Jul 30, 2021 | Governance, Innovation, Strategy
The old saying that ‘he who pays the piper calls the tune‘ is almost always true.
The piper in this case has been the orthodoxy prevailing over the past 40 years in Australian manufacturing.
I have been actively observing the trend towards outsourcing for a long time, deeply concerned that as a country we were collectively making a huge mistake, by focussing on lowering costs by outsourcing. By slicing off the things that are not deemed to be ‘core’ in some way to your profitability, you can reduce costs while maintaining revenue.
I guess it is much easier than being truly creative, taking risks, betting on a future different to the present.
As a result, manufacturing businesses in this country have progressively outsourced manufacture of sub-components, then whole components, then manufacture and assembly of finished products, and finally, because the manufacturers in China, Vietnam, or Thailand are closer to the technology, the design.
All Australian manufacturers, those few that have survived so far, are left with is a brand, with nothing to support it.
A brand without the supporting ‘brand infrastructure’ is a bit like a heavily inflated balloon. At some point a bugger with a pin will come along and, ‘bang’, you have nothing left.
The bugger with the pin proved to be a virus.
Supply chains have been ‘kneecapped’ and there is suddenly a recognition of the need for ‘sovereign manufacturing’.
Being driven by short term profit at the expense of long-term commercial sustainability has been a dumb choice.
I understand how it has happened.
Along with outsourcing manufacturing, we outsourced good old common sense to the educated but inexperienced crowd who applied IRR (Internal rate of return) and RONA (return on net assets) models shoved down their throats in MBA classes. These led to incremental investments in little, short term things at the expense of longer term and less certain but potentially bigger returns, to satisfy IRR hurdles. Reductions in the denominator in ROI calculations by flogging off productive assets made them look good by increasing RONA numbers.
They forgot that cash, and intellectual capital are not ratios, you either have them or you do not. Without cash you will be dead tomorrow, without the intellectual capital underpinning operations, you will be dead by a slower route, but just as dead.
Covid has awakened us to the effects of those decisions made over an extended period. Question is, do we have the resources and resolve left to start playing a different tune, one that common sense rather than capital ratios dictates?
I truly hope so for the sake of my grandchildren.
Header cartoon courtesy www.Gapingvoid.com
Jul 19, 2021 | Change, Customers, Innovation
Edges are often fuzzy, but are where the action happens, in nature and in business.
At the edge, there is less homogeneity, more opportunity for the different and interesting to be seen, trialled, and if successful take hold. By contrast, in the ‘middle’ there is little but homogeneity. It is why large businesses have trouble with innovation, their model is to do the same thing repeatedly, optimising it continuously, removing the opportunity for the unusual and unexpected to influence the way things are done.
If you think about where the ‘edges’ are in your business, they seem to fall into three categories:
The technology edge: where the existing technical status quo bumps up against development happening elsewhere. These days this is remarkably common. I once found a simple Bill of Materials program based on MS Access for a client. It successfully managed his inventory, costs, and associated information in the form of a program designed to manage the recipes and inventory in a restaurant. It worked perfectly well in an entirely different environment; the names just needed some changing.
The customer edge. The point at which you initially interact with your new customers and engage with potential customers is an edge. The interpretation of your value proposition changes depending on the context, and the challenges faced by people inhabiting a niche you may not have seen or considered relevant.
The core/non-core edge. This is an ‘internal’ edge. What is seen by the leaders as core and what is non-core to a business. The debate about what is core, and what is non-core capabilities, and competitive advantage started by the outsourcing movement 30 years ago remains. Enterprises seek operational excellence and differentiation by innovation at the same time. Often these are mutually exclusive objectives. I have seen businesses move one way and then another, as the competitive environment around them evolves. It can be argued that we are on a significant inflection point in the core/non-core debate currently. Supply chains are being disrupted by climate change, Covid, increasing complexity and the resulting reduction of item invoice price as the determining factor, and the growing awareness of the value of sovereignty.
To find an ‘edge’ opportunity, ask yourself four simple questions, continuously, during the strategy development and review processes:
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- What are the challenges our different types of customers face?
- What could or should our solution include?
- Which of our capabilities may be useful elsewhere, and by who?
- Which of our assets would others value, and why?
You might uncover something surprising that delivers a new lease on life.
Jan 15, 2021 | Collaboration, Innovation
Today, January 15, 2021 is the 20th anniversary of the launching of Wikipedia.
It would be easy to pass it over, but few innovations amongst the millions over the past 20 years, would have had such an impact on so many people as Wikipedia.
The evolution of Wikipedia has democratised knowledge in a manner only approached by one other innovation in history I can think of: the printing press.
I can remember being envious of those kids at school who had Britannica on their bookshelves. It was way too expensive for my parents to buy, and besides, it was out of date the day the latest version was published.
The creation of Wikipedia came out of the fertile, original mind of Jimmy Wales.
Working in finance, Wales played around with early web portals and video games, recognising the power of the net to connect people. In the mid-nineties, he was fascinated by the idea of a web-based encyclopedia, replacing the hugely expensive monolithic offerings then available. In 2000 with a couple of friends, and funding from his modest success with the web portals, he founded Nupedia, which aimed at consolidating articles written by experts voluntarily, and peer reviewed, with advertising as the revenue generator needed to make a profit.
