Archive for 2011

Quick ways to improve your ecommerce store

Friday, December 16th, 2011

Most of us have a lot of experience using online stores, if you combine that knowledge by listening to your online customer’s feedback or watching them use your online store there are a few themes that start to emerge.

If you are looking for quick wins to make your ecommerce store more effective try focusing on the following.

Improve product information and product images

It is surprising how often product information does not have enough detail or includes low quality product images. This applies to both large and small retailers, I was very frustrated to not to be able to find ingredient information on a very large retailer’s website recently.

If you have a complicated product or a product that requires a 360 degree view then a video can be the best way to showcase the product attributes.

Cover all the payment methods bases

Often I get all the way to the end of a checkout process only to find that a site only offers a debit or credit card payment option.  If I am using my phone or ipad to shop online then I might not have my payment card with me and by including  PayPal/ stored credit card info as a payment option can make difference between a sale or a customer leaving your store.

Where possible give the customer the option to store their payment information for their next order.  There are many payment gateways who provide this service so that you do not need to invest in the infrastructure to store credit card information on your own servers.

Checkout process

Keep the number of checkout steps to a minium and where possible try to reuse information e.g. don’t ask customers to enter their billing and delivery address, assume they are the same and then give them the option to change it.

Ask for the bare minimum and do everything you can to get them to complete the transaction. Also don’t force customers to open an account but you should offer it as an option.

Search

This is perhaps the most important part of your site if you have a lot of products.  Search results are perhaps the most aggravating area to a customer if you do not get it right.  You need to invest a lot of time and effort analysing your search queries, getting feedback from your customers and investing in the best search technology.

Amazon have recognised the huge importance of search and have even spun off a product search product called A9.  In many of the large high transaction sites I have deployed the most widely used is Adobe Merchandising (formerly Mercado) which among other things lets you create the rules engine for product searches.

Taxonomy

If you are John LewisTesco.com or Amazon.co.uk how do you spilt your products down into categories? Should a fridge go into electrical appliances or kitchen?  Your categories and subcategories require a lot of thought. I have seen a couple of good presentations on ecommerce taxonomy recently given by former librarians, so leverage the experience of experts in categorising.

Contact info

Make your contact information available and accessible and it will create credibility in the mind of the customer. Also for those customers that do contact you by phone or instant chat it can provide a valuable source of feedback on your shopping experience.

Postage rates

Make sure you offer a range of postage service and do not charge extortionate rates.

The most important ecommerce success metrics

Friday, December 16th, 2011

Investment in ecommerce is one area that does not seem to have been affected by the downturn in the economy.  Many companies are investing their reduced budgets online as it can be one of the best ways to increase sales with comparatively little investment.

I have built many ecommerce sites from the ground up over the years, I have worked with many ecommerce software packages and I have experienced ecommerce from a user’s perspective.  In my view whenever a company makes an investment in ecommerce or makes changes to their online store there are only a few key metrics that need to be tracked.

Number of new visitors

The number of new visitors shows how well your marketing/ advertising/ multi-channel approach is working.  Attracting new visitors to your site is the key is growing your online revenue.

Number of repeat visitors

Not everyone buys on the first visit, very often customers will come to your site, store items in their basket and come back another time to purchase.  You will also have a number of people who become repeat customers and order regularly.

Conversion rate

The number of people visiting your site is of little value unless they actually make a purchase.  The higher the conversion rate the better. It is also useful to track the conversion rates of new and repeat visitors separately to get a clearer picture of your conversions.

Checkout abandonment rates

Once a customer has decided to buy then the checkout process is the key to your conversion rate. You need to have a clear view of each of your checkout steps and the abandonment rates at each stage (i.e. the number of people that fail to move the the next step). Using this information you can then try to improve/ optimise the stages with the largest abandonment rates.

