The economics of a Green New Deal
A Green New Deal has a lot of moving parts that have to work together. The solution looks more like solving a Rubik’s Cube than playing whack-a-mole. Are we up for this?
I follow economic cycles. I don’t know how it started but I’ve always been fascinated by the ebbs and flows in economies. Big economies, small ones – it doesn’t matter. There’s the relatively short business cycle of course, that is often the subject of news coverage whenever the news reports on employment, interest rates, oil supply, and aggregate demand and supply but the business cycle is just one example and there are many.
We’re mostly familiar with relatively short-term cycles. For instance, when oil prices are relatively high, they spur drilling which brings additional supply to market which brings prices down often to the point that further drilling is discouraged. But as supply tightens again prices rise and another drilling cycle kicks in. These cycles can play out over the course of a year or two.
My primary interest in economic cycles has a much longer time horizon – 50 to 60 years, in particular. These long waves are called K-waves after the economist who first brought them to our attention about 100 years ago, Nicolai Kondratiev. He was an interesting person. An academic economist who studied capitalism and tried to explain it to Russian Communists. He was an advisor to Lenin but when Stalin came to power, Kondratiev was shunted aside because his views didn’t fit with Stalin’s orthodoxy. Eventually, Stalin had Kondratiev killed by firing squad.
Kondratiev’s ideas came to America and were popularized by the American economist, Joseph Schumpeter who, among other things, is remembered for his concept of creative destruction. Schumpeter believed that each new innovation created value but at the same time it destroyed some of the value that the previous economic trend had brought. So, for example, the automobile brought tremendous value to the economy but at the cost of diminishing the horse and rail economies over time.
You can see this throughout history as once promising jobs and industries become commoditized. While companies might do well in a commoditizing environment, often jobs get exported and people are left to find new ways to make money. Frequently, that means in a new industry.
K-waves are interesting because they typically last longer than an average working lifetime. Figure the average working life in an industrialized society is about 40 years. That means you could work your entire lifetime within one K-wave. Some times would be better than others and they have less to do with who is in political office than what stage of the cycle you find yourself in. Innovations are continuously commoditized in the name of lower costs which results in jobs moving to lower wage areas and economic hardships are often what’s left behind.
In the 20thcentury textile and shoe manufacturing left New England for lower cost labor states in the South. But a generation later those same jobs left the US for places like Japan, China and then on to Bangladesh and Vietnam.
Not just any innovation can serve as the economic driver of a K-wave. We tend to over-use the term disruptive innovation to make the point. A disruptive innovation creates industries and jobs in such quantity that it becomes the driver of the economy for a little while at least. Disruptive innovations have the capacity to initiate K-waves.
The silicon chip initiated the K-wave that’s finishing right now. Patented in 1959 the chip eventually led to the development of a computer on a chip which launched the modern IT era and all that goes with it like software, the Internet, mobile computing, and more.
Disruptive innovations take on the order of 25 to 30 years to diffuse throughout the economy and during that time they create huge numbers of jobs. Then, in the following period commoditization takes place and Schumpeter’s creative destruction takes hold. Consider the IT industry again.
Fifty years ago, computers sat in airconditioned rooms and consumed huge amounts of energy. They were attended to by small armies, or at least platoons, of highly skilled workers managing and maintaining them. But the story of the last 20 or so years is one of commoditization. We carry the equivalent of a big computer room in our pockets today and we maintain it all by ourselves. Not only that but we have access literally to all of the world’s knowledge on those tiny devices and the cost of these devices is too small for most people to remember. Those tiny devices have commoditized much of IT even as they’ve created wealth and made us all more productive.
Here’s the point of all this. We’re at the end of the K-wave that dealt with information and telecommunications. Those industries won’t die but they’re no longer sufficient to drive the economy thanks to commoditization and inevitable price erosion.
But right on time, there’s a new K-wave forming and just waiting to come to the forefront. What’s coming will help us get out of the ecological and climate bind we’re in.
The new K-wave, which I call The Age of Sustainability includes renewable energy including solar, wind, geothermal and space based solar collection. But it also includes ways to capture carbon from the environment and store it safely for millions of years. Finally, the new K-wave also includes using some of that renewable energy to supplement what I call ecosystem services, perhaps a new term for you.
