First time I heard it, I was astonished. A friend (and an ex-client) was visiting Sydney with his wife, and we were sharing a dinner.
We had worked together more than a couple of decades ago, on some key projects, when I was still learning the art and craft of consulting. He had gone on to build a great career, culminating at the C-Level in one of the blue chip companies.
And, that is when the disaster struck, and he was made redundant during a clean sweep, that happens from time to time is such organisations.
In passing, he confided that now that he was over 50, he did not expect to find a steady job because of how the odds were stacked against it.
He was only a few years older than I was, and got me thinking. And, he was not the only one who quietly voiced this thought.
I feel the need to unpack the dynamics a bit more and see what is sitting inside.
Clearly it is illegal to discriminate on basis of age (as much as anything else). And, there are many ways to do a statistical analysis to prove such discrimination, if someone puts their mind to it.
Yet with so many people voicing similar thoughts, there might be some real underlying dynamics at play here. After all where there is smoke, there is fire.
I was trying to think of possible reasons.
Besides the inflexibility, and the unwillingness to take a step backward from lofty heights already achieved in the careers, are there any other dynamics are play?
I had to relate it back to my personal experience in order to think through the situation.
While the entire post is worth reading on its own merit, here is the most relevant extract:
Steamship Titanic sank when it hit an iceberg going full steam ahead in fog. Since that day, fog navigation is every Ship Captain’s worst nightmare. I still remember when I joined sea as a cadet, the moment the ship hit a fog bank – Captain would take over the navigation personally, station lookouts on Crows Nest, Monkey Island and many other exotic sounding places on the ship and try and listen to foghorns of other ships – all this despite the presence of 2 wholly functional radars.
Some captains were trained in the art of navigation long time ago – when radars did not exist. Many of these ‘navigate by feel commanders’ never got comfortable with radars – to their own peril and to the peril of their shipboard crew. As a result, shipping companies gradually eased these people out of command, making way for a newer generation of Masters who could make full use of available technology appropriately.
Today, an ability to learn, adopt, adapt and optimise new technology – all the while running the ship in its steady state – will become paramount.
No doubt, irrespective of their age many executives can, and will make, the transition into the brave new world. Yet the wall street is not betting on it – for an example try and decipher the chart below, and think of the underlying causes:
But that is just one of the reasons I do not bet on the wall street at the moment.
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?
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.
It appears a bit extreme now – but it was very common at time when I was a navigating cadet.
As a 17 year old cadet learning to navigate a large 28,600 metric tonnes vessel, one of first things I was asked to do was to make sure that I learnt the entire ‘International Rules of Road’ by heart. Almost all the cadets had to do this. The intention seemed to be that you must have no doubt in times of panic. At a time of impending collision there would be no room to think or maneuver – and the reaction must be automatic.
The Chief Mate (mentor for the cadets) would ask us any rule at any time, and expect the cadets to be able to recite these line, chapter and verse.
Here is short video of the perils of sea – mainly to put thing in the right context.
Most good yachtsmen and navigators would have these rules stuck in their memories no matter how much time has passed since they did their MoT (navigators’ license).
For me, after more than 30 years they are still alive, and many of them serve as good guidelines for practical decision making in strategy.
