The World Wide Web (WWW) and Internet businesses have only been in existence since December 1990.  As a young industry it has seen huge growth and change over the last twenty years.  Many businesses including the publishing, music and entertainment industry are only just coming to terms with how to build revenue streams from their legacy offline assets.

From 1992 to circa 2003 the Internet was in the period widely known as Web 1.0 (Cormode & Krishnamurthy, 2008). During this period most of the content on the Internet was consumed by reading or by retailing from sites such as Amazon.com.  This was mainly due to constraints in technology (AJAX and scalable scripting languages were not widely available) and that most businesses were transferring their pre-Internet businesses online with little change in mind set.

After the dot.com crash in 2000 businesses started to re-think their strategy. From 2004 we entered the web 2.0 era where a new breed of companies emerged and new model for operating on the Internet was born.  This new era brought new front-end interfaces such as AJAX, a strong social component and the new innovation of user-generated content (Cormode & Krishnamurthy, 2008).  The web 2.0 era has created a new landscape where businesses such as Facebook, YouTube and LinkedIn have provided their service for free and have looked to use innovative business models in order to build revenue.

IT environments have evolved through waves of organisation changes, mergers, acquisitions, technological advances.  The result is a complex, inflexible, fragmented IT environment with redundant processes and applications, information “silos,” and incompatible technology.  By eliminating these inefficiencies companies can reduce IT spending by millions of pounds while improving the service quality.

The Solution

To achieve real improvements a holistic approach to rationalisation is required that engages business and IT leaders to sponsor and participate in an enterprise-wide program of architectural review and transformation.

Step by Step Guide

Application portfolio rationalisation is the process of streamlining applications with the objective of improving efficiency, reducing complexity, and lowering Total Cost of Ownership by:

• Retiring ageing and low-value applications.
• Modernising ageing and high-value applications.
• Eliminating redundant applications.
• Standardising on common technology platform and version.
• Consolidating the applications—either physically, logically, or both.
• Eliminating duplicate and inefficient services.

This process could be done all in one programme but this can introduce risks such as excessive up-front investment or an internal backlash.

A more practical approach is to rationalise in stages perhaps by business process or by business domain (such as, Financials, Human Resources) with the objective of standardising the processes and consolidating the applications to achieve a shared services business model.

Drivers of retail banking issues

Firstly what are the drivers of the problems in retail banking at the moment?  In my view there are four main areas that have led to pressure on banking profits:

1. The economic downturn in 2008 caused a lot more than structural issues at banks, rising unemployment and low interest rates means there is less money being held in banks. When interest rates are low consumers are more inclined to spend their money rather than save it.  The depressed housing market also menas that less mortgages are being taken out.
2. Consumers are taking on less debt (due to the depressed housing market), saving less on deposit and where possible even paying down debt.
3. Regulators are putting more strict requirements on banks, Basel III means high capital requirements, and introduces new regulatory requirements on bank liquidity and bank leverage.  This extra regulation adds extra costs to implement and comply.
4. Technology is so available and affordable that it is enabling non-traditional, low-priced competitors in areas such as payments which is eroding banks core markets.

Growth areas and future trends

So with this in mind what are some of the growth areas and innovative ideas that we might see over the next few years?

Mobile wallets
The idea of using your mobile phone as a payment device has taken a big step forward in the last year. Google Wallet has launched in the USA and is offering a smart, virtual wallet that stores your payment cards, offers and store cards.  You can also use your wallet online very much like PayPal.  I would expect the next step to be digital receipts.

Micropayments
While Barclays have introduced Visa PayWave for touchless payments there is still not widespread adoption.  PayWave allows you pay for for items less than £15 without entering your pin, very much like swiping your Oyster card on a reader.

The trend in the west is more a higher volume of lower value transactions and this looks set to continue.  I would guess that peer-to-peer micropayment will be the next evolution for friend or colleagues to be able to pay each other for low value payments at the push of a button.

