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The Analytics Payoffs

For a lot of years I’ve been sharing a conclusion from decades of observing small group activity. I believe that when 5 or more people work together effectively on a challenge they bring the intellect of at least a genius to the work. It doesn’t matter if the group members are smart or high in an organization or what we believe is well-educated. I watched it for years and then put a measure to it.

Back when we used to have more time during training or planning or decision-making settings I used to administer a short quiz fashioned after the preliminary entrance exams for membership in Mensa, the society of genius-level IQ holders. I would do it as an intellectual warm-up. In order to determine if you could gain entry to Mensa you would need to score at least 7 out of 10 correct answers.

Every group, whether made up of corporate executives or hospital maintenance workers, to which I gave the test scored 7 or higher. Around half would score perfectly.

Today, the use of analytic techniques is proving my point. At the Wharton People Analytics Conference an interview published on Knowledge@Wharton cited Google’s head of HR Laszlo Bock who is an evangelist for the use of analytics in the field. Teams, when put together correctly, are at least geniuses.

The Wharton interview is full of useful bits of information. Make sure an employee being “on-boarded” meets their management on the first day. A person’s success at a company depends heavily on who they work for. A team IQ is often greater than the sum of the parts. A mix of introverts and extroverts along with norms of behavior make the most productive teams. Moneyball got it right and is at least partly responsible for the upsurge in the people analytics.

Surprisingly, the best firm on hiring, according to Wharton experts, is Teach for America. A not-for-profit that has embraced analytics in order to get better teachers in front of kids. But the organization also knows that they don’t know enough yet. That’s a good lesson for those of us who are futurists. Go with the best information you have but always doubt it and find even better ways of making good decisions.

The biggest question about the use of analytics overall? Why more top leaders are not embracing it. Whether it’s a lack of hubris or a fear that it might replace jobs it’s a baffling question but the condition exists. I hope for a change.

320px-DARPA_Big_Data
In almost all of my busiest industry niches there’s buzz about “Big Data.” Mostly buzz. Not much there, there yet. But it’s coming in a big way and the harbinger may be people measurement, especially help in hiring. Another observation I’ve made over the years of managing my own businesses was that a bad key person hiring (manager, salesperson, technician, creative talent) would cost at least 3-4 times their annual compensation. People analytics is proving it now.

While there’s more buzz about marketing analytics than anything else in the media my bet is on human resources as the place where the first major inroads will be for analytics in organizations.


The Race for Sustainability

It was obvious 5 years ago that the term replacing “green,” environmentalism, or “save the planet” would be sustainability.

The signs were obvious. In manufacturing, energy, and agriculture the shift had been underway for some time. But the “s-word” was popping up in unanticipated fields like financial services, municipal government, hospitality, and healthcare.

The driver: consumer attitude. When people are asked whether they want a product that’s “green” or “organic” they hesitate. Experience tells them it’s going to be somehow a sacrifice of quality and higher priced to boot. Not a great choice unless you’re in the minority of the market that wants to save the planet at any cost.

But the term “sustainable” refers to the concept of renewable or the ability to be perpetual. A UN commission in 1987 established a definition that holds today,
“meet the needs of the present without compromising the ability of future generations to meet their own needs.” Consumers sign on to that thinking readily. So readily, in fact, that the future is going to be full of battles over the ability to use the term.

A conflict in an active segment of my practice is a good example. Organic food producers would like to claim the sustainable term as their own. An organization called the Leopold Academy applied to the American National Standards Institute a few years ago to establish a standard, a definition, of “sustainable agriculture.” When forming the group that would put forward the criteria they pointedly omitted the largest food producers in the US – production agriculture. You know, the farmers that use chemicals and genetics to be the most productive on the planet and which account for well over 80% of the food production in our country.

The US Department of Agriculture intervened and the Leopold Academy agreed to put 11 production ag representatives on the committee where they were outnumbered 3-1 by organic producers and environmental group representatives. The new participants tried to turn the standards to what’s known as the “triple bottom line” – defining sustainable as not only environmental but based on
economic and human capital issues as well. The short version is people – planet – profit. The discussions continued for some months but last fall the production agriculture reps pulled out of the talks.

Today it may be impossible to establish a standard until two sides of the debate can sit down in more equitable numbers to reach consensus on the definition. It’s a huge issue that could lead to more than standards and labeling. With a political overlay the standards would eventually translate to regulations.

Look for many more debates, discussions, and organizations positioning themselves as “sustainable” in the years ahead. Look for them to use the triple bottom line as the standard. In your own industry or field, no matter the level of environmental sensitivity, look for
sustainability to be a major issue in the future.

The Oil Forecast

For the last three years, ever since it became obvious that the world was slipping into a recession and commodity prices would come down, I’ve forecasted an inevitable return to rising oil prices.

My logic: the recession reduces demand but only temporarily. Recovery from recessions is uneven globally. Some regions recover months, perhaps even years before others. A robust economy in Asia and to a lesser extent in Latin America will create demand that will drive prices up despite a slight fall in use in the U.S. and the EU.

