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Showing posts with label firm diagnosis. Show all posts
Showing posts with label firm diagnosis. Show all posts

Monday, October 24, 2016

What should Twitter be?

Twitter is in the news for the wrong reasons. On one hand, the subscribers growth is slowing, and profits are not up to the mark. There is confusions as to the business model and if it can ever make money. Google, Salesforce, Disney and others were mulling acquiring Twitter. I think Twitter is more valuable than even Facebook (if you ask me) and it will be a core-architecture for the social web. Here are my thoughts on Twitter's business model and how. 

[Shameless plug: The background for the discussion is my interest in business models and my ideas of firms and how they create value. The frameworks are detailed in my book "Understanding Firms: A Manager's model of the Firm" - please buy it. ;-)]

About my twitter use first
I have been a twitter user for some years now. I don't over-tweet but I guess I should be in the approximate middle as to tweeting. But when it comes to consuming the tweets, I think I am a super-user. I have neatly segregated lists and I scan them using Flipboard and Tweetdeck. I also like to share what I read on / through Twitter. You can find/follow me @rahuldeodhar by clicking my username. So let us begin.

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Tweets fall into following categories -
  1. Link to content from the web - example linking to videos etc. [Sharing domain]
  2. Comment on content on the web (on twitter / outside twitter) [ Commenting domain]
  3. Opinion/Views about things - including witness view, etc. [Content domain]
  4. Personal updates - status updates [ Personal domain]

The Twitter Stream is like a river with all these mixed up from various sources. It is impossible to make head or tail of it if you want to read it. It is like watching the river from a bridge. It is all ok for some time but is not critical - it is a leisure activity. If you really want to do something interesting with it - you can't. If you want to track trouts - well from your perch you cannot. If you are a master user you are like a diver facing the current trying to analyse the water. Whatever analysis you do is useless because the stream has changed by then. 

So that is why advertising on Twitter is so damn difficult. As difficult as it is to interrupt a diver studying water with a TV commercial. The diver doesn't dive that often, and when he does, he doesn't want to look at your TVC. It is very difficult to read the twitter stream - ads make it worse.

Twitter is like a monologue for most of the people, most of the time till others start commenting, sharing and you start getting reactions (not the button based reactions but real comments). Then it becomes interesting. If you are too popular, it turns nasty (sometimes) and resembles a bar fight or a cake fight from Charlie Chaplin movies.

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But Twitter can become more relevant
Twitter can become the default commenting engine of the web - become disqus++. Twitter sits at the junction of comments and sharing. This is win-win for websites that generate comments as well commentators and for twitter. If someone is posting a long form comment, the first 140 characters will only form part of the tweet. This will force people to summarise their comments and it will be easier for authors and really interested parties to parse the detailed long-form reply at the web-page itself. [swelling the stream]

It can also become default Reviewer of choice. Reviews are essentially comments to something - either product, services etc. Ease of being able to pinpoint what we are reviewing remains a challenge. So say when you are reviewing a Phillips table lamp should it be tagged to product page in your country or to product page of Phillips international - well those things is what Twitter R&D spend of $800m should be used for. It can substitute product reviews in amazon, sites like good reads etc. [swelling the stream]

But it may be better to avoid hosting content. A few good things Twitter has done is to integrate photographs and videos into the stream. Twitter can choose to partner with YouTube and Google Photos or say Flickr for it or it could go on to become a content development platform - like medium (say). To me, there is value in letting content reside with YouTube or Flickr and using the Tweets itself to gather data. There are many arguments as to whether sequestering content behind login walls is good or bad. (Facebook likes it, google is fairly open). I prefer open architecture. It is like building cities v/s building walled communities - cities are much nicer. [swelling the stream - though not too much]

If you note carefully, Twitter can address two strong models - create once publish everywhere (COPE) and Diverse Information Sources in one stream (DISOS). I concocted the last one so apologies if it sounds clumsy. While the first allows easy of creating content, second allows ease of consuming content. Remember for advertising models consuming content is important. 