Average order value

While your target average order value will vary greatly based on your industry, ideally you would like to see a year on year increase.  Many companies will have an average order value that they need to achieve in order for their online operation to be successful.  I attended a job interview with Tesco a few years ago and as part of my assessment they asked me to estimate the breakeven order value for Tesco.com. My rough calculation showed it to be around £40.

Orders per customer

If your online store has a good CVP and has good usability you would expect to see that your customers make many repeat orders. This obviously depends on the industry and the product, but for the majority of online stores repeat orders have the highest profit as the average customer acquisition costs are lower.

Summary

Of course there are many, many more metrics that you can track but in my view these are the key ones.  Even small changes in any of these metrics can have a big impact on your ecommerce bottom line.

After more than 10 years of growth e-commerce still only accounts for about 8% of total commerce in the US. Clearly, we have a long way to go in moving more commerce online so there is still a lot to be gained from investing your corporate budget in ecommerce.

The four stages of IT architecture maturity

Thursday, December 15th, 2011

The MIT Sloan Center for Information Systems Research developed a capability maturity model that defines four stages of architecture maturity. Each stage involves organisational learning about how to apply IT and business process discipline as strategic capabilities.

As companies move through each stage they can realise benefits rangin from reduced IT operating costs to greater strategic agility.

Stage 1: Business silos

In this stage companies focus IT investments on delivering solutions for local business unit or functional needs and have do not utilise technology standards. The role of IT in this stage is to automate or facilitate specific business processes.

  • One off solutions
  • Bottom-up. IT led by local business units
  • Poor integration with other IT systems
  • Poor server utilisation
  • Little shared data

Stage 2: Standardised technology

This stage means moving some IT investments  from local applications to shared infrastructure. Technology standards are now established intended to increase reliability and decrease the number of technology platforms to manage.  Fewer platforms means lower cost (around 15% less) but also less choice, however companies are willing to accept this tradeoff.

  • Rationalisation, standardisation, and consolidation of the IT infrastructure
  • Achieving a reliable, cost-effective IT infrastructure shared services model
  • Focus on quick wins

Stage 3: Optimised core

The next move is from a local view of data and applications to an enterprise view. IT staff eliminate data redundancy by extracting transaction data from individual applications and making it available to all processes. In this stage companies are also standardising business processes and It applications.

  • Standardising core business processes
  • Local managers and units lose control over discretion over processes and IT
  • Consolidating redundant applications into a single global instance of ERP and CRM
  • Rationalisation of processes and applications with the objective of standardising processes and consolidating applications.
  • Build re-usable data and business process platforms
  • Top-down. Business processes and IT investments are made by central IT department

Stage 4: Business modularity

This stage allows strategic agility through customised or reusable modules.  The objective is to create reusable modules that business units can join together a standard interface such as web services.

  • Move from local flexibility to global flexibility

Traditional approaches to venture capital by GPs in Europe and the USA

Thursday, December 8th, 2011

My Private Equity elective coursework was one of the most enjoyable so far. Traditional approaches to venture capital by GPs in Europe and the USA. I have a lot of interest in venture capital and private equity so it was really fun to research the European and US investment returns data in more detail.

Executive summary

US Venture Funds have outperformed European Venture Firms by a large margin when looking at both capital weighted average and upper quartile returns (Fraser-Sampson, 2010). Some argue that this outperformance is due to market and labour conditions, however most experts agree that the US approach to venture capital (VC) has largely driven these superior returns.

The traditional US approach is characterised by a home run mentality, investing in early stage companies and using entrepreneurial experience to add value to portfolio companies. In contrast the Europeans adopt a risk-adverse mentality, invest in later stage companies, often lack start-up/ entrepreneurial experience, operate in a fragmented market and have no stockmarket equivalent of the Nasdaq.

