Challenge of Channel Sales: Making it Work… Readiness, Compatible, Strategy, Management, Incentives, Trust, Loyalty, Metrics…

Share

Channel sales partners who are already selling your type of product or service into your target markets can provide critical access to a large universe of potential customers.

Channel sales (channel) and direct sales (direct): What’s the difference?  Quite simply, channel sales are selling through a third-party intermediate company, whereas direct sales is selling direct to a customer base, without third-party involvement. According to andy@virtual-sales.com; people say that the shortest distance between two points is a straight line, the direct route, and so direct sales is the conventional approach of selling directly to your customer and cutting out the middleman.  Cutting out the middleman sounds like a good idea at first. Selling directly means that you keep all of the profit; no one is taking a chunk out of your sales. However, an effective sales strategy must be aligned with how and where your customers want to buy, and in many cases this is through a channel-intermediate-third party company.  Each organization, like each customer, is unique and classifying channel sales organizations is a tricky business. However, the unique needs and capabilities of each organization are the operating realities, not the theoretical concept of channels. Each organization evolves and changes in a never-ending competitive search for more revenue, increased profits, and more security. In today’s complex world, you face greater challenges than ever before and managing the relationships with sales channels can be chaotic, unpredictable, uncertain… but, in many cases, it’s absolutely necessary and extremely rewarding…

According to the ‘Channel Management Best Practices and Channel Management Strategy Study’: When sales executives were asked which components were most important for a channel program to be successful, respondents identified; choosing the right partner was the most popular answer, followed by route-to-market and innovation, enabling partner success, relationship ROI, production and consistency in policies, programs, message and information, as important aspects. Just over half of companies surveyed said that they or their channel partners are actively using social media outlets as part of their channel management marketing strategies… When asked to identify the single biggest challenge in channel marketing efforts, aside from budget and resources, more than three-quarters of respondents cited; the pressure to maintain and increase sales revenue. Direct competition between internal sales and resellers was also mentioned, as well as, keeping a pragmatic view of channel partners.

In the article “Channel Sales is Quite Simply, Selling Through Others” by Mark Von Rosing writes:  Channel Sales, in simple terms, is selling products or services indirectly through others: Agents, brokers, dealers, distributors, partners, resellers, retailers, and other similar names are used to describe various indirect types of relationships. In fact, selling through channels is a mainstay of today’s software business and a large portion of the telecommunications industries sales efforts for the past several decades.  The key justification for channels is greater efficiency:

  • Channel partner is already selling to the ‘target market’.
  • Channel partner is already a ‘trusted advisor’.
  • Channel partner is ‘pay for performance’.

In the article “Channel Sales– Making it Work for You” by Marc Winitz writes:  Channel sales can represent a confusing maze for those new to establishing new sales channels.  Stated simply, a channel is a way to achieve distribution for a product or service through a third-party sales force. By implementing a channel strategy you eliminate some of the costs associated with having your own direct sales team. You also give up some amount of margin associated with the revenue generated by selling your product through this type of distribution, in the form of compensation to the channel. Also, whether you realize it or not, you give away a measure of control of the selling process by working through a channel. Counter to many beliefs, an effective channel strategy is not: I’ll sign this deal and give up X% of my margin and the sales will start rolling in. There are lots of dead channel strategies littering the sales distribution highway with that mentality. Channels are no different from any other business initiative, which takes; commitment, planning, investment, and hard & smart work to make them successful.

In the article “The Fallacy of Channels: Startups Beware” by Mark Suster writes:  Most channel relationships don’t work: Period.  Channel partners come in multiple flavors: The favorite of many Silicon Valley startups is the ‘big tech company’ distribution scenario. For example, target and sign-up large companies, such as; Salesforce.com, Intuit, Google, eBay, Verizon… or, the more old school deals with large value-added-resellers, e.g., HP, IBM, Oracle… or, the big consulting companies, e.g., Deloitte & Touche, Ernst & Young, KPMG, PwC… It’s a perfect love story: I got the brains, you got the looks, let’s make lots of money. Except that most of these deals end-up going in the waste bucket. Here’s the problem: If you haven’t already sold enough of your product directly, to have enough volume to satisfy your channel partner, they simply are not interested.  So should I avoid channels at all costs? No: Not necessarily. I say that channels can be the lifeblood of a company, but 80% fail the channel test. Companies understand how to ink the deal, but not what makes their channel partner tick. They end up being penny wise, pound foolish. They blame their partners for not selling, rather than recognize the channel partner for what it is. You must work hard and smart to make the channel partner successful, than it will pay big dividends when your business is ready to seriously hit that ‘j curve’…

In the article “Is It Time to Change the Channel?” by Robert J. Weese writes: Many sales
organizations today believe that it’s time to change to sales channel. They have found that by creating an alternate distribution channel, in concert with their existing direct sales force, they can create a lower cost and more effective sales model. The alternate sales channel, when managed correctly, can be a ‘win-win-win’; for the manufacturer of the product or service, for the sales channel organization who provides local representation, and for the consumer. When using this coverage model, the manufacturer increases revenue and market share in a previously untapped market and does so with relatively little risk or financial investment. The channel partner sees the relationship as a way to diversify their product line and increase their own revenues. More important, the customer satisfaction increases, as the customer now sees a local business that will not only sell the product, but will also provide ongoing local customer support. Also, customer retention and repeat sales improves, since the customer has already brought into this successful business model. Creating and implementing an alternate sales channel can be a successful and revenue-producing strategy.

In the article “Channel Marketing Strategy: Seven Steps for 21st-Century Success” by Heather Clancy writes:  The rise of social media networks and sophisticated digital marketing platforms has rewritten the channel marketing strategy rules, even for technology solution providers that still haven’t created a formal channel marketing plan. Increasingly, customers are shaping their opinions about their various technology options long before a product/services company ever makes contact with a decision-maker. “If you look at how customers are buying, three-fifths of the buying cycle occurs before the prospect is even contacted,” said Jim Bindon.  If your company is ready to get serious about its channel marketing strategy, here are seven best practices to consider:

  • Don’t spread yourself too thin.
  • Formalize channel marketing process and measure results.
  • Focus on your brand not vendors.
  • Put the customer first.
  • Make every employee a brand ambassador.
  • Be sincere on social media.
  • When in doubt, keep it local.

Channel sales are extremely successful business models. The channel gives powerful leverage to an organization, adding additional sales resources and taking advantage of
existing customer relationships that the channel partners bring to the table. Given the right channel, the right people, good product/market fit, and a lot of patience, the channel sales model can be one of the most profitable business models. A strong channel sales network has the capacity to generate increasing amounts of revenue without the vendor having to do all of the heavy lifting. But, creating a successful channel sales program is not as simple as just signing with partners. According to the ‘Association for Strategic Alliance Professionals'; 40% of all revenues for the top 1000 companies in the U.S. are derived through channel sales, but 60% of all channel partnerships deteriorate or collapse because of lack of communication. Regardless of the steps, vendors should never take their channel for granted and should always lend a close ear to what is happening among their partners. A few common mistakes made with channel sales are: expecting new products to fit into existing channels; choosing a channel that does not fit your customer profile; treating all of your partners the same; absence of a full-time and experienced channel manager. In an economy that continues to be challenged, it’s more important than ever for companies to take a hard look at the effectiveness of their channel programs, and insure that the program is; well-planned, flexible, incentives are based on actionable and timely data, and ‘win-win’–drives sales and increase partner loyalty. Building a sales channel isn’t easy, nor is it a fast process, and the lynch-pin that makes it work is effective channel management.  Channel management is about influencing channel partners on how they develop, manage and optimize sales opportunities, while also influencing and leading company change initiatives and investments that drive indirect channel revenue.

Service your channel sales partners as you would service your best customers, and work with them to drive revenue.

