StrategicCoffee

eCommerce Business Models

2012-01-28T18:36:00.000Z

I was recently pleasantly surprised to receive an email inquiry about a paper I had written and presented at a conference in late 2000 called:

e-Commerce Business Models - Business Models that have Succeeded and Business Models that have Failed - International Case Studies

I realised that the paper was no longer available on the Internet, and so I have now republished it (just follow the link above).

There has been a lot of change in the intervening 11 years. Much of what is covered in the paper is now taken for granted. In addition, at the time of writing, the idea of Web 2.0 (or beyond) was not yet understood, and certainly social media was an unknown concept. However, there is still a lot in the analysis that is as true today as it was then.

I would love to hear any feedback from anyone who reads it now. Who knows, perhaps its time to revisit and update the subject?

More data usually beats better algorithms

2012-01-20T07:35:00.000Z

Every so often I read something which subtly changes my perspective in a fundamental way. Anand Rajaraman's post More data usually beats better algorithms is one such piece.

It contains two simple ideas:

Firstly, the main thesis is that adding new data to an analysis often beats coming up with a more clever algorythm. He suggests, for example, that by including which pages link to which other pages as additional data, Google was able to beat previous web search algorithms which focused exclusively on the words on the pages themselves.

Secondly, the related 'Rule of Representation' which says that you should 'Fold knowledge into data, so program logic can be stupid and robust.' This second idea is actually presented by someone writing a comment to the original blog entry, but it is still quite pertinent. Although this particular rule comes from the computer programming field, I think it has more general application.

I read this as I was starting to formulate my conclusions on a review I was doing of a client's strategy. Perhaps it struck a chord because the crux of my review had been to use some additional data about the market which had not been considered by the original authors of the strategy I was reviewing, and which led me to some different insights which had not yet been considered. And perhaps it struck a chord because I had been unable, within the confines of the assignment, to find some additional data which I feel would have further significantly enhanced the review.

Of course, it matters greatly what data you add to the analysis. To add value, the additional data must provide a different perspective and/or be from a different source than the data already included. This suggests that perhaps a key skill for the strategist is having a keen sense of what market data is available and where to source it, rather than simply relying on the data that is immediately to hand. (Oftentimes the data to hand relates to the organisation's own operations and performance, and the data that is more crucially missing relates to the competitive environment.)

And finally, I believe that somewhere towards the end of the strategic thinking process you have to look beyond the data and apply a little creative intuition. That is driven by your experience - the sum of data you've collected along the way but which you cannot tabulate in a spreadsheet. In the final analysis, it is that data that may be the most important addition, creating the distinction between also-ran me-too strategies and analysis, and truly differentiated and competitive strategies and analysis.

UK direct to consumer online financial planning tools

2011-12-31T19:14:00.001Z

2011 was the year that direct to consumer online financial planning applications finally arrived in the UK, with a number of new products being launched. Here is a roundup of some of the players now occupying this space.

Money Advice Service: The logical place to start is with the government's own Money Advice Service. I've previously reviewed it here. Whilst it does provide a wealth of useful information, the actual financial planning tools are too simplistic to be of much use. It is paid for by an industry levy and free to users.

lovemoney offers a wealth of general financial information plus a Yodlee-based account aggregation and budgeting tool to help you track your spending. It also offers product comparison across a range of categories. It is free to users, from theidol.com (who presumably make a profit on products purchased through the comparison tools).

rplan offers access to discounted investment products on both new purchases or on agency transfers of existing products. For new purchases, rplan offers pre-selected portfolios or helps you choose from between 1,500 funds from a range of providers. A simple capital growth projection helps you plan to achieve a target capital amount and to stay on track. Investment values are updated in realtime. rplan charges no upfront commission and rebates 50% of trail commission (retaining the other 50% for itself).

nutmeg will offer discounted access to funds with a range of investment management tools, including auto-rebalancing, goal targeting and realtime valuations. However, it has not yet launched.

Planwise is the direct to consumer offering from Friends Life, offering a financial health check, pension profiler, savings calculator and risk assessment, all with access to telephone-based advisers. (Not to be confused by the recently launched US financial planning application with the same name). You will note from my previous review of this service that I've not actually been able to access it myself, and that I suspect it is mainly a play to recapture trail commissions.

AllMyPlans is another account aggregator with contract inquiry capabilities, which also offers a data vault for all your policy paperwork. All my plans reminds you of important dates in your plan and best deals at renewal time, and allows you to share your plans with someone else. It is paid for by insurance companies, with AllMyPlans becoming the servicing agent and picking up any trail commission on policies you register with it.

MoneyVista is probably the most comprehensive planning tool, covering retirement and other goals, protection (in the event of illness or death) and organisational tasks such as asset allocation. It provides alerts at important moments in your plan, and while it offers some product comparison tools, you can't actually buy anything through the site. MoneyVista is the only application listed here which charges users an explicit fee to use it after an initial free trial.

CoffeeBreakFinance provides simple tools for creating a budget and tracking actual expenditure relative to it, working out how much tax you could and should be paying, and helping you work out how much home contents insurance you need and maintaining the records you might need to support a claim. It is free to use.

2012 promises to be another exiting year in the space. What will be particularly interesting is to see how those sites which make their money from initial and/or trail commission will respond to the Retail Distribution Review (RDR). I expect we will see a few new entrants, as well as a few exits from the market.

