry deregulation and oil price shocks, on the quantity and price of output.
One of the most important properties of the competitive market equilibrium is that the quantity produced is the socially efficient quantity. The cost of producing the last unit of output just equals consumers’ marginal willingness to pay for it.
The supply-and-demand framework enables us to analyze or predict the effects of various events and government policy changes on the price and quantity of goods.
Social media sentiment allows us to tie into it, real time consumer opinion. The other way to manage economics, is macroeconomics, this approach is concerned with the issue of how the quantity and price of output of individual firms or industries is determined. In contrast, macroeconomics addresses the determination of the entire economy or aggregate output and price.
The most widely used measure of aggregate output is gross national product (GNP Index); the market value of all final goods and services produced in an economy within a given time period.
One of the aspects of macroeconomics is the fluctuation of the existence of lack thereof, of trade-off between unemployment and inflation. However in the 1990s the trade and investment flows between the US and other economies increased, there is another variable of great concern to business people and policymakers: the exchange rate.
This can change substantially by a few percent in a single day.
Then there are interest rates; one important practical implication of the interest rate parity equation is that increases in the US interest rate cause the dollar to appreciate.
US macroeconomic experience of the early 1980s provides a graphic, though somewhat painful, illustration of the link between interest rates and exchange rates. On the other hand, under fixed exchange rate regimes, one country usually assumes the role of lead country, and the other countries act as followers.
The ability of two countries to chart their own courses, or to pursue distinct, possibly even contradictory, macroeconomic goals is much lower when those countries attempt to maintain a fixed exchange rate.
This may be a blessing or a curse.
When exchange rates are fixed, and investors expect them to remain so, and interest parity conditions retract, interest rates must be equal in the two countries.
The central bank of the follower country relinquishes its ability to control interest rates and thereby achieve macroeconomic objectives such as reducing unemployment.
In the case of social media, it only showcases the consumer's state of being right now, but it does not help predict market conditions which will influence that consumer, derived from micro or macro-economic concerns as described above. Big-data on the other hand, can triangulate all these moving pieces, and with the right analytics, and decision algorythms could solve the biggest question companies always face: What to sell now, and tomorrow to maintain consistent growth, and profits.
Before the development of the marketing concept as a management philosophy in the 1950s, marketing was defined essentially as selling.
The traditional view of marketing up to that time was that marketing was responsible for creating demand for what farms; factories, forests, fishing and mines could produce.
Marketing has also been viewed in the past as the function responsible for creating a satisfied customer and for keeping the entire organization focused on the customer.
Marketing is one of the functions that must be performed by the management of any organization, amongst other functions such as manufacturing, finance, purchasing, human resources, sales, R&D and accounting.
The most effective marketing concept considers more carefully how the company can match up its distinctive competence’s with a relatively undeserved set of customer needs and offer superior value to those customers.
Market segmentation, market targeting and positioning, ideas that were developed as part of the original marketing concept, become even more important strategically under the new concept.
The value proposition, matching up customer needs and wants with company capabilities, becomes the central communication device both for customers and for all members of the organization. This is all possible today due to social media, and big-data.
Focusing attention on the company’s strategy for delivery of superior value to customers is crucial.
Superior marketing defined as customer-focused problem solving and the delivery of superior value to customers is a more sustainable source of competitive advantage than product technology per se in the global markets of the 1990s.
Marketing is not a separate management function; rather it is the process of focusing every company activity on the overriding objective of delivering superior value to customers. It is more than a philosophy; it is a way of doing business.
In the final analysis, only the customer can decide whether the company has created value and whether it will survive in the hypercompetitive global marketplace; more reason to tune into what consumers want and value, a social media enabled company, along with the adoption of big-data can do that very effectively today.
Listening to the consumer is not enough, tracking behaviors is not enough, enabling the consumer to have a voice is not enough, enabling the consumer to be at the helm is not enough. Predictive modeling of trends among social groups to identify life values, and developing the business intelligence approach to integrating such data across all business functions to properly develop, market, and retain relationships will be the marriage that’s missing today.
Big-Data is nothing without new algorithms needed to match consumers to values. Forget psychographic, demographic, and life stage data - that's not enough. Those models work in a verticalized market, and were part of the industrial revolution assembly line methodology. What's needed is to identify consumer values, as in what matters to that individual at the core of who they are - only through social media, and big-data tied into a business intelligence engine, can that be accomplished.
