Business Networking Systems Dead Already?

A lot of truth in this article, but I couldn’t help but think about the one time I’ve tried to use LinkedIn.com and received an amazing response to a question that I had. It worked for me, but then, I’ve only used it once.

Hey, Skype released a client for OS X. These guys are moving in providing free Internet telephony for all platforms.

I’ll never remember these measures when I return overdue Intellectual Capital to the Library today so I’m recording them here:

Measures of the Whole

Market-to-book ratios: If Microsoft is worth $85.5 billion and its book value is $6.9 billion, then its intellectual capital is $78.6 billion. Three problems: 1) The stock market is volatile. 2) Evidence that book and market values are understated because acquired companies cost a premium over market capitalization. 3) While it’s nice to say Microsoft has $78.6 billion in Intellectual Capital, so what? What can I do with that info?

Tobin’s Q: Compare the cost of asset replacement with the market value of the assets. The closer to 2, the more you can command a price. You have something they don’t have. That could be a monopoly or that could be your intellectual capital.
Companies Fixed Assets and add back accumulated depreciation and account for inflation. This will show you what’s happening to a company over time. How well are they using their assets? A measure of Intellectual Capital.

Calculated Intangible Value: An elegant way developed by NCI Research. They wanted a way to convince to put money into businesses with very few tangible assets. This is a way to calculate the value of a brand. For example with Merck:
1. Calculate average pretax earnings for 3 years. $3.694 billion.
2. Go to the balance sheet and get the average year-end tangible assets for 3 years: $12.953 billion.
3. Divide earnings by assets to get the ROA: 29 percent.
4. For same 3 years, find the industry average ROA (for pharmaceuticals, 10 percent – if company below average -> STOP NCI method won’t work)
5. Calculate the “excess return.” Multiply the industry-average ROA (10 percent) by the company’s average tangible assets ($12.953 billion) to understand what the average drug company would do with the assets. Now subtract that from this company’s pretax earnings from step 1 ($3.694 billion). We get $2.39 billion.
6. Pay Uncle Sam. Calculate the three-year-average income tax rate, and multiply this by the excess return. Subtract the result from the excess return, to get an after-tax number. This premium is attributable to intangible assets. For Merck (average tax rate:31 percent), that’s $1.65 billion.
7. Calculate the net present value of the premium. You do this by dividing the premium by an appropriate percentage, such as the company’s cost of capital. Using an arbitrarily chosen 15 percent rate, that yields, for Merck, $11 billion.

That would be Merck’s calculated intangible value. This CIV permits company-to-company comparisons using audited financial data. A weak or falling CIV might hint that you’re spending too much on brick and mortar and not enough on R&D or brand-building. A rising CIV can help show that a business is generating the capacity to produce future cash flows, perhaps before the market–or budget committee–has recognized it. Over time, Tobin’s q out to be parallel to CIV. “Knowing a company’s CIV could help you judge whether a low price-to-book ratio reflects a fading business, or one that’s rich with hidden value that isn’t yet reflected in the stock.”

Human Capital Measures

Employee Attitudes: Correlation between happy employees and strong financial performance. Though not proven as cause, people who feel they are learning, needed, and useful will be more productive than people who are idle and uncertain of their role in the company’s success; they’re also likely to treat suppliers, customers and each other better.
So conduct employee surveys but be careful that some just generate what’s on people’s minds at the moment, which can be useful data.

Tenure, Turnover, Experience, Learning: Celemi International measures using the following:
1. Average years in profession.
2. Turnover among experts.
3. Senority among experts.
4. Value-added per expert and per employee.
5. Percentage of customers who are “competence-enhancing” or challenge the company to learn more.
6. Rookie raio (percentage of employees with less than two years experience).

Questionaire:
1. Among the many skills possessed by your employees, which do customers value most? Why?
2. Which skills and talents are most admired by your employees? What accounts for any difference between what customers value and what employees value?
3. What emerging technologies or skills could undermine the value of your proprietary knowledge?
4. Where in your organization do high-potential managers most want to be assigned? Where do they least want to work? How do they explain their preference?
5. What percentage of managers have completed plans for training and developing their successors?
6. What percentage of all employees’ time is spent in activity of low value to customers? What percentage of expert employees’ time is spent in activity of low value to customers?
7. When competitors are hiring, do they hire from you?
8. Why do people leave you to accept jobs elsewhere?
9. Among experts in your labor market–including headhunters–what is your company’s reputation vis-a-vis its competitors?

The Knowledge Bank: Alan Benjamin, former director of SEMA group, one of Europe’s leading computer service companies, developed a measure of the value of the knowledge bank of a company. This is what Benjamin does:
1. Treats capital spending as an expense, not an investment.
2. Calculates the employee’s salary seeding the future as an investment and book it as capital spending.
3. Conservatively estimates the value added by R&D
4. Draws a new bottom line and calculates the knowledge bank which the company can call on in the future.

Traditonal
Sales $2.7 million
-Overhead $500,000
-Capital Spending $100,000
-Labor $1.5 million
Surplus would be about $600,000

For Benjamin
Deferred Labor (added to knowledge bank): + $800,000
Expensed Labor (no residual value): -$700,000

Sales $2.7 million
-Overhead $500,000
-Capital Spending $100,000
-Labor $700,000
+R&D value added $40,000
Surplus would be about $1,540,000
($600,000 cash and the rest in banked knowledge) Determining the bank is the first step. Then we find out our return-on-human-capital (knowledge bank divided by profit) which should be lower than ROA conventionally measured.

Structural Capital Measures

To picture this, you need measures of the value of accumulated stocks of corporate knowledge, and measures of organizational efficiency (the degree to which the company’s systems augment and enhance the work of its people rather than obstruct them).

Valuing Stocks of Knowledge: Anson considers structural capital in 3 groups: 1) a technical bundle (trade secrets, formulas, proprietary test results, etc.) 2) a marketing bundle (copyrights, corporate name and logo, warranties, advertising, package design and copyrights, trademark registrations, etc.) and 3) a skills and knowledge bundle (databases, manuals, quality control standards, asset managment processes, security systems, business licenses, noncompete clauses, proprietary management information systems, etc.) Three basic tests to the value of an asset: Does it differentiate your product or service? Does it have value to someone else? Would someone else pay a fee for it? Price the assets not by cost but by their comparable value in your industry. Then rate the relative strength of your asset versus the comparables using the scorecard called the Valmatrix. (0-5 scale, 100 total possible points, breadth of product line, barriers to entry, etc.)

Working Capital Turns: The ability to substitute inventory for information. Like Dell Be careful to measure everything. The goal is to see how much you save compared to others who have more inventory.

Measuring Bureaucratic Drag:
Suggestions made versus suggestions implemented.
Time-to-market.
Ratio between revenues and SG&A costs.
Set-up times, minimum profitable lot sizes, etc.

Measuring the Back Office: Value added=Change Don’t write 2X2X2, write 23

Customer Capital Measures

Customer Satisfaction: Loyalty (retention rates), increased business (share of wallet), and insusceptibility to your rival’s blandishments (price tolerance).

Measuring Alliances: Savings for both parties from shared processes such as inspection and electronic data interchange, figures on inventories for both buyer and seller and availability all help establish the value of intimate relationships between you and your customers or your suppliers. Keep track of your customers’ financial strength and growth and your share of their business: If you are a key supplier to a strong customer, you have a valuable asset.

