Stumbling Towards Innovation

Business Simulation (EMEN 5710)

June 18th, 2010 1 Comment

This summer i’m in the business simulation class offered by CU Boulder. The class utilizes the Marketplace Simulation at marketplace-simulation.com. So far we’ve gone through 4 quarters worth of decisions and I have been very impressed with the simulation.

Basically students work in teams to run a computer manufacturing company. We have to manage all aspects of the company and it has been challenging so far! The teams are pitted against themselves battling for market share and portions of the grade are determined by where you stand in the market. Just some things that we have to manage and consider:

Manufacturing

Location
Capacity
Quarterly production rates
Change-over costs
R&D to improve quality
Inventory holding costs

Product

Brand Design (based on market research and feedback)
Brand portfolio management
Profitability
Cannibalization

Sales and Marketing

Ad creation, placement, and quantity
Salesforce size and location
Salesforce distribution among brands
Sale projections

General

Financial statements
Demand projections
Strategy creation and implementation
Being competitive
Expansion
Balancing risk
Operating at a profit and generating positive retained earnings

So its been a really cool class so far but a TON of work. Quarter 3 was the first quarter that we could actually sell products. My team estimated our demand levels and adjusted our operating capacity to be a bit higher than what we expected from the demand. Upon coming back in quarter 4 we learned that we had overproduced tremendously and barely sold anything! As a result, we were hit with an excessive operating capacity cost that put us into a negative cash situation for the quarter! Ack, emergency loan was taken out from Guido but in doing so we had to give him some shares in the company. This really hurt our financial performance and hindered the amount of growth we could do in Quarter 4 because of our cash position.

My partner and I spent a ton of time working things out to get out of the hole we put ourselves in. At the core of the problem was not that our manufacturing was not setup very well, but that our brands just sucked really bad and nobody wanted to buy them. This problem was worse than we thought because we had almost capped our target inventory limits which meant that we had about 600 computers that nobody wanted! We had only managed to acquire less than 8% of the market in quarter 3, with 5 other competitors.

After looking at the market data we decided the best course of action was to make our brands better. We felt this was at the core to our quarter 3 failure. One of our brands actually fit well with a market we hadn’t considered so we decided to create an ad for this market and sell our excess 300 computers there rather than getting raped by scrap prices. Another of our brands performed so horribly across all 5 markets (sad) that we decided to scrap all of it for next quarter. The third brand performed poorly, but we decided to sell it at a huge discount into one of the markets, without any advertising, to make a bit more money than if we were to scrap them. The inventory holding cost was only 30,000 a quarter and if we sold just 15 computers we’d be able to cover that.

Then we worked on two new and improved brands for release in quarter 4. We chose new names so as not to drag the old brand image into the new. We also created two new ads to go along with the brands, priced them below the market leader by a smidge and advertised a large amount in periodicals rather than only local markets. At the end of the day it all came down to production and demand projections. How many computers did we expect to sell?

Well in quarter 3 we expected to sell 700 and ended up selling only 161, ouch. We did not want to make the same mistake. Our projections put us at 1700-2000 units though. We decided to play it somewhat safe and set production at 1100 units, and pull 400 units from inventory to get close to the demand projection of 1700 units.

After quarter 4 results we realized we had estimated low! Dangit! Because our production rates were set too low we ended up losing out on 500 units worth of sales. Total demand was 1819 but we were only able to meet the demand with 1240 computers. This is going to result in a lot of ill will in next quarter but the lucky part is that most of the lost sales were in the low margin cost cutter segment…an area where we were just playing in to get rid of some poorly design computers. Hopefully this ill will will not hurt the other markets for us.

So in one quarter we:

Improved total market share from 7.8% to 19.6%
Improved demand from 161 units to 1819.
Generated a positive net income (first time)
Put ourselves in a much stronger position for quarter 5 with regards to raising additional capital to fund futher expansion in sales and manufacturing output.

Pretty pumped.

So overall the first year in the market simulation has been full of ups and downs for us. Quarter 5 is all about bringing some investors in and blowing the roof off the computer market. We’ll head into our initial strategy more, and expand to new markets in search for market share!

Peter Drucker, “The Effective Executive”

May 18th, 2010 No Comments

Peter Drucker, “The Effective Executive”.

I mentioned that I had read this book over the weekend so I thought I’d make a blog post about it…a concise and less than 1 hour blog post.

First of all Drucker wrote the book in 1965 when the knowledge workers were beginning to make their move on the corporate landscape. I wanted to point out that although the book is titled towards the “executive” really this encompasses all knowledge workers. At the time the idea of an engineer, someone not directly spending time actually building a product in a manufacturing setting, was somewhat new. Drucker was the first to coin the term “knowledge worker” and begin to make inroads on best practices for managing these types of people. For the purpose of this book, knowledge worker is basically the same as the executive.

