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February 17, 2022

What Is The Triple Bottom Line And Why It Matters To Build A Sustainable Business

The Triple Bottom Line (TBL) is a theory that seeks to gauge the level of corporate social responsibility in business. Instead of a single bottom line associated with profit, the TBL theory argues that there should be two more: people, and the planet. By balancing people, planet, and profit, it’s possible to build a more sustainable business model and a circular firm.

Understanding the triple bottom line

Sustainability in business is often difficult to understand. How is it measured or defined? How does a business make sustainability financially viable?

The triple bottom line theory seeks to address these questions by making sustainability a key performance metric. Fundamentally, the TBL theory holds businesses accountable for their actions and provides a holistic approach to doing business that is not primarily concerned with profits.

The three Ps of the TBL theory

Companies must work simultaneously on the three bottom lines of:

1 – People

This encompasses the wide range of people that a business comes into contact with. This includes employees, suppliers, distributors, and the wider community.

Triple bottom line companies ensure humane working conditions and pay their staff a reasonable wage. They also give back to the community. For example, 3M uses its scientific background to solve the world’s toughest challenges. The company has, among other things, funded STEM education around the world to improve and empower local communities.

2 – Planet

For businesses, the planet’s bottom line means finding ways to reduce their ecological footprint. Broadly speaking, this means manufacturing products that are not harmful to the planet while also reducing wastage, natural resource dependence, and greenhouse gas emissions.

Apple is a clear leader in planet-driven initiatives, with over 93% of its energy coming from renewable sources. Its large and resource-intensive data centers are also certified by the U.S. Green Building Council.

3 – Profit

Profit is the traditional measure of corporate success. But increasingly, businesses are realizing that people and the planet do not have to compromise profitability.

Swedish furniture giant IKEA maintains profitability and sales in the billions of dollars while focusing on green initiatives. For example, the company recycles much of its waste back into some of its bestselling products, with 98% of its home furnishing products (including packaging) derived from renewable or recyclable materials.

Advantages and disadvantages of the triple bottom line theoryAdvantagesResilience. Businesses that adopt the TBL theory are more resilient to environmental stressors such as climate change.Public relations. Businesses that see people and the planet as important parts of their strategy moving forward enjoy better relations with consumers. They are likely to be seen as progressive and sustainable organizations with the best interests of society at heart. This has positive effects on brand equity and profit generation.Legitimacy. The TBL theory gives theories of sustainability and social responsibility more weight, especially as they are adopted by increasing numbers of influential businesses.DisadvantagesAccountability. Since the TBL theory is rather vague and has no specific guidelines, businesses can preach they are using the theory without backing up their words with actions or verifiable data. Indeed, while profit is measured in dollars, it is much more problematic to measure social capital or environmental health, for example.Capitalist slant. In some respects, the TBL theory espouses the benefits of people and the planet if (and only if) they help increase profits. Capitalism for the sake of the environment is still capitalism, and some posit that people and the planet should be given higher priority than making money.Triple bottom line, GPI, and GRI

Many businesses, governments, and non-profits use the Genuine Progress Indicator (GPI) to measure standardized data across multiple economic, social, and environmental variables. The GPI is used in various contexts with the practitioner able to alter each variable to suit. For example, the State of Maryland used a combination of TBL and GPI to analyze the impact of investing in clean energy versus maintaining the status quo or pursuing other options. The Canadian government also used aspects of GPI to measure public wellbeing and how it affects the economy.

In terms of business sustainability, many use the following multidimensional approach:

GPI – to measure environmental variables. Each variable is converted into a monetary unit and then summed to arrive at a dollar-denominated measure.GRI – to measure social variables. The Global Reporting Initiative (GRI) is an international organization that has developed standards for measuring and reporting social impact and responsibility, among other standards.

With all of that said, let’s take a look at some of the social and environmental variables a business can analyze under the TBL theory. Note that not all variables will apply to every business, government, or non-profit.

EnvironmentalCost of water pollution – a reduction in water quality due to erosion, sedimentation, or nutrient and chemical runoff. Cost of air pollution – material and vegetational damage, remediation of damage resulting from acid rain or soot, and costs associated with a reduction in visual amenity and surrounding property values.Cost of noise pollution – in factories, noise pollution causes permanent hearing loss which must be compensated. It can also cause sleep deprivation and a loss of productivity.Loss of wetlands – these costs relate to the services wetlands provide, such as water purification, habitat for wildlife, and protection from weather such as storm surges and subsequent flooding.Loss of farmland and soil quality or degradation – as the result of compaction, erosion, and urbanization. This cost is cumulative and is measured for the total number of primary production years lost.Loss of primary forest and damage from associated infrastructure – this is also a cumulative cost that can be measured via soil quality, water quality, biodiversity loss, recreation potential, and carbon sequestration.CO2 emissions – the cost associated with releasing carbon dioxide into the atmosphere, measured on a per-ton basis. Cost of ozone depletion – or the cost of associated cancers, cataracts, and plant decline. Depletion of non-renewables – here, the cost is measured by calculating the cost of switching to renewable sources.Social

Let’s now take a look at some of the variables defined by the GRI.

Remuneration – is remuneration equal for men and women?Management approach – this encompasses occupational health and safety, training, education, diversity, and leader-subordinate relationships.Workforce – segmented by employment type, contract, region, and gender.Turnover – or the total number and rate of new hires and employee turnover based on metrics including gender, age group, or region.Health – this encompasses education, training, prevention, and risk-control programs that are provided to employees, families, and communities to prevent health issues. Some firms have initiatives in place for repetitive strain injuries, stress management, and safe and secure travel.Skills and learning – these describe initiatives that support continuous employee learning or assist in the smooth transition to retirement, such as sabbaticals, transition assistance, and financial goal setting for retirees.Labor standards – freedom of association, collective bargaining, and the avoidance of child or forced labor.Communities – a broad field including data privacy, security, providing access to education opportunities, anti-competitive behavior, community impact assessment, and development programs.Key takeaways:The triple bottom line theory is a measure of an organization’s ultimate sustainability. The theory argues that companies must work on the three bottom lines of people, planet, and profits.While the TBL theory improves company resilience and brand equity, it can be difficult to quantify and thus is vulnerable to exploitation.Businesses can incorporate Genuine Progress Indicator (GPI) and Global Reporting Initiative (GRI) standards to help them measure and analyze environmental and social initiatives respectively.Read also: Business Strategy, Examples, Case Studies, And ToolsOther strategy frameworksPorter’s Five Forces Ansoff Matrix Blitzscaling Canvas Business Analysis Framework Gap Analysis Business Model Canvas Lean Startup Canvas Digital Marketing Circle Blue Ocean Strategy

More resources:

What Is Business Model Innovation What Is a Business Model What Is Business Strategy What Is a Value Proposition What Is Market Segmentation What Is a Marketing Strategy

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Published on February 17, 2022 13:02

What Is A VMOST Analysis And Why It Matters In Business

The VMOST Analysis is a tool that allows a business to evaluate its core strategies in terms of whether the supporting activities of that strategy are being carried out. The VMOST analysis tries to answer that by looking at five core elements: vision, mission, objectives, strategies, and tactics.

Understanding the VMOST analysis

The VMOST analysis divides a strategy into five different elements. Each element is analyzed individually based on how well it aligns with the overall business strategy.

In most cases, VMOST analyses are performed so that a business can define current and future strategies, organizational units, projects, and programs. Employees – as a part of the business or as individuals – can also be assessed using this technique.

Here is a look at each of the five elements that give the VMOST analysis its name.

Vision

Vision encompasses ideas that summarize where a business sees itself in the future. Where will it operate? Which target audience will it serve? How will it position itself against the competition? What does the business want to be known for?

The answers to these questions should inspire and challenge the business do to better without being completely unattainable.

Mission

Mission is the series of steps that guide a business to carrying out its vision. To change old and outdated ways of operating, missions must be adopted from senior management down to the entry-level employee.

Objectives

Objectives define whether a mission has been accomplished, usually quantified in the form of key performance indicators (KPIs). To maximize the chances of meeting certain objectives, businesses can adopt the SMART goal attainment strategy.

In other words, is the objective:

Smart?Measurable?Attainable?Realistic?Time-sensitive?Strategies

As objectives guide missions, so too do strategies guide objectives. If the goal of a taxi company was to increase revenue by $10 million annually, a potential strategy may include expanding the service into five new cities by the end of the year.

Tactics

Tactics encompass the specific, low-level actions that are taken for strategies to be fulfilled. If we return to the example of the taxi company, possible tactics for expanding into five new cities might include:

Identifying competition in the form of ride-sharing across the proposed cities.Identifying areas in smaller cities where there are gaps in taxi coverage.Acquiring a fleet of new vehicles at a cost-effective price.Advantages and disadvantages of the VMOST AnalysisAdvantagesGiven the somewhat hierarchical nature of the VMOST structure, the analysis is easily understood by various employees and stakeholders.The VMOST analysis provides clarity, agreement and focuses on the future direction of the company. This discourages the formation of weak and vague strategies which encourage disharmony and malaise within a company.DisadvantagesA well-constructed VMOST analysis does not guarantee employee buy-in. Strategies that are created by upper management with little employee involvement may be met with inertia when presented to the whole company. Input must be sought by multiple levels of the organization to counter this.Some organizations start with a mission or vision that is simply unachievable. Despite perfectly sound objectives and strategies, they will find that they lack the necessary resources to achieve their goals.VMOST analysis examples

In this section, we will work through a VMOST analysis using The Coca-Cola Company as an example.

Vision

The mission of The Coca-Cola Company is described on its website as follows: “Our vision is to craft the brands and choice of drinks that people love, to refresh them in body & spirit. And done in ways that create a more sustainable business and better shared future that makes a difference in people’s lives, communities and our planet.”

Mission

In recent years, The Coca-Cola Company dropped its mission statement in favor of the vision statement seen above. However, elements of the original mission statement which read “To refresh the world, To inspire moments of happiness, To create value and make a difference” have been retained.

While not exactly equivalent to a mission statement, the company also notes the following purpose statement: “Refresh the world. Make a difference.”