Here is an example: RULE 7 (COLREGS 72)
|NAVIGATION RULE||STRATEGY GUIDANCE|
|(a) Every vessel shall use all available means appropriate to the prevailing circumstances and conditions to determine if risk of collision exists. If there is any doubt such risk shall be deemed to exist.||Every company should use all available means appropriate to the prevailing market conditions and competitive landscape to determine if significant risk to profitability exists. If there is any doubt such risk should be deemed to exist.|
|(b) Proper use shall be made of radar equipment if fitted and operational, including long-range scanning to obtain early warning of risk of collision and radar plotting or equivalent systematic observation of detected objects.||Judicious use should be made of diagnostic tools and methodologies that are available and appropriate, including long-range forecasting to obtain early warning of risks of significant profit drops, and benchmarking or equivalent systematic observation of risks identified.|
|(c) Assumptions shall not be made on the basis of scanty information, especially scanty radar information.||Assumptions shall not be made on the basis of scanty information, especially poor diagnostic information.|
|(d) In determining if risk of collision exists the following considerations shall be among those taken into account: (i) such risk shall be deemed to exist if the compass bearing of an approaching vessel does not appreciably change; (ii) such risk may sometimes exist even when an appreciable bearing change is evident, particularly when approaching a very large vessel or a tow or when approaching a vessel at close range||In determining if risk of significant profit drop exists the following considerations shall be among those taken into account: (i) such risk shall be deemed to exist if the performance of an appropriate benchmark does not appreciably change; (ii) such risk may sometimes exist even when an appreciable performance change is evident, particularly when approaching a turbulent market condition, or when benchmark itself has become irrelevant.|
So what are these 5 key cornerstones of the super networked businesses that lead to these networks being called the 5-STAR Business Networks? As an aid to memory, I have given them mnemonic names in order, shown below (see the complete structure in the book):
5 STAR Business Networks enable businesses to do these regular activities in a much better manner than would have been possible otherwise. As we will see with the help of several examples and cases studies, aided by technologies, an open collaborative mindset and a focus on the bottom line, these businesses are achieving better results through superior methods.
We will examine each of these five cornerstones of the 5 STAR Business Network in great detail in the five chapters in the book. In this article, we will use an example of one company that is positioning itself as the super networked business of this century by using all five of these very astutely.
When Amazon was founded in 1994, it was but one of the hundreds or thousands of businesses aspiring to make it big on the Internet. Just like all its peers, initially the markets and analysts were starry-eyed about Amazon’s success, and later, when the dot-com bubble burst, and the trend reversed, few people gave it much chance of success. Yet it defied the naysayers and continued to sell at PE ratios exceeding 100 on the stock markets.What is the secret of Amazon’s success? What allowed Jeff Bezos to build the largest online retailer in the world, where customers can acquire anything that they desire over the Internet?
Admittedly, the company started with a first-moved advantage in its segment: books. Amazon was one of the first major companies to sell books online. The business was founded in 1994 and by 1995 the website was launched. Initially, the company was exclusively an online bookstore. However, it transformed to sell millions of products to a large and valuable consumer base. Today, the company sells everything from electronics to clothing, furniture and even food.If you had to ask this simple question to 100 people – “Who on earth today is the world’s most customer-centric corporation?”
Amazon would figure very high on the list. Amazon has achieved low prices, a wide inventory selection, convenience, and truly gives customers what they want. As a result, Amazon has evolved into a Fortune 500 business and continues to grow as a world-class electronic commerce platform.The company grew its annual revenue from US $19 billion in 2008 to US $24.5 billion in 2009 to US $48 Billion in 2011, all the while continuing to invest in future businesses and maintaining a healthy cash flow. How does it do this?
In an article in Forbes (April 2012) Jeff Bezos offers some tantalizing clues. Bezo’s main message is to base his strategy on tings that will not change.For Amazon, their purpose is simple: offer wider selection, lower prices and quick, dependable delivery. Another significant lesson Bezos reveals is obsessing over customers.
Amazon starts with the customer and subsequently works its process backwards. The company even designates specific roles performed by trained employees known as customer experience bar raisers. This is one topic that Bezos takes exceedingly serious.
But, to some extent, every corner store does these things just as well. Why, then, is that would a corner store owner be lucky to grow his lowly sales by a couple of percentage points, while Amazon grew its sales to $48 billion from $24 billion in just 3 years.
Let us take a more in-depth look behind the curtains.
