Four strategic questions raised by Manufacturing Week and CeBIT

Four strategic questions raised by Manufacturing Week and CeBIT

May 16, 2018 | Collaboration, Governance, Marketing, Strategy

 

The juxtaposition of two trade shows, Manufacturing week last week, and the current CeBIT, have raised some questions in my mind about the road on which we are travelling.

I spent the best part of two days at Manufacturing week, and yesterday at CeBIT, talking, observing, getting caffeinated, and  generally trying to question the preconceptions that seem to be driving the activity I saw. I arrived at a small number of questions that I think  need to be addressed.

How do we overcome the myth of Silicon valley?

Simply put, it seems that the general view is that an ‘App’ or digitisation of something will be the panacea. The VC’s will emerge from their caves and fund the next big thing that will solve all the problems, despite much of the stuff I saw looking a bit like an App in search of a problem to solve, particularly at CeBIT.

There needs to be, in my humble view, more focus and understanding that the improvements in manufacturing will come more from the improvements in material science and engineering than from a  VC funded miracle cure.

The developments that make a real difference are long term ones, basic science that bounces around often for decades before a commercial application is found, a timeframe that requires public funding, as the VC’s will not be interested. A case in point is the development by CSIRO scientists of the wireless LAN technology we all now use every day.

Where do we find the skills to compete?

We are a small country, so graduate numbers in STEM subjects are low by international comparisons, but apparently dropping as a proportion of graduations. Numbers vary, as do definitions, but to be globally competitive we need to increase the number of quality graduates, ensure their funding, and focus their activities on areas where Australia has some sort of competitive advantage. Logically the first two should be an outcome of government policy, sadly lacking, and the latter an outcome of commercial forces over time. Currently we import a substantial percentage of STEM employees and entrepreneurs, a fact demonstrated clearly, albeit qualitatively, at the two trade shows.

How do we build genuine collaboration between Government, Academia and Industry?

This collaboration gets a lot of air time and ‘polly-speak’ but seems lacking. There are a lot of government programs around to assist industry, but most are not well understood, are hard to access, and have demanding guidelines that alienate time poor manufacturing management. To be fair, we all want to see out taxes spent sensibly, but sometimes you have to take a leap of faith, and make the funding more accessible, and not so risk sensitive to the bureaucratic, risk averse funding bodies. This requires additional expert, non  bureaucratic resources at the early stages of project development and assessment.

The problem with academia holding IP remains a huge stumbling block. I delivered a session at a University recently, for free, on the understanding that I would be given a recording of the session. I put a lot of work into the session, the Professor concerned assured me that the recording would be forthcoming, but it is tangled up in the Universities IP policy, and I have not got it. Next time they ask for help the answer may be different, and this was just a simple exercise of me passing on the wisdom of my experience, not leveraging the IP of some advanced research project in which the University had a hand.

How do we participate meaningfully in the next wave?

Forget today, it is already too late. However, the next wave of development, artificial intelligence, IOT, human/machine interfaces, in short, industry 4.0, the combination of advanced manufacturing and digital technology, is just around the corner.  Australian of the year Professor Michelle Simmons leads a world class quantum physics team,  but I wonder if there is the supporting infrastructure and political longevity of will to leverage the break-throughs that appear to be coming. In addition, there is really only the one team, competing against the world, as well as collaborating with it, and I suspect both are insufficient.

 

As a final observation, and this is a ‘groan’ from a marketing bloke. The quality of thought that has gone into the leveraging of the investment made by the organisations of all sizes with stands at both exhibitions is rubbish.  After Fine Foods last year I penned this post that outlined 18 strategies to leverage the substantial investment required to be present at a trade show. I was astonished, particularly at CEBIT yesterday, the digital tech show,  at the number of times I was allowed to move on after a conversation without the stand staff getting any of my details, even in instances where there was obvious genuine interest, and therefore some potential value in a follow up.

Photo credit: CeBIT via Flikr

 

 

 

Three critical success factors of a newsletter.

Three critical success factors of a newsletter.

May 10, 2018 | Branding, Communication, Strategy

A colleague has a newsletter, he emails it to his list on an irregular basis as he has something he  thinks of interest to say. When I unsubscribed, he rang me, angry that I had done so, after all I am known personally, and have an interest in  the topic.

Compiling a newsletter can be a hugely valuable tool in the marketing armoury, I subscribe to several that are on my ‘must read’ list. However, my time is limited, and my inbox stuffed with rubbish, the unintended consequence of being curious in this digital age.