However in recent years, newer European funds have started modelling themselves on the successful US firms; investing in earlier stage companies and adopting a home run mentality (huge exits such as Skype, Betfair, MySQL). These success stories have created a new breed of entrepreneur who now has the ability to add value to portfolio companies. There are other changes as well, VC in Europe is also maturing with more fund managers managing repeat funds, relative undervaluation of Europe companies, coupled with better capital efficiency means that Europe may outperform over the next few years. The US could also be a victim of its own success with large amounts of capital flooding the market, driving up valuations and increasing the number of inexperienced US Venture Firms.

This leads us to ask the question of how relevant are historical returns comparisons if the markets have changes post-credit crunch and European funds are adopting the US model.

European VC firms seem to be closing the performance gap, but whether upper quartile returns in US and Europe narrow still remains to be seen.

Investment is about risk-reward trade offs, and the risk-reward profile of venture capital is not uniform across all sub-categories. Generally speaking, the earlier the stage, the riskier the investment, but the greater the potential payoff in case of success. As US VC adopts a more early stage approach there is a higher probability of extreme (positive and negative) returns. By comparing Europe VC to the US, a naïve conclusion might be that European venture performance would have been better had investment been undertaken in greater volumes, with more of a focus on early stage, and more of a technical focus. However, correlation does not indicate causality (Kelly, 2011).

Ultimately US and European capital and labour markets are very different so trying to compare VC firms on either side of the Atlantic is very difficult.

Download the full report: Traditional approaches to venture capital by GPs in Europe and the USA.

The report covers:

  • Executive summary
  • US and European venture performance
  • Traditional approaches to venture capital
    • US approach
    • European approach
  • Are the traditional approaches still valid?
    • Younger European VC funds develop a more early stage focus
    • Europe wakes up to value add
    • Home run mentality crosses the Atlantic
    • European VC maturity catches up
  • Recent comparative returns
    • Is the US a victim of its own success?
    • European post-IPO outperformance
  • How valid are historical returns?
    • Are European returns as bad as they seem?
    • Comparing like with like
    • Shifting leaders in technology
    • As technology matures diversity becomes more important
  • Bibliography

How to scale professional service firms

Monday, November 14th, 2011

Introduction

My latest report attempts to identify common factors that influence scaling in professional service firms (PSF). The sample draws from small and medium (up to 100 people), UK-based firms who deliver services to UK clients.  We interviewed a sample of professional service firms using a structured list of interview questions and this data was then analysed to discover themes, trends and comparisons made between the companies that scaled and those that did not. Below is a summary of the key findings.

Findings

Our findings corroborate widely-held industry views that successful PSFs scale when they select and leverage resources (particularly people) and intellectual capital for optimal competitiveness and growth.

Based on our finding we developed the Phased Scaling Model which attempts to encapsulate the scaling stages of a Professional Service Firm.

PSF Scaling Phases

PSF Phased Scaling Model

We identified several key factors that determined successful scaling:

  • Human Capital.  This is a firm’s principal asset, which should not be diluted.
  • Management Decoupled from Delivery. Firms cannot grow effectively if management are concurrently deployed on client projects.
  • Management Team. Quality and individuals’ networks are essential for early success.
  • Financial Management. New methods of reducing fixed costs de-risk and support focus.
  • Brand Management. Required to scale beyond known networks and relationships.
  • Differentiation and CVP. Differentiate in saturated markets with low barriers to entry.
  • Building Networks and Relationships. Form the initial sales and reputation-building platform.
  • Industry Diversification. Expanding into new markets to de-risk against an industry downturn and to access a larger customer base.
  • Timing and Luck. Are key factors in either a positive or negative outcome.

Human Capital

All interviewees stated the most important scaling factor was the ability to find and retain key talent. People are a PSF’s main asset and without a continuous pool of talent to match the organisation’s growth aspirations, the business will be constrained.

  • To keep a consistently high quality of hires a template of new hire is required e.g. Employees must have Big 4 experience, a Masters Degree, Prince2 and MSP as a minimum.
  • The mix of fulltime versus associates is also critical.  A 30:70- split between fulltime associates (contractors) and employees enables downsize flexibility if growth is not on plan; fulltime employees give you client consistency and are critical to building culture.