We’re teetering on the brink of not having enough fresh water to support Earth’s groaning population and using our smarts to generate more is becoming a top priority. Look around. California isn’t the only place confronting dry and drought-like conditions. Iraq, Iran, Yemen, Syria and many other countries don’t have enough water for agriculture and their people are leaving those countries and disrupting their neighbors. Just ask Jordan about Syrian refugees. Did you know that Cape Town ran out of water for a while last year?
Also, burning fossil fuels is poisoning the planet but, at the same time, fossil fuels are running out. The BP 2014 annual report stated that the Earth had, at the time, about a 54-year supply of oil left (about 1.687 trillion barrels) and we haven’t discovered any new oil since 2003.
You might say what about fracking but that’s a technique for extracting hard to reach deposits and it isn’t an exploration method. Put it this way. We’ve been pumping oil out of the ground since 1859 at ever increasing volumes each year. Earth isn’t made of oil and sooner or later logic tells us this huge but limited resource has to run out.
The new K-wave
We’re at an inflection point. Going back to K-waves, the Age of Sustainability is just starting, and it will create jobs not only in renewable energy but also in ecosystem services, transportation, infrastructure, agriculture, and more. This new age has the potential of being the greatest job creating and money-making opportunity in history.
The Green New Deal will be part of it and it is an interesting proposition. There’s no doubt that the infrastructure parts will be job creators and investment opportunities. So will be creating a renewable energy sector that replaces fossil fuels with electricity. But there’s also a need to remove about 1 trillion tons of CO2from the environment. That can be done with photosynthesis and we’ll need to invest in that; I discuss this in a book that I am not advertising here.
What hasn’t come up yet, and what is causing a lot of resistance, is how to wind down the fossil fuel industries. Promoting coal use as we’re doing is a retrograde step, so is removing emissions restrictions and getting out of the Paris Climate Accords. But the fossil fuel industry is very powerful and it has trillions of dollars invested in things like mines, oil fields, pipelines, tankers, refineries and more. It won’t go quietly and that’s okay.
We’ll still need fossil fuels for making advanced materials like rubber for cars, but we’ll need to burn far less. So because we’ll still need the fossil fuel industry, we need to put our heads together and come up with a plan that reduces the industry’s impact while keeping parts of it running strong. It’s the only way we can have a smooth transition. Unfortunately, we aren’t discussing that plan though it’s the 800 pound gorilla in the room and the thing all else depends on.
So when you hear about or participate in discussions about a green future, keep an eye on how it impacts things like energy production, natural resources and carbon affiliated industries. The Green New Deal will look much more like solving a Rubik’s Cube than playing whack-a-mole. It will be hard but not impossible.
The state of the selling art
What’s the state of the selling profession today? In brief, it fluctuates significantly based on economic circumstances and a company’s position in a category lifecycle. At the start of a category lifecycle, when vendors really need people who can educate and explain what a disruptive innovation actually does, salespeople are in demand and life is very good indeed. But in a down economy, most selling suffers; in a recovery selling can be fun.
Of course, life is even more difficult when the economy is down and the last disruption has run its course. In my selling career I found that it’s vital to understand where you are in all of this down to a company’s trend line in its market because a sales person can do a lot but the macro trends really own you.
I am always interested in the annual CSO Insights sales performance study that comes out this time of year. Last week’s release of its 2018-2019 report was full of interesting nuggets that make me wonder where we are in various cycles. Deep in the report it says that about a third of most companies’ revenues come from new sales and early on it notes that “Average revenue attainment has reached 93.9 percent, the third straight year of growth,” which is good. But it also shows that only about a third of revenue is coming from the sales team and, significantly,15 out of 16 seller skills have declined over the last five years.
That means companies are bringing in more money but that sales people are less responsible for it and not as good at basic blocking and tackling as they were not so long ago. How do you explain this?
Sales process but also…
CSO Insights has a classic answer that I think stands up but that also needs to be challenged in the current environment. For many years they’ve divided the sales world into four categories of sales process: random, informal, formal, and dynamic. Roughly drawn, random sales processes live in about 25 percent of the universe of over 900 companies surveyed. This year the number of random process companies is down to 20.8 percent. Nicely done!