 

Share

Wealth, Wealth Creation, Wealth Enhancement: Exposing the Secrets for Building Wealth… Well, There Are No Secrets… Really!

Share

The purpose of life is essentially to create and experience more life, and to enable the true expression of life. Wealth creation in its fullest and broadest meaning; fosters this expression. ~ Keelan Cunningham

Wealth has many meanings and everyone sees wealth differently in their lives. The word wealth comes from the Old English word ‘weal’, which means; well-being, prosperity, or
happiness. Generally, economists define wealth as ‘anything of value’ which captures both the subjective nature of the idea of wealth and the idea that it is not a fixed or static concept. The concept of wealth, or its increase, is of significance in all areas of economics, and yet the meaning of wealth is context-dependent and there is no universally agreed upon definition. Adam Smith saw wealth creation as the combination of; materials, labor, land, and technology in such a way as to capture a profit. The theories of David Ricardo, John Locke, John Stuart Mill, in the 18th century and 19th century built on these views of
wealth that we now call classical economics. Marxian economics distinguishes between
‘material wealth’ and ‘human wealth’, defining ‘human wealth’ as ‘wealth in human relations’;  land and labor were the source of all ‘material wealth’. Concepts of wealth also vary across time. Modern labor-saving inventions and the development of the sciences have enabled the poorest sectors of today’s society to enjoy a standard of living equivalent if not superior to the wealthy of the not-too-distant past. This comparative wealth across time is also applicable to the future; given this trend of human advancement, it is likely that the standard of living that the wealthiest enjoy today will be considered impoverished by future generations.

The Credit Suisse Global Wealth Report is the only study that analyses the wealth  of the world’s entire adult population: 4.5 billion people and they estimate the world’s wealth at US$231 Trillion (US$231 x1012) at mid-2011.  According to the Report; despite the financial crisis starting in 2007, global household wealth increased by US$117 Trillion between 2000 and 2011, with the share of emerging markets trending strongly upwards. They estimate that ‘total household wealth’ will likely rise by 50% in the next five years from US$231 Trillion in 2011 to US$345 Trillion in 2016, equivalent to 8.4% growth per year. ‘Net worth per adult’ worldwide is expected to reach US$70,700 in the year 2016, an increase of almost 40% over 2011. China will replace Japan as the second-wealthiest country in the world, with ‘total household wealth’ of US$39 Trillion in 2016, compared to US$31 Trillion for Japan. The U.S. is expected to maintain its supremacy in the wealth ranking, with a ‘projected total household wealth’ of US$82 Trillion. Well behind in fourth and fifth places are France and Germany with US$20.1 Trillion and US$19.6 Trillion, respectively.  Over the next five years, there will likely be big improvement in the position of emerging economies: Wealth in both China and Africa as a whole is projected to rise by over 90%, but India and Brazil are forecast to do even better, with personal wealth more than doubling by 2016. The case of India is particularly striking. With total wealth of US$4.1 Trillion in 2011, India’s household wealth is comparable to the U.S. in 1916. During the next five years, India is projected to gain as much wealth as the U.S. achieved over the course of 30 years, beginning in 1916. This is due to an increase in wealth per adult accompanied by a rise in the adult population. The case of Brazil is also noteworthy: With household wealth expected to reach US$9.2 Trillion by 2016; a level comparable to the U.S. in 1948, the rise in wealth in the next five years should correspond to the gain in the U.S. over the 23-year period from 1925 to 1948. ‘Total household wealth’ in China is currently US$20.1 Trillion, equivalent to that recorded for the U.S. in 1968. If recent trends continue China could reach the wealth level that the U.S. achieved in 1990; a jump of ’22 U.S. years’ in just five years, by 2016. About 90% of global wealth is distributed in North America, Europe, and ‘rich Asia-Pacific’ countries (not including India), and 1% of adults are estimated to hold 40% of world wealth, a number which falls to 32% when adjusted for ‘purchasing power parity’ (PPP).

In the article “Can You Really Create Wealth?” by Kelvin Parker: To have wealth, you must possess something of value. Different people value different things, so while one
person may find wealth with money, another may base wealth on good health, and so on. Wealth is not a zero-sum game. There is not a limited amount of wealth in the world that must change hands from one person to another. One person’s wealth creation does not conversely result in another person’s loss of wealth. Your wealth creation is limited only by your willingness to imagine, innovate and accomplish. There is no finite or predetermined allotment of it, and we call it ‘creating’ wealth or ‘making’ money.  Wealth creation can take many forms, and there are opportunities for wealth creation everywhere. In reality, you create value by fulfilling a need, desire, or solving a problem… it satisfies a void. Wealth, like beauty, is in the eye of the beholder. To create wealth you determine what others deem valuable, and create a way to give it to them.

In the article “Creating Wealth” by Jim Pinto writes: There are only three sources of wealth; natural resources, labor, and knowledge. Natural resources (oil, minerals and the like) are tied to geography. However, the largest transfer of wealth in human history occurred within this half-century, and it comes from the countries that generate wealth through productive knowledge, innovation, and enterprise. Service industries and government jobs do not increase wealth; they just circulate money. Manufacturing creates wealth by taking goods of lower value, adding knowledge and labor, and creating higher value. Mining and farming create wealth for the same reasons.  Labor is a commodity; the value of which keeps increasing with education and training. Knowledge and innovation are the key ingredients for productivity and wealth generation. Through inexpensive, universal communications, knowledge-based work is migrating worldwide to the highest-quality, lowest-cost providers. Productivity has become a fierce, head-to-head competition between regions and nations for the single reason that it is the source of wealth; and the key to improvements in living standards. Those who can produce cheaper, faster, better… are better positioned to create more wealth.

In the article “Who Creates the Wealth in Society?” by Uwe E. Reinhardt writes: The wealth of modern societies is dictated not so much by the natural resources at their disposal, but by their human capital; the knowledge and skill of human beings and
their ability to learn and apply new knowledge on their own
. Conscientious parents, especially mothers, rank as the major wealth creators in modern societies… Next come educators, especially the visionary and dedicated elementary and high school teachers who succeed in getting their students interested in learning and motivated to amass human capital. However, none of the forgoing is to say that being highly educated and skilled is either a necessary or a sufficient condition for contributing value and wealth to society. In fact, anyone who works for pay or volunteer creates wealth. What about government? A common mantra in the U. S. is that ‘government does not create wealth, people do’. In some sense, of course, the mantra is true. Government per se is just an inert set of legal contracts, as is any business. Thus one should really say: ‘Government and business do not create wealth… the people working in them do’. A nation’s wealth is truly a joint creation in which individuals, families, business, and government all play crucial parts. However, finding just the right mix of effort and regulation that will maximize society’s well-being is a tricky and never-ending quest…

In the article “How Wealth is Created” by Dustin writes: The more goods we create, the wealthier we are as a nation. If wealth is important to you then it should be your goal to maximize wealth creation and minimize wealth destruction. Fortunately, it’s not really that hard. History shows us that 90% of the job is done for you by the ‘invisible hand’. Adam Smith described the necessary components of wealth creation as: ‘materials, labor, land, and technology in such a way as to capture a profit’. Economists later called these things the ‘factors of production’, and not much has been added to this composition. It’s still; land (natural resources), labor, capital (materials and technology), and most important it’s the entrepreneur who brings it all together. So that’s how wealth is created; an entrepreneur gets access to capital, buys the materials he needs, hires people to do the work, and then they start making stuff… In terms of history, capitalism has been the most efficient way to create wealth. I don’t think capitalism is perfect or infallible, but in terms of wealth creation, there is yet to be found a better system.

