Aug 30, 2024 | Collaboration, Marketing, Small business, Strategy
Identifying, building, defending and leveraging competitive advantage has been, and will remain, the foundation of successful marketing.
It is also the essence of strategy: making choices with incomplete information that serve to shape the future to your benefit as it arrives.
The challenge is, the location of competitive advantage has moved, and many, if not most, have failed to pick the move.
Think about it.
Until the early 2020’s, competitive advantage was still all about brand, scale, control of supply chains, access to capital, and the ‘old boys network’. To use Charlie Mungers description, they constituted the ‘Moats’ around successful businesses. Kodak, Xerox, GE, GM, Exxon, IBM, Wal-Mart, P&G, and the banks and insurance companies ran the world on the basis of wide and deep moats built on these 5 factors.
Suddenly, the world moved on.
We watched as a raft of new businesses leveraging the capabilities of the internet took over. Along with the obvious Amazon, Facebook, Alibaba, Google, Uber, Air BnB, eBay, Netflix, Salesforce, and others that are pure internet plays, you had Apple, Microsoft, and more recently Tesla, combining the connectivity of the net with the ‘old school marketing moats’ in whole new ways.
What made the difference?
Each of the newbies benefitted from network effects.
Those that dropped out of sight did not.
Even some of the tech giants of the very early 2000’s, such as Yahoo and Alta Vista have dropped out of sight because they failed to recognise the potential value they had in their hands. They did not leverage the potential network effects.
Those network effects have two differing core types:
- An ecosystem of complementary, and often partially competitive enterprises that support each other’s efforts. This occurs particularly often in R&D, early-stage commercial development and in logistics and supply chain management.
- Double sided markets, such as eBay, Facebook, and Air BnB, where the value of the offering increases with the number of people connected to it.
The answer to the question posed in the header: in your networks!
On a simple scale you see it all the time in retail. The specialist shoe shop in the mall collaborating and cross promoting with the fashion dress shop.
Your networks will build as you create value for others greater than the cost of being a part of the network.
Aug 26, 2024 | Lean, Operations
‘Five Why’s’ is a commonly used tool, widely seen as one that when used well gives you answers to challenging operational problems.
Mostly it will, but what happens when the answer lies hidden outside the consideration of the effort to identify the cause-and-effect chains that lead to the problematic outcomes.
To solve any challenging problem, there are 4 stages that are used:
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- Collection of data
- Analysis, segmentation, and classification of the data
- Generation of a theory that might explain the condition and
- Experiments to identify the cause of the outcomes rather than just the observations of it.
What happens when the third stage fails to produce a theory that explains under experimentation the outcome?
Go back to the basics, by looking at the data more widely, as clearly something is missing. Often it pays to reverse the process and ask yourself ‘what could have caused this outcome’ starting at the problematic result.
Years ago, Dairy Farmers limited had a monopoly in retail UHT processed long-life custard. It was a modest sized niche market that was quite profitable. There had been several attempts by competitors to grab a piece of the action, all of which had failed. Suddenly we started having problems at seemingly random times. When opened the custard was the consistency of water. The costs of lost production were substantial, but the far greater costs were those of the product recall from retail shelves, and loss of consumer confidence.
The condition was caused by either the presence of an enzyme called amylase, or a failure of the CIP system. Amylase is a naturally occurring enzyme in starch, which had been eliminated by processing from the complex hydrocolloid (starch) ingredient we used in the custard. We had accepted the assurances of the supplier that the ingredient supplied was amylase free, as per our specifications. We assumed therefore that the problem lay with the processing plant. The plant was torn apart several times, cleaned meticulously, and on one occasion, underwent some expensive engineering changes.
All efforts failed to fix the problem.
A valuable question to ask in this circumstance is: ‘What would have to be true to…..’ In this case, the answer would have been: ‘there is no presence of amylase in the hydrocolloid ingredient’. This may have, much earlier than it did, spark the further question: ‘Is a test with a sensitivity level of 1 part per million a reliable indication that there is no amylase?
When we finally asked this question of ourselves, the answer was clearly ‘No’. We set about refining the test our suppliers used to a sensitivity of 1 part per 10 million. This more sensitive test showed up in a random manner, the presence of amylase in the supplied ingredient.
5-Why is a great tool. However, like any tool, it must be used by an expert in order to deliver an optimum result.
Header is courtesy of a free AI image generator, depicting some tortured engineers doing a root cause analysis..
Aug 22, 2024 | Collaboration, Communication, Governance
Throughout history, humans have existed in small groups, tribes, and clans. We have worked together for the common good of the small tribe, and often, perhaps most often, been at odds with the tribe across the river.
British anthropologist Robin Dunbar introduced his theory that humans can maintain stable social relationships with no more than 150 people. This is a theory now so well accepted that ‘Dunbar’s number‘ has almost become a cliché.
The phrase ‘Stable Social Relationships’ has particular relevance in the age of social media platforms. How many friends do you have on Facebook, connections on LinkedIn, followers on Instagram?? For many, it is way beyond 150, often into the many hundreds, and often thousands.
How do you maintain Stable Social Relationships’ with that number of people?
Answer: you cannot.
Social media gets the blame for all sorts of things, rightly so, but it is not the fault of the platforms, it is the fault of evolution.
Our application of technology has run way ahead of our evolutionary capacity to manage it and retain the relationships that made us the most successful species ever.
It seems to me that the growth of private messaging, reversion to personalised even hand written notes, and emotional engagement of ‘Local’ things is a response to the ‘platformisation’ of our social relationships.