During the past two decades, the general view of the role of IT in business has shifted significantly from its traditional back office functional focus toward one that fundamentally pervades and influences the core business of an organization.
However, many managers entered the 1990s with a high level of skepticism regarding the actual benefits from IT. The productivity gains from IT investments have been disappointing, hence why the CIO is constantly tasked with cutting costs, vs. driving innovation. This is because IT was primarily expected to enhance operational efficiency (blue-collar) and administrative efficiency (white-collar).
More recently, the dominant business competence appears to be business flexibility with significant competence brought together within a flexible business network of inter-organizational arrangements such as: joint ventures, alliances and business partners, long term contracts, technology licenses and marketing agreements; this is why the cloud is growing so fast, because it allows companies to be nimble in changing the moving parts sort of speak in an efficient way, and with agility.
Undoubtedly, IT functionality will have a more profound impact on businesses than its effect this far, when it begins to focus on market convergence. Nevertheless, successful businesses will not treat IT as either a driver or the magic bullet for providing distinctive strategic advantage, until a marriage can occur. This marriage is between the CIO and the CMO, its’ "imagination tied to sustainability". CMOs are often looking for better ways to position the brand’s viability in the market, and CIOs are always tasked with making sure the approaches are sustainable, scalable, and won’t break the bank.
In many ways these two CXOs have conflicting agendas, until now. With big data, it is becoming more realistic for this partnership to work, and CEO’s not driving it, are doing their companies a huge injustice. CEOs who don't understand social media, and big data will become extinct within 10-15 years.
The management challenge is to continually adapt the organizational and technological capabilities to be a dynamic alignment with the chosen business vision, and more importantly with the consumer at the helm.
Hence for strategists, IT is not simply a utility like power or telephone, but rather a fundamental source of business scope reconfigurations to redefine the rules of the game through restructured business networks. When efficiency-enhancing business process redesign is pursued, the boundary conditions specified by the current strategy are considered fixed and given.
The most challenging thing is for managers to implement the strategy for business network redesign in a coordinated way. However using IT applications for enhanced coordination and control is both efficient, and effective for carrying out the business processes.
This challenge is difficult because the choices involved in exploiting the present and building the future confront managers with complex trade-off.
The conflict between the demands of the present and the requirements of the future lies at the heart of strategic management for at least three reasons:
1) The environment is which tomorrow’s success will be earned is likely to be quite different from the environment that confronts the organization today;
2) To succeed in the new environment of tomorrow, the organization itself must undergo significant and sometimes radical change;
3) Adapting to change in and around the marketplace during a time of significant internal change places and extremely heavy burden on the leaders of any organization.
The choices made in business scope, and competitive postures, are made to achieve purposes or goals. There are two central questions that need to be answered:
1) What does the organization want to achieve in the marketplace?
2) What returns or rewards does it wish to attain for its various stakeholders, stockholders, employees, customers, suppliers, and the community at large?
It is no accident that some organizations successfully adapt to an environment and initiate new ventures in a number of related product areas while others never seem able to repeat a single success. In short, what takes place within the organization makes a difference.
Winning in the marketplace is heavily influenced by how well the organization makes and executes its choices of where and how to compete.
It has become commonplace to note that one of the hallmarks of today is change. It is our constant. Good management and the management of change is the same thing; how to make sure that what you have in place today will meet the challenges you will face tomorrow.
Flexibility and quickness will count as much as vision and patience.
As economies mote to an information age complex technologies heavily influence by social media, big-data, global markets, intense competitions, and turbulent constant change, managers everywhere are struggling to cope with failing organizations.
Recently, the rise in environmental complexity has accelerated with revolutionary advances in computerization, with the introduction of social computing.
An explosion of knowledge, a unified global economy, the ecological crisis mounting social diversity, and other global trends, are almost certain to blossom into a far more complex world.
Major corporations comprise economic systems that are as large as some national economies, yet most executives and scholars think of them as firms to be managed with centralized controls. Moving resources about like a portfolio of investments, dictating which units should sell which product at which prices and setting financial goals.
Today’s and tomorrow’s corporations are becoming more and more automated and mobilized. Rather than the traditional organization of permanent employees working 9-5 within the fixed confines of some building, the virtual organization is a changing assembly of temporary alliances among entrepreneurs who work together from anywhere using the worldwide grid of global information networks, and social media.
