Point: Government policy affects foreign investment and innovation. Brazil is poised to do well.

Story: During a recent HSM webinar, Jeffrey Sachs (leading international economic advisor, Columbia University professor and author of New York Times bestsellers Common Wealth and The End of Poverty), was asked about the near-term prospects for Latin American countries and which countries he thought would do best. Sachs’ answer: Brazil is poised to do best.

For the last 15 years, Brazil has been investing heavily in education. In particular, Brazil made high school available to all citizens and invested in higher education, science and technology. The result is not only a more educated workforce but also a narrowing of the gap between rich and poor and between ethnically divided segments of Brazilian society. In contrast, countries with deep ethnic and racial inequities aren’t unified societies, which leads to mediocre economic performance. Brazil plans to invest $22 billion in science and technology innovation in 2010 and seeks corporations to join in additional investments in the country.

Sachs’ optimism about Brazil echos IBM’s sentiments. IBM is one of the companies investing in Brazil. CEO Sam Palmisano recently met with Brazilian President Luiz Inacio Lula Da Silva to discuss the creation of a “collaboratory” in Brazil. IBM’s  collaboratories match IBM researchers with local experts from governments, universities and companies. IBM’s Palmisano praised Brazil’s strategy: “Investments in innovation are critical, especially in a downturn. They can help Brazil and other countries, including the US, realize an economic expansion.”  Among the BRIC countries (Brazil, Russia, India, and China), Brazil is seeing the highest growth in business partners that IBM works with, averaging 150% year over year, according to Claudia Fan Munce, managing director of IBM Venture Capital Group.

Action:
* Consider the benefits of locating R&D labs to another country, such as gaining  opportunities to see the challenges and solutions  not visible from a US-centric perspective.
* When evaluating countries for investment potential, consider their economic policies (business environment, trade policy, investment policy, infrastructure) as well as any cultural barriers (ethnic, religious, gender inequalities) that may be a barrier to integrating the best talent and to fostering economic growth

Sources:

Jeffrey Sachs webinar: Economics for a Crowded Planet
“Big Blue’s Global Lab,” Business Week September 7, 2009
“IBM Bets on Brazilian Innovation” Business Week August 17, 2009
Jeffrey Sachs, Common Wealth: Economics for a Crowded Planet
Jeffrey Sachs, The End of Poverty: Economic Possibilities for Our Time

If you’d like to ask Jeffrey Sachs your own questions, you’ll have the opportunity at the World Business Forum in New York City October 6-7, 2009.

Point: Develop new products and services by applying innovative analytics to unused data.

Story: Three companies presenting at Techstars Demo Day last week illustrate a category of innovation that is based on new uses of data. First, Retel Technologies is a new company that helps retailers understand patterns of behavior at store locations. Many retailers have security cameras on site, but they rarely look at the data generated by those cameras because of the sheer volume of data. The raw data is typically viewed only in the event of a robbery. Retel, however, developed a cost-effective human-aided video data analysis service that extracts workplace performance analytics from all that unused video footage. For example, the system can help spot problems such as dirty tables at fast-food locations, employee theft, and capacity bottlenecks (such as a shortage of  cashiers during certain hours). Retel provides its clients monthly reports to help managers see trends, behaviors, and time-of-day patterns that can help them better manage their stores.

Second, a new company named Next Big Sound uses the realtime flow of events in social media to help band managers. The music industry is undergoing big changes, but sales of concert tickets are the highest they’ve been in ten years, and people are buying more music than ever. Giving band managers data can help them make better decisions. For example, real-time data from Twitter can be captured and analyzed to show who’s talking about which band and where they are — data that can provide great insight into a band’s fan base. Next Big Sound collects a host of both social media and web data to provide real-time marketing analytics that bands can use in variety of ways. For example, band managers can use the data to pinpoint the demographics of fans, scout new concert locations, and improve online ad placement. They can even suggest that a band mention people or events in the local area or give a shout-out to high-profile fans at a concert.

Third, Mailana is a company that uses communications analytics to help people leverage their social connections. These days, people are inundated by connections to other people. It’s not hard to have hundreds or thousands of connections in the form of entries in e-mail address books, friends on Facebook, colleagues on LinkedIn, and followers on Twitter. But who among the hoard of connections are the true trusted friends that one can really count on Mailana uses data on frequency and patterns of communication to automatically identify a person’s inner circle of most-trusted friends. Furthermore, Mailana helps people merge inner circles — a good trusted friend or a good trusted friend is far more valuable than a casual forgotten connection to another causal forgotten connection. Mailana helps people build and use the high-value core of their social graph.

In each of the three companies, innovative use of data provides new value.

Action:

• Inventory the data sources around you, your company, and industry
• Consider the potential analytic value of the data — what you might learn from that data? (or what might you learn more quickly?)
• Leverage low-cost computing and workflow technologies to extract new and actionable knowledge

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Point: Use friction to your advantage

Story: McGuckin Hardware is a family-owned store in Boulder, Colorado, long known to any do-it-yourselfer as the place to go for supplies. The store has knowledgeable, friendly staff, many of whom have worked at the store for years over its 54-year history.

A few years ago, Home Depot opened a store in Boulder, with twice the space, offering lower prices. Can McGuckin’s survive against giant Home Depot? Or will it become another mom-&-pop store shuttered by behemoth retailers with economies of scale in supply chain and large marketing budgets?

According to recent research by Wharton’s Olivier Chatain INSEAD’s Peter Zemsky, McGuckins has a good shot at success due to a concept that Chatain and Zemsky call “friction.” As they define it, a friction is any force that makes it difficult for buyers and sellers to connect. For example, a poor location is a friction if it makes it harder for customers to get to the store. A complex website or a confusing store layout is a friction if it’s hard for customers to find the products they want to buy.

Smaller companies can out-compete giants by exploiting frictions. For example, McGuckin’s can use its loyal, knowledgeable staff to help customers quickly find what they need or give them sound advice if they’re embarking on a new project or product purchase. Long-time loyal employees are more likely to go the extra mile to help a customer. McGuckin’s loyal staff also know the local area, so they know which paints withstand Colorado’s intense sun and which garden plants thrive in the local climate. McGuckin’s local knowledge reduces its distance to its customers, which reduces friction.

Action:

• Document the time, costs, knowledge, hassles that customers face in finding your business, buying from you, or using your products
• Compare the frictions in your business or products with those of your competitors
• Adjust or redesign your business to minimize your friction
• Emphasize your low friction in your marketing and advertising

For more information:

Olivier Chatain and Peter Zemsky, Value Creation and Value Capture with Frictions

How a Little ‘Friction’ Can Change a Competitive Landscape

McGuckin Hardware