Management Decoupled from Delivery

To coordinate growth senior management should focus on the wider strategic growth issues and should not be involved with the day-to-day operational issues.

  • Senior management focusing too heavily on billable work can restrict growth.
  • In order to facilitate senior management detachment there needs to be an investment in the delivery teams to give senior management confidence to step back.
  • Senior management detachment from operations makes the business more attractive for an acquisition.

Management Team

The chemistry of the management team, their networks and risk profiles have a significant impact on growth.

  • Early customers were won from their professional networks or previous clients.
  • It can be several years before any work is won from pure marketing.
  • This means that scaling in the early years is dependent on the quality and depth of the professional networks and whether previous clients have realised value from the engagements.
  • Managers should have similar tolerances for risk or relationships may become strained.

Brand Management

To scale, the business must move beyond personal networks and attract customers from the wider target market by building a well-regarded brand.  Building a PSF brand involves more than just delivering excellent work and customer service:

  • Targeting industry awards.
  • Hosting thought-leadership events..
  • Hiring a marketing manager early in the firm’s life.

Differentiation and CVP

In a congested Professional Service market with low barriers to entry, differentiation, demonstrating value and successful execution are key.

The firms we interviewed focused on a specialist area of consulting and using a employee template that allowed it to offer ‘Big 4’ quality at much reduced fees. It also proved its CVP with its first clients before it scaled.

Building Networks and Relationships

All of the firms interviewed used relationships to build an initial platform and expand their network.  However, it was the mix of other scaling factors that determined the on-going probability of success.

Building networks seemed linked to the proximity from the end-client’s ecosystem. Locating offices close to the client makes project delivery and account management easier and also means you are close to clients when new projects arise.

Industry Diversification

Most firms start their business by focusing on one industry, as this is where they had the most experience, contacts and knowledge.  This seems intuitive as it gave them the best chance to access early customers and leverage their individual credibility from previous professional engagements.

However once the business model has been tested with early customers the firm needs to quickly duplicate their model into new industries/ markets. This is essential to de-risk their reliance on a downturn in their core market and has the added benefit of increasing the potential customer base to support the rapid growth phase.  However the firm should not dilute their industry competency too widely and should aim to expand to five or six industries.

How to describe and create a business model

Wednesday, October 5th, 2011

Business models fascinate me; how businesses define, reinvent or change their business model is one of the most interesting parts of business strategy.

I recently read an article called Reinventing Your Business Model by Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann, which in my opinion had an interesting approach to describing a business model.

What is a business model?

A business model consists of four interlocking elements that, taken together, create and deliver value:

  1. Customer value proposition (CVP)
  2. Profit formula
  3. Key resources
  4. Key processes

Customer value proposition (CVP)

A CVP is the way you create value for customers, it’s the way you solve a customer’s problem. This element of the business model is by far the most important. Coke’s CVP focuses on its unique flavour that no one else can copy, where as Dell’s CVP is a low-cost, customised computer direct to your door.

Profit formula

The profit formula shows how you will make profits for your company while still providing value to the customer.

  • Revenue model = price x volume
  • Cost structure = Direct costs, indirect costs and economies of scale
  • Margin model = Given the revenue and cost structure how much profit do we make

Key resources

The key resources are assets such as the people, technology, products, facilities, equipment, channels, and brand required to deliver the value proposition to the targeted customer.  This will heavily influence your cost structure.

Key processes

Successful companies have operational and managerial processes that allow them to deliver value in a way they can successfully repeat and increase in scale.

Complementary decisions

You need to make sure that these four elements are consistent and complementary. For example you shouldn’t have a high service CVP and then not invest in staff training and service processes. Conversely for a low-cost provider having fancy offices and labour-intensive processes is probably not the best approach.

