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Archive for the ‘Strategic Planning’ Category

Knowledge provides critical leverage for dealing with the battles you face whether you are up, down, or sideways. In other words, if we’re playing chess and I know four moves and you know eight, then you have the upper hand. Today, information abounds. It’s all available at the click of a mouse or the tap of an app. But it’s not enough to have access to information. We need to be able to assess whether the information is useful to us.

There’s always been a need for assessment. The difference today is that the volume of information we need to assess is measured in exabytes, or billions of gigabytes. We feel the data coming at us from every direction, so much so that we don’t always know what to do with it. We need to know its source, the evidence that backs it up, and its relevance to us before we know whether we’ve got something we can use.

Baseball is a sport that has always been awash in data and statistics. A virtual alphabet soup of E.R.A., R.B.I., etc., has been used by generations of fans and management alike to assess the performance of players. For over a century, baseball scouts and managers used the same data when building their teams, the statistics that every fan, even kids, could recite about their favorite players: batting average, home runs, runs batted in, stolen bases, etc. Yet building a team based on this data often didn’t work out as planned.

About a decade ago, Billy Beane began to wonder if baseball was assessing its data correctly. Beane is the subject of the movie Moneyball, released this fall and starring Brad Pitt, as well as the bestseller of the same name by Michael Lewis. As general manager of the Oakland Athletics, Beane revolutionized the way baseball management assesses data about players.

Beane began to focus on obscure statistics like on-base percentage and slugging percentage, and even formulated his own statistical categories. He found that they were better predictors of success than the traditional measures. Rather than assessing “who got the most hits,” Beane sought to assess “who contributes the most to his team” and found the answers to those questions differed. Just because a player gets a lot of hits doesn’t always mean his team scores a lot of runs. Beane developed ways to sift through baseball’s mountains of data to find the relevant knowledge that he needed.

Using these new measures, Beane has had remarkable success identifying prospects in baseball’s draft and his teams have made several post-season appearances. Now, many other teams have adopted Beane’s approach, most notably the Boston Red Sox who have won two titles using his methods.

Beane’s innovation was to focus on the evidence and the relevance of certain kinds of baseball data. What he saw prompted him to take a different approach from his predecessors, an approach based on careful assessment. That approach gave him a distinct advantage over his competition and a place in baseball history. To top it off, now Brad Pitt is portraying him in his cinematic life story. That’s not a bad return on the assessment investment.

As a company, you have to decide how to best price your product or service on the market in order to be competitive and attractive to the end user. The problem is when you are the first to develop a service or product and no other company has invented that service or product before you; then at that time you are in a very strong position to price your product or service at the price desired. For example, take Apple Inc. they invented the IPAD, which was a tablet that no other players in the industry had ever created or invented before anyone. As a result they were able to price the IPAD at a higher price in order to achieve a higher profit on the new product. It is attractive to the end user and people are willing to spend the money for that type of product. It the same idea in a service industry, where you decide to offer a service that no one has decided to implement before you and therefore you are in place to set a target cost to reach the maximal profit that you anticipate to obtain with this new service that you can offer to many companies.

The benefit of pricing a service at an optimal price when there are no other players in the industry is a beautiful thing, but the problem is when you fast forward a couple of years and realize that you are not the only one delivering this amazing service and more importantly that your prices are much higher than your competitors as you have not revisited your pricing structure since you first established the new service; then you are a competitive disadvantage very quickly. In most business transactions, when the same level of service is being delivered by two or more companies, the client will often go with the cheaper prices.

What to do at this time?

Most often your loyal clients will come to you first and ask you for a pricing review across their accounts, but then at this point you are not maximizing your target cost. Another problem is the costs of your resources have increased in the past couple of years, but you have not increased your prices on your services. At this point, you would like to increase the price by a few percent across each client’s accounts, but you are faced with issue of your competitors already charging lower prices.

So it is very difficult to decide how to overcome these barriers and shorten your profit margin as you need to retain your customers in order to keep the cash flow coming in. A solution is upgrading the service level and adding value to each service provided and demonstrating this to the client. This is not an easy solution, but attainable if you wish to keep your high pricing structure and even desire to increase your already high prices.