What’s a Loyal Customer Worth?: What is the net present value of your customer base? How much is a new customer worth? How much is it worth to keep an old one?
1. Meaningful period of time over which to do the calculations.
2. Calculate the profit your customers typically generate each year you keep them. Both costs and profits. If possible, segregate this number into age, sex and other useful information.
3. Then chart the life expenctancy.
4. Once you know the profit per customer per year and the customer retention figures, calculate the net present value of a customer. Pick a discount rate–if you want a 15 percent annual return on assets, use that, since customer capital is an asset. Apply the discount rate to each year’s profit, adjusted for the likelihood that the customer will leave. In year one, the NPV will be profit / 1.15. In year n, the last year in the period you chose, the NPV is the nth-year’s profit/ 1.15n. The sum of years 1 through n is how much your customer is worth–the net present value of all the profits you can expect from his tenure: In effect, it’s what someone else would pay to get the customer.

You can use this information to determine how much it costs to acquire new customers. This is invaluable information.

Keep it simple. No more than three measures for each.
Be strategic in your measures. Measure those things that give you your competitive edge.
Measure activities that produce Intellectual Wealth.

“Networking is lots more than a metaphysical idea, a technological phenomenon, or a hot industry. It is the most important development in management since DuPont, General Motors, and others invented the modern corporations–with its headquarters officers and staff, multiple divisions, and functional departments–before World War II. Where once there were pyramids, bosses, departments, troops, now there are webs, nodes, clusters, flocks. In companies whose wealth is intellectual capital, networks, rather than hierarchies, are the right organizational design.”

–Thomas A. Stewart, Intellectual Capital: The New Wealth of Organizations

I think FamilyLearn, with our efforts with Personal Historians, is moving to a networking model.

I’m learning about merchandising to improve the www.icount.com store.

This article compares multiple store’s displays for boots.
http://www.clickz.com/experts/design/traffic/article.php/3378361
“One other thing [Cabela’s] does well (and which works effectively on several sites) is offer links for the previous and next items within the same category. This option allows visitors to continue their momentum without pogo-sticking back and forth between product and category pages.”
Cabela’s Catalog

“Our last hiking-boot visit takes us to REI. REI does the best job of merchandizing hiking boots. An image shows both the top and sole of the boot. The page has a blurb with bullet points and a separate specs area. There’s a link to a comparison chart for similar products. REI also offers previous and next links to navigate from one product to the next in the category, as well as links category pages.

What’s more, you can view an enlarged image. This is one area REI excels at. Click to see the larger view, and you’ll get a new product page with an enlarged image. On that page you can add the boots to your order. This keeps the visitor in the persuasive momentum by not opening up some foreign window that must be closed to continue shopping. Here also are links for previous and next items, the category page, and back to the original product info page. REI can add more information about the boots, such as reviews, if it chooses, because the page has been designed so flexibly.”

The other article I read focuses on TigerDirect:
http://www.clickz.com/experts/design/traffic/article.php/3381101
The future of Merchandising is in empowering the consumer to make an educated decision. The more information you can give, the better. TigerDirect has multiple tabs of information. Their goal is to empower the consumer as much as or more than if the consumer were in the same room with the product. Consumers have rated TigerDirect well because the information on the site is so good. They end up buying while they are their though.

I’ve done some research lately on home air purifiers and room air purifiers lately because my in-laws have started a business selling EcoQuest’s products. They’ve had some level of success. As I began to look at the industry, I quickly discovered that it is very valuable. There is a company paying $10 per click for search engine advertising! That’s ridiculous, but shows how lucrative the industry is. There is a lot of competition and I’m trying to determine right now whether EcoQuest offers value commensurate to their price tag. I’ll revisit this subject. This is one opportunity I may pursue to get off the computer. My carpal tunnel is getting worse and so are the headaches. I know there is more I must do than programming. I’m looking for opportunities to break from the cycle. Don’t get me wrong, I love computers and programming fascinates me, but I’m tired of doing it for so many hours.