Apart from some basic errors, like an absolute lack of any visual attraction, and questionable editing, I pointed out he has ignored some of the marketing basics that simply have to be covered in this day of competitive tsunamis of information coming at us from all angles. So I gave him some gratuitous advice based on what makes me wait for those few newsletters I value.

Respect my Time.  Time is the only totally none renewable resource we have, I do not want to waste any of it, and the demands on it have multiplied geometrically over the last decade. Therefore, I prune from the bottom. If you want a ‘sticky’ audience for your newsletter, treat your audiences time as being way more valuable than your own, and they might stick around.

Create Value. The corollary to not wasting peoples time, is to deliver great value. If all you are doing is regurgitating other people’s stuff, how does that add value? It is also true that people value different things, so your newsletter has to be a source of value across a few domains in which your readers live, and not all of it will have a commercial value. Considering the sources of value to your primary potential reader, and being sure you can consistently deliver,  should be a foundation step before you contemplate allocating the resources necessary to build a newsletter.

Create a community.  The advice of all the pundits is to ‘Build your list’. Rubbish. If all you have are email addresses, you are no different to every other hopeful spammer out there. The value of the list you have is not in the  numbers, but in what the receivers do with the information you send them. I would rather have a community of 100, that waits for the next newsletter, consumes the content, comments, shares, and feels like their time has been well spent, than a list of a million, 90% of which get caught up in the spam folder.

None of these three are easy, in fact, they will consume considerable resources, way  more than their short term value would indicate is sensible. However, if you are in for the long term, great, a newsletter can be constructed and encouraged to evolve that will be ‘sticky’ in a sea of mundane crap.

Newsletters such as the John Deere publication  ‘The Furrow’ survive because the follow these unspoken rules. ‘The Furrow’ have been serving a their readers since the 1895, the Michelin Guide since 1900, just two examples of newsletters that have become synonymous with content  marketing success delivering brand longevity.

 

8 ingredients for  an idea stew

8 ingredients for  an idea stew

May 2, 2018 | Change, Innovation, Strategy

Ideas do not emerge from nothing, despite the hype, they do not just appear in the shower. They are always a product of a process, conscious or unconscious that connects and curates thoughts, knowledge, ideas from other domains, that can be used in a different way, connected where there was not pre-existing connection, and that have a hook of some sort that does something new. As J.M. Keynes observed:  ‘The difficulty lies not so much in developing new ideas, but in escaping from the old ones’

Ideas evolve and like any evolution require a set of conditions that encourages individual survival, evolution over time, and eventually success for a very few.

There are 8 ingredients to an idea stew.

Allow Prep time.

Every stew has a base, a foundation upon which the variations can be built. While the base is often obscured, it is nevertheless critical. Taking your time to determine just what you have available for  the stew, that will meet the objective, and then organizing the ingredients in the right amounts to be added in a sensible order with any necessary ‘sub-assembly’ being done will improve the outcome. Your idea stew is built in the same way, on a solid  foundation with research, and the results of previous trial and error to hand. The more work you put into the prep, the better the outcome usually is.

Have a pot.

To create a stew, you need something in which to hold the ingredients as they cook, each ingredient influencing the others, and the outcome. Making a great stew without the resources necessary, the time, access to ingredients, the right implements,  and obviously a kitchen, is pretty challenging, next to impossible. While you do not necessarily need the top of the range, you do need enough to manage the process with some degree of control and efficiency.

Have a deadline.

Usually when preparing a stew, it is for something specific. Dinner tomorrow night, for the weekend when the neighbors come over, or standby for the freezer.  Creating an idea stew is no different. The presence of a deadline, perhaps counter-intuitively, creates tension, pressure to get things done, and it focusses attention on the details so things do not get left undone.

Have a picture of the outcome.

The stew you are cooking has to serve a purpose, it has an audience, and the audience shapes the stew. Just as you would not put a pile of chili in a stew your young kids will be eating, you need to ensure that the ingredient in your ideas stew are consistent with the sort of outcome you are seeking.

Be prepared for diversity.

Sometimes, someone who may be a great pastry cook, but knows little about stews can bring across something from his discipline that adds something very different to the stew.  While this diversity in the ‘cooks’ often draws comment, the last thing you want if you are looking for a different stew, is to have only those who are used to the current recipe involved in thinking about the options that may be there.