Jeff Bezos, on the record, said that you have to be willing to be misunderstood for long periods of time. While several of Amazon’s designs look like a bust at first, if the new idea makes strategic sense to him, Bezos goes for it knowing full well that people will initially misconstrue the design. In general, this is what innovation is – people are going to misunderstand it because it is new. Overall, the business philosophy is rather simple: make online shopping simple and suitable so that the customer does not think twice about buying instantly with one click (Anders, George. “Jeff Bezos’s Top 10 Leadership Lessons.” Forbes. 4 Apr. 2012).
The complexity lies in how this simple business philosophy is translated into consistent action, resulting in nearly a billion customer visits a year. There is nothing simple in the complex execution of this simple business philosophy. Therein lies the dilemma of the modern business world – the quest for simplicity at the highest level, underpinned by the highest level of sophistication reminiscent of Nano-technology under the hood.
Almost all successful businesses do this dance of 5-STAR business network well, but Amazon does it exceptionally well on almost all 5 fronts. There are many other businesses – well-known ones – that could be a poster child for the emerging trend of global business networks we showcase in the book “The 5-Star Business Network”. However, no one is more successful, more visible, has higher potential and is more assured of its role in this revolution. That is why Amazon is a prime example of the 5 STAR Business Networks, demonstrating FAR Innovation, $t$ Efficiency, TOP, APP, and lastly, ROM.Continue reading
The results are in, and for PC sales they are neither good, nor bad – but ugly! The pundits are out to find a scapegoat – and the most convenient scapegoat at the moment is Microsoft. For example see this report in today’s Wall Street Journal – which hails Microsoft’s mea culpa.
There is no doubt Microsoft is partly to blame for the debacle. I am no fan of Microsoft’s ketchup strategy (constantly throwing money to catch-up with the successful rivals). On top of it the company itself admits that “The world is changing and changing fast, and frankly we also didn’t get everything we dreamed of done in the first release,” of Windows 8. The report quoted above goes on to say:
Windows 8, the operating software launched in October, was intended to catapult Microsoft and its allies into the market for new kinds of computing devices—including tablets—and help generally get consumers more interested in buying new personal computers. Six months after the operating software’s debut, it isn’t yet a hit by the accounts of some PC executives and research firms.
One market-research firm, IDC, went so far as to say that Windows 8 did more than fail to revive the PC market—it actually turned off users with changes to basic elements of the widely used operating system.
Ms. Reller disputed IDC’s contention, and said the company is seeing steady if not steep sales progress. She said Microsoft has sold 100 million copies of Windows 8 since October, up from 60 million in January.
However, let’s pause to think about it for one moment. What about the roles of hardware vendors – HP, Dell, Lenovo, Asus, Acer and others. What have they done to create products that consumers would like. Where is the innovation in the hardware arena that would appeal to the customers?
As I said in the comments to the above article:
I think it is wrong to blame just Microsoft or Windows 8 for this debacle in PC sales. As I discuss in my recent book The 5-STAR Business Network (http://www.amazon.com/The-5-STAR-Business-Network-Corporations/dp/061579419X/ref=sr_1_2?ie=UTF8&qid=1367705465&sr=8-2&keywords=vivek+sood) it is always the business eco-system that is responsible for the success or failure of a concept. The entire Wintel business network has failed to innovate to improve the customer experience much beyond windows XP. I am still using the same laptops with same programs with marginal improvement in speed. Apple, on the other hand, and Google/Samsung in its footsteps has created entirely new categories of products, as well as, improved the customers’ usage experience much better. If you want to look at the success of a product or concept, look at the Business Network that works behind the scene to create the user experience – not at an individual company.
In a previous blog post I spoke about Intel’s role in this picture. Here is what I wrote at that time:
No doubt, the continued softening of the PC market is not only hurting HP and Dell, but also partly responsible for what is happening at Intel. The key question is that while Intel is extremely good at Advanced Product Phasing (APP), is it capable of proving itself adept at Fire-Aim-Ready (FAR) Innovation? Without innovation, and creation of new product for where the market is moving too – cloud based mobile gadgets, Intel is likely to continue to lose ground.