Aggregation 
Companies like mint.com have been around for a few years and they allow you to automatically pulls in all your bank statements, credit cards and financial information and categorise your transactions.  They then analyse your money and offer suggestions on the best banking and financial products.  Banks have been slow to adopt this technology and this could prove a great channel to up-sell more profitable financial products.

Evolution of Branches
With the rise of the digitally-savvy consumer more people are using Internet banking and transacting online.  However a branch network is still important as customers require a branch for complicated or more sophisticated financial products. In order to get customers into the branch when they are transacting more on the Internet requires a re-think of the branch environment. Research suggests that branches should adopt a more coffee shop feel with sofas, coffee and computer terminals for customers.  Once the customers are in the branch then sales people have a much better chance of up-selling products.

Evolved Online Payments
Ideal in The Netherlands is providing a service (which is backed by the banks) that allows customers to use Internet banking when making payments on online shops.  When you checkout on an online shop you are presented with your online banking login and make a payment directly into the shops bank account.

This benefits the customer as they are using a familiar interface and do not need their credit card, it benefits the shop as they have reduced fraud and the customer is more likely to complete their transaction and it benefits the banks as they cut our the payment service provider and take a better margin on the transaction.

A lot of people think retail banking is boring but I think there will be a lot of very exciting advances in the next few years.  With the continued downturn in the economy retail banking with its stable and reliable low margin profits will provide the foundation for banks to grow again in the future.

For our coursework we had to create a presentation that analysed Kraft’s acquisition of Cadbury.  The acquisition was big news at the time as Cadbury is an iconic British brand and the bidder, Kraft was an American company.

We believed that Cadbury’s strategy to the acquisition was to gain as much value for shareholders as possible by negotiating the best possible price.  The Cadbury board did little to try to defend the takeover and retain their independence.

Some people argue that Cadbury was sold too cheaply and some people thought Kraft paid too much.  To us it seemed like a good deal for both parties; Cadbury shareholders achieved almost a 50% takeover premium which is above the typical 20-40%.  Kraft used the acquisition to facilitate the subsequent split into Global Snacks and North American Grocery businesses, that will in theory unlock more value from Kraft shares in 2012.

Perhaps M&A does not have to be a zero sum game…

View the presentation here.

Thanks to Dio, Omar, Richard, Tim and Yaschica who were co-collaborators on this presentation.

Gaining control of your IT architecture begins with the definition of enterprise wide architecture principles and standards. Developing and enforcing these guidelines helps companies maintain the most appropriate and efficient systems, applications and processes, and to minimize unnecessary complexity, duplication, and costs.

Some examples of application architecture principles are:

• Common use applications (global single instance, ERP, CRM, financial/ HR shared services)
• Technology independence
• Maximizing the effectiveness of the end user
• Adherence to open standards
• Optimizing and re-allocating IT spend (buy vs. build, virtualization, platform as a service, infrastructure as a service, software as a service)

Without a high degree of collaboration between business and IT leaders, companies probably will not adhere to even the best guidelines. To promote adherence, it is important to show how each architecture principle and standard helps the company to achieve its goals and objectives. Architecture principles and standards are made relevant by connecting them to the strategy of the company. This changes the conversation from “lack of conformance with IT standards” to “lack of support for the company’s strategy” when managers resist complying with architecture principles and standards.

If you are looking for quick wins to make your ecommerce store more effective try focusing on the following.

Improve product information and product images

It is surprising how often product information does not have enough detail or includes low quality product images. This applies to both large and small retailers, I was very frustrated to not to be able to find ingredient information on a very large retailer’s website recently.

If you have a complicated product or a product that requires a 360 degree view then a video can be the best way to showcase the product attributes.

Cover all the payment methods bases

Often I get all the way to the end of a checkout process only to find that a site only offers a debit or credit card payment option.  If I am using my phone or ipad to shop online then I might not have my payment card with me and by including  PayPal/ stored credit card info as a payment option can make difference between a sale or a customer leaving your store.

