Wednesday, October 09, 2013

Paying for the Hyperloop

By this time you have certainly heard about Tesla founder Elon Musk's proposal for the Hyperloop -- "...a new mode of transport – a fifth mode after planes, trains, cars and boat..." and you might be wondering, as I am, when the darn thing is going to be built already! Are we really worried about the investment? Can't smart state political and economic players come together to make this happen?

After all, it is quite hard to argue with the basic point that Musk raises -- that a high speed train between LA and SF does little to change the state's economy since it is not faster than flying (though it certainly has better environmental qualities) while the Hyperloop value proposition, reducing travel time between these two cities to 30 minutes, would fundamentally alter the state's economics.

First of all because a fast link between these two metropolitan areas will radically increase human interaction - tightly connecting the center of global technology innovation and the center of global entertainment and increasing and accelerating interaction between them. This will generate new businesses, cause new ideas to be developed, make it easier to integrate technology and entertainment and sell the results to a global market. Hyperloop will be a substantial competitive advantage for California.

Second because whichever company first perfects the Hyperloop will have an immediate global market to deliver these systems to other "high traffic city pairs that are less than about 1500 km or 900 miles apart." This too will bring an economic boom to the state of California if we can build them here first and then sell our know-how to the world.

But these are long term economic benefits and are difficult to quantify. While they (like the benefits derived from many infrastructure projects) would justify the needed investment in developing and building the Hyperloop, it is difficult to form public policy on these general economic benefits. Thus Musk has reasonably built into his analysis how much of the ticket cost would be needed, over 20 years, to recoup the development cost (about $20 per trip). But I believe there is another path to paying for the Hyperloop, one that we can easily execute on with visionary State political leadership and aspirational business leaders.

In Elon Musk's proposal he envisions a system that connects San Francisco and Los Angeles and perhaps in the future Sacramento, San Diego, Fresno, and Las Vegas. But the specific location in those cities is not considered. It stands to reason though that Hyperloop stations will be exceedingly valuable real estate -- living and working directly over a Hyperloop station eliminates the time and trouble of getting from somewhere else in that metropolitan area to the Hyperloop in order to start the journey to another city. Ending your journey at the business you want to visit eliminates the trip out of the Hyperloop station to wherever you needed to get to.

So imagine for a moment the incredible opportunity that the state has to play property developer -- what is the value of a mega-complex with shopping, offices, and homes situated directly over and around each Hyperloop station and thus connected to mega-complex locations in each of the other cities?

As a benchmark, the developer Larry Silverstein is obligated to pay $102 million per year in base rent to the NY Port Authority for the space which holds the World Trade Center. The actual lease value of the Hyperloop stations might be significantly more than that, but a construction bond sold today against a 50-year lease for two stations with combined annual income of $200 million per year in today's dollars (with increases for inflation) would generate more than enough money to build the Hyperloop. In Musk's plan he estimates construction costs at $6 billion for one tube with 40 cars. At just the World Trade Center lease value, the station real estate is worth $10 billion over 50 years.

Realistically the footprint for a Hyperloop mega-complex should be much larger than just the World Trade Center -- something more like all of downtown Manhattan at many multiples of the WTC lease value. Developers would be eager to create these new cities within the cities. In the Bay Area the old navy airbase in Alameda is available. Near Los Angeles it might be the Los Angeles Air Force Base although many other sites exist and are in public hands already, avoiding the need to use unpopular eminent domain laws (although this might also be needed).

What are we waiting for?

Tuesday, September 17, 2013

The Customer Agenda is the C-Suite Agenda

If growth is the CEO's key agenda than the CEO should be asking the company's management team, "what are we doing to address the Customer Agenda?" And should be developing a dashboard of key initiatives that support three imperatives and measure the impact on the business -- (1) OUTSIDE IN, (2) INSIDE OUT, and (3) DIGITIZATION.

1) Who is looking OUTSIDE IN and understanding how our customers see us and what they want from us? Are we developing a rich customer experience strategy? Have we implemented customer journey management? Do we have a guiding consistent brand narrative?

2) Are we turning our company INSIDE OUT and breaking down the silos between the different teams that are customer facing? How are we doing on collecting information, developing insights, and improving our ability to experiment? Do we know what the new business models will be that we need to organize our company's processes and people to serve?

3) Have we started enabling our products/services and delivery experiences through DIGITIZATION? Are we embedding sensors, instrumenting services, providing controls and integrating rich information? What partners are we connecting with in a stronger ecosystem? How will we develop the discipline to continuously innovate?