Have a process plan.

Every stew is made in some sort of sequence, separate steps taken in some order, with interdependencies amongst the ingredients. While each step is not necessarily fixed, there are some things that must come before others can be properly done, to get the best outcome. A stew also takes time for the flavor to develop, for the little touches to be added that make all the difference, a pinch of this, a dash of that, all in the context of the plan, to avoid mucking up the result with that little last minute addition.

Creativity: The vital ingredient.

Perhaps a better word is ‘catalyst’ in a commercial context, as there are elements of creativity in all of us. However, for many it has been beaten out by the education we have, the institutions we work for, and at a more base psychological level, some of us are simply not risk-takers, not outside the box thinkers, so are of limited value for creative input. It is in effect the difference between a very good cook, and a chef. Give a great cook a complicated recipe and they will execute it by following both the recipe and the methodology, but give them a limited pantry and no recipe, and many will struggle. By contrast, the chef gets bored with the recipe, and  prefers to experiment. The outcomes are varied, most will be disasters, bit a few will be spectacular successes. Businesses succeed by doing the same things over and over, getting  better at it all  the time. A necessary ingredient of this mix is to get rid of those who cannot follow the process. However, for a business to renew itself, to cook an entirely new stew, it requires those who do not go by the rules, who think outside the box, sometimes outside the postcode. You also need to keep diligent records so that the unexpected great outcome can be reproduced, often a challenge for the creative ones who get bored with the recording when they can be doing. Pity you got rid of them all because they are a pain in the arse to manage!

Ask a friendly customer.

Asking someone you hope might put their hand into their pocket and give you their heard-earned in return for a taste of your stew seems to be a good idea at some point before you commit to the expensive launch. Generally, the earlier the better, and the more informed and critical their opinion of your evolving stew, the better.

A marketers explanation of the difference between an ‘Intangible Asset’ and ‘Goodwill’

A marketers explanation of the difference between an ‘Intangible Asset’ and ‘Goodwill’

Apr 30, 2018 | Change, Governance, Strategy

When you look at a balance sheet, the intangible elements of it are either the outcome of ‘boilerplate’ accounting standards that bear little resemblance to reality, or are the function of a management narrative. Neither is of much use, and both can be destructive.

For example: under the accounting standards, intangible assets are listed on a company’s balance sheet only if they are acquired, and therefore have an identifiable cost, and usually lifespan that can be amortised. Assets developed internally have no place on a balance sheet.

Of course, neither goodwill or intangible assets as recorded have little ’cause and effect’ connection with the share market valuation, which is all about future cash flows.

The Coca Cola logo is generally ‘valued’ in the billions, but does not appear in the balance sheet because it was built internally, rather than acquired. Were a company to acquire Coca Cola, there would then be a value that could be pinned to the logo, which would then appear on their balance sheet. The caveat is that there are mechanisms to place a value on an intangible asset that can be recorded, usually involving independent valuations, but these valuations come with a grain of salt.

A further example. When developing a new product, the outcomes of that effort may be seen as an intangible asset, but it appears nowhere except the P&L, as development expenses. Assume the product is a pharmaceutical product, years in the development, and very expensive, this is a drain on cash flow in the hope that there will be a pay-off. Prior to commercial launch, it has been patented, the efficacy proven, then the patent becomes a tangible asset, as a dollar value can be attached, and the patent is tradeable. The brand name of the new product will become a new intangible asset, not reflected anywhere beyond an implied connection to the value of the patent. Over time if the product is a market success, the value of the patent will increase to reflect the future cash flows that will result from ownership, to a peak, after which the cash flows will be subjected to competition from generic products that will become available as the patent period runs out, so the value is reduced. The brand name has no value in the books, until it is sold, perhaps along with the patent,

The key distinction between goodwill and intangible assets is that the goodwill has been purchased, so has a market defined value. Google paid $12.5 Billion in 2011 for Motorola Mobility, entirely  for the patent library they owned. At the time, Motorola was close to broke, their products which had led the mobile phone market had suddenly become irrelevant when they missed the smart phone revolution. The patents were transferred to Google, who then sold the remaining  hardware business to Lenovo for $3 billion, without the key software patents. On paper, Google took a $8.5 billion loss, but retained the patent library and intellectual capital associated with the Motorola development labs. This gave them greater leverage with the users of Android mobile software, predominantly Samsung, and protection against the relentless patent wars with Apple. A great deal.