In the story of ‘King Midas’, he asked ‘the gods’ that everything he touched should turn into gold. The gods granted his wish. His joy soon turned to horror, however, when during a sumptuous feast, every piece of food he touched – turned into gold. Is gold wealth? Certainly it’s the best store of value mankind has ever found. In the book ‘Does It Matter? Essays on Man’s Relation to Materiality’ by Alan Watts observes; for a shipwreck survivor and alone on an island, gold is worthless. He needs real wealth; food, shelter, clothing, and human companionship. Food and shelter is the original definition of wealth. In fact, wealth, creating wealth, maintaining wealth, and developing oneself so that you can create
wealth, is the human mission in life. This is about developing skills and knowledge that you need to be able to thrive in today’s world. Ironically, many people have an education and are taught about many different subjects; but very few actually have an education about wealth, about the things that so many strive to achieve. Wealth is not the same thing as money. Money is a comparatively recent invention, and a kind of shorthand: money is a way of moving wealth, and in practice they are usually interchangeable. The best wealth creators are not generally extreme or unusual; they are in fact, average in many ways. Wealth creation is much more about lifestyle, than it is about just making money. Whether you’re herding goats in the Himalayas, working in a sweet shop on some street corner, or trading stocks on Wall Street; there’s no getting away from the subject. Wealth creation is everywhere. People may have different ways of describing it; but essentially they are describing the same thing in accordance with their specific circumstances. Wealth creation is at the heart of the very purpose of life…

Wealth is the ability to fully experience life. ~Henry David Thoreau

Share

Thinking Can Ruin Your Business…. Stop Over-Thinking and Start Doing!: Avoid Paralysis by Analysis

Share

Over-analyzing (or over-thinking) a situation… treating the decision as over-complicated… seeking the ‘optimal’ or ‘perfect’ solution; these are all victims of paralysis by analysis.

Thinking too much or thinking too little can have an enormous impact on the outcome of a decision. For many businesses, decision-making often take one of two directions; either over-analyzing a situation, or forgoing all the relevant information and simply going with their gut. However, in trying to avoid over-thinking a decision for fear of decision paralysis, managers often ‘over-correct’ and end up not thinking enough. According to Michael I. Norton; “one view is that people often make decisions too hastily and if they thought more, they’d make better decisions.  Another view is that people should think more carefully to make better decisions; i.e., in more logical ways, creating decision trees that map out all the ‘what if’ scenarios, making lists of the pros and cons, and so on.”  However, there has been little research that considers the notion that over-thinking a decision might actually lead to the wrong outcome. Nor have researchers come up with a model that explores how to determine when we’re over-thinking a decision; even though logic tells us that there certainly is such a thing. Having a leader who considers every detail sounds great in theory, but it can be sub-optimal for moving forward with a decision. There’s a paralysis that can come with thinking too much…

In the article “The Paralysis by Analysis” by Elizabeth Lovegrove writes: Analysis paralysis refers to the human brain’s natural tendency to seize up when confronted with a large number of options, especially when each offers the same cost/reward ratios. The brain has, in effect, no natural tie-breaker. It can happen in situations as simple as trying to buy laundry detergent at the supermarket (so many kinds!)… It’s often called ‘over-thinking a problem’ or being ‘spoiled for choice’, even though there is no real useful thinking going on; your brain is just stuck in an infinite loop, just waffling. Any situation where there are a large number of choices that have similar risks, similar costs, or a large number of options with no clearly superior choice, then this can cause paralysis by analysis. The first and most important step to breaking free from analysis paralysis is to recognize when you are trapped in it. From inside the paralysis, it is easy to convince yourself that you are just taking your time to construct an ideal plan of attack when in reality you are spinning your wheels hoping to suddenly discover a reason to prefer one of the options set before you. It may feel completely natural to continue-on in the same manner. Don’t fall for it! Analysis paralysis is so insidious because it is what your brain wants to do. It can’t break a tie, so it wobbles around until either the options change or it is forced to make a decision by external pressure. Recognize when you’ve been staring at the problem instead of trying to solve it. Then relax: Make a plan, narrow down your options, then just do it.

In the article “Work-life Lessons: Paralysis by Analysis” by Glenn Remoreras writes: Mistakes are not only the result of simply not thinking before doing or doing things by impulse, but are also often the by-product of serious analytic thinking about the right course of action. Yes, logically you would reduce the likelihood of mistakes or failure if you
subject your idea to a series of analyses: This is expected and proper in order to mitigate risk, in the business environment. However, you have to also caution yourself from going into paralysis by analysis, or you could end up doing nothing. Over-analysis is a common
cause that slows people down when it comes to making things happen or taking actions. In some extreme cases, it confines them to a cycle of continuous analysis and internal debates about the assumptions used in the analysis. Doing the right amount of analysis is important, but balancing it with action will guarantee results. It’s better to ‘do something’ and learn from mistakes, then live in the inertia of paralysis by analysis. Failure doesn’t always lead to success, but you can’t succeed if you are not willing to fail. Leaders can increase innovation by changing the culture associated with making mistakes. Companies have to create an organizational culture whereby mistakes are seen as an inevitable part of innovation and learning. If you are going to innovate, you must be willing to listen, make mistakes, and try new things. Innovation can only be achieved by making things happen with a bias to action, not by lack of action or decision-making.

In the article “Busting Paralysis by Analysis” by Robert Johnson writes: Successful businesses are the ones that ‘move forward’ with their goals, even if they don’t have it all figured-out yet. They have momentum, and that’s what they strive to keep. They set clear expectations, they manage those expectations, and they minimize risk, but they move forward. They focus on what they want and take actions to obtain it. You can sit and think about it all day, but it won’t get done without action.  Things that you can do to bust through the paralysis by analysis:

  • Drop the need for perfection: No one is perfect… just strive to be the best.
  • Embrace ‘Ready-Fire-Aim’: Take a well-informed shot and see where you’ve missed, then adjust accordingly.
  • Establish deadlines: Pursue deadlines with intent  and you will usually meet them.
  • Adopt the buddy system: Should you find yourself off course, ask for help.
  • Make quick decisions: Make a decision quickly then you can take action quickly.

In the article “How to Rid Yourself of Analysis Paralysis” by Theresa Rose writes:  We have all found ourselves in the crushing grip of this dreaded condition where we simply can’t make a decision no matter how much we want to get it done. We convince ourselves that we don’t have all the facts, the timing isn’t quite right, something bad will happen if we take action, or we just haven’t conjured up the right solution yet. These feelings of unreadiness and unsteadiness cause us to squander precious time and lose our peace of mind. What is the root cause of this all-too-prevalent mental malaise? It is our own brain. The brain convinces us that we haven’t done enough legwork because of one reason: it doesn’t like the unknown, and it will plant all sorts of ridiculous scenarios in your head in order to keep you from acting; it’s a paralysis of thought. The most important step to bust through this analysis paralysis is to adopt a trusting Zen-like attitude. Remind yourself that whatever happens is supposed to happen: There are no mistakes, wrong turns, or missed opportunities. If you remember that, in the larger context, everything occurs exactly as it should, then you can cut yourself some slack. Any outcome is far preferable to the physical, mental, and emotional price you pay; when you are perpetually brewing in fear, doubt, and uncertainty…

In the article “From Thinking Too Little to Thinking Too Much: A Continuum of Decision Making” by Michael Norton and Dan Ariely write:  We did not set out to tell people whether they’re thinking the right way, but just to get them thinking. In a study by Sheena Iyengar and Mark Lepper, social psychologists; they showed that grocery store shoppers who were offered free samples of 24 jam flavors were less likely to buy any jam at all, than those shoppers who sampled only 6 flavors. Apparently, when there are too many options or choices, making the decision to choose one is too difficult. Too often, managers swing to the far-end of the decision-making thinking spectrum, and they don’t think at all. While all good managers should be able to make snap decisions in high-pressure situations, they may miss-out on good opportunities, when they make quick decisions strictly out-of-habit. Too often, they say; ‘we always do it this way’ is the main reason for a decision. Sometimes when you make habitual decisions, things work out fine, but that doesn’t mean they’re the best decisions. If you’ve done something the same way for a long period of time, it might be time to reconsider and to think a little more. “What we know now is that people sometimes think too much, and sometimes they think too little. But we still don’t know the right amount to think for any given decision, which is a fascinating decision yet to be solved”.   