I think it is a trend that will continue and grow.
The power of social media platforms will slowly erode as more one to one enablers incrementally retake the ground lost. In the process, we humans will build up ‘evolutionary resistance’ to their power.
I do however see some hurdles in the way, the dark side of social media is as powerful as ever, and Dr Dunbar has little advice on that score.
Header cartoon credit. Lynch. (I have no idea where I found it)
Aug 20, 2024 | Leadership, Strategy
George Patton is reputed to have said ‘A good strategy today is far better than a perfect one tomorrow.’
This is absolutely correct. However, any strategy is only as good as its deployment. This is always best when it is clearly understood, consistently communication, and completely aligned towards the objective.
Business is all about making choices, from the c-suite to the factory floor, everyone is faced with choices. Those in the c-suite may be different to those on the floor, but they are nevertheless choices that together impact on the performance of the business.
‘I will do this, I will not do that’
While seeking rhythm and flow in a business, I also look for ‘strategic nesting’
How will the choices made at one level be understood and acted on at different levels in the business in a consistent manner, such that the outcomes do not create turbulence in the flow of activities that occurs.
The challenge of integrating ‘Flow’ into a smooth set of processes that merge at the points where they intersect is substantial. This is where the notion of ‘nesting’ comes into play.
Processes are ‘nested’ in sets of sub processes that are all ‘in synch’ and contribute to the end outcome.
Often this is called alignment, but just using the term without the further idea of ‘nesting’ misses the point. Alignment is one dimensional, nesting is multidimensional.
Effective processes contain sub processes that act in partnership creating synergy, and when done really well, compounding outcomes. Each part of the ‘nest’ is optimized, internally, and in relation to those external parts on which it depends. This enables the optimization of the whole to be compounded.
Effective processes, from the strategic development and implementation to the cleaning of the coffee machine, rely on the effective nesting of sub processes.
The implementation of strategy is always challenging. You are translating high level choices into sets of cascading targets in functional action plans with appropriate KPI’s and feedback loops for optimisation. There are multiple levels from a strategic plan to the execution of daily activities in the workplace for things to fall out of the nest.
The evolution of a ‘happy nest’ is an iterative process. It requires the input of those involved at all levels, and a leadership capable and prepared to adjust choices under new circumstances.
All the parts are moving at the same time, and they all influence each other. Iteration must be a multi-dimensional challenge, you can iterate up, down, and across functions, on the basis of feedback. The challenge is to get it all done without disturbing the flow of the processes.
Aug 16, 2024 | AI, Governance, Strategy
AI is the newest, shiniest thing we have seen since, well, perhaps ever, at least in the speed with which it has overtaken consciousness.
ChatGPT was released to the ‘wild’ in November 2022. In commercial terms, yesterday.
In that time, it has overtaken discussion, business planning, capability questions, and profoundly changed the face of stock markets.
An amazing outcome for a technology without a business model.
The committed AI infrastructure spending over the next year by the big 5 LLM builders, OpenAI, Amazon, Microsoft, Amazon and Google is over $200 billion. Depending on your sources, this might vary a bit, but may even be on the low side. It does not count the billions being spent by everybody else, largely on setting about leveraging the ‘infrastructure’ delivered by the LLM’s.
Again, depending on your sources, the revenues being generated over the next year by AI suppliers, both of the infrastructure and tools rapidly becoming available is probably $20 billion.
Nowhere in history has there been a tsunami of investment of this size and speed in the absence of a solid business model. There is no clear way forward to generating a return on that investment.
This is the equivalent to a goldrush, except, in a gold rush if you were the lucky one to find those elusive nuggets, you had some idea what they were worth, and an established way of monetising the metal.
Nothing of the sort exists with AI.
I have done plenty of capital proposals in my time, some with forecasts that bordered on the wildly optimistic because I believed a change of some sport would be generated by the object of that Capex. In my wildest dreams, I have never proposed anything like the ratio of capex to current revenue exhibited by this investment.
There is confusion around the term ‘Trillion’. Historically, the US and UK definitions differed, the UK version being 10^18, 1,000 times larger than the US trillion which is to the power of 12, or one million million. I explain this for clarity and comparative purposes.
On current stock market valuations (August 2024) Nvidia, a business few had heard of a year ago, is the most valuable company on earth with a valuation of US3.2Trillion. They trade places regularly with Apple for the No. 1 spot. Currently Apple is number 2, also at a rounded 3.2 trillion, but a few tens of millions behind Nvidia. Microsoft is third with 3.1 trillion, followed by Amazon at 1.9, and Meta at 1.3. The comparison I wanted to highlight is with the GDP of Australia, of US1.7 trillion. Australian GDP is just over half the market valuation of Nvidia and Apple, a sobering thought.
An investment of 200 billion against current revenues of 20 billion is simply the biggest financial gamble in the history, by a logarithmic amount.
The people running these massive businesses are not stupid. They see and are betting their companies (and they are ‘their’ companies, as control is in a very few hands) on massive returns, which means in turn that the fabric of everything we see and do must change, very quickly. The business models will change, and they will not be just everybody subscribing for modest monthly amounts to the latest LLM model. There will have to be whole new industries being ‘invented’ with successful business models in place for there to be a return on the capex being deployed.
The windows of opportunity that will open, and close just as quickly, over the next decade are immense.
No wonder there is a gold rush, it is just the location of the gold still in question.