Lenovo would have an item on their balance sheet that values their purchases from Google, but there is nothing on Googles balance sheet beyond the  ‘loss’ they incurred in the transaction, which fails to reflect the future value they will derive from the ownership of the patent library.

However, there is a sea change going on. According to research company Ocean Tomo, the proportion of US Fortune 500 companies stock market valuations represented by intangible assets has gone from 17% in 1975 to 87% in 2015.

The lesson here is that the world has changed, so called ‘soft’ assets are now more valuable than the physical assets that accounting systems were designed to track.  Focussing effort on building those soft assets will pay long term dividends, which cannot be readily accounted for in the monthly financial reports.

For most of my client base, the notion of intangible assets is far-fetched, until they come to valuing their business, when a primary asset becomes the relationship they have with their major customers, and how ‘sticky’ they might be seen post a sales transaction. It is this ‘stickiness’ that is a primary driver for the acquiring company to keep the key personnel employed on a pay-out contract based on a period of time and key KPI’s, to better manage the smooth transfer of the relationships.

Header from http://www.oceantomo.com/2015/03/04/2015-intangible-asset-market-value-study/

Is Facebooks ‘moat’ the best ever built?

Is Facebooks ‘moat’ the best ever built?

Apr 16, 2018 | Change, Marketing, Strategy

 

Building a moat seems an odd metaphor in a strategy and marketing post. Some explanation of moats may help.

My personal definition of marketing has been ‘The identification, development, protection and leveraging of competitive advantage’. Not a textbook definition, but one that has worked for me. In other words, build a ‘moat’ as a foundation block of your strategy.

Warren Buffet, who deserves to be listened to any time he chooses to speak, coined the term ‘economic moat‘ to describe his investment philosophy. Find an asset that has a ‘wide moat’, the wider the better, but is undervalued, and get  inside where the power of the moat can be employed to extract what economists call ‘economic rent’ or to us simple people, returns better than the average return on capital in that  industry.

Theory is that when such a valuable asset is identified, competitors will come in, and by the nature of competition  bring the return on capital back to the average. The game therefore is to be in front of the pack.

Moats are built in many ways. They can be wider, deeper, more turbulent, on the other side of a desert, be inside a ring of outer-moats, and so on. Point is, when there is gold in the castle, the barbarians will try and find a way to bridge the moat, and be prepared to spend proportionally to the size of the pile of gold in the castle.

Once you have a great moat built, which takes time, effort, and a lot of resources, defence becomes easier. However, defence is also static, the initiative is ceded to the opposition, so a wise moat owner busily uses some of the gold to build another moat somewhere out of the eye line of the barbarians. Unfortunately, most moat owners are so focused on the defence of  their current pot of gold that they hoard it, instead of leveraging it out of sight.

Kodak had a moat, a great one, deep, wide, incredibly well defended, but they left the side door to  their lab open so that the barbarians knocked off their own weapon, the digital camera, and used it against them. Better for Kodak to have taken the digital camera they developed down the road a bit and built another castle with a moat.

Same with Blockbuster. They even had the opportunity to buy Netflix, for what amounted to pocket money, but declined. Their moat got drained, and the barbarians came in the front gate.

All the noise around Facebook over the last month since the Cambridge Analytica fiasco surfaced was focussed last week on the sight of Mark Zuckerberg in the early stages of moat defence. Facebooks moat is perhaps  the best thought out, strongest, and best defended moat ever built. Not only are  the defences of Facebook itself daunting, but the pot of gold has been used to build a series of moats around Facebooks castle that are themselves defended with a series of interlocking moats.  66 of them since 2005, when Facebook itself was a start-up. Many we have never heard of, but all added to the Facebook moat system in some strategic way. A few however, have huge  moats themselves, still being built, and offering interlocking fields of defensive fire to the kings castle.  Instagram, WhatsApp, Oculus, were large acquisitions, on top of the impressive list of offensive and defensive tools developed in the Facebook labs and deployed strategically.

