We now blog here....

sorgenfrei.wordpress.com

International speaking engagement confirmed

Paris, France - who would not want to go there in September? I will be speaking at the ESSEC Alumni event on Avenue des Champs-Élysées September 18th. The topic of my presentation will be "Competitive Intelligence in North America."

Remember we speak across the country and the world, so if you have a need for a lunch speaker or a talk to get your research troops fired up drop us a line

A big redesign is underway

We continue to focus on client business and the blog and site updates suffer. But no more. We have recently found an agency that will redesign the site and the blog features and hopefully before summer we can relaunch with our new "identity."

On the client side we are getting more attention in Europe which is exciting and cool since we get to go see our families and just hang out over weekends there. Here in North America focus continues to be on automotive, although consumer electronics keeps creeping up. All good stuff.

Jerry Flint: Why People Buy Cars

100% Jerry...

It's amazing how many auto executives don't understand why people buy cars. I could name two chief executives of General Motors that wasted hundred of billions of dollars of the company's money because they didn't understand.

I'm not surprised that government bureaucrats, academic economists, scoop-hungry journalists, and greenies don't understand. But auto men should. But as the talk of plug-in electrics grows, I'm beginning to see more quotes like, "Most people don't drive more than 40 miles a day, so this electric car, will suit them." I made that quote up, but it's close to what you hear people saying. And it is true that the average driver may drive just a few dozen miles each day, but that is a meaningless statistic.

So here's the explanation of why people buy cars, written especially for folks in this business.

An automobile is quite expensive; $30,000 is the average new car price. The reason people are willing to pay $30,000 for this thing is that it is a tool, a very versatile tool. This tool will take you 20 miles to work and back each day. This tool will carry you fromNew York to Los Angeles and back. It will climb to the top of Pike's Peak. It will take you across the Arizona desert at noon. It will carry 1000 pounds of people inside.

It will carry hundreds of pounds more of cargo in the truck and on the roof. It will tow at least 1500 pounds. It will be warm in the winter and cool in the summer. It will provide time to listen, to music, the talk shows, to sports, in privacy and comfort. And on the coldest night of the year, when your baby turns blue at 2 a.m., this tool will get you to the hospital.

That is why this thing, this automobile, is worth $30,000, because it is a tool that will do so many things. When you start subtracting the things that this tool can do, it loses value.

And when you get down to: "It will take you 20 miles to work and back each day," then the tool is worth only about $700. That's because for $700 I can get you a beater that will do just that but not much else. So when you think of an electric car, you must realize that to have serious value it must move 3000 pounds the way you have to move 3000 pounds to make it worth $30,000.

The Toyota Prius hybrid succeeds because it is does these things, not terribly well, but it does them. It's not really fast, but it's fast enough. It has a reasonable range and can carry a reasonable load for a small car. It's high priced -- $26,000 or so for such a small car is a high price. But then people get excited by its fuel economy, and its unique shape make it a rolling billboard for the owner's good intentions.

It's not just American auto people who don't understand. The leaders of Daimler in Germany missed the boat with the smart (lower case s if you want), too. This smart exercise has cost Daimler $5 billion or so in losses. The smart is cute, yes, but can only carry two people and very little else in the way of cargo and goes slow. You wouldn't want to drive it any distance -- like from Paris to the Riviera - on Europe 's superhighways where even I have driven at 100 miles per hour.

What the smart is good at is parking, but parking ranks relatively low on the reasons for buying a car, except in two cities, Paris and Rome. And for the price of this two-seater, a European could buy a small car, such as the Volkswagen Polo, that would carry four and stuff and be good for traveling anywhere.

So why hasn't DaimlerChrysler killed the smart as General Motors and Toyota killed their electric cars? Probably for political reasons: it would embarrass the Daimler board that approved the project, and the German foreign office, too. That's because the smart plant is in France, and it would mean Germans firing Frenchmen in a high unemployment area. Not good for foreign relations.

Does this mean that GM's latest electric car concept, the plug-in Volt, is doomed? Not yet, because the Volt doesn't exist. It's supposed to run on lithium-ion batteries and these don't exist for use in cars yet. When and if they do come, GM says the range problem will be solved by a small gasoline motor that will recharge the batteries when they weaken.

Maybe that will work. Maybe it won't. We'll just have to wait. Note that we haven't gotten into the issue of the cost of such a car yet. There are still those who insist that Toyota loses thousands of dollars on each Prius it sells - which Toyota denies.

Just remember, as you read in the future of other great answers to our oil problems, like the computer-controlled unicycle or the one-person three-wheeled bubble car, that they aren't going to happen if they aren't real cars, which means they must be versatile tools that can do many things that make them worth $30,000.

The online revolution in TV

We have spent some time over the past months thinking carefully about what the Internet is going to do to the different stakeholders in traditional TV. Let's start with the "simple" end of the spectrum first.