Troubles at HP continue to make headline news with regular periodicity. Dell is not immune to such news either. Lenovo is now thinking about selling its low end server business. The fact remain that the business model is changing again. Cloud is doing to Wintel, what Wintel did to AS400’s. The entire Business Network must move in line with this changing business model. Those companies who can configure a new 5-STAR Business Network that fits in with this new business model will prosper. The rest will continue to look for scapegoats.
Interviewer: Michael Dresser of The Michael Dresser Show
Interviewee: Vivek Sood of Global Supply Chain Group
(author of The 5-STAR Business Networks)
Here is the entire transcript of the interview:
Michael Dresser: Welcome back! I’m Michael, you’re listening to the Michael Dresser Show, Vivek Sood with us, the author of the “5-Star Business Network” and the tremendous effect of supply chain in business networking. Social networks are proliferating and most people think that Facebook and Twitter are ultimate and power rich when it comes to networks, but no. Many marketers and businesses are missing another network that’s hidden in plain sight. Business-to-business networks, they’re called, supply chains, they are at least 2000 times more powerful and widespread. And now these networks are going global and also digital. Vivek is known among smart executives who might be CEOs one day for practical business strategies, practical because they’re crafted in real world, not academia. Vivek, welcome to the show!
Vivek Sood: Thank you, Michael! It’s a pleasure to be here with you.
Michael Dresser: By the way, am I pronouncing your first name right? I hope I am.
Vivek Sood: Yes, you are, absolutely!
Michael Dresser: Ok, great. Let me ask you this. What got you to take a look at business? Obviously there’s got to be that time in your life when you look at something and you say there’s something missing. What caused your journey, that search for what you found?
Vivek Sood: Michael, it’s been a long journey. I’ve been a management consultant to CEO for about 17 years now. I saw that lots of business transformations that companies are going through were failing for some very simple reasons. And those reasons had to do with business-to-business network of their businesses. And that’s when I started investigating these business-to-business networks.
Michael Dresser: You know, when we talk about it, we think business-to-business stay locally within a country. But we’ve expanded today. A business doesn’t do just work in their hometown, they do business globally. And if you are not aware of what’s available for you, and that rich that’s out there, a business that could be successful just won’t work, will it?
Vivek Sood: Absolutely! Michael, let’s go back a few hundred years’ time. All business was very local. The local village had all the artisans which could provide you with whatever you needed. Soon it became regional, because they could find better product, better artisans. And very soon after that we started looking beyond about this. Today the business is totally global. You name any product, you can track its journey all around the globe before it reaches the shelf. Before it reaches the customer’s hands, the product has traveled 5 thousand to 10 thousand miles around the world.
Michael Dresser: Absolutely! By the way, and the average consumer, we have a brand new consumer now. The e-consumer can sit in their house, press the button and track any button in the world.
Vivek Sood: Absolutely! Today I’m sitting in Australia, and I can order the best cold clothes, skis out of United States, track them and basically have them delivered to my home, to my office within a period of a week. And I have the world’s biggest inventory on my back and call, right there on the Internet.
Michael Dresser: By the way, Global Supply Chain group, which is the company that you founded. What’s the essence of the group, what does the group do?
Vivek Sood: Global Supply Chain group has only one purpose. We work around the world with large corporations, who have supply chains, but their supply chains are not what we call A class supply chain, the supply chain 3.0. We work with these companies to improve the performance of the supply chain, and the difference is huge. When you jump from C class to A class supply chain, your profitability goes up by 5 times. And that’s what we help out clients to.
Michael Dresser: When we deal with business-to-business networking, obviously you’re not going to have two businesses with the same offering. So I’ve got a business, I have an offering, you have a business, you have an offering. If the offerings can complement each other, do we what? Do we joint venture? Or each one advertise the other’s business?