In an article published in The Journal of the American Medical Association by Eldar  Shafir and Donald Redelmeier write: Decision paralysis is where options, even good ones, can freeze us and lead us to stay with the ‘default’ plan or ‘no’ plan. This may not be rational behavior, but it is human behavior. Think about the sources of decision paralysis in your organization. Every business must choose among attractive options, e.g., growing revenue versus maximizing profitability, quality versus speed to market… Fold together lots of these tensions, and you have a surefire recipe for paralysis. As ‘Barry Schwartz’ puts it in his book The Paradox of Choice, as we face more and more options; ‘we become overloaded… choice no longer liberates, but debilitates… it might even be said to tyrannize.’ You can see the hidden tyranny of decision paralysis almost every day, and simplicity is the way out…

The human brain is a beautiful thing, and it can produce endless thoughts and scenarios. However, all those ‘what-ifs’ have only one problem; they may not match with the outside reality. While it’s always prudent to carefully consider appropriate ‘next steps’, some businesses get hung up trying to analyze all the events and trends going on around them. They develop a severe case of paralysis by analysis. They spend so much time and effort trying to evaluate the situation that they end up doing nothing. Some businesses view challenges, obstacles, issues, or difficulties exclusively from a ‘past’ point of view and  unfortunately, when they do that they’re letting their past dictate their future. Instead of focusing on the negative impact of current conditions, businesses need to look for opportunities presented by the current conditions. They need to look for ways to learn, to grow, and to change… and not become a victim of decision paralysis.

It is better to do something and learn from mistakes, then to live the inertia of paralysis by analysis. ~ Ira Fialkow

Share

Customer Retention, Repeat Sales, Referrals– are Business Imperatives: Bridging with Customer Satisfaction, Loyalty, Lifetime, Score…

Share

The rule of customer retention is that you must be willing to spend as much to keep a customer as you did to acquire them. Leaky buckets don’t fill up quickly. ~Des Traynor

Customer retention, repeat sales, and referrals are business imperatives. These are the activities that a selling organization undertakes in order to reduce customer defections, grow, and increase profitability. Successful customer retention starts with the first contact, an organization makes with a customer, and continues throughout the entire lifetime of a relationship. Retaining customers (reducing customer turnover) is critical for profitability and business success.  According to ‘Emmet C. Murphy and Mark A. Murphy’ they write: Acquiring new customers can cost as much as five times more than satisfying and retaining current customers. A 2% increase in customer retention has the same effect as decreasing costs by 10%. Depending on the industry, reducing your customer defection rate by 5% can increase your profitability by 25 to 125%. Customer profitability tends to increase over the life of a retained customer.

In the article “Return on Happiness, Customer Retention, Customer Loyalty” by JoAnna Brandi writes: After 21 years in the business of  Customer Retention and Customer Loyalty , I’ve got just 6 words of advice for you: ‘Get Real. Be Real. Stay Real’. There is a power shift in business. The customers are in charge, and they know it. They’ve got the power. They don’t give a hoot about your carefully crafted marketing message. They want to know that you’re honest and have their best interests at heart. They want the truth. Trust has been broken so often that customers are wary and even cynical about buying. So if you want to create and sustain your competitive advantage, you need a new approach to customer relationships.

  • Get Real: Customer satisfaction isn’t enough anymore. Less than half of your satisfied customers will come back. You need to cross the bridge from customer satisfaction over to customer loyalty.
  • Be Real: Bridge between customer satisfaction and customer loyalty is built with positive emotion. Emotion is a far more powerful business tool than most people realize, incorporating feelings of being; special, appreciated, valued, important, validated, welcomed, heard, secure, respected, and/or even loved.
  • Stay Real: Sustainable, authentic, customer-focused companies create ways to keep their passion for the customer alive.  Leaders stay connected to the customers. They routinely challenge assumptions and listen with reverence to what employees who deal directly with customers have to say.

In the article “The Impact of Customer Satisfaction and Relationship Quality on Customer Retention” by Thorsten Hennig-Thurau and Alexander Klee write: During the past two decades, more than 1200 articles have been published in the area of customer
satisfaction
research. In numerous publications, satisfaction has been treated as the necessary premise for the retention of customers, and therefore has moved to the forefront of relational marketing approaches. ‘Kotler’ sums this up when he states: The key to customer retention is customer satisfaction. Consequently, customer satisfaction has developed extensively as a basic construct for monitoring and controlling activities in the relationship marketing concept. According to ‘LaBarbera and Mazursky’: “The assumption that satisfaction/dissatisfaction meaningfully influences repurchase behavior underlies most of the research in this area of inquiry”. Consequently, only a few researchers have investigated the nature and extent of the relation between satisfaction and retention itself.  In an experimental study by ‘Bolton’ they found; overall satisfaction explained 7% of the variance of the length of the company– customer relationship. She even found no significant relationship between the transaction-specific satisfaction appraisal and the length of the relationship. In addition, studies that compare the satisfaction level of migrated customers with those of loyal customers show similar results. For example, ‘Kordick’ reports that in a study of car buyers; only 40% of the surveyed buyers who said
they were satisfied with the brand and the service engaged in repeat purchase behavior. Furthermore, ‘Kordick’ notes that 15% of the unsatisfied customers returned to the same dealers despite their dissatisfaction.
In a study by ‘Gierl’, they found; between 40% and 62% of the interviewed customers stated that they had changed the brand even though
they were satisfied
. Amazingly, in eight of nine examined product classes, the percentage of these satisfied brand switchers even exceeded the percentage of customers who defected due to a dissatisfactory state. According to Reichheld; the percentage of satisfied migrants is even higher… that between 65% and 85% of customers who defect say they were satisfied or very satisfied with their former supplier. Condensing the results from these studies, ‘skepticism’ seems to be well-founded as to the widespread conceptual view of a strong ‘satisfaction & retention’ relationship.

The ‘U.S. Chamber of Commerce’ and the ‘U.S. Small Business Administration’ conducted a study and according to the results; businesses could greatly improve their customer base if they focused more on retaining customers than spending marketing budget funds to get new customers. Marketing studies have shown it takes more money to acquire a new customer than it does to retain a current client. Statistics show:

  • Average U.S. business loses 50% of its customers every five years.
  • Costs 6-7 times more to find new clients than it does to keep an existing client.
  • Bain Co. states; a 10% increase in customer retention is equal to a 30% increase in company value.
  • You are 4 times more likely to do business with an existing customer vs. a new customer.
  • Probability of selling to an existing customer is 60-70% vs. 5-20% to a new customer.

In the article “The Economics of Customer Retention” by Brian Koma writes:  Winning new customers while losing a significant share of existing customers is like filling a bathtub with the drain open. Here is an example that shows the difference between a 74% customer retention rate and a 90% customer retention rate:  At a 74% customer retention rate, a $30 million business will lose $7.8 million in revenue year-over-year and will need
to sell almost $17 million in new business to reach $40 million in sales. At a 90% customer retention rate, a business will reduce its year-over-year revenue loss to $3 million and will only need to sell an additional $12 million to reach $40 million in sales.  Loyal customers can make a dramatic difference in an organization’s overall financial health and dramatically reduce the cost of growth, even in a challenging economy.  Compound your retention rate over the years and you have a dramatic impact on your corporation’s profits.

