Co-authored with John Sviokla

Never before has such a mass of data existed. Needless to say, all this information complicates the decision-making process. Businesses need new strategies to answer the biggest question:

How do we effectively sift through the mountain of information to gain valuable insights.

Layers is a term we use for visual information systems that combine publicly available and company-owned tools to present relevant and contextual information-in a format that starts with the decision and works in reverse.

By Layers, we’re referring to distinctive “chunks” of data that are presented within the construct of a decision, rather than in the context of a tool. Layers are also about leveraging data, tools, and innovation on the Web instead of starting from scratch.

Layers of information exist at all levels-individual, company, market, industry, country, and international.

They are what help us visualize the different levels of data and how we can put them together in ways that support a particular insight. More powerful than a tool, layers comprise an “organizational solution”-a visual way to sort and sift a mass of information and arrive at an insight efficiently, effectively, and by putting all employees on the same page to create buy-in.

So why aren’t organizations making more progress in adopting layering options? Simply put, you can either embrace the flood of data or ignore it. Here are a few observations that may make it easier to embrace:

1. When something new pops up in the Web, other sites swarm to analyze it. How can your firm harness this speed to market?  The emergence of Twitter and the hundreds of tools to analyze Twitter data is just one example.
2. Recently, Nielsen conducted a study that looked at successful new product launches across 30 large consumer packaged goods companies and found a correlation between successful, innovative product introductions and how differing levels of executive involvement affect launches. When senior leadership is involved at your firm, does it help or hinder the adoption of new ideas?
3. When we visualize our organization, we often think of a map. What if the data that aided our decision-making was available as layers of information on a map, similar to how Google Maps layer satellite images with public transit, bike routes, and points of interest?

So, how does “layering” help us?

1. By starting with tools and data that already exist in the market – data collection, organization and decision making is faster
2. Focusing on a layer at a time creates is iterative and less complex to implement
3. A visual representation of the decision-making-context makes solutions more recognizable and required less “context switching” for those using it

Faster + Iterative + Recognizable = Faster Decision Making

We spend too much time analyzing the mountains of data we have collected, assuming that it contains answers to our business questions. Why not start with the decisions we are trying to make and working our way backward with the help of the data? Does your business have a decision-making model?

If we start with decisions and then add the context for those decisions, we can support the business in a much more direct way. What area of your organization could benefit from a “layered” decision-making process?

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In our recent Diamond Digital IQ study, we found that only 3% of healthcare companies were focused on innovation as their primary strategic emphasis. You can empathize that 2009 was a year where many participants in the healthcare cluster were just trying to survive, but, in an industry where costs are rising, care is becoming more complex, and funding sources are in flux, we need more than only 3 in 100 firms focused on innovation.  See the figure below.

In this short post, I want to suggest a small number of innovations which could be enabled by iPads and other new mobile technology.

Let’s reinvent patient education and use all that waiting time! There are already over 700 applications for the iPad. Many of them concern diet, disease management, exercise, nutrition, stress reduction and even the Army Ranger handbook. Instead of reading those old magazines, or boring generic brochures, you could actually learn something while you are waiting for your doctor.

Bring the relevant information to the moment of use. Often doctors and nurses need or want information that is a few feet or a few floors away from where the treatment is being practiced — and they cannot afford the time to track it down. The provision of medical care is a very complex “manufacturing process”. The specialty talent — doctors & nurses — have to have their unique equipment, from blood vials to ultrasound machines — nearby, and all treatments, opinions, and equipment use need to be logged into the patient’s record. Furthermore, this body of information needs to be passed from shift to shift — flawlessly. Because the iPad is high resolution, easy to use, and chic (not geek), it has a chance of being the tablet device that doctors, nurses and patients can use to help bring the relevant information to the point of need. If the information can be digital first, it has more chance of being well recorded and shared.