Twitter also need to universal Tweeting, specialised Stream reading. It already has universalised tweeting. You can tweet from any app/webpage etc from phone or computer. Or you can go to the Twitter website or its app and tweet from there. I use the Twitter website / App for reading the stream rather than tweeting itself. But reading is cumbersome. Tweetdeck is one way of segregating content based on usernames and hashtags. But even Tweetdeck is difficult to parse. Flipboard is easier to parse but a  bit weird in formatting. Twitter needs to develop apps that help user read the twitter stream better. [Reading the stream]

Twitter stream-reader, must complete the information picture the way Microsoft's Photosynth compiles the photographs from various sources. Twitter is it's information equivalent. If I pivot the twitter stream on a person, it should give me the subject-clustering of tweets of that person. If I pivot the twitter stream on a topic, it should people-cluster the tweets into groups - my followers and within that based on my lists. In both these views we should have ability to go back at least one day (for consumers). [Reading the stream]

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How to Generate Revenues
Twitter has been a platform of choice for news-dissimination. Twitter must take it to its logical conclusion. Twitter can replace the newswires - all of them in one go. For this, Twitter needs to use pre-identified usernames. It already does that with verified accounts. It will need a customised App for distributing and reading newswires. I cannot see why it cannot be done. By itself newswire business is about $3-5 billion with possibly about 12-14% profitability. For twitter, it may be more profitable. [separate newswire business]

Twitter based News channel is also a possibility since the news is there in the stream, videos are there and you can combine those using pre-selected usernames (handles) and tags. It can set up programming automatically just by relevant people tweeting about it. Facebook and YouTube have started live video dissemination, but in a stream they make no sense. But curated videos allow you to create topical channels. Twitter should also be able to hash YouTube existing video library into a proper playlist of sort. Advertising through this will be easier. [reading news stream]

Twitter Stream-Reader Pro can be a fully loaded stream-reader that can help clients get easier view on the data stream in terms of their relevance. Imagine Ford Mustang Twitter Stream-REader Pro (FMTSR Pro), it will read the streams about Ford Mustangs and then give you detailed analytics. If I was Twitter, I would hard code "Ford Mustang" into the this FMTSR-Pro and charge Ford for yearly use. The same App with modified hard codings can be deployed for others say Lego. For Glaxo or Pfizer it can drill down doctors and non-doctors into the categories. Twitter currently does sell the stream analytics but the revenues from that is quite low - about 10% of the revenues. I would presume it should account for 80% of the revenues. So there is a lot of potential in this. [ corporate stream reading]

Customer Service Pro can mine the stream for companies listen for customer complaints and engage the customers using DM. This can be even now but I can see Twitter being able to add analytics to aid the customer services. Personally I had super experience from Hyatt who solved my problem through twitter. From then on I personally air my grievances on Twitter so that if any company is listening then I can get help quickly. Indian ministers use twitter to solve emergencies - Railways and External Affairs ministries are quite active. I presume companies would love to use Twitter to solve their customer's problems. This function should ping companies when a customer tweets about bad experience he is having with the company. It should allow the companies to set criteria as to when alerts are triggered from the stream reader.

Twitter Topic Tracker can be a reader that tracks specific topic - say wind surfing, pottery or something. At present users have to create the lists as per their own specification and these lists can be public. The problem is in a list of economics we get general tweets (say happy birthday to my daughter) by economists but miss the economics tweets by other people who are not in the list. There should be some way of fixing this. Advertising in the viewer of this Topic Tracker will be more relevant and therefore more lucrative and sensible. [ to curate better advertising]

Twitter can create publicly sourced Subscription Magazines just like Flipboard or Paper.li with relevant tweets compiling into readable magazine. Twitter can take share of these subscription through a twitter-owned store and distribute subscription to contributors (original and those sharing them), using some acceptable equation. (So content creators take 75% of the revenue based on reads, clicks, shares etc. the individual share of creators can vary While those sharing get 1% of share of the content creators and Twitter takes 20%). Using the stream, Twitter can compile edited-book like special editions giving complete spectrum of opinions on selected topics. There can be advertising within these magazines and revenue sharing with content creators. So for example, Twitter can compile a special edition on "Manufacturing Policy" or "Dodd-Frank Bill" by experts and add value to the journalistic discourse. [content curation and advertising]