Disclosure: I've been involved in the development of both MoneyVista and CoffeeBreakFinance.

Strategic Focus

2011-12-11T13:12:00.001Z

Scott Adams nails it again in today's Dilbert comic. Strategy is a process of deciding what you are, as well as what you are not going to do. It involves making tough choices based on real insight into the challenges and opportunities you face.

All too often I see organisations not reaching that level of understanding, and so not making those tough choices. As a result, they take a shot gun approach giving their strategy as wide a spread as possible. The result is a strategy that lacks focus. Staff are then unable to discern any real strategic intent, and quickly realise that their pet projects, and whatever else they were already doing, find a comfortable home in the strategy. Meaningful change is not achieved.

A strategy should result in a small number of focus points. Cognitive psychology tells us that people can only remember between 5 and 9 things anyway, but in my experience 4 or 5 focus points is probably more than enough if you want people to remember and act on them.

Content is king, but what content is winning?

2011-12-04T16:13:00.001Z

Since the invention of the alphabet, the printing press and more latterly the internet and the web 2.0 it supports, technology has enabled people to record and broadcast information with incredible effectiveness and efficiency.

The Leveson inquiry has shone a spotlight on the current state of journalism, and some interesting and worrying statistics have come to light. For example, Peter Preston reports in the Guardian that the tabloid papers the Mail, Mirror, Express, Star and Sun have a total of 19,272,000 readers each day, with the Sun enjoying 7,652,000 alone. Meanwhile, the more respectable publications fare much worse: the Daily Telegraph gets 1,584,000 readers, the Times 1,435,000, the Guardian 1,119,000, the Independent 451,000, and the Financial Times only 325,000. The weekly Economist boasts only 597,000 UK readers. Turning back to the celeb and gossip magazines, we find that OK! boasts 2,110,000 readers, Hello! 1,557,000 (is it that exclamation marks attract readers?), Heat 1,487,000, Closer 1,623,000, and Chat 1,192,000 readers.

It seems that trash sells, and news doesn't. Is it any wonder, then, that editors push their journalists to dig it up wherever they can?

There was a time Paul Adams tells us that people believed that digital communications would rid the world of gossip and rumour-mongering as everyone would be able to have near real-time access to the facts. It seems that far from that, it is almost the reverse that is happening. Perhaps most people are simply not that interested in real news after all.

The world is moving online, and with it, commerce. And online, they say, content is king. Exactly what kind of content will it take to attract customers? Perhaps there are some depressing clues in the statistics above.

The 3 Worst Kinds of Strategies

2011-11-17T20:09:00.001Z

I encounter many strategies in my day to day work. Some of the are brilliant, of course. Others less so. The worst of them tend to fall into three categories:

Waiting for the environment to improve. It is easy to blame environmental factors for your lack of success. And it is a short jump from there to concluding that if you just wait for the environment to improve then everything will be OK. But the truth is, the environment (regulations, economy, etc.) are more likely to continue to become more complicated, and therefore difficult, than they are to suddenly get better.

Your strategy should be robust across a range of environmental conditions. Preferably, your strategy should even shape environment conditions. But you strategy should not be to wait passively. Strategy is an active process. And even if the environment does improve, all ships rise with a rising tide, so your competitors are likely to benefit just as much as you are - even more so if they have adopted a more proactive strategy.
Hoping your competitors will falter. Ever business should be in tune with its competitors strengths and weaknesses, and ready to exploit any weaknesses it finds. But simply waiting for them to make a mistake is too passive. As noted above, strategy needs to be an active process, not a passive process.

Hoping your competitors will falter lays yourself open to three risks. Firstly: what if they don't falter? What if they do actually have competent staff who are able to respond to the challenges you thought you had spotted but they would miss. Secondly, your competitors are not sitting idly by - they are hungrily eyeing your lunch. While you are waiting to see if any crumbs fall from their table, they may be planning a direct assault on your business. Thirdly, how do you know you're not going to make a mistake before they do? Can you be that convinced of your superior insight and ability to execute? If you genuinely had that superior insight, how come your competitors are still in business? No, you can't sit by and wait for someone else to make a mistake. You must go out there and grab the market share and competitive position you can for yourself.
Listening to your customers. Don't get me wrong:- listening to your customers is essential. Every business should do it. And you should take what you learn from your customers into account when formulating your strategy. But listening to your customers is not a strategy in itself. Customers want to be led. The are drawn to business with products and services that solve their problems and exceed their expectations. They are looking for answers.

Yes, customers may be willing to participate in crowd-sourcing from time to time. But they don't want to be your R&D department. They are looking for someone else - you - to apply the creativity and engineering. Oftentimes, customers don't even know what they want until they see it. If your strategy is simply to listen to your customers and respond to them, you will always be behind their expectations. And sooner or later, some competitor will come out with the product or service that your customers never knew they wanted. And that is where they will go.

Does your strategy suffer from any of these shortcomings? Perhaps it's time you called for some independent assistance.

Finding a voice for your right brain processes

2011-11-03T10:02:00.000Z

The modern corporate environment is dominated by left brain thinking: rational thought, measurement, statistics, control, definition, specifics and limits. But strategic thinking requires an equal role for the right side of the brain: intuition, ambiguity, uncertainty, unknowns and unknowables, big picture thinking and scanning.