Does it make sense for every company to have a "Chief Customer Officer?" Not necessarily. But every company should have someone in that ROLE even if the title isn't needed. As Paul Hagen wrote for HBR:
...these individuals serve as top executives with the mandate and power to design, orchestrate, and improve customer experiences across the ever-more-complex range of customer interactions.
Customers now expect to be able to interact with our companies through any channel at any time to achieve any objective and have us know who they are, treat them consistently, and serve their needs fairly, efficiently, and ideally in a manner that surprises and delights. Meeting that expectation will require integrated customer experience connecting all of the functions in the enterprise that touch the customer: marketing, sales, service and even R&D and operations. Getting all of those separate teams and leaders to work together toward this goal has to be the CEO's agenda.

Saturday, September 14, 2013

Three Imperatives

Every company in every industry faces an imminent and urgent challenge to address three imperatives and respond to a once in a lifetime transition -- from an industrial economy to a computation economy. I don't mean to say that this is a change that will be apparent in one year or three years, but if organizations hesitate to embrace the change that is upon them they risk falling behind over the coming decade of digital transformation. These three imperatives are related to:

(1) Customer expectations are changing and with them the underlying operations of markets will transform.

(2) The definition of competition (and of competitive products and services) is changing and with it -- who competes with whom, where they compete, when they compete, and the business business models that govern that competition.

(3) How real value is created is changing and challenging all of our assumptions about how our organizations function in the process of innovating, producing and delivering products and services.

Many have recited the list of businesses that have fallen from leading positions to irrelevance. The leaders of those businesses failed to anticipate the macroeconomic changes that would engulf their industries. But we need not blame those leaders for their failure -- not while we ourselves are also failing to anticipate the impact on our own businesses.

It is easy to underestimate the transformation underway or to believe that it can happen to someone else but not to our own industry or company. While it might be that one industry (media, technology, retail...) is impacted why should we believe that another (automotive, industrial products, business services...) would be? We are simply not equipped to recognize the larger structures -- the macro trends that are remaking the very foundations of our civilization.

There is a precedent for this -- In 1776 Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations a work which was itself derivative of a set of thoughtful contemporary economists. Together these early thinkers explained a transformation that was largely a product of mechanization. This process began perhaps as early as 1725 with Basile Bouchon's first improvements of the draw loom or even earlier with the first demonstrations of a commercial use of steam engines by Thomas Savery in 1698.

Today we can with 20/20 hindsight look back on these thinkers and see that if the leaders of that time, say George the III (King of England), had understood the macro trends of his day that he would have implemented a different course of evolution for his organization. Giving proportional representation to the American colonies in Parliament, for example, could have averted the American Revolution. But he didn't believe that these new ideas might fundamentally change the importance of the monarchy and so instead his "business" found that the "market" had moved on and his monarchy became irrelevant...

200 years later a new transformation began, the result of computation. We are now well into the new macro trends (think mainframe, minicomputer, personal computer, Internet, mobile computing...) and yet like George the III many business leaders are ignoring the implications of the new economy or think that somehow it won't apply to them.

But it will apply -- these trends will remake every industry and every company.

In order to navigate the transformation underway, leaders must make the right decisions to guide their organizations through the three imperatives or risk joining the ranks of those that have lost their footing and eventually fallen from success to irrelevance.

First - Customer Expectations - Leveling the playing field

The computation economy gives individuals information and connectivity that transforms the role they are capable of playing in the marketplace. Where the industrial economy was dominated by producers, the computation economy levels the playing field and gives individuals more power in the marketplace interaction. As a result there is a fundamental rethinking of what marketing is and the role it plays in an organization -- integrated and collaborative with sales and service in creating an overall integrated customer experience.

Second - Digitization of Products and Services -- Integrating information into everything

Every product, every service, and the ways in which those products and services are delivered and consumed by customers will be transformed by computation. Bring external information into a product. Collect information from the use of the product. Instrument the delivery and service experience... technology gives both customer and company new ways to enhance the usefulness and value of the product or service, connecting customer and company throughout that delivery and consumption experience. What new controls or insights can the customer have? Or the company?

Third - Operational Transformation -- Remaking how we work and who we work with

Organizations must develop a new set of competencies and disciplines and break down organizational barrier -- both internally within functional groups and also externally with vendors and partners. There is a new operating model, a networked organization that is agile and operates at a faster speed...

Over the next few posts I will detail the work that organizations must do to address these imperatives. Every company is somewhere on the journey toward a new condition, a new state of being. Accelerating progress toward that new state will be the measure of difference in success for organizations over the next decade. Maybe I'll even make T-shirts:

"Don't Be George III"

Building a Customer Solutions Practice

1. Features vs. Benefits

2. Three Imperatives

3. ...