In the article “One Number You Need to Grow” by Fred Reichheld; he introduced the concept of the ‘Net Promoter Score’ (NPS). The NPS is a customer loyalty metric, and the
most important proposed benefits of this method is derived from simplifying and
communicating the objective of creating more ‘Promoters’ and fewer ‘Detractors’. The concept claims to be far simpler for employees to understand and to-act-on, than more complicated, obscure or hard-to-understand satisfaction metrics or indices. In addition, proponents claim the NPS method can reduce the complexity of implementation and analysis, frequently associated with measures of customer satisfaction. The basics of the method boiled down to one magic question: “How likely is it that you [customer] would recommend [enter the name of your company] to a friend or colleague?”  Customers respond to the ‘Net Promoter Score Survey’ by choosing a number between 0 and 10; ‘0’ being the lowest possible rating (not likely to recommend your company) and ‘10’ being the highest possible rating (most likely to recommend your company). To calculate your company’s NPS, take the percentage of customers who are promoters and subtract the
percentage who are detractors. To give you an idea of some (very high) NPS scores, here are a few scores from some familiar brands: USAA– 87%; Costco– 77%; Apple– 72%. Average companies usually score between 5 and 10%. Stellar companies operate at NPS efficiency ratings of 50 to 80%. However, “Just because customers say they will recommend your company doesn’t mean, necessarily, that they do”. Proponents of the NPS approach claim the score can be used to motivate an organization to become more focused on improving products and services for customers. They further claim that a company’s NPS correlates with revenue growth. Independent research confirms the fundamental claim of a relationship between relative competitive NPS and competitive growth rates. Despite its popularity among business executives, the NPS concept has attracted some controversy from academic and market research circles. Research by ‘Keiningham, Cooil, Andreassen and Aksoy’ disputes that the NPS metric is the best predictor of company growth. Furthermore, ‘Hayes’ claimed there was no scientific evidence that the ‘likelihood to recommend’ question is a better predictor of business growth compared to other customer-loyalty questions. ‘Daniel Schneider, Jon Krosnick, et al.’ found that out of four scales tested, the 11-point scale advocated by Reicheld had the lowest predictive validity of the scales tested. Others have taken issue with the calculation methodology, claiming that by collapsing an 11-point scale to three components (e.g., Promoters, Passives, Detractors), significant information is lost and statistical variability of the result increases. Also, the validity that NPS scales across industries and cultures has also been questioned…

The average business loses around 20% of its customers annually simply by failing to attend to customer relationships. In some industries this leakage is as high as 80%. The cost, in either case, is staggering, but few businesses truly understand the implications. Imagine two businesses, one that retains 90% of its customers, the other retaining 80%. If both add new customers at the rate of 20% per year, the first will have a 10% net growth in customers per year, while the other will have none. Over seven years, the first firm will virtually double, while the second will have no real growth. Everything else being equal, that 10-percent advantage in customer retention will result in a doubling of customers every seven years without doing anything else. Even a tiny change in customer retention can cascade through a business system and multiply over time. Customer retention validates the soul of the company. In order to serve the customer, you must think like the customer and the employee. Customer retention reflects ‘the state of mind that customers have about a company and its products or services…’ If you don’t give your customers some good reasons to stay, your competitors will give them a reason to leave. Customer retention drives profits. It’s far less expensive to cultivate your existing customer base, than it is to seek new single-transaction customers…

Finding a new customer costs from three to seven times more than keeping an existing one, and for many companies, up to 95% of profits come from long-term customers. ~PriceWaterhouse Coopers.

Share

New Age of Gamification: Business Differentiator, Marketing Reinvented, Customer Engager… Or, Just Hype (game-mechanics for business)

Share

Gamification is about challenge, achievement, success, pleasure, and most important it’s about engagement.

Gamification is the concept of applying game-design thinking to non-game applications (i.e., business…) to make them more fun and engaging.  Gamification works by motivating users to engage in specific behavior by taking advantage of humans’ psychological predisposition to engage in gaming. The technique rewards people for performing chores that they would normally ignore, such as; completing surveys, shopping, filling out forms, reading web sites… Early examples of gamification are based on awarding ‘points’ to people who share experiences on location-based platforms, such as; Facebook’s ‘Place’, Foursquare, and Gowalla. Popular business applications for gamification include; airlines frequent flyer programs, hotel loyalty programs, retail points systems…. RedCritter Tracker incorporates gamification elements, such as; badges, rewards, leader-boards and ribbons into project management. Gartner Group predicts gamification will be a key trend that marketing, IT planners, and enterprise architects must be aware of, as it relates to business. According to the ‘2011 Gartner Research Report’, it is estimated that by 2015 more than 50% of organizations that manage innovation processes will gamify those processes. Wanda Meloni at M2 Research, calculates that gamification industry revenue amounted to about $100 million in 2011, but she expects it to balloon to $1.6 billion in 2015.  A ‘Fortune’ article stated; “Gamification has started being popularized as the next big thing in marketing, and companies are realizing that ‘gamification’–  using the same mechanics that hook gamers– is an effective way to engage customers and generate business”.

In the article “Gamification: How Competition Is Reinventing Business, Marketing & Everyday Life” by Jennifer Van Grove writes:  Can life and all the menial or routine tasks that come with it be transformed through game-mechanics into an engaging, social, and fun recreational activity? Such is the idea behind the emerging trend of ‘gamification’. The word ‘gamification’, much like the phrase ‘social media’ a few years back, is being lobbed around in technology circles as the next frontier in web and mobile. Just as nearly every application, such as; website, brand marketing… now employ social media in some capacity, most-likely these entities will also gravitate towards game-mechanics in the years ahead. A recent Gartner report predicts that by 2014, a gamified service for consumer goods marketing and customer retention will become as important as Facebook, eBay or Amazon, and more than 70% of Global 2000 organizations will have at least one gamified application.

In the article “Game-Based Marketing” by Dean Takahashi writes: Gamification, as a concept, is far from a new idea. Companies have been using games in non-game context, such as; the military, business, hospitality… Gabe Zickerman, in his book ‘Game-Based Marketing’, says; Gamification is the process of using game-mechanics to engage audiences and solve problems, by taking the best ideas from games and applying them to fields where they are not usually used. It produces a big bump in user engagement quickly and cheaply, relative to other methods. Today’s youth mandates a more engaging experience. Gamification makes things more engaging so people will pay more attention and stay focused for a longer period of time. Seth Priebatsch agrees. “It feels like the next natural evolution of human-technological interaction… as we complete the social layer; we’ll begin construction, in earnest, on the game layer”. The five most commonly used game-mechanics are; points, badges, levels, leader-boards, challenges.  According
to Zickerman, “It’s easier than you think to bring the power of games to your business by adding game-mechanics to your marketing mix with these steps”:

  • Ask: What consumer behavior are you trying to drive?
  • Assign points to those behaviors.
  • Create a leader-board to display points.
  • Develop challenges and message them.
  • Make ‘fun’ your goal!

In the article “How Three Businesses Scored Big with Gamification” by Erica Swallow writes:  Ready or not, gamification is taking the business world by storm. For anyone unfamiliar with gamification, it’s the application of game-like elements, such as; challenges, points, badges and levels to business and other non-game websites. An estimated 70% of the top 2,000 public companies in the world will have at least one gamified application by 2014, predicts Gartner. Patrick Salyer believes there are two keys to success with gamification: One is making sure that all gamified elements are inherently social. That is, don’t restrict engagement to the internal site community. Award points for activities that reach users’ social [networks] to bring in referral traffic. The other is to focus on rewarding activities that create value for your businesses. For example, award points and badges for behaviors like subscribing to your company’s newsletter, checking into your store or sending coupons to friends. Gamification is not about haphazardly throwing badges across your site. Companies should weigh a number of factors before deciding whether to get into the gamification game.  Dustin DiTommaso, suggests that companies think seriously about why they’re interested in gamification and how it could help them meet their business goals. Before gamifying, he says, a business should be able to answer these questions:

  • What is the reason for gamifying your product or service?
  • How does it benefit users? Will they enjoy it?
  • What are your business goals?
  • How do you get users to fulfill those business goals?
  • What actions do you want users to take?