The challenge for the strategic thinker is not only to develop his or her own right brain processes, but also to find a way to voice the results in an environment that is not tuned to hearing those sorts of messages.

This fascinating video sheds some light on the differences between the left and right brains, and their respective roles in society.

Friends Life's PlanWise disappoints

2011-10-14T08:57:00.001+01:00

I was very intrigued by the announcement of the launch of Friends Life's Planwise service. As a paid up owner of a Friends Life plan, it looked like just the sort of thing I could use to keep on top of my finances. Full of hope, I signed up as quickly as I could. The disappointments started almost immediately.

Firstly, I was asked to register as a new user. Not a problem in itself, except that I already had a login on their existing system. Would it have been too much trouble to port that login across? Apparently it was, so I was forced to provide my details again. No sooner had I done so that I was told it would take them 5 days to process my request. 5 Days!? For a simple policy lookup!?

Coincidentally, a few hours later I saw the following tweet:

RT @Cassinthenews: RT @robertjgardner: Challenge is syncing member engagement + technology for seamless operation & implementation

Well, Friends Life had certainly failed to sync their technology with my engagement. Anyway, I had no choice but to wait the 5 days and hope that my initial enthusiasm did not abate too much within that time period.

While we're in waiting mode, it's worth reflecting on the last question I was asked during the registration process:

I would like to register for PlanWise. I understand that in registering, I am agreeing to the removal of any existing adviser(s) linked to my Friends Life plan(s).

Essentially, I was consenting to Friends Life terminating any trail commission they might still have been paying on my plan. As it was a Group Personal Pension (remember that for later), and I'd not actually ever met the adviser, I didn't feel too bad about it. However, I wonder how many people with less knowledge about how our industry works would simply accept that option without giving a second thought to the consequences for an adviser who might have given them, or might even still be giving them, a perfectly good service. Were I an adviser who had been selling Friends Life (or its predecessors) plans, I'd be checking my statements pretty carefully.

Back to my experience: 5 days passed. My engagement had indeed waned to the point that the 5 days passed without my thinking anything of it. I had simply forgotten all about it. Then some more days passed. Eventually, 13 days later (!) I received an e-mail from them. To quote an excerpt:

However, we are unable to offer the PlanWise service to customers with Group Personal Pensions. As your policy falls outside of the requirements we have therefore, been unable to accept your registration with PlanWise.

This "disappointed" me on 4 counts:

Perhaps I simply did not read it carefully enough, but nowhere in the press release or in the online registration process do I recall anything suggesting I might not be eligible, or even that there might be a question around my eligibility of any sort.
As an industry insider, I am lucky enough to know what a "Group Personal Pension" is, but I wonder what proportion of the rest of their customer base knows this. Perhaps some explanation would have been helpful.
I'd entered my plan number on an online application form, yet it took 13 days to look up that number on the system to work out it was a GPP!? 13 seconds would have seemed more plausible.
What possible reason can they have for not accepting GPP plan on their site? In what way, from a financial planning perspective are they any different? Is it that their systems are just not flexible enough (which I take to mean they could not be bothered to solve the technical challenges)? Or is it simply that it is harder to divert the trail commission from a group scheme than it is for an individual plan and they couldn't unravel the commission arrangement or didn't want to risk upsetting the adviser who might then rebroke the scheme?

So it does not look likely that I will be experiencing the many benefits of PlanWise promised by Friends Life anytime soon. That's a disappointment in itself. But perhaps the bigger disappointment is the nagging suspicion that this was never about me or the benefits I could receive, but simply about getting out of paying trail commission after all. Or am I just a cynic?

Thorough, but safe

2011-09-23T08:33:00.000+01:00

I was asked to review the strategy of a well established firm earlier this week. The headline of my review feedback was 'thorough, but safe'.

'Thorough' referred to the quality and depth of their strategic analysis. They'd collected a lot of data on almost every aspect of their business and its competitive environment, they had analysed it thoroughly and presented it in a meaningful narrative. So far, so good, I thought.

But then they went 'safe'. They concluded, at the end of the analysis, that the impact of all of the threats and opportunities they'd identified would probably be minimal. They suggested, that despite all the trends and change they'd analysed, things would basically continue as they were.

As a result, their strategy was broadly to carry on doing what they were doing, and to hope that they could pick up a few points of market share if any of their competitors slipped up in any way.

Playing it safe is a great strategy in a safe industry. The trouble is, I've never really encountered a safe industry, and this certainly wasn't one. Playing it safe is fine if all of your competitors are also playing it safe and your customers are happy. But they are not: your competitors are out to destroy you; your customers are rapidly becoming bored of your product and looking around for more. Like a shark, if you stop swimming, you die. (Yes, I am aware that is not quite true of sharks, but it makes the point, I think.)

It struck me that even if this executive team thought that there would be no significant impact from the many threats and opportunities in their competitive environment, shouldn't they at least consider what would happen if there was? Shouldn't they at least put contingency plans in place for what they would do if things did change? Shouldn't they plan for a preemptive strike before their competitors went after their market share? Shouldn't they surprise their customers with some new innovation before they get the chance to get bored with what they're already getting? Shouldn't they do something - anything - other than just playing it safe?

Coincidentally (or perhaps synchronistically) I came across this TED Talk this week as well. It's worth watching Seth Godin explain why 'safe' is the new 'risky' and why it is necessary to be 'remarkable'.

