In this article I want to focus on the second biggest mistake companies make during business transformations.
In case you are wondering why I am focusing on the second biggest mistake rather than the biggest one – it is because I have already written a blog post on that topic last week. Here is the link to it.
But the second biggest mistake is even more common and well known.
Yet it is so common that it worth spending half an hour writing a blog post about it. Even if 10 business transformations are put back on track after reading this blogpost – it would have done its job. After all each derailed business transformation is a huge waste of human effort and ingenuity.
So, what are the cliches that are used to describe this second mistake. I am sure everyone is familiar with these:
Putting the Horse Before the Cart.
Confusing the Cause with Effect.
Post Hoc Fallacy
A theoretical discussion of human fallacies is out of scope of this blogpost. You can read more about these here.
In many cases these IT upgrades take a life of their own and business objectives of the transformation projects start taking a back seat to these technological considerations.
In my book UNCHAIN YOUR CORPORATIONS I have given more than 20 examples of this phenomenon, in various contexts. Below I quote from the book:
Modern supply chains collect information at each node of the network. This rich data is methodically analyzed to optimize demand, supply, inventory, costs and service levels to create the best profit results. Not many people know this art – while there might be many pretenders.
The next component in business transformations is the informational part of the business network, which is strongly bounded by its IT systems. A word of caution, though, IT should always be viewed as a means to an end rather than the end in itself. In other words, systems are implemented to facilitate information exchange that is conducive to business transformation.
In the project we were working on, the challenge was indeed, moving the system from the regional to the global structure. Apart from having islands of data to consolidate, the company also found themselves dissatisfied with a system that met only 70% of its needs.
Even though you may be tempted by flexibility as it offers more room for maneuver in the future, every additional bit of flexibility breeds corresponding complexity.
To get a more realistic picture of the complexity, type “supply chain software” into Google and you will get more than 75 million results. How do you know which one is the right one? Though many of them will pretend that they can, there is not a single piece of software that can do everything that you require from a supply chain software solution.
Plethora of tools are available – each with its own peculiarities and limitations. Old ERP type systems can lead your operations into a big hole from which it will take years to emerge. Furthermore, each tool is most suitable for certain situations, and unsuitable for other situations. You need the ability get the right tools – just the ones that suit your situation – and combine them well.
I have dedicated a whole chapter to IT systems in my book The 5-Star Business Network and here I would like to focus only on a few key things. To get this component right, you also need to see things through the eyes of the system provider. It is a delicate dance between rigid functionality and flexible business outcome.
How do you choose the right software for, say forecasting, from among more than 2,500 such systems? How do you link this system to the other systems it needs to work closely with – say inventory management software? How do you pick the right inventory management software from among more than 2,000 systems that claim to do more or less the same thing? Do you go for a single solution that is about 50%-60% right, at best – or do you go for a best-of-breed solution that can cover more than 85% of your need, if you do it properly? All these are very complex questions to answer.
Figure below, taken from my book The 5-Star Business Network, illustrates just some of the ways a business can falter along their road to using IT for business transformation.
FIGURE: PROBLEMS WITH USING INFORMATION TECHNOLOGY FOR BUSINESS TRANSFORMATIONS
Then you configure the pieces to form an integrated system, that meets your rapidly changing needs in a business transformation.
We need to revisit the strategic component, to examine the level of disconnect between the corporate strategy and the IT capabilities and carefully find tools that fill that gap.
In the past, it might have been the case that corporate strategies were made up in the air, then supply chain strategies were formed by people down in the warehouses based on their own assumptions about what the business wanted to achieve, and the IT staff work in their own cubicles to provide systems based on poorly articulated needs.
If the above example of three isolated types of strategies resonates with your personal experience, you would also concur that despite numerous vocal calls for enterprise-wide collaboration, people still continue to work in silos. This is equal to saying many companies are still staying at Supply Chain 0.0 while others are moving towards 1.0 or 2.0 or, even mastering Supply Chain 3.0.
Figure – The process and service component
As you can see from Figure above, which shows typical processes in a supply chain 1.0, there are four levels that need to be weaved into a cohesive whole. Typically, there can be missing links between processes – vertically, or even horizontally.
Even worse, for instance, a delivery scheduler may not know how his work output related to that of his next cubicle neighbor – the customer forecast expert.