Managing Successful Programmes (MSP) foundation and practitioner exams

Monday, September 26th, 2011

This week I have had an intensive training course to prepare me for my MSP practitioner exams. To start with I had 15 hours of pre-work to complete which included reading the MSP manual, practicing some mock exam questions and reading the syllabus. As the manual is over 290 pages needless to say this took more than 15 hours.

Day 1

We found out that we are one of the first groups to be taking the MSP 2011 syllabus so in some regards we are guinea pigs. The first few hours were very slow and were designed for people who had not bothered to do the pre-reading. As I had done the pre-read it was simply a refresh for me.

The MSP content is broadly split into two parts: governance themes and programme processes, this is further subdivided into programme management and business change activities.  Throughout the day we covered:

  • Identifying a programme
  • Programme organisation and roles
  • Vision
  • Blueprint design and deliver (very linked to enterprise architecture)
  • Leadership and stakeholder engagement

Day 2

We had been told that we would have 2 hours of reading and questions for homework. Luckily that was not the case and we only had about 30 example foundation test questions. It seemed to me that they had taken all the hard questions and put them into one paper as it was a hard paper and a bit of a wake-up call.

Today was the longest day and we covered:

  • Managing the tranches
  • Business case
  • Risk and issue management
  • Quality management
  • Benefit realisation
  • Realising the benefits

Day 3

The morning was spent going through the remainder of the syllabus:

  • Delivering the capability
  • Planning and control (the biggest section of the syllabus)
  • Closing a programme

After lunch we did some recap and prepared for the foundation exam.

We sat the foundation exam at 3pm. It was an hour paper with 75 questions (5 of which are under trial and do not count however you do not know which ones they are) and you need to get 35 to pass.  The papers are marked immediately and everyone in my class passed. I got 61 out of 70 so I was very pleased with myself.

Day 4

We spent the whole session just going through the sample practitioner paper. We worked on a few questions at a time to get used to the different question types and styles. I found the best way to learn was to go through the sample rationale answers, I actually found the reasons for the wrong answers a lot more useful than the right answer.

Day 5

The practitioner exam started at 9am and lasted 2.5 hours. It is a scenario based exam which is usually around 10 pages and then there is extra detailed information that some questions refer to. My exam technique was to skim read the scenario for the context and totally ignore the extra information pages. If the extra information was directly referenced in a question then I simple read the relevant page.

The paper is 80 questions and you need 40 questions to pass. The results are posted to you within 10 working days, so fingers crossed!

Conclusions

I have had some experience of managing programmes so I had some context for this course. That being said the MSP framework does seem very pragmatic and once you tailor it to your organisation I can see it adding great value if you do not have a formal way of managing programmes.

Most of the content was engaging and strategic, there is an element of death-by-powerpoint but less so than some other courses such as Prince 2.

Overall I would recommend MSP to any existing or aspiring programme managers as I think there is a lot of value to be had from the course.

If you don’t want your unprofitable customers someone else will

Sunday, September 11th, 2011

I am back at lectures today for the start of the second year of my MBA. I am now studying my electives and I have chosen a strategy/ technology track which is where my interests lie.

Today I am starting “Strategies for Fast Track Venturing”, which from the course outline is to study theories and techniques that are reshaping strategic management in fast moving environments. It asks: what are the key factors that determine whether a venture makes money and grows to a significant size?

One of our fist readings is called ‘Bottom Feeding for Block Buster Businesses’. D. Rosenblum, D. Tomlinson and L. Scott (2003). Harvard Business Review March 2003.  There was nothing in the article that most people do not already know but there were some interesting points that I wanted to summarise.

Unprofitable customers are the bane of most companies and a lot of companies actually encourage their worst customers to buy from their competitors.  The authors argue that as customers are scarce this this may be a rash move and that actually you can turn these unprofitable customers into profitables ones.

