Category Archives: Miscellaneous

Rumblings from Rumelt

The McKinsey Quarterly recently published an article by Dan P. Lovallo and Lenny T. Mendonca titled “Strategy’s Strategist: An Interview with Richard Rumelt” that had a number of great insights from the man himself.

Richard Rumfelt, a professor of strategy at UCLA’s Anderson School of Management, where he holds the Harry and Elsa Kunin Chair in Business and Society, is considered a heavyweight when it comes to strategy. He was the first person to uncover a statistical link between corporate strategy and profitability and his 1991 study demonstrated that neither industries nor corporate ownership can explain the lion’s share of the differences in profitability among business units. Being in the right industry does matter – but being good at what you do matters a lot more.

Rumelt notes that there has been a dramatic recentralization of strategy work in recent times, in contrast to the eighties where the wisdom was to decentralize into business units which would each generate a separate strategic plan, and that most corporate strategic plans have little to do with strategy. Rumelt has found that most corporate strategic plans are simply three-year or five-year rolling resource budgets with some sort of market share projection. Strategy needs to start with the identification of changes, not budgets.

The essence of strategic thinking is speculative judgments that allow one to take a position in a world that is confusing and uncertain. You can’t get rid of ambiguity and uncertainty, as they are the flip side of opportunity, and it’s not easy to clearly predict which positions will pay off, because if it was easy to calculate the financial implications of a choice – we could just use a spreadsheet, but that’s where the opportunity to profit comes into play. In essence, strategic thinking is a substitute for having a clear connection between the positions we take and their economic outcomes.

Most companies that become market leaders do so by being the first to jump through a window of opportunity when it opens – the first to get it right. The predatory approach of leaping through a window of opportunity and staying focused on big wins – not on maintenance activities – is what distinguishes a real entrepreneurial strategy. This should be backed up by the right knowledge and skill pools.

Rumelt also gives us some insight on how to identify which changes are important and which resources to combine. In business, change happens in years and there are earthqakes that cause massive changes which shift high and low ground all the time. When this happens, opportunities arise. Take advantage of them using “strategy dynamics”, which studies how those changes would shift each dimension of the industry. Does this increase or decrease industry consolidation? integration? product differentiation? The answers to these questions will trigger inductive insights that will help you identify which changes are important and how to address them. The answer will be like a solution to a puzzle.

Rumelt also notes that CEOs should be focusing on their job as managers – and the most important job of any manager is to break down a situation into challenges that subordinates can handle. In a focused company, the CEO will do this for the entire organization by examining the overall competitive situation and providing enough guidance to let the organization get to work – effectively defining the business problem for everyone else.

So what does this mean for you? It’s important to understand where your industry is moving, what the leaders are doing, and what opportunities they are creating or leaving on the table. Are the market leaders taking full advantage of the opportunities available to them? Are they locking up long term contracts, spot-buying, or balancing the two? Single sourcing or dual sourcing? Using leading sourcing or procurement technologies? Meeting consumer demand? Introducing products consumer wants? Expanding into new countries and markets? Whatever they are not doing, that they should be doing, that’s your opportunity. And this is true even if you only have responsibility for the sourcing / procurement / supply chain division – after all, in today’s global economy, that’s where the greatest opportunity for impact is at many companies.

JLP Responsible Sourcing Part XII: Summary

This series of posts reviewed the John Lewis Partnership‘s “Responsible Sourcing Supplier Workbook” and summarized each of the key areas of Corporate Social Responsibility (CSR) that you need to get a grip on to truly be a good corporate citizen. Based on this knowledge, as per the workbook’s recommendations, you should be:

  • working to understand the issues referred to in the Responsible Sourcing Code of Practice and what they mean to you
  • identifying your key areas of risk and assessing your production site’s performance against these standards
  • learning about practical solutions and actions that can be taken to tackle the issues
  • identifying suitable corrective actions for your production site(s)
  • demonstrating continuous improvement and commitment to best-in-class corporate social responsibility standards
  • rigorously working your way through the checklists in the workbook; this involves
    • making a visual inspection of the workplace
    • looking at management records
    • actually talking – and listening – to managers

This is because the JLP, in their research, uncovered many startling facts, which include:

  • over 246 million children worldwide are involved in child labour
  • almost 180 million children are facing long-term health risks due to the hazardous nature of their employment
  • the ILO estimates the number of victims of forced labour globally at approximately 12.3 million
  • children in forced and bonded labour represent two-thirds of children in the worst forms of child labour, conservatively estimated at 5.7 million children worldwide
  • more fatalities have occurred in the workplace than during war-time: almost 270 million accidents are recorded yearly, of which 2.2 million are fatal
  • over 208 million workers suffer from work related diseases
  • a sexual harassment study in commercial agriculture and textile manufacturing in Kenya found that over 90% of respondents had experienced or observed sexual abuse and 95% of women who had suffered abuse were afraid to report the problem for fear of losing their jobs
  • workers in England and Wales experienced an estimated 849,000 incidents of violence in 2002/2003
  • nine economies reported over 2,000 annual hours worked per person in the latest year for which data was available to the ILO
  • workers in China often work 360 hours per month, and some up to 400 hours per month, almost twice the legal limit
  • women in the UK earn, on average, 17% less than men
  • women in Malaysia earn, on average, 32% less than men
  • an estimated 1.4 Billion Workers (half of the world’s working population and almost one quarter of the population) live on less than $2 / day
  • an estimated 550 million people, or 20% of total world employment, live on less than $1 / day
  • the ILO estimates roughly 20 Million migrant workers (& family members) across Africa, 18 Million across North America, 12 Million in Central & South America, 7 Million in South & East Asia, 9 Million in the Middle East, and 30 Million across Europe
  • CO2 levels have risen more than 30% since widespread fossil fuel use began and are at their highest point in 400,000 years
  • a recent survey by the World Health Organization / United Nations Environment Program (WHO/UNEP) found that 10 of 11 major cities in the Asia-Pacific region exceeded dangerous levels of Suspended Particulate Matter (SPM) air pollutants
  • approximately 300 Million Chinese drink unsafe water and 90% of China’s cities have polluted groundwater

In addition to the workbook, The John Lewis Partnership also makes the full Responsible Sourcing Code of Practice freely available for download to anyone who wants it – and does so in nine different languages. So if you have difficulty with English (which may arguably be the hardest language on earth from a grammar, and even a definitional, perspective*), you can choose another language!

In conclusion, I’d like to give the John Lewis Partnership a great big Thank You for creating this great workbook and making it available for free to any supplier who wants to become more responsible. I only hope I did it justice. I’ve invited a couple of leading bloggers on the topic of corporate sustainability & responsibility to guest post on the issue, so, hopefully, next week will yield a Part XIII with a surprise guest post or two. You’ll just have to check back to find out.

As always, you can (still) access all of the posts in the series (to-date) by selecting the JLP category at any time.

* I’m not multi-lingual, but I have studied some of the basics, including grammar rules, of different languages in the past in an effort to understand the fundamentals of communication and thought patterns, which is much more important in the development of good algorithms than most people think. If I did not know English, of all the major languages out there, the only language I would be more concerned with having to learn is Chinese – and only because of the kanji alphabet. You could spend a lifetime learning five thousand words! As a comparative point, the Japanese have it right. Simplify the language with hiragana, and now katakana, and you only have to learn around sixty syllables – and, like German, you never have to worry about the correct way to spell the word as each syllable is consistently pronounced and spelled. (You only need to worry about where to place the intonation, since this can be mistaken for syllable stressing, which can completely change the meaning of the word, or be construed to convey emotional state.)

Supply Chain Humor This Week VI

First Things First: All Hat Tips again go to Tony Poshek, The Satirical Sourcerer
(formerly known as The Cynical Sorcerer, but it seems only us bloggers got the joke)

Someone needs to learn the definition of “Median”
Sometimes you get a 2-for-1 out of a story. The reporter in this article is discussing the rise in prices of many common items, to show a gloomy outlook on the economy. You’ve heard all this before, but it’s still a decent summary. But then as you get to the very final paragraph, the reporter ruins all credibility with the following statement to show how badly the economy is doing: “Half the nation’s families earn below the median family income of about $56,000.” HALF! Oh no, HALF are below the median!
“Soaring costs of staples like milk, eggs, bread make ordinary Americans glum about economy” (Times Union)

From dictionary.com:
Median: the middle number in a given sequence of numbers, taken as the average of the two middle numbers when the sequence has an even number of numbers: 4 is the median of 1, 3, 4, 8, 9. I guess this article will be taken as further proof that the USA really needs the No Child Left Behind act.