Size and Efficiency in the Mutual Fund industry

2011-08-28T20:51:00.000+01:00

IBMs Many Eyes service recently published this visualisation of the world mutual fund market in 2010.

You can click on the image itself to see an enlargement, or here to see the original interactive visualisation.

The visualisation does a great job of showing just how much larger the US mutual fund market is than that of the UK and indeed even that of Europe combined.

I've argued before that size confers a distinct competitive advantage (see Innovation in Personal Financial Management: Culture or just numbers). The larger size of the US mutual fund market confers greater economies of scale, keeping prices down, and also provides a much greater prize to tempt innovators.

In order to remain competitive, Europe must provide a much more attractive regulatory environment (which comes with its own risks), or must normalise its national economic, monetary and regulatory systems in order to create a uniform environment in which its members can enjoy a combined scale similar to that enjoyed by their American competitors.

New stats on the financial services D2C market

2011-08-18T20:48:00.001+01:00

The latest report from The Platforum again contains some interesting statistics:

40% of active investors take care of their investments on their own, while 26% consult an adviser and the remaining 34% rely on an adviser.
Of the 40% who take care of their investments on their own 65% say they're interested and happy to spend time on it. Of the rest, 25% don't enjoy it and the remaining 9% find it confusing and complicated.
Consumer awareness of platforms is up from 31% to 38%. Awareness of Hargreaves Lansdown, Fidelity Funds Network and Cofunds are up, but awareness of Skandia is down. Awareness of 'other' platforms is up by more, in both relative and absolute terms, than is awareness of any of the afore-named platforms.
General financial websites, blogs and forums have at last overtaken independent financial advisers and brokers as active investors' chosen sources of information. Traditional media and providers' or distributors' websites lag well behind.
The number of active investors who expect to buy from either a platform, bank or building society branch and/or financial adviser or broker are all up, but interestingly the number who expect to buy direct from an investment company is down.

As advisers and providers consider what will happen when the provisions of the RDR come into force, they would do well to factor these statistics into their plans to defend their existing customer base,or to grow their customer base and expand into new areas.

What is segmentation and how does it work?

2011-08-18T16:20:00.001+01:00

Segmentation is not about putting customers into neat little boxes and hoping they will conform. Customer are individuals, and diverse. Their behaviours and preferences are circumstantial and may change for indiscernible reasons.

Segmentation is about designing and bringing multiple unique and differentiable propositions to market. ‘Customer segments’ are a tool to aid in this process.

Segmentation increases customer choice, thereby increasing customer value. Customers may choose one or more of the propositions, and their choice may change over time. Segmentation is the antidote to the ‘one size fits all’ syndrome.

Differential pricing is a method for increasing the amount of value you can extract from the market by charging more to those who are willing to pay more, and less to those who are not. However, differential pricing is only sustainable where other forms of segmentation are working effectively.

Dilbert on working from home

2011-08-14T09:36:00.002+01:00

As a firm believer that working from home can improve white collar productivity, I particularly enjoyed today's Dilbert comic.

9 Predictions for the UK Financial Services Sector

2011-07-07T16:09:00.003+01:00

They say "it is dangerous to make predictions, especially about the future". However, we can't wander into the future with our eyes closed either. So, consider these less as predictions and more as the musings of someone who spends his days wondering what the future holds, and more importantly, how one might prosper in it.

1. Government engagement in the sector will increase through bodies like the FSA and Money Advice Service.
It may that government engagement (or is that just interference) in all sectors is increasing, but it certainly looks set to increase in the financial services sector. This should probably not come as a surprise after year of mis-selling scandals and an economic melt-down still raw in the collective psyche, and it is likely to be years before these effects wear off. The effect of such engagement will to change the shape of the industry, either directly by disallowing certain types of activities, or indirectly by changing the regulatory compliance and capital costs of other activities.

2. The Money Advice Service will be reconceived and rebranded within three years.
I don't believe that the Money Advice service goes nearly far enough to solve the underlying challenge, and as a publicly funded body, I think it is unlikely that it ever could or even should. However, I also don't believe that the powers that be will give up easily. As a result, it will be declared to have failed to achieve its objectives and simply resurrected under a different name. That is ineffective, inefficient, confusing and sadly almost inevitable. (See also Does the new MAS advert undermine the RDR?)

3. The number of IFAs will reduce from about 30,000 by as much as 25% over the next three years.
This is because many will fail to qualify and/or be unable to communicate a value proposition for which customers are willing to pay. Much of this reduction will be in the form of early retirement. (See also The RDR: unintended consequences.)

4. Demand for financial solutions will continue to increase.
Consumer confidence in the industry may continue to languish, but demand for financial solutions will continue to grow. On the demand side, historic increases in longevity show few signs of abating (despite numerous predictions), increasing desires to enjoy a long and experiential retirement, and general increases in living standard and the accompanying hunger for more and better technology. On the supply side we have the steady decline of defined benefit and state pensions. It only remains for someone or something to regain consumer confidence in order to unlock this excess demand.

5. Those IFAs that remain will cluster towards the high end of the market.
With the costs of regulatory compliance and capital increasing, there will be fewer who can afford personalised face-to-face advice.

6. Technologically enabled direct propositions will creep up from the lower end of the market.
Technology is rapidly moving from the back-office into more client facing applications. This is true for IFAs who will increasingly rely on mobile applications to use in front of clients (as opposed to just back at the office), but also true for direct-to-consumer services. Customers will both demand and get richer planning tools, rather than simple price comparisons and product supermarkets.