Twitter can also give a Event Live-view using tweets by general public (those by reporters go through the wire I am presuming) and create a Stream reader view that gives overall picture based on live tweets as to what exactly is happening. This might require integration with AI algorithms to parse value of information shared by a particular Tweet. Currently, search results that give "top tweets" tends to tell us this but it needs improvement. [Stream Reading] 

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Now with all these developments, I think Twitter should have been more valuable to news websites. It is indeed sad that Twitter cannot monetise itself better. In the present post I did not want to consider the operational parts of Twitter strategy because John Hampton has already considered them in his two fantastic posts Some comment on the Twitter buyout rumours and here Measuring how bad Twitter is. I hope Twitter heeds them. John Hampton is seldom wrong. Fred Wilson and Union Square Ventures were early investors in Twitter. I hope they understand the possibilities and take corrective actions.
 

Disclosures: I have no investment in twitter. 



Saturday, January 10, 2015

What happens when passion for transformation meets attachment to bureaucracy?

It often so happens that your passion to transform the organisation meets with the organisation's love for its status quo. The meeting is like "unstoppable force meets an immovable object". So then how do we transform organisations.

Well, to start the resistance comes from systems - but more from people who love certainty of those systems. These people, called bureaucrats in the book, haven't bought into the reason for change. The selling of change / transformation needs to be increased. The other reason why people resist change is because they see uncertainty beyond the change curtain. Bureaucrats hate uncertainty. 

There are four types of personalities in the organisation - Scouts, Commandos, Bureaucrats, and Leaders. Leaders are those who can flip between the working styles and deploy respective talents properly.

Change makers are usually commandos or scouts - both hate process driven approach. It is the nature of their make-up. These people often operate in uncharted waters therefore they are tuned to working without maps and processes. The resistance they pose comes from premise that they believe the change will not work or that it is ill-conceived. These people are more or less in agreement with need for change but have doubts as to the directions.

When processes seem to be fairly visible you can bring in the bureaucrats. Till such time, bureaucrats are better assigned to working the established lines of business creating window for change.

Some times mistakes happen when we are not looking. 

For example, during the change process if the finance department is fairly tightly controlled by bureaucrats then change is doomed. Expect tough fight for budget sanction and deviation to be questioned seriously. To avoid this, it is better to sandbox the venture.

OR

Another mistake occurs when scouts are left in charge of process formulation. Scouts are absolute worst with this job. They lose interest pretty quickly and resulting process are a mess - a bureaucrat's nightmare. The venture with successful proof of concept goes down the drain as bureaucrats are unable to replicate the success of the commandos.

OR

When change-makers make the change they leave the process formulation to other commandos who may not have bought into the concept of change. It is important that process formulation is done by commando team which has completely bought into the concept of change and/or feels confident enough to make necessary changes in the course of action.

Thursday, May 23, 2013

What is a fair Pay?

Knowledge@Wharton has really so-so article about what is fair vs unfair pay. But this post is not about why the article lacks depth per se but it is about what really decides fair vs unfair pay. And to this end, we will rely on the model discussed in Understanding Firms - A Manager's model of the Firm.

We will take two aspects from the book, first relates to ESK (Effort-skill-knowledge) profile for every job and second relates to profile of employee when she works on Firm's transaction chain, namely scout, commando, bureaucrat. As I explained in the book, employees perform dual functions. They work IN the firm's transaction chains and they work ON firm's transaction chains. In the first function, their work is classified as ESK profile. In the second function, their work is classified into "roles" such as scouts, commandos and bureaucrats. 