The US senate has been questioning Zuckerberg for a couple of days, and with some exceptions, making turkeys of themselves.  Senator Hatch has been a prime turkey, demonstrating breathtaking ignorance by asking how the business model worked,(1.30 into the video) and being unaware of the presence of ads as the revenue generator. The comparison between the questioners and Zuckerberg was so great the share price of Facebook went back up, delivering Zuckerberg a cool $3 billion for a few hours ‘work’

While you can build a deeper moat with that sort of loot, the real point is that the barbarians will now keep on attacking, using the regulators as their weapons of choice, and I suspect in time, as Zuckerberg himself acknowledged, they will be successful in getting a few across the moat. I suspect the barbarian scouts will look at the rules coming into force in the EU in May, the ‘General Data Protection Regulation’ (GDPR) which will mandate the manner in which consumer data is managed. It requires that consumer consent to the collection of data be explicit, that they have the right to be ‘forgotten’ and have the right to manage their own data portability.

Money and history is on the side of the  Zuck, he does not seem likely to make the mistakes Blockbuster and Kodak amongst many, made, despite the barbarians finding some potentially potent weapons. I cannot help but wonder if the turkeys are up to standard for the game that will be played.

 

Photo credit: Malcolm Gardner via flikr. Bodium Castle Cornwall

 

 What retailers can learn from the Game of Thrones

 What retailers can learn from the Game of Thrones

Mar 28, 2018 | Change, Governance, Leadership, Strategy

The ‘Game of Thrones’ series is an unlikely metaphor for Australian FMCG retail. There are however commonalities. Intrigue, politics, intense competition, vendettas, invasion by ‘wildlings,’ dumb decisions motivated by ego, desperate defence of the status quo, and more.

However, the world of retail is changing around us, just as did the world around Westeros, and potentially with similar bloody results.

The business model that has served so well since Piggly Wiggly invented the supermarket in 1916 is becoming redundant.

The incumbents are fighting to save the status quo, the invaders are looking everywhere for weaknesses to exploit, and the natives are restless, irritable, and open to offers.

All retailers, from the corner store to Walmart, Amazon, local farmers market, and the two Australian FMCG gorillas, Coles and Woolworths, work from a similar business model. All that changes in the model is the emphasis put on the different components.

StrategyAudit.com.au

All retailers are facing the pressure of change from the digital transformations of our world, what interests me specifically is the manner in which the Australian retailers are adapting, specifically Coles and Woolworths to the changes.

The gorillas consolidated their market power, still somewhere north of 70% by the relentless growth of market share through competitive pressure, and ruthless optimisation of their supply chains over time, leaving consumers with little option but to shop with them.

However, optimisation has a down side.

It breeds resistance to change, a dismissal of the minor disturbances that happen on the fringes, which are seen as little more than an irritation, unlikely to have any impact, and complacency. Just as Netflix was an irritation to Blockbuster, unlikely to be relevant, until it was, and then it was too late for Blockbuster.

It seems to me that the incumbents in Australia are paddling the same boat. Woolworths opened, then closed down Thomas Dux, in what I regard to be a great example of short sighted strategic stupidity, but at least they are consistent.  Then they botched in spades their foray into hardware with Masters, closing it down ironically as Wesfarmers buys into Homebase in the UK in an effort to spread the gospel of Bunnings. That did not turn out too well, Wesfarmers taking a $1.3 billion hit in February, and more recently announcing that the Coles business, apart from Bunnings and Officeworks would be flogged  off into a separate listed entity.

In other words, the incumbents are paddling around in the same warming pot as interlopers turn up the fire.

There is a lot going on at the fringes. Companies and technologies as varied as Amazon, Costco, Farmers markets, Harris Farm, Kaufland, various ‘pick your own’ schemes, organic, home delivery, and all the rest interrupt if not disrupt the market, and around the corner you have Alexa, AI, AR, Blockchain, personalised communications, Robomart, and who knows what else knocking at the door.

Optimising the existing model is coming to the end of its usefulness, the gorillas need to get out and get a bit messy.  They do not need to make huge bets as with Masters and Homebase, but they do need to clean out their own business model to make them easier to deal with, thus prolonging the profitability of their current investments, while building the retail model that will sustain into the future. If the best they can do is remodel an old crappy store into a very nice new one with better ranges, layout and lighting, as Woolworths has with Marrickville, then they are in trouble.

This is a big call, telling the future is not a productive pastime outside the circus tent, but having a lot of small bets on what it may look like would be useful. Take a long view, nurture some of the more looney ideas, and assume that the march of technology will not stop at a point of convenience for them, and one or two of the bets might turn out to be trumps. (whoops, not sure of I should use that word any more)

When I can help you consider the impact of all this change on your business, its profitability and longevity, get in touch, and I will be delighted to apply my knowledge and experience to solving your challenges.