7. Distribution will dis-aggregate with advisers focusing on financial planning and outsourcing asset allocation and investment management to specialist suppliers and outsourcing product analysis and selection to paraplanners.
As fee earning IFAs start to think more like professional services businesses, they will look to cut costs out of the value chain and achieve efficiencies through increased focus. This will ultimately result in the right-sourcing of many non-core components of the value chain, and specialist providers will develop in order to meet that need. Direct-to-consumer proposition will face similar pressures in order to bring services to consumers cost-effectively and at scale.

8. There will be a consolidation in the wrap provider market, with only a fewer of the smaller ones able to find a profitable niche in which to prosper.
There are around 30 wrap platforms on the market at the moment, but market share is concentrated in the big 3 (Skandia/Selestia, Cofunds, and Funds Network/Fidelity). Given that most advisers use only 2.1 platforms for new money flows, it's hard to see all of the smaller ones surviving. Those that don't may get bought out, morph into corporate wraps, or find other niches.

9. There will be an ongoing drive to corporate wrap, payroll and benefits administration in order to retain corporate business in the face of the RDR and NEST.
The corporate pensions sector will be the hardest hit by the RDR as large parts of this have been historically funded out of commision recouped from members contributions even though the members themselves may have received little or no personal advice. With NEST providing an easy "no-regrets" option for employers, the private sector will be looking for ways to demonstrate future value-add in this market.

Only time will tell if I am right, of course. But in the meantime, the causes and effects of these predictions can be profitably debated. What do you think?

Change happens - deal with it

2011-06-18T21:07:00.001+01:00

There has recently been a fascinating debate on Money Marketing in response to Martin Bamford's feature There is more to IFAs than making a profit.

In it, an IFA who identifies himself only as "steve" ended his explanation of why he was selling his business with: "Still, why should I care? I've got the best excuse ever. The FSA forced me out of business!!!!" Part of steve's gripe was that the FSA was making it harder for him to cross-subsidise those parts of his customer base who could not afford the full price of his service by those who could. I hope that steve heads off for a happy retirement, but it seems a pity to end a career on such a sour note.

Anyway, I thought it worth repeating a slightly edited version of the response I posted:

The basic facts of commerce are quite simple. Markets change: customers' needs/wants change, the prices they're willing to pay to have them satisfied change, the regulations change, competitors and suppliers change, the technologies we use to bring products and services to market change.

Firms that don't adapt and innovate in response to those changes eventually go out of business. They always have and they always will. This is true of all markets.

Cross-subsidisation, where customers who can pay more to make up for customers who can't, may be a good strategy in the short-term. However it is not sustainable. It creates an arbitrage opportunity and sooner or later your competitors will discover and exploit that. They will steal your higher paying customers by charging them less, and leave you with only those who cannot pay. As the Internet brings more information to more people, transparency increases, and cross-subsidisation strategies become ever more short-lived.

If your firm doesn't adapt in response to changes in the competitive environment, it will fail. If it's not the RDR that gets you, it will be NEST, the Money Advice Service, the emergence of D2C offerings, socio-economic trends like increasing longevity, general economic malaise or whatever else is waiting just over the horizon, that does. No amount of complaining about the FSA or the RDR will change this.

Unfortunately, it seems that many people who are perfectly good financial advisers lack the business skills to identify and understand these environmental changes, and to come up with strategies to thrive despite them. This is likely to lead to many exiting the market, either by choice or by being forced out. New business models and innovations will be needed to fill the space they leave.

When the market is stable, it is (relatively) easy to eke out a decent living. The more disrupted a market is, the more some businesses are able to grow very rapidly, even as others are forced out. The retail financial services market is currently undergoing significant change, and there will be some big winners and some big losers.

Does the new MAS advert undermine the RDR?

2011-06-16T10:28:00.001+01:00

For the RDR to succeed, it is essential for retail investors to understand the value of independent advice to the extent that they are willing to pay for it.

However the recent advertisements aired by the Money Advice Service (MAS) states "Our advice is independent and unbiased. Oh, and it is free. How is that for a breath of fresh air?"

Sheila Nicoll, director of conduct policy at the FSA, is on record as defending the advertisements, saying "It is worth noting the MAS is very clear that it is generic advice that it is providing. What the MAS is proposing is actually pretty complementary to the RDR."

However, I am struggling to interpret the advertisement as meaning anything to retail investors other than that independent financial advice can be had for free. That seems to directly undercut the FSA's insistence that Independent Financial Advisers must charge transparently for advice. Of course when you look at what MAS is actually offering, you will see it is vastly different from what is offered by a good IFA, but how many consumers will get that distinction. This is especially worrisome in that one of the starting points of the RDR is that consumers have failed to make these distinctions in the past.

The MAS is an independent body funded by an industry levy, which will be £3.7m this year, and to which IFAs must contribute. The advertisement is said to be part of a £4m campaign. I imagine it is particularly galling to IFAs that they are forced to pay for an advertisement which undermines their own business.

You can watch the advertisement for yourself below:

I have also been to the Money Advice Service website and done their financial health check myself. I must say I was somewhat underwhelmed: after answering a long list of fairly general questions, I was presented with a page of advice which appeared to be so generic I was left wondering why they'd not just presented it without putting me through the trouble of answering all the questions.