Where possible give the customer the option to store their payment information for their next order.  There are many payment gateways who provide this service so that you do not need to invest in the infrastructure to store credit card information on your own servers.

Checkout process

Keep the number of checkout steps to a minium and where possible try to reuse information e.g. don’t ask customers to enter their billing and delivery address, assume they are the same and then give them the option to change it.

Ask for the bare minimum and do everything you can to get them to complete the transaction. Also don’t force customers to open an account but you should offer it as an option.

Search

This is perhaps the most important part of your site if you have a lot of products.  Search results are perhaps the most aggravating area to a customer if you do not get it right.  You need to invest a lot of time and effort analysing your search queries, getting feedback from your customers and investing in the best search technology.

Amazon have recognised the huge importance of search and have even spun off a product search product called A9.  In many of the large high transaction sites I have deployed the most widely used is Adobe Merchandising (formerly Mercado) which among other things lets you create the rules engine for product searches.

Taxonomy

If you are John Lewis, Tesco.com or Amazon.co.uk how do you spilt your products down into categories? Should a fridge go into electrical appliances or kitchen?  Your categories and subcategories require a lot of thought. I have seen a couple of good presentations on ecommerce taxonomy recently given by former librarians, so leverage the experience of experts in categorising.

Contact info

Make your contact information available and accessible and it will create credibility in the mind of the customer. Also for those customers that do contact you by phone or instant chat it can provide a valuable source of feedback on your shopping experience.

Postage rates

Make sure you offer a range of postage service and do not charge extortionate rates.

I have built many ecommerce sites from the ground up over the years, I have worked with many ecommerce software packages and I have experienced ecommerce from a user’s perspective.  In my view whenever a company makes an investment in ecommerce or makes changes to their online store there are only a few key metrics that need to be tracked.

Number of new visitors

The number of new visitors shows how well your marketing/ advertising/ multi-channel approach is working.  Attracting new visitors to your site is the key is growing your online revenue.

Number of repeat visitors

Not everyone buys on the first visit, very often customers will come to your site, store items in their basket and come back another time to purchase.  You will also have a number of people who become repeat customers and order regularly.

Conversion rate

The number of people visiting your site is of little value unless they actually make a purchase.  The higher the conversion rate the better. It is also useful to track the conversion rates of new and repeat visitors separately to get a clearer picture of your conversions.

Checkout abandonment rates

Once a customer has decided to buy then the checkout process is the key to your conversion rate. You need to have a clear view of each of your checkout steps and the abandonment rates at each stage (i.e. the number of people that fail to move the the next step). Using this information you can then try to improve/ optimise the stages with the largest abandonment rates.

Average order value

While your target average order value will vary greatly based on your industry, ideally you would like to see a year on year increase.  Many companies will have an average order value that they need to achieve in order for their online operation to be successful.  I attended a job interview with Tesco a few years ago and as part of my assessment they asked me to estimate the breakeven order value for Tesco.com. My rough calculation showed it to be around £40.

Orders per customer

If your online store has a good CVP and has good usability you would expect to see that your customers make many repeat orders. This obviously depends on the industry and the product, but for the majority of online stores repeat orders have the highest profit as the average customer acquisition costs are lower.

Summary

Of course there are many, many more metrics that you can track but in my view these are the key ones.  Even small changes in any of these metrics can have a big impact on your ecommerce bottom line.

After more than 10 years of growth e-commerce still only accounts for about 8% of total commerce in the US. Clearly, we have a long way to go in moving more commerce online so there is still a lot to be gained from investing your corporate budget in ecommerce.

As companies move through each stage they can realise benefits rangin from reduced IT operating costs to greater strategic agility.