Objectives

According to the investor relations section of its website, the company has five key objectives to navigate the pandemic and drive a subsequent growth trajectory:

Win more customers.Gain market share.Strong system economics.Strengthen stakeholder impact.Equip the organization to win.Strategies

Coca-Cola has various strategies that are described in the context of its vision statement. We have included a few of them from each area of focus below:

Loved brands Powerful partnerships with its bottling system to bring brands to life.Excellence in product ingredients, design, marketing, and innovation.Maintain a focus on both local and global actions.Done sustainably Improve water security where it is needed most.Reduce the carbon footprint of the company.Contribute to a circular economy with a focus on recycling all waste.For a better, shared futureSupport local communities, particularly when it is most needed.Build an inclusive society characterized by equal opportunities.Invest in the personal growth and unique talents of employees.Tactics

Tactics in The Coca-Cola Company help it create a culture with a passion to make a difference and refresh the world. The company defines tactics in terms of these behaviors:

Mindset – an expansive, creative, and growth-oriented mindset that believes in continuous learning and values the way work is performed.Curious – this means never becoming too comfortable and consistently searching for new possibilities or horizons.Empowered – employees must be accountable for their actions and believe that they can make a difference to the success of the company.Inclusive – it is also important Coca-Cola leverages its broad employee diversity and global network to facilitate success. What’s more, the company believes that most of the time, two brains are better than one.Agile – the best way to learn is by doing and there is nothing wrong with iterating until something is perfected. Agility also means acting with a sense of urgency.Key takeaways:The VMOST analysis is a strategic planning tool that helps businesses focus on activities that are aligned with their core visions.The VMOST analysis is comprised of five separate elements that together, deconstruct how a business can align its words with actions.The VMOST analysis is a simple and effective framework that all key stakeholders can understand. But it is nevertheless vulnerable to a lack of employee buy-in.Read also: Business Strategy, Examples, Case Studies, And ToolsOther strategy frameworksPorter’s Five Forces Ansoff Matrix Blitzscaling Canvas Business Analysis Framework Gap Analysis Business Model Canvas Lean Startup Canvas Digital Marketing Circle Blue Ocean Strategy

More resources:

What Is Business Model Innovation What Is a Business Model What Is Business Strategy What Is a Value Proposition What Is Market Segmentation What Is a Marketing Strategy

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Published on February 17, 2022 12:04

What is The 9-box Grid Model? 9-box Grid Model In A Nutshell

The 9-box grid model is a tool that facilitates discussion about employee development and succession planning. The 9-box grid model helps an organization find these employees. Using a matrix consisting of nine cells, each employee is measured against two factors: Performance in their current role on the x-axis (rated as low, medium, or high). Their potential to develop personally or professionally in line with company values on the y-axis (also rated as low, medium, or high).

Understanding the 9-box grid model

Employee development and succession planning involve the identification and training of future leaders. The process is often overlooked because of more pressing priorities, but it nevertheless plays a vital role in the long-term success of a company.

Well-executed succession planning enables a business to make powerful decisions that provide a means of identifying and grooming high potential employees for certain roles. This planning can also help pinpoint knowledge gaps where external recruitment may be required.

The 9-box grid model helps an organization find these employees. Using a matrix consisting of nine cells, each employee is measured against two factors:

Performance in their current role on the x-axis (rated as low, medium, or high). Note that the specific performance criteria and the way they are evaluated will vary from one company to the next. Employee potential to develop personally or professionally in line with company values on the y-axis (also rated as low, medium, or high). This can be a difficult subject to grasp for some businesses. Therefore, it is helpful to think of potential as the degree to which an employee is expected to grow, learn, and apply knowledge in a variety of job contexts. Put differently, potential describes future behavior while performance describes past behavior.Evaluating performance and potential with the 9-box grid model

Using the matrix, the performance of the employee is rated against their potential giving nine potential combinations.

Each combination describes a class of employees embodying a particular set of traits that guide future actions:

Future leader (high potential/high performance) – or individuals who have mastered their current role and need to be challenged with something more difficult.Growth employee (high potential/moderate performance) – a valuable team member with room for improvement who must be gradually challenged to do better.High impact performer (moderate potential/high performance) – or an individual who has exceeded expectations. They should be targeted for promotion once certain skills have been developed.Enigma (high potential/low performance) – employees who must be coached to develop confidence and increase motivation.Core employee (moderate potential/moderate performance) – or an employee who is consistently meeting expectations. There may be potential to increase responsibilities through a development plan.Trusted professional (low potential/high performance) – unlikely to progress to a higher role but a strong performer, nonetheless. These individuals may require stimulation to remain engaged. Dilemma (moderate potential/low performance) – employees in this class show some potential but are hampered by low performance. Here, the focus should be developing skills or a performance improvement plan (PIP).Effective (low potential/moderate performance) – a consistent contributor with limited potential.Underperformer (low potential/low performance) – or an individual who simply does not meet expectations. They may need to be upskilled or moved to a different role. In some cases, termination may be the best course of action.Quantifying potential and performance

While a future leader or underperformer may be easily identified, the team may have difficulty placing employees in the middle classes.

To quantify performance, criteria should be set for each class that outlines certain non-negotiable standards. These standards must be universally accepted within the organization.

Defining potential is more difficult because it is a future prediction of success. To ensure that everyone is on the same page, a single definition of the potential for an employee to progress to a leadership role is helpful.

Potential can also be quantified using set criteria that encompass desirable employee attributes or other metrics the business deems important. The 9-box grid model is a very flexible approach. While attributes used to measure performance and potential are not that important, maintaining attribute consistency for every employee evaluation is much more critical.

Advantages and disadvantages of the 9-box grid model

In the final section, we will outline some general advantages and disadvantages of the 9-box grid model.

AdvantagesIncreased transparency – as hinted at earlier, the 9-box grid model facilitates open and honest communication between leaders and subordinates. Aside from creating a culture of trust and empowerment, the subordinate can easily understand what is required of them in terms of leader expectations and organizational goals.Easier workforce planning – the 9-box model is a simple yet detailed way to categorize the various types of employees for use in human capital deployment. Each box in the grid offers a recommended course of action which makes the deployment process more efficient and allows the organization to maximize its strengths and minimize its weaknesses, so to speak. In budget planning, for example, low-performing employees with high potential could be allocated more resources than low-performing employees with low or medium potential.Simplicity – the 9-box grid model is easy to use, has a simple structure, and be completed based on personal observation. What’s more, it can be used in almost any industry or organization and requires little in the way of data collection or background research. These qualities make the model very attractive to managers who want a quick and easy way to classify employee performance. However, as we will see below, a preference for quick wins, can cause problems in the future.DisadvantagesCompetition – in workplaces where talent management practices are less transparent, the 9-box grid model results in a system where employees are ranked and compete against each other to avoid termination. Transparency is key in avoiding this situation. Indeed, it should be explained to employees that the model is designed to cultivate talent and does not require one person to lose for another to succeed.Review frequency – the 9-box grid model is a more traditional form of performance management characterized by annual reviews by a subordinate’s manager. However, most businesses now favor an approach that emphasizes continuous feedback. To make the 9-box model more relevant today, it is recommended that it be used in conjunction with SMART goals, objectives and key results (OKRs), and as many data points as possible.Categorization problems – the categorization of employees into either low, medium, or high boxes can be problematic since the boundaries between each are in most cases arbitrary. This can be alleviated to some extent by clearly and concisely outlining the competencies and behaviors associated with each category. However, there can still be issues when assessing employees across multiple positions or departments where competencies and behaviors tend to vary.Key takeaways:The 9-box grid model is an evaluation tool used in employee development and succession planning.The 9-box grid model is represented by a nine-cell matrix. Each cell, which guides future action for management, represents a class of employees based on varying degrees of performance and potential.The 9-box grid model is a flexible approach to employee evaluation. The chosen attribute set is less important than consistently evaluating each employee using the same criteria.

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Published on February 17, 2022 09:53

What Is The GE McKinsey Matrix And Why It Matters In Business

The GE McKinsey Matrix was developed in the 1970s after General Electric asked its consultant McKinsey to develop a portfolio management model. This matrix is a strategy tool that provides guidance on how a corporation should prioritize its investments among its business units, leading to three possible scenarios: invest, protect, harvest, and divest.

Understanding the GE McKinsey Matrix

The GE McKinsey Matrix is fundamentally a portfolio analysis. That is, it compares groups of products with their competitive power and market attractiveness.

The portfolios themselves are comprised of the full suite of products or services that a business offers to the market. In the context of General Electric, the matrix was created so that the company could analyze the composition of each of its 150 portfolios – otherwise known as strategic business units (SBUs).

The GE McKinsey Matrix allows a large, decentralized company to determine where best to invest its cash. It does this by allowing the company to judge each SBU according to whether it will do well in the future. That is, the attractiveness of the industry and the SBU’s competitive strength in that industry.

Drivers of the GE McKinsey Matrix

Before any business can plot their products on the matrix, they must first define both competitive advantage and industry attractiveness.

Competitive advantage may include:

Actual market share and market share growth potential.Profit margins, cash flow, and manufacturing costs.Brand equity and customer loyalty.Product or service uniqueness.

Industry attractiveness includes:

Market size and the potential for growth.Buyer and supplier power.The potential for new entrants (competition) or substitution with another product.Industry profitability. Entry and exit barriers.Structure of the GE McKinsey Matrix

The matrix comprises two axes. The competitive strength of the individual SBUs is represented on the x-axis while market attractiveness is represented on the y-axis.

Both competitive strength and market attractiveness are determined by a weighted score calculated from the relevant factors that apply to each. Each parameter is further divided into three categories – low, medium, and high. This creates a matrix with a total of nine cells.

To calculate a weighted score for each SBU, follow these steps:

Make a list of factors

What are the competitive strength and market attractiveness features that are most relevant to the organization? Refer to the previous section for examples.

Attribute weights

These define the relative importance of each factor. The scale that is used is up to the discretion of the business. For example, one may use a value of 1 to denote extreme unimportance with a value of 100 denoting extreme importance. In this case, the individual weights that are assigned to each factor should add up to 100.

Rate the factors

Then, rate the factors according to how well each SBU satisfies them. Most businesses use a scale of 1 to 10. For example, one SBU may score a 6 for industry size while a smaller industry may score a 3.

Calculate total scores

To arrive at a total score for each SBU, multiply the weight assigned in step two with the rating assigned in step three. Market segmentation for one SBU that is weighted at 17 and rated at 5, for example, receives a score of 85. Repeat the process for each factor and sum each score to arrive at a total score.

Plot the scores on the matrix

With the total scores identified for industry attractiveness and competitive strength, the x and y-values of each SBU can be plotted on the matrix using a circle. The size of each circle should correspond to how much revenue the small business unit generates. That is, an SBU that generates 40% of company revenue should be twice the size of an SBU that generates 20% of revenue.

Note also that the nine cells are divided by a diagonal line running from the bottom left to the top right of the matrix. When a product is placed on the matrix, its position relative to the diagonal line determines the strategy that should be used.

Products that fall above the diagonal line tend to be better performers with high growth or cash flow potential. Conversely, products that fall below the line tend to have little potential for growth and are costing the company money to sell.

Strategic implications of the matrix

With each SBU plotted on the matrix, the business can choose one of three strategies according to whether it has low, medium, or high competitive strength and industry attractiveness. Let’s take a look at these below.

Grow/invest strategy

A growth strategy is prudent when a product has a competitive advantage in an attractive market. Investment in growth and a focus on maintaining strengths is a priority. Profitability can also be increased with an emphasis on productivity. This is a position every business aspires to and is characterized by moderate to high industry attractiveness and moderate to high competitive strength.

The biggest challenge for businesses in this area of the matrix is a lack of assets or capital that prevents growth or hinders it from maintaining a dominant market position. For those who can afford to do so, growth strategies may involve increasing production capacity, targeting new consumer demographics, or mergers and acquisitions.

Hold strategy

A hold strategy occurs when a product has both average competitive advantage and market attractiveness. The way forward, in this case, is a little more difficult to define than in the previous example. Depending on the outlook of the company, it could either shift to a more attractive industry or strive to improve its competitive position in the current industry.

If the business decides to improve the current competitive position of one of its SBUs, it should only do so if there is capital leftover from investments in the grow/invest strategy.

Harvest strategy

If the product is at a competitive disadvantage and resides in an unattractive industry, a harvest strategy should be employed. This means investing just enough capital to keep the SBU afloat and continuing to invest as long as the investment made does not exceed the cash that is generated.

Business units that are making a loss, on the other hand, should be sold as soon as possible or when the cash value is at its peak. These strategies ensure that low viability products do not negatively impact other, more profitable SBUs.

Key takeaways:The GE McKinsey Matrix is a nine-cell portfolio matrix, originally developed for GE as a means of screening their large portfolio of strategic business units.The drivers of the GE McKinsey Matrix for a product portfolio are competitive strength and market attractiveness.The position of a product on the matrix ultimately decides whether the business should focus on growth or on minimizing investment and selling.Read also: Business Strategy, Examples, Case Studies, And ToolsOther strategic frameworks by McKinsey McKinsey Horizon Model mckinsey-horizon-model

The McKinsey Horizon Model helps a business focus on innovation and growth. The model is a strategy framework divided into three broad categories, otherwise known as horizons. Thus, the framework is sometimes referred to as McKinsey’s Three Horizons of Growth.McKinsey 7-S Model mckinsey-7-s-model

The McKinsey 7-S Model was developed in the late 1970s by Robert Waterman and Thomas Peters, who were consultants at McKinsey & Company. Waterman and Peters created seven key internal elements that inform a business of how well positioned it is to achieve its goals, based on three hard elements and four soft elements. More Business FrameworksAnsoff Matrix ansoff-matrix

You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is new or existing, and the product is new or existing.Blitzscaling Canvas blitzscaling-business-model-innovation-canvas

blitzscaling-business-model-innovation-canvas

The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.Blue Ocean Strategy blue-ocean-strategy

A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.Business Analysis Framework business-analysis

Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.Gap Analysis gap-analysis

A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.Business Model Canvas business-model-canvas

The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.Lean Startup Canvas lean-startup-canvas

The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.Digital Marketing Circle digital-marketing-channels

A digital channel is a marketing channel, part of a distribution strategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.

More resources:

What Is Business Model Innovation What Is a Business Model What Is a Value Proposition What Is Market Segmentation What Is a Marketing Strategy

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Published on February 17, 2022 05:47

February 16, 2022

What Is The Four Actions Framework And Why It Matters In Business

The four action framework points out four key actions to take into account to refine existing products. Those are: raise, reduce, eliminate, and create. To plot the available consumer products in a marketplace against the company’s ability to provide value and thus be competitive over time.

Four Actions Framework In A Nutshell

The Four Actions Framework can be employed to alter the product in a given market. Kim and Mauborgne, authors of Blue Ocean Strategy advocate the Blue Ocean Strategy, the framework can also be used to refine existing products.

In pursuit of these goals, there are four points that all businesses must consider:

Raise

Can any existing product attributes (competitive factors) be enhanced in such a way that they provide extra consumer value? In other words, which attributes can set new industry standards or trends?

Reduce

Conversely, are there any such elements that can be reduced or eliminated if their relative value or cost does not justify the means? Perhaps some factors erode profits or reduce competitive advantage?

Eliminate

This means removing factors that customers pay for as part of a status quo that industry players take advantage of. In the wine industry, the aging qualities of wine and the complex terms used to describe wine are promoted to add value to the finished product. But what do these somewhat pretentious and superfluous terms mean to the average consumer? Better value-adding, competitive factors may include wine club discounts or guided tours of the winemaking process.

Create

Is there an opportunity to bring something novel to the market that solves a consumer problem in a more effective way than a competitor offering? Instead of creating complex wines with complicated descriptions, a winery could produce a wine that was fun, unpretentious, and easy to drink at an attractive price point.

Four actions framework examplesING Savings Maximiser Four Actions Framework Example

ING is a global financial institution that started offering consumer bank accounts with interest rates that were superior to competitor rates. This was enabled by a low-cost, direct-to-consumer business model with no branches or ATM networks to maintain. There are also no account-keeping fees of any kind provided the user deposits a certain amount of money into the account each month.

The ING Savings Maximiser bank account is a market leader for those who desire streamlined, fee-free banking with a worthwhile interest rate. But can it be refined further? Let’s take a look:

Raise – if we refer to the name of the product, it is obvious that the primary focus of ING is to maximize the interest rate it can offer customers. This has become more difficult in the current economic climate with rates at historic lows.Reduce – there are not many elements ING can reduce as it already has a focus on product simplicity. However, the lack of physical branches – particularly for older consumers – may reduce its competitive advantage.Eliminate – while ING has a low-cost business model, it could have decided to charge users withdrawal, monthly, or ATM fees to boost profits. These fees have become very much the status quo for consumers who bank with traditional financial institutions. Create – to boost competitiveness and help consumers become disciplined savers, the company added an automated saving feature where a portion of one’s income is directed to a dedicated savings account.Nintendo Four Actions Framework Example

Nintendo struggled for many years in the 1990s to compete with better performing and more technologically advanced gaming products from Microsoft and Sony. As a result, the company lost significant market share and ultimately realized that it needed to act to reverse its fortunes.

In 2006, it launched the Wii which redefined the prevailing logic of the market and captured consumer segments that were previously neglected.

How did this play out?

Raise – the Wii will be remembered as the product that fostered social gaming and increased interactivity. This was achieved by releasing sports and fitness games and developing innovative accessories such as the Wii Motion Plus Controller, Dance Dance Revolution Pad, and Mario Kart Wii Wheel. The motion controllers in particular were revolutionary as they allowed people to play games that had been almost impossible to replicate on a console.Reduce – Nintendo opted to avoid working with third-party game developers because it tended to be a difficult relationship where the costs did not justify the results. Instead, it focused on developing games itself while Sony and Microsoft continued to rely on third-party developer powerhouses.Eliminate – Nintendo eliminated superfluous features from their previous consoles that were not related to gaming, such as DVD and Blu-ray integration and a hard disk drive.Create – a natural consequence of Nintendo’s social and interactive games was inclusivity. As we touched on earlier, the Wii appealed to an extensive but neglected audience of consumers such as families, children, and more casual gamers who were not as hardcore as the gamers Microsoft and Sony were targeting. To date, the Wii console has over 1500 games that appeal to all ages, abilities, and interests and most do not require any experience at all.Connected strategic frameworksSWOT Analysis swot-analysis

A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.PESTEL Analysis pestel-analysis

The PESTEL analysis is a framework that can help marketers assess whether macro-economic factors are affecting an organization. This is a critical step that helps organizations identify potential threats and weaknesses that can be used in other frameworks such as SWOT or to gain a broader and better understanding of the overall marketing environment.Porter’s Five Forces porter-five-forces

Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forcesBlue Ocean Strategy blue-ocean-strategy

In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.Balanced Scorecard balanced-scorecard

First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.Scenario Planning scenario-planning

Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.

Connected resources:

AIDA Model Ansoff Matrix Business Strategy Frameworks Blue Ocean Strategy

Additional resources:

Business Models Business Strategy Digital Business Models Distribution Channels Go-To-Market Strategy Marketing Strategy Network Effects Platform Business Models Revenue Models

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Published on February 16, 2022 13:25

What Is The Value Curve Model And The Four Actions Framework

The Value Curve Model is a graphical diagram that illustrates where a business is creating value through its products and services e four points that businesses must consider: raise, reduce, eliminate, and create. To plot the available consumer products in a marketplace against the company’s ability to provide value and thus be competitive.

Understanding the Value Curve Model

The Value Curve Model was developed by authors W. Chan Kim and Renee Mauborgne in 1997.

The concept was expanded in their 2005 book Blue Ocean Strategy, where they argued that a business should focus on creating a new product and subsequent market with no competition. This in direct contrast to traditional “red ocean” strategies, which advocate trying to beat the competition in an existing market.

The model itself can be depicted on a graph, with the following axes:

The available consumer products in a marketplace, represented on the y-axis and rated on a scale of low to high.The competitive factors of a given industry (or the range of factors that players in an industry invest in to be competitive), represented on the x-axis. In other words, competitive ability.

An example of the Value Curve Model can be seen by considering air travel in Europe. In this case, airline companies would be plotted on the y-axis and then judged according to their competitive ability in certain industry factors on the x-axis. Specifically, these might include low fares, ancillary services, airport taxes, and average delay time.

A higher position on the graph correlates to a higher score. Returning to the airline example, British Airways might offer more value in ancillary services when compared to Ryanair. However, Qatar Airways might beat both competitors when it comes to average delay time.

Ultimately, the Value Curve Model allows businesses to compare their products against those of their competitors. This allows them to identify potential gaps in the market or identify areas where there is room for improvement.

The Four Actions Framework

Once the value curve has been established, the Four Actions Framework can be employed to alter the product in a given market. While Kim and Mauborgne advocate the Blue Ocean Strategy, the framework can also be used to refine existing products.

In pursuit of these goals, there are four points that all businesses must consider:

Raise

Can any existing product attributes (competitive factors) be enhanced in such a way that they provide extra consumer value? In other words, which attributes can set new industry standards or trends?

Reduce

Eliminate

Create

Value Curve Model Case Study

Let’s take a look at the model using European air travel as an example.

Airlines would be plotted on the y-axis with competitiveness according to industry-specific factors on the x-axis. These may include low fares, ancillary services, airport taxes, and average delay time.

A more prominent position on the graph correlates with a higher score.

For example, British Airways may offer more value in ancillary services when compared to Ryanair. However, Emirates may have them bothered covered when it comes to average delay time.

In essence, the Value Curve model allows businesses to compare their products against those of their competitors, enabling them to identify potential gaps in the market or areas where there is room for improvement.

And therefore, devise a practical business strategy on top of which formulate a competitive response to market forces.

Key takeawaysThe Value Curve Model is a tool that businesses can use to differentiate and then manage product portfolios to create a competitive advantage.The Value Curve Model plots the available consumer products in a marketplace against their ability to provide value and thus be competitive.The Value Curve Model can be used in conjunction with the Four Actions Framework to assess new products and new markets in line with the Blue Ocean Strategy.Connected Business Frameworks

Scientific Management

Scientific Management Theory was created by Frederick Winslow Taylor in 1911 as a means of encouraging industrial companies to switch to mass production. With a background in mechanical engineering, he applied engineering principles to workplace productivity on the factory floor. Scientific Management Theory seeks to find the most efficient way of performing a job in the workplace.

Poka-Yoke

Poka-yoke is a Japanese quality control technique developed by former Toyota engineer Shigeo Shingo. Translated as “mistake-proofing”, poka-yoke aims to prevent defects in the manufacturing process that are the result of human error. Poka-yoke is a lean manufacturing technique that ensures that the right conditions exist before a step in the process is executed. This makes it a preventative form of quality control since errors are detected and then rectified before they occur.

Gemba Walk

A Gemba Walk is a fundamental component of lean management. It describes the personal observation of work to learn more about it. Gemba is a Japanese word that loosely translates as “the real place”, or in business, “the place where value is created”. The Gemba Walk as a concept was created by Taiichi Ohno, the father of the Toyota Production System of lean manufacturing. Ohno wanted to encourage management executives to leave their offices and see where the real work happened. This, he hoped, would build relationships between employees with vastly different skillsets and build trust.

Dual Track Agile

Product discovery is a critical part of agile methodologies, as its aim is to ensure that products customers love are built. Product discovery involves learning through a raft of methods, including design thinking, lean start-up, and A/B testing to name a few. Dual Track Agile is an agile methodology containing two separate tracks: the “discovery” track and the “delivery” track.

Scaled Agile

Scaled Agile Lean Development (ScALeD) helps businesses discover a balanced approach to agile transition and scaling questions. The ScALed approach helps businesses successfully respond to change. Inspired by a combination of lean and agile values, ScALed is practitioner-based and can be completed through various agile frameworks and practices.

Kanban Framework

Kanban is a lean manufacturing framework first developed by Toyota in the late 1940s. The Kanban framework is a means of visualizing work as it moves through identifying potential bottlenecks. It does that through a process called just-in-time (JIT) manufacturing to optimize engineering processes, speed up manufacturing products, and improve the go-to-market strategy.

Toyota Production System

The Toyota Production System (TPS) is an early form of lean manufacturing created by auto-manufacturer Toyota. Created by the Toyota Motor Corporation in the 1940s and 50s, the Toyota Production System seeks to manufacture vehicles ordered by customers most quickly and efficiently possible.

Six Sigma

Six Sigma is a data-driven approach and methodology for eliminating errors or defects in a product, service, or process. Six Sigma was developed by Motorola as a management approach based on quality fundamentals in the early 1980s. A decade later, it was popularized by General Electric who estimated that the methodology saved them $12 billion in the first five years of operation.

Supply Chain

A classic supply chain moves from upstream to downstream, where the raw material is transformed into products, moved through logistics and distributed to final customers. A data supply chain moves in the opposite direction. The raw data is “sourced” from the customer/user. As it moves downstream, it gets processed and refined by proprietary algorithms and stored in data centers.

Connected resources:

AIDA Model Ansoff Matrix Business Strategy Frameworks Blue Ocean Strategy BCG Matrix Porter’s Five Forces SWOT Analysis

Additional resources:

Business Models Business Strategy Digital Business Models Distribution Channels Go-To-Market Strategy Marketing Strategy Network Effects Platform Business Models Revenue Models

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Published on February 16, 2022 13:07

Kotler’s Five Product Levels Model In A Nutshell

Marketing consultant Philip Kotler developed the Five Product Levels model. He asserted that a product was not just a physical object but also something that satisfied a wide range of consumer needs. According to that Kotler identified five types of products: core product, generic product, expected product, augmented product, and potential product.

Understanding the Five Product Levels model

Kotler defined a product as anything that could meet consumer needs or wants. It’s important to note that a lot of needs and wants are not related to product functionality. That is, the needs and wants of the consumer are more abstract.

Offering products with abstract value should be the goal of any business. Since the consumer receives this value on top of the functional value of the product, they tend to be more satisfied after making a purchase. Satisfaction also increases when the perceived value of a product matches the actual value of owning it.

Once a product has high perceived value, the brand behind the product forms an emotional bond with the consumer. This increases brand equity and ensures that a business is top-of-mind the next time a consumer needs to make a purchase.

In the next section, we’ll look at each of the five levels in more detail.

The five basic levels of all products1. Core level products

Core products address fundamental consumer needs such as food, water, or shelter. A consumer who rents a hotel room has a core need for sleep. Others buy cars because of their core need to get from one place to another in a satisfactory amount of time.

2. Generic level products

Generic products do offer some benefits over and above their functionality, but they lack differentiation. Therefore, businesses offering generic-level products are often competing on price instead of building brand equity.

Generic products are often thought of as commodities and have the bare minimum of features required to make them functional. Examples include bottled water, insurance, mirrors, and beds.

3. Expected level products

Expected level products have value-adding features that seek to differentiate them both in the marketplace and from core and generic products. The danger with expected-level products is that they become normalized over time and potentially revert to core-level products.

When Wi-Fi was first offered in hotels, it created a high amount of value and was priced accordingly. Nowadays, Wi-Fi is so ubiquitous as to be free in most establishments – therefore relegating it to a core or generic product at best.

4. Augmented level products

Augmented products are truly differentiated in their respective markets. A consumer may not directly seek out the extra features that make a product augmented, but these features do contribute to competitive advantage, nonetheless.

For example, a new laptop bundled with Microsoft Office and a five-year warranty for no extra cost adds abstract value in the form of consumer peace of mind and value for money.

5. Potential products

Potential products are simply the transformations an augmented product might undergo in the future. Businesses must aim to surprise and delight consumers to sustain brand equity through innovation. This also ensures that augmented products are continually updated so that they avoid falling to lower levels of the model.

Adobe’s photo editing software is one such example, with engineers constantly adding new features and ensuring that the software is compatible with new camera releases.

Five Product Level model examplesThe Coca-Cola Company Five Product Level Model Example

Below is a look at how Coca-Cola stacks up in terms of Kotler’s model:

Core product – at the core level, Coca-Cola drinks aim to quench a consumer’s thirst.Generic product – drinks are either carbonated or non-carbonated and come in various flavors, types, and packages. Expected product – in terms of value-adding, Coca-Cola sells some drinks cold to entice consumers. Low or no-calorie drinks are another form of expected product that has become increasingly prevalent in recent years. In fact, these drinks are so commonplace that they may transition to a generic product at some point.Augmented product – it could be argued that Coca-Cola sold in glass bottles is an example of an augmented product in regions where plastic bottles are the norm. The ‘Share A Coke’ campaign, which printed the most popular 150 names on bottles, was another initiative that differentiated the company’s drinks in the market.Potential product – due to significant brand equity and value, there is little risk of Coca-Cola’s augmented products falling to lower levels of the model. But this has not caused the company to become complacent. In 2019, Coca-Cola launched a holiday theme promotion with its first-ever large-scale augmented reality experience. Consumers could scan Coke bottles and cans with a mobile app to view the immersive, computer-generated world of the company’s polar bear mascot called “arctic home”.Nike Five Product Level Model Example

Let’s now take a look at sports footwear and apparel company Nike.

Core product – in terms of Nike footwear, the core product aims to make all forms of physical exercise comfortable and safe for consumers. Generic product – Nike’s generic products are the range of footwear and sports apparel it sells, including running shoes, sneakers, t-shirts, socks, hats, backpacks, and balls.Expected product – where Nike starts to excel is in the expected product. Nike is known for its superior quality, with its running shoes in particular associated with flexibility, support, cushioning, protection, and reliability. Nike’s swoosh logo, which is estimated to be worth $30 billion, is also a significant value-adding feature. Augmented product – according to the company, 60% of its customers are wearing the wrong shoe size. To solve this problem, Nike augments its running shoes with Nike Fit, a feature that utilizes computer vision, data science, and artificial intelligence to properly measure the shape of both feet. Using this approach, the company claims it can measure accurate foot size to within 2 millimeters, As more consumers shop for clothing and apparel online and are wary of purchasing the wrong size, Nike Fit is one augmented product that seems likely to provide a competitive advantage.Potential product – Nike By You is an initiative that allows consumers to design and personalize their own Nike merchandise, whether that be footwear or sportswear. This can be achieved online or in several studios around the world. In 2017, rival brand Adidas launched its own personalization service in an attempt to close the gap on Nike.Key takeaways:The Five Product Levels model shows that consumers have as many five different levels of need for a single product. These needs are based on psychological, emotional, and perceptual factors.The Five Product Levels model argues that consumers must derive value from a product that is not directly related to its functionality.The Five Product Levels model explains how a product may move through five levels of development, according to the degree of market differentiation and subsequent consumer benefits.

Connected resources:

Ansoff Matrix Business Strategy Frameworks Blue Ocean Strategy BCG Matrix Competitive Moat Porter’s Five Forces Profit Margins

Additional resources:

Business Models Business Strategy Digital Business Models Distribution Channels Go-To-Market Strategy Marketing Strategy Network Effects Platform Business Models Revenue Models

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Published on February 16, 2022 08:56

Total Quality Management (TQM) Framework In A Nutshell

The Total Quality Management (TQM) framework is a technique based on the premise that employees continuously work on their ability to provide value to customers. Importantly, the word “total” means that all employees are involved in the process – regardless of whether they work in development, production, or fulfillment.

Understanding the TQM framework

The TQM framework was developed by management consultant William Deming who introduced it to the Japanese manufacturing industry. Today, Toyota is perhaps the best example of the TQM framework in action. The carmaker has a “customer first” focus and a commitment to continuous improvement through “total participation”.

The focus of the TQM framework is the continual improvement of all processes with an organization, irrespective of whether they have a direct impact on customer satisfaction.

Improvement comes from identifying and then removing or reducing errors that commonly occur in supply chain management, manufacturing, employee training, and customer experience. The process of problem-solving and adding value to the customer experience is one where every individual takes an active role.

8 principles of Total Quality Management

While there is no universal approach to implementing a TQM framework, many businesses use the following eight principles. These are evergreen principles that can be applied to any industry and are incorporated in more modern management techniques.

1. Customer-focused

The TQM framework acknowledges that the customer is the final determiner of whether company processes are sufficiently high quality. If the customer is not satisfied, then the company must refocus its efforts on understanding consumer needs and expectations on a deeper level.

2. Employee engagement

Engaged employees are empowered employees who are not fearful of losing their jobs. As a result, they have the confidence and experience to suggest and implement continuous improvement across many systems.

3. Process approach

Refining process is a fundamental component of the TQM framework. Here, refinement means processes are followed in a logical order to ensure consistency and increased productivity. Flowcharts and visual action plans can be produced so that employees understand their responsibilities.

4. System integration

System integration means that every single employee in a company has a reasonable understanding of policies, standards, and objectives. It is vital employees understand their roles and how they contribute to the greater success of the company – no matter how insignificant those contributions may seem.

5. Strategic and systematic approach

A business must develop strategies that are quality-centric. Company mission statements and their associated goals and values should also reflect the quality-first approach to customer satisfaction.

6. Continual improvement

Continual improvement is important in developing a competitive advantage and also in meeting stakeholder expectations. Toyota’s model for continual improvement places a high emphasis on employee participation, eliminating waste, and reducing bureaucracy. These factors increase innovation and reduce costs, which ultimately flow to the consumer.

7. Decision-making based on facts

Informed decisions are derived from a deep understanding of a business’s market and its target audience. Wherever possible, data should be collected to support employee experience and intuition concerning creating value for consumers.

8. Communication

Communication is an often overlooked yet vitally important part of any successful company. It plays a key role in clarifying expectations while also increasing employee morale and motivation. Communication also increases collaboration and innovation between previously separate departments in a single company.

How is TQM implemented?

TQM is implemented by following the PDCA cycle, a model that originated in the 1920s that is a core component of many modern quality frameworks. Although the model was created by engineer and statistician Walter Shewhart, Deming was the one who was responsible for its wide distribution and so it is often called the Deming cycle.

With that said, below is a look at each of the four stages that comprise this cycle:

Plan (P)

The most important stage where affected stakeholders come together to determine the root cause of a problem via detailed research or analysis such as the Fishbone diagram, 5 Whys, or Failure Mode and Effects Analysis (FMEA).

Do (D)

In the second stage, the stakeholders develop solutions to the problems identified in the planning stage. Unlike Six Sigma, the PDCA cycle focuses more on whether employees deem a solution to be effective and less on measuring concrete gains.

Check (C)

Where a before-and-after check is performed to determine the effectiveness of the solution. Any data can be compared to expected outcomes to ensure objectives are being met. Successful solutions should then be incorporated into broader processes and procedures to avoid problem recurrence.

Act (A)

In the context of the TQM framework, the fourth and final stage encourages decision-makers to present the results of the test to relevant stakeholders to tell them what has occurred and to chart a way forward.

TQM and the costs of quality

A fundamental component of the Total Quality Management framework is that the cost of doing something the right way is far less than doing it the wrong way and having to fix the mistake. Nevertheless, some critics of the framework consider that the process of maintaining quality has an associated cost that cannot be recouped by the business.

To counter this view, Deming along with colleagues Joseph M. Juran and Armand V. Feigenbaum reframed the cost of quality as the cost of not producing a quality deliverable. These costs, they posited, were applicable across four categories:

Prevention costs – or costs related to the creation of work areas that are safe and efficient. Prevention costs also encompass planning, training, and the conducting of regular reviews. The researchers noted that activities related to prevention were often allocated a minuscule amount of the company’s budget.External failure costs – these are costs incurred once a product has been released in the market, such as returns, repairs, recalls, or warranty claims.Internal failure costs – or the cost of any failure before the product has been released. Typical internal failures include faulty machinery, improper or poor quality raw materials, product design that requires multiple revisions, and scrapped product runs.Appraisal costs – these cover the cost of inspection and testing during the product development lifecycle, such as the evaluation of supplier materials.Key takeaways:The TQM framework is an approach to long-term success by increasing customer satisfaction through the reduction or elimination of errors.At its core, the TQM framework emphasizes a total commitment to long-term change through a cohesive and collaborative approach to employee problem-solving.The TQM framework utilizes eight principles with a focus on customers, communication, employees, and incremental improvements.Read also: Business Strategy, Examples, Case Studies, And ToolsConnected Business FrameworksScientific Management scientific-management

More resources:

What Is Business Model Innovation What Is a Business Model What Is a Value Proposition What Is Market Segmentation What Is a Marketing Strategy

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Published on February 16, 2022 04:05

February 15, 2022

The History of SpaceX With Eric Berger [FourWeekMBA Podcast]

In this episode of the FourWeekMBA podcast, I interview Eric Berger, Senior Space Editor at Ars Technica since 2015, Founder And Editor of Space City Weather, and author of:

Liftoff: Elon Musk and the Desperate Early Days That Launched SpaceX

Gennaro [FourWeekMBA]:

Eric, thanks for joining this conversation. It’s a pleasure to have you in this session.

Eric Berger:

Oh, it’s my pleasure. Thank you.

How did you actually get to cover SpaceX? What was the background that made you actually write the book in the first place?

Eric Berger:

Yeah, I mean, I’ve been covering space for a long time. I’m based in Houston, Texas, where Johnson Space Center is located. And so space is a big part of the fabric of community here. It became clear to me about a decade ago that the real future of space flight, at least in the United States, was in the private sector. It was at that point that SpaceX was just starting to take off. And then they’ve had really tremendous success over about the last five years with all the rockets they’ve launched, putting humans into orbit, and demonstrating reuse.

And so it was back in about 2018 that I realized that SpaceX basics was not just sort of a really interesting company. They were really transforming the industry and continue to do so. And I wanted to understand why they had been successful. And so I was wondering, is this because of Elon Musk or did he just get lucky? Is he really as involved as he says he is? And so it was sort of with the goal of answering those questions that I embarked upon the project of really understanding the beginnings of SpaceX.

Gennaro [FourWeekMBA]:

Yeah. Interesting. And for a little bit of context to the audience, because in this series, I also had an interview with the author of The Founders, which is a book about PayPal. And it’s a very interesting connection because actually when Elon Musk used the funding for SpaceX, it was actually the money that Elon Musk managed to get from an exit from PayPal. It was like around 2002 when PayPal was acquired by eBay, and that was what gave him actually the money to get started with SpaceX.

And the interesting notice also that just one or a couple years before Musk had been ousted from the company, because he had been like the CEO of the company, and then there was a sort of interesting story behind it because Max Levchin and David Sachs organized, let’s say, ousting of Musk from PayPal. And there is a whole story behind it, which is very interesting and we cover in the other episode.

Why did Musk get started with SpaceX? I mean, he is a software guy, one of the most incredible people that, of course, you have in business. But why did he get to space?

Eric Berger:

Yeah, I mean, it’s really interesting that he went from software into space flight, and then not too long after that, into electric vehicles. And I think the answer really begins with his unique personality. He is very much an engineer, and so he looks at the world, sees problems, and wants to solve them. And so I think after he’d sort of made it with PayPal in the sense that he was now sort of well off and could do the things that he wanted to do, he started to look around. And one of the things that had bothered him was the fact that we were a species that lived on a single planet. And so if something really went bad here with the plague, some kind of environmental catastrophe or an asteroid, we were pretty screwed. And so he thought that we ought to have a backup plan. We ought to become a space-fairing species. And I think part of it too was he reads a lot of science fiction and is inspired by the idea of civilizations that span multiple worlds, multiple stars. Right? And so he saw that NASA really wasn’t working to bring about that future. They were very much doing what they had done for decades, and that was not involving getting more people into space, going more places, and really sort of becoming a space-fairing species.

I was just going to say I think it was that big idea that got him thinking about how he might affect some change in that area.

Gennaro [FourWeekMBA]:

And of course, there’s an interesting fact that you recount in the book that actually, at the beginning, Musk thought that probably with more budget for NASA, this would develop them to actually speed up the process of going again in space, but actually figured that this was not the case. It was not a matter of actual budget. It was something else. I mean, what were some of the discoveries in the early days for Musk that actually led him to say, “Okay, now it’s not just me getting involved in understanding whether the industry can get more budget. It’s me getting involved personally with my mind, with my money, to actually get these off the ground.”

What made Musk realize he had to commit his own money to get to Mars?

Eric Berger:

Yeah, that’s a great point. You know, from the outset, he thought that if NASA could get more money, then they could accomplish more things in space, like sending people to Mars. And as he did a little more research, he realized that wasn’t the case. First of all, NASA didn’t have a humans-to-Mars program anywhere on its books. And second of all, he looked at the launch technology that this country was using and NASA was using at the time, and these were basically rockets based on decades-old technology. It cost an enormous amount of money, and it just… As he told me in the book, these horses in the barn were lame that NASA was trying to use to do these programs.

And so he just saw an industry, a launch industry in particular, that was sort of stuck in place. The world around him was changing, right? This was the early 2000s. The internet revolution was at hand. With PayPal, he had helped to bring about change, moving the banking industry online, medical records. I mean, all of these things were happening with the internet, but the space industry was basically not changing at all. And he looked at this and said, “Okay, what is the biggest constraint to getting a civilization on Mars?” And what he realized pretty quickly is that it costs way too much to launch people and payloads and things into space. And so that became his first goal, was to develop some kind of reusable space transportation system.

Gennaro [FourWeekMBA]:

Yeah. And of course, coming out from the PayPal acquisition and realizing that in order for actually being able to change the space exploration industry, Musk needed to get involved personally. He actually started with a hundred million investment, which might seem a lot in some cases in the software industry, but it was not that much in the space industry. How did he manage…

How did Musk think in the first early days to handle such a project with this amount of money?

Eric Berger:

Right. So he looked at the existing launch industry and thought that it was really pretty inefficient. And so he came in with the idea of, “How can we do this for the least amount of money possible?” That was kind of the questions he asked his earliest employees. He asked Tom Mueller, “If you could build a powerful rocket engine, what’s the least amount of money you could do it for?” And he asked Hans Koenigsmann who was going to do his avionics and software, “Could you build a flight computer from off-the-shelf hardware with 10 or 20 people instead of a hundred or a thousand people?” And sort of these were the challenges that he set about. It’s like, “Let’s cut the bone and let’s cut this back to the bone, and sort of see… Let’s do things as efficiently and as ruthlessly as possible in terms of cost.”

And the other big thing that he did is he tried to build as much of the rocket in house. Like they tried to build the engines and the structures and all this stuff in their own factory. And this may seem, “What’s the big deal about that?” But it really was a big deal. 20 years ago, if you were going to build a new rocket in the United States, you would go buy your engines from Aerojet. You would buy your structures from someone else. And you would buy your payload faring from RUAG. And you would sort of just assemble the rocket. And so his idea was, “No, no, no, no. We’re going to see if we can eliminate as many suppliers as possible and do this in house.”

Gennaro [FourWeekMBA]:

And so it was definitely this sort of, as you explain, a vertical integration that helped SpaceX make this objective possible. And initially, as you also explain, it was more a matter of… Like it wasn’t just innovating the product. It was more lowering down the cost in an industry that instead hadn’t been able to do it in the last decade. So it was a little bit step also in bureaucracy and politics, of course, because we can imagine that if a program that was financed by NASA in the public space was failing, then of course, failure was a big deal. Instead, when SpaceX came along, it brought a different kind of approach.

What sort of management style Musk had, but also what sort of mindset SpaceX used to actually get going in the early days?

Eric Berger:

So, a couple of things on that I would say. First of all, one advantage that SpaceX had was that it was building the rocket it wanted to build. So, typically, the way things had been done before was NASA or the Department of Defense would decide it needed X amount of capability, and then it would tell the industry what design it wanted, what specifications. Then it would work very closely with industry, engineer to engineer, to sort of get that rocket built. And it was a costly, time-consuming process because you have to go back and forth. There’d be changes, blah, blah, blah, and all this government oversight.

What SpaceX said is, “Okay, no one is going to pay us to build this rocket. We’re not getting a government contract to develop Falcon 1. But that means we get to do it our own way. We get to develop the rocket we want. If we’re going along and we find something doesn’t work, we can scrap it immediately and move to a new design or change this part or that part.” And that allowed them to go much more quickly, much more leanly, and sort of without the bureaucracy that goes along with working with the government. So, that was one important thing. Now, that meant they were taking a financial risk. If they couldn’t find customers to fly on the Falcon 1 rocket, then they were going to lose a lot of money, because the development cost was more than a hundred million dollars.

The other thing they did is they had a few senior managers, like people who had experience. And so Musk was about 30 years old when he started SpaceX, and he hired a few people in their thirties who had experience in the industry. And then the majority of employees were people who were in graduate school or had just graduated, undergraduate engineers, basically, who were, 20, 21, 22, 23, 24, who could work long hours, were willing to work long hours. And so he went out to try to find the best and brightest students he could to build his rocket.

Gennaro [FourWeekMBA]:

Yeah, and those are extremely important points. As you said, first of all, SpaceX changed the whole industry by saying, “Okay, we are not going to develop those rockets according to your specifics. We’re actually selling you, let’s say, an outcome, which is the launches that you’re going to need in the future. But we are going to do it the way we want to do it.” So this gave them a lot of freedom in terms of development, design, and everything else. So they could really figure out how to make this possible at a much lower cost.

And another key point, as you said, as you mentioned, is that, yeah, SpaceX at that point really figured out how to make sure that it could lower the cost by also adding talent, talented people. But some of them were young people, of course, but some of them were also experienced, people. So Elon Musk actually managed to attract people that actually were coming from the industry but from other established companies.

How did SpaceX attract talented people in the early days? Both new hires and experienced people coming from established companies in the space industry?

Eric Berger:

Yeah. That’s a great question because there was a guy, Elon Musk, who had no experience in rockets and was coming into this industry talking a big game of lowering the cost of putting stuff into space, and blah, blah, blah. And this had happened before. Like people with money had come into California and tried this very same thing, and they all had failed. And so how did he manage to attract some really talented people, like Tom Mueller to do engines, and Tim Buzza to do his launch sites, and Chris Thompson for structures and Gwen Stockwell to do sales. And the answer to that is Musk is really a pretty charismatic person. And so, when you talk to him, you can see that he’s very committed to an idea.

And so he had this mix of money, right? He was willing to put a hundred million dollars on the table, and some of the early employees got a lot of stock and a lot of… You know, they got some guaranteed money up front. But he also had a pretty compelling vision and was able to sell them on it, and was there working just as hard as they were. So they could see pretty quickly that he was in the game too, right? He was not just sort of coming in, giving an inspirational speech, and then jetting off to Tahiti for three weeks. He was there with them in the trenches.

Gennaro [FourWeekMBA]:

Yeah. And there is an important thing to emphasize a little bit, which is, as you explained, SpaceX changed the whole approach of developing rockets by using a sort of iterative approach, what of course in the startup world is known as also a lean methodology, whatever we want to call it. But the main point is they manage to use a different approach from the linear approach that is used in the industry.

But also this is not intuitive because, in an industry where hardware is extremely important, failing is not cheap, actually quite the opposite. It was pretty expensive. And indeed, as you explain also in the book, as they went through the process of figuring out how to make a successful launch, a few things also this iterative approach made them fail in a pretty miserable way. So it was not like all this beautiful thing where we apply the iterative approach and things work out.

How did SpaceX manage to bring the iterative approach to space? An industry used to a linear approach to rocket design, development and launch.

Eric Berger:

Right. So, the way that rockets and spacecraft are typically designed is some engineers will sit around and come up with a perfect design of the rocket, and then other engineers will review it. And they’ll sort of go through this big, long, preliminary design review. And then they’ll go through other designs. And then they’ll start building the rocket, right? And they may build a test version first, or they may not. But then they spend years sort of crafting this perfect vehicle.

The archetypal example of this is this space launch system, which NASA started awarding contracts on back in 2011. And they’ve been building this single, first, SLS rocket since about 2014. And now it may launch later this year, finally, for the first time.

And they’ve had to go really slow with it because if they drop it or something and break it, there’s not like a second SLS rocket right behind it. Right? This is the final design, and it’s got to work first because there’s only one, and it’s going to take two or three more years to build a second one.

Okay, that is quintessential linear design. SpaceX has taken a much more iterative design approach. And that basically means that you build things pretty quickly early on in the design process because you want to test them out. And if they fail, then that’s okay because then you just come up with a better design, test it out, and try it again.

And so you have to be willing to accept failure. That means components blowing up, rockets not succeeding on the first time out, to get to the final product. But then you typically get there faster, and you get there with a better design because it’s sort of been failure tested in a lot of different ways. And that’s iterative design.

And that’s something that SpaceX can do with a privately funded project because it’s their money. They can get away with it.

And if it fails, as long as Elon doesn’t get too upset, it’s okay. Right? Whereas if the space launch system fails on its first launch later this year, then the world is going to be watching, and Congress is going to be saying, rightly I think, “We spent $25 billion on this rocket. Why did it blow up?” You know? And so that’s really the key difference.

And you see that. You see that, frankly, with the Starship project. Just like Elon Musk now has all of the money he could hope to have, we’re seeing his optimal design for building a rocket, which is building like 20 Starship protocol types. You know, there’s half a dozen rocket booster prototypes in south Texas.

And some of them are going to fly, some of them aren’t, but they’ve learned a lot building these. And so it’s like the iterative design process gone mad to the point where SpaceX could build a rocket in a matter of weeks. Whereas NASA’s taking five to six years to build this first rocket.

Gennaro [FourWeekMBA]:

It’s a huge difference. And there is an interesting statement attributed to a recent venture capitalist in 2011, that software is eating the world. And now it seems to me that SpaceX is bringing this to space.

So, really software is going to be eating space as well because pretty much it’s very important to stress out that this iterative approach is also translating in software that controls hardware at distance.

So, which is the same approach that, interestingly enough, also Tesla uses. Because when you have a car like Tesla, a lot of it is hardware, but when you have a software update, you can actually control various parts of the car. So you can make the car different, like not a whole new different vehicle, but you can improve the product a lot just with the software update. And the same applies back to, I guess, rockets. And this is extremely important.

Is software eating space too?

Eric Berger:

Yeah, just to sort of finish up the point you were making about software, first of all, I think that this kind of focus on iterative design, actually we can trace it to Musk’s roots in writing software. Because the basic idea is you write a program, you run it, you find the errors, you debug the program, and you run it again. And basically, you keep doing that until the program works. And that’s, I think, the same kind of mindset he brought to building rockets, and that really was a pretty innovative approach in the private sector, in the aerospace industry.

What were some of the key events initially that gave the company the impression that things could actually work out? And what were also some of the initial failures?

Eric Berger:

Anyway, going back and saying, “What were some of the signs that they were on the right track?” I think really one of their biggest successes was the first time they static fired the Falcon 1 rocket. So this means that the rocket was held down on the test stand, but they sort of lit the engine for about 20 seconds to simulate a launch. And this was in May of 2005, so just three years after the company was founded.

And they sort of were on the test side in Vandenberg Air Force base in California. And they ignited the rocket, and lo and behold, they were ready to launch or get there. And that was really a successful moment. And up until that point, I’m not sure that the Air Force officials in California realized how close SpaceX was to be ready, because SpaceX had a green light to launch from there, and then basically after that static fire, the Air Force officials said, “Oh, you can launch, but you’ve got to wait for this other rocket over here on the next pad over to launch, and that may not be for six or eight months.”

And so that was one of the reasons why SpaceX ended up not launching in California, had to go to Kwajalein in the Pacific Ocean. So that was like a success and then a setback right after that.

Gennaro [FourWeekMBA]:

Another important point, probably to emphasize a little bit as we move forward: It’s not like SpaceX was the first to try this out, to try to commercialize the space industry.

Actually, there were other companies throughout the eighties and the nineties that tried to figure this out, but they actually were not successful. So, even when we look at the perspective on the other side, so let’s say from the Air Force or the NASA side, they were skeptical.

They were right in being skeptical because they had seen this play before. There is also, I think, a change on the other side, so let’s say on the NASA side, toward SpaceX, by going from, “We don’t trust…” Not, “We don’t trust,” but, “We don’t trust that a commercial player can make it through, that commercial prayers can actually make it through.”

But what was it that really made SpaceX instead successful in its attempt to commercialize space?

Eric Berger:

Right. So, one of the reasons I think why you have to look at SpaceX’s success is because of Elon himself. I think Tom Mueller, who was the vice president of Propulsion, he basically developed the Merlin rocket engine, which was the foundation of success for the Falcon 1, Falcon I, and Falcon Heavy rockets.

He said he had seen a lot of entrepreneurs come along with good ideas about launch companies, and he’d seen entrepreneurs come along with lots of money and wanted to start rocket companies. But he felt Elon was the first one to come along who had both the right combination of money and good ideas.

And what do I mean by good ideas? Good idea being basically like, “What is a realistic first attempt for a rocket? If you were going to build a product that’s a launch company, where’s a good place to start, and what’s a good design for it?”

And I think Tom felt that Elon’s idea of building a rocket that could lift about half a metric ton to lower-Earth orbit, pretty simple design in that it’s liquid-fueled engine first stage, one smaller engine upper stage, and sort of demonstrating that you could get to orbit with that was a pretty good concept. And so Elon started with a pretty basic idea and told his team to go execute on that. And so I think that they weren’t trying to get too crazy right off the bat.

Gennaro [FourWeekMBA]:

I think this is a very important point because when we hear stories from Elon Musk, we tend to look at those stories and the fact that he has such a grandiose vision as something that cannot be achieved.

But it’s very important to highlight that the vision that, yes, it’s very practical. So it’s not like a vision that cannot be, let’s say. It’s a vision with an objective. So, as you explain as well, he wakes up every day trying to understand how you can lower the cost even more so that in the long term you can reach the target of going to Mars.

So it’s a grandiose vision, but in the short term, there is a lot of practical-based objectives, which is extremely important. That’s what makes really SpaceX, I think, successful as well.

Eric Berger:

Yeah, that’s a great point. And I think what I’d want to say here is that, from the outside, it may look like madness, but there is a method to the madness. Right? So the first step, as we talked about, was, “Okay, you want to be a rocket company? Put a rocket in orbit.” And so that’s what they did with the Falcon 1. And then, “Okay, you want to be a real rocket company? Build a medium-lift rocket that can lift, can carry stuff to the International Space Station.” And that’s what the Falcon 9 is.

And then you sort of get into Elon’s vision, which is, “Okay, to really go to Mars, we need to make space flight a lot cheaper.” And that’s where the reusability part comes in.

And that’s where their success with the Falcon 9 rocket flying at 10, 11 times now, at the first stage, really is impressive because that is actually delivering on that vision. That was like the next step, right? “Okay, Falcon 1, Falcon nine. Okay, now demonstrate reusability with the Falcon 9.” Wow.

They’ve demonstrated that. So now the next step is to build a much larger launch system and take all of those lessons you learned from the Falcon 9, put them into Starship, and then that is your actual Mars transportation vehicle.

Gennaro [FourWeekMBA]:

And it’s very important because again, he has a grandiose vision, but as an entrepreneur, he is very practical. And the same approach has been used also for Tesla in the early years. So he had to explain the vision of transitioning the whole world to electric cars, but then when it started, actually Tesla was targeting a very small niche, a subset of the sports car industry, where Tesla was going to show off how an electric vehicle could actually have great performance.

And that’s how it started, with a few models, to show out the Roadster. So this sports car could actually be used as a way to showcase the technology and move from there. So it’s interesting also to notice that, again, grandiose vision covered with a lot of entrepreneurship and practical approach on a day-to-day basis.

And you mentioned also a very important point, which is the fact that making rockets reusable changed the whole industry and the whole business model of the space industry.

How did reusable rockets change the whole business model of the space industry?

Eric Berger:

Yeah. I mean, even the idea of landing a rocket on the ground or on a ship, bringing it back to the factory, refurbishing it, and launching it again, even in 2015, 2016, that seemed like a really out-there idea. It seemed something like you would talk about from a science fiction standpoint, but that you probably wouldn’t see a private company doing.

And I distinctly remember, in like 2017, Elon having a press conference or a press call where he started talking about a flight-proven rocket and basically saying that if you’re a person or a customer, you really want to fly on the second, third, or fourth flight of a rocket. You don’t really want to be on the first flight.

You want to be on a flight-proven version. And man, I have to say, at the time, that just sounded like a marketing gimmick, and everyone just kind of laughed at that like, “No way. Whatever, right? He’s just trying to make these rockets seem safer than they are.”

But now, in the last year or two, you’ve seen the most valuable missions that this country has. Like the NASA astronauts are now flying on the second and the third, and probably the fourth flights of the Falcon 9 first stage. And the Department of Defense is putting GPS satellites. You have commercial customers flying on the seventh or eighth flight of a Falcon 9 rocket.

And so he’s really turned it on its head and shown that, yeah, actually flight-proven is a thing. And so the industry has really had to grapple with this. Like there’s a very rapidly changing mindset in just the last two or three years that basically if the rocket you’re designing now is not reusable, you might as well not be building it because that is so very clearly the future. The companies and the space agencies that aren’t building reusable rockets are basically almost being mocked. Right? Because it looks anachronistic.

And it’s continued even with Starship because, with Starship, he’s trying to do something that’s never been done before, which is build a fully reusable rocket, which means not just the first stage comes back, but the second stage comes back and it all gets reused and flown quickly. And you’ve seen Relativity is looking to build a fully reusable Terran R vehicle. Blue Origin is going to be trying to make the entirety of its New Glenn rocket reusable. And so this is not just a trend. It’s the future now.

Gennaro [FourWeekMBA]:

These are key points because from being mocked, actually, SpaceX, a few years back, most people didn’t think also in the industry that making a reusable rocket was possible, probably made sense. And now this has become a standard. So, if you’re not doing it, then you are actually being mocked. So these are very interesting.

And of course, there is also another point where SpaceX spent a lot of resources in developing the Falcon 1, but then it added actually people to the Falcon line.

Can you tell us a little bit more about that? How they thrown away a few years of work because they understood that the opportunity was now in another place?

Eric Berger:

Right. So, Elon Musk is not a particularly sentimental individual. And so the company had put blood, sweat, and tears into making the Falcon 1 rocket a success. And really, the focus of my book is on all of those early failures. They failed the first three launches of the Falcon 1. And really with everything on the line with the fourth launch, they ultimately did succeed. And that set the company up, basically, on the glide path that it’s been since then.

But yeah, I mean, the Falcon 9 was just a much more capable rocket. Like with the Falcon 1, the half-ton, you’re kind of limited. And Musk realized that if he built a larger rocket, he could launch all of those other things he had contracts for with the Falcon 1, but he could also serve many other customers with the Falcon 9, and most importantly, NASA, which was bidding out contracts to deliver cargo and astronauts to the International Space Station. You just couldn’t do that with the Falcon 1. And so he basically decided, “Okay, great job demonstrating that the Falcon 1 works, but we’re going to be all-in on the Falcon 9.”

Gennaro [FourWeekMBA]:

And as of now, most probably SpaceX has grabbed most of the commercial satellite launch business. And this is another very interesting point because there is another part, another project, which is Starlink that has become also a very important revenue generator for the company.

So I admire this strategy where you use something like Starlink to generate money on top of an existing industry that exists here on earth, which is the communication industry, where actually you’re going to be using that same technology, I guess, to power up also a connection in space. And so this, to me, it’s a very smart approach that also explains how SpaceX has been able, compared to others, to compete in this industry.

And did it change as a scale? I mean, now SpaceX is a huge company. I guess it’s the main player. So, did it change over time?

Eric Berger:

Yeah, absolutely. SpaceX from the time when the Falcon 1 was basically David, and now in the aerospace industry, it’s Goliath in terms of the way it delivers.

I want to come back a little bit to the comment you made about Starlink being a smart play. We’re going to see if that’s the case over the next couple of years because building a low-earth orbit broadband network is extraordinarily expensive.

And so they’re putting a lot of money into that, and time is going to tell whether or not they’re ultimately successful with that. They’ve got a long way to go, and they’re putting a lot of capital into that.

And so it’s a big gamble, but really, Musk’s goal legitimately is developing a program to settle Mars, and the US government isn’t going to pay for that. NASA’s not going to pay for that. And people aren’t going to pay for that. And so really it’s going to have to come off the revenues from Starlink.

Gennaro [FourWeekMBA]:

Absolutely. Alrighty, so let’s close this up. Our time is almost here, so let’s close this up.

About the timing to Mars, what do you think? I mean, how long it might take for us to see SpaceX being able to actually bring us to Mars?

Eric Berger:

Yeah, that’s a great question. So I’m 48 years old, and if SpaceX denies this, I have almost no faith in NASA or any of the other international space agencies to bring about a humans-to-Mars program in my lifetime. It’s just too expensive. It’s too much risk in terms of human life. And there’s just no real geopolitical reason for the government to make that kind of investment. It’s just, for lots of reasons, it’s difficult to see that happening. But now SpaceX comes along and that’s like the raison d’etre. The reason why SpaceX exists is to put humans on Mars. And again, it seemed preposterous when Elon was talking about it at the beginning of SpaceX. But as we talked about, he’s taken this methodical, step-by-step approach to making it happen. So it is possible this happens in my lifetime.

I think it’ll be some kind of cooperation between NASA and SpaceX. SpaceX clearly is building the transportation system to take humans to Mars possible. Starship is large. It’s rapid. It’s a good design to be rapidly reusable and is the kind of rocket you would need to start setting up a settlement on the surface of Mars. And that was the key first step. Like NASA had done studies of humans to Mars for decades.

But until you actually have the transportation system, the rocket, and the spacecraft, it’s just an academic exercise. Well, SpaceX is taking that first step. And so once they demonstrate Starship, I think then you could see a program with them working with NASA, sort of for the first couple of missions, to be like professional astronauts to Mars; and then SpaceX getting going with its private missions where actually they start developing a settlement on the surface of Mars.

And you ask for a timeline. I just can’t see that happening this decade. I think if it happens anytime before 2035, that would be an amazing achievement. So I’d love to see something happen in the 2030s with humans to Mars.

