Workshop Session Hyatt Regency Austin, Texas Competition ... · They then used their Profit Impact...

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ACLEA Competitive Strategies Workshop (Alvarado) 1

ACLEA 50th Mid-Year Meeting

Sunday, January 19, 2014, 11:00 am – 12:30 pm Workshop Session—Hyatt Regency Austin, Texas

Competition in the CLE Market: Principles & Strategies by Antonio “Tony” Alvarado1

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I. Introduction …………………….…2 1st

SET OF SELF-ASSESSEMENT QUESTIONS

II. Business Model & Management..2 III. Nature of Competition …………..3 2

nd SET OF SELF-ASSESSEMENT QUESTIONS

IV. Competitive Analysis …………...4 V. Market Share & Profitability …....5 VI. The Lean Startup …………….....8 3rd


VII. Strategy ……………………….....9 4th


VIII. Innovation ………………………11 5th


IX. Marketing ……………………….12 X. Segmentation & Pricing …….....13 XI Social Digital Media Marketing 14 XII. Trends in Legal Education ……16 XIII. Summary ……………………….18 XIV. Citations & References 2 ……..19

1 Executive in Residence, St. Edward’s University, 3001 South Congress Ave. Trustee Hall 315,

Austin, Texas 78704. Tony serves as interim chair of the Marketing & Entrepreneurship Dept. for

2013-2014 at the School of Management & Business. He can be contacted 512-413-9722 and [email protected] 2 The information and data as identified in the text is copyrighted by the sources referenced in the

Citations & References section. Readers are welcomed to adapt for their own personal use the compilation and original material of Tony Alvarado. For other uses, you must give proper attribution and/or obtain licensing permission by contacting the authors to the extent required by applicable law.

mailto:[email protected]

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I. Introduction The goal of this article presentation is to highlight certain principles and strategies in connection with competition in the general business market that may be useful to CLE providers. Several approaches are employed. The first is to provide a limited management context with which to identify resources for pursuing a sustainable competitive advantage. The second is to set out a roadmap of certain underlying management principles or concepts to reach strategic endpoints. The third is to provide background material to help CLE providers develop innovative and marketing strategies. This article presentation is not a comprehensive treatment of the subject matter. It is in many ways a working draft not premised on an exhaustive research of the CLE environment or an analysis of the relevant public and proprietary information. It is expected that experienced CLE executives will be familiar with all of the concepts set out below. Rather this is a compilation of material that has been culled from various sources with a focus on enabling CLE providers attending this workshop at the 2014 ACLEA Mid-Year Conference to self-assess competencies and priorities in seeking and enhancing competitive advantages. In an attempt to connect a number of disparate elements with a common focus, the sections have been clustered around several sets of self assessment questions. When answering these questions, the reader is challenged to think in terms of CLE Provider Strategy: Resources + Relationships = Competitive Results.

First Set of Self-Assessment Questions

II. Business Model & Management Overview The first item to consider is the business model. The term “business model” is defined as how a business makes money—the essential economic logic underlying a business. A business model is the framework by which a business extracts from customers some portion of the value a product creates for them. It is perhaps more practical to use the business model canvas of Osterwalder & Pigneur whereby 9 essential building blocks are identified, the centerpiece of which is the value proposition for both the business and the customers. On one side of the canvas are the factors of key partners, key activities, key resources and cost structure. On the other side of the canvas are the factors of customer relationships, customer segments, channels of distribution and revenue streams. The important thing is to get the business model right by carefully looking at what business you are in, what your customers expect, the competition and your

What is your business model? What is your management IQ? Which are the resources that must be well managed?

Why is the entrepreneurial thinking of new startups relevant?

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return on investment. These are the drivers of the business model that must be fully understood in order to manage effectively and build competitive strategies.

Management involves a number of elements for planning, organizing, leading, staffing and measuring how entities go about obtaining, allocating and utilizing the productive resources of land, labor, capital and enterprise to accomplish their goals. (In today’s high tech world, “land” can also include the online presence and web location “in the cloud.”) Management is about conducting most human activities in various contexts from business to government, the non-profit world and beyond. There are several theories that address the management decision making process. This article will concentrate on the importance of pursuing a sustainable competitive advantage based on an analysis of resources and strategic innovation. The emphasis will be on agile development and the value proposition of the enterprise. Marc J. Dollinger of the Kelley School of Business at Indiana University is one of the proponents of the resource based theory. This theory frames the business environment as a set of resources—physical, reputational, organizational, financial, intellectual (human), and technological (P.R.O.F.I.T). Michael E. Porter of the Harvard Business School over thirty years ago proposed the still valid Five Forces Model. A business that has a sustainable competitive advantage must be able to maintain a healthy profit margin by addressing the forces that impact the price/cost relationships in an industry, to wit:

(1) the bargaining power of buyers; (2) the bargaining power of suppliers; (3) the threat of relevant substitutes; (4) the threat of new entrants into the industry; and (5) the rivalry among existing firms.