Tag everything. How many times have you been in a doctor’s office or hospital when they cannot find the relevant person, equipment or information. A friend of mine put sensors into a community hospital — tagging everything in the operating room, pre-op and post-op. This meant that the scheduling team could see where all the doctors, nurses, devices and other assets were — in real time. This ability to act more like a modern air traffic controller increased the throughput of the organization’s operating suites by 25%, simply by better coordination.

Use video to tell the story. Unfortunately my children have had a number of operations, and I have listened to many surgeons draw their procedures on the whiteboard — with their minimal drawing skills, and explain the procedure to come.  I would have much preferred if I could have watched a simple video, with some illustrations, to show what they intended to do.  With the easy video capture on today’s technology, cheap and extremely capable editing software, and graduate students who could make the videos — it seems to me time to create a better library of visual content.  Check out the high definition cardio vascular system iPad application.  It gives mind blowing detail of how your heart and vascular systems work.  Applications like these are just the beginning.

Create a social space for the coordination of care. In the care of an individual there are many, many people who usually need to understand status, take responsibility for part of the care, and report results.  Sharing status of results, plans and status of the patient — to those authorized to look — could save a lot of headache and heartache.  Why can’t my relative’s status be tweeted to me?

Follow the patient home.  Non-compliance to drugs and treatments after the hospital visit are a huge issue.  The majority of patients take their medicines incorrectly, and many people are not sure of their post-operative, or post-visit instructions.  Soon touchable, portable devices will be cheap enough to give them a device as they leave so that the hospital staff can keep the communication channel open and monitor their compliance to advice, saving lives, time and money.

There are many other potential applications that could help healthcare bend their cost curve.  Now is the time to start innovating, and mobile has a chance to reinvent the interaction of the doctor, care givers, family and patient.

Other useful links:

• Diamond’s 2010 Digital IQ Study Interactive Site: test your industry’s Digital IQ!
• iPad: The Remote Control for Everything?
• iPad in the Enterprise: Will CIOs Use It To Innovate for Customers?
• Sales Reinvention: Why the iPad is a person to person innovation.
• How the iPad is Like a Tesla Roadster

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This post is co-author Joseph Calandro, Jr., author of Applied Value Investing (NY: McGraw-Hill, 2009).

One of the most important and overlooked innovations in business are the innovations in internal controls and measurement.  The duPont company famously invented their duPont formula which helped their executives to understand exactly what was driving financial performance in their business; which divisions were making good margins; which consuming too much capital.

We think that the story of the 1980s-2008 was a story of focus on the external financial innovations — which were significant both in their market impact, and on their forms of corporate governance.  For example,  in the 1960s and 1970s many conglomerates formed to give shareholders a promise of diversification.  But with the three innovations of the efficient market hypothesis, mutual funds, and corporate commercial paper, many investors asked themselves, why should they own  a holding company when you can efficiently hold each of the “divisions” directly?  Financial innovation and theory had a direct impact on corporate governance and organization form.   And despite the havoc that complex financial instruments have wreaked on our worldwide financial system, few observers would claim that they are all bad.  Remember that in recent years Southwest Airlines helped to create tremendous value for their shareholders by effectively hedging fuel costs, just to name one company.

Given increased volatility and continued financial uncertainty, our question is what “internal” message should firms take from the recent financial innovations and their devastating impact on many banks and markets.  We believe that firms need to  reexamine their risk models and to inspect their evaluation and feedback loops those models depend upon.  Put another way, you want to make sure that there are no simplifying assumptions that created so much havoc for mortgage-backed securities.  You want to make sure your control systems accurately reflect the current risk.  More specifically, we think that in such a volatile market, senior executives should look anew at their corporate hurdle rate, and think about “de-averaging” that rate.  We have performed extensive analyses of financial services companies and found that they have an overly simple hurdle rate.  This means that when a management team assesses a portfolio of projects, they are not comparing apples to apples.  When a new, de-averaged hurdle rate is applied, the senior team usually comes to new operating decisions because they see the real risk/return of their business in the current environment.

In addition to the new differentiated hurdle rate, such an analysis can also lead to adjustments in capital structure, in which the financial team, with the senior executive, can begin to match forms of capital to the nature of the operational and market risk.   For example, mature cash generating initiatives can be matched to debt while newer more entrepreneurial initiatives would be matched to equity. In short, matching of the balance sheet to the nature of the business risk help to make risk management tangible.  Of course there won’t always be a one to one risk match, but such an exercise can show the team just how close their capital structure reflects their operating reality.  Together,  “de-averaging”  and funding matching, facilitate a much more strategic view of the “cost of capital,” especially when that information is aligned with performance management.

The skill set needed to implement this kind of approach involves elements of science (or knowledge of the theories underlying conventional business practice), art (experiential-based learning and insights), and behaviorial understanding (knowing how to operate effectively in external and internal environments). Such a skill set is relatively rare; however, those who possess it should be able to make the most out of their current returns to capital and be better prepared to weather markets in times of calm and turbulence.

We don’t expect the markets to calm down any time soon, so now is the time to build up your organizations ability to operate in more informed way.

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Today, Google announced that it will move into the travel space with its $700 million acquisition of ITA, a flight information software company.  If I were Eric Schmidt, I’d be spending my best talent and efforts trying to figure out the social space being dominated by Facebook — not vertically integrating into different information industries.  Now, I’m always wary of saying that newly minted billionaires don’t know what they are doing, but it seems to me that the data embedded in social graphs is much more important than going into the product suite for airfare pricing and shopping, reservation management, and internet booking — which are ITA’s core products.

Fonzie Jumps the Shark: Courtesy of Wikipedia

I will not be so bold as to suggest that Google jumped the shark, because their core business of advertising and their foray into mobile with Android promise continued growth for a long time to come.  But, to me, Google is the most horizontal of all horizontal businesses, and to go deep into one industry seems like the wrong way to go.  The big horizontal play now is social and there will be new ones like Foursquare for location-based social, and Twitter and to my eye, those organizations are more relevant to “organizing the world’s information” than travel seat choice and pricing.

The scalability of Google comes from modular functionality and tagging architectures.  The page link, the video, the tweet, are all modular, and user generated content.  With ITA, they move to an industry generated content, and an information service that is more about logic and algorithms based on proprietary databases that have functional interaction with user.  Put another way, until ITA, I don’t think Google really had any issues of integrating with specific industry customer’s operational needs.  (Maybe they do with Google docs, but again that’s a “horizontal” product.)  When they have to integrate into the logic of the operations of the vertical known as travel, their innovation assets become less generalizable, and thereby have less option value.

I think they have plenty of new horizontals to explore — including social, local social, and new asset tags based on emerging sensors and telemetry in vehicles.  Heck, the military still needs a ton of help just dealing with the massive amounts of video that the new drones are capturing. They have many, many more cameras hanging off of them.

My vote would be that Google should stay horizontal for some time to come and stick to the proposition of organizing the world’s information a bit more closely.

One way to effectively market while being friendly to the environment is to facilitate the market in used goods.  When I was a kid my father used to make me bang nails out of junked wood and straighten them on an oak workbench to store them in empty coffee cans for future use.  Strangely, this made my father one of the “greenest” people I know, despite the fact that he does not believe even the U.S. Navy’s data on melting of the polar ice cap and he thinks climate science is a liberal plot.  Nevertheless, his frugality made him an accidental environmentalist!  In fact, promoting the used market may be one of the best things we can do to be green, while simultaneously keeping an ongoing relationship with customers.

As Matt Power pointed out in a his May 19, 2008 article Don’t Buy That New Prius! Test-Drive a Used Car Instead it takes 113 million BTUs of power to create a new Prius.   Personally, I’m bothered by my propensity to buy new gadgets and join the billions of us who are creating a Niagra Falls sized waterfall of toxic waste as we dispose of these devices.  The Boston Globe reported on a number of new companies which are facilitating the used market for technology — especially iPhones more aggressively.  There are also the folks from Flipswap whose Greenphone site gives you some trade-in value for your device (my BlackBerry 8100 brought just under $16), and they will plant a tree.

