Tag Archives: Uber

Digital Investment Prioritization Framework (DIPF)

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Recently, I had the opportunity to spend a considerable amount of time with a group of senior executives of a major media conglomerate. We discussed about modernization of the technology infrastructure to support the business growth of the organization; primarily in the digital space.

I was supported by our technology team that deals with application modernization. The team carried out a technology assessment study and came to the conclusion that a good 60% of the technology infrastructure will need to be replaced to support digital growth. It was a slam dunk business case- at least so was the team thought.

Within a few days, we heard back from the CFO who was asking for the business justification for the modernization spend. It turned out, to the surprise of many, that the business cases are not so much slam dunk as they were thought to be. There were issues with ROI with some of the business cases. But the bigger problems were around prioritization of initiatives between “Enhancing Consumer Experience” vs “Improving Digital Operation”.

Unfortunately, this is not an isolated business situation at all. Despite the fact, that digital transformation is a must for most companies, organizations have been struggling to prioritize to maximize ROI on their digital investment. Many a times, it become a game of power play, with the functions having better clout at the moment, corner a higher percentage of the investment in their favor.

Looking at this problem of prioritization between “Consumer Experience” and “Digital Operation”, we decided to put a simple 2X2 matrix that could drive the investment prioritization decision . We can call it “The “Digital Investment Prioritization Framework” or DIPF.

For the X axis of the framework, we used a parameter of “Digital Value Add”. This value defines the degree to which digital is important to a brand’s core offering (Current). We can use a scale of 0% to 100%. The value of 0% signifies digital has little to no value-add to the brand, where as 100% means that all of the value of the brand is coming from digital.

For Y axis, we used a parameter called “Relative Brand Strength”. This value signifies the current brand strength compared to a brand’s nearest competitor. We can put a scale of -3X to +3X ,which would hopefully can handle most brands within a segment. (This scale could be adjusted)

The idea is to put any brand in one of the four buckets created by this 2X2 matrix and drive the digital prioritization initiative through that grid. To illustrate, we have put some example companies in the four grids that could be used as template. (People may disagree with the placement of the brands in the grid. This placement is purely based on my judgement at this moment)

Grid 1- Here you have a situation where the brand strength is low and digital value add is also small. This group is an extremely vulnerable group and something must be done to enhance the consumer experience through digital value adds. Brands in this group should consider digital operation as secondary, unless it is directly liked with consumer experience.

Take for example the case of Pizza Hut vs Domino’s. Pizza Hut has been struggling with its digital strategy forever. In contrast, Domino’s have leapfrogged in digital experience. Right from social strategy to “order to deliver” experience, Domino’s is a winner in digital. The impact digital has made on Domino’s brand, is for every person to see.

Another example in this grid is a company like Best Buy. Cornered by Amazon, Best Buy has lost much of it sheen. As an electronic retailer it should have a strong digital strategy, but it has failed to gear up to the challenge. The brand, as a result is struggling. Brands such as Blockbuster got obliterated because they could not add digital in their value. This grid is a place of opportunity as well. Many commodity products ranging from fans to light bulbs are adding IOT capabilities and breaking out from grid 1 to grid 4.

Picture 1

Grid 2- This grid comprises of companies that are mostly born out of digital revolution. However, there could be multiple problems in the group. One problem could be the fact that the industry itself is reaching the commodity status because the services are utility in nature.

Take the case of broadband service providers in the consumer space. There is not much to differentiate among Verizon, AT&T or Comcast broadband services, but what makes the difference for the consumer is the quality of the service which is defined by their operational excellence. If the broadband goes down three times a day, no amount of peripheral digital consumer experience is likely to cut it. For this group, digital operation remains a priority. Alternate way of getting out of grid 2 to and move onto grid 3 is to come up with new business models that could monetize the broadband service in all together different ways.

Or take the case of Orbitz. This online travel solution provider is finding it hard to distinguish itself in a commodity market place, which is dominated by Priceline. For a company in this kind of predicament, it could be ideal to look for additional business models as source of revenue. It may not be good enough to concentrate on either consumer experience or operational excellence to survive.

Grid 3- This grid consists of companies that we call “born-digital”, “digital native” or “born to be digital”. This group includes tech companies such as Google, Facebook, Twitter, Uber etc. Majority of the value of these companies is coming from digital. And there is companies like Netflix and Amazon which probably draw 40% value from content/products and 60% from digital.