In assessing the competitive analysis position of a business, Marc Dollinger categorizes each of the P.R.O.F.I.T resources listed above in terms of whether they are valuable, rare, hard to copy (imperfectly imitable), and non-substitutable (VRIN). Enterprise resource planning (ERP) has become an integral part of the way organizations improve the primary and secondary value chain functions of the enterprise. ERP systems consist of multi-module software applications (inside the company or in the cloud) that help improve individual functions and improve the integration between functions.

III. Nature of Competition An established business maintains its market share in the industry by addressing the forces threatening its profits, but this may not fully analyze its profitability from a resource based view. For example, one common strategy utilized is to grow a

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business’ market share in order to obtain the economies of scale and pricing options that will bring it a competitive advantage. Yet, increasing market share alone may not bring about profitability, if the return on the resources allocated to maintain and/or increase market share are not justified. While marketing is one of the principal business functions for attaining and maintaining profitability, it is not the only critical element. An industry characterized by high profitability and good returns to investors is usually one that is attractive to new competitors. As Marc Dollinger points out, established competitors and new competitors must both operate in a macro-environment that consists of forces over which they do not have complete control, namely new technologies and rapidly changing demographics.

Clayton Christensen of the Harvard Business School explains that a big obstacle to remaining competitive is failing to understand the nature of the potential competition—new entrants gain disruptive entry into the marketplace because they don’t confuse the product or service they offer with the way it looks, by whom it is made or how it is produced—they concentrate on the attractive functions offered by the new substitute product or service.

Second Set of Self-Assessment Questions

IV. Competitive Analysis CLE COMPETITORS

Programs & Features

Prices & Offerings

Locations & Distribution

SWOT & Social Media

Market Share

Local State National Law Schools For Profit Minority Specialty Other

Who are our competitors? What is their brand? What is their message? What is the quality of their products & services? How do their prices compare?

What do competitors offer that we don’t and through which locations? What are our strengths, weaknesses, threats & opportunities?

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Every organization goes through some sort of competitive review analysis whether or not it’s labeled as such. Depending on the size of the organization, some do a more formal process than others, but it would be mistake for any size of organization not to undertake a disciplined approach and a comprehensive review periodically, preferably every 3 to 5 years, with an annual update in between. Set out below is a competitive analysis matrix chart a form of which is familiar to most CLE providers. What is contained in the chart is not as important as having a process in place to scan the competition, trends and obtain feedback. Walter Kiechel III has recently written several book reviews of the best business books of 2013 for Strategy + Business Magazine. Here’s one directly on point regarding innovation.

“Since its invention in the 1960s, modern corporate strategy has been about change. What company ever went looking for a new direction because its current course was proceeding swimmingly? The fresh insight this year, after more than a decade of emergence, is that nowadays strategy is change. Almost any competitive advantage is fleeting and you must constantly be managing your company with an eye toward innovation in not just your market offerings, but also your business portfolio and business models. Strategic leadership has come to consist largely of the continuous and deliberate navigation of change”.

The quote is about the book published in 2013 by Harvard Business Review Press titled “The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business.” by Rita Gunther McGrath, a professor at Columbia Business School.

V. Market Share & Profitability The interrelationship of market share and profitability is industry, specific and is dependent on a number of facts: whether the market is segmented or not, whether it is an emerging, fragmented, maturing or declining industry, whether there is price elasticity and various other factors that make it difficult to simply say that increasing market share (the organization’s sales vs. total sales in the industry) should be a goal in all situations. Sometimes decreasing market share may be preferable to maintaining market share at the risk of increasing costs of production and promotion or engaging in a price war. Apple and Dell present contrasting case studies. One is a highly profitable company with a smaller market share worldwide than its Android based competitors in the smartphone market. The other is a successful company who was the former market share leader in PC sales worldwide that determined being the market leader wasn’t necessarily equating to high profits and has gone from