Stage 1: Business silos

In this stage companies focus IT investments on delivering solutions for local business unit or functional needs and have do not utilise technology standards. The role of IT in this stage is to automate or facilitate specific business processes.

• One off solutions
• Bottom-up. IT led by local business units
• Poor integration with other IT systems
• Poor server utilisation
• Little shared data

Stage 2: Standardised technology

This stage means moving some IT investments  from local applications to shared infrastructure. Technology standards are now established intended to increase reliability and decrease the number of technology platforms to manage.  Fewer platforms means lower cost (around 15% less) but also less choice, however companies are willing to accept this tradeoff.

• Rationalisation, standardisation, and consolidation of the IT infrastructure
• Achieving a reliable, cost-effective IT infrastructure shared services model
• Focus on quick wins

Stage 3: Optimised core

The next move is from a local view of data and applications to an enterprise view. IT staff eliminate data redundancy by extracting transaction data from individual applications and making it available to all processes. In this stage companies are also standardising business processes and It applications.

• Standardising core business processes
• Local managers and units lose control over discretion over processes and IT
• Consolidating redundant applications into a single global instance of ERP and CRM
• Rationalisation of processes and applications with the objective of standardising processes and consolidating applications.
• Build re-usable data and business process platforms
• Top-down. Business processes and IT investments are made by central IT department

Stage 4: Business modularity

This stage allows strategic agility through customised or reusable modules.  The objective is to create reusable modules that business units can join together a standard interface such as web services.

• Move from local flexibility to global flexibility

Executive summary

US Venture Funds have outperformed European Venture Firms by a large margin when looking at both capital weighted average and upper quartile returns (Fraser-Sampson, 2010). Some argue that this outperformance is due to market and labour conditions, however most experts agree that the US approach to venture capital (VC) has largely driven these superior returns.

The traditional US approach is characterised by a home run mentality, investing in early stage companies and using entrepreneurial experience to add value to portfolio companies. In contrast the Europeans adopt a risk-adverse mentality, invest in later stage companies, often lack start-up/ entrepreneurial experience, operate in a fragmented market and have no stockmarket equivalent of the Nasdaq.

However in recent years, newer European funds have started modelling themselves on the successful US firms; investing in earlier stage companies and adopting a home run mentality (huge exits such as Skype, Betfair, MySQL). These success stories have created a new breed of entrepreneur who now has the ability to add value to portfolio companies. There are other changes as well, VC in Europe is also maturing with more fund managers managing repeat funds, relative undervaluation of Europe companies, coupled with better capital efficiency means that Europe may outperform over the next few years. The US could also be a victim of its own success with large amounts of capital flooding the market, driving up valuations and increasing the number of inexperienced US Venture Firms.

This leads us to ask the question of how relevant are historical returns comparisons if the markets have changes post-credit crunch and European funds are adopting the US model.

European VC firms seem to be closing the performance gap, but whether upper quartile returns in US and Europe narrow still remains to be seen.

Investment is about risk-reward trade offs, and the risk-reward profile of venture capital is not uniform across all sub-categories. Generally speaking, the earlier the stage, the riskier the investment, but the greater the potential payoff in case of success. As US VC adopts a more early stage approach there is a higher probability of extreme (positive and negative) returns. By comparing Europe VC to the US, a naïve conclusion might be that European venture performance would have been better had investment been undertaken in greater volumes, with more of a focus on early stage, and more of a technical focus. However, correlation does not indicate causality (Kelly, 2011).

Ultimately US and European capital and labour markets are very different so trying to compare VC firms on either side of the Atlantic is very difficult.

Download the full report: Traditional approaches to venture capital by GPs in Europe and the USA.

The report covers:

My latest report attempts to identify common factors that influence scaling in professional service firms (PSF). The sample draws from small and medium (up to 100 people), UK-based firms who deliver services to UK clients.  We interviewed a sample of professional service firms using a structured list of interview questions and this data was then analysed to discover themes, trends and comparisons made between the companies that scaled and those that did not. Below is a summary of the key findings.