Speculation or unexpected geopolitical events – “triggers” – will create volatility. Speculators will enter the market on supply shortages. No regulating body can keep them away from the opportunity to make money.

My forecast from mid-2008 forward: 75 to 85% confidence that an oil price spike and permanent plateau above $100/barrel will come sometime in the 2011-2014 time frame.

It’s been of interest to clients in, well, almost every field. Because as one CEO said to me on being asked what energy prices affect, “Everything!”

As the economic recovery has forged ahead strongly almost everywhere except the North Atlantic the price of a barrel of oil has risen back through the $50, $70, then $90 levels. Now the unprecedented events in the Middle East have taken Brent futures over $111. West Texas will follow.

Will it stay there? Of course it depends on a complex array of factors. Economic effects, how high the price spikes, volatility, whether the Saudi’s can really make up most of the shortfalls, refining bottlenecks, and more. In the weeks ahead I’ll place more information here on the implications of this important trend.

In the meantime I’m getting a lot of queries from clients who quickly remember my forecasts and are running through their Plan B strategies to react to the development or are confident because they planned for the high probability of this years ago.

The Buffett Letter

I read Warren Buffett’s letter to me as a shareholder this morning. Direct, analytical, balanced as usual. I like this passage a lot:
“Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But the future then also included competitive dynamics that would decimate almost all of the companies entering those industries. Even the survivors tended to come away bleeding. Just because Charlie and I can clearly see dramatic growth ahead for an industry does not mean we can judge what its profit margins and returns on capital will be as a host of competitors battle for supremacy.”
The chairman’s contention that obvious upside growth is no guarantee of success is one that many leaders miss. I see it in industries challenged by bright but unclear futures.
Agriculture is an example. It’s obvious that increasing world population is going to demand food and a growing middle class will increase demand for animal protein in diets.
OK. Barring a major disease outbreak or a comet hit, this is an obvious outcome.
Many in agriculture assume that North America will be the big winner. That the world will beat a path to their production. That other nations, other producers will not be able to keep pace or match their products. Here the Buffett interpretation is missed.
Predictions from Malthus to Paul Ehrlich to recent forecasts of peak oil after-effects have breathlessly proclaimed danger. I watched Lester Brown of the Worldwatch Institute in 1995 do a predictive presentation on
Who Will Feed China. He’d written a book with that title.
The answer to Brown’s question? China itself. While importing substantial quantities of soybeans and vegetable oil it is quite adept at meeting its own food needs and exporting very large quantities of foodstuffs and value-added products to the world.
Where is Buffet’s “host of competitors” battling for supremacy? Everywhere.
I can cite examples of basic crop rotation and sound agronomy’s ability to triple and quadruple the productivity of land in Asia and Africa.
Then there’s wonderful technology
not involving genetic modification but making use of plant genomes to bolster Mendel’s techniques in developing even better crops and nutritious food. Mega-competitors like Brazil, Argentina, and huge multi-national corporations that have bought land in the poorest nations will crank out food, feed, and fiber in the next 3 decades.
Errors in judgment like looking at autos in 1910 or TV sets in 1950 or hand-held converged devices today with rose-colored myopia abound. There’s no argument that strong demand is ahead but there are no clear, dominant, easy winners.
Heck, one of my clients, Motorola, is spinning off its well-known handset business and retrenching to the predictable, profitable platform that has been there for decades: two-way radios and similar technology. Personally I think it’s a solid, overdue strategic move.
Question the too-easy and too-optimistic assumptions. Widen your view. Look ahead. Identify the potential competition before it surprises you. And then adjust your strategy to compete in the good, but challenging times ahead.

Patent Harbinger: Where is Distributed Energy Headed?

I advise clients to watch certain metrics for emerging direction. A good example popped up recently in all the hype over the Bloom fuel cell announcements.
Bloom is a startup that has built fuel cell “servers” supplying electricity to a number of Silicon Valley firms. If you’ve missed the hype there’s a healthy helping
here. The servers at those big SV firms run a cool $750,000. Not pocket change to us consumers.
The Bloom technology is interesting because of a several factors. 1) It
might scale down. The company’s statement that they could be producing home-sized units for a $3000 price point in a few years causes ripples in the energy sector. 2) It shows off a technology that’s taken a back seat in the media, fuel cells. 3) It demonstrates early hype for a technology. I encourage skepticism when something gets too much media attention.
But what caught my eye as my scanning system picked this up is the longer term pattern of patents in “clean energy.”
My favorite weekly scanning source, The Economist, showed this chart at left.
When you think “alternative energy” or hear it in a politician’s speech you probably think solar, wind, electric vehicle, or maybe biofuel. You don’t think of fuel cells. But a patent rate three times the other technologies causes me to point to it as a trend to watch carefully.
The Economist hypothesizes it’s due to corporate R&D stimulated by government subsidies. Probably the major driver. When you start delving into the practicalities of the Bloom style of cell you see problems. Very, very high operating temperatures. 24 hour a day operation which gets to be a problem if you can’t sell your electricity back to the grid especially at night when demand is low. A reliable source (read that as natural gas).
My forecast: true renewables like solar and wind look like the best bets. But keep an eye on fuel cells for the long term.