Commission Junction is a powerful affiliate marketing program. It’s worth signing up for to look for great products and services on the Internet. You can post affiliate links on your website and make commissions for referring your visitors to other websites. Recently, I researched web hosting and figured it would be more expensive on commission junction. But on the contrary, they had the best affiliate programs and the best web hosting packages. The best of the best participate at commission junction. I gave the link to Dan to PowWeb and made a nice commission for LowerThatPrice.com. So, if you’d like save money and research time on the web, sign up for cj, research through their system, apply to the programs where you’d want products and services, and save money through your commissions.

Net Gain: Expanding Markets Through Virtual Communities

Purpose:
How will virtual communities change the business world?
How can companies faciliate the organization of communities and extract value?

Central Message:
The Internet changes the power from the vendor to the customer because the customer has access to more perfect information.
Owners of the customer will be champions of the customer.
Companies that avoid the virtual community market may find their business is seriously threatened by small upstarts willing to learn and change.
Companies help a community grow by focusing on membership acquisition and the stickiness of the site (which is largely fueled by member-generated content).
Companies extract value through subscription services and member fees, advertising and transactions within the network.

Validations:
Amazon was using book reviews to build member generated content.
Motley Fool was beginning to gather a large membership able to attract the interests of investment and brokerage companies. Attracts any investment oriented individual, group or business.

Applications:

Value:
The author feels very strongly that membership fees and subscriptions should be very carefully weighed against the need to grow membership and gain marketshare. They encourage extracting value from transactions and advertising.

Key Lists and Summary of the chapters:

Part I: the real value of virtual communities

Chapter 1 – The Race Belongs to the Swift
Power to the customer
1. Distinctive Focus
2. Capacity to integrate content and communication
3. Appreciation of member-generated content
4. Access to competing publishers and vendors
5. Commercial orientation
Profit to vendor
1. Reduced search costs (find customers)
2. Increased propensity for customers to buy (less risk in the virtual environment)
3. Enhanced ability to target (profiles)
4. Greater ability to tailor and add value to existing products and services
5. Lower capital investment
The Challenge of Change
1. Members must be given tools necessary to wield their new power.
2. Members must be given ample opportunity to wield their new power (competing vendors info).
3. Members must be given the chance to maximize the value they receive from information about themselves.

Chapter 2 – Reversing Markets
Virtual communities arise from need for interests, relationships, transactions and fantasies. The power of the virtual community is that they can all build into one powerful brew. There is a fundemental shift in power in the community as consumers…
1. aggregate their purchasing power
2. receive the information advantage (no longer are vendors the wielders of information)
3. vendor choice
4. a reward for the intermediary who puts together the first three (speeds the process)
The vendor’s dilemma is why help make the shift in power?
Well, first of all it’s going to happen even if one fights it. The time will come when vendors can’t afford not to participate. Those who participate early will have lower costs in building the community and will have number of members on their side.

The positive outcome is that lowering of prices to the consumers advantage in the shift in power could push the supply and demand up, increasing the size of the entire market. Traditional vendors and business men would see the community more as the value that comes to the competing vendors and their profits. The community organizer sees the opportunity in the transaction and advertising opportunities. The community itself is more valuable than the products and services of the competing vendors.

Chapter 3 – The new economics of virtual communities
The community organizer who understands virtual communities and their potential see them in the economics of increasing returns. Like Microsoft and Federal Express, the community struggles to grow quickly in the revenues early on, but when the ball gets rolling the growth can be more exponential than flat. Static spreadsheets don’t work. Communities will not make the real profits until they reach a critical mass of members, member profiles, advertisers and vendors, transaction profiles and transactions. When these critical masses are met, then the new business opportunities emerge.

Sources of Revenue for Virtual Communities:
1. Subscription Fees – Fixed price for participation
2. Usage Fees – Charge based on number of hours or pages
3. Member Fees – Content delivery fees for downloads and Service fees for automatic reminders, etc.