So I decided to explore the website further. The section on budgeting looked interesting, so I clicked on that. That took me to a parent's guide to money. Luckily I am a parent - but I might equally not have been. Looking around the rest of the site it contains a wealth of information. As the sort of person who generally takes an interest in these sorts of things, it is not obvious to me that this information was not already available elsewhere. Although it is handy to have it all in one place, one does wonder if that convenience is worth the £3.7m price tag this year.

I am generally pretty supportive of the RDR. The industry must evolve in order to improve outcomes for customers. But I can't help feeling that the MAS and it's TV advertisement are not a step in the right direction.

Update 14/7/2011: The Advertising Standards Authority will decide in the next week whether to investigate the advert after it received 41 complaints, mostly from IFAs. (See more)

The RDR: Unintended consequences?

2011-06-08T22:49:00.003+01:00

The Retail Distribution Review started out with laudable goals, such as widening access to financial markets and advice, and increasing customer choice. But what might be some of the unintended consequences?

Advisers may leave the market early, reducing the availability of advice.

The increased cost of regulations (accompanied by increased costs of capital), and additional qualification requirements (without grandfathering) may lead advisers to exit the market, or just to retire earlier than they might otherwise have done. According to evidence submitted to parliament by the Adviser Alliance in Feb 2011 independent surveys suggest that 20-50% of older advisers may leave the market. Research from Aviva suggests about 7% of advisers in total will leave the industry.

As of June 2011, recruitment consultant BWD says 35% of advisers have not passed any papers towards QCF level 4. The CII has further pointed out that the pass rate on some diploma papers is as low as 50%.

Barclays has already closed down Barclays Financial Planning at a cost of 1,000 jobs, and although, for example, AWD Chase de Vere has already picked up 20 of these, these are likely to be only those who are already fully qualified.

Adviser charges may increase.

Aside from the more obvious increased costs arising from increased qualification requirements, regulatory burden and the cost of capital in the absence of the factoring effect of indemnified commissions (the FSA estimates that these incremental costs could amount to 0.3% of the value of annual retail investment new business), confusion around the application of VAT may lead some advisers to err on the side of caution and overcharge for VAT.

Increased disclosure requirements around adviser remuneration may mean customers actually read less.

Addition disclosure may add to the mountains of paperwork customers are expected to read, and may, in fact, mean that even fewer customers can be bothered to try and read it all. Disclosure will need to be more focused and clear, rather than simply more extensive.

All of the above suggests tough times ahead for advisers. But as Ralph Waldo Emerson once said "Can anyone remember when the times were not hard and money not scarce?" The challenge remains to find opportunity in adversity.

Product innovation may decrease.

As advisers and providers alike focus on changing their systems to allow for adviser charging and VAT etc., they will have less time and resources left over to devote to product and service innovation and improvement, and new product launches.

Management approaches to data

2011-05-24T08:43:00.003+01:00

I was chatting to a coworker the other day about different managerial approaches to data. I typically encounter 3.

1. Anecdotal evidence

Decisions made or motivated on the basis of anecdotal evidence are by far the most risky.

Anecdotes can, of course be a very useful leadership tool, enabling the leader to tell stories to illustrate, motivate and bring to life strategies and decisions to a workforce who may not be be exposed to the real underlying data and analysis on a daily basis. But it is anecdotes in the absence of such real underlying data and analysis which can be extremely dangerous. Making decisions on the basis of anecdotal evidence alone would seem to be like doing statistical analysis with a sample of one. Anecdotes illustrate points, they don't confirm generalizations.

2. Observation

Careful and ongoing observation is a much more sound basis for decision making. Observations can be made in the field, such as by walking the floor in your office or factory, or regular client contact, or can be more controlled in the form of customer focus groups. The more frequent the observations and the more deep the engagement, the better they will support decision making.

Observation is what gives rise to hunches and intuition. These arise where someone has learned something by observation but has perhaps not fully articulated the connection between what was observed and what was learned. Hunches and intuition are valuable where decisions need to be made quickly and in conditions of great uncertainty, but they can become addictive. It is important to subject them to the scrutiny of proper analysis from time to time.

3. Measurement

We've all been told that "if you can't measure it you can't manage it", yet I am constantly amazed by organisations' failure to measure their key strategic outputs.

Measurement introduces an element of objectivity into management, which can be especially important in leadership teams dominated by strong but conflicting hunches, intuitions or prejudices.

It is true that measuring the wrong things can be as dangerous as not measuring at all. Accounting and financial measures are, of course important, but the focus on accounting and financial measures to the exclusion of all other measures is at the root of much malaise in the corporate world, and part of the problem the Balanced Scorecard methodology sets out to address.

There is an art to knowing which are the important data to measure and what are the appropriate ways to represent those data, otherwise an organization can quickly drown in numbers even as it starves itself of insight. This is one of the fundamental challenges facing the strategic thinker.

Anecdotes, observation and measurement are all important - just make sure your using each for it's proper purpose.

Web Wiz customer service continues to impress

2011-05-03T09:11:00.001+01:00

I continue to be impressed by the service I get from my web hosting provider, Web Wiz.

I originally chose them because I could not find anyone else who provided the combination of features (I particularly wanted ASP.NET 4.0 with LINQ) at a reasonable price, and this has delivered everything it promised. However, it is their customer service that continues to surpass my expectations.

