Category Archives: Talent

Supply Management in the Decade Ahead IV: Impacts to Business Models & Strategies

In Part I of our review of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead”, we overviewed the various external forces that will impact a company’s supply chain. In Parts II and III we took deep dives into the eight major forces that were identified specifically by supply managers who took part in the survey. In this post, we will address the impacts that these forces, and others, are going to have on business models and strategies in the decade ahead.

According to the report, the following five strategies, designed to improve the financial performance of companies and impact both their income statement and their balance sheet, will be the most salient in the decade ahead.

  • Focusing on Cost Competitiveness
    Due to the constant increase in available products from developing economies with low labor costs and the need to offer products and services at lower prices in developing markets, companies will need to take an extreme cost management focus. This means that supply management will have to achieve year-on-year cost reduction targets while developing supply strategies to offset or dampen the effects of unfavorable commodity price swings.
  • Aggressively Managing Resources
    The prediction is that many companies will be focused on increasing the return on their asset base and will choose assets that can be managed in such a way as to maximize productivity. Simultaneously, they will choose to reduce their asset base by outsourcing manufacturing and business processes or reducing working capital such as inventories and receivables. They may also invest in businesses with higher returns while exiting business with marginal or low returns on assets. Supply will have to find sources of capital equipment that is flexible, has high uptime, and that can be competitively leased rather than purchased. It will be increasingly involved in VMI (Vendor Managed Inventory), consignment inventory, and pay-on-use or pay-on-shipment inventory plans.
  • Pursuing New Revenue Sources
    Businesses will pursue revenue growth over the next decade through a combination of incremental and radical changes to their business models. A major challenge will be the need to enter emerging markets and compete against low-priced domestic markets to increase, if not maintain, market share. Supply will be tasked to find suppliers that can support growth strategies such as innovation and global expansion.
  • Targeting Specific Customer & Market Segments
    Same old, same old and supply will need to find suppliers that can support shrinking product life-cycles and constant innovation as well as suppliers with market-specific knowledge and the capabilities to manage the upstream supply chain to insure it adheres to sustainability and regulatory requirements.
  • Improving the Level and Speed of Innovation
    First to market will continue to be an important, and profitable, business strategy. Supply management will need to identify suppliers that can support shrinking product life-cycles and constant innovation while bringing knowledge of changing consumer tastes.

There’s no surprises here … and very little change from the state of affairs today. Companies have been focussed on cost-competitiveness for quite some time, have already begun to aggressively manage their resources to maintain that cost competitiveness, have always pursued new revenue sources, and have been targeting specific customer and market segments aggressively for at least the past 50 years! The only noticeable change is that innovation will have to continue to be sped up on a regular basis to allow a company to compete at the same level it is competing at today.

What I would have liked to see is some more aggressive predictions on the strategies that are likely to emerge over the decade ahead. For example, I predict the following trends will begin or continue through the next decade and that some early adopters who get it right will gain massive advantages over their competition, at least in the short term:

  • Vertical movements towards Keiretsu
    A keiretsu is a set of companies with interlocking business relationships and shareholdings. As private equity firms continue to take public companies private at an aggressive pace, they are going to look for ways to to maximize the value of their continually expanding portfolios. Some will pursue vertically oriented strategies and encourage their companies to form synergistic business relationships that will start to mirror the traditional Japanese keiretsu system.
    In addition, as certain verticals continue to come under intense competition from new entrants, public companies within those verticals will start to band together in an effort to more effectively compete as a group than as a set of completely independent entities. Although this will not be a widespread strategy, it is likely to emerge in the near future.
  • Increased Niche Specialization Around Talent Pools
    With talent harder and harder to come by in developed economies, some companies will choose to focus only on one or two business functions (for which they have an unusually large talent pool compared to industry norms) and literally outsource every other aspect of their business. Just like some major brands today outsource almost everything to contract manufacturers and do not own much more than their brand, the offices their employees work in, and the equipment they use, more and more companies, including non-brand name ones, will adopt this model. Some will specialize on design. Some will specialize on integration. Some will specialize on the manufacture of a single, common, component. You’ll also see this model in consulting as well – some of the bigger players struggling to survive in the more aggressive global marketplace will spin out or sell off divisions until they are focussed not only on one or two offerings, but often niche plays within those offering. For example, it won’t be just engineering design, or even automotive engineering design, but automotive frame engineering design.