These companies need to spend equal amount in digital operation and consumer experience. You can’t afford to have Facebook application down for hours. At the same time, the consistent upgrade in consumer experience keep these brands ahead of any potential competition. (Remember how My Space died)

Grid 4- This grid consists of two kinds of companies. There are handful of companies who has a physical brand that’s hard to dislodge. One good example would be Disney parks. It won’t matter to consumers whether Disney park App is working or not for someone to visit the park. Then there are other kind of companies such as Nike or Under Armor, which have invested heavily in digital experience to break out from all other fitness apparel firms in the world. For either of these groups, investment in consumer experience remains a priority over investment in digital operation.

DIPF_strategy

To summarize, companies who are high on digital value, have to focus more on digital operation compared to companies who are less on digital value. The priority on digital investment for organizations will change from Consumer Experience to Digital Operation as brands derive increasingly more value from digital.

 

The Parameters of Success for the Sharing/Marketplace Economy of Uber & airbnb

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Last week when I called for an Uber, a gentleman in his swanky new BMW arrived at my doorstep. Now it is not uncommon to get a ride in an expensive new car when you call for an Uber. But what struck me the most was the demeanor of the driver. He was a polished guy in his mid 40s, wearing designer clothes and watches and do not seem to have any particular reason to drive a car on a weekend for extra money.

Eventually curiosity got the better of me and I had to ask him whether driving Uber is his main job. As I expected, he turned out to be a senior manager with a very large tech company. However, he explained that as he is going through a costly divorce, this is his way of getting back to decent financial health at the quickest possible way. .

However, this is not an isolated case. Over the last 12 months that I have used Uber, I have been driven by among others, a financial analyst from the Wall St., a ground engineer from United Airlines and a practicing lawyer from a reputed law firm. And it goes to show beyond doubt that in a “Sharing Economy” or a marketplace economy, whichever way you want to call this system, the general expectation of the product and service may not hold good. The question is, whether a sharing economy can provide a consistent value to its participants that will eventually make it win over the traditional products and services and make them completely redundant.

We all know that Uber is not an isolated business case that are all witnessing here. Airbnb, Etsy are growing at pretty rapid pace too and I am sure more soon will follow. Question is, can we put together a set of general principal that could indicate the chances of success of these new services?

Based on my observation, I have boiled down the chance of success on five key parameters. And I will take the example of Uber and few others to illustrate these parameters.

First parameter for success is the Supply and Demand Equilibrium. If the supply side is limited, the system may not work efficiently, as suppliers will hoard to get a better price. If buy side is limited, then the supplier will undercut each other and it will take the market down. This is not to say there should be equal number of sellers as there are buyers. It’s more about the number of either side which can promote a true marketplace behavior. If demand and supply is in equilibrium, market will operate at optimum inventory, the cost of sales will be largely distributed and overall dollar for dollar a buyer will get a better product/service.

The Second most important parameter of success is Transparency. Given, the product/service will be a marketplace product/service and for that matter branding may play a diminished role, it is important for buyers and sellers know exactly what they are buying and who they are buying/selling to. Take the case of Uber. Isn’t it a great comfort for everyone just knowing in advance the make/model of the car? Similarly for Airbnb, the quality of video and picture makes huge difference in the buying process. However, it is not only the transparency about the product. Transparency about buyer/seller detail, transparency about payment processing, transparency about grievance redressal, all pay critical role in the success of this economy. One crucial outcome of transparency is consistency. Transparency always weeds out the non-performers thus enhancing the consistency of the services.

The Third most important parameter is Convenience. A marketplace may provide a better value for the buck, but it is not always guaranteed that it is more convenient. However, if the convenience factor could be added to the product/service, it could enhance its value significantly. This is off course is the trump card for Uber. The ease of app use is a huge positive for Uber. The other not so talked about feature is the smart planning of Uber to get the tipping business out of the way. The fact that you could just walk away after taking the ride without taxing yourself how much to tip the cab driver based on his service quality is a big relief to many.

The Fourth most important factor is Complexity of the business model. When you are dealing with mass population, it is but given that higher complexity of business model is a recipe for disaster for a marketplace economy. Hence the simpler it is for the buyers and sellers to understand and execute the process, the better are the chances of success. It’s no coincidence that all marketplace economies such as eBay, Uber, Airbnb, etsy have the most simple business model. Particularly important in this case is the sell side complexity, as this could drastically reduce the service providers in the marketplace.

This bring us down the Fifth and the most important parameter of Risk. In Most marketplace economies, the primary risk of service quality or product usage is mitigated through user reviews. However there are graver form of risk such as physical harm or legal liability that could drag down this economy quite easily. In this hyper-connected social world that we live-in and where bad information could spread like a wildfire, management of Risk remains the single most important parameter that will determine the success of the sharing economy.