Four Dynamics of Increasing Returns
1. Content Attractiveness (marketing and churn) -> hours online -> member relationships -> more content -> more attractive
2. Member Loyalty (customized interaction and relationships) -> hours online -> lower churn -> more content -> more members
3. Member Profiles (data gathering capabilities) -> targeted transaction opportunities -> more transactions -> more profiles
4. Transaction Offerings (bring vendors to community) -> member willingness to spend -> more attractive to vendors -> more vendors
Each of these has a dynamic loop that builds value into the community and increases the returns. Organizers should focus on facilitating these loops.

Organizing Stages
1. Attract Members (marketing, free, great content)
2. Promote Participation (engaging member-generated content, editorial or published content, guest speakers)
3. Build Loyalty (member-to-member relationships, member-to-host relationships, customized interaction)
4. Capture Value (transaction opportunities, targeted advertising, fees for premium services)

“In a nutshell, the dilemma for the virtual community organizer is that the most accessible revenue sources in the near term will be the least attractive from the viewpoint of driving growth. On the other hand, the revenue sources that are most attractive are likely to be beyond the reach of the community organizer in the early years of community formation. The result will be limited revenue generation from the virutal community in the near term.”

However, the costs are just going to get higher for those who wait to enter the market and build the community in the beginning.

Chapter 4 – The Shape of Things to Come

Stages of Evolution	Description	Key Assumptions
Virtual Villages	Communities are highly fragmented but profitable businesses, each containing multiple small subcommunities.	Low barriers to entry. Many entrants Vendors participate across multiple communities. Network users sample across multiple communities.
Consentrated constellations	Concentration of core communities, and development of affiliate relationships with niche communities.	Increasing returns lead to concentration within core topics, such as travel. Niche communities benefit from affiliating with core communities.
Cosmic Coalitions	Core communities aggregate across complementary core topic areas.	Members find value in formation of coalitions, around common user interface and billing, for instance. Coalition organizers realize economic value by integrating marketing programs and member/vendor profiles across topic areas.
Integrated infomediaries	Communities and coalitions evolve into agents for members, managing their integrated profiles to maximize value to members.	Members themselves represent the most efficient location for the capture of profiles. Members assert ownership over their profiles. Specialized infomediaries can organize and maximize value of member profiles.

Part II: building a virtual community

Chapter 5 – Choosing the way in
First thing to do is examine the type of community that will generate the most value as well as your organization’s ability to execute on building the community.
Indicators of economic potential
1. Size potential: means taking the demographics, the size of related associations and estimating how big a community will become.
2. Relative value of being on-line: How many people how begun exploring online in the previous group? Why?
3. Value of being in a community: The need among the demographic to build relationships, explore their interest, transact and experience fantasies will determine the value of being in a community. New parents are intensely interested in community to learn about how to raise children.
4. Likely intensity of commerce: what is the transaction volume of the existing demographic in your interest area?
5. Fractual depth: How much can you segment the community as it expands?

Community Types
Consumer-focused communities
1. Geographic: Total New York: where new york hits the net.
2. Demographic: parents
3. Topical: interests
B2B communities
1. Vertical Industry: Physicians online, Agriculture online, etc.
2. Functional: Built around a specific business function. For example, marketing or purchasing. (MarketingSherpa.com)
3. Geographic
4. Business Category: small businesses community
Indicators of Long-Term Expansion
The fractal breadth is the most important indicator of long-term expansion as the community needs to be able to subdivide into powerful subcommunities as it grows. Topical communities may provide less fertile ground for long-term growth.
Assessing your ability to execute
Brand, existing customers and content are a good start but assets aren’t enough. Skills are as important.