In the article “Gamification is Bullshit” by Ian Bogost writes: Gamification is bullshit. I’m not being flip or glib or provocative. I’m speaking philosophically. More specifically, gamification is marketing bullshit, invented by consultants as a means to capture the wild, coveted beast that is video games and to domesticate it for use in the grey, hopeless wasteland of big business, where bullshit already reigns anyway. Bullshitters are many things, but they are not stupid. The rhetorical power of the word ‘gamification’ is enormous, and it does precisely what the bullshitters want: it takes games– a mysterious, magical, powerful medium that has captured the attention of millions of people– and it makes them accessible in the context of contemporary business. Gamification is reassuring. It gives vice presidents and brand managers comfort: They’re doing everything right, and they can do even better by adding ‘games strategy’ to their existing products, slathering on ‘gaminess’… Gamification is easy. It offers simple, repeatable approaches in
which benefit, honor, and aesthetics are less important than facility. This rhetorical power derives from the ‘-ification’ rather than from the ‘game’.  ‘-ification’ involves simple, repeatable, proven techniques or devices that you can; purify, beautify, falsify, terrify, and so forth. I am not naive and I am not a fool. I realize that gamification is the easy answer for deploying a perversion of games as a mod-marketing miracle. I realize that using games earnestly would mean changing the very operation of most businesses…

In the article “Gamification Goes Mainstream” by Lamont Wood writes: There are two main varieties of gamification: ‘customer-facing’ systems and ‘employee-facing’ systems. The former are mostly for websites open to the public, while the latter are for employees of an enterprise. Gamification on consumer sites is typically intended to heighten user engagement, so customers will be more likely to come back. Gamification is not a no-risk strategy. It has to be done right. Ryan Elkins cautions that it isn’t a one-size-fits-all solution. ‘Employee-facing’ gamification tends to work well in job functions that don’t pay well. In boring jobs or call center jobs, people come in and detach themselves from their work. Gamification helps bring them back and gives them something to focus on. As for pitfalls, if you are trying to drive specific behavior but you don’t understand the behavior, you may create a false dynamic, such as; driving salespeople to make [time-wasting] phone calls in situations where normally they only use email, notes Scott Holden. For ‘consumer-facing’ sites, the problem is called over-justification. If you reward people for doing something they are not interested in, you demotivate them in the long run, says
Michael Wu. Gamification is good as a short-term tactic…

In the article “Social Visionary Believes Gamification Is Now a Cultural Movement” by Piers Fawkes writes:  Game thinking is part of the mainstream whether folks are conscious of it, or not. For the last 40 years, consumer expectations have been fundamentally altered by exposure to games. Specifically, this means that our beliefs are about; meaning and value of fun, frequency and context of rewards, and omnipresence of sociability. The simple shorthand is; feedback, friends and fun. The consumer has changed, and smart businesses must adapt to survive and thrive. The use of gamification to drive social change is a big movement in culture. It’s worth remembering that in early 2010 there were no hits on the term, gamification, on Google; today there are millions. Gamification is a new discipline with deep roots and extraordinary potential…

Gamification, it’s really not about gaming; it’s about good old behavioral economics using game-mechanics. According to John Bell; the world of ‘gamification’ is certainly buzzy if not frothy. Many marketers are talking about it and startups are employing it, as if it were the magic sauce that could overcome anything even a bad business plan. We can easily identify these techniques throughout the history of business and marketing as tools for
getting users engaged. There is wisdom underneath it all and gamification, as a sometime appropriate feature to stimulate behavior change, is here to stay.  This surge of game-mechanics is all over the Web and is being applied to many things including; brand advocacy, environmental, health behavior, fundraising… But, how did you sell the company management on the idea of games in a very non-gaming business? According to Le-Te;  “This is not about games… it’s about strategy and tools for engaging customers and reaching business goals”.

Game-mechanics are not a good fit for everything… everything has limitations, but they’re great fits for more situations than not.~ Priebatsch

Share

Changing Face of Outsourcing: Dying or Thriving– Getting Past the Hype to Uncover the New Reality

Share

Do what you do best and outsource the rest ~ Tom Peters

Outsourcing is not about cost, it’s never been cheap, and it never will be cheap. “The delusion of outsourcing is that it will somehow save your product money. The truth of outsourcing is to bring a company expertise it doesn’t have, cannot find, or cannot get a hold of. But, it’s not cheap”, says Alexander Fernandez. Knowing what you’re good at is key: Knowing what you’re not good at is better: Accepting what you’re not good at is supreme. According to Antonio Altamirano, the concept that outsourcing means exchanging an office filled with Americans in the Silicon Valley with an office in
Mumbai filled with Indian workers is outdated.  There’s really no added-value in simply moving an office to anywhere for that matter. You will face the same geography-centric issues; the lack of top talent and the inability to attract out-of-the-box innovative thinkers to your geographically bounded work space… Forbes recently published statistics about the rapid rise of Indian salaries, which says, by 2015, India’s cost advantage over the
U. S. will have disappeared. For India and China, their bread and butter is having the cheapest labor, however, there is the new reality; wages are rising in both countries and quality is stagnant, and there are other cheaper labor pools joining the market to compete as ‘bottom feeders’. According to Raymond Watt;  “Conventional cost-based thinking regarding outsourcing is dead. The evidence is stacked against outsource frugality”.

BusinessWeek is predicting that outsourcing as we know it may be coming to
an end: Well, sort of. The rise of cloud computing will put the traditional
outsourcing industry in jeopardy as tech giants like Google and Amazon take market share from smaller businesses in the U.S. and India. According to the ‘XMG Global 2011 Year-end Forecast Report’; traditional outsourcing has reached the limit of the savings it can produce. The global outsource industry, including offshore and onshore, is estimated to reach $464 billion in 2011, a 9.2% increase from 2010’s $425 billion. The year 2010 had stronger growth at 13.9% from 2009’s $374 billion. The race to be the top offshore destination continued in 2011 between China and India, as these providers seek other markets outside Europe and the U.S.  ‘XMG Global’ estimates the total revenue of the offshore segment will amount to $144.8 billion.  India will capture 42.5% of the offshore market to reach $61.5 billion in revenues, while China will continue to lag India with revenues reaching $45.7 billion equivalent to 31.5% of the market. The Philippines will still hold the third spot with estimated revenue of $10.7 billion capturing 7.4% share. According to XMG Global, chief analyst Lauro Vives, the U.S. economy is still on the road to recovery with a forecasted 2011 GDP growth rate of 2.6%, slowing down from last year’s 2.9%.  China, with a strong East Asian client base like Korea and Japan, is less affected. China also has a stronger hold in their domestic BPO market and in 2010; more than 75% of service outsourcing revenue is from their domestic market. Indian outsourcers are also starting to realize the importance of the growing their domestic market. The Philippines is likewise taking steps to gain more of the offshoring market share from non-English speaking countries. Vives concludes, “Given the continued growth of competition
and increasing demand from other countries besides the
U.S. and Europe, expect a
sustained displacement and redistribution of market share not only between
India and China, but in other emerging outsourcing destinations; such as, Brazil, Mexico and Malaysia.”