Vivek Sood: Absolutely! Let me give you an example. Let’s take one of the world’s biggest corporations, Apply Corporation. Before iPhone came along, there were already smartphones made by Samsung, but the screens were really bad. I actually happened to own one of those Samsung Omnias. You had to press a button three times. Apply figured out that the best way to get a new iPhone much better than the existing technology is to work on the screen. Apply didn’t have the screen technology, it went out and found a business partner which had that technology. It made a deal with this partner, who supplied them with this screen and which in the end gave iPhone the edge over the existing technology.
Michael Dresser: So effectively, what we’re really doing is engaging the businesses. You know, the business-to-business, the name is ok, but the actual engagement, complementing each other, implementing that certain something that’s missing within the business that causes them not to get where they need to be. So we find the expertise in particular businesses, we tie them together, and in essence there’s one unit going out there, even though their profitability is individual.
Vivek Sood: Absolutely! Businesses do not compete as businesses anymore, they compete as networks of businesses. Imagine a pack of wolves hunting, competing with a lone wolf hunting in the middle of snow. Obviously, a pack of wolves would definitely win.
Michael Dresser: By the way, when you come down to it, there’s a lot of businesses out there today. Everybody’s doing Twitter, everybody’s doing Facebook and they really are not aware of the next step. I guess Global Supply Chain group is really the next step beyond Twitter, and beyond Facebook, and beyond LinkedIn. LinkedIn is really the business opportunity, but when you come down to it, it’s the ability to put these places together, the ability to reach out. And not just reaching out, knowing how to reach out, because there’s got to be a strategy behind it, it’s got to have a process.
Vivek Sood: Absolutely! These things are now state of the art technologies, they’re state of the art methodology. And yes, you have to find the right partners, to reach out to them in the right manner. A team players always like to play with the A teams. So if you reach out to them in a wrong manner, or if you play the game not the way they like to play it, very soon you will find yourself not the part of the A team. At the same time, the social network are useful. You can’t say they don’t have a role to play, but they have a role to play more on the consumer’s side, when you engage your consumer into a conversation, to understand what exactly matters to a consumer and to a customer. For business-to-business engagement you need a much deeper and much more involved strategy. And that’s where we basically help our clients.
Michael Dresser: When we take a look at it, I want to go back to when I was introducing you: “known among smart executives who might be CEOs one day”. Getting the information, getting to know it beforehand is wonderful, but is there a wall, is there a challenge to get into a business, that’s already a multimillion-dollar business, they could become a multibillion-dollar business if they would listen to what you have to say. Are there challenges to getting these people to take a look at what’s offered, because, you know, too many people are making a certain amount of money, they’re scared to make that move.
Vivek Sood: Absolutely! I think you hit the nail on the head. A lot of businesses are in a comfort zone and they don’t recognize the need to move beyond the comfort zone, to actually 5-star network or a business-to-business network. Still, the competition comes in and eats their lunch. So imagine a Nokia mobile phones, before Samsung or iPhone came along. They were in a comfort zone, they never imagined that an iPhone would come along and certainly Nokia mobile phones become totally irrelevant.
Michael Dresser: Now, by the way, that’s really the key, it’s looking beyond what’s there, and especially in today’s market place, today’s world. We have technology that is changing almost daily. I can go back and remember the first computers, they’d fill up a room! But today, you know, you can walk around with something in your hand and that will give you everything that they did. And it is, it’s taking that step and realizing that there’s more. But the only way that you find out there’s more, is you have somebody who is doing it. They’ve got to have somebody “symbolical”, holding you by the hand, taking you through, allowing you to find out what’s available out there and, more important, how to use it.
Vivek Sood: Absolutely! What you need to see is basically benchmark your competition, but also look outside your industry. Look outside other companies in other industries, who are doing much better than where you are and find out the reason why. And you have to be constantly staring, what are the new threats of the horizon, whether they are technological threats or socio-cultural threats, like for example, consumer preferences are changing very quickly as well. As a two-way conversation is becoming possible, you cannot just talk to a consumer anymore, you have to engage them, using things like Twitter and Facebook, but also many other technologies that are available at the moment.
Michael Dresser: I know that everything is globalized, and the world has been global for the last, probably, 20-25 years, at the most, when there was an intensity here. But do you find, because of the different cultures and the different countries that it’s hard to make that connection or, is there that certain something that cuts through all of it that is recognizable to anybody anywhere?
Vivek Sood: Michael, I worked in more than 150 countries now on supply chain projects and business-to-business network projects. What I found is that on the highest level, the corporations are very professional. They understand what is happening around the world in cutting-edge methodologies and they want to learn. On the other hand, tier 2 and tier 3, they are well within their comfort zone, they don’t want to get out of it. They like to blame the events, they like to blame the government, the other people.
Michael Dresser: For what I hear you saying, that’s business oriented, not political. And if you have people with the same mindset, “business-oriented”, it really doesn’t matter what country you are from, because business has a language of its own, profitability has a language of its own and there’s a commonality in interest, in goal-setting.
Vivek Sood: Absolutely! Because in the end the purpose of business is always the same, to find a customer who will profitably buy the product and they can build big enough business based on their customer segment. And that is universal, it’s all around the world. After that it can become a little bit more complicated: how you fulfill the customers’ requirements and that’s where the business-to-business networks coming to play. And the language of business is the same all around the world, Michael.
Michael Dresser: Sure, because when you come down to it, when you look at any country, administrations come and go, presidents come and go, but the one thing that stays constant is the business, because business stays focused on the end result. And I think that’s what we should look at. If more countries looked at the way a business was run, we would probably have less problem that we do today.
Vivek Sood: Absolutely, Michael. We have had this eighty-year experiment in the former Soviet Union and communist bloc, where governments were in the business, running business and that failed quite miserably. So we are now in an era where it is clear that business of business is business. Governments are needed, but not to run businesses. In the end, what creates value for society, what creates value for community is the business. And that is universal around the world.
Michael Dresser: I think that’s the key for America today. We shouldn’t have politicians there, and I’m not getting political, just the point here is that we should have people who understand business, who have been in business, who understand profit and loss. Because when you think about it, you know, most of the countries, and especially in America, we are cash in – cash out. What’s left at the end of the month and what’s not left at the end of the month, what’s the deficit? And we ran this country here more in a business fashion. Most of the problems that we have today, we wouldn’t have. We would not be in this kind of debt.
Vivek Sood: I’m obviously not a political commentator or a political adviser. What I can see is that government is getting more and more into business in America as it is in some other places, and I don’t necessarily see this as a positive sign. Quite the contrary.
Michael Dresser: And the reason for that is, and I’m not being political, is that you have to have someone who has been there, who understands what to do, not from a position from politics. And I believe, when you come down to it, “The 5-Star Business Network”, you do something like that with all businesses and the businesses are succeeding. And when the businesses succeed, you have jobs, you have opportunity and you have a flow of income.
Vivek Sood: Absolutely! If you look at CEO’s job today, Michael, it is probably one of the hardest jobs on earth today. They are asked to do more with less. On the other hand, they are facing so many political pressures, you can’t even imagine.
Michael Dresser: Sure, no question!
Vivek Sood: And on the other hand, employee loyalty is also disappearing. So what can get them out of all this is really business-to-business network, which can allow them to do more with less, which can also allow them to look beyond employee loyalty. Because that loyalty went out the window about 20 years ago.
Michael Dresser: Sure, and I’ll tell you why we have this employee disloyalty, so to speak. Because they don’t feel part of the business, they don’t have an identity within the business itself. When you have people who have identity within the business and they feel like they have an interest – not an ownership interest, it could be commissions, it could be perks, it could be something. But when they feel like they are part of their business and because of them, employees, the business is being successful, all of the sudden you have loyalty. We come up against with a wall, and that wall divides the business from the employees, the engagement isn’t there, being proud of what they are and what they do.