More broadly, eBay is starting to promote the environmental benefits to buying used and the big guys like Costco and Wal-Mart are starting to have trade in centers.  Of course the big kahuna in this domain is Amazon.  When they decided to facilitate the used book business, they made a huge strategic coup — because they were willing to manage any demand — not just new demand.  They must have figured not only how to make money on the used book business, but more importantly, they wanted to funnel new and used book information.  By facilitating the used market, they had access to the entire market — not only the customers interested in new things.  This creates a deep understanding of the entire demand curve and all its price points.

Consequently, whereeever possible, I think it is in the interest of companies to facilitate the used market in their products and services.  It not only helps customers, it gives the producer an ongoing relationship with the individual buyers and users of the product or service, and illuminates the price/value curve across the entire market.  What do you think?

Useful links:

• Wal-Mart’s New Information Advantage (My HBR Blog Post on WalMart and used.)
• The impact of electronic marketplaces on product prices: an empirical study of AUCNET (An academic paper on an early Japanese electronic auto auction.)

Large successful organizations have a hard time creating large scale innovations.  When a company’s on the brink of death, they entertain many radical alternatives, but economic health is the enemy of change — which is one of Microsoft’s great problems.

Ray Ozzie, now the Chief Software Architect of Microsoft, was at Lotus development when they dominated PC software.  According to my friend and Diamond Fellow, David Reed, Lotus was making a lot of money and investing in R&D, but Ozzie wanted to build his own startup.  Because Ozzie had delivered Symphony, an updated version of the 1-2-3 software, Mitch Kapor agreed to help Ozzie find the funding.  By late 1984 Ozzie founded Iris corporation, backed by Lotus, because he was convinced that groupware would transform business.

There were a number of interesting features of the deal.  First, Lotus agreed to fund Iris’s development efforts as long as Iris was using a best efforts basis to develop the software.  Second, after Iris declared the product to be substantially complete, Lotus had a brief window in which to exercise their option.  Exercising the option meant that Lotus agreed to pay Iris a pre-negotiated per copy royalty on product sales.  Third, Lotus committed to market the product on a best efforts basis — which at the time meant a very big, and legally binding commitment from Lotus.  It also meant, that Lotus could not simply buy the option and then kill the Iris product.

This deal structure was radically different than any internal innovation which I have every heard of, and I think there are some very important institutional innovations which Microsoft could learn from.

• First, by structuring the innovation as a separate entity with ownership of the intellectual property, it meant that the funding probably came from the board out of the capital budget, not the operating budget.  It took Ozzie longer to develop the product and the market took longer to gestate than he anticipated.  Like many innovators, he was a bit too early.  If he had been inside Lotus and had been part of the operating budget, this mis-timing might well have have killed the project.  His management probably would have been asking for the promised revenue, and his investment level would likely have been cut.
• Second, by being in the capital budget and probably at the board level, he had a completely different organizational dynamic.  Each time the senior Lotus executives considered halting the funding, they had to decide if they were willing to let Ozzie and his team take their intellectual capital to a competitor, like Microsoft, and live with their implications of abrogating their contract with Iris.  This unleashed the fear that they might regret not investing in this innovation by Ozzie.  We know that regret is a much more powerful motivator than fear, as behavioral economists — including Dan Ariely one of our Diamond Fellows — have shown so eloquently.
• Third, by getting Lotus to agree to market Notes on best efforts basis, and simultaneously holding onto the intellectual capital in Iris, the structure removed the development risk from Lotus and it was better for them to spend significantly in the product launch for an already created innovation.  Together, these aspects of the deal structure created the organizational equivalent of burning the boats of an army invading from the sea.