The cable and satellite operators will still be in the game of delivering the broadband connection and to some degree so will the telcos with DSL lines.

The question is will they be able to charge consumers subscription fees for the TV portion. Well, not if more networks are streaming content.

So let's assume more networks stream content, the consumer will now view this content on a PC or Mac with or without a tuner card. If they have a tuner card they can watch "traditional" TV assuming they pay for a subscription. Without a tuner card they are confined to streams. In both cases the consumer is now watching content on one big TiVo box. The computers hard drive (or external drives which are exploding in popularity) will be a perfect storage device for recorded content.

There is even software that can easily take out the preroll and the commercials in the content. So why watch traditional TV on a regular set? Beats us too. We certainly aren't doing it any more. The freedom of choice that come with the new technology is going to slowly bleed the networks as advertisers flee. We will be watching content on different platforms that are hard to track and therefore advertisers do not get the ROI. Who is watching what and when is going from ambiguous today to completely unknown in the near future.

The good news is (wait for it...) Beamback TV has a technology that enables networks and advertisers to keep generating great content and making money from it without worrying about traditional advertising. And the technology vastly improves the "tracking" that companies like Nielsen does.

The TV advertising and consumption model is changing from a push to a pull model, and Beamback TV has what we believe will be the tool to make it happen.

Brands as movie makers

There is an excellent article in today's New York Times that talks about the increasing trend of marketers and brands creating mini-movies to better catch the attention of consumers.

It's been some time since our last post

We've been busy with client projects and not taken the time to post. In addition things are really starting to pick up in our other business Beamback TV and since we have three other projects going there will hopefully soon be more to share. Until then, hang tight and thanks for stopping by.

This car is amazing....

Clients set the fee - story from WSJ

We've practiced an approach like this on occasion. Some clients like it, others do not appreciate the hassle and realize we offer a great cost/benefit with our current pricing...

Consultant Lets Clients Use 'Gut' To Set Final Fee
By JACLYNE BADAL, August 21, 2006; Page B1

In the world of management consulting, clients can pay dearly for sound advice -- and just as dearly if advice proves not so sound. It is the way most consulting firms work.

And then there is Trium.

Since it opened in 1998, the small San Francisco firm has offered clients a different kind of pricing structure. It states a figure and takes on a project if the sum is acceptable. After the project is done, dissatisfied clients can pay as little as half the quoted amount. Happy customers pay up to 35% more than the quote.
[chart]

Trium's approach isn't unheard of in the $78 billion-a-year consulting business. Mark O'Connor, chief researcher at the Kennedy Information market-research firm, says most consulting firms, including giants such as McKinsey & Co. and Boston Consulting Group, will offer variable pricing, but only at a customer's request. (McKinsey and Boston Consulting say they don't comment on fee structures.) But all told, Kennedy Information says, just 5% of consulting projects are priced based on performance -- and those that are, Mr. O'Connor says, have only small fluctuations in the fee, typically 5%.

Further setting Trium apart from the rest of the pack are its ground rules: While the fee differential at firms offering variable rates is usually determined by objective, quantifiable results, such as reducing costs or inventory, Trium lets clients pay based on their gut reaction. The bonus or penalty can amount to tens of thousands of dollars on projects where quoted prices typically range from $150,000 to $400,000.

"This is a great way to put some skin in the game," Mr. O'Connor says. "It's a dangerous strategy, but it gets attention."

Trium's top executives -- formerly associated with larger companies such as A.T. Kearney Inc., Accenture Ltd. and Bain & Co. -- say they wanted a way to compete with the more established companies they had left behind. "We're bringing the same talent levels, but we don't have a brand," says co-founder Andrew Blum.

Risking part of the fee seems to be working for the firm. Trium now has 30 full-time employees, up from its founding group of four. Co-founder Thomas Miller recalls working on a project for cellphone maker Nokia Corp. with little more than a fax machine, a bit of cash and a tiny back office. Now, the company has offices in San Francisco, New York and Paris and manages about 25 assignments at a time.

Trium serves marquee clients such as Gap Inc., Symantec Corp. and Home Depot Inc., but it doesn't feel like a typical consulting firm. Managers wear jeans, and a dog lounges on an armchair in the waiting area.

Mr. Miller, a triathlete who smiles easily, and Mr. Blum, a former Marine who gives rapid-fire answers, say they want Trium to be a one-stop shop for clients, combining advice on human resources, strategy and operations. And they want a pricing scheme that rewards employees for doing a good job.

Asset-management firm Barclays Global Investors, a unit of Barclays PLC, hired Trium in 2002 to help prepare two off-site meetings for the sales force. The sales managers had several tasks to accomplish during the sessions, and Barclays managing director Victoria Klein wanted to ensure they were productive. "It's an expensive proposition" to stage such events, Ms. Klein says.