Chapter 6 – Laying the foundation.
Community must be in place before commerce can begin. Speed and preemption are the key as getting ahead in growth will give the leaders an advantage. The stages to successful entry are:
1. Generating traffic: Enter quickly, get people to pass through, use the power of network to get started, generate awareness and partner for preemption (consider distribution partnerships, commercial partnerships, a content partnership and potential competitors before they become competitors). Start with a great directory or resources. Traffic is more important here than return visits.
2. Concentrating traffic: Engage the members. Ask them what they want. Track their usage. Enhance the offerings to the community. Make it easy and attractive for vendors to approach and participate in the community. Extract value.
3. Locking in traffic: Foster personal relationships between members. Accumulate and organize member-generated content. Improve the community functionality. Tailor resources to individual members’ needs.

Chapter 7 – The Gardener’s Touch
It is important to make the community scalable as it grows. This means
1. that people will not loose the sense of community even though there are millions of members. However, the organizer must maintain the benefits of scale because the economies of scale give the membership added value.
2. that you let go and create franchises and empower the members to shape the future of the community. Take an organic management model.
There are various positions to be filled in a community:
Hosts, archivists, community editors, customer service managers, information systems managers, community developers and community architects. However the two most important are the Information analyst and the community merchandiser. Their work extracts the value.
Even though organic management is better, it’s crucial to set and capture key metrics.

Chapter 8 – Equipping the community
Don’t worry about technology. Just focus on the needs of members of the community in choosing technology. This chapter focuses a lot on the challenge to choose between proprietary and standard technologies. This is not as much of an issue today.

Part III – positioning to win the broader game

Chapter 9 – Rethinking functional management
Management is turned on its head because customers have more power. It’s crucial to think about their increased power in marketing. Marketing becomes individually tailored in a virtual community. Focus on product not brand.
Implications for marketers
–
1. Reduce emphasis on value of vendor’s branding
2. Facilitate price comparisons
3. Allow comments to be made on product/service in public, not in confidence.
4. Increase volume of information to be analyzed.
5. Change the rules of advertising and promotion to leverage the customer’s ideas in promoting them.
+
1. Expand demand for product or service.
2. Increase word of mouth promotion of product or service.
3. Stimulate customer feedback.
4. Generate richer information on customers, markets.
5. Eliminate separation of advertising and transactions.
6. Allow advertising to be seen as helpful, not intrusive.

Chapter 10 – Reshaping markets and organizations
“Virtual communities redefine markets by expanding demand. They also redefine markets by focusing on customers rather than on traditional producer-driven notions of ‘industry.'” (page 204)

“In spite of all the evidence that points to the free market as the most efficient system, we continue down a road that is bearing out the prophecy of Tocqueville, a Frenchman who came here 130 years ago. He was attracted by the miracle that was America. Think of it: Our country was only 70 years old and already we had achieved such a miraculous living standard, such productivity and prosperity, that the rest of the world was amazed. So he came here and he looked at everything he could see in our country, trying to find the secret of our success, and then went back and wrote a book about it. Even then, 130 years ago, he saw signs prompting him to warn us that if we weren’t constantly on the guard, we would find ourselves covered by a network of regulations controlling every activity. He said if that came to pass we would one day find ourselves a nation of timid animals with government the shepherd.”

“It all comes down to this basic premise: If you lose your economic freedom, you lose your political freedom and, in fact, all freedom. Freedom is something that cannot be passed on genetically. It is never more than one generation away from extinction.”

Ronald Reagan, in a speech delivered November 10, 1977 at Hillsdale College

I’m the next generation, It’s time for me to start learning.

Purpose:
How can one add value to a career or industry in an economy where things and values change so quickly?

Central Message:
1. Showing love, or sharing your intangibles for the benefit of others, makes you valuable in our rapidly changing world!
2. Intangibles are your knowledge, network and compassion.

Validations:
Knowledge and understanding of the world around us through good books makes us walking libraries. We become valuable in many settings and accross multiple companies.
People matter more than corporations. Corporations used to be a stronghold but folks change jobs so many times in life today that corporations are no longer a stronghold. Relationships transcend organizations. They become a stronghold.

Applications:

Value:
Nice guys don’t finish last. They rule!

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