During a transformation, processes and services may get streamlined, re-aligned or even created from scratch to accommodate change. That is why it is pivotal to keep in mind how they all fit together by devising a visual presentation such as the pyramid diagram above.
I was having a conversation with one of the senior executives responsible for business transformation in a large-sized industrial company with operations and plants across the developed world. This particular person had come from one of the top tier global consulting houses and obviously was very well versed in the hypothesis-driven problem-solving approach, which both he and I had learned in our formative years in top tier consulting houses. He was adamant that this approach would be enough to carry out a large-scale supply chain transformation in his business. Hence, he was very skeptical about the supply chain methodologies that we were espousing.
In his mind, he could derive the same results from the first principles using his hypothesis-driven approach. And I was patiently explaining to him the difference between going back to the first principles to create a new approach, and deploying a tried and tested approach for supply chain transformations which had the benefit of having adapted the same hypothesis-driven approach.
So I gave him an example of the early stage motorcars where people were still using solid rubber tires and a number of fittings which were a carry-over from the days of horse buggies. Of course, if he had the luxury of time and budget to make all the mistakes there were, he could probably recreate a modern-day motorcar, going through all the stages of evolution. He was smarter than most of the population, so he could perhaps complete the task in 20% of the time that it took for the actual evolution to take place and perhaps, at 20% of the budget. Yet, if a modern-day motorcar was already developed, wouldn’t he be better off testing if it suited his purpose and adapting it for his use?
Obviously, on one hand, you can become too rigid and attached to the process itself. On the other hand, robust processes, based on experience from a number of similar business transformations in the past, are far more useful than some skeptics envisage.
After all, who would you like to be your guide for a climb – a person who can theoretically show you a path through a map of a mountain, or a person who has actually traversed that particular journey several times before, and knows all the pitfalls along the road?
Now let us talk about the “service” bit in the process and service component.
One of the hangovers from the last century industrial organizations which never ceases to surprise me in a modern-day organization, is the importance attached to a product in comparison to the importance attached to service by the company.
What do I mean by that?
The service might be just fitting the product, or providing the right information about the product, or helping customers choose the right product for their needs.
To give you an example, if you are a customer of a motorcar company like Ford or General Motors and you are looking for a particular part, you will be amazed to know how many different possibilities there are of fitting the right part for the purpose. You will then need to discuss your particular needs with someone called a Parts Interpreter in order to pick a suitable part for your motorcar. It is a very specialized job and invaluable service provided by the car industry to its customers. It is the service that makes the cost of parts more expensive than the base cost of manufacturing and selling that part.
In almost every project we have done, when we calculated the overall cost-to-serve, it is very clear that the product component of the cost was supplemented by the service component of the cost, which was quite substantial to start with, and getting higher progressively.
In other words, the overall cost-to-serve is made up of cost of product plus cost of service, each a fairly significant component of the overall cost-to-serve. Then why do companies keep ignoring the cost of service or treat it as a minor hassle, rather than manage it as an overall part of the full cost equation?
Hence, service is merely an after-thought, even though the cost of service might, in many cases, be higher than the cost of product.
That is the reason why a cost-to-serve analysis is an eye-opener for senior management teams or for boards of directors, when an overall cost breakdown is laid out, clearly showing that cost of product is far less than the cost of service. Suddenly, the entire orientation of the management changes towards managing the service component much more efficiently and effectively than they have ever done in the past.
We have noticed that tendency in airlines, in the automotive industry, the mining industry and in many other industries.
Similar to the informational component, companies are increasingly discovering their ability to cherry-pick service providers that deal with different service modules. Before this can happen, service components must be broken up into geographical, asset based and activity based components to discover and engage best service provider for each module. This is known as modularization.
Then, service modules are homogenized in order to create and manage parallel interactions with several service providers at same time. The cherry-picking or commoditization of service modules enables you to configure a best-of-breed customized business-to-business network that would be impossible to emulate for your competitors, and provide flexibility, cost advantage and risk mitigation to your company.
Sure you will need the right tools, and deploy them rightly – that is important. But much more important is why you are deploying them, and are you getting the right results from them?