Vivek Sood: Absolutely! There are deeper socio-cultural reasons. When I started work at 17 as an apprentice, I owed everything to a company which taught me what I learnt. Those kinds of apprenticeships are now almost history. Today young people stay in college till they’re nearly 30.
Michael Dresser: I remember my very first job was 1.65 $ an hour, a hundred years ago. We are just about out of time, so let me ask you this: website we can find you at.
Vivek Sood: Yes, my website is www.viveksood.com. So my first name is Vivek, last name is Sood.
Michael Dresser: If anybody misses it, it will be up on our website.
Vivek Sood: The website of the book is www.5starbusinessnetwork.com.
Michael Dresser: Wonderful! And by the way, thank you so much for joining us today.
Vivek Sood: It’s been a pleasure, Michael. It’s a pleasure to talk to your audience.
Michael Dresser: Take care!
Now that all the factories have moved to China (or some such places as Vietnam, Bangladesh, Taiwan), and all the customers have moved to the PC (or some such places as mobile phones or tablets) what will happen to all the middlemen?
The retailers, the wholesalers, the shopping centres, the warehouse parks, the dealers, the brands, the long established cosy relationships, the long martini lunches, the twice weekly afternoon golf games and the executive chefs in the board rooms?
Many people are asking this question in many different ways. While the scenario above has not fully transpired yet, and, may indeed never transpire in such a stark detail, many companies are starting to ask “what if that happens”.
Consider, for instance, all the happenings at Alibaba. The Chinese e-commerce giant went public in the US with an IPO that stirred the world at large and the online retailing world in particular. If you are wondering about the reason, then look at the numbers below. As per Wall Street Journal
In 2013, the combined transaction volume of Taobao and another Alibaba-run shopping site called Tmall reached $240 billion, says a person with knowledge of the figure.
The total is more than double the size of Amazon.com Inc, triple the size of eBay and one-third larger than the value of all the transactions last year at the two U.S.-based e-commerce giants combined.
People stood up to take notice only when there were widely reported news reports that just in one day (the Chinese version of Black Friday), Alibaba achieved nearly $5.75 billion in sales (on just one of its website), which was three times more sales than the entire country of USA achieved on Black Friday.
Reportedly, almost the entire valuation of Yahoo is based on the value of the shares it holds in Alibaba.com.
More such amazing facts are available from this report on Business Insider. As per The Economist, analysts predict that the Alibaba IPO will value the company somewhere between $55 billion and more than $120 billion.
That would make it the most valuable 5-STAR Business Network on earth – with transactions reportedly surpassing $1 Trillion a year soon.
Lately, Alibaba has partnered with US company ShopRunner to bring American goods to China. It has also been active in “shopping” for lucrative relationships with retailers, buying shares instead of acquiring the whole business.
This is obviously only the beginning of its full potential – although B2B exchanges have been in the offing for nearly 15 years now. Many are warning that as B2B exchanges mature into adulthood, they could easily start to restructure the whole global supply chains. No wonder the entire media world is going gaga over Alibaba’s prospects.
Even those who recognise the hype cannot help but wonder if the sad state of retail is somehow connected to the seemingly unstoppable Alibaba force and the trend it heralds. For example, one highly respected fellow blogger (Steven Dennis) recently stated in his blog,
As a former Sears senior executive I’ve followed the once mighty brand’s journey from mediocrity to bad to just plain sad. What a long strange trip it’s been.
When I left in late 2003 we were gaining traction in our core full-line department store business and piloting several important growth initiatives. To be fair, whether we could pull off the necessary transformation was highly questionable. But one thing is now certain. The subsequent actions taken under a decade of Eddie Lampert’s leadership have assured the retailer’s demise.