I’m not sure how, but I’ll bet China is behind this bee epidemic: “As bees go missing, a $9.3B crisis lurks”
“…in a honeybee-less world, almonds, blueberries, melons, cranberries, peaches, pumpkins, onions, squash, cucumbers, and scores of other fruits and vegetables would become as pricey as sumptuous old wine.”

The article notes that “a third of our food, from apples to zucchinis, begins with floral sex acts abetted by honeybees trucked around the country on 18-wheelers”. It also notes that major bee die-offs seem to occur about once a decade. Hopefully this is another false alarm – but if it isn’t, our grocery shopping will have a lot more spend management and strategic sourcing elements as we try to find suitable alternatives to the fruits and vegetables we eat, or should be eating, daily and analyze the total value of apple pie relative to cherry pie.

Fair and balanced:
The U.S. military has apologized to Afghanistan (Fox News) for handing out religiously offensive soccer balls during a public relations exercise. Then quickly points out that the balls were made in CHINA!

… and bought in a market in Kabul! I think it’s time for those “Sold in the USA” and “Provided by the USA” labels … the way things are going, we may soon see the day where a “Made in the USA” label itself is a collector item!

Timeless Principles To Steer You Through Negotiations

Over on The Negotiator Magazine, Eric Garner recently had a great article on “Timeless Principles To Steer You Through Negotiations” that listed seven principles of negotiations that define a sure-fire way to succeed.

The list, which also included 7 timeless quotes, one per principle, is as follows:

  1. Negotiating is an essentially human way of interacting.
  2. Negotiating is not about dividing up a limited cake in ways that are divisive. It is about making a bigger and better cake.
  3. Conflict is at the heart of negotiation but only a positive view of conflict will result in a successful outcome.
  4. There is a time to speak and a time to shut up in negotiations. When you do more listening than speaking, you actually increase your power.
  5. In power negotiations, when the stakes are high, let the other side believe what you want them to believe. But don’t lie or be dishonest.
  6. Recognize that you will only reach agreement by understanding the deeply-held needs of the other side.
  7. You can only succeed in negotiations with a win-win attitude.

Essentially, you’re dealing with a person, and you’re only going to succeed if you approach the negotiations with integrity, listen to the other person, and reach an outcome that both parties view as a success. Strategy, tactics, and textbook methodologies will be useless if you forget these basic points. Writing anything further would just miss the point.

The “When and Why” of Incumbent Negotiations

I recently came across a recent edition of Procurement Insight from CGI by Denise Dattomo and Chuks Amajor entitled “Incumbent Negotiations: When and Why” that reviewed 7 situations where incumbent negotiations may be more attractive than competitive procurement which was quite good. Although comprehensive competitive bidding approaches are typically the right way to go, direct negotiations with incumbents might be the the right choice under certain circumstances. CGI has found that, based on their experience, incumbent negotiations yield an average savings of 9%, and sometimes the savings can be (much) higher. Furthermore the effort, and cost, involved in incumbent negotiations is usually lower. The seven situations that are often appropriate for incumbent negotiations are:

  • Urgent need for quick results
    An incumbent negotiation can often be accomplished in as little as six weeks.
  • Small spend, but high potential ROI
    There are often “quick hit” opportunities in categories with lower spend, especially those that are straightforward goods and services.
  • Strategic Vendor Relationship
    For example, if the vendor is also a client.
  • Strong end user preference
    An influential end user with a strong preference for an incumbent vendor may refuse to consider switching to a new vendor.
  • Significant Market Changes
    If a new, alternative, product is introduced by a competitor, and such product is cheaper, the current vendor may be quite willing to offer concessions in negotiations.
  • Prohibitive Switching Costs
    If the savings generated from a new, more competitive, contract could be outweighed by the cost of switching, renegotiation may be the most attractive option.
  • Limited Vendor Pool
    If the vendor pool is limited, a competitive bidding event could turn out to be a fruitless endeavor. In such a situation, going directly to an incumbent negotiation might be the best thing to do.