At the other end, the dynamic process supporters also represent about a quarter, this year it’s up to 28.9 percent. Good also. Finally, the broad middle, consisting of informal and formal process users makes up half or 50.3 percent this year. The differences are important because the research shows that companies with dynamic processes who are able to adjust to customers’ changing expectations and truly provide consultative selling services, are the locomotives where getting a deal is concerned compared to the others with the random process guys in the caboose.
My analysis of the report this year suggests that we in tech and the selling profession might be on the downhill side of some trends. First, I don’t think you just lose skills in 15 out of 16 capabilities without cause. Sales people can be lazy, finding the easiest way to a deal is the name of the game and that’s a benefit not a bug; plus, they aren’t stupid. For such a profound thing to happen suggests to me a significant turnover in the sales population. Newer, less experienced people are filling the ranks and it’s obvious.
Also, the fact that revenues are up while this is happening tells me that sales people are less necessary today than they were five years ago. It could be that AI and machine learning are enabling more organizations to do more with less, but I suspect what’s really happening is that customers are just getting smarter and more experienced with the products on offer throughout a broad swath of the economy so selling is being replaced by purchasing.
This happens all the time as products and categories commoditize. Vendors simplify products and the purchase process to the point that they can eliminate expensive sales talent or at least replace it with lower cost versions. I’ve seen this before and it’s almost a generational thing as people who “grew up” with a category or trend take their winnings and figure out something else to do.
The last time I saw this was in the 1990s. In that decade mainframe and mini-computer business was eroding but there was little to replace it yet. Client-server and large PC networks weren’t exactly ready for prime time. The “year of the network” was falsely proclaimed so often that the year turned into a decade. It took that long to shift the industry.
Meanwhile, with expectations that most of the software and gear in the datacenter was about to become obsolete, demand dried up for almost everything save ERP systems that could support 4-digit dates. All this resulted in a difficult time for selling that was only relieved when the ERP thing had been handled and CRM became the next big idea in the enterprise. That was over 20 years ago.
My two bits
I think we’re entering another down phase for selling. So far it seems that vendors are weathering the commoditization of their products well and the numbers in the report bear this out. But questions abound. What will take over as the engine of progress if so many tech products are commoditizing? Will selling become the first white collar profession to be automated away or will some new disruption require so many people who can educate and explain things?
At the moment the answers are somewhat obscure though my bet is on new technologies that support sustainability and initiate dozens of new categories of products that help. Those will be big ticket sales and they’ll require smart people who can explain and educate as well as close deals. The big questions are whether all this will take another decade and if we have that much time.
Beyond CRM platform sets up engagement
I’ve recently been writing a lot about platforms. Not any one in particular but about the importance of platform to the future of what we all do in CRM and beyond. Platform provides a level of abstraction between machines and humans who must get useful work out of them. Inventing the platform was like inventing the power loom or the printing press. It was a way to separate the creative effort from rote production. I’ve gone so far as to say that the platform-based CRM system has become a big demonstration project for the platform. If it can support this, what can’t it do?
On a more prosaic level, one of the things that platform is proving to be very good at is providing an engagement layer on top of older and more rigid systems of record. Older systems are really good at storing data but not necessarily at telling us what the data means, its information content. We still talk too much about data, about the orange when what we crave is the juice.
At the engagement level Salesforce has been taking big steps to add CRM values to healthcare through its Health Cloud. At the HIMSS 2019 conference in Orlando this week, one of the big health information systems conferences of the year, Salesforce unveiled new capabilities that borrow directly from CRM to support healthcare.
In the process, they are helping to change the model of healthcare in this country from a break-fix model that’s been around for more than a century, to a wellness paradigm that seeks to prevent illness. W. Edwards Deming would be proud. New Salesforce offerings include,
Social Determinants of Health. I’m not completely sure how this works but it looks like a way of capturing a broader data set on patients like economic status, ability to drive or access transportation, and ability to read and understand treatment instructions we all go home with these days. Those are things not typically captured in the conventional medical record but without them, it will be hard to raise the bar on treatment success rates.
Mobile-First In-Home Care Collaboration. This looks much like an application of field service management to patients and it uses Field Service Lightning for Health Cloud to do the job. As any CRM people know, successful field service is all about bringing resources to bear at a remote location. But that means much more than having a well-stocked truck or toolbox. It means being able to access others to deliver service. This collaboration product enables dispatchers to bring together specialists by ability and location to support traveling care givers.