Chapter 1: Effectiveness Can Be Learned

There are arguments towards whether or not a leader is born or that a leader can be developed. Similarly, there is an argument for or against effectiveness as a learned skill. If it were not able to be developed, Drucker would not be able to write the next six chapters and so he concludes that like leadership abilities, effectiveness is something that people can learn.

Chapter 2: Know Thy Time

What this chapter is really all about is knowing how you spend your day. Personally, this is similar to knowing my diet. In other words, I go along eating what I normally think I should be eating but it isn’t until I start to log what I eat do I find out how many calories I’m actually eating and which macros. Armed with knowledge I’m able to move ahead and make changes in order to achieve a weight loss or gain goal.

In this chapter, instead of logging food, we’re being asked to log time. Time is our most valuable asset but we often give it away as if it were worth nothing. Countless executives comment that they do not have enough time in the day to do all the things that they need to get done. Unfortunately, because time is limited, these executives might not be able to do whats really important because they are bogged down on other things. Drucker suggests logging your time off and on, and then revisiting it so that you can look for areas to trim. Areas include:

Recurrent crisis
Over staffing
Anther common time-waster is malorganization
Malfunction in information

Chapter 3: What Can I Contribute?

“Contribution is the key to effectiveness” (Drucker, p.52). Most people should change their contribution focus from downward to upward. Ask yourself, “what is it you can contribute to your whatever your boss is measured by, the division, the business unit, the company as a whole. What is it you can contribute?”

Chapter 4: Making Strength Productive

Drucker is big on working your strengths rather than trying to bring up your weaknesses. He thinks that becoming well rounded is a sure-fire way of making your self mediocre at everything. Instead, focus on your strengths and align these with your contribution goals. This way you will be the most effective.

Chapter 5: First Things First

Find out what needs to be done and do it first. Set aside time so that you can focus yourself on that one task for a certain length of time. Drucker thinks that executives revert to spending too little time on too many things because they don’t have a focused mindset. This doesn’t mean neglect other things, in fact, by focusing your time Drucker thinks that you will be able to get more things done, but what this means is do whats most important first, and then work on the next thing.

Chapter 6: The Elements of Decision Making

Generic situation or exception – a generic situation is solved by a rule.
Determine the boundary conditions which the decision must accomplish.
What is right rather than who is right. Satisfy the what.
Convert the decision into action.
Build feedback into the decision to determine for the future if it was a good decision or not.

Chapter 7: Effective Decisions

Choices are mostly “almost right” and “probably wrong”; its a grey area. For this reason its very important to start with opinions rather than facts. Use opinions to determine a criterion of relevance between the facts. Opinions are hypotheses which can be tested if they are determined to be relevant hypotheses.

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That’s the gist of this book. It was much easier to read than the Practice of Management. Actually, it was rather enjoyable. Recommended of course.

Blog hiatus

May 17th, 2010 2 Comments

Yeah I know…I’m bad at blogging. Hopefully this will change soon. Some of the changes that I’m making will alleviate the stress I put on myself to create long and meaningful original posts. I’m working on making this blog a bit more…exploratory? Presenting ideas a bit more frivolously (is that even a word)?

Probably going to turn off comments for a while. My spam filter isn’t doing jack for me. I get a huge amount of comments saying things like, “great post, if you want to increase your penis size click here”. Totally random. Here are some other samples:

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“Why doesn’t Tarzan have a beard?” – Not sure man. I’m really not sure.

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So I think I’ll turn commenting off which limits trackbacks but I really don’t get that many of those at this point. If anybody knows of any good comment spam filters let me know.
So where have I been? Well my classes last semester took more time than in previous semesters. I took Software Product Management, as well as High Technology Marketing which was sort of a Technology Ventures class. Both classes were electives and I’m glad that I took them. I’ve finding myself increasingly interested in product management and these classes were right up my alley. Two more A’s for my report card were also good to send to Mom for old time’s sake in her Mother’s day card.

This summer I’m looking forward to the Business Simulation class being offered at University of Colorado. I’ll be taking it distance again and hope that my group is tech savvy enough to be able to do everything online like my last group. I think that online meetings are a good thing to develop for those that don’t get a chance to do so. The virtual community is beginning to develop in the business realm and its not that far off that more and more businesses are going to embrace this mode for operating. Its cheap…setup a meeting online in Second Life and have people attend rather than setting up a phone meeting and not being able to see who is speaking, and miss all the interactions. I’m beginning to ramble on here.

Lets do it, countdown traffic lights.