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a publicly traded corporation with pressure to increase quarterly shareholder returns to a private company that will focus on long term research, development and growth. Needless to say, there are too many complicating factors and circumstances involved in these two cases to be able to generate an across the board principle other than this generalizations to make the point that strategic thinking is required. Buzzell et al in their classic Harvard Business Review article noted a positive correlation between market share and return on investment (ROI). They listed and discussed three main factors: economies of scale, market power, and quality of management as possible explanations why market share results in higher profits. They then used their Profit Impact of Market Strategies (PIMS) data base to show how market share is related to ROI. Specifically, the study suggests that as market share increases, a business is likely to have a higher profit margin, a declining purchases-to-sales ratio, a decline in marketing costs as a percentage of sales, higher quality, and higher priced products. The authors also indicated that different strategies were necessary to balance the costs and benefits of increasing market share. Marketing professor J. Scott Armstrong of the Wharton School of Business submits that a study he conducted and follow-up research indicated that pursuing competition oriented objectives instead of profit maximization (achievable by cooperative behavior) is detrimental to a company’s goals of profitability. A company should strive not to beat its competitors, but to do the best it can. Edward C. Rosenthal reaches the same conclusion regarding playing non-zero sum games in his book on game theory. By using equilibrium theory for the mathematical pairing of outcomes, he proves that a new startup company entering the market with a new product or service and an established company both stand to gain if they rationally decide not to engage in a fierce competitive battle. Instead, the two companies will both gain average payoffs (reaching equilibrium) by avoiding the high costs of aggressive marketing and pricing wars.. Building on the theories of Marc Dollinger and Mason Carpenter, it is import to zero in on how resourceful an organization is in creating value for its customers. Profitability thus becomes a measure of how well a company is making use of its resources relative to its competitors. Michael Porter has also provided a necessary backdrop of this analysis by identifying five elements in the life cycle of industries—fragmented, emerging, mature, declining and global/transitional. According to Dollinger, it is in the fragmented and emerging type of conditions in which new entrants with entrepreneurial orientation can be most successfully launched. Let’s assume the following chart reflects this information with the “x” or vertical axis representing the profitability percentage (the higher up the scale, the higher the percentage) and the “y” or horizontal axis representing the time that has

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elapsed to achieve the particular percentage (the farther to the right of the scale, the longer the period of time).

50

Competitor C

% Profit

Competitor B

Competitor A

0 Time in Years 5 (Source: Gareth R. Jones) Suppose Competitor A makes an annual profit of $ 1 million, Competitor B makes an annual profit of $ 5 million, and Company C makes an annual profit of $ 2.5 million. If we were only to compare profits, it is easy to say that Company B is most profitable, yet if our inquiry ended there, we might miss some vital metrics in the comparison, because we must also be focused on its ability o generate future profits (which is the capital by which the company funds future growth and expansion making its stock attractive to investors). This requires an analysis of trends over time. Suppose Company A had to spend $30 million to generate $ 1 million in profit (3% profitability), Company B had to spend $50 million to generate $ 5 million in profits (10% profitability) and Company C had to spend $10 million to generate $ 2.5 million in profit (25% profitability). Now we get a different scenario with Company C being the most attractive and this becoming the business model that its competitors will seek to copy. Company A is in danger of losing its ability to regain its competitive edge because even though it is profitable, Company A has not significantly improved its business model. As Keith Hammons points out in his Fast Company article, profitability is still determined by the structure of the industry. For example, if there are no barriers to entry, if customers have all the power and if competition is based on price alone, then it doesn’t matter what kind of technology you use. New technology may give you a short term lift, but it does not make up for a set of goals based on

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what is the value being delivered to the customer, which customer segment are you trying to serve and what is your positioning within that demographic. Thus, companies are in competition to:

(a) develop new and improved products and/or services to attract new customers and retain established customers; and (b) use resources more productively to reduce operating costs.

You could say it is about both being more effective and more efficient. This means not just doing things right but coming up with the right things to do. To achieve the goal of profitability, it may be necessary to set strategic goals to win the customers’ brand loyalty with the best products and services and to lower the operating costs. Creating value for the customer means you can charge a higher or premium price. If the profit margins are too low vis-á-vis the industry average, the company has to either increase prices and/or lower costs of goods, operating costs or both. For a non-profit, it means how stakeholder benefits have been increased by the spending and allocation of resources.

VI. The Lean Startup Management is more than just about fads and innovation is more than just a buzzword. Nevertheless, it is easy to say that about a phenomenon has been sweeping the business world in the last few years—the concept of the lean startup. One of the proponents is entrepreneur, author and Professor Steve Blank of Stanford and his pupil (now at Harvard), Eric Ries who has written The Lean Startup book. Ries sets out a new paradigm applicable to both established corporate entities and startups—a state of almost perpetual re-invention. It is perhaps hardest for established enterprises with recognized brands to bring their business models to agile development standards with “intrapreneurial” programs of their own due to internal pressures. Ries defines the entrepreneurial startup as a human institution designed to create something new under conditions of extreme uncertainty. In Ries’ eyes, “lean” is defined as looking at the organization from the customers’ perspective and learning which things really deliver value versus those that do not. Further, he sets out that there is a place for management in entrepreneurial ventures because it is fundamentally about organizing people to do something different in uncertain times. The key is to refine the tools so that in addition to the traditional financial statements, you build the “innovation accounting” around validated learning—learning things about a customer that are of value to the company. The build-measure-learn (BML) feedback becomes critical because the organization is constantly iterating the product/service until it gets it right and ready for the next BML experience. The end game is to build a

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minimal viable product (MVP) that can be tested with early adopters without wasting time and resources on building the final product or the perfect version. In order to effectively and efficiently manage an enterprise, it is necessary to do strategic thinking combining detailed analytical thinking and a leadership visionary approach