Today, the ecosystem for software is much more developed than when 1-2-3 was in its heyday.  Nowadays, Microsoft has ample budget to fund internal R&D, something that Lotus did not have, and as far as I know Ozzie is working within the normal operating processes of Microsoft.  Even in this more developed ecosystem, I’d suggest that Microsoft could benefit from innovating new ownership structures that might help create institutional momentum behind large innovations.  For starters, I’d suggest Microsoft create three separate entities which would be structured just like Iris.  They would be independent entities and Microsoft would have the right to fund them, but if they did not fund them, the little firm could walk with the intellectual property.  If MSFT did exercise its option to buy them, they would have to spend $100,000,000 or more launching the new product.  Here’s three potential areas to create these new companies:

1. a mobile solution company, to compete with Google and Apple;
2. a company for their promising Microsoft Surface product, which could reinvent common spaces;
3. a company to do new types of search.  Bing is too tied to the core business.

If they were willing to perform these institutional innovations for ownership and investment, maybe Ozzie could work his magic again.  What do you think, could it work?

Useful links:

• The Calculus of Commerce: Why business models are aging faster and what to do about it. (A paper I wrote with Caroline Calkins.)
• Waiting on Genius: Why business design is so hard. (Blog post.)
• Is This Innovation Too Radical for My Firm? (HBR Blog post)

When I  bought my iPad it was very easy to download my new Kindle application to read all my books I bought on Amazon, and I’m sure that Jeff Bezos knows that my Kindle may be replaced.  Bezos  can do this because he’s not in the book reader business, he’s in the book seller and publisher business (along with many other products).  Bezos is not cannabalizing his core.  By the same logic, Microsoft will never win with Bing because it cannot afford to give away as much software functionality as Google does.  Google can radically subsidize their Google Docs platform, GMail, and other functionality even at the enterprise level because the advertising model is so lucrative.  Like the NYTimes before it, Microsoft will not be able to answer the upstart in the search market because to give away the core product, is too painful — it would be like asking Gillette to give away the razors.

Coke & Pepsi are very active in social media and I think their hard work is helping to build up a “trust bank” with their audience.  As has been widely reported, Pepsi took their Superbowl ad budget and instead of creating a set of iconic commercials they launched their “Refresh Everything” campaign, in which they asked their audience to come up with ideas to “refresh the world”, in the categories of health, the planet, art & culture, food & shelter, neighborhoods and education.  They are giving away over $30,000,000 in tranches of just over a million with individual  grants running from $5,000 to $250,000.  The “fans” submit descriptions which are then posted on the site and voted for by the audience, after which Pepsi awards the money.  The company does retain the control of what gets posted and funded, but it engages their market in an entirely new way.

I believe this is a very, very smart move because in the wild and woolly world of social media where brands can be skewered overnight the only true protection is to have a great relationship with the market and audience at large.  The Refresh Everything Project is a bold experiment and I’m sure there are many skeptics, but I bet it not only pays for itself by being an incredibly efficient way to collect direct relationships with existing and new potential customers, but also helps to build good will toward the company.

Coca Cola also has been working in many different ways to create trust and relationship with their audience with social media.  For example, Coke has the second most popular page on Facebook with over 5,000,000 fans, second only to President Obama.  During this past Super Bowl, Coke partnered with Facebook to inspire fans to send digital gifts to friends and, in return, donated $1 for each gift sent to the Boys & Girls Clubs of America, with which Coke has had a 64-year relationship.  Coke’s Facebook presencewas started by “Dusty and Michael”, an actor and screenwriter from Los Angeles who together had gathered a few hundred thousand fans on their Facebook page dedicated to everything Coke.  Instead of trying to wrest control of the effort from them, Coke smartly decided to join them, and build on the existing audience.  Coke could have given coupons or other monetary consideration, but they felt a donation was a much better way to build relationships in this new medium.  Coke believes that there is a lot more psychic gratification in gift giving than in a simple price-off coupon.

Firms who don’t have a strong trust bank risk being skewered by disgruntled customers.  I’ve written about how Musician Dave Carroll had his favorite Taylor guitar broken by United Airlines while on a flight from Nova Scotia to Nebraska.  His hilarious video about the incident and United’s indifference has been viewed over 8,000,000 times and reported widely around the world.  I believe part of the reason this video was popular is that they have very little in their “trust bank” with their customers.  In contrast, when Kevin Smith, the iconic director of the popular movie Clerks, who has over a million followers on Twitter was refused a seat on a Southwest Airlines flight, there were many people in the social media sphere who came to Southwest’s defense which I believe was due to the large trust bank Southwest has with their customers.