I reported a small query on my account at 20h51 on Bank Holiday Monday (not something I've had to do before). It was the weekend of the Royal Wedding, and so an unusually long 4-day weekend. I imagined that Web Wiz, like most businesses, would have had quite a backlog to catch up on when they returned to work on Tuesday morning, and so was not expecting a quick turnaround. However, to my delight, I received an e-mail from them by 06h47 on Tuesday morning, clarifying the error, apologising for it, and making it good.

As ever, the response from Web Wiz was quick, clear, accurate and personal. So, a hearty thanks to Web Wiz and I look forward to continuing to do business with you.

Is there a future in email marketing?

2011-04-03T21:22:00.001+01:00

Many readers of Strategic Coffee are probably also on the McKinsey Quarterly email list and will have received their notification this weekend that their mailing list had been compromised. It seems the spammers will stop at nothing to get hold of good quality email addresses at which to aim their unwanted advertising campaigns. And if they can get through the security of a company of the calibre of McKinsey, one might legitimately ask if any company is safe.

(To be fair, I don't think the breach happened at McKinsey itself, but happened rather at a third party supplier to whom they had outsourced their outbound mass email marketing. But this only means that the risk of compromise is concentrated in a smaller number of providers who are then more attractive to the hackers.)

Which leaves me wondering if there is any real way of keeping your e-mail address safe other than to simply not give it out to companies? I must admit that I generally avoid signing up for things by email, much preferring RSS, Twitter or Facebook for staying engaged with the brands in which I am interested. Each of these technologies allow me to choose what content I want to pull from which content providers and don't allow unwanted third parties to hijack those channels of communication to push information at me that I don't want.

Sadly this means that I sometimes choose not to engage with brands with which I might otherwise engage simply because they provide no means of engagement other than by offering my email address. In addition where companies do insist on engagement by email, I am frequently forced to consign their messages to the spam bin if they don't provide a suitable alternative means of unsubscribing them. Since I am a gmail user, it's my understanding that gmail then flags that sender as a potential spammer and uses that knowledge to identify spam for all their users. That can't be good news for any email marketer.

I am curious to hear from other readers about what they think on this topic. Are marketers doing enough to provide ways of opting out of email communications and to provide alternative channels of engagement? Are customers becoming more wary of email as a channel of engagement and developing preferences for other channels? Please let me know what you think by posting in the comments below.

Update 16 April 2011: It seems the breach went well beyond McKinsey Quarterly. PCPitstop documents the extent of the breach here.

The leading corporate users of Social Media

2011-03-02T08:44:00.001Z

UsefulSocialMedia.com have just published their report on the "State of Corporate Social Media 2011".

The suggest that the the 16 leading companies are:

= 1 Dell
= 1 Starbucks
  2 Ford
  3 Coca Cola
  4 Google
  5 Apple
  6 Best Buy
= 7 Comcast
= 7 General Motors
= 7 Intel
= 7 Kodak
= 7 Microsoft
= 7 Nike
= 7 P&G
= 7 PepsiCo
= 7 Southwest Airlines

Honourable mentions were also given to: Aﬂac Duck, Air Asia, Alcoa, ASOS.com, Autonation, Avaya, Betfair, BMI, Chase Jarvis, Cisco, Delta, Domino’s, EA, ESPN, Fiat, IBM, JetBlue, Kiki L’Italian, KLM, Monsanto, NPR, Porsche, Procter & Gamble, Red Bull, Skittles, Victoria’s Secret, Whole Foods, Xerox, Zappos.

B2B business were note in the absence, although this is perhaps unsurprising as B2B business seldom get the mileage and publicity that B2C business do regardless of underlying merit.

UsefulSocialMedia also offer a whitepaper including case studies on Dell, Starbucks, Ford, Dell and PepsiCo.

They suggest whilst corporate social media has historically focused on marketing, the biggest growth area will be in customer service.

Coincidentally, I also spotted this rather good review of Southwest Airlines Social Media efforts from Blogging Innovation

Do you know what you've got?

2011-02-24T08:18:00.000Z

I was talking to the MD of a medium sized business the other day. He told me excitedly how they had just hired someone with technical experience in an area he was keen for his business to get into. At last, he suggested, they would be able to develop this part of the business with confidence.

He was quite surprised when I told him that I had been talking to another existing and more senior member of his team who also had extensive technical experience in that same area. And this other person had only been hired about a year ago. Had he not known about this area of expertise when he'd hired him, or had he simply forgotten? If he'd had a desire to get into this area, had he not discussed this issue and the organisation's capability with his team?

There is a danger in formulating strategy, in analysing an organisations strengths, weaknesses, opportunities and threats, from within the ivory tower of the C-suite. To succeed in strategy, you've got to get out there and talk to your staff, customers (and prospects) and partners. You've got to build relationships and engage with people around strategic issues on an ongoing basis.

Strategic Vision: Three tests

2011-02-15T23:21:00.002Z

Strategic Vision is one of the most elusive facets of corporate strategy. Most organisations have a Vision Statement, but sadly few in my experience have a Vision.