Trium risked 25% of its quote on the six-week engagement. No numbers or measurements were used to judge performance -- only Ms. Klein's opinion of whether salespeople acquired new skills and left the meeting motivated. "I had held sales-team meetings quarterly for a couple of decades," she says. "I had a very specific standard."

Ms. Klein and Barclays' head of sales chose to pay Trium the 25% performance bonus.

Curiously, most Trium clients opt from the start to pay a fixed fee, to assure budget certainty. Among those who choose variable pricing, Trium says 76% wind up paying more than the quoted price. Only one client in eight years has paid less than the quote.

Benson Shapiro, a professor emeritus at Harvard Business School who studies performance-based pricing, says the strategy is gaining adherents in the construction, advertising and trucking industries, among others. For example, the companies that rebuilt earthquake-damaged Los Angeles freeways in 1994 earned a bonus for finishing early. Commercial-building firm Turner Construction Co. commonly adds performance incentives to its contracts. Mr. Shapiro says advertising firms such as Ogilvy & Mather and Young & Rubicam, both units of Britain's WPP Group PLC, sometimes are paid partly based on response to their ads. Ogilvy says it doesn't discuss its fees. Y&R didn't return phone calls seeking comment.

Mr. Shapiro says the strategy acts as an insurance policy for buyers and sellers, and improves communication. Linking pay to performance encourages consultants and clients to discuss expectations in greater depth than with traditional project-based pricing, he says. That is because both parties have a financial incentive to define success and resolve misunderstandings.

Trium clients say one of the firm's strengths is consistent, one-on-one communication with the same senior-level consultants who negotiate a contract. The collaboration helps projects flow more smoothly, says Stéphane Prunet, chief executive of investment-management firm AXA Rosenberg, a unit of French insurance giant AXA SA.

AXA Rosenberg has hired Trium more than 10 times since 2000. The first time, top executives paid 12.5% more than the quoted price after a six-month project that helped align its executive team behind a new business strategy. Mr. Prunet says AXA was impressed with the consultants' ability to engage top executives and change their thinking.

Mr. Prunet, who still uses Trium, says the pricing scheme reduces his risk. Strategy consulting "can be a waste of time or a great thing for a company," he says.

Although Mr. Prunet speaks highly of Trium, he doesn't always pay the bonus. Most recently, he hired Trium for a two-month strategy-and-leadership-development project. The consultants risked 32% of their fee. Mr. Prunet was satisfied with the work, but paid only the sticker price.

Clever

Product Development - Excellent Article

The New Practice of Global Product Development
Steven D. Eppinger and Anil R. Chitkara
Buy the entire article here

Many manufacturers already have established product development activities in different countries around the world. As a rule, the current approach includes colocation of cross-functional teams to foster close collaboration among engineering, marketing, manufacturing and supply-chain functions. The results to date — better product designs, faster time to market and lower-cost production — have been satisfactory. However, growth and innovation can now be much more effective if manufacturers tie their decentralized development organizations into a cohesive, unified global product development operation.

In this article, the authors introduce new empirical frameworks to guide managers toward such practices. Citing exemplars such as Hewlett-Packard, Eastman Kodak, Hyundai Motors, Haier, Alcatel and Cummins, the authors explain why GPD has come of age and demonstrate a three-stage approach that puts product development in the context of a company’s relationships with outside partners.

The article draws from extensive interviews with engineering managers at more than 100 companies in 15 countries in North America, Europe and Asia. Additional data are from a recently completed study on GPD that PTC has conducted with BusinessWeek Research Services, interviewing and surveying more than 1,100 engineering managers worldwide.

Steven D. Eppinger is deputy dean and General Motors Leaders for Manufacturing Professor of Management Science at the MIT Sloan School of Management. Anil R. Chitkara is vice president of global product development strategy at PTC.

I'm Mike

Hello fellow blog readers,

My name is Michael Lee and I am the new intern to Peter Sorgenfrei. To change up this blog site and to add a bit more content, I have been assigned, by Peter, to occasionally talk about my experiences with being the intern.

My background: I'm 24 years old and a psych major at the Univ. of Hawaii. I'm not entirely sure how I ended up working with Peter but I'm fairly certain it involved my brother-in-law, Peter, a pitcher of Guinness and a losing game of darts. Either way, I'm here now and trying to make the most out of this fortunate chance of fate.

Now, there's this stigma with being considered an intern. People usually associate interning with something that would imply coffee-making, photocopying, and vacuum cleaning; which I don't consider all that bad as long as I can get the reference and a possible future position. Just paying my dues.

For my first day of work today I sat in on a meeting to discuss crucial steps for a particular start up company: how to deliver the pitch, who is the target demographic, who will provide funding, etc. This was all very interesting, and a great start to my summer learning curve. But perhaps the thing I will remember most about my first day was a bird.