Personalized Patient Journeys. As you might expect, this one brings in the Salesforce Marketing Cloud to apply journey mapping and execution. Simply put, any treatment situation from recovering from surgery to managing diabetes has a predictable trajectory but individuals might not always stay on their trajectories. A wound might get infected, someone’s blood sugar might be hard to stabilize, but even those exceptions can be built into a journey map along with standardized care regimens. More likely a provider might want to keep a stream of information going to patients managing similar issues such as all Type 2 diabetes patients between 50 and 60.
All of this brings into sharp relief the issue of containing healthcare costs. Unlike almost any other industry you can name other than education, which has a lot in common with healthcare, costs have remained stubbornly high and have continued to escalate. This shouldn’t surprise anyone. Anything that can be manufactured can eventually achieve benefits from economies of scale, but healthcare and education are not manufactured.
Every hot appendix has to be removed by a highly skilled and trained surgeon; every diabetic needs to be diagnosed and monitored. There are few economies of scale but we can do a lot to improve prevention and when that’s not enough, we can bring systems of engagement to bear so that we waste as little resource as possible. CRM principles like systems of engagement are changing the healthcare equation by capturing more data and moving information around to inform care decisions at every level.
My two bits
Applying CRM to healthcare is a big deal but let’s be careful what we mean by that. The stove-piped CRM of a decade ago wouldn’t be helpful here. It’s only since the addition of social networking ideas, analytics, and machine learning that we’ve been able to see ahead of the customer and now the patient. We know where they are in a journey based on probabilities derived from thousands of past actions and we know logical next steps for the same reasons.
Healthcare also has an important bias working in its favor—people want to be well and to get better in the vast majority of cases. You can’t say that about customers in a purchase situation because the motivators are more nebulous. You can’t even say that all students want education. It’s nice to think they do but how many do their homework regularly?
We might have entered a golden age of CRM with all the platform additions of the last decade beginning with social networking. But it’s disappointing to see the fear and disappointment emanating from scandals about misuse of social networking and the fear of AI, and machine learning eliminating jobs. I guess that’s what you get in a maturing market. Nonetheless, there’s a lot of good being done by CRM platforms and healthcare is a good example that will have far-reaching effects.
OceanX: Subscription eCommerce service
Until recently, becoming a subscription provider has been a big and expensive task. To get into the game, a vendor needed to build a subscription business model right next to its traditional businesses, so to speak, which typically involves building an ecommerce web store and member site, organizing an online price list and catalog, and figuring out how to handle subscription business receipts as well as shipping and dealing with returns.
There’s more too, like using analytics to understand the business and its relationship with customers. For example, businesses that send unique or curated bundles periodically, need analytics to determine the best possible recommendations to ensure customer delight and avoid costly returns.
Early on, vendors had to do all this themselves and many resorted to piecing together multiple systems available in the market. That was hard enough when ecommerce was a new thing but today any business entering the market must do so knowing that its competition is already up to speed, so there’s little room for mistakes.
Not surprisingly, ecommerce is commoditizing with vendors now offering most if not all of the things that vendors need to get going and to remain in the subscription business. OceanX is an interesting company in this regard. They offer a simple and easy way to take any retail business into the realm of subscriptions.
OceanX saw high barriers to entry as an opportunity. If it could build a platform that supported direct-to-consumer retail for a scalable number of businesses it would be able to lower their costs and, importantly, reduce the risks involved for any company developing an ecommerce business.
Making it work
Like many startups OceanX chose Amazon Web Services (AWS) to support its vision. That was nearly three years ago and the company saw success almost immediately.
One of OceanX’s early advantages was that as a platform it could offer integrated business processes from on screen shopping to cash. But equally important, all its platform apps capture and share customer data with other apps in the portfolio and this analysis gives partners important insights at all critical points in the customer journey—something that’s harder to do with a piecemeal approach.
In ecommerce especially, understanding the customer journey is paramount, and having data that partners can analyze is critically important to producing a personalized customer experience. We can broadly define this as experiences that satisfy customer needs and that keeps them coming back—two critical elements of success in subscriptions.