In the article “The Future of Outsourcing” by outsource2india writes: The big question on many people’s mind is: what will the future of the outsourcing industry look like in the next 10 or 20 years? Though India has managed to position itself as a major outsourcing
hub, questions about its future in outsourcing continue to surface in industry circles. The dynamics of global business are changing, and outsourcing is no different. With the outsourcing industry emerging from the aftermath of the global recession, there are a number of trends that give us a glimpse of the future:

  • Buyers will seek more standardized solutions from their outsourcing engagements, so they will have to differentiate themselves through performance rather than pricing. Hence pricing structures will be stabilized to some extent.
  • Many small alliances, focused on increased operational efficiencies, better quality control and reduced back-office costs, are being set up. This trend is going to continue.
  • Shared and common services were always considered a threat to outsourcing, but the trend is changing. Sharing critical business and IT services has been proven to cut costs, reduce errors and improve productivity.
  • Industry experts predict that Latin America and Europe will be the new outsourcing destinations in the near future.
  • Brazil and Russia will make their presence felt in the global  outsourcing market and China will continue to move ahead.
  • According to industry experts, consumption-based technologies that are delivered through the cloud will grow, as they are cost-effective.
  • Some analysts predict that European carmakers will start outsourcing their business. This would result in cars being developed by other companies while being sold under their brand names.
  • Big pharmaceutical companies will launch new drugs in the market at a fraction of the current cost by partnering with India, China, and Russia in molecular research and clinical testing.

In the article “Traditional Offshore Outsourcing on the Skids” by Pam Baker writes:  Rocked by smaller margins, stagnant sales, shrinking budgets and staggering staff
reductions, enterprises still reach for outsourcing as a coping mechanism but
they do so with a jaundiced eye.  Offshoring is still thriving, but you may not hear about it much anymore as many companies want to stay quiet on where their call centers and operations are located for fear of backlash from the U.S., explained Scott Archibald. Rates have increased and there are many issues related to communication barriers and quality of work, relative to the standard of work being performed onshore. Poor quality and
rework has caused the true cost of offshoring to increase.  According to a Gartner report, buyers will remain price-sensitive, particularly for IT services they perceive as basic
but, they will look for smaller and shorter-duration contracts. Risk-averse customers will want transparency and predictability from their service providers, which will increasingly guarantee outcomes and price. Gone is the theory that cheap labor is the alpha and omega in outsourcing models.  “Outsourcing is still alive and well, but it has a new name: cloud computing,” said Archibald.  Many U.S. companies have pulled some portion of their jobs back to the U.S. and complemented that with work being done nearshore. Jobs that once went to India, China and Russia are now being moved to places like Costa Rica and Panama. This strategy is better received by U.S. customers and removes the time zone differences and communication constraints faced by companies in the U.S. The answer then, as to whether outsourcing is dying is; no, but it is radically changing.  Outsourcing providers, however, will have to seriously up-their-game to survive in this new reality. Reducing costs are table stakes, now. The providers that can also deliver solutions that truly impact and improve their customers’ businesses will be the winners.

In the article “Top Outsourcing Trends to Watch in 2012” by Datamark writes: Emerging technologies continue to change the face of BPO, and the uncertain economy has companies reviewing ‘outsourcing’ options; within the U.S. it’s ‘nearshore’ in Latin American, and ‘farshore’ in India, Philippines, and China.  Top outsourcing
trends:

  • Rise of mobile apps: Expect BPO providers to provide clients with mobile apps for monitoring and auditing outsource processes. Features will incorporate business intelligence, dashboards, analytics and instant messaging with the provider.
  • Social contact center: Outsourced contact centers will have savvy staff keeping customers happy and engaged through Facebook, Google+, Twitter and other social networks. ‘Social Customer Relationship Management’ will include following chatter on social networks.
  • Gamification will liven up the dull side of BPO: Although gamification has emerged in the past year as a hot buzzword, the concept, as applied to business, has been around seemingly, forever.
  • Public-private initiatives worldwide will stimulate BPO growth: Countries will aggressively compete for a slice of the global BPO market, which is expected to grow at an annual rate of 5.4% to $93.4 billion in 2015, according to analyst ‘Ovum’. As India becomes more expensive, look for the Philippines, China, Africa and Latin America for outsourced business processes at the low to mid-point of the value chain.
  • U.S. will take a lesson from international public-private alliances: The U.S. ‘rural-shoring’ (onshore) model; outsourcing processes to communities with low costs of living, will continue to intrigue companies that are not satisfied with their ‘farshore’ experiences.

Nearshoring, offshoring, onshoring, insourcing… very few areas of economic activity have spawned as many confusingly similar buzz words as ‘outsourcing’. What links many of them is the idea that the old-fashioned strategy of sending work somewhere else purely to lower costs or streamline processes is hopelessly outdated.  There has been a shift in terms of what’s being outsourced. Companies have become more experienced in outsourcing, and they have moved away from relatively simple, low-cost activities to the more complex outsourcing that involves; knowledge creation, improved product quality…  In the past decade, many in the media have declared ‘outsourcing’ itself as an industry, but some think we have moved on from this broken jargon. According to Irina; the time has come to stop thinking of outsourcing as something good or bad, and to just accept that all companies use outsourcing to some degree. In today’s uncertain business climate, adopting a strategic view of ‘capability sourcing’ isn’t an option: It’s imperative, if your company is to have any hope of leapfrogging the competition. Outsourcing should no longer be the scourge of the media, and the stealer of jobs. It is merely one more business strategy that allows a company to access resource in a flexible way. The concept of
outsourcing is alive and well, and a part of 21st century business. Perhaps the ‘word’ outsourcing is the villain with a bad reputation, and perhaps the ‘word’ outsourcing should just fade away and die.

If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business. ~Lee Kuan Yew

Share

‘Decline’ of U.S. and ‘Rise’ of China as the World Largest Economy & Economic Superpower: Practical Consequences– Influence, Opportunity, Threat, Change…

Share

China can’t be the world’s leading economic power. Too many of its people live without indoor plumbing, no mainland science researcher has won a Nobel Prize and the country has no global brands. How can a place like that be an economic superpower? ~ James Fallows

The ‘decline’ of the U.S. and the ‘rise’ of China as the world largest economy, by 2016, is the prediction of the ‘International Monetary Fund’ (IMF). That’s just five years away, which is simply incredible when you think about it, especially considering that the U.S. economy was three times as large as China’s, in real terms, just 10 years ago. However, there is a big difference between the IMF and other estimates that predict a 2020 or 2030 date for when China overtakes the U.S. economy. According to Brett Arends; those other estimates are comparing the gross domestic product of the U. S. and China at current exchange rates. But when you analyze the two economies in terms of purchasing power parity (PPP); comparing what people earn and spend in real terms in both China and U.S., you find quite a different result. Under PPP, China’s economy will expand from $11.2 trillion to $19 trillion in 2016, while the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take the U.S. share of the world’s economy down to 17.7%, the lowest in modern times, while China’s would reach 18% and climbing. Although, the exact time frame may be debatable, since a lot can happen in the next few years, the end result will be the same. In terms of numbers and demographics, China will become the world’s largest economy…

According to The Economist: Over the past ten years, real GDP growth averaged 10.5% a year in China and 1.6% in America; inflation averaged 4.3% and 2.2%, respectively. Since Beijing scrapped its dollar peg in 2005, the yuan has risen by an annual average of just over 4%. Our best guess for the next decade is that annual GDP growth averages 7.75% in China and 2.5% in the U.S., inflation rates average 4% and 1.5%, and the yuan appreciates by 3% a year. Plug in these numbers and China will overtake the U.S. in 2018. Alternatively, if China’s real growth rate slows to an average of only 5%, then (leaving the other assumptions unchanged) it would not become number one until 2021. A broader analysis by The Economist finds that China has already overtaken America on well over half of 21 different indicators, including manufacturing output, exports and fixed investment. By 2014, for example, it could be the world’s biggest importer and have the highest retail sales. The U.S. still tops a few areas by a wider margin: Its stock market capitalisation is four times bigger than China’s, and it spends five times as much on defense. Even though China’s defense budget is growing faster; on recent growth rates the U.S. will remain larger until 2025.

