Friday, October 24, 2008

One more time: Time to Value.

When the US Print industry gathers in Chicago next week, many decisions are going to be top of mind. Some decisions will be made. In yesterday's post, I argued that a good decision making rule is ROT (return on time - Dr Joe Webb.) It works much better than ROI (return on investment.)

Today, I found a blog at Harvard Business Publishing that is managed by Navi Radjou. He works at Forrester and is focused on India. In one of his posts, he talk about "time to value" as a replacement for "time to market." Since the purpose of innovation is to get money in the door, everything else is secondary. It's just common sense.

He also replaces "value creation" with "value extraction." Printers at Graph Expo might be well served focusing on extracting the value already embedded in their firms. It's much faster than creating value for a new market. It will give the printer a much higher ROT.
I also showed how Indian companies like ICICI, Larsen & Toubro, and Asian Paints are exploiting technology differently than their Western peers. Instead of reinventing the technology wheel, the CIOs and CTOs in these Indian corporations transform and broker tech innovations across their global business networks. As such, these tech execs are redefining themselves as Chief Innovation Transformers and Chief Knowledge Brokers who are obsessed with accelerating value-extraction from emerging technologies.
And from another post by Mr Radjou,

Some senior European execs that I met with this week pointed this out and suggested that India’s patent filing prowess provides evidence that the country is becoming a world-class innovator. They're right: Indian companies indeed are emerging as top-notch innovators. But they're also wrong: What proves they're world class innovators is not that they are filing patents to protect the IP they generate, but that they are damn good at monetizing the IP they generate.

These European execs’ notion is indicative of a huge conceptual difference between Western CEOs and Indian CEOs in how they define and drive innovation, and how they measure its success. For Western CEOs, IP might as well stand for “intellectual pride.” Many American and European CEOs proudly report to their shareholders that their firm was very innovative the previous fiscal year because it filed scores of new patents.

But Indian CEOs interpret IP as “intellectual profit." Patents, for them, are just an indicator of how inventive a company is, not how innovative it is. What makes Indian firms proud is not the number of patents but rather their unique ability to rapidly transform their patented inventions into profit-making assets in the marketplace, in the form of new products, services, or processes.

Take Tata Motors: its 40 patents will be useless if Tata's factories can’t transform the Nano’s design specs into 250,000 real-life cars launched on-time and under-budget. That’s why, as CIO Manish Gupta points out, Tata Motors’ innovation metrics not only include number of patents, but also “time-to-volume" and "time-to-value” for new inventions.

Thursday, October 23, 2008

Forget ROI. Think about ROT.

ROT is a measure of Return on Time. The phrase was first coined by Dr. Joe Webb. Here's how it works.

Next week printers will converge at Graph Expo to see what's new from the vendors. They will be asking themselves three questions. First, "what's interesting?" Second, "what's my competition doing? Third, "should I buy 'that'?" They'll be lots of talk about the ROI associated with various "thats." The problem is that it's impossible to confidently predict how much money a particular "that" is going to return.

At this morning' s, WTT, Dr. Joe outlines the problem:
This is what makes trade shows like Graph Expo so important. It's a chance to look at your costs, yesterday, today, and tomorrow, in relation to what the market will look like. These are the undeniable truths of what is ahead of us: print prices will not be allowed to rise. Materials costs may come down, but will be slow to do so. Lower wages will make attracting and retaining workers harder as they are drawn elsewhere.
If you can't control prices and only moderately control costs of materials and are not sure of market demand, it's a crap shoot to try to calculate ROI. On the other hand, you can get a pretty good idea of your Return on Time (ROT) . So the question is "Will that new "that" allow you to do something you already want to do - only faster?

Time is money. Money is time. Vendors tend to concentrate on press speeds. How many impressions get off the machine in how much time with how much labor?. But business time is not machine time.

Business time is the interval between finding a customer, selling the job, producing the job, billing the job and getting paid. The faster a business turns talk into money, Machine time is usually the least of it.

The bigger parts are usually the necessary intermediate steps:
1.How much time to find suspects?
2.How much time to turn the suspect into a prospect?
3. How much time to turn the prospect into a customer?
4. How much time to deliver the product?
5. How much time to get paid?

Machine time is in the middle of step 4.
1. How much time to clarify specs?
2. How much time to deliver the estimate?
3. How much time to get the files?
4. How much time to get an ok on proofs?
5. Now comes machine time.
6. How much time to finish the product?
7. How much time to get the product out the door?

The good news is that saving times within the process is more about careful thought and focus than about buying a Big That.

But sometimes, a Big That is exactly what you need. In a world of tight credit, this is a harder decision. But if you look at it from the ROT point of view, it's a little less risky.

How much time elapses between you saying Yes and cash coming into the shop? The vendors respond by saying , "We will have That up and running in X time. And then you will find new markets." But "That up and running for new markets" is not the same as cash in the door. Thats have to be integrated into a new production systems. People have to be comfortable with the That. Networks of business communication have to evolve. Production and sales cultures have to change. Plugging in a That is the least of it.

