Tag Archives: management

Pricing: It is all about hitting the nail!

As it is said, strategy is not an exact science; there exist multiple possibilities and ways to reach the target goal post. For as long as you are moving in the right direction, you have to keep on figuring out ways to reach the goal post and do not in any way succumb to the pressure of scoring own goal (kidding :)). This holds true for strategies devised in various fields; be it war, sports, medical treatment, IT or business. Overall business strategy also encapsulates pricing strategy and there are certain areas which need to be kept in mind before deducing the final answer. It is tantamount to solving multiple equations with various variables, simultaneously. For others, it may seem just a simple answer as E=mc2 but deducing this conclusion involved playing with a list of variables. Few of the variables to be considered for deducing a meaningful price are mentioned below:

Products and services are made for generating value for customers

The ultimate purpose of any enterprise to exist is to generate value for its multiple stakeholders (not just shareholders). When products and services are formulated to deliver to customers, the ultimate aim should not be just profit making rather it should be delivering value to the customer. Say, a product which costs you $80, sold at a price of $100 should deliver value to the customer at $100+.This is cost plus pricing, an example can be an electrical component in a panel which may cost you $80 and you sell it to your customers at $100. But the true worth of that component is $100+ in the sense that if the component is not timely installed; it may result in a total shut down of the plant which may cost the customer millions of production loss.

Align product and service portfolio with market needs

Innovation is useless, if it cannot serve to enhance value for stakeholders. You have to understand the market and get a good grasp of what your target market really needs then align your portfolio of products and services with the market needs. Such analysis will assist in devising a better game plan and you can either adopt a market based pricing approach or economics driven (demand and supply based) pricing approach.

Understand your niche (target market)

To understand your niche, you need to have a good street smart mindset which would enable you to have first hand sense of the market. Based on that sense, you can develop a holistic approach for designing your product and services portfolio at an appropriate price. It is just like hitting the nail with a hammer.

Understand substitutes and competing products

If you do not have a good understanding of your competitors and substitutes, you would never be able to put yourself in your customers’ shoes. You have to think what they think and how do they evaluate different options? From my personal experience, when I was leading the launch of Busway Systems in Pakistan for Siemens; I not only had to have good understanding of our competitors in busway system but also grasped a good understanding of substitute products i.e. cables. By doing so, I was in a better position to answer the concerns of persons sitting on the other side of the table.

Hope this helps you in framing a better strategy and spotting the right opportunities.

Fast, cheap, and under control

New book argues that inexpensive, employee-driven business experiments can help drive innovation.

By Peter Dizikes

CAMBRIDGE, Mass. – When it comes to prescription drugs, patient “compliance” is a concern: Are people, especially the elderly, taking their medication on the proper schedule? While pharmaceutical firms focus on the research and development of drugs, knowing more about patient habits might, at a minimum, help those firms make the case for the effectiveness of their products.

Perhaps, then, some firms could benefit from a few experiments designed to help them learn more about their end-users: low-cost interventions that might involve, say, giving customers the opportunity to provide useful feedback about their habits. Indeed, small-scale business experiments designed from within might be the most valuable innovation investments most organizations can make, according to a new book on the subject.

“The purpose of an experiment is not to solve the problem, but to generate insights,” says Michael Schrage, a research fellow at the MIT Sloan School of Management, and a member of the school’s executive education teaching faculty. Moreover, Schrage claims, some businesses may discover a kind of power law of experimental knowledge: “If you design your experiments [to be] simple, frugal, and fast, you frequently can capture 80 percent of the useful insights you need for 20 percent of the time and money you’re used to investing.”

Now in his new book, “The Innovator’s Hypothesis,” published this month by the MIT Press, Schrage fleshes out the idea of “5×5” experiments as a useful tool for business innovation: having a diverse team of five employees come up with five experiments that can be tested within five weeks, for under $5,000 each.

“I’m not saying, get rid of your planning, get rid of your analytics,” Schrage says. “But when you look at your portfolio of innovation options, you should have some sort of serious investment in fast, simple, cheap, scalable, experiments.”