In the article “China Overtakes U.S. and Japan as Top Innovative Country” by National News writes:  China has become for the first time the world’s number one nation in terms of patents filed, surpassing countries with longer innovation tradition like the U. S. and Japan. The announcement was made by Thomson Reuters, which said that research shows that China has filed the largest number of patents in 2011, without providing further details. The number of China filed patents has grown at an average of 16% every year since 2006, to about 314,000 in 2010. Current predictions indicate that China will file about 500,000 patents in 2015, while the U.S. will clock only 400,000, and Japan about 300,000. China is pushing innovation by targeting innovation in specific industries, such as; automobiles, pharmaceuticals and technology. Domestic patent applications in China grew to nearly 73% of total applications in 2010, from 52% in 2006. Experts say that the Asian giant is trying to change the ‘Made in China’ brand into the new value-added ‘Designed in China’ brand.

In the article “China Overtakes U.S. as Largest Manufacturer in the World” by Sarah Falson writes:  China has overtaken the U. S. as the world’s largest manufacturing country, producing 19.8% of the world’s manufactured goods in 2010. China overtook the U.S. for the first time, delivering US$1.995 trillion worth of manufactured goods last year compared to the U.S.’s $US1.952 trillion, according to a study by IHS Global Insight. According to ‘The West Australian’, China remained a long way behind the U.S. in terms of productivity, with U.S. workers in the manufacturing industry receiving more than eight times that of China’s workers doing similar jobs. “In other words, the U.S. manufacturing sector is producing roughly the same amount of output in 2010 with 11.5 million workers as opposed to its Chinese counterpart with around 100 million workers.”

In the article “China Overtakes U.S. in Smartphone Shipments” by Michael Kan writes:  China will pass the U.S. to become the world’s largest smartphone market by shipments. The U.S. still remains the top smartphone market in terms of total revenue generated, driven by sales of high-end devices like Apple’s iPhone. China will need three or four years before it can surpass the U.S. by revenue.  Two other research firms report that the U.S. is still the top smartphone market by volume, although China is not far behind. Gartner, which tracks smartphone volume by devices sold rather than shipments, said that U.S. smartphone sales reached 22.2 million units in the third quarter in 2011, ahead of China’s 21.7 million units.  Canalys said that the U.S shipped over 200,000 more smartphones than China at the end of the third quarter in 2011.

In the article “China Overtakes U.S. in PC Shipments” by Verne Kopytoff writes:  China has reached yet another milestone in its rise as a consumer of technology by becoming the biggest market for personal computers. In the second quarter, 2011, manufacturers shipped 18.5 million PCs in China compared with 17.7 million in the U. S., according to IDC. The shift reflects China’s growing appetite for electronics and the increasing wealth of its huge population. PC shipments in the U. S. fell 4.2% in the second quarter to 17.8 million, while shipments in the Asia-Pacific region, including China, grew 13% to 30.1 million. The U. S. is expected to remain the top market for 2011 with 73.5 million PC shipments versus 72.4 million in China, IDC said. In 2012, China is expected to lead the annual ranking. “China’s lead in the PC market is a huge shift that reflects the rising fortunes of emerging markets as well as the relative stagnation of more mature regions,” said Loren Loverde, IDC.

In the article “China Overtakes U.S. Car Industry”:  For the first time in history more cars have been sold in China than in the U. S. Car analysts point out that in the U. S. there are 800 cars for 1000 people. In China the same figure is only 20 cars. For many Chinese buying a car is a big event because most of them have never had one before. It’s not just a transportation tool like in the U.S. or Europe. In China it’s still a status symbol. With a growth of over 20% per year China has the fastest-growing automobile market in the world.

In the article “China Overtakes U.S. as No. 1 in Installed Wind Power” by John Johnston writes: In 2010, China overtook the U. S. to become the country with the largest installed wind power capacity, as reported by official Xinhua News Agency. China’s total installed wind power capacity reached 41.8 Giga-watts at the end of 2010. Installed wind capacity in the U. S. increased by about 5 Giga-watts to 40.2 Giga-watts. China increased its wind power capacity by 16 Giga-watts or a staggering 62% from 2009, according to data released by the Chinese Renewable Energy Industries Association. Chinese government initiatives have nearly doubled China’s wind power capacity every year since 2005.

In the article “Reasons To Cheer When China Overtakes America by Rick Newman writes: The U. S. is starting to look like an aging, off-balance heavyweight. Developing countries like China, India, and Brazil weathered the global recession far better, and they’re now growing at two or three times the U.S. rate.  Despite massive amounts of U.S. government aid, more than half of all Americans tell Gallup that the economy is still in a recession, or a depression. Median incomes are falling, with living standards likely to follow. The dollar has drifted close to all-time lows against other major currencies.  So maybe, it will be good for the U.S. when China finally overtakes America. Here are four reasons why:

  • We need an underdog mentality: America is like the rich, dysfunctional family that lives in the ramshackle mansion at the top of the hill. We’re living off of our past and have lost the habit of working hard to earn our livelihood. We seem more fixated on amusements and trivial problems than on keeping our house in order. Falling to No. 2 might generate a common sense of purpose and give Americans something to rally around…
  • A quick descent would be better than a slow decline: We stopped being No. 1 in a lot of things some time ago… The U.S. poverty rate is close to the worst among developed nations. The education scores have been middling for years. The ‘Legatum Institute’s’ annual global prosperity index ranks the U. S. 10th. The jingoistic chant of  ‘We’re No. 1!’ is usually wishful thinking. Yet we’re still in denial about our influence around the world and our ability to control events we deem in our national interest. When the U.S. economy is no longer the world biggest, it will be an undeniable sign that decline is real…
  • It might force action on economic priorities: Despite a lot of jawboning, politicians have done virtually nothing to reduce the government’s gaping deficits or pay down America’s $14 trillion debt. There’s no sense of urgency in Washington about assuring the nation’s economic primacy. Maybe a drop in America’s economic rank would be the kind of impossible-to-ignore setback that it takes to get politicians’ attention.
  • You can be small and prosperous, too: We mistakenly think that only a big economy can be a successful one: False. In the ‘Legatum Institute’s’ prosperity index, for instance, Norway, Denmark, and Finland rank at the top, followed by a bunch of other countries with far smaller economies than the U. S.  The trick is aligning your national ambitions with your capabilities, which is where the U. S. has fallen out of sync.

China has been the world’s fastest growing economy for more than three decades, growing 17-fold in real (inflation-adjusted) terms since 1980. According to the ‘U.S.-China Economic and Security Review Commission Report’; China’s gross domestic product (GDP) has grown from $1.32 trillion in 2001 to a projected $5.87 trillion in 2011, representing an increase of more than 400%. The U.S. trade deficit with China is now more than half of the total U.S. trade deficit with the world… Moving forward, China ratified its 12th Five-Year Plan (2011– 2015); a government-directed industrial policy that focuses on the development and expansion of seven strategic emerging industries, namely; new-generation information technology, high-end equipment manufacturing, advanced materials, alternative-fuel cars, energy conservation and environmental protection, alternative energy, and biotechnology.  The report predicts that China will likely continue to combine targeted investment with preferential tax and procurement policies to ensure that Chinese firms emerge as global leaders in these industries, within five years. However, according to Michael Beckley; even with its enormous economic power, China is still a poor and technologically underdeveloped country. As a result, its prosperity will remain dependent on ties to the advanced global economies and, in particular, on good economic relations with the U. S. For the past 30 years, the U. S. and China have grown their economies through a division of labor. This cooperation can endure, but only if Americans and Chinese disabuse themselves of the notion that they are locked in a zero-sum economic competition… 

Hide brilliance, cherish obscurity”.~ Deng Xioapin

Share