In Part V, we will address the new and expanded missions, goals, and performance expectations for supply management as identified by the report.

A New War for Talent in the Supply Chain Future

It looks like the relevant media is finally starting to accept that the talent crunch will soon be upon us and that they have to start making a lot more noise if the business world is going to accept that it’s not just a top ten issue for the organization as a whole, it’s a top three issue! (The other two being corporate social responsibility and business sustainability, both of which will only be solved if the organization has the right talent.) I think I’ve stumbled across more articles in the past month or so than I have in the past year, including “The Future of Supply Chain Management – Part 3: Organization + Talent” in the Supply Chain Management Review, “The New War for Talent” over on ZDNet technology news, The Global Fight for Top Talent in Fortune, and “It’s More Than Just Money” in Knowledge @ Wharton China.

This is a good thing, because the reality is that we’ve been starving for talent in the developed world for over a decade. Technology has progressed so rapidly in this information age of ours (because Shift Happens) that even many individuals with University degrees more than a decade or two old are having significant problems keeping up – so imagine where that leaves the majority of the workforce without one! And now that the vast majority of the baby boomers are within a few years of retirement, at most, we’re in for some serious workforce shortages, especially since the number of young workers in the US alone will decline by 1.7M next year. Recent predictions are that the US will face a 10 million workforce shortage within 2 years and a 35 million workforce shortage by 2030! (Where will they be? In India of course! Already, HCL technologies, a mega-player in offshore software development is finding that new employees are seeing India as the most compelling source of opportunity and do not want to be sent on overseas assignments to North America!)

But the war is about to intensify. To date, the talent war has mostly been fought in the U.S., Western Europe, and Japan, but with the rapid rise of developing nations across the globe (and the BRIC block in particular), along with the resurgence of other key players like Canada and Australia, the war is now truly global. Furthermore, even rich nations like Saudi Arabia know that their future relies on talent (as even their oil reserves will dry up some day). To this end, King Abdullah is spending 12.5 Billion ( yes, that’s Billion with a B ) to found a new graduate research university to attract the best researchers in science and technology in the world!

And anyone without the right talent today is pretty much guaranteed NOT to be here tomorrow. The average business life-span may have been 14 years in the past, but we’re marching to a future where 14 months may be closer to the norm. With 70% of the value of companies in the S&P 500 now in intangibles, compared to 20% back in the 1980, almost all of the value in an average company lies in it’s people, their knowledge, their goodwill, and their ability to manage and capitalize on those intangibles.

So you better get your talent strategy ironed out quick, because if you don’t, you might wake up one morning to find that you have none and that you’re out of business.

Are You Strange Enough (for a Competitive Advantage)?

Browsing through the Knowledge @ Wharton site, which is another one of those sites (like the Economist) that is just as important as the supply and spend management sites you visit every day, I stumbled upon an article published this summer that asked “If Your Workforce Is Strange Enough to Guarantee Competitive Advantage”. It’s a very good question.

The article excerpted part of Chapter four of Daniel M. Cable’s book, Change to Strange that notes what characterizes successful companies these days is a “strikingly different, obsessively focussed” workforce, one that — compared to competitors’ workforces — is “downright strange”. More specifically, to get the best results, companies have to build a workforce “that is extraordinary in a way that customers care about”.

In the excerpted chapter, the author argues that a successful organization is built around measuring and gaming performance drivers – and this is what results in a strange workforce. The development, measurement, and enactment of the performance drivers is what provides the required insight into what the organization is creating, and not creating, that is required to differentiate it from its competitors, attract customers, and, most importantly, win.