Third Set of Self-Assessment Questions

VII. Strategy In this article presentation, strategy is meant to indicate choices in our thinking to achieve a particular purpose or goal. Suffice it to say that a business model, a business plan, a business goal or even a business idea are not strategies, but they are part of how strategy comes about. Best practices by and of themselves are not strategies. Strategy is the set or pattern of decisions that are distinguished from the tactics that are used to implement that strategy. Strategy encompasses the whole of our thinking. As Marc Dollinger describes it, by selecting goals, business executives begin to formulate strategy. As Mason Carpenter further elaborates, strategy fosters action based on clear economic logic that achieves a company’s mission and vision. As William Duggan of the Columbia Business School cautions, executives need to have a creative way to come up with strategy. To others, business strategy is still more an art than a science. Marc Dollinger quotes an article in the Academy of Management Journal (1983) by D. Hamric for the definition of strategy as a pattern of decisions that shape an organization’s internal resource configuration and deployment in a manner that guides alignment with the environment. Thus, strategy involves not only the planning and analysis process of formulation but also the execution and evaluation process of implementation. The study of strategic management drills down to the various levels of the organizational hierarchy. There are some strategies that are more appropriate for startup ventures than for market share leaders and these should always be kept in focus. For example, entrepreneurs are more likely to engage in growth strategies and established market leaders in quality strategies. Yet, there are some strategies that should be pursued by all regardless of size and of the stage in their business life cycle. For example, most entities will want to pursue strategies that protect and manage its resources such as by pursuing an aggressive property rights or intellectual property strategy. The same goes for innovation strategies whether these be the

How does a business differentiate itself from the competition? How can a business create & provide value to customers vis-à-vis competitors?

What are the choices & trade-offs to have an effective strategy? Should the leader of the organization be the chief creator of strategy?

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first mover advantage strategy for new ventures or what Peter Drucker calls the first with the most strategy for new products and services. While as a rule, the barriers to entry for service industries are higher than for product manufacturers, a strong differentiation strategy is essential to preserve brand loyalty and enhance the marketing strategy. Today, across all industries there is great pressure to adopt an entrepreneurial strategy to emphasize value and scarcity over imitation and substitution. As an entrepreneurship professor, one of my approaches is to ask students to prepare for the entrepreneurial journey by having not only a disciplined business plan, but also a life plan and a crisis plan. The elements of this entrepreneurial strategic thinking are premised on seeing opportunities where others see only failure and on developing a large capacity, adaptability and flexibility for learning because in the final analysis entrepreneurial strategy is about the experience. But sometimes, implementation and execution strategy is what is needed. Marc Dollinger quotes an article in the Harvard Business Review (March-April 1994) by A. Bhide that describes how entrepreneurs craft their risk taking strategy by the speed with which opportunities are recognized and seized while bad venture ideas are discarded. This allows an entrepreneur to take quick and realistic action to change course. The lean startup approach is premised on getting this done as efficiently as possible. William Duggan states that although strategies in business must be in alignment with mission and vision, it is logical to start strategic thinking by first determining if it is necessary to change the mission and vision of an organization in order to pursue a creative strategy process. This type of innovation strategy is supported by a shared vision of where and how the organization competes with clear financial, economic & human resource consequences of moving forward (or not) with new or enhanced products, services and customer relationships. Creating such a shared vision requires a leader on the executive management team.

James Colvard in an article aimed at government executives explores the interrelationship of management principles and leadership concepts. Managers provide leadership, and leaders perform management functions. But managers, especially in the middle and lower levels of most enterprises do not perform the unique functions of leaders. Management involves looking at the facts and assessing status, which can be aided by technical tools, such as spreadsheets, program evaluations and technical review charts, etc. Management involves setting priorities, establishing processes, overseeing the execution of tasks and measuring progress against expectations. Management is focused on the short term, ensuring that resources are expended and progress is made within time frames of days, weeks and months. Leaders provide the vision that the executive management team then crafts into policy to be implemented by staff.

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Fourth Set of Self-Assessment Questions

VIII. Innovation Savvy executives know they should be doing something innovative. The big question is: What should it be? It could be a new product, service or process. It could be brought about by new technology (think 3-D printing), new markets (think emerging countries), and/or new sources of supply (think fracking). Or it could be brought about by a change in the environment itself (think changes in governmental policy). Mason A. Carpenter of the Wisconsin Business School at the University of Wisconsin at Madison identifies characteristics of great innovations that are identified by answering five basic questions regarding the standard industry practices or standards:

(A) What are the things that the industry has never offered that should be created or added? (B) What factors should be raised well above the industry standard? (C) What aspects, from a customer’s perspective need to be unchanged for the customer to adopt the innovation? (D) What are the factors that the industry has taken for granted should be eliminated? (E) What factors should be reduced well below the industry standard?