First about ESK profile
First it is common-sense to understand that an E-dominated job will pay vastly lower than K dominated job and S-dominated job will lie somewhere in between. Now, any given job has a combination of ESK requirements and thus has a ESK profile. It is here that the confusion starts. You can immediately see that this is a 3-D surface plot and the nature of surface is not clear. 

Thus a job with high effort and knowledge requirement cannot be equal to effort job + knowledge job. In other words, when you expect a high-knowledge job to supply effort, you pay higher for the same effort than when it is supplied by someone who does not offer the high-knowledge part. Thus it makes sense to carve out the E-type part and make someone else do that job. This is the benefit of specialization.

Let us think of an example. (With reference to Ironman) A scientist at Stark industries who is as brilliant as Tony himself will have a high K profile. But when you compare Tony and that scientist, Tony Stark comes with equally high K profile along with strong E and S profile as well. That makes Tony Stark more valuable than that scientist. (We are assuming this comparison way before Tony becomes Ironman.)

Another example can be that of surgeon. A surgeon works in S-K profile with both equally highly demanding. Therefore it is only fair his compensation is quite high.

Next about employee roles
When you consider employee roles, there is even more confusion. Usually, employees have a favoured mode of operations, that is to say they have a natural inclination to be either scout OR commando OR bureaucrat. However, considering the bargaining power equation across the transaction chain and the nature of transaction on which the employee is working demands a certain role from the employees. When employee supplies such a role to such a transaction, she contributes positively to firm's bargaining power. 

Any addition to firm's bargaining power is easier to perceive in terms of financial returns and is thus rewarded substantially. However, the share of rewards are not commensurate with the contribution to the bargaining power by various employees. Thus, a person winning a deal often gets more credit than a person who creates conditions within delivery side to win such a deal.

In our earlier example of Ironman, when Tony Stark is faced with a problem of lack of resources (in the cave for example), he re-wires the entire transaction chain, creating it all by himself, operating in a strong scout-commando combo-role. This makes Tony Stark truly superior to all other employees. Now Tony Stark gets higher compensation not only because he can be scout-commando but because he knows that he needs to be scout-commando and supplies that role. Thus it is not the role per se, but the aptness of the role to the situation that is valuable.


What firm values vs. what is valuable to the firm
We know and understand that firm pays more for what it values more. But there is a difference between what a firm values and what is valuable to the firm and firms do not always value what is valuable to it.  

Quite often, employees know what is valuable to the firm but firm is unable to recognize it. This is because of lacunae in leadership rather than anything else. In this case, the employee making a valuable contribution feels that he is unfairly compensated.

Some times the reverse is also true, that employees think certain this is valuable but in larger scheme of things it is not that valuable to the firm. This is problem of expectation matching at employees side but even this is a lacunae in leadership.

Relativity of fair compensation
Fair compensation also depends on relativity. Whatever the firm's stated policy, the employees know who is paid what in approximate. Further, employees also know the relative performance of people in the team. If firm rewards are not in line with relative performance a feeling of unfairness develops. No one compares his compensation with that of CEO directly, you compare your compensation with someone who has performed better than you and to some other who has done relatively poorly. If the compensation satisfies the hierarchy of performance employees feel it is fair.

Secondly, employees also compare compensation of others with others. So they will compare compensation of A(a not-so-high-performer in their eyes) with that of B(a star in their eyes) and check if the fairness holds. If they feel this is unfair then they ascribe unfairness to their own compensation even though in isolation they may feel their compensation is fair. To make this point clearer, employee is happy to receive his compensation for the year but becomes unhappy when he goes out and interacts with others.


Thus, fair compensation is not as simple as K@W makes it sound. It is way more complex. But you know better now!

Tuesday, April 30, 2013

Digitizing Permission marketing

When companies want to sell their products they advertise. What if a consumer, who wants to buy a product, does the same? Will companies flock to them and try to sell their wares? Well they should.

Imagine this 
A customer wants to buy a camera. He logs into any social website and says to his contacts - "I want to buy a camera what do you recommend." Immediately, a small site will be automatically created by search engines on their own within this say google will create a microsite, bing will also create one etc. 