The process starts by identifying the outcome metrics that provide a valid reflection of what you think your organization exists to create. Then you find a way to make these metrics move in a way that your competitors are not willing or able to pursue. For example, if you’re a procurement outsourcing organization, you might decide that what customers value most is spend under management and spend put through the system. If this was the case, then you’d find a way to integrate best of breed on-demand SaaS technology into your offering so that not only could you put every purchase you make on behalf of the client through the system, your clients could also put every purchase they make against the contract through the system. Then, used meticulously, your customers would find over 95% of their spend against a contract you cut on their behalf would be in the system and that their spend under management goes up as a result. If your competitors think that the most important metric is total leverage-based purchasing power, you’re in a unique position if you’re right as to what customers want.

It’s also important to answer each of the following questions when you believe you have identified an outcome:

  • What produces the number – and what makes it go up or down?
  • What are the two or three most important beliefs our customers need to have about us relative to our competition to affect this outcome? How do we measure our progress toward our goal of having these beliefs accepted by the majority of our target market?
  • How can we influence the outcome in a way that is valuable, rare, and hard to imitate? What are we willing to do that the competition is not in order to drive this outcome?

For example, if you were a procurement outsourcing organization, you might come up with the following answers:

  • Spend through the system is calculated as total dollars on contracted items spent through the system divided by the total dollars spent on contracted items. It goes up when maverick spend is down, and down when maverick spend is up.
  • The two most important beliefs a customer has to have is that we mean what we say and we eat our own dog-food. We do all of our spend through the system. We measure our progress towards this goal by determining the percentage of outsourcing deals we are getting invited to bid on versus the total number of outsourcing deals that are currently happening in the marketplace.
  • We can adopt an open book policy on our own spend, and let prospective clients (under NDA) access the system and verify that our claims are valid – and this is something our competition might not be willing to do. We can also offer an on-demand spend analysis solution to our clients as part of our service offering so that they can calculate for themselves how much spend goes through the system, how much maverick spend is happening in their organization, and what commodities or categories we should be handling for them.

Thus, even though it might be a little too academic for your tastes (as the book was written by an academic who used a Business School as the example – ick!), the article had a very good point and asked some very good questions once you isolated the core of its message. If you want to be the best, it’s not enough to just work harder and more productively than everyone else … you have to be just a little bit different … and maybe even a little bit strange.

Everything You Know Is Wrong

Sorry if I burst your bubble, but the statement is true if we don’t put a time limit on it (and consider what we will learn between now and infinity). As noted in Shift Happens (on YouTube), it is estimated that over 1.5 exabytes of unique information was generated worldwide in 2006, that this is more information than what was generated in the previous 5,000 years, and that the amount of technical information is currently doubling every two years and predicted to be doubling every 72 hours by 2010!

That means that everything you think you know today, if it’s not already wrong, is likely to be wrong in the near future. Even everything the doctor knows today will eventually be outdated! That’s staggering. That’s why continual education and self improvement is critical.

More importantly, you have to be the one to take on this initiative – to update your knowledge and your skills – because the likeliness is that, at least if you live in North America, your company isn’t going to do it for you. Survey after survey finds that the amount of education and training that the average company in North America provides their employees is dismal, if they even provide any at all. Considering that the current rate of knowledge generation implies that everything you learn in first year of University is likely to be outdated by the time you graduate, this is dismal because by the time you’re in a job five years (assuming your job still exists in five years), if neither you nor your company made any effort to keep your skills up, every bit of technical information you know now will be outdated, as will all of the processes that were molded to use the technology that was leading edge five years ago.

That’s why Next Level Purchasing is my vendor of the week. Realizing that it was up to procurement professionals to keep their skills current, it was the first private training company to develop an affordable training program tailored to the individual who could take the courses on her own time, at her own pace, wherever she happened to be, and, if she desired, end up with a recognized industry certification (the SPSM – Senior Professional in Supply Management). Moreover, Next Level Purchasing recognizes the rapid shifts that are taking place in the industry and makes it a point to review and update the core certification courses every year*1 so that the knowledge you receive is always up to date. Furthermore, Next Level Purchasing also publishes articles and informative blog entries on important topics every week so that you can keep learning even after you’ve completed the certification and they’ve collected their fee. That’s a dedication to student and professional education that you can respect!

*1 It updates all of its courses on a regular basis, but not necessarily yearly if they are not core certification courses and the majority of the material is still relevant.

the