In the office was the company founder's bird, Nelson. He was one of those typical, multi-colored birds you're likely to find on a box of eco-friendly cereal. He lived in a large, white cage with a middle-eastern architectural flair that demanded a kind of royal respect for its inhabitant. Imagine the sultan of Disney's Aladdin combined with a bird--that was Nelson. Consistent with his royal environs, he would squawk every couple of minutes in this loud, obnoxious voice, proclaiming to anyone who would listen "Look at my kingdom, my bright green plumage, and follow your nose to some intern-worth business". Thankfully, Peter seems to have a more dignified concept of internship than does Nelson.

Overall, a fairly productive start.

Mike the Intern

Mike is working with us for a couple of weeks and will as part of his assignments start writing a daily post to this blog. Here we go, in his own words:

Changing traffic patterns

Something we have thought about and work on in various ways for some time. Now an article in Technology Review:

Stuck in July 4th Traffic? Maybe You Should Pay More.

Creative toll strategies might make more of an impact on traffic congestion than new technologies, says a transportation researcher.

Finally in the new offices

After months of renovations we are finally installed in the new offices.

On the work front we have been discussing customer service with an airline, a bank and a major computer manufacturer. They all seem to get it. Customer service is increasingly what differentiates businesses. Customers care.

New office

As we are renovating and moving to new offices, blogging has taken a back seat. We will return with more frequent (and enlightened) posts.

CBS and NBC stories on Ethanol and E85

Sunday night 60 minutes and NBC's Dateline ran almost identical stories on Ethanol, GM's initiatives and the success in Brazil. Visnod Khosla (the millionaire investor) got some play too. We look forward to the response from the hybrid players. Interesting times on the fuel front.

Editor

We'll soon get an editor on board to help us develop this blog. Until then we ask you to bare with us for the lag in postings when we are traveling and otherwise busy with client work - a good thing, that is.

Eulogy

Delta unfortunately folded Song into the regular fleet today, May 1st. We loved Song and wouldn't fly anything else if we could help it. What are we to do now? Going to SF on Delta soon (in one of the old Song configured machines) - curious to see how much of the innovative Song has been saved.

Powerful Women

We have been doing a series of interviews with "Powerful Women" as part of an assignment for a client. Without going into too much detail, it surprised us greatly just how many single mothers out there, who had their children at a young age, are doing extremely well.

Yes, the majority of single mothers are still living on the edge of poverty. But there are some for whom the disapproval from their parents when they told them they were pregnant and having the baby on their own just fueled a fire inside them to prove their parents and society wrong.

These strong women are getting their education, starting great careers, and more often than not, starting their own businesses. Powerful indeed.

Consultants vs. OEMs

I just spent a couple of days at a conference where both consultants and OEMs were present. The forum discusses our profession and shares ideas to improve the way we operate. However, some of the OEMs were afraid to discuss their businesses in details (although that is the only way they could get the feedback they went to the conference in the first place for) since they were afraid we, the consultants, would take their secrets go to their competitor and use it against them.

Unfortunately that is often the attitude when you tell people you are a consultant. What these people fail to understand is that if we did take their secrets and sold them to the competitor we would a) be out of business in a heartbeat and b) loose the respect of the client we (if that was something we did) we sold the info to.

We are not in the business of espionage, we are in the business of ideas. New ideas, ideas that make our clients business better. We were at the meeting for the same reasons the OEMs were there, to listen and learn, not to listen and steal, I hope more OEMs realize that as they sit next to or across from a consultant.

Give it away

We believe in sharing and giving gifts.

We tell our clients all about our greatest ideas. If they like them...great. If they want to work on them with us...even better. If they decide to do it by themselves or with someone else...so be it - we just hope they remember where they learned about it in the first place.

So far so good. The pay-it-forward has proven a good model for us. We are considered a partner rather than a vendor and our calls are answered since we are not selling anything, merely checking in on progress on this or that issue.

The challenge is when we are approaching a new client and their business managers need to see a "brochure" of what we offer. Most research firms have one. We do not. Why? Because the ideas and topics that will set your business apart change too frequently to have a boilerplate brochure, let alone one in a file that is looked at only twice a year when new vendors are considered. Sure, we could send them a: This is who we are, this is what we do, and here is a picture of our office.

But, does that really add value?

We hope business managers get a little more adventurous and say to themselves, "let me imagine what these guys can do and let me give them 10 minutes face to face." When they do, they'll see why we aren't boilerplate.

So far, all face-to-face meetings have turned potential clients into new, powerful partnerships.

Laptop theft

The latest crime craze is apparently hold-ups in Starbucks and coffee shops around the country where patrons surf the web and work on their laptops.

Recently a man in Baltimore was stabbed as his laptop was stolen from underneath his hands. Got to watch where you boot up!