It bombed.
The academic status quo standards for peer review almost ensured that submitting an article for the review was akin to waiting for feedback on an academic paper submitted for review, a lengthy and undefined time, with no chance of a no revision acceptance.
In early January 2001, as an experiment, Wales and co-founders Ben Kovitz and Larry Sanger created a ‘wiki’, at that time a new technology, that aimed at removing the academic barrier by opening articles to anyone to review and edit in real time.
The academics involved with Nupedia would have nothing to do with it, but such was the response, that a week later, on the 15th, the Wiki, by then named Wikipedia, was launched on a separate domain.
The idea of an open source, editable encyclopedia had its challenges, some of which remain today. However, the original vision of Wales and Sanger to ‘Imagine a world where every single person on the planet is given free access to the sum of all human knowledge‘ has been largely realised.
Wikipedia continues to evolve, managed by the Wikimedia Foundation, a non-profit organisation founded for that purpose by Wales in 2003. Wales remains a critical voice in its management.
Can you imagine the last year, disconnected, without Wikipedia as a source?
Happy 20th Wikipedia.
Dec 8, 2020 | Customers, Innovation
Everyone wants ‘innovation’.
Fair enough, unless we innovate, we stand still, and get killed in the rush.
However, in my experience, it is not the number or quality of ideas that is the limiting factor, it is the execution of those ideas that limits us.
We do not need more ideas, we need more of them to see the light of day. Even if they fail, you will learn, and hopefully do better next time.
It is also necessary to define what you mean by ‘innovation’.
To some, an innovation is a change of pack design, to others, it means the development of an entirely new application of some basic science. Most fall somewhere in the middle.
To my mind, anything that results in new value being created can be classed as an innovation.
Then you get those who refer to innovators as disrupters, further clouding the landscape.
For example, Uber is often cited as a disrupter, a source of disruptive innovation. Do they create new value? Yes, a bit, but there have been taxis around since the Romans were building on the seven hills, so that is not new. What is new is the app that puts the ordering, payment and progress of the Uber to your pick up point in one place. The disruptive element is that the previous cosy registration systems of most cities and their taxi services have been thrown away, so what has been disrupted is something that added no value. The exception to this is the London Black taxi service, where ‘The knowledge’ is a huge barrier to entry, while delivering sustained certainty of high quality service.
I also do not like the ‘fail fast fail often’ crowd, as that becomes an excuse for a lack of due diligence.
What I do like is a stream of disciplined experiments, aimed at testing the veracity of a hypothesis, which becomes a platform for improvement.
In some markets this experimentation is easy, in others, it is extremely hard.
Similarly, in some contexts it is easy, and in others very hard.
For example, the successful tech companies are running A/B experiments all the time on their websites, making evolutionary changes to their algorithms constantly.
By contrast, if you want to test market a new consumer retail FMCG product aimed at mass distribution, you have a real problem. The choice is South Australia, or Western Australia, which some might say are not representative anyway. Testing your product in farmers markets, food service, or your wife’s friends remains an option, but rarely a good model for supermarket distribution.
Red herrings abound!
Do not let them distract you from the hard work of creating new value for customers.
Nov 18, 2020 | Innovation, Marketing
Almost every piece of advice about selling, including a lot on this site, contains in one way or another, the notion that in order to be successful, you have to solve a problem for the buyer.
In other words, scratch the itch and the itch will go away.
We all know that is not always true, the itch often remains, just a bit relieved, or satisfied for the moment, perhaps to return.
There is a further step you can take.
Frame the proposal as an investment, something that will deliver ongoing value, rather than just be the antidote to an itch, the solution to a problem.
Many years ago I worked for Cerebos in Australia. One of the now disappeared brands we had was Cerola muesli, back in the days when muesli was a bit unusual. The breakfast cereal market was nowhere near as fragmented and competitive as it is today. Cerola was doing OK, generating increasing sales at good margins, albeit a minnow in comparison to the major cereals on the market.
With the support of the then marketing manager, I worked up a proposal to spend a significant chunk of money to manufacture and market a ‘muesli bar,’ a snack product that would sit between the perceived goodness of breakfast cereals, and convenience and taste of a confectionary bar. A wholesome breakfast on the run, and snack. I had a lot of subjective material, trends that seemed to be converging, gaps in consumer behaviour that may accommodate such a product, an admittedly dodgy bit of limited market research done with prototypes made by hand in the lab, and a strong conviction.
My failure to convince the MD at the time was total, and quick. No way would he accept such a proposal in the absence of strong quantitative reasons, little risk, and certainty of a quick return.
Nine months after getting my arse kicked for proposing something so dumb, Uncle Toby’s came out with their version of a muesli bar, and cleaned up.
The lesson I took away from that disappointment was that framing a proposal to spend money to a profit sensitive MD is like suggesting we stick a few holes in the bottom of the boat, and hope they do not let in any water. Instead, the proposal should have been framed as an opportunity to turbo charge the motor we already had, an investment in a profitable future. Such a framing would have had a way better chance of gaining the support of the MD.
