The Information Edge

With the slowing of the U.S. economy, we again here of words of doom, firms are perceived to be on "Death Spirals." This is a description of firms whose long term prospects are in doubt usually with corresponding disappointing stock price performance. The Death Spiral is a metaphor from celestial mechanics where planets and stars inevitably spiral into "black holes" to their doom. As with their heavenly counterparts, these firms, often with prestigious histories, appear to be stuck in the grasp of some irresistible force driving them to their doom irrespective of whatever they appear to do. Despite new management and even with acceptable annual earnings, these firms continue to stagnate.

While we tend to view these situations as unusual; they are really the norm. All businesses face a imperative of growing or dying. It is a "rat race" where forces act to reduce margins and the loss existing customers. Firms must run just to remain at the present position. It is more surprising that so many firms are able to sustain growth over decades.

A healthy firm must have two things working for it: (1) a successful business model, which allows it to make earnings and (2) an effective growth model that allows it to continue to be healthy into the future. The recent history of the "dot.coms" has shown the importance of having an effective business model. Money is critical. However, while current profitability is necessary, it is not sufficient for success. It is also critical that firms utilize those funds to maintain growth.

Radical actions to improves short term earnings may adversely effect the long term prospects for growth. Cutting costs may generate earnings at the expense of new business development. While cost cutting may act to provide an image of a healthy firm, it may, in fact, make the decline inevitable. By cutting the very means for long term growth, the firm assures that it will not meet shareholder expectations.

It is useful to think of corporate growth in terms of: (1) organic activities which are native to the existing businesses and (2) ventures and initiatives which are new to the firm. Historically most growth in large firms has been organic to their existing businesses. This type of growth for manufactured products tends to follow a standard pattern. This pattern starts with growths of more than 200% annually but declines steadily to approximately 8%. This pattern is shown below.

Organic business growth may continue for 100 years or more or it may terminate in as short as 6 years for single applications. However, all businesses, at some point, mature. Organic growth slows, terminates and even declines at some period as competition strengthens.

As such, long term growth of firms can not indefinitely depend on organic growth. A "gap" typically exists between the businesses that can be generated by organic growth and that which is desired and expected by investors. Major firms, such as Eastman Kodak, were able to sustain corporate expansion over many decades based solely on organic growth, but it no longer can. New ventures now need to be undertaken.

These new ventures are usually divided between those within the existing business model and those that are truly new to the firm. Both of these undertakings carry risk. New ventures requiring new manufacturing facilities typically do not provide cash to the firm for at least ten years as new investment exceeds earnings. However, these ventures often become the basis for long term profits and organic growth. New ventures outside of the business model can be highly risky and usually are best undertaken by acquisition or merger.

In either case, the health of the business depends on effective growth models. Growth models need to be carefully reviewed. It is unwise to assume that an effective business model without a focused growth model will be sufficient. It is also unwise to assume that past growth models will continue to be effective.

In our high technology forecasting assessment studies, we have observed that some technologies that are identified as "emerging" have long histories. While the adoption of some technologies are meteoritic, others take decades to develop and find commercial applications. Some of the most attractive "new" electro-optical technologies, for example, had been demonstrated over 20 years ago. Similar examples are available in materials technologies and pharmaceutical research. There are, at least, four factors that inhibit the adoption of these technologies. Understanding these can lead to earlier adoption and informed choices for new business development. The factors are:

• High User Value and Overwhelming Demand - One of the hardest concepts for researchers to understand is that having interested potential customers is insufficient for a technology to be implemented.. There needs to be a very high value and more importantly, an overwhelming recognized demand. Interest alone is never enough.
• Large Volume Applications - The cost of most technology requires a strong economy of scale. For commercial applications, this translates into the need for major large "mass" markets to justify production investment. Without such large applications, or alternatively deep financial pockets such as the Department of Defense, it is unfeasible to implement new technology.
• Adequate Infrastructure and Associated Technologies - Even with a large valued customer base, if there is inadequate infrastructure or if associated and required technologies are unavailable, implementation of a new technology is not feasible. History is full of examples of failed premature technologies due to inadequate infrastructure. Furthermore, quickly adopted technologies usually have other enabling technologies already in existence.
• Simplicity of Implementation - Difficult and complex technologies just takes longer to develop. Simplicity is always a technology goal. However, simplicity is based on existing technologies. As time proceeds, older "difficult" technologies become simpler due to experience and enabling technologies coming on line.

These all appear to be necessary conditions. When these conditions are met, the technology seems to progress directly into implementation. If one or more of these conditions are not in place, development time is required. Even the most "valuable" technology will not be implemented if the infrastructure is not available for its implementation..

Marketing research survey studies are increasingly being fielded on the Internet. Such web executed studies have tended to be lower cost and provide an effective means of including graphic descriptions. Several vendors supply automated tools for the preparation of on-line surveys, making the process fairly straight forward.

Until recently, the use of these surveys were targeted to e:commerce applications or for internal studies run over company Intranets. Sampling bias for these applications is probably minimal since the samples usually reflect the population of interest. However, there is a major effort today to use on-line surveys to sample mass population, both for industrial and consumer products. This may introduce unintentional bias.

Willing on-line respondents may be very different from the rest of the world. Below is a comparison of the results of personality profiles based on a volunteer on-line study and the expected results from the general population.

The Myers-Briggs inventory is a standard personality profile tool. Notice the significant differences. These differences may or may not effect the outcome of surveys. However, it should give us pause to reflect on the implication.