Supporting a subscription ecommerce model is, of course, harder than this general description. For instance, there are two basic subscription models, curation and replenishment. A curated model sends a selected or curated box of goods to a subscriber each month based on information the customer initially supplies which is later augmented by purchase history. A company engaged in sending curated clothing to subscribers needs to obviously know style preferences, sizes, and colors but also what’s been recently recommended and purchased. Two pairs of hiking boots sent in rapid succession is not a winning formula, neither is offering boots too soon after an initial rejection.
The curation model is the fastest growing part of ecommerce according to the Subscription Trade Association (SUBTA) which says that about 65 percent of subscription services use the curation model. So subscriptions to curated goods provide a great opportunity but also great challenge.
The second model, replenishment, may be more familiar. From shaving supplies to dog food and quite a bit more, subscribers can “set it and forget it” receiving a just in time delivery each month though they still have the opportunity to change order parameters like content, frequency and quantity. Importantly, only 14 percent of subscription vendors use the replenishment model.
But within these two models you can see the need for all the components of ecommerce including data collection for later analysis, members portals, order and change processes, and returns. OceanX provides its partners with a solution for all this that they don’t have to develop and maintain.
At the same time, it’s important for partners to maintain control of processing so OceanX runs warehouse and distribution systems and it picks and packs goods for its clients. However, payments are credited directly to partners’ bank accounts. OceanX is paid by its clients just as any other subscription supplier would be.
Ideal for brick and mortar?
You’d be right if you thought that brick and mortar retailers could take good advantage of the subscription model. After all, the retailers already have a brand, customers, supply chains, and they know retail and merchandising. In many ways this is an ideal setting for an omnichannel approach. But retailers still have to deal with things like pickups and returns and such situations as buy online but pick up and return in store and OceanX’s technology extends to all of this.
Importance of analytics
A lot of any subscription business depends on Key Performance Indicators or KPIs, measurements that can tell a vendor how many customers come back and what percent leave for instance. High retention rates (90 percent+, depending on the industry) indicate the vendor is doing well which limits the investment needed in replacing revenue that goes away for organic reasons. Other measurements include customer lifetime value (CLV), annual recurring revenue (ARR), and much more. Each measure provides insight into the health of the business both now and in the future and each depends on having a complete view of every customer and every process. It all comes back to collecting customer data and having the right analytic tools.
OceanX was initially successful with hosting its business intelligence and data platform, parts of its entire system, on AWS and it still uses AWS for orders and other parts of its platform. But success handed OceanX what you might call a high-class problem. It needed more horsepower for various functions like business intelligence, reporting, and analytics. That’s why the company began searching for a cloud-based solution that could give it more performance than AWS.
“We were faced with severe performance issues in our data loads and cube builds,” said Vijay Manickam, VP Data and Analytics. “We were left with an option to increase the CPU’s [with AWS] that would have costed us more license fees. To scale from there would have costed more. Oracle Exadata Cloud Services enabled better performance at a lower cost. We proved this with a POC [proof of concept] before we embarked on the migration. At a high level there was a 3x performance gain and about 30% reduction in TCO.”
With the POC in place, OceanX selected Oracle to support the lion’s share of the business intelligence platform in the Oracle Cloud. It also relies on Tableau for analytics and takes advantage of Oracle data transformation engines thus enabling it to maintain a single view of the customer across two clouds.
The reasons for moving to Oracle Exadata Cloud Services can best be summarized in Manickam’s words. “Our business depends on giving our clients who are sophisticated brands and retailers, complete visibility into their customers,” he said. “At the same time, we know how important it is to provide a personalized experience to customers. Both are highly dependent on having a single view of all customer data and being able to analyze it quickly and accurately.”
Those were the twin drivers at the company’s inception and the vision for building and operating its platform. The key to success, though, was more than those two things. Success also required a platform and infrastructure that could easily expand and provide the performance needed to do all of the back-end processing that few people see but everyone misses when it’s not present. The platform also had to support the greater security needs OceanX faced as a vendor itself.
OceanX’s journey with Oracle is still in its early stages. The company has not made a decision yet about moving its order management modules over from AWS for example. But directionally Manickam feels they’re on the right track. “We help our customers to continuously track and analyze all facets of their businesses, so we do the same with our business. We chose Oracle because of their experience in high performance systems.” So far it was a good decision.