Monthly Archives: March 2009

Should You Provoke Your Customers?

A recent Harvard Business Review article states that in a downturn, (you should) provoke your customers. I have to say that even after reading the article to understand where they are coming from, this scares me a bit. It’s one thing to provoke a sleeping bunny, but what if you provoke a sleeping bear? While the first might spring into action, the latter might take a chunk (of business) out of you (by deciding that you’re too pushy to do business with and simply ban you from future opportunities).

While a smart seller will help their customers see their competitive challenges in a new light, they’ll do it in a manner that illuminates the opportunity and inspires the customer to take cost saving actions, not in a way that provokes the customer into an unpredictable frenzy that could cause the customer to make a quick decision that isn’t necessarily right for them. And while it’s true that this could result in a short term gain, in the form of a sale, for a seller, it could also lead to a long term liability if the customer isn’t willing to follow through in the operational execution required to make the solution a success. If the solution ends up tanking, either because the customer failed to redesign their processes and execute accordingly or because the solution wasn’t right for them, and does nothing but cost the customer time and money, the customer could get irate, go public, and start a fiasco that will lead to long term revenue loss.

Maybe it’s just me, but I’d prefer a level-headed customer who saw the advantages, that were clearly laid out in the new competitive landscape the solution created, the solution had to offer to one that was provoked into buying the solution. I just see too many opportunities where “provoking” a customer could go wrong. What do you think?

Why Some Companies are Being Dumb

A recent article in Strategy + Business attempted to address why some companies are making the wrong moves. Needless to say, after my recent dumb company and dead company series, it caught my attention.

According to the article, some of the reasons companies are making the wrong moves are:

  • Market Optimism
    They think they’re better off than their competitors and that the crisis will serve to elevate them by harming their competitors more.
  • Overestimating their Financial Strength
    They are not accelerating their cash generation and, more importantly, cash preservation efforts.
  • Pulling Back on M&A
    When now is the best time for strong and stable companies to snatch up struggling companies with innovative products.
  • Mistrust of Senior Executive Leadership
    A recent survey by Booz & Company in December of 2008 found that two out of every five respondents were skeptical of senior executive plans, which, of course, affects their ability to carry those plans out.

I don’t think it captures all of the reasons, from what I’ve seen and heard over the past few months, but it’s certainly an important set of mistakes to avoid.

Now That Your Demand Planning Strategy Is In Play, Improve It!

In our last post on the topic, we reviewed the story of how Linksys improved forecast accuracy at the SKU level by 350% with better demand planning, as told by Robert Bowman in Free The Enterprise! This emphasized the need to put a good demand plan in place and illustrated the importance of good demand planning strategies.

One key component of a demand planning strategy is a demand sensing strategy that will let you know when market conditions are varying from forecasted predictions in (near) real time, allowing you to update the forecast before you stock-out or, even worse, get stuck with thousands of units of obsolete inventory. The recent edition of the The VCF Report had a great article by Lora Cecere of AMR on Forecasting Recovery Strategies and Seven Ways to Sense Demand and Predict the Upturn that you should read to give you insight into how to tweak your demand sensing, and associated demand planning, strategies for best results.

Lora offered the following seven tips to help your company sense demand, and even predict the upturn, so that you can make timely decisions and reap the profits that will be yours for the taking, if you are ready.

  1. Make Better Use of Downstream Data from Retailers
    POS (Point-of-Sale) and inventory movement data can be used to shorten replenishment times.
  2. Implement VMI For Your Customers
    This will help you to better sense true demand and avoid stock-outs as you will have immediate access to channel wide data.
  3. Use Downstream Data from Distributors
    This will give you visibility into the reseller market and a better picture of overall demand.
  4. Move to Active Forecasting
    And update your forecasts weekly instead of monthly for short-life products and monthly instead of quarterly for longer-life products.
  5. Tap into Sales Contract Data
    This is critical for effective planning of make-to-order and configure-to-order supply chains.
  6. Actively Use Market Data
    Channel data and third-party data can be used to sense channel trends and predict when a certain product or service category is about to take off in the marketplace.
  7. Sense Service Requirements
    Link your demand-sensing activities with your strategic service management planning for better results.

For more details, see the article.