Given the ubiquitous, uncontrollable, and growing power of social media, all firms should be asking themselves:

• How deep is our trust bank?
• How can you improve it?

I’d love to hear what you think what companies can do with gifting and other means to increase their trust bank.

I believe we will see a 10,000 to 100,000 increase in the number of computers, phones, devices and living things attached to the internet in the next 5-10 years — what many are calling “the internet of things“.  We have probably already passed the point when there are more things to attached to the internet than people.  All cars, many toys, most sick patients, lab equipment, cows with senors on their hoofs, you name it, will have the option to be connected to the network.  Most importantly, there are 4.3 billion mobile phones which already have at least a sound sensor, many have cameras which can also scan bar codes and analyze pictures, others  have accelerometers, and it’s not hard to imagine many more sensors attached to this mobile platform.  In short, we are at the early stages of “instrumenting the planet”.

This addition of billions of sensors is an ongoing development of what Jeff Rayport & I termed “The Virtual Value Chain” (VVC) back in a 1995 article for the Harvard Business Review.  The information description for every product, service, home, car, and business is increasing at an increasing rate, globally.  One of the most important and interesting implications of this enhancement of the VVC is how it enables new business models, new products and new services.  This story is not new with the internet.  James Beniger noted in his wonderful book, The Control Revolution: Technological and Economic Origins of the Information Society, each successive wave of information innovation enables a new level of “control” of production and organization.  Put another way, you can’t have a railroad without a telegraph because you could not coordinate the different trains streaming toward each other on the same tracks, without some communication ahead of their movement.  Let’s review some of the current implications:

Implication #1: Those who have a superior virtual value chain will be more efficient.  There is no doubt that those firms like WalMart, Amazon, Zappos, UPS, and even GE’s jet engine business, have a  advantage over their competition because their virtual value chain is more accurate, complete, detailed, and rapid than others in their industries.  For example, these firms can sense of actual movement of product or assets in real time which means they don’t need to create prediction models nor carry buffer stocks.  They can manage real time demand.

Implication #2: There will be crazy new applications that have fascinating, unintended consequences.  For example, there is a company called WideNoise which you can download and use on you iPhone to measure noise pollution.  I would not be surprised to see a sensor network, based on cell phone pictures, and other additional sensors begin to map the impact of the massive BP oil spill in the Gulf of Mexico.  Already if there is a Google Earth application which shows the size of the oil spill compared to Mahattan, San Francisco, Paris, London, Rome, Hawaii and Washington, D.C.  This type of visualization based on more sensor based data will come along soon and influence the nature of the data used in describing just how big a disaster this is.

Implication #3: There will be a torrent of data to digest.  A good friend of mine Admiral John Morgan (retired) has started a company to help analyze the torrent of data which is now streaming off of the thousands and millions of cameras used for surveillance and intelligence.  The number of video feeds from military drones alone has increase one or two orders of magnitude over the past decade and there are simply not enough eyeballs to watch and interpret it all.  We will need to turn to new technology to digest the information generated by our technology.

Implication #4: All companies will need to worry about their privacy policy.  I’m a believer that the best thing for companies, in the long term, is to support very strong privacy rights, and to give customers property rights in their data.  As my friend John Perry Barlow once said, “the productivity of property is in direct proportion to the quality of personal rights”.  Google is now getting sideways with the European commission because they collected and stored information from wireless data networks about individuals using those networks in direct violation of EU law.  As more and more virtual value chains get built out more and more companies may have a Google like problem.

Given the enormous productivity and control which more information gives Beniger pointed out in his book on Control Revolutions, companies will pursue it with a vengeance.  Are you ready for the competition and the human costs that arise?