I have been asked this question a lot on Quora, as well in my board and other speeches. A lot of supply chain commentary is becoming too technical and mysterious. Supply Chain Software sellers have a vested interest in creating the mystique – similar to what McKinsey used to do about 20 years ago. But Supply Chain Management (SCM) need not be mysterious. Remember, if someone cannot explain it easily enough – they do not understand it well enough. The purpose of one of my books – Unchain Your Corporation – was precisely this – to demystify the supply chains. This books is written for layperson, can be read in 2–3 hours, and had more than 200 stories and anecdotes to help the readers use complex concepts. At its core, SCM is just about two things – integration, and optimisation. Integration of various functions (purchasing, production, logistics, inventory management, finance, sales) within a company. And, Integration of of various companies that form a supply chain together to serve an end consumer. Optimisation – is the art of getting the best results from the same inputs. You will be surprised to know that most GPS software do not even give you the optimum route even if they have real-time traffic information. The key to testing optimisation is by doing the same exercise manually and comparing against the results of the software. There are clearly degrees of Integration and Optimisation. Higher levels of Integration and/or Optimisation will lead to higher level of efficacy in supply chains. See the figure below – that comes from one of my board speeches:
If you supply chain consultants are not telling you these two simple truths, then all the talk of automation, big data software and driverless vehicles is a pipedream without a purpose. And, if your Supply Chain MBA is not teaching you these two basics then you might have wasted 2 years and thousands of dollars. Here is why… …Everything else in supply chain stands on those two foundations. Your supply chain relationships are part of integration effort, and automation is part of optimisation effort.
The chief mate was on the forecastle with the bosun and 3 sailors preparing to anchor the ship. Master was on the bridge of the ship with the second mate, a helmsman and a lookout.
The ship had just arrived in the pearl river delta after a long sea voyage, and this being the middle of the night there was no means of communication between the bridge and the forecastle except for flashing lights, a loud ships horn, or a loud voice though a megaphone.
We are talking about 100 years ago, the ship was relatively small and still ran on coal fired boilers. The communication between the ships bridge and the engine room was even more difficult. Coal fired steam boilers were very messy, and the steam engines were extremely noisy. Engine telegraph transmitted the bridge commands from the bridge to the engine – such as full steam ahead, or half ahead, or stop, or half astern. There being no brakes on the ship, the master was extremely good at anticipating the next movement necessary and transmit the command to the chief engineer in the engine room, as well as to the chief mate on the forecastle.
These two men had to be also extremely adept at not only understanding and following the orders from the ships bridge, but also as understanding the entire complexity of the situation in their respective stations and taking actions that would facilitate the final outcome – safely anchored ship without any damage to the ship, anchor, chain, propeller or any other ship.
For example, if the chain was running out too fast, the bosun, or chief mate would have no way to ask the master what was the depth of the water on the chart map or how high the tide was expected to be. They would have to use their own judgment to let go the anchor with sufficient force for it to hold the weight of the entire ship for several days, yet not too much force for it to take out the entire windlass with it. They were aware of other ships which accidentally let go anchor in far more depth than anticipated, and did not control the force in time so that the anchor chain just ran out and broke the windlass.
The chief engineer’s job was even more complex. He had no visibility of what was happening on the bridge, or the forecastle. Yet, he was somehow expected to anticipate the engine movement and respond in time for it to stop the ship so that the anchor can take hold and ship can swing into the tide.
The master relied on these two highly skilled operators who each has their own teams of skilled operators to help them.
And, then, the walkie-talkies were invented.
The master and chief mate are constantly talking to each other about the situation. The engine room can be reliably controlled from the navigation bridge so engineers in the engine control room stay there only for emergency coverage. Chief mate can now provide accurate information from the forecastle station, and master can issue precise instructions of what to do, and when. Chief mates, chief engineers and even masters do not need to be so highly skilled in the ‘art of anchoring’.
Reliable and constant flow of communication has made it unnecessary to anticipate and act. Co-ordination is a lot easier. Less need for contingency planning at each station.
Dropping an anchor, even in the middle of the night and/or in a busy channel with high current, wind or tide, has become a relatively far simpler exercise.
Communication technology always leads to possibilities of centralisation.
How much to centralise, and how to create a new operating system is an art.
The debate continues in every company.
How much to centralise? How to centralise? Why to centralise?
Strategic thinking is a must. No school can teach this – not even with the best case studies. Experience is the best teacher.
When General Motors filed for Chapter XI protection in 2008, it also marked the closing of a type of business models in modern commerce.
General Motors was seen as the paragon of modern American management theory as popularized by Peter Drucker in the middle of the twentieth century.