A second lesson I took, which was the outcome of youthful arrogance and stupidity, is that you never say ‘I told you so’ to someone who does not like to be told.
Oct 22, 2020 | Change, Innovation, Strategy
We are all looking for ways to increase the competitive leverage we can bring to bear. It is tough to find the sources of that leverage, and then apply it effectively in aggressive and often homogenised markets. However, there is a thought process that few have ever heard of that delivers such an outcome.
Observe, Orient, Decision, Action, or ‘OODA Loop’ is a competitive thought process articulated by Col. John Boyd, the maverick American fighter pilot, engineer, and scientist, who revolutionised the practise of aerial warfare’, and indeed warfare full stop. His nickname in the Airforce was ‘40 second Boyd,’ reflecting his bet, that he could beat any other pilot in a simulated dogfight in under 40 seconds. It is said, nobody ever collected from him.
Observe: is more than just seeing what is around, it is a process of absorbing all the information available, and synthesising it with the context from which the information emerged. For example, while the 2008 financial meltdown was a surprise to most, the signs of financial fragility were there, for those who were looking for the right messages, hidden in plain sight amongst the hyperbole and emotion of what appeared to be a never ending bubble.
Orient: is a process of applying domain knowledge and experience with the observations made. Continuing the 2008 meltdown example, those few traders who saw the mismatch between the mortgages being written, and the ability of those who were getting them to repay the loans, oriented themselves to take advantage when the bubble did burst. Such a meltdown seemed obvious to the few who were looking, when they observed the mismatch between the assumption of ever increasing prices, employment uncertainty, and the herd mentality that prevails.
Decide: Based on the observe and orient phases, choices need to be made, risks assessed,
and a decision taken.
Act: This is simply executing on the decision, from which point, the cycle starts again.
Boyd’s OODA loop is a framework for creating tactical advantage. As he put it: ‘To enable you to operate inside the oppositions ability to respond’.
The ability to respond is driven by the speed with which you are able to collect and analyse information, to come up with a tactical response, and implement, absorb feedback, reorient and go again. Given that the decision is almost always based on ambiguous and incomplete information, the tendency is to hesitate, seek other information, look for alternatives, seek reassurances and permission, this all takes time.
Boyd saw the winning process as increasing the tempo of the cycle, thereby getting ‘inside’ the oppositions ability to respond effectively, leaving them vulnerable, and beaten. The example he continuously used was the ‘kill ratio’ of US fighter jets ‘dogfighting’ against the Russian MIGs in Korea, which was 12:1, being whittled down to almost 1:1 by the end of the Vietnam war. Partly this was the result of better training of the MIG pilots, but significantly it was because the quicker, lighter MIGS, although less well armed and protected, could get ‘inside’ the manoeuvrable envelope of the US fighters, and shoot them down.
For an SME competing against larger, better resourced competitors, being able to move quickly and decisively, orienting assets and resources towards that opportunity, actively leveraging it, then ensuring that the lessons that emerge are incorporated into a learning loop, delivers victory.
Case Study.
In 1985 the yoghurt market in Australia was in its infancy. Australians did not consume much yoghurt, it was a fringe product, consumed by a small number, with limited retail distribution, manufactured by local state based dairies, largely as a means to give shelf life to raw milk, that promised better margins than butter, cheese, or dried milk powder.
French brand Yoplait was launched from a modern purpose built plant in Victoria, and changed all that almost overnight. The market boomed, as a result of a good product, and better advertising and marketing by Yoplait, which completely dominated the booming market nationally in a very short time.
Ski yoghurt was produced under licence in several states by local dairies, and prior to Yoplait was a significant brand amongst the group of brands available in the then small market.
After the Yoplait launch, Ski was relegated to relative insignificance nationally.
The licensee in NSW, Dairy Farmers Co-Operative Ltd, took the aggressive step of investing in a new dairy foods plant in western Sydney, closing the 100 year old plant located in the inner Sydney suburb of Ultimo. Part of the investment was to produce yoghurt by a continuous process, packaged into form fill and seal cups to compete with Yoplait.
Over the course of the next 6 years, Ski overtook Yoplait, by firstly taking over the licences in every state, to deliver operational scale to the Sydney plant, then embarking on a series of product and packaging innovations, backed by marketing support, that created a tempo of very successful new product launches that Yoplait, being controlled by a French company working through a licensee, and having an inflexible manufacturing plant could not match.
Ski inserted itself well inside the operational speed of the Yoplait licensee, executing product launch after product launch, some minor, some very major, that altered the dynamics of the industry, and was able to dictate the terms on which the marketing battle for consumers minds was played.
The battle was won on the basis of that agility in product development, and ability to bring products to market quickly, and be on to the next thing before Yoplait had time to respond.
Subsequently, both brands lost focus, ceased to invest in the long term health of their brands and innovation, instead, drinking from the sugar hit of tactical price promotion demands by supermarket chains, they shrivelled in size and no doubt profitability.