Airline test cases

To be sure, the notion of the 5×5 experiment bears some relation to famous business practices of the past, such as Toyota’s effort to implement “continuous improvement” from within, or more recent tech-sector initiatives to give employees a portion of work time devoted to firmwide innovation. But Schrage wants to go beyond the incrementalism of continuous improvement.

In his book, however, Schrage focuses on the specific parameters of the 5×5 idea, contending that many business practices can be tested effectively, and relatively cheaply, using this specific model. For instance, the idea of persuading airline passengers to volunteer to be bumped from their flights, for compensation, he notes, dates to at least 1968, when an economist first suggested it — but the practice wasn’t widely implemented until the late 1970s. Small-scale tests could have shown the value and feasibility of the idea much sooner than that.

But for a specific 5×5 experiment to have value, Schrage notes, it needs to yield useful information, no matter what the result is. As Schrage describes in the book, he himself thought it would prove valuable for airlines to charge more to passengers who wanted to sit together in groups of more than two — but in online-booking tests, air travelers resist paying more for seats in order to be grouped together. Still, that’s a useful and practical piece of knowledge for airlines and travel companies to have.

In that vein, getting employees to see that their own ideas might not reach fruition, Schrage believes, may be the most difficult thing about getting the 5×5 method to take hold within a firm.

“It’s hard because people want their hypothesis to be the business plan,” Schrage says. “They want to prove their hypothesis. We’re just as interested if the hypothesis doesn’t test valid.”

To make the 5×5 effort work, Schrage also recommends that employees think specifically about which executives might be most receptive to certain innovations, or the experimental method as a whole, while trying to affect change at their firms. No innovation methodology, he believes, can escape corporate politics and culture.

“The not-so-hidden agenda [of the method] is to provide a new opportunity for alignment between the visions and aspirations of [executives] and the people who actually do the work and interact with clients and customers,” Schrage says. “It creates an opportunity to engage with top management.”

The general approach, Schrage thinks, can also improve a firm from within in other ways, by further tapping the insights and talents of a firm’s employees, and perhaps even help morale in the process.

“The real value isn’t just in terms of innovation portfolios,” Schrage asserts. “It’s in helping boost the human capital, the creativity, the innovative capacity of individuals who participate,” Schrage says.

Source : MIT News Office

In-house or Outsource? A case in favor of developing long term partnerships.

By Syed Faisal ur Rahman

Often audit or management consultancy firms and related service oriented businesses face issues of managing huge client work load for a certain time of the year like financial year end or time for appraisal and hiring.

This creates a tricky situation for companies with limited budget. In this situation, normally you either need to go for hiring more people to deal with the work load or burden your current work force to the limit. Hiring people for short term is challenging as not many well qualified people will agree to work as short term employees and in case of hiring new permanent people to cater short term demand is a costly process. The situation is even more challenging in developed markets where hiring costs are relatively higher than developing countries.

A much more cost effective and efficient solution is to make right outsourcing partners in same region or in other regions. There are BPO firms in developing markets which are capable of providing quality services related to IT, data entry, recruitment and even provide services in data analysis and market research. In-house development of products in a developed market is a big decision in terms of financial and managerial commitment involving several costs and risks.

However, for small tech firms with limited risks and costs, developing products on small scales is often just a decision to commit for a particular set of technologies in developing some particular tools. The drawbacks for them are their lack of exposure to corporate sector, their capacity to convert their products for larger scales and their limited market presence. Long term service based and business process outsourcing partnerships can solve problems of high costs for big business services firms in developed markets and lack of market exposure problem for smaller tech firms.

I have worked in both developed and developing markets with roles involving management, product development, data analysis and research, and in my view many companies in developing and developed markets don’t achieve their full potential only because of their lack of readiness for cooperation and conservative management structure.

Major hurdles are trust and lack of understanding about capabilities of potential partners. The solution to this problem is to take smaller steps and gradually move towards bigger products and services. At the same times managers from both sides need to develop their understanding about the capacity, talent pool and management culture of their partners.

In my humble view, we can achieve a lot more than we usually do if we just try and understand the capabilities of our potential partners and actively look for good long term partnerships based on trust and mutual respect.