February 1st, 2010 1 Comment

I drive about 4 miles to work and back every day. Sometimes, if I’m lucky, I get to drive it twice a day! Most people will complain about their commute and so here’s my little blurb on it. It sucks. 4 miles, takes me about 12-15 minutes depending. Of course not all the traffic signals are timed and so you can’t ever hit them all in a row. Wouldn’t this be a nice way to start off the morning, going the speed limit and being rewarded by hitting every single light! The joy it would give people…

Aside from the normal road rage of slow drivers, fast drivers, idiot drivers, half asleep drivers, that can all be summed up in “you know the drivers I’m talking about” category, there is one thing that I would love to see implemented in traffic signals. The countdown timer!

If there’s one thing I hate more than most while on the road it is that time period where your life is hanging in the balance as you’re waiting to do a “left turn yield on green” and the signal turns yellow. I was taught that the correct place to be in this scenario was in front of the cross walk. That is, if you’re yielding on a left turn and you’re the next car to go, get out into the intersection! The only problem is that during rush hour, the gaps are few and far between AND when it turns yellow you better watch out for those inconsiderate, gotta get to where I’m going at the expense of everyone else type people who run the yellows and sometimes reds.

Enter the countdown timer! Wouldn’t it be sweet to know, upon approaching an intersection, how much longer you have until it turns yellow? On my commute I have gotten into the habit of looking at the countdown for the cross walks to determine if I have enough time to go through an intersection. This is great for those intersections with photo radar because sometimes, you just can’t stop in time, or think you can’t but a machine of course thinks otherwise and flashes you blind as you cruise through.

You may be thinking this kind of thing would promote more speeding. For isntance, I see I only have 3 seconds to get through so I’ll speed up. I’m not here to argue this point because I don’t have any data to show it going either way. What I will say is that I’m a reasonable driver and in most cases, if I’m approaching with only a few ticks on the clock left I will slow down just to be safe. I don’t want to get a ticket for running a red and I sure don’t want to get caught in a head on as the person turning left is trying to get out of the intersection and is pretty sure I will not run the intersection.

Anyways, just a thought for the transportation guys in the world…

“The Innovators Dilemma”, Clayton M. Christensen

January 18th, 2010 2 Comments

I read this book, “The Innovators Dilemma”, the other day in one sitting. It wasn’t too long which was a good thing for me. I have a tendency to pick up large books and not finish them. The book took a shot at trying to understand why companies that do everything right can fail. Specifically it analyzes disruptive technology and gives insight on how to deal with it as a product manager. It comes highly recommended by people like Andrew Grove (Intel CEO) and others that collectively worked to make it a national bestseller.

I don’t want to butcher his ideas so I’ll just offer these two videos for you and recommend that you go read his book.

Figure 1: Product Performance VS. Market Expectation

Figure 2: How Disruptive Technology Moves Up Through Markets

To protect against getting sniped by a startup with disruptive technology Clayton offers this advice. [1]

Determine if the disruptive technology is actually disruptive.
If it is, determine whether or not the existing culture and processes will support development of the disruptive technology.
If the business cannot support the technology they must spin-off of business unit in order to develop the product and market.
In developing the product they must think simple, and be prepared to fail a few times in finding the exact market suitable for the product.
Once established the disruptive technology begins to improve, eventually taking over and canabalizing the existing client base of the parent company when the tme is right.

Other insights presented in the book.

Companies are dependent on their customers and shareholders for survival. It is because of this that they are forced to spend resources adding value to their existing product line rather than developing products that in the beginning are expensive and underperform compared to the existing offering. This is called “resource dependence”.
The pace of incremental product development is quicker than what the market needs. This opens the door for disruptive technology which is simple and cheaper, to steal the market from below.
Disruptive technology should be viewed as a marketing challenge, not an engineering challenge. Disruptive technology contains too many unknowns in order to shape it towards an existing market. Developing a market for the technology is key to success.
Disruptive technology presents a new set of problems and ways of thinking that may not directly relate to the problems a company has already mastered. These mastered problems help shape the company culture and may make the disruptive technology venture fail.
Being first to market with a disruptive technology has statistically not been necessary in order to be successful. However, entering too late will hurt you because breaking into matured disruptive markets is very difficult. If you’re too late to market you will only end up canabalizing your own products, therefore, reducing profits because existing technology has a larger profit margin than the disruptive type.

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1.) The Innovator’s Dilemma, Clayton M. Christensen, Collins Business Essentials, 2003.

Figure 1.) http://web.mit.edu/6.933/www/Fall2000/teradyne/susdir2.JPG, Retrieved 1/18/10

Figure 2.) http://blogs.broughturner.com/photos/uncategorized/disruptive_technology_1.gif, Retrieved 1/18/10.