It's conventional wisdom that you have to "cut costs." Dr Joe clarifies why that's the wrong way to look at. Costs are usually measured in dollars. Business investments are measured in time.
So instead of ROI, keep your focus on Time.

Keep asking yourself, How long it will it take, with my people, with my customer base, with the investments I've made to use That to turn possible customers into cash - faster...also better and cheaper. The faster it is, the higher return on time.

Monday, October 20, 2008

Time is Money. Or is it Money is Time?

The conventional wisdom is that ROI drives sales. It's a variation of the old saw that buying events occur because of greed or fear. Since 1945, the assumption for consumer purchases has been that everyone wants more stuff. The "solution" to "recessions" is to get people to buy more stuff so that the "economy" improves. The purpose of mass market advertising morphed from informing consumers about the stuff available to creating a new needs for more new stuff.

But quietly a different reality has been growing. Now, as the funny money world of the most recent bubble is disappearing, that different reality is turning into an effective market, at least in the North - USA/Europe/Japan. Below are some excerpts from a blog out of the Harvard Business School. It's worth the click.
How Recession Will Accelerate Consumer Downsizing - John Quelch: "Watch out for a new brand of consumer in 2008: the middle-aged Simplifier. She finds herself surrounded by too much stuff acquired. She is increasingly skeptical in the face of a financial meltdown that it was all worth the effort. Out will go luxury purchases, conspicuous consumption, and a trophy culture. Tomorrow's consumer will buy more ephemeral, less cluttering stuff: fleeting, but expensive, experiences, not heavy goods for the home."
I would suggest that it's not only the "middle-aged Simplifier". In a world that already has enough stuff, the underlying reality is becoming more clear. The truly limited resource is time.
It's a natural evolution of the forces of automation that were unleashed by the industrial revolution. In the physical world, that automation keeps allowing us to make more stuff in less time. In the cognitive world of communication, that automation keeps allowing us to get more information in less time.

"Less time" to produce x amount of stuff, is the result of more efficient human intervention. Increasing efficiency of human intervention is the result of using the time that people invested in creating labor saving technology. Stuff that is produced faster, better, cheaper becomes a commodity. And that's the good news!

But there is also bad news. As less people are needed to produce the same amount of stuff, old jobs start to disappear. When stuff that was hard to produce becomes easy to produce, it has less value in the market. Companies that make and sell stuff have to quickly become as efficient as possible to maintain profit margins. They have to find new stuff to make cheaper, better, faster and they have to find new markets filled with people who want to pay them for it.

That's the problem for printers.

The mechanisms of the problems created by automation is obscured by focusing on ROI. If you can't clarify the proximate mechanisms, it's almost impossible to identify the right things not to do. I say "not to do" because the essence of effective strategy is to waste as little time as possible. There are a gezillion things that a business manager could do. Vendors are producing a huge number of options. The internet has so speeded up the exchange and availability of ideas, that it has become reasonable to say, there are no unique ideas.

The "I" in ROI is a stand in for "money." ROI is a stand in for "profit." Every business is in the same business - making a profit. The stuff being sold is just a way to do it. The problem with ROI is that while it makes sense in the some time horizon - the quarterly report, pay day or the end of the month - it is not present now. Decisions have to be made now. Plus getting to ROI requires many things that are not controllable now.

What is needed is a proximate indicator to inform minute by minute decision making. Dr. Joe Webb coined ROT, return on time that helps.

Here's how why it works. As everyone goes through the day, they are answering an implicit question "Is it worth doing?" In business, step one is to make that implicit question, explicit.
But, when sales people ask the question, "worth" means how much money am I going to make. Unfortunately, unless you get paid by the hour, that question is impossible to answer with certainty. Often impossible answer yield blah, blah, instead of evidence based decision making information.

Will time invested in a relationship with a customer turn into money? No way to be sure, unless you are at the purchasing stage. Prospecting, relationship building, "educating" are necessary, but not sufficient, to get to money for the sales person. For the firm, it's much more complicated. There are many intervening steps from purchasing to payment. If the focus is the life time value of the customer, as opposed to one purchase, it's even worse.

ROT is one approach out of this mess. It's still qualitative. In some organizations it's more quantitative. But in any case, it supplies a pretty good rule of thumb. Does that sales meeting on Thursday morning have a high ROT or a low ROT? Does chasing down an estimate have high or low ROT? Does following a job through the plant, sending out proofs, or going over the billing have High or Low ROT?

Once a salesperson sees that the sales process is first identifying suspects. Then moving those suspects into the prospect bin, then the customer bin, then the client bin, it's a lot easier to answer "Is the time I'm investing worth it." "It" becomes a clear indicator that every potential client is moved one step up the ladder.

The decision making rule then becomes "If the ROT of a customer exchange is below a certain point, don't do it." If it seems a "necessary" part of the sales process, make sure it really is. The best way to get a high ROT is to eliminate anything that is low ROT. If you can't eliminate it, at least automate it. If you can't automate, at least figure out a way to do it faster, better, cheaper.