It was at this venerable company that Peter Drucker formed his early thoughts about management as a profession, separation of the ownership from management of enterprise, the key functions of management, division of labour, theory of leadership of enterprise, indeed the very concept of the corporation.
His writings were the need of the time, and were picked up by ivy league business schools and corporations alike and formed the basic foundation of management profession.
Indeed there was a time when General Motors and the US commerce were thought of as interchangeable entities with popular aphorism that “what is good for GM is good for America and vice versa.”
Some people still think this is the case.
They see the decline of General Motors as symptomatic of a wider malaise in the US economy.
Others think that General Motors will rise like a phoenix again to become an industrial powerhouse.
While we do not know what will eventually happen to General Motors, we know that new models of commerce, new industries, new technologies and new ways of solving old problems will be required to build a stronger economy on a global level.
All of these will not necessarily come out of one country, one continent or even one region.
Drucker foresaw some of these changes in his writings on the information age, post-capitalist society and post-industrial man.
Prescient as he was, he did not yet fully see majority of the changes that have happened in the last 6 years since his death.
The rise of China and India, the global financial crisis, the zombification of the western economies as a result on intense focus on the rapid gains from FIRE (Finance, Insurance, Real Estate) industries, hollowing out of real capabilities are nowhere to be seen in his writings.
However, this is not just true of Drucker, most of the management thinkers, writers, academics and authors can be painted with the same brush.
It is not a surprise that the established thinkers find it difficult to think outside the box.
Since the times of Aristotle, Socrates and perhaps even before that (for the history of mankind maybe older than that), new thinking must come from new places – from outside the established order of thinking.
No wonder then that the most innovative companies in the US still choose to locate on the west coast, many of the most successful corporations were formed by the college drop outs and the most successful business models do not even have a name yet.
— Excerpted from the introduction of THE 5-STAR BUSINESS NETWORK
To read a synopsis of the book, please click here
To buy the book, please go here
President Obama quipped in an interview with CNN. On May 14, 2010 "you had executives of BP and Transocean and Halliburton falling over each other to point the finger of blame at somebody else...The American people could not have been impressed with that display, and I certainly wasn't." The legal wrangling continues and will take considerable time and expense to resolve. We need not go into the gory details of dollar numbers too big to even fully comprehend, but from our perspective in this Chapter three key points stand out:
While these 3 key take-aways are still relevant to our discussion here, what is more relevant is the fact that all the companies in question will have to continue to outsource (and insource). So the practice of outsourcing itself will continue unabated. What will change after this learning experience is that the practice will be carried out in a much more sophisticated manner. That is the whole point of this book.
Before more on to newer, more sophisticated models of outsourcing that are emerging and examining them in more details in the next few chapter, let us consider the evidence on the satisfaction from current outsourcing arrangements.
Data, anecdotes and case histories abound on the misapplication of information technologies for supply networks. Not too many years ago, a very large corporation operating worldwide, made news with the downgrading of their earnings expectations due to supply chain system’s implementation setbacks. The expectation was that the new system would reduce the new production cycle from 1 month to 1 week. Furthermore, it would better match the demand and supply of its products to place the correct products in the right locations and quantities, all at the right time - a very lofty goal. The company spent an enormous amount of money, exceeding US $400 million in order to achieve its aim. However, the software system 'never worked right'. It caused the factories to crack out too many unpopular products and not enough of the trendier ones in high demand. While making the earning downgrade, the CEO asked the rhetorical question, ‘is this what we get for $400 million?’
The market analysts were not surprised. One respected market analyst [AMR] commented, ‘fiascos like this occur all the time but are usually kept quiet unless they seriously hurt the bottom line.’ Another respected market analyst commented that while the CEO made it sound like it was a surprise for him, if he did not have checkpoints for the projects, he does not have control over his company. A third analyst commented that companies are confused by escalating market hype and too often underestimate the complexity and risks. Another [Forrester Research] commented 'when the software projects go bad companies are more likely going to scurry up and cover it up because they fear that they are the only ones having trouble. But far from it; our conversation and research reveals this company was not unique or the only one having this kind of trouble'.
Despite their lofty goals, many of the large information technology deployment projects derail. It takes time for the word to filter out because, in most cases, the executives involved in the process are far too embarrassed to talk about what happened. They do mutter among themselves; after several similar instances the mutterings become more vocal and a trend emerges where a number of people start talking about the shortcomings of the system itself or the implementation process or of the time taken for implementation. Because the cost of this failure is so high – greater than $400 Million in the above case – it is instructive to understand the real root causes of this failure. I am not looking to apportion the fault or apportion the blame in this chapter.
There are a number of factors that have ensured that business have been struggling in the current economic environment. Technology has made many business models defunct, incomes and profits are falling due to cost cutting and price conscious consumers and off-shoring has hollowed out entire industries. Given this reality, business networks are essential to struggling companies to help turn their fortunes around. Here are five ways you can use your business network to turn your company around – the five cornerstones of a Five Star Business Network.
Extract from the book “The 5-Star Business Network”, written by Vivek Sood
There was a time, not more than a few decades ago, if you were General Motors you would attempt to own every part of your business. The assembly lines, the parts manufacturing plants, the stamping units, the ancillary units and even the software that runs the business, the dealerships that sold the cars, the steel mills, even the mines that produce iron ore for the mills. This was for good reason – you either could not trust others to be savvy enough to produce and send you the material you wanted when you wanted it, or the margins in each of those businesses were big enough for you to try and own all those operations.
There was only one thing wrong with this structure. Your business became an insular behemoth – far removed from the customers and moving slowly in a marketplace going through a rapid transformation. Your more nimble competitors, with loose networks of aligned companies, could easily run rings around you in no time – both in terms of developing and launching new products, and producing and selling high quality products at lower prices.
Eventually, realizing the truism inherent in the folk wisdom of farmers when they say that you do not have to own the cow if all you want is the milk, you would investigate ways of carving out parts of your business into independent entities that could be run as loosely aligned network of businesses, similar to what your competitors had evolved into. This is not a book extolling the virtues of Keiretsu, chaebols or similarly exotic-sounding Japanese and other Asian business structures. It is, however, useful to take some lessons from the evolution and success of these business networks.
Over the past several decades, both the global economy, as well as business structures have evolved dramatically to such an extent most businesses have no recourse but to create business networks akin to those mentioned above (notify on the book). So what is the magic of these business networks? Why are they so important? What makes one business network better than another? Is there a way to systematically assess, measure, report upon, improve and monitor the quality of your business network? What outcomes should you expect out of a well-tuned business network? These are some of the questions we will answer in this book.
When the Tsunami flooded the eastern coastal stretch of Japan in March 2011, the ensuing nuclear disaster combined with the devastation caused by the ocean to disrupt businesses around the world. The Japanese economy sits right in the middle of the global business network and it was natural for businesses as diverse as auto manufacturing, electronics, chemicals, petroleum products, computers and metals to experience the disruptive shock. For example, the price of the Toyota Prius went up by nearly $2,400 after rumours of shortages. While it is natural for a variety of businesses to experience the disruption, it was remarkable to note that those, which had the most responsive and resilient business networks, were the ones to recover from this catastrophe the quickest. Later on in this book, we will see how to recognize the quality of business networks and make them more resilient and responsive at the same time.
As everybody knows, three giants in the tech and software world have amassed an incomparable power in recent years from their networks and their strategies. With a vast range of products, they have stitched up the market amongst themselves. But what are the strengths and weaknesses of each giant?
What are the deep business and supply chain implications of the battle of these Titans?
Each one of them is a Business-to-Business Network in its own way with excellent partners and supply chain participants. Apple has its own ecosystem, which is not just their customers, but also thousands of programmers and app developers as well as millions of sellers on iTunes. That is Apple‘s biggest strength.
The same goes for Amazon, with an ecosystem including a very large customer base as well as thousands of sellers that sell their products on their website.
On the other hand, almost everybody uses Google as a search engine, which means they have the largest market share now in the mobile operating systems with Android. Google also owns YouTube and many other digital properties. Each one of them has a formidable Supply Chain, Business-to-Business Network or Supply Network in its own right.
Yet now, all three of them are facing problems in different ways.
Apple is facing problems because its success has always been based on creating the next big product, especially if you look at Apple’s history (iPod à iPhone à iPad). Now, Apple is launching the new Apple watch, which is not a very successful product in my mind. IPhone 6 is obviously just a minor update of the previous successful iPhone. That is where Apple is currently failing. However, they are creating some really innovative services such as Apple-Pay, which allows you to use your mobile as a NFC-based payment option, and Apple-SIM, which allows you to roam at a very low cost in foreign countries.
Apple continues to profit from past supply chain and product successes, and sits on top of huge pile of cash. Amazon, on the other hand, does not make much profit, although it has a very high growth rate of revenue (it grew by around $24 billion in two years) and still growing.
But they invested in a number of things, which did not turn out that well. This type of experimentation is in the DNA of the company, and at the moment, it is not a big problem, at least not yet. Nonetheless, a couple of these investment, noted by analysts and commentators, have raised red flags in my mind. Amazon Fresh seems to be a resurrection of the business model of an failed company called Webvan, which invested $1 billion in this field and went bankrupt in two years.
Amazon also continues to invest in expanding its business in India, which is a very competitive environment. With local market players who know the local characteristics much better, and a chaotic marketplace, this is perhaps the most uncertain field for Amazon in my view. The competition may not even be from other B2C e-commerce companies; every man with a mobile phone and a bicycle is a potential competitor. Amazon persists in investing in these two markets.
This could be much more harmful to Amazon than their mobile phones or other hardware devices that they keep creating every few months. They are losing money on those but for a purpose: they are trying to lock customers into the Amazon Network. Nevertheless, these products will never replace iPhones/iPads or equivalent Samsung products and will always be number two in customers’ minds.
The question is: Where is Amazon’s next platform for growth?
Amazon’s “unsexy” B2B business, a “$8 trillion bet”, has been growing silently in the background, perhaps making it eight times bigger than Alibaba and the biggest 5-STAR Business Network on earth.
AmazonSupply, a wholesale and distribution hub, started in 2005 and has grown to carry 2.2 million products, ranging from office equipment to industrial components, materials and more. After nearly 15 years of languishing on the wayside, the B2B exchanges are finally coming true, slowly.
Already, wholesalers are whispering about the threats from AmazonSupply; although many specialty wholesalers and distributors are somewhat confident that their turf is safe from the giant’s claws due to their highly segmented market.
Nonetheless, AmazonSupply, Alibaba, or B2B exchanges, could become so powerful that they will suck small players into their enormous vacuum of suppliers. The process can even accelerate if trust keeping mechanisms are built into B2B exchanges.
Seller and buyer ratings, as well as seller/buyer protection seen on sites such as eBay and PayPal are not enough to cover the sheer size of B2B transactions. Even the current rating system on Alibaba will not suffice, should this attractive market grow in the years to come.
Looking at Google, basically revenues of advertisements relating to search engine are stagnating/saturating. Fake clicks are being identified much more easily. People are becoming more careful of what they are spending on online advertisements. Android and YouTube are two engines of growth for Google. Google has declared a strategy of continuing investment in its YouTube products
It is easy to argue that Apple has the best chance of leading the pack in 5 years’ time depending on what kind of new hardware they manage to create in the next 2-3 years. Google and Amazon are probably equal second depending on whether Amazon succeeds in its strategy to capture Business-to-Business markets or whether Google manages to monetise YouTube as much as they can.
Equally likely, new competitors might emerge on the horizon – like superUber! That will be very interesting to see.
ABOUT VIVEK SOOD:
Vivek is the Global Supply Chain Strategist and Author who works globally with large and mid-size corporations to FIX their Business-to-Business Networks in order to their multiply profits.
In that last 14 years he created several new breakthroughs in Supply Chain – including business transformations led by SCM 3.0. His more than 400 projects have spanned approximately 84 countries on five continents, with clients ranging from fortune 500 companies to innovative green technology companies.
Get free extracts of his books and see why thousands of executives at the world’s leading corporations trust Global Supply Chain Group to build brilliant business-to-business network strategy.
We are rapidly growing and hiring. Exceptional (world’s best) Outsourcing Experts, Logisticians, Strategists and Supply Chain should contact me directly.
Follow Vivek here and @GlobalSupplyCG
If you are a HR professional, recruitment or HR consultant – and you think your clients might benefit from these insights about business transformations – feel free to forward this blog series via email or linkedin. The nature of your industry is changing rapidly as a result of forces mentioned in this article.
Most effective business leaders relish the challenge of answering questions such as the following:
If you are as deeply passionate about the world of business and supply chain networks as I am, and enjoy exploring similar questions and coming up with answers that will help immensely in using this wisdom to build your business, then you will enjoy this blog. When General Motors filed for Chapter XI protection in 2008, it also marked the closing of a chapter in modern commerce. General Motors was seen as the paragon of modern American management theory as popularized by Peter Drucker in the middle of the twentieth century. It was at this venerable company that Peter Drucker formed his early thoughts about management as a profession, separation of the ownership from management of enterprise, the key functions of management, division of labour, theory of leadership of enterprise, indeed the very concept of the corporation. His writings were the need of the time, and were picked up by ivy league business schools and corporations alike and formed the basic foundation of management profession. Indeed there was a time when General Motors and the US commerce were thought of as interchangeable entities with popular aphorism that “what is good for GM is good for America and vice versa.” Some people still think this is the case. They see the decline of General Motors as symptomatic of a wider malaise in the US economy. Others think that General Motors will rise like a phoenix again to become an industrial powerhouse. While we do not know what will eventually happen to General Motors, we know that new models of commerce, new industries, new technologies and new ways of solving old problems will be required to build a stronger economy on a global level. All of these will not necessarily come out of one country, one continent or even one region. In this (Your business model is obsolete) article published in the Fortune, Author Geoff Colvin, senior editor-at-large says: Not since the Industrial Revolution have we seen a longer or broader list of companies whose business models are suddenly obsolete. Start with virtually all companies in the media business, or any company that relies on owning copyrights or selling advertising. Then look at how major retailers — Best Buy (BBY), Target (TGT), Wal-Mart (WMT) — are rethinking their models in response to showrooming (browsing in-store and buying online), eBay (EBAY), and Amazon (AMZN). The whole education industry needs a new model. So do banking, the post office, computer makers, Big Pharma, music, and the telecoms. They all need new business models, and almost all are having a hard time finding them. There is no doubt you will have encountered many other examples of companies – whether in your supply chain, customer base or in the eco-system around you who are struggling on with broken business models. Inevitably these struggles are inelegant and fruitless. Recall the music industry’s struggle against the iTunes. Are there any others that come to mind? Share your thoughts below.
Changing Business Models – Push television/video to YouTube:
Videos ad revenues from YouTube in the US would hit $1.13 billion by the end of 2014. In 2015, Google is making a huge change in the way it has been promoting YouTube: they are going to put significantly higher focus on it.
Why Google is making this move? Let us unpack Google’s strategy.
Google’s traditional advertising revenue from SEO is starting to stagnate. Among the explanations, one is all robotics clicks are starting to disappear because Marketing Managers have begun to understand that not all clicks are from interested costumers. So they are questioning more and more: Are the clicks they are paying for actually leading to customer purchase or not?
Google’s traditional business is under threat from those who are more in touch with the changing SEO landscape, and are now starting to demand value for money.
At the same time, Market penetration of Search Engines is saturating. Thus, the growth in their market is not as high as it was in the last decade. Google has to search for new revenues of growth and YouTube is one of those new revenues.
YouTube is a growing business. Why? Because an average American, European or Australian still watches numbers of hours every week on televisions and Google is capable of facilitating high quality contents available on demand on any screen at anytime.
Transitioning consumers from cable television or Free-to-air television to online YouTube consumption will have huge implications for the business models of traditional television, as well as Marketing and advertising companies.
Big budget TV advertising will start to diminish. Most of the YouTube’s ads can be produced on much smaller budgets. Because of the fact that customers can be very highly profiled on Google/YouTube, using Google Analytics, one big ad can be replaced by a multiple of highly targeted storyboards speaking directly to each of the niche segments. Typically big advertising agencies are not very good at speaking to the small niches.
That means a number of small advertising companies who are good at low budget niche advertising will crop up. These companies maybe eventually be acquired by large advertising companies, under one umbrella, but they need to have reasonable amount of autonomy and independence to operate on small budgets and retain their key characteristics.
The CEOs and Executives need to know this: their entire world of Sales & Marketing is going to change in the next five years due to the breakdown of the traditional television and advertising model .
The public should know that more and more relevant and highly targeted programs will be available on YouTube, in paid and free formats. On-demand will become the norm: when you want it, where you want it, how you want it, big screens, small screens, tablets, and smartphones.
This change will also have implications for recorders like TiVos and PVRs – people will stop using those, or use less and less of personal video recorders. So if you are thinking of buying one those things, hold off because the price is going to fall!