Findings

Our findings corroborate widely-held industry views that successful PSFs scale when they select and leverage resources (particularly people) and intellectual capital for optimal competitiveness and growth.

Based on our finding we developed the Phased Scaling Model which attempts to encapsulate the scaling stages of a Professional Service Firm.

PSF Phased Scaling Model

We identified several key factors that determined successful scaling:

• Human Capital.  This is a firm’s principal asset, which should not be diluted.
• Management Decoupled from Delivery. Firms cannot grow effectively if management are concurrently deployed on client projects.
• Management Team. Quality and individuals’ networks are essential for early success.
• Financial Management. New methods of reducing fixed costs de-risk and support focus.
• Brand Management. Required to scale beyond known networks and relationships.
• Differentiation and CVP. Differentiate in saturated markets with low barriers to entry.
• Building Networks and Relationships. Form the initial sales and reputation-building platform.
• Industry Diversification. Expanding into new markets to de-risk against an industry downturn and to access a larger customer base.
• Timing and Luck. Are key factors in either a positive or negative outcome.

Human Capital

All interviewees stated the most important scaling factor was the ability to find and retain key talent. People are a PSF’s main asset and without a continuous pool of talent to match the organisation’s growth aspirations, the business will be constrained.

• To keep a consistently high quality of hires a template of new hire is required e.g. Employees must have Big 4 experience, a Masters Degree, Prince2 and MSP as a minimum.
• The mix of fulltime versus associates is also critical.  A 30:70- split between fulltime associates (contractors) and employees enables downsize flexibility if growth is not on plan; fulltime employees give you client consistency and are critical to building culture.

Management Decoupled from Delivery

To coordinate growth senior management should focus on the wider strategic growth issues and should not be involved with the day-to-day operational issues.

• Senior management focusing too heavily on billable work can restrict growth.
• In order to facilitate senior management detachment there needs to be an investment in the delivery teams to give senior management confidence to step back.
• Senior management detachment from operations makes the business more attractive for an acquisition.

Management Team

The chemistry of the management team, their networks and risk profiles have a significant impact on growth.

• Early customers were won from their professional networks or previous clients.
• It can be several years before any work is won from pure marketing.
• This means that scaling in the early years is dependent on the quality and depth of the professional networks and whether previous clients have realised value from the engagements.
• Managers should have similar tolerances for risk or relationships may become strained.

Brand Management

To scale, the business must move beyond personal networks and attract customers from the wider target market by building a well-regarded brand.  Building a PSF brand involves more than just delivering excellent work and customer service:

• Targeting industry awards.
• Hosting thought-leadership events..
• Hiring a marketing manager early in the firm’s life.

Differentiation and CVP

In a congested Professional Service market with low barriers to entry, differentiation, demonstrating value and successful execution are key.

The firms we interviewed focused on a specialist area of consulting and using a employee template that allowed it to offer ‘Big 4’ quality at much reduced fees. It also proved its CVP with its first clients before it scaled.

Building Networks and Relationships

All of the firms interviewed used relationships to build an initial platform and expand their network.  However, it was the mix of other scaling factors that determined the on-going probability of success.

Building networks seemed linked to the proximity from the end-client’s ecosystem. Locating offices close to the client makes project delivery and account management easier and also means you are close to clients when new projects arise.

Industry Diversification

Most firms start their business by focusing on one industry, as this is where they had the most experience, contacts and knowledge.  This seems intuitive as it gave them the best chance to access early customers and leverage their individual credibility from previous professional engagements.

However once the business model has been tested with early customers the firm needs to quickly duplicate their model into new industries/ markets. This is essential to de-risk their reliance on a downturn in their core market and has the added benefit of increasing the potential customer base to support the rapid growth phase.  However the firm should not dilute their industry competency too widely and should aim to expand to five or six industries.