What information will these site have? 
  1. A section on information where product reviews and comparisons
  2. A section on basics: For a camera site it will discuss photography, digital, films, about focus, aperture etc. 
  3. There will be a section on offers by various shops
  4. There will be a social feature indicating who amongst your friends owns which camera and what do they feel about it. You can also send them questions about shops and models.
  5. Camera companies can embed flash program to allow user a simulated learning experience. Similarly for other products like phone A/C, washing machines etc.
  6. A camera company site may also have some public visuals (untouched/unphotoshopped) that were clicked by that camera.
  7. A well-known camera expert could have some auto-suggestions for your profile. 
Reverse Wikipedia 
Think of the site as a reverse Wikipedia created for just one reader. This makes sense because a photography company or a camera company can spend its time looking on the web for resources while a single user cannot do so without intruding on his schedule. This information collected by different vendors then pools into a single place created for the user. This allows prospective sellers to market to exactly that person. However, since this information is ranked as per the relevance of the user by knowing his web surfing habits and his web contacts and things that they like to search and access, it will be completely customized.

Reengineered forums
If you visit a forum then one common comment you get on many post is that someone has already shared this or solved this previously and you should search within past posts. If only searching through past posts were that easy! Wouldn't it be easier if the forum found out what was already said and entered them as comments in my post?  

Curator lounge
Alternatively the site can be hosted by a curator. Thus a person who deals in wine can answer the questions once and the site back end can mine these answers while creating solution specific to the customer.

How does this use the Firm model?
In "Understanding Firms", we detailed the transaction model. One of the factors of innovation - namely incremental innovation was to shorten the transaction chain. The traditional marketing chain needs to be shortened by bringing the product closer to consumer. 

Traditional marketing, Seth Godin calls it interruption marketing, was designed to interrupt your work and bombard you with things they want to sell. Permission marketing, a Seth Godin innovation, changed this when companies sought to find out what you wanted and then try to sell it to you. What we have described is actually digitally enabled permission marketing and customized it for the user based on his/her habit and profile.

If you want to use this idea, you have to pay me royalty. Terms and conditions apply!



Wednesday, August 22, 2012

Automation and implication for employees


New York times has a fabulous article about how robots are taking over skilled work (using pic alongside). As part of firms we need to understand the nuances. What work can we substitute by robots? What work needs humans? Why so?

Understanding Automation
As discussed in my book Understanding Firms, overall work can be classified in three categories using ESK profile. ESK profile refers to content of work in terms of Effort, Skill and Knowledge. In first phase of productivity, machines developed to augment "effort". We called them tools as they were sufficiently dumb. As profile of the work changed towards higher skill-oriented work, the machines have caught on replacing human intervention in high skilled jobs. Earlier, these machines performed specified tasks repeatedly but a change in task was difficult for them to cope with requiring down time and modifications (temporary and permanent). What has changed is that, new machines are super flexible requiring no downtime to adapt. These machines work on variety of jobs and switch between them effortlessly. 

Yet, knowledge remains exclusive domain of humans. 
At the moment we do not or cannot have automated surgery machines as there are lot of decision points within a surgery process. However, robots do augment the surgeon in his skilled work of cutting, stitching, grasping etc.

Workforce profile will change
As I discussed in the book, the ESK requirement of the work is fulfilled by worker and machines together (and sometimes by process and materials used). Naturally, the workforce has to adapt its education and learning to take more decision centric roles rather than actual effort oriented task. It also means that workforce needs to have a higher knowledge profile.

With decision-making at the center of human contribution, creativity assumes prime importance as against uniformity and repeatability that were mainstay of prior manufacturing eras.

It means we need a more educated workforce (though nature of education needs to be drastically different). Previously, education was focussed on improving conformity, new education must focus on improving creativity.

Notes:
Example of Material or Process contributing ESK is car painting where slight magnetic action allows uniform coating of paint. This work has contribution from material (a paint that has electro-magnetic properties) and by process (actually using that property to advantage). 


Monday, July 30, 2012

Understanding Car dealers


John Hempton asks why car dealers behave the way they do - fleece the customer. He has detailed the issue in that blogpost. I am going to attempt to answer this. But let me tell you it will be a convoluted answer.

First, you have to imagine the entire car business as a network of transactions. The transactions that make money for the car assembler (I refer to Fords, Nissans of the world) are way more upstream at supplier side based on economies of scale achieved in sharing parts etc. (where exactly depends on each assembler). Sales per se does not contribute the differential value and will not dramatically impact margin on the product as other drivers. Hence the recommendation is to reduce sales cost as much as possible. Let sales pay for itself. Invariably that means hiring people without testing their morals and skills.

Second, these types of people can turn against the company as well and fleece them. Hence strong processes are put in place to constrain them from fleecing the company. There is apparent lack of trust between sales person and the company (usually seen at the time cost is audited or controlled by finance people). For the salesperson, the only way to make extra money is to cheat the customer. The incentives are stacked that way. You can see the relative bargaining power stacking here. Bargaining power of company is higher than that of sales person and that of sales person is higher than customers.

Third, the incentives of sales person and that of company tie in well - sort of complement each other. Once customer buys the car, she is sort married to it for 4-5 years. That means parts, servicing etc. etc. 5 years of opportunity to milk the customer -  long-term fleecing. (ok I can use buzz word like customer lifetime value etc but you get the idea). For salesman the incentives match. He meets the customer once every 5 years and hence has no incentive to strike a long term deal. So short term fleecing happens here. Note the differences in Cash Flow Chain designs. The cash flow chain does not fully flow through sales network, it equally flows through service centers. This is what reduces the bargaining power of sales persons.

Fourth, if a sales person invents a new technique to enhance sales, then it is in the car companies and dealers interest to spread the idea to every other dealer and sales person. This nullifies the advantage that innovative sales person should ideally enjoy. The effect of any value add that spread across the entire product range, is that is ceases to be a differentiator. The only practices the company cannot promote are once it should actively demote. But even those do not remain differentiators.

Fifth, the buyer behaviour is not linked to salesman behaviour. When you buy a car, you buy the brand and particular model. You even have a specific colour in mind. You want a Honda Civic or you want a Toyota Land Cruiser or Specific colour in Mercedes E class etc. You are locked in to a certain extent. The salesman is not. I have said in the book that bargaining power extends right inside the customer's pocket. Here the branding and product differentiation and need segmentation has reduced the customer's power to a certain degree.

Sixth, there are few car dealers (hence collusion is easily possible). Further, the game happens within last 3-5% (usually) of the price. So customers give up as attraction of the product is higher than this. Sometimes sales person try to up the game to 10% (when they have done their target for the month/year or are confident of achieving the same). Scarcity in number of car dealers allows better bargaining power with dealers.

Seventh, at some points in the year the incentives of customer and car manufacturer match. For example at the end of financial year of the car maker. They want to push volumes and that allows customers to have a good deal. Similarly, slow months align the incentives of customer with those of the sales person.

It is convoluted but this is what I have concluded. Feel free to share your experience with car dealers and ask your questions in comments below. 

I discuss these issues in detail in my book "Understanding Firms - A Manager's model of the Firm". The book is available on amazon here. Now no longer free - but always valuable.



Wednesday, July 25, 2012

Helping Social media and Web consultants price better


I know a bunch of people who are consultants to firms, advising them about internet, social media and other marketing inputs. These people are really experts and not the general mass of wannabes who seem to flood the world recently. In my discussion with them I realize they always find themselves not able to price correctly as per the services they deliver. I was thinking about this and it leads me to the think that they essentially have two problems. 

First, these consultants are facing classical Porter's bargaining power problem. Their clients have high bargaining power and they are unable to match that. Further, the barriers to entry are super-low. Hence there is a lot of competition in this area which has a wide spectrum of people starting from the top experts I refer to above to plain cheats who don't have a clue about either social or media. The client does not have the expertise or mechanism to separate the wheat from the chaff. 