Interface between organization structure and IT systems has become one of the most crucial issues in management, yet it is so poorly understood that we usually allow the inexorable force of IT to ramble through organizations unguided, with powerful unintended consequences.
It is almost as if robust ivy were growing over a building, destroying its aging mortar and old bricks, and leaving only the vine as a supporting structure.
Business will not be able to use IT effectively without a sound working model of the modern organization, and that model seems to be the market paradigm, or lines of business approach aligned around consumer values.
IT is the major reason for the replacement of hierarchies to enterprise models in today and tomorrow’s corporations. The challenge is enormous but the stakes are also enormous.
Managers can best prepare for this coming upheaval now by learning to make a mental shift from hierarchy to enterprise. We are witnessing not only a dramatic increase in the need for leadership but also a transformation in what we call leadership. This turbulence is in turn changing where leadership is practiced.
For example, hierarchies collapsing into flatter pyramids to respond to faster-paced markets are pushing leadership further and further down into the organization. Today’s flatter organizations mean that most of us will have to manage across more functions and be sitting on more project teams throughout our management careers.
It’s clear there are too many moving pieces for all the decisions to sit with either the CIO, or the CMO. Both need to work together to properly leverage all the components that make up today, and tomorrow’s ever unpredictable consumer.
Article originally featured on the Global ForwardThinkers Community. Source is from the book: "Unlocking Your Empire - Keys to enable your social media powered business", by Tullio Siragusa
What will such data reveal, once properly analyzed, synthesized, and put into a decision engine?
1) First of all how we track data must change, we are too verticalized to properly make sense of it
2) Second, the education system was built on the assembly line concept, to support verticalization, this will not serve the needs of the future brand – it’s too limiting
3) Third, companies who are not engaging with consumers at all – will seize to exit within 10 years, no matter how big they are today
4) Branding, marketing, and consumer engagement will need to be realigned around values
Yes, values, as in understanding that a group of consumers may value connecting with other people, more than a group of consumers who values escaping from reality by being entertained. A consumer who values connecting with others will want you to be able to provide him/her all that goes into that (as covered in one of my previous article about visionary companies), as in telecom, transportation, social networking, and events.
These groups of consumers, who value connecting with others, are being served by multiple brands today, which use multiple strategies, which are all competing for a voice with them.
The future “value based” brands, will be able to understand, through data science, how to properly align M&A activity, people training, R&D, sales and marketing strategies around the consumer. Such brands will need to break out of the verticalization mold, train its own people, because the educational system will simply not be ready, and start hiring cross-industry executives who can cross-pollinate the organization beyond verticalization, and embrace virtualization.
In order to effectively accomplish this, the first and foremost step will be a marriage between the CMO and CIO, and a closely sponsored relationship from the CEO, with goals that align around the consumer, and providing value to the consumer not by vertical, but by segmentation, specifically values based data segmentation.
In this new world of brands, the relationship of skilled workers will change also, you will see a huge spike in freelancers, and independent contractors doing projects, and a new respect for resources who can provide aligned values, without the concerns of long term contracts, or employment issues related to outdated skills. In markets like Europe, organizations that can provide for hire staff will see a huge win due to the restrictive labor laws in those markets.
The biggest winner? You and me, where our own individual values will be served with some sense of uniformity, and cohesiveness, from possibly one brand that we will build relationships with, because they serve our needs better than those talking at us, as it’s done today.
Tomorrow’s brand will not need to market, sell, or advertise, tomorrow’s brand will be a data science integrated company who’s approach to market will be so refreshingly simple with the consumer at the helm, that cross selling will simply be the norm, not a major effort as it is today. Tomorrow's brand will not be limited to verticals, or specialization, but rather provide consumers solutions based on their values. Take a company like AT&T, in this new world, they would be in the telecom, transportation, PR, advertising, and social networking business serving the consumer values of "people who like connecting with other people", and as markets evolve that will take shape into whichever way those consumers wish to connect, perhaps even teleportation (some day). Either way the brand of the future will shape its strategy around data science, vs. trying to fit data science into its current strategy.
The sooner CMO’s and CIOs partner, and start thinking about “what values” they want their companies to be known for, the sooner the company of the future will emerge.