Management guru Peter Drucker identifies marketing and innovation functions, as the most important components of the value chain of activities to invest in if a business organization expects to have a sustainable competitive advantage. Clayton Christensen has built on addressing the innovator’s dilemma of a company not wanting to have its new technology trump its old technology by suggesting the innovator’s solution of letting emergent innovation develop from within a company so that it evolves into a deliberate and transforming innovation. Innovation is not just about a new product, service or technology. It should permeate the organization (structure and culture), its processes (resource allocation and measurement) and the people who work in and for the organization (empowerment and recognition). The technology may be a breakthrough discovery, but it does not always follow that organizations are automatically able to cash in on their discovery or that mainstream customers (as opposed to early adopters) will embrace it. Such may have been the case with the discovery of digital photography by Kodak. Marc Dollinger cites the work of E.

What are the components of innovation? How much change do mainstream customers tolerate?

What innovation strategy & implementation strategy work best? Is entrepreneurial thinking a part of your toolbox?

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Rogers, Diffusion of Innovation, published by Free Press, New York, 1983 for the proposition that acceptance of innovation, whether it is a product, service or idea, requires an understanding of the five step process of aggregate market understanding and acceptance—knowledge, persuasion, decision, implementation and confirmation. In essence, innovation must be marketed internally to all the stakeholders, and externally to the suppliers, the distributor channels and ultimately the targeted customer segment. According to Peter Drucker, innovators are both conceptual and perceptual thinkers. They look at figures, but they also look at people. They have to work out analytically how to configure the innovation so that it dovetails with the opportunity that has been identified. In order to be successful, innovators have to go out and study the customers (end users) whose expectations, needs and values must be satisfied by the innovative product, service or process. Innovators look at things differently. Opportunity recognition is not just about any opportunity. It is about the opportunity that best fits the particular organization and works well with what that organization is good at. More importantly, opportunity recognition plays to the strengths of the people within the organizations. It stretches the capacity of performance, but does not so greatly exceed it that it ends up overwhelming the organization.

Fifth Set of Self-Assessment Questions

IX. Marketing According to the definition adopted in July 2013 by the American Marketing Association:

“Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”

According to Gareth R. Jones, management professor at Texas A & M University, marketing and product development are two of the primary business functional activities essential to the effective and efficient utilization of scarce resources to create the goods and services customers want to buy. Other functional activities in the primacy value chain are operations and materials management; sales, distribution and customer relationship management. These activities are directly related to the value customers receive from the company.

What is marketing? Who are the customers? Who are the right customers for our CLE organization?

What do the customers want to buy? What do the customers value? Why social media?

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An organization must also be able to identify and manage as secondary value chain activities. These are referred to as the secondary value chain of activities that directly support and without which the primary value chain of activities could not occur. Secondary value chain activities are sometimes outsourced. These secondary value chain activities allow companies to measure, control, facilitate and improve the core competencies and activities that make them the type of companies they have become. Customer acquisition and customer retention must be kept in perspective. You don’t want to be spending increasing amounts of resources just to address the churn rate of losing customers. You want to retain customers—establish the so called customer stickiness environment. What should be the rates that are “standard” in your industry? Eric Ries, author of the Lean Startup, reminds us that metrics can deceive us. He uses the example of the “sticky engine of growth” to counter those who would exclusively use the metrics of activation rate and revenue per customer. If for example, your business had a 61% customer retention rate and a 39% growth rate of new customers, the churn rate and the new customer acquisition rate would almost cancel each other out leading to a compounding growth rate of 0.02%. Yet without this analysis, the 39% rate of new customer acquisition standing alone would be a very impressive figure. Eric Ries also clarifies the math behind the viral coefficient of growth. This measures how many new customers will use a product or service as a result of each new customer that signs up. A viral coefficient of 0.1 means one in every ten customers will recruit an additional friend to use the product or service. But it is not until the viral coefficient exceeds 1.0 that the growth will be exponential. Otherwise, with a viral coefficient of 0.1 out of one hundred customers, ten new customers will sign up, but those ten friends will only recruit one additional new user and the viral loop will stop there.

X. Pricing & Segmentation Market segments are smaller identifiable groups within the broader market that share similar needs. The variables that separate the groups are common characteristics of customer behavior, the demographic profiles of customers and / or the benefits they seek or receive. Dr. Bradley Zehner at the business school at St. Edward’s University3 uses an approach to strategic marketing that consists of three elements:

(1) segmenting the market into target segments;(2) selecting the target marketing: and (3) developing a positioning statement.

