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Low Risk Experiments Facilitate Profitable Business Decisions

By Jesse Mark

Most asset managers fail to take advantage of low risk business experiments before making major business decisions. The popular clothing company Gap made the blunder in October 2010 and it cost them millions. Last year Gap changed its logo. Most people didn't even notice because just a week after introducing the new logo, they changed it back. But it was an embarrassing blunder by Gap. Consumers hated the design and backlash erupted on social media sites like Twitter and Facebook.

Asset managers can learn a lot from the missteps of companies outside the financial services industry. For one, the Gap branding mishap could have been avoided by testing customers' responses and creating a business experiment before unveiling the full-scale re-branding campaign. Asset management firms should think about creating low-risk business experiments that yield actionable results.

The key for smart business experiments is to test hypotheses which provide a feedback mechanism while remaining low-risk. Low-risk experiments minimize any negative impact on a firm's brand, products, profitability, or customer perception.

Here are two low-risk business initiatives firms should consider, if they haven't already done so:

• New Territory Strategies - Hybrids are far from a new concept and according to kasina's research 58% of firms used hybrids last year. Firms should experiment with hybrids by altering their coverage models in a few discrete territories. Firms that do so will be able to see how flows in these territories (the treatment group) compare to territories unchanged (the control group). The downside is capped and the results will yield valuable insights. kasina has worked with a number of firms to successfully set up low risk territory management experiments to maximize profitability.
• The Power of Tablets - Lee wrote about the potential benefits of the new iPad 2 in a blog piece last week. In the piece he noted that asset managers need to explore the benefits of tablets to learn about their capabilities. Before fully diving into the iPad craze, firms should plan an experimental phase. By arming a small group of wholesalers with the iPad, firms can monitor productivity gains, determine functionality, and most importantly, see what does and doesn't work. Testing the iPad with a small segment of wholesalers allows asset managers to accurately assess the effectiveness of the initiative, while capping any downside if problems arise.