So, what will happen to the retailers, the shopping malls, the brands and the dealers? Will Alibaba, and its Chinese direct suppliers kill all these? Not so fast! While e-commerce is changing the face of corporate America, there are many reasons Alibaba will not be as successful as projected by the alarmists.
Firstly, there is another company to think about – a home-grown version of it. A yet unknown part of Amazon is AmazonSupply.
Predictive shipping and unmanned drones are made more prominent in the news agenda.
Meanwhile, 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, nobody knows what will happen in future.
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.
The current trust keeping mechanism in international trade is Letter of Credits, which has been around for hundreds of years.
It is defined by Investopedia as: “A letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.”
To keep up with the pace of change, new supply chain finance mechanisms must evolve, something that can deal with the increasingly globalised supply chains. Only with sustained focus on supply chain finance, can B2B exchanges morph into true 5-STAR Business Networks.
While traditional sources of supply chain finance have a vested interest in keeping the status quo, new supply chain finance mechanisms have been slow to emerge and remain an opportunity for the likes of Amazon, PayPal and Alibaba. If they crack that nut, the rest is open slather.
Once these mechanisms break through, the face of global supply chains and global commerce will change for good.
In this series, I will address the second question raised at the start of the previous blog series – “What are the benefits of supply chain 3.0?” Before answering that question, let me go over the three type of responses I generally get when I explain to people that supply chain 3.0 is real.
Most of the McKinsey (or their clone) trained strategists ask me to show data to back up this assertion. On the other hand, more intuitive executives (mainly from sales and marketing background, as I observe) ask me to explain the benefits of supply chain 3.0. Finally, the third group – those who I call the transformational leaders ask a simple question – how can we use the power of supply chain 3.0 in effecting beneficial business transformations.
First a caveat – no benefit accrues to those who do not act. And, not just any random action will suffice (though, in most cases, any action is better than no action); you need action based on cohesive, strategic thinking. That is the reason for the word “can” in the title of this post – all benefits are just potential energy till converted into reality by your kinetic energy.
Of course, I have not yet talked about how supply chain 3.0 differs from its previous version – supply chain 2.0. While the full detail of that is a subject for a future blog post, it will be necessary for us to know that these are different, and that supply chain 3.0 is a step change above supply chain 2.0. So, we will briefly delve into various avatars of supply chains as we look at the benefits of supply chain 3.0.
To understand the potential benefits of supply chain 3.0, let us look at the current business context. The best way for me to get you thinking along the same line as me is show you the following slideshow with just 14 slides from UNDERCURRENT:
It will probably take you no more than 7 minutes to quickly peruse this material and I have no intention of taking credit for the original thinking by the makers of this slideshow. That is why I am neither paraphrasing it, nor taking from it – something I see happening with my material more and more, even in the erudite circles.
My personal takeaway message from the above slideshow is that something immense is happening across the world of business. Combination of globalisation, bandwidth, rising standards in the east and financial adjustments in the west are creating both opportunities and threats everywhere.
Recently, someone sent me the link to a cartoon by marketoonist.com, which I show below for comment. They quipped to me that retail business model is toast. I agreed, but asked in return “which model is safe”. Think deeply enough, especially in line of the material in the slideshow and you can see the same threat lurking everywhere in many different forms.
But the old cliché is right. Every threat does hide an opportunity. I believe this despite the fact that I do not know enough Chinese language to attest to the fact that the Chinese character for threat and opportunity is the same (unfortunately, I could not learn any Chinese through-out the translation of my book into that language).
There is a lot of talk about VUCA – Variability, Uncertainty, Complexity and Ambiguity – when strategists discuss the business environment today. It is a bit ironic that so many military terms get incorporated in the strategy parlance during the time of duress.
However, one thing is clear – that old organisational models are not adequate anymore. New challenges need new responses. In the next entry of this blog series, I will discuss about business models, how they have changed and the effects on supply chain.