Tuesday, August 27, 2013

Features vs. Benefits

Marketing professionals often struggle with the "feature vs. benefit" dilemma when developing a plan to promote their products and services. But the problem can be followed back one more step to the developers of products and services. Rory Sutherland in his 2009 Ted Talk "Life lessons from an ad man" provides a great example of this, comparing two different approaches to the length of the Eurostar train journey from London to Paris. The approach of the engineering mindset is to shorten the journey by improving the track quality to allow the trains to run more quickly. Rory offers an alternative scenario that gets at the underlying customer experience question. The "feature" may be length of journey, but the value is in the quality of the experience, so Rory proposes an alternative service improvement that creates a "benefit" for travelers without changing the trip time (watch the video to hear his suggestion).

Building a consulting practice presents a similar challenge. It is quite easy as a consultant to focus on the thing to be done for a client, for example "install a new CRM system." This is the feature, not the benefit. Sometimes consulting takes on an appearance of benefits by breaking down the task into other tasks that appear more focused -- "gather business requirements, CRM Strategy, vendor selection process..." but really these are just more features. The key to defining a set of services for a consulting practice is to identify the underlying business issues and how real value will be delivered. For example a company wanting to replace its CRM system might be evaluating how to improve sales efficiency, which could include a lot more than just a software package. Delivering the benefit (or shall we just say, the RESULTS) in this case is about reducing sales cycles, improving close rates, increasing customer satisfaction... and that might be accomplished through new collaboration models, compensation changes, sales training, connecting sales to other functional areas, changing the channel strategy...

So developing a "feature" service that offered a client a "CRM Implementation" would miss the real opportunity to serve that client through a focus on real results. Having a "home run" for a consulting business is about understanding your clients and what their real challenges are so that service offerings can be focused on delivering results.

Building a Customer Solutions Practice

1. Features vs. Benefits

2. Three Imperatives

3. ...

Wednesday, August 21, 2013

Building a Customer Solutions Practice

One of the people I have been very influenced by about marketing and the role of marketers is Yum Brands CEO and chairman David Novak. His thinking is applicable across brands and industries well beyond Yum's restaurant niche. Here in QSR magazine he gives one of his thought provoking statements:
My marketing mantra for the organization is, “What consumer perception, habit, or belief do you have to either change, build, or reinforce in order to grow the business?” I think that when you truly listen to the voice of the customer and answer that question, you’ll have a home run.
Unpacking this is a handful. Each word is worth savoring -- when was the last time you thought about your customer's "perception, habit, or belief" and how have you connected this to a set of customer experience competencies in your business that can "either change, build, or reinforce" them? To my mind this is central to the CEO-imperative of a customer-centric business. A business where all of the functional organizations that touch the customer are connected and working together -- leveraging shared capabilities toward a common purpose: grow the business. And I love the plain spoken colloquial advice that when you do this, "you'll have a home run." Follow along over the next few weeks as I think out loud about how to develop a home run for the Customer Solutions Practice at Cognizant...

1. Features vs. Benefits

2. Three Imperatives

3. ...

Monday, August 19, 2013

Vice President, Consulting - Customer Solutions Practice at Cognizant Technology Solutions

Today I begin a new adventure. I have the privilege to have been asked to join one of the fastest growing large companies in the world, Cognizant Technology Solutions, as the head of the Customer Solutions management consulting practice. For those of you who would like to contact me directly at my new work address you can do so here: ted.shelton (a) cognizant.com As this is my first day I am in listening mode and getting to know the terrific team of people here at Cognizant. Stay tuned for development!

Monday, August 12, 2013

Moving on from PwC

After almost two years with Pricewaterhouse Coopers I have decided to start something new. My last official day of employment with PwC was this past Friday, August 9th. I am taking a little bit of time off and will post information about my new position once I get started there. In the meantime, I wanted to thank all of the tremendous people at PwC for having given me the opportunity to work with them. I truly was honored to be a part of this great organization and it was a very difficult decision for me to leave. While I have quit jobs that I hated with no remorse, this is the first time that I have quit a job that I loved -- and I know I will miss many of the people I met and worked with over the past two years. PwC does a great job hiring people who are smart, hard working, care about one another, and care about delivering very high quality services to their clients. I learned a lot being a part of PwC and I wish the best for everyone who remains. Now for me it is on to a brief rest and then a new adventure which I look forward to telling all of you about very soon!