3 Special thanks to Dr. William Bradley Zehner II, Associate Professor of International Business

and Global Entrepreneurship at St. Edward’s University and a fellow of the IC² Institute at the University of Texas at Austin

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Tactical marketing implements strategic marketing by focusing on the marketing mix of product, price, promotion, and physical distribution (place). Detailed data must be collected so that the CLE market may be segmented via various criteria to identify both the served and underserved market segments. Additionally, data must be collected from individuals who inquire about but elect not to purchase the product or service. You need to know why individuals who inquired about your CLE program did not purchase the CLE product or service and where they did enroll and why. Pricing is a sales decision, a marketing decision and a financial decision. The pricing strategy followed by an enterprise is critical to its business model. Michael Mondello sets a template in his dated but still excellent article on the factors that must be considered in setting a pricing strategy. The first is the true cost structure for the provider of the services. Second is the customer expected pricing range for the product or service. What else are the customers paying for in related costs associated with your product or service? Third are there distribution channels affecting the price margins? Fourth is the nature of the competition. Fifth is the compatibility of the pricing approach with the company’s marketing objectives. In determining pricing strategy for products and services, it is important to keep in mind the impact on sales, cash flow and profit. Mondello sets out a series of 19 creative pricing strategies in his article. Customer acquisition and customer retention must be kept in perspective. A business does not want to be spending increasing amounts of resources just to address the churn rate of losing customers. A business wants to retain customers—establish the so called customer stickiness environment. As Eric Ries points out, the metrics of activation rate and revenue per customer can be deceiving. If for example, a business had a 61% customer retention rate and a 39% growth rate of new customers, the churn rate and the new customer acquisition rate would almost cancel each other out leading to a compounding growth rate of 0.02%. Eric Ries also clarifies the math behind the viral coefficient of growth. It is not until the viral coefficient exceeds 1.0 that the growth will be exponential. That is the hope and experience of some who use social digital media marketing.

XI. Social Digital Media Marketing The traditional 4 P’s of the marketing mix—product, price, place, and promotion, are still relevant today, but the social media digital revolution led by Facebook, Twitter, and a litany of applications in the blogosphere have empowered the customers in a manner that has made tracking such data even more important. This has not only increased the speed but the reach (going “viral”). Because of its digital data capture, including geographic source location, social media has become a key engagement channel and analytical tool. The distinctions between push-pull marketing become evident in the way social digital media is

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reconfiguring the way customers and enterprises interact. This puts severe strain on the business model components especially the value proposition, customer segments and customer relationships. Customer retention and acquisition become much bigger challenges when it’s difficult to hear the signal because there is so much noise on account of the explosion of data, a proliferation of channels and devices, and rapidly shifting demographics. Today’s horizon of customer engagement is very diverse—there are many choices and expanded digital channels for the typical customer to interact directly or indirectly involving a product, service or process. The digitally savvy customer should be seen as being on an adventure of learning, solving, comparing, purchasing and implementing solutions, not necessarily in that order. The vast majority of customers go on the Internet to get pricing information before making a purchasing decision. The job of business is to educate that potential customer across a number of touch points---connecting the company brand, content and culture in a way that establishes and reinforces trust, reliability and reputation. It is about listening, engaging, measuring in ways that were unimaginable a few years ago—figuring out how to become part of the conversation in a way that influences the customers and potential customers. This is about fully engaging customers’ expectations, needs and values but being very nuanced in the space customers occupy. The chief technology (CTO) officer of an organization has become critically important to the ability of companies to remain competitive in today’s world of big data analytics. Technology is usually a secondary value chain activity, but due to the increasing importance of social digital media technology, the roles (but not necessarily all the functions) of Chief Marketing Officer (CMO) and the CTO have become intertwined. The complexity and amount of information that must be quickly synthesized, evaluated and applied overwhelm the capacity of older manual and legacy systems. Additionally, companies must aggressively scan the world of social media networking to determine what customers and potential customers are talking about and what they are saying regarding these particular companies. Then the company must determine how the market segments for the companies’ products and services are changing and developing so the company can better respond. An organization must be able to manage its social media message across the multiple platforms that are proliferating in the marketplace from You Tube to Pinterest, Tumblr and beyond using software tools such as HootSuite, to convey a consistent message in the appropriate timeframe with credibility. Analysis of the social media data requires another set of software tools such as Google Analytics, SAS, IBM Social Media Analytics, Trackur, etc. There are third party providers to whom a company can outsource these activities, albeit at somewhat more cost.

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Social digital media tools do not change the message per se. Use of new and emerging social media tools enables an organization to show that it “gets it” by relishing the customer experience. By reaching out to customer constituencies to build brand communities the company also shows it is listening (and reacting). Social media and related methodologies (in addition to the more traditional advertising) are needed to support the organization’s resource allocation decisions that lead to better products/services and superior customer relations. This allows tactics and strategies to emerge in a more fluid and logical manner. What social digital media does is change the focus from paid media marketing and owned media marketing to “earned” media marketing. The democratization of information through social digital media has brought about a new dynamic. In the final analysis, it is still about making the sale, but the conversation has become very different when the customer is now empowered with so much information about the business and its products that the business is being forced to be as transparent as possible. Crafting a social media strategy is full of traps for the unwary as there is still no definitive metric on conversion rates and return on social digital media marketing investment of time, talent and resources. We know word of mouth is still the strongest factor that leads to product and service choices. There are over 1.3 billion users on Facebook, over 230 million users of Twitter and millions of apps in the Apple store and in the Android world that are rapidly changing how we socially interact. Coupons, sweepstakes and other tools are still popular, but video generation (via You Tube, Instagram, Snapchat, etc.) has been growing exponentially. Experts recommend you do not become anchored to any particular new digital media, but realize that business needs to be active with those social media tools that make the most sense, then leverage those platforms for maximum effect. XII. Trends in the Legal Profession Law Firm Restructuring. Clayton Christensen, Dina Wang and Derek van Bever in their recent article Consulting on the Cusp of Disruption in the Harvard Business Review write about how the business consulting industry is restructuring its over 100 year old business model to cope with disruptive innovation. They point to the changes the legal profession is undergoing for the lessons to be learned.. As the legal profession in the United States has undergone great changes, especially in the last 15 years, it has already impacted stakeholders from law schools, to local and state bar associations and the legal profession itself. It should not be surprising that the economic stresses are also being felt by CLE providers. Christensen et al in their HBR article cite the influence of corporate law departments in leading to the rise of innovative law firm business models that have emerged to serve the litigation needs of corporations by unbundling their

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legal services functions. Query whether the growing ranks of unemployed or underemployed legal professionals will lead to permanent changes in the way CLE is provided. This can come about as a result of new competitors who enter the market place using technology, alternative staffing models and streamlined work flow to offer more efficiencies and lower costs than the traditional “incumbents” in the market place that have been there for years. According to Christensen, et al, market leaders are likely to react to new competitors with a mixture of denial and rationalization, only to be caught off guard when these new competitors cut into the high margin business of established companies with new pricing and profit models. The analysis offered in the HBR article is that by increasing transparency clients have figured out they are paying too much for features they don’t value. The clients’ focus is on greater speed, responsiveness and control of the approach, outcome and return on dollars paid for the specific component of the value chain they are concerned about. The new startups and traditional firms that have re-engineered themselves so they are differentiating themselves from the crowd are the ones that will have a sustainable competitive advantage and experience a steady growth with an improved cost structure. The Legal Marketplace. The Wall Street Journal reported in a November 14, 2013 news article by Jennifer Smith that the New York Bar Association was responding to fundamental shifts in legal profession by convening a task force focused on new supply and demand forces in the market place. One suggestion of the task force is calling on working lawyers to help teach skills to new attorneys through legal education programs and mentoring. Another program mentioned in the article is that of Cisco Systems, Inc. planning to team up with the University of Colorado Law School on a program in which students will be paid to work full time in the company’s legal department for seven months. The students will need to take extra courses to make up for missed course work to comply with ABA rules prohibiting paid externships. Cisco will donate the lost semester tuition to the law school. Law School Education. The ABA Task Force on the Future of Legal Education recently issued a draft report recognizing the economic stresses faced by those wishing to pursue a career in the legal profession because of the price many students pay, the large amount of student debt, consecutive years of sharply failing law school applications, and dramatic changes to jobs available for law graduates. There are several recommendations regarding pricing & funding of legal education, accreditation, innovation, skills & competencies and broader delivery of legal services. In this latter bullet point, the task force report called on state supreme courts, state bar associations, and admitting authorities to devise new or improved frameworks for licensing providers of legal services and this includes

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licensing persons other than holders of a J.D. to deliver limited legal services. This ultimately continues to impact CLE providers. ACLEA Equipping Our Lawyers. The Final Report of the Critical Issues Summit was issued in partnership with the American Law Institute—American Bar Association in 2010. As part of that report, certain recommendations were made regarding law school education, continuing legal education and legal practice in the 21st century. Certain recommendations 12, 16 seem particular important in the context of competitive strategies: (8) MCLE regulators should accredit training in the content or skills necessary to effectively practice law, even if such content or skills are not directly related to substantive law; (9) MCLE regulators and CLE providers should work together to develop and implement means of measuring the effectiveness of CLE offerings; (11) a post-Summit project should be initiated with representatives from law schools, the practicing bar, legal employers, bar associations, bar admissions, MCLE regulators, CLE providers, and in house professional development to determine the next steps toward achieving some or all of 5 goals that involve bridge the gap type transitional training and technology enable sharing of information; (12) these goals should result in a rigorous, sophisticated approach to developing model competencies including different roles, career stages and practice areas; (16) program development should be continued as part of the legal community’s professional responsibility to prepare and encourage law students and all lawyers to serve the underserved.

XIII. Summary The core competency of an organization that gives it a competitive edge is to have a value proposition that differentiates it from competitors. To maintain a sustainable competitive advantage, an organization must make critical decisions about what resources to allocate, when to allocate them and at what cost. This is one of the premises of the resource based approach to strategic management. Structure and culture in an organization are critical for managing a company’s resources. A transparent organization and a decentralized method of control over decision making are preferable. This allows mid-level and lower level managers to have as much information as they need to make the appropriate decisions. It is about leadership not just management. Values do count. Developing, aligning and deploying competitive strategies are the results of disciplined external periodic competitor analysis coupled with an internal SWOT analysis. Strategies need to be formulated regarding profitability, pricing, marketing and innovation. These necessarily include setting strategic goals for an updated business model that takes into consideration entrepreneurial initiatives and social digital media marketing. A function of management leadership is to make sure this is consistent with an organization’s mission and vision, its structure and culture.

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When we combine the exponential power of relationships with the leveraged power of resources, we maximize the results an organization can attain for a sustainable competitive advantage. CLE Provider Strategy: Resources + Relationships = Competitive Results.

XIV. Citations & References 1. American Bar Association, 321 North Clark Street, Chicago, Illinois 60654,Draft Report & Recommendations ABA Task Force on the Future of Legal Education (September 20, 2013) retrieved December 20, 2013 from http://www.americanbar.org/groups/professional_responsibility/taskforceonthefuturelegaleducation.html

2. American Marketing Association, Definition of Marketing retrieved December 15, 2013 from: http://www.marketingpower.com/AboutAMA/Pages/DefinitionofMarketing.aspx#

3. J. Scott Armstrong, “The Myth of Market Share—Can Focusing Too Much on the Competition Harm Profitability?” January 24, 2007, Wharton School of Business, retrieved December 2, 2013: http://knowledge.wharton.upenn.edu/article/the-myth-of-market-share-can-focusing-too-much-on-the-competition-harm-profitability/

4. Jay Baer, Youtility, Portfolio Penguin Pearson (2013)

5. Jonah Berger, Contagious, Simon & Schuster (2013)

6. Steve Blank, Four Steps to the Epiphany, 2nd edition (2013); see also www.steveblank.com 7. Steve Blank & Bob Dorf, Startup Owner’s Manual, K & S Ranch, Inc. Publishers (2012)

8. Robert D. Buzzell, Bradley T. Gale, Ralph G.M. Sultan, Market Share—a Key to Profitability, Harvard Business Review (January, 1975) retrieved December 2, 2013: http://hbr.org/1975/01/market-share-a-key-to-profitability/ar/1

9. Mason A. Carpenter, “Managing Effectively Through Tough Times”, Prentice Hall (2010)

10. Clayton M. Christensen, The Innovator’s Dilemma, Harvard Business School Press, Harper Collins Publishers (1997) 12. Clayton M. Christensen & Michael E. Raynor, The Innovation’s Solution, Harvard Business School Publishing Corp. (2013) 13. Clayton M. Christensen, Dina Wang and Derek van Bever, “Consulting on the Cusp of Disruption” Harvard Business Review, October 2013.

http://www.americanbar.org/groups/professional_responsibility/taskforceonthefuturelegaleducation.html

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14. Jim Collins, Good to Great, Harper Collins Publishers, (2001) 15. James Colvard, “Managers v. Leaders,” July 7, 2003, National Journal Group, retrieved 12-18-2013 from: http://www//govexec.com/dailyfed/0703/070703ff.htm

16. Critical Issues Summit – October 15-17, 2009 – ALI-ABA & ACLEA retrieved June 2013 from www.equippingourlawyers.org

17. Marc J. Dollinger, Entrepreneurship Strategies & Tactics, Marsh Publications (2008) 18. Peter F. Drucker, Innovation and Entrepreneurship, Harper & Row (1985) 19. William Duggan, Creative Strategy, Columbia University Press, 2013 20. William Duggan, Strategic Intuition, Columbia University Press, 2007 21. IBM Chief Marketing Officer Study (2011): http://www-935.ibm.com/services/us/cmo/cmostudy2011/cmo-registration.html

22. Gareth R. Jones, Introduction to Business, McGraw-Hill Irwin (2007) 23. Michael D. Mondello, “Naming Your Price,” Inc. Magazine, July 1, 1992 retrieved from: http://www.inc.com/magazine/19920701/4168.html 24. Jacob Morgan, “5 Must Have Qualities of the Modern Company, Forbes Magazine”, retrieved November 30, 2013: http://www.forbes.com/sites/jacobmorgan/2013/10/29/the-5-must-have-qualities-of-the-modern-company/

25. Alexander Osterwalder and Yves Pigneur, Business Model Generation, John Wiley & Sons, Inc. (2010) 26. Michael E, Porter, Competitive Strategy, The Free Press---Simon & Schuster, Inc., (1980) 27. Eric Ries, The Lean Startup, Crown Business Press (2011) 28. Edward C. Rosenthal, Game Theory, Alpha Penguin Group (2011), specifically, Chapter 10, Bargaining Games 29. Smith, Jennifer “New York Bar Group to Test Alternatives to ‘Big Law’ Jobs”, retrieved November 14, 2013 from the Wall Street Journal: http://online.wsj.com/news/articles/SB10001424052702303559504579196272497592720

30. Strategy + Business Magazine, Winter 2013, Issue 73

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http://online.wsj.com/news/articles/SB10001424052702303559504579196272497592720

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