People versus Technology

Consider this excerpt from a recent article on The Big Picture in Industry Week:

We reviewed several conveyor delivery systems and settled on cutting-edge technology. It eliminated so many positions that the payback was very quick. Parts were routed through the department and into a sorting area to be automatically picked … we were really proud of this engineering marvel. … Then, reality started to set in. We weren’t ready for cutting-edge technology. It required engineers to program and mechanics to maintain all the little switches and gates. … The downtime had gotten so bad that we positioned full-time mechanics on the line. … We were missing cycles on the main assembly line and having to manually run interiors over to catch up with product. There was considerable capital investment and lots of sweat equity.

So the company brought in TBM and Shingijitsu lean consultants and started to study the Toyota Production System. They started with a week long kaizen event focussed on one component that resulted in a U-shaped cell delivering JIT to the assembly line that worked nicely on 90% of products. Additional kaizen events totally changed the department layout to a smaller footprint that verified the methodology. Then the plant ripped out the high-tech conveyor systems and performance improved while the production footprint decreased almost 45%. As a result, the plant was able to in-source a regional distribution center that generated additional savings and created synergies across the supply chain.

Moral of the Story: technology is good, the right technology is better, but nothing beats a great team with the right training and the empowerment to do what needs to be done.

If You Fall For “Free” Then You’ll Get Suckered!

Money’s tight, the recession is still in full swing, everyone’s telling you to get a good deal, you’re starting to fall for “freeconomics”, and that’s a BAD thing. Anderson’s Claim that $0.00 is the Future of Business is false. Just because something, like the cost of software, is trending towards 0, that doesn’t mean it will ever reach 0. Zero is a limiting value. If you understand mathematics, that means that it will only reach 0 when an infinite number of instances are in play. Furthermore, a product that is consistently dropping in price month after month on a well defined curve could be trending to any point between the current price and zero on that curve … there’s often no way to say for sure, since you can only say with probability that the model is right, not with certainty.

As a recent Knowledge @ Wharton article points out, products and services offered for free aren’t really free; they’re just paid for in another way … and in business, the way they’re paid for is often more expensive than just buying them outright, especially when we’re talking about software.

Free services? Chances are those required a multi-year commitment at a monthly price point that is high after 12 months, really high after 24 months, and exorbitantly high after 36 months. Chances are you were offered the deal because the vendor sensed the disruptive entry of a new competitor or price point that was going to significantly erode their margin, and in return for this “concession” they could lock in a 300,000 deal for 50,000 worth of services (for example) knowing that if you waited six more months, you could have acquired the same deal from a competitor for half that. Free? Try twice as much! Same goes for “free” training or “free” modules.

Marketers know that “FREE” spikes demand in a nonlinear fashion and that the number of people who will irrationally want something that is “FREE” is many times that will want it even if it only cost a penny. And since enterprise negotiations are always done with a person, they use that fact to their advantage to try and draw your attention away from an overpriced product or service to a “free” offering that is nowhere near as valuable as it sounds.

And even if it is free with no visible strings attached today, you can bet those strings will magically appear tomorrow. Consider those social networks you like so much. Spoke is selling your profile data. Facebook recently decided that they “owned” your information. Sure they reversed that decision, but they’re still retaining the right to use that information … and just because you delete something from the site, that doesn’t mean it gets deleted from the backups. What happens to that data? And you can bet the investors who just poured 35 Million into Twitter are going to want to see that money back. Those context-sensitive ads you were complaining about on MySpace and Facebook last year might seem benign in comparison!

There’s no free in business (to business). There never was. There never will be. So don’t get suckered, no matter how tempting it is in this economy. The best deal you can get is getting a product or service for what it’s worth, and not a penny more. Then you’ll have value, and you won’t be on the hook for an unreasonable expense down the road.

(And don’t try to tell me Open Source is free. It’s not. There are restrictions around use that could be very costly if you violate them — just ask an attorney specializing in the matter. And it’s unsupported, so there’s the support cost of installing it, patching it, and supporting your users on it which can’t be passed off even partially to the vendor. And if it has a bug you can’t work around, you have to write your own patch. Developer’s aren’t cheap. That’s not to say that it’s not the best deal, but that you don’t know until you do a TCO/TVM model over the intended lifespan of the product.)