Searching for the Moon

Shannon Clark's rambles and conversations on food, geeks, San Francisco and occasionally economics

Projection Rejection

Posted by shannonclark on April 2, 2005

I left a long set of responses to a discussion on Fast Company Now about Projection Rejection.

(my comments there were posted twice due to a hiccup in my connection)

“To generalize a bit from Chris’ suggestions:

– Start with a clear understanding of what the situation is today. This may not be simple to achieve – try to look at what the drivers of the business are, what you can track and measure

– Then look to a discussion of what of those drivers of the business the innovation effects:

Does it increase the number (or potential number) of customers?

Does it expand services to existing customes? If so, will they pay for the additional services/features/functionality? (in many industries the answer may be no)

Does it help retain existing customers – i.e. cut down on “churn” or other costly changes to your customers?

Does it directly affect your relationship with customers? Note, not all innovations will, many may help you manage costs, retain employees, enhance productivity.

If not directly related to existing customers, what is the impact of the new innovation?

Building from that, how will you track and measure that impact over time? What is your starting point “pre-innovation”? (turnover of employees today, time it takes an employee to do a given task, productivity of a line of business, costs of current suppliers etc)

With the above questions answered, you can then look at what projecting forward the innovation could achieve, how to measure and track it going forward, and from that parameters of success. (don’t forget to include in your costs the costs/efforts involved in measuring/monitoring – which can in some cases be significent)

You likely can then start to look at qualitative discussions – is the impact of the innovation worth the risks and costs of the innovation? What is the downside of going forward (risking $x, spending time/attention, etc)? What are the upsides? What is the risk if you wait or do not go forward (in many industries, take cell phones, the risk of stopping to innovate is dramatic downturns in your business)

If it is so radical of an innovation that you are proposing that the current metrics of the industry no longer matter (switching from per-minute billing to flat rate in the long distance/telcom market – so metrics built up around # of minutes etc had a diminishing value) you will want to look carefully at what you are measuring (and projecting from) and look for the underlying reasons behind the old metrics when proposing your new ones.

– i.e. the old metrics tracked the drivers of top-line revenue, so to use the telcom model in place of minutes the new metrics would likely have to track # of customers, revenue per customer, “cost per new customer” and churn rate. Metrics you may have tracked before, but which had a different impact previously.

You’ll then move metrics like “minutes used” into a different category, one that now looks at the “costs per customer” and might help you identify profitable customers (and unprofitable ones) – and then track the impact of changes on those meatures.

hope this helps,

Shannon”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: