Fast boat from China

Appearing in In The Black magazine, September 2019

 

Chinese giants like Haier, Tencent, Baidu and Alibaba are now counted as global players, welding technological innovation to marketing know-how and entrepreneurial drive. But the size and rapid growth of these pioneers can obscure the emergence of thousands of smaller companies developing in China’s commercial hothouse. They are supported by a dynamic venture capital sector and an expanding domestic market. New research shows that all of them look, or will soon look, to overseas markets, and many of them are successfully competing against multinational firms operating in China.

“This new generation is looking beyond boundaries and cultivating a disruptive mindset,” says Professor Mark Greeven, one of the authors of a comprehensive study* into Chinese business innovators. “If one Alibaba can shock international stock markets and disrupt traditional industries we can only imagine what tens of thousands of under-the-radar tech-based entrepreneurs will do.”

To see the ground-level picture Professor Greeven and his colleagues interviewed hundreds of executives, entrepreneurs, and investors in China, and studied more than 200 companies. Beyond the established giants they identified three sets of Chinese innovators: hidden champions, tech underdogs, and change makers. Each represents a different set of challenges for competitors.China book

Hidden Champions

Usually, ‘hidden champions’ are midsize innovators in niche markets. Professor Greeven classifies them as having annual revenue of less than US$5 billion – very significant to Australian companies but not that much in Chinese terms. Their strategy is based on long-term growth driven by R&D investments to expand within their niche or into closely related areas.

The research identified more than 200 hidden champions in sectors ranging from machinery and chemicals to materials and electronics.

A company that illustrates this group is Hikvision, which was launched in 2002 with an innovative video compressor card for computers based on MPEG-4 technology; it has followed up with a stream of products in the field, often releasing several new products or upgrades in a year. Nearly half of the company’s employees work in R&D and about eight per cent of revenues are invested in the area.

The company began a global expansion program several years ago and is already a leading player in this field of technology. It has developed partnerships with Western companies, to the point that half of its revenues now come from outside China.

“A surprising feature is how quickly hidden champions can grow,” Professor Greeven says. “Many became domestic and global market leaders in about a decade. It is dangerous for multinational companies to underestimate the speed and flexibility with which these new competitors can emerge, make decisions and expand.”

Change Makers

While hidden champions seek to dominate an industry niche ‘change makers’ aim for the mass market, seeking benefits from digital disruption and often taking advantage of China’s high level of mobile Internet use.

These companies are able to find start-up funding from China’s large venture capital market. Toutiao, a media platform which uses AI to provide customised news through mobile phones, was supported by more than US$3 billion in venture capital after it was founded in 2012. In July 2018, the company had more than 120 million daily active users and was valued at more than US$11 billion.

There is certainly no shortage of young people wanting to start a digital-based business in China, whether in media and information, ride-hailing, finance or retail. Professor Greeven notes that the online food-ordering service Ele.me was founded in 2008 by two students from Shanghai Jiaotong University who, the story goes, got hungry while playing video games one night. By 2015, the company’s revenue had passed US$1 billion.Greeven #1

An outstanding feature of this group is that it shapes digital technology to fit consumer demand, not the other way around. Their success, especially among younger demographics, has meant that all business-to-consumer companies operating in China are now expected to have on-demand and mobile capacities.

“These companies can come out of nowhere, continually engaging with users through social media to adapt products and, as necessary, revamp their business models,” explains Professor Greeven. “Unlike corporations with legacy products and business models to maintain, change makers are entirely user-centered. Rather than pushing an existing product line they are willing to venture beyond the industry’s boundaries if they see opportunities there.”

Tech Underdogs

The third category, ‘tech underdogs’, are small and midsize enterprises, usually science- or technology-based, with revenue of less than US$60 million. Professor Greeven and his colleagues identified tens of thousands of these companies across a wide range of emerging-tech fields. The research identified more than 150 companies with significant intellectual property in photovoltaic technology, for example, and 80 health care ventures utilising various forms of AI.

“Many of these companies were founded by people returning to China from overseas, having studied at elite universities in the US or Europe,” notes Professor Greeven. “Unlike innovators in Silicon Valley, Chinese entrepreneurs work collectively to innovate and push technology and market boundaries. Although many of the ventures do not survive, some become viable competitors and even market leaders. The large number of players in any given category in China increases the chances that at least one will be able to break through.”

There have been a number of cases of Chinese companies in this category partnering with Western firms as a growth strategy. One example is Weihua Solar collaborating with German chemical company Merck, with Merck agreeing to supply advanced materials and patented information to supplement Weihua Solar’s internal R&D efforts. This partnership eventually led to the development of a solar cell that is light, flexible, and more efficient than any of its competitors.

But tech underdogs have also proved to be entirely capable of developing advanced technology on their own. The companies are targeting increasingly sophisticated fields, including genetics, cloud technology, next-gen AI, and advanced materials. Royole, a Shenzhen-based start-up, is an innovator in superthin screens and flexible displays, and has introduced the world’s first bendable smartphone, which can be folded like a wallet.

According to Professor Greeven, for non-Chinese competitors the sheer number of ventures in this category is a problem, especially as even successful ones have little media presence.

“It makes it difficult for multinationals to know which local companies represent a threat and which do not,” he says. “Compared with their Chinese counterparts, multinationals based outside China tend to have fewer connections with local companies and investors. As a result, they are not part of the conversation about emerging threats. For the tech underdogs, that lack of visibility can be an advantage that enables them to catch established competitors off-guard when entering new markets.”

Challenges ahead

While Chinese firms in each category have shown remarkable capacity for innovation, the research suggests that structural weaknesses persist.

For the ‘hidden champions’, the danger is that they will themselves be subject to technological disruption. As they become more successful their public profile will grow, which will bring more competition. They are particularly aware of the possibility of new markets entrants from India and south-east Asia, leveraging their own large domestic markets as a springboard for regional and global markets.

The ‘change makers’ face the problem of creating sustainable competitive advantage in a market of fast-moving trends. They are also aware that regulatory changes in China could undercut their business model, and that regulatory systems in other countries could impede expansion.

For the ‘tech underdogs’, there is the problem of commercialising niche technology. Because so much is invested on a single product, failure to launch means there are few, if any, alternatives.

Ways to compete

Based on their research, Professor Greeven and his colleagues have a series of recommendations for companies wanting to compete in China or are concerned about Chinese competition at home.

  1. Expect the unexpected. A Western company might be aware of the main Chinese competitors but there are likely to be others who are keeping a low profile or have not yet made the decision to go global. A good move is to improve knowledge of industry developments within China to include threats that are not immediately obvious, and to assess their strengths and weakness.
  2. Look for collaborative opportunities. Many Western companies have built good partnership relationships with Chinese firms, usually through subsidiaries. Those companies that have been willing to give Chinese subsidiaries more local autonomy than they might offer those in other countries have generally been more successful. Partnership with or investment in a Chinese firm can also help to identify emerging threats and opportunities.
  3. Realise the threat. Companies that have been in a market leadership position for a long time can easily become complacent. They need to continually strengthen their home base, ensure investment in innovation, and focus on their core strengths.

 

“The best advice for Western companies is to understand the challenges China’s innovators pose and consciously develop counter-measures,” says Professor Greeven. “Compete on their strengths, study the way China’s competitors do business, and rethink assumptions about how to innovate successfully.”

 

* Pioneers, Hidden Champions, Change Makers, and Underdogs: Lessons From China’s Innovators (MIT Press, 2019) by Mark Greeven, George Yip and Wei Wei.

Mark Greeven is professor of innovation and strategy at IMD, a business school in Lausanne, Switzerland and Singapore. George Yip is emeritus professor of marketing and strategy at Imperial College Business School in London. Wei Wei is CEO of GSL Innovation, a consulting firm in Shanghai.

 

 

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10 great TED Talks on careers

Appearing on In The Black Digital site, June 2019

Kavi Guppta presenting his TED talk, The Remote Work Revolution.

Kavi Guppta presenting his TED talk, The Remote Work Revolution.

 

Yes, you can find work that is fulfilling and inspiring, but rethinking your approach is sometimes the best way to get there. The speakers in these 10 inspiring TED Talks share their thoughts on how to have a great career.

1. Scott Dinsmore: How to Find Work You Love

In an era when so many people dislike their jobs, Dinsmore argues that it is possible to find work that will inspire you, if you can determine your true values and goals. He offers a framework for personal discovery through incremental steps and considered risks, pointing to the need to make connections with other people who share your passions, priorities and interests. He says the fundamental question you have to ask yourself is, “What work can you not do?”

2. Marie Claire Lim Moore: Why Asia Needs More Tiger Women – TEDxWanChai

Why are there so few Asian women in senior management positions in most Asian countries when so many do well in university? Marie Claire Lim Moore believes that the key reason is the belief that women’s primary role should be that of mother and wife, coupled with the reluctance of many companies to hire women after a career break.

She looks at the Philippines, which has a high proportion of women in senior roles, as an example of how to change expectations and attitudes.

3. Nigel Marsh: How to Make Work-life Balance Work

The author of Fat, Forty and Fired examines the concept of work-life balance, emphasising that success should be about how you live your life. A good life requires intellectual, emotional and spiritual fulfilment, all of which are unlikely to be achieved by “working long hours to earn money to buy things you don’t need to impress people you don’t like”.

Each person must find balance for themselves and be aware of “the little things” that can, together, make for a full and happy life.

4. Larry Smith: Why You Will Fail to Have a Great Career

Economist Smith examines the many excuses that people offer for not pursuing the passions that will lead to great careers, such as the excuse that great careers are only for eccentric, lucky or highly gifted people.

Smith dissects and dismisses the range of excuses, arguing that any individual can create and develop a great career. It requires courage, self-awareness, hard work and single-minded commitment, but great careers are the means to make the world a better place.

5. Kavi Guppta: The Remote Work Revolution – TEDxUWA

Guppta believes that technology has made remote work viable as a career option in many areas of activity. He advises that people trying to find work on this basis should emphasise their ability to organise themselves, work autonomously, and communicate across cultures.

Companies that want to use remote workers should start small and build up a network over time. While remote working is not for everyone, the number of people who want to take up the option is very likely to increase.

6. Carol Fishman Cohen: How to Get Back to Work After a Career Break

Returning to work after an extended break can be a challenge. Cohen offers a wealth of suggestions for “relaunchers”, from networking to find a job to updating working skills, especially in relation to technology.

She also looks at the intern-like options that some companies are offering to people returning to the workforce. A “testing-out period” can minimise the perceived risk that some employers attach to a returning worker. There can be substantial long-term benefits for both the worker and the company.

7. Jason Shen: When Looking for a Job Highlight Your Ability Not Your Experience

Shen notes that very few people hold jobs that line up directly with their experiences or their academic studies. But he believes that this is not necessarily a problem, if a job applicant can demonstrate relevant and high-level abilities, such as a special mode of problem-solving.

Equally, employers have to be willing to look past traditional metrics to identify people who are a good fit with the company and can bring innovative ways of working and thinking.

8. Susan Colantuono: The Career Advice You Probably Didn’t Get

Many women who want to move into senior corporate positions find themselves stuck in middle management, despite excellent peer reviews and relevant training. Colantuono believes that the missing piece is connecting professional strengths to the company’s strategic goals.

Most career advice that women receive, she says, focuses on personal development. Closing the gender gap at the top will require training and mentoring that make the need for alignment explicit, so that talented people can compete on a level playing field.

9. Susan Redden Makatoa: Flexible Working Should Be the Norm for Everyone – TEDxMacquarieUniversity

In her examination of flexible working, Makatoa notes that Australian legislation theoretically provides the right to flexible work to everyone but in practice it is mainly utilised by working mothers with young families.

This imbalance has created a feeling that this group has special privileges, leading to resentment from others. What is needed, says Makatoa, is a change of mindset so that flexible work rights are utilised by all. Some companies that have done this already have seen productivity enhancements and improvements in employee satisfaction.

10. Angela Lee Duckworth: Grit, The Power of Passion and Perseverance

Duckworth has conducted extensive research on why some people succeed where others fail and concludes that grit – the view that life should be approached as a challenging marathon rather than a sprint – is the determining factor.

Innately talented people often do not follow through on initiatives and fail to reach their objectives. People with grit are more likely to accept occasional failure as the price of learning, a process which often translates into long-term, sustainable career success.

Bonus:

Steve Jobs: How to Live Before You Die

Though not officially a Ted Talk, Steve Jobs’ commencement speech to Stanford University students examines how to see opportunities in setbacks, how to connect apparently disparate events of life, and how to find a career that can be a personal passion.

His concluding message is, “Stay hungry, stay foolish”.

Alibaba Opens the Datafication Door

Appearing on site In the Black Digital, February 2019

 

In the Digital Age all successful companies use high-level technology but the Chinese giant Alibaba might be the one which has taken the underlying principles of e-commerce the furthest, with a model based on machine learning and the comprehensive datafication of customer interaction.

Ming ZengAlibaba, founded in 1999 by tech-entrepreneur Jack Ma, recorded a net income of 61.41 billion yuan, approximately US$9.6 billion, in the year ending 31 March 2018, and its market cap puts it firmly in the global top ten. A new book by its Chief Strategy Officer Dr Ming Zeng explains how Alibaba’s model was developed and how it keeps the company on a growth path.

In Smart Business: What Alibaba’s Success Says About the Future of Strategy*, Dr Zeng notes that Alibaba is sometimes compared to Amazon but he believes that the comparisons are incorrect. Whereas Amazon is a retailer, Alibaba is a portal to link customers to sellers (although it is now highly diversified, involved in everything from banking to film finance). Its strategy has been to apply technology to every part of the purchase chain, from advertising to delivery.

“Alibaba today is what you get if you take all functions associated with retail and coordinate them online into a sprawling, data-driven network of sellers, marketers, service providers, logistics companies, and manufacturers,” says Dr Zeng. “Alibaba does what Amazon, eBay, PayPal, Google, FedEx, wholesalers, and a good portion of manufacturers do in the United States, with a healthy helping of financial services for garnish.”

Ecosystem

Despite his key role Dr Zeng was not a part of the company at its inception. At that time he was working as an academic at Europe’s top business school, INSEAD, after completing his PhD in the US. He was teaching a course on Asian business when Alibaba caught his attention.

“It had no Western counterpart so it was a perfect case for MBAs,” he says. “I contacted the company and management agreed to let me study the firm and conduct some interviews. I met Jack Ma for the first time in 2000 and I later worked as a strategy adviser for Alibaba Group. In 2006 I was finishing my first book in English, Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition**, about emerging multinationals from China. I got a phone call from Ma asking me to join the company, which I accepted.”

Dr Zeng and Jack Ma realised that they had to think of the company as an ecosystem if they were to realise its potential. The strategic imperative was to make sure that the platform provided all the resources, or access to the resources, that an online business would need. The emerging technology of algorithms and machine learning, together with the decreasing cost of computing power, made it possible.

Dr Zeng says: “The formula for smart businesses can be summarized in a simple equation:  Network Coordination + Data Intelligence = Smart Business. That equation represents what is behind Alibaba’s success and captures everything you need to know about business in the future.”

C2B model

The technology allows the company to put customers at the centre of business, constantly collecting data on them and their purchase choices in real time. Dr Zeng calls this the customer-to-business (C2B) model, using feedback loops to drive machine learning. Now, when customers log on they see a customised webpage with a selection of products curated from the billions offered by millions of sellers.

The model requires several connected elements: a network that can dynamically adjust the supply and quality of service offerings, an interface where customers can easily articulate their needs and responses, a modular structure that can grow from an initial beachhead, and purchasing platforms than can provide agility and innovation. Every customer exchange supplies more data, which goes into the feedback loops required for machine learning.

This system requires that a large number of actions and decisions are taken out of human hands. Algorithms automatically make incremental adjustments that increase systemwide efficiency. Alibaba even uses AI-based chat-bots to handle a wide range of customer inquiries and complaints without any human interaction at all.

Facilitating the loop

Dr Zeng puts forward four steps as the basis for creating a smart business: creating datafication processes to enrich the pool of data the business uses to become smarter; using software to put workflows and essential actors online; developing standards and APIs to enable real-time data flow and coordination; and applying machine-learning algorithms to generate business decisions.

In this new environment, leaders no longer manage. Instead, they enable workers to facilitate the feedback loop of user responses to help the company along its evolutionary path.

Dr Zeng is adamant that the C2B model represents the future for all business.

“We live in a time of exponential change,” he says. “Everything I have described in Smart Business will soon be conventional knowledge. Change will be disruptive. But it will also bring massive opportunity.”

 

* Smart Business: What Alibaba’s Success Says About the Future of Strategy by Ming Zeng, Harvard Business School Press.

** Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition by Ming Zeng, Harvard Business School Press.

Christmas Quiz: Accountants in the movies

Appearing in In The Black magazine, December 2018

 

  1. Which Australian-born actress explains financial terms while in a bath, drinking champagne? What is the movie?

2.  In what movie does Cher play an accountant? What is the opera that she and Nicholas Cage see?Cher and NC

 

  1. In the movie Midnight Run, why is Jonathan “The Duke” Mardukas, an accountant played by Charles Grodin, on the run?

 

  1. The movie Other People’s Money features Danny de Vito as corporate raider Lawrence Garfield. What is his nickname? To what does he compare the products of the company he is trying to take over?

 

  1. In the television series Ozark, how much money does the crooked financial planner have to launder in order to avoid a grim fate?

 

  1. In a galaxy far, far away, why has turmoil engulfed the Republic? To what movie is this the background?

 

  1. In which movie does an accountant say: “The funny thing is, on the outside I was an honest man. I had to come to prison to be a crook.” What is the name of the accountant?

 

  1. In the 1967 movie The Producers, accountant Leopold Bloom comes up with a scheme to make money by producing a stage show that will fail and then become a tax dodge. Who plays the accountant? What is the name of the stage show?

 

  1. breaking bad   In the television series Breaking Bad, what business do the perpetrators buy to launder drug money?

 

  1. What is the English title of the 1987 Japanese movie in which a tax auditor investigates a chain of love hotels?

 

11. In the movie The Untouchables, for what crime is gangster Al Capone sent to jail?Untouchables

  1. In what movie does a forensic auditor, played by Will Ferrell, hear a voice narrating his life and approaching death?

 

  1. In the movie The Accountant, what is the affliction of the character Christian Wolff CPA, played by Ben Affleck?

 

  1. What is the name of the central character in the 2008 movie – described as a story about “love, lust, blackmail and revenge” – The Dueling Accountant?

 

  1. In the Monty Python sketch ‘Chartered Accountant’, to what profession does the accountant hope to transition to?MP accountant

 

 

 

 

ANSWERS

 

  1. Margot Robbie. The Big Short.
  2. Moonstruck. La bohème.
  3. He embezzled $15 million from his gangster bosses.
  4. Larry the Liquidator. Buggy whips.
  5. $500 million
  6. The taxation of trade routes to outlying star systems is in dispute.
    Star Wars, Episode I: The Phantom Menace
  7. The Shawshank Redemption. Andy Dufresne.
  8. Gene Wilder. Springtime for Hitler.
  9. A car wash.
  10. A Taxing Woman. The Japanese title is Marusa no onna.
  11. Tax evasion.
  12. Stranger Than Fiction.
  13. He suffers from high-functioning autism.
  14. Mungo MacDiamond.
  15. Lion tamer.

Margot Robbie

 

How data analytics is transforming audit

Appearing on In The Black Digital site, 7 November 2018 – https://www.intheblack.com/articles/2018/11/07/data-analytics-transforming-audit

 

Data analytics is allowing auditors to check much larger amounts of information and focus on areas of risk.

 

The auditor of the future will use data analytics to check data of much larger sets of information from a wide variety of agencies, according to Ben Jiang, director – data analytics in the Victorian Auditor-General’s Office (VAGO).

“It once would have been impossible to analyse all of the transactions of a large agency,” Jiang told CPA Congress in October 2018.

“The traditional approach of sampling was necessary in its time but now the volume of transactions is so high that analytics technology has to be the way to go.”

A major advantage of analytics is that the contributing agencies can provide data in almost any format. Clients lodge their data, usually monthly, through a secure portal.

Algorithms for data analysis

Jiang’s team has written a series of algorithms to transform the material into a common format for analysis, as well as run checks for completeness. The aim of the algorithms is to streamline processes that were formerly done manually.

Image result for auditingThe result is a dashboard of aggregated, summarised data relating to each contributing agency. This allows auditors to easily access information and drill down as they need to. The common format allows for easier extraction of data, and also the checking of anomalies and outliers. The analytics program can create “red flags” to draw a matter to an auditor’s attention.

In the VAGO, the system is still in its development phase. The dashboard system will be used in conjunction with traditional auditing methods for a complete audit cycle. The two methods will then be compared and assessed, and any problems with the analytics methods will be identified and addressed.

The first wave of clients involves 35 agencies across the range of government entities, which includes departments, universities, councils and others. Second and third waves are planned, with improvements to the system being made as more experience is gained.

Auditors’ focus on risk

“The aim is to free auditors from mechanical tasks so they can concentrate on what they really need – and want – to do, which is auditing,” Jiang says.

“They can focus in on areas of risk that the analytics have flagged, such as classes of transactions. Ultimately, it will allow for better performance benchmarking and resource use as well as auditing oversight.”

To get the most from the analytics system and the dashboards, additional staff training will be needed. While auditors are generally very pleased with the prospect of not having to perform routine data collection, processing and checking, the new system requires some new skills and a different mindset.

Data analytics requires a large amount of computer processing power, so this led to a rethinking of the IT system at VAGO. Safeguards also had to be built into the IT changes to ensure data security.

Jiang notes that the software packages used to design and operate the new system are Microsoft SQL Server, Qlik Sense and Python.

“We are aware that we are writing the rulebook rather than working through an existing one,” he says.

“Especially in relation to performance auditing, I think we are just scratching the surface. And we take the view that analytics is meant to supplement and improve auditing. Analytics is the first post of auditing, and then human experience, insight and judgement take over.”

 

Looking for shoes and finding a new direction

Appearing in the UpStart section of September issue of In The Black magazine

 

Children’s book a whole new challenge

 

Going from a senior role in corporate risk management to writing a children’s book has been a huge but very satisfying transition, says Naomi Vowels, an Australian CPA who has re-located to Singapore. The company established by Naomi and her sister Frances, Red Shoe Stories, is set for success, with an innovative approach and a lot of energy.

The company’s debut book is called Where Are My Shoes?, aimed at the 0-6 age group. It is about a favourite pair of shoes that have gone missing; the main character recalls what they did that day to try and remember where they left them. A key part of the book is that it can be customised so that it features the child, including their name and with suitable illustrations. It also allows for the choice of an ‘adventure buddy’, and even gives the child the chance to choose the shoes they wear in the story.

Naomi Vowels“Frances’ two children were the inspiration for the book,” said Naomi. “They love hearing stories about themselves and their possessions. Frances had her third child in April – just ten days after the birth of my first son.”

Naomi decided to make the change from the corporate sector to small business owner and author when she and her husband relocated to Singapore from Geneva in early 2017. She had held a number of private sector roles, and worked in the Australian diplomatic service, but her most recent position had been as Vice President at Lombard Odier, a private bank, working in strategy and risk.

“Frances and I enjoyed our former careers but they were never really our passion,” she says. “We always knew there was something more ‘us’ that we could be doing. It just took us a bit of time and courage to get there. We set up our business in Singapore because it is easy to register a business there, there is support given to start-up ventures by the government and the private sector, and our key suppliers are based there.

“My former colleagues were extremely supportive of my decision. In fact, many of them expressed some jealousy that I was taking the opportunity to step out of the corporate world and pursue something I feel passionate about.”

Support and advice

Naomi believes that the expertise she gained as a CPA has been invaluable – not only the technical skills but also the peers who provided support and advice.

The next step is to get the book into the marketplace. The sisters launched a Kickstarter campaign to help fund the website, which is the means for customers to buy the book.

“The campaign was financially successful but we also saw it as a way to connect with potential customers all over the world,” says Naomi. “On the website, customers are able to personalise their stories and see a flip-book preview of their book. We also plan to exhibit at several book fairs in Asia, Australia and Europe, and we will continue to build our audience on social media.”Shoes book #1

Naomi and Frances have also partnered with the charity Room to Read, which promotes childhood literacy and girls’ education. One book is donated to the program for every book sold.

“We plan to make the book available in languages other than English, and we have started writing our next book,” Naomi says. “We will continue writing books for as long as they are enjoyed by children and parents. It has been hard work but I don’t think I have ever been more satisfied or happy than I am right now, writing and running our business.”

 

Red Shoe Stories Website: redshoestories.com

Social media: @redshoestories

 

The sweet spot in the coffee business

 

Appearing on In The Black Digital site, September 2018, url https://www.intheblack.com/articles/2018/09/07/coffee-club-data-sweet-spot

 

The Coffee Club is using data analytics to understand customers better and stay ahead in Australia’s highly competitive café sector. Here’s how your business can use data to arrive at new solutions.

Behind a simple cup of café coffee lies a highly competitive industry, with a fickle customer base and complex marketing issues. In such an environment, the effective collection and analysis of data has become essential, as the franchise chain The Coffee Club has learned.

“In 2011-2013, The Coffee Club was riding a wave where the café industry was exploding,” says Jimmy Wu, analytics manager at The Coffee Club.

Jimmy Wu of Coffee Club“However, this growth hid a lot of problems. Data strategy at The Coffee Club was vague and ad hoc in nature, and many executives and internal stakeholders relied on summarised reports.”

The measurements were purely financial and not customer-focused.

“In 2014 there was a marked increase in competition from other chains and from independent cafés,” recalls Wu.

This put The Coffee Club brand at the crossroads between its heritage and the premium, value and convenience players in the market.

Using multiple data sources

Wu has introduced a comprehensive data analytics strategy aimed at building a complete picture of existing customers and profiling new ones. Point-of-sale data was collected on the time of day of purchases, the day of the week, other items purchased in the same transaction, and traffic count versus average spend.

Wu notes that the primary transaction data was already available, but it had not been used in the right way.

Unstructured data such as customer feedback, perceptions and behavioural patterns was also incorporated. Another data source was 150,000 active VIP customers, which provided data on their buying patterns through repeat visits.

There was also cross-referencing with other datasets. It was found, for example, that a drizzle of rain on Saturdays would increase traffic in stores, but heavy rain on Sundays would deter customers from shopping centre sites.

Comprehensive profiles on each store were developed, combined with Australian Bureau of Statistics and GIS (geospatial) data, to model the best sites for possible new stores and examine growth options within the franchise chain.

Using data to arrive at new solutions

“We are always on the lookout for better data analytics solutions as this space changes rapidly,” Wu says.

“I am a big fan of Tableau Software because it allows users to discover structured data quickly. There are also other packages that we use for different purposes, such as Power BI, SPSS, Qlik, R, and Python.

“The challenge that most organisations using advanced analytics techniques face is that you reach a point where your traditional data warehouse will not accommodate the sheer size and calculation power needed. To address this, we are moving into cloud infrastructure. This will allow us to not only take advantage of addressing our current 5Vs – volume, velocity, variety, veracity, value – but also explore innovative areas such as machine learning capabilities, and data lake [data repository] and discovery sandpit areas.”

Data-related possibilities for the future include facial recognition technologies and having AI robots answering reservation phone calls, or even having a personalised digital menu based on customer preferences with product recommendation systems built in. Another idea is to leverage AI to enable store-level operational improvements.

“In this business, understanding your customers is crucial,” says Wu. “And it’s an ongoing journey. The moment you think you’re successful is the moment where your competitors start to outperform you.”
coffee

Takeaway coffee

  • Use data to profile existing and potential customers
  • Look to see what information is already held but not used
  • Cross-reference with other datasets
  • Stay abreast of new analysis tools
  • Ensure warehouse capacity