Second, the customers perceive some risk because of which they underpay. One source of risk that is clear to me is lack of skills or understanding to measure performance (what will they do) and deliverables (what will clients gain as a result).  Since clients perceive the lack of understanding as risk, they tend to underpay for the product to reduce it. Thus, if a web consultant has diagnosed "clutter" as reason preventing website sales, then she is not perceived to have contributed as much to deserve the payment she seeks.


Naturally the prescriptions must be simply to increase bargaining power and develop measures of performance and delivery. The key question is how? Here are some suggestions:
  1. Dealing with uncertainty: Like I have said before, the only cure of uncertainty is certainty or disclosure.
    • Improving diagnosis: I believe my friends must draw from medical practitioners' business model. The diagnosis is first part of problem and money spent here is almost always never disputed. The diagnosis has to elaborate and chargeable. Without diagnosis, they should not submit their quotations. Quite a many times, some consultants intuitively know the problem just by looking at the website or execution of social media strategy etc. and tend to skip diagnosis. I think the more the stress is laid on diagnosis the better.
    • Pricing diagnosis: One problem faced with diagnosis is that clients have low expectations from websites and online sales or its impact on off-line sales. Hence they do not want to spend on diagnostics as much. Here, alliance with diagnostic services providers or technologies should help reduce the price for the consultants.
    • Reducing performance uncertainty: Once diagnosis is reasonable then the solutions will have better visibility allowing my friends to explain what they are going to do and why. This should allay the performance uncertainty.
    • Dealing with deliverables: Almost all clients these days measure the consultant's input in terms of what happens to their deliverable (say online sales or subscriptions etc). With these in mind, the clients formulate terms of reference for the consulting bids. The part the clients don't understand is that between deliverable and their terms of reference is a huge gap which consultants do not control. The problem is the consultants do not always communicate this to clients clearly. The agreement on deliverables must tie-in with what is controllable for the consultant.
    • Take this example (given by one expert friend): If a website creates 10,000 hits, has 10% subscription rate hence creates 1000 subscribers. Further it has 10% conversion rate which makes 100 people buy a product worth (say $100) leading to revenue of $10,000. Further, assume the profit margin is 30% then profits from the website will be $3000. Then, each subscriber is worth $3,000 / 1000(subscribers) = $3. Each hit is worth $3,000/10,000(hits) = 30cents. So what will be your deliverable? Will it be conversions? Will it be subscriptions? Or will it be hits? The answer, as I mentioned earlier, depends on what is controllable for the consultant. If she can control the hits, then she should measure hits. If she can control how many will subscribe then that should be measured.
  2. Increasing bargaining power: Even when all this is known, the underpay problem will persist. Porter's bargaining power issue looms over this business. Hence these consultants must find a way to increase bargaining power. This needs some brainstorming but few ideas from top of my head:
    • Organize into a firm or Agency: A member of the collective group is more likely to have better bargaining power. The internal structure need not be that of a firm. However, it can be a collection of individuals with a common name. (This is more perceptive rather than actual). Having a brand umbrella should help. Tip: Size connects with bargaining power.
    • Reputation: Clearly if Guy Kawasaki or Chris Brogan or Robert Scoble is advising the client they will pay more. So reputation will increase bargaining power. Some improve reputation with customer testimonials, others with referrals, others with interacting communities. Tip: Fame or recall = bargaining power
    • Sub-branding the knowledge: The diagnostic methodology, the solution, core ideas within the communications need to be branded with scientific backing either as papers presented in conferences or as well-publicized concepts (think pagerank). These could be product-type brands (like pagerank) indicating pre-packaged solutions or service style (like aroma therapy brands) that indicate customized solution and delivery. Tip: Knowledge = bargaining power.

So let me know what you think.


Note: For more discussion on importance of bargaining power and risks as it relates to firms read my book Understanding Firms - A Manager's model of the Firm.