So how do you go about serving these unprofitable customers? It almost always means redesigning your business model:

  1. Simplify your offering – often a product is unprofitable because it has features that customers don’t want or will not pay for. This also links back to the ‘Reduce/ Eliminate’ from blue ocean strategy which will reduce your costs.
  2. Minimal marketing expenses – serving cost-sensitive customers means you cannot waste money on marketing and should instead rely on word of mouth marketing.
  3. Personal, convenient and pleasant service – often the cost-sensitive/ fringe customers are used to being shunned so good service will be a big surprise. It is also about showing that every customer is valuable.
  4. Careful use of technology – sophisticated technology might not always be the answer, chose the technologies that your customers are familiar with.
  5. Realistic financial targets – low margin businesses require a lot of scale before they are profitable so take a long-term view

ECCO A/S – Global value chain management case study

Wednesday, August 31st, 2011

My operations management coursework was based on the ECCO A/S – Global Value Chain Management case study which is an interesting paper on ECCO A/S (ECCO) who have been very successful in the footwear industry by focusing on production technology and assuring quality by maintaining full control of the entire value chain from “cow to shoe.”.

ECCO follow a differentiation business strategy producing the highest quality shoes and they use their operations as one of their main points of competitive advantage.

ECCO’s operations strategy is top-down (i.e. formed in pursuit of its business strategy) and operations-led (i.e. based on the resources and capabilities within its operations). They prioritise quality and reliability; the supply chain is configured to produce in accordance with specification and without error.

ECCO has a very atypical operations strategy compared with their industry peers. Unlike their “branded marketer” competitors they produce their own materials and manufacture 80% of their own products in factories around the world. Owning and controlling the entire value chain gives them huge flexibility and allows them to maintain the highest levels of quality.

Leong et al. (1990) state that operation strategy consists of the key decision areas concerned with the structure and infrastructure of operations…

Download the full report: Operations Management Coursework – ECCO Shoes Global Value Chain

The report covers:

  • ECCO’s operations strategy
    • Structure
    • Infrastructure
    • Global vertical integration
    • Further operational execution examples
      • Manufacturing facilities
      • Training centres
      • Faster lead times
      • Production cycle
  • ECCO’s global supply chain
    • Tanneries
    • Manufacturing
    • Distribution
    • Drivers and trends in the industry
  • Supply chain risks and mitigation strategies
    • Intellectual property breaches
    • Inventory problems with changes in demand
    • Delays in material flows

Download the full report: Operations Management Coursework – ECCO Shoes Global Value Chain

Do you adapt or redesign your business model for the Internet?

Tuesday, August 30th, 2011

I follow mma, which for those of you that do not know it is a very new sport that has only been popular for about 10 years. After watching UFC 134 at the weekend it dawned on me that its development has a lot in common with the Internet which is a relatively new technology .

In mma the current superstars are those who came from another discipline (such as wrestling or judo) and then learned to be more rounded mma fighters. However there is a new breed of competitor who studied mma from the start of their careers; 18-25 year olds who have been pure mma fighters since their first training session and who are built exactly for purpose.

I see the same parallel with Internet business models, take quickbooks and xero. Quickbooks is a pre-Internet company their desktop software was around long before the Internet. I used their software for years and it was always the same old thing; every few years they discontinued support for the old versions so I had to pay for yet another upgrade, each version looked exactly like the last with no innovation and if you needed any help at all you had to pay for support. Contrast that with Xero which was built from the ground up as a Saas application to be run in a browser, updates are free, there are constantly new features being added, there are no large up front costs (you simply pay a low monthly fee) and the support is not only free it is excellent!  Xero is built for the Internet, Quickbooks is a company trying to adapt it’s model to the Internet.

A pre-Internet company needs to realise that the rules have changed, it seems so obvious but you cannot simply take your old business model and put it online. Established companies have a lot of advantages in other areas e.g. supply chain, distribution, sales, so if they can get the business model right they have the opportunity to make a real impact online.