Evaluating Vision Statements: 1. The Sniff Test

These days, most organisations' vision statements are quite easy to discover as they are proudly displayed on their web sites or in their annual accounts. However, I have cautioned before in Strategy as Public Relations against assuming that the published strategies, vision statements, etc. of organisations are anything more than deliberate signals to the market or even to employees. And so I would always advise checking to see what a firms' board's real vision is before jumping to conclusions. This may require a more subtle line of inquiry.

The worst example of a stated vision statement I have ever encountered was an organisation whose strategic plan opened with an intent to be: "first for customers, first for employees, and first for shareholders."

I usually apply two tests to vision statements before I even begin to try to understand whether they are strategically valuable. These are:

Could you identify the business, or even the industry? Read the example above again. I defy you to guess even the industry.
Could you say it was not that, and still sound credible? For example, could you credibly say "Our aim is not to be first for customer, first for employees and first for shareholders, but instead it is..."?

Only once a vision has passed those two tests do I start to consider whether the vision is likely to lead to value creation given its internal capabilities and market positioning.

Evaluating Vision Statements: 2. The Discriminatory Test

The role of a vision statement is to paint a vivid picture of what success will look like. It should be succinct and memorable. It can be a statement, in the conventional sense, but it could equally well be a story, a checklist or any other suitable form of communication. Most importantly, it should be something against which a decision maker can weigh two otherwise equally potentially profitable options, and conclude which one will best take the organisation towards achieving its vision. If two honest and intelligent decision makers can reach conflicting conclusions under such a circumstance (and I have encountered this on more than one occasion), then the vision statement has failed to achieve its purpose.

Evaluating Vision Statements: 3. The Value Test

The final criteria for a vision statement is whether it is likely to create sustainable value.

It should be stretching but achievable. Just like a desert mirage -always just within sight but just out of reach. If it is too easy to reach, it will not force decision makers to exercise themselves enough. If it is too hard to reach decision maker will start to insert their own, potentially divergent, interim milestones. These will ultimately take the organisations' focus away from its goals. (Visions differ from objectives in that ones hopes to put a "tick in the box" for objectives, whilst a vision moves forward just ahead of the organisation's ability to achieve it.)
It should capitalise on the organisations particular relative (to its competitors) strengths, and work around its weaknesses. It should fit the particular organisation, in its current state, like a glove. In that way it should never be true that the vision would be better suited to one of the organisation's competitors.
It should be appropriate to how the market will be when the vision is realised. Markets don't stand still. The best visions, when realised, transform the market. But even aside from that, markets continue to change and develop while the organisation executes its strategy. The vision should be value maximising in the market as it will be in the future, rather than as it is now.

A strategic vision should lie at the heart of every successful strategy - it is the purpose of the strategy. Coming up with the right vision is perhaps the most difficult part of The Strategic Learning Cycle as more than any other stage of the process it relies more on artistry than on technical skill.

What are your favourite examples of either good or bad vision statements?

Other resources:

The key to vision statements that work

The Platforum research dimensions the B2C platform market

2011-02-14T20:57:00.001Z

In February 2011, The Platforum release its report dimensioning the B2C platform market. Amongst its finding are:

The three main categories of D2C platforms are IFA brand platforms, fund manager owned platforms and execution-only stockbroker platforms.
As at 30 September 2010 the D2C platform market was £64.9 billion.
The largest players by Assets Under Advice are Hargreaves Lansdown, Barclays then Fidelity. Hargreaves Lansdown dominates the space with a 28.5% D2C platform market share.
The average age of a D2C platform customer is 57 (which is certainly older than I would probably have imagined).
There is currently little differentiation in this market with all D2C propositions being built to service “mini IFAs”.

Looking at the market more widely, they go on to suggest that:

There are other important pools of directly-held funds out there. For example, they estimate that there are up to £20 billion in directly-held funds with asset managers.
17% of active private investors intend to take out their next ISA through a fund supermarket.
There are currently 6 million people in the UK who claim to be actively involved with their investments.

Click here for more information.

The BCG Matrix

2011-01-10T08:56:00.002Z

The BCG (named after the Boston Consulting Group) Matrix, is a strategy analysis tool which helps to understand the different strategic contexts of different parts of a business portfolio. That is, it recognises that not all parts of the business are strategically equal, and in so doing helps to facilitate more nuance strategic analysis.

In its simplest form, the BCG matrix charts each source of value by its share of its market and the rate at which that market is growing. Source of value could be business units, products, services, customer segments or channels (that is you would choose one of these criteria, say product, and then chart all of the organisation's products relative to each other.)

The resultant portfolio analysis can then be roughly divided into 4 quadrants, as shown on the chart to the right.

Each of the four quadrants suggests a different strategic approach. For example:

Stars: continue to invest.
Cash Cows: improve efficiencies.
Question Marks: decide.
Dogs: exit.

For example, Cash Cows may more readily lend themselves to "Competitive" strategic thinking, while Stars may lend themselves to more "Blue Ocean" strategic thinking (see Blue Ocean vs. 5 Forces for more insight into this subject).

In addition, one could vary the size with which you plot each source of value to represent, say, profitability.

Critical success factors:

How you define the scope of each market (for measuring market share and growth) is key to the placement of each source of value.
Don't ignore cross synergies, for example, taking into consideration sources of value which may serve as loss leaders.
Don't ignore cyclical effects.
When considering the allocation of costs across sources of value, remember that all costs are variable in the long term. That is, don't think that you need to keep an unprofitable product, channel etc. going just because it is absorbing some of your "fixed" costs.