How is the competition in the space industry and in the commercial space industry? Is there any competition between SpaceX and Blue Origin, which is the company financed by Bezos? Or there is no play between the two?

Eric Berger:

SpaceX definitely has competition, but it has really, in terms of the traditional launch industry, blowing past the competition. Now, what I mean by that is, for a long time, United Launch Alliance, which is co-owned by Boeing and Lockheed Martin, the two largest defense contractors in the United States, United Launch Alliance was the competition. They were America’s dominant launch company.

But last year, SpaceX launched five rockets in the month of December. And in all of the year 2021, United Launch Alliance launched five rockets. So, that tells you about all you need to know about where that competition is today. And frankly, SpaceX is pulling away from United Launch Alliance, especially if and when it gets the Starship vehicle up and running.

And so then the question becomes: Are there other new space companies that could challenge SpaceX? And you brought up Blue Origin. And I still think, despite sort of some of their stumbles, that Blue Origin does offer the best competition because Bezos, Jeff Bezos, has billions of dollars to invest in space and is investing that money and does have a big vision. And they see the new Glen vehicle, the large rocket they’re building, as a viable competitor to Starship. And I’ve seen enough plans for that rocket.

If it does become fully reusable, then it could become a viable competitor in some sense to Starship. But SpaceX is really about a decade ahead of every other rocket company in the United States right now or in the world.

So, in terms of launch, there’s a big gap. And it would be one thing if SpaceX was resting on it laurels or just sort of standing pat. But they’re sort of charging boldly into the future. And you look at the European Space Agency, and they’re now talking about a rocket that looks something like the Falcon 9 and may be developed in five or seven years from now. Well, by that time, the Falcon 9 will be two decades old.

And there are lots of startups in China that are looking at developing rockets that look a lot like the Falcon 9, like a lot with grid fins, landing legs, all this stuff. But again, if they get flying in seven years old, they’re going to be five, seven years, they’ll be 15 to 20 years behind the Falcon 9. And so again, SpaceX just has a really large lead right now.

Gennaro [FourWeekMBA]:

Yeah. Interesting. And Eric, let’s close this up. I know that our time is almost… The book, it’s incredible. I hope that it might turn hopefully in a movie because of the story of the first failures, going forward, now they manage to succeed and still manage to become one of the main players in this industry and bring the commercial space industry forward. It’s so incredible. So thanks for taking the time to join this conversation.

Eric Berger:

Oh, it’s my pleasure. I hope I’ve been helpful.

Gennaro [FourWeekMBA]:

Yeah, absolutely. Thank you.

Key HighlightsFrom software to Space

After PayPal’s exit, Elon Musk had the financial resources to devote to his lifelong passion for space. As he had been ousted from PayPal in the year 2000, Musk started to think about something very ambitious, and space exploration was one of these things.

Yet, the real move came when finally PayPal sold to eBay in 2002, thus giving Musk over $100 million in personal wealth to devote to an ambitious project.

More budget won’t help NASA

As the idea of enabling space exploration developed, Musk initially thought that a simple involvement where he could help NASA get more budget would have helped make improvements.

Yet get figured that was not the case. The whole industry had been stuck for decades, and personal involvement was the only way to go. Musk devoted $100 million to his own wealth. While this seems a large sum of money in reality in space prototyping this isn’t much. Thus, since day one Musk had to think of ways to cut costs to develop rockets.

In the early days, he also explored the option to buy from Russians, yet he finally figured he needed to do it all in-house.

Almost bankrupt

Musk’s first attempts were unsuccessful, and SpaceX had the runway to get going for three launches max. In the early days, the company was close to bankruptcy on several occasions.

After years of trial and error, and near-death experiences, on September 28, 2008, the Falcon 1 experienced its first successful launch (flight 4) Selling launches, rather than rocket specs

In order to redefine the industry development model, SpaceX understood it needed to sell also to commercial players, not just governments. In addition, even for government contracts, SpaceX didn’t get contracts, then developed rockets according to the agency specs. instead, it secured launches contracts, thus having complete freedom in terms of development, design, and launch.

While this would be extremely expensive, and risky on the part of SpaceX, it also enabled a lot of innovation.

Software is eating space

SpaceX changed the whole space travel industry by bringing an iterative approach to rocket development. From a linear approach that has stalled the industry in the last decades, where failure was not an option.

SpaceX led an iterative approach where failure was possible and making quick changes on the fly was the rule of thumb, even in a hardware-heavy industry. In addition, the software has become a key element of SpaceX’s success as it can control the hardware as it travels to space.

Similar to how Tesla updates its software to upgrade its cars, or like the iPhone upgrades its software to enable more features to its hardware device, SpaceX has brought this approach to space!

Reusable rockets, from getting mocked, to industry standard

Another key revolution that SpaceX brought was the reusability of its rockets. From an industry that has thrown away billions of rockets, to an industry where reusability has become the standard.

SpaceX has led this change. In the early years of trying to figure out a reusable rocket, the company was mocked, and now this has become the standard.

Reusability is the key, as it enables to lower exponentially the cost of launching over time, thus making the commercial space travel industry viable.

Going all-in with the Falcon 9

After years of developing a viable Falcon 1, SpaceX eventually went all-in with the Falcon 9, as government contracts that enabled the long.-term vision of the company to be accomplished finally opened up.

This was a huge change in direction, and yet it proved successful over time.

Becoming Goliath

SpaceX has become the Goliath of space, grabbing 2/3 of the commercial satellite launch business. And even as a behemoth of space, SpaceX hasn’t changed its playbook, still working as an iterative company, continuously innovating, and eating its own products, to enable further innovation.

Starlink: tapping into a larger existing market, before you could tap into a viable commercial space travel market

To start surfing an existing market, like the communication market, SpaceX has also leveraged the Starlink project. Musk announced on Twitter on February 14 2022, that Over 250k Starlink user terminals making this a multi-million per month revenue stream:

Over 250k Starlink user terminals
— Elon Musk (@elonmusk) February 14, 2022

No competition?

Most US players are well behind SpaceX, yet China might be a potential player in the future race to space travel.

Going to Mars in a lifetime!

SpaceX has redefined – in a single generation – space travel, making it feasible to think about going to Mars within the next decades. As Musk will push to achieve that goal within his lifetime!

Listen Also:

History of AOL History of PayPal History of WeWork History of Ethereum

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Published on February 15, 2022 09:32

February 10, 2022

What Is Job Embeddings? Job Embeddedness In A Nutshell

Job embeddedness is based on a theory developed by Professor of Management Brooks Holtom and his colleagues at Georgetown University. In a 2006 article entitled Increasing human and social capital by applying job embeddedness theory, the researchers described various influences on employee retention or turnover that may be useful to HR departments. Job embeddedness is a theory positing that the more embedded an employee is in their company, the less likely they are to quit.

Understanding job embeddedness

In essence, Holtom noted that employees who possessed a wider range of work-related roles, relationships, and responsibilities experienced a high degree of job embeddedness. These factors he called connections, with those possessing more connections finding it more difficult to quit their jobs because of a likely intense disruption to various aspects of their life and career.

By the same token, employees who do not possess many roles, relationships, or responsibilities are described as having a low degree of job embeddedness. With fewer connections made, they tend to find it easier to quit their job as there is less impact on their life and career. For the company, these employees are difficult to retain.

The three core elements of job embeddedness

Holtom identified three core elements that indicate how connected an individual is within their organization:

Fit – or the degree to which an individual’s work is related to their values and goals. Note that this is a subjective metric that relates to the career prospects, knowledge, and talents of the particular employee.Links – how is the individual connected to communities and other people within the organization? These encompass formal manager-subordinate relationships and less formal co-worker or colleague interactions or friendships. The physical workplace itself may also be a driver of embeddedness.Sacrifice – or the severity of disruption that would result if the individual quit their job. This is measured by the perceived or actual cost of benefits that are forfeited as a result of the employee leaving the organization. Loss of income and benefits are the most obvious costs, but the employee may also lose access to accrued leave or a pension plan. What’s more, their potential for career advancement may also be impacted.

To measure job embeddedness, the three elements of fit, links, and sacrifice are assessed with respect to the organization and the community. This yields a total of six dimensions that are scored to predict the likelihood of voluntary quitting.

Most tests feature criteria that are scored using a Likert scale where employees rate their level of agreement or disagreement with a general statement. For example, a statement in the dimension that evaluates community-related sacrifice may read as follows: “Leaving this community would be extremely difficult.”

Key drivers of job retention

According to employee review site Glassdoor.com, the following four factors are the main drivers of employee retention and by extension, job embeddedness:

Income – perhaps unsurprisingly, those who earn a higher income are less likely to quit.Promotion prospects – companies that do not provide career advancement opportunities will also find staff retention problematic. In fact, those who hold a positive outlook with respect to their career advancement are 5% less likely to quit.Culture – retention is also difficult in organizations characterized by toxic culture or where no appreciable culture can be identified.Industry – some industries, such as government, media, retail, hospitality, accommodation, and many non-profit sectors are also prone to higher turnover rates.Key takeaways:Job embeddedness is a theory positing that the more embedded an employee is in their company, the less likely they are to quit.Job embeddedness is described in terms of three core elements: fit, links, and sacrifice. Each of these is assessed in terms of an employee’s connections with the organization and community to predict the likelihood they will quit their job.Job embeddedness is driven by income levels, career advancement opportunities, company culture, and the specific industry.Connected Frameworks what-is-okr

Andy Grove, helped Intel become among the most valuable companies by 1997. In his years at Intel, he conceived a management and goal-setting system, called OKR, standing for “objectives and key results.” Venture capitalist and early investor in Google, John Doerr, systematized in the book “Measure What Matters.” balanced-scorecard

The theory was developed by psychologist Edwin Locke who also has a background in motivation and leadership research. Locke’s goal-setting theory of motivation provides a framework for setting effective and motivating goals. Locke was able to demonstrate that goal setting was linked to performance. smart-goals

A SMART goal is any goal with a carefully planned, concise, and trackable objective. To be such a goal needs to be specific, measurable, achievable, relevant, and time-based. Bringing structure and trackability to goal setting increases the chances goals will be achieved, and it helps align the organization around those goals.

Businesses use backcasting to plan for a desired future by determining the steps required to achieve that future. Backcasting is the opposite of forecasting, where a business sets future goals and works toward them by maintaining the status quo. moonshot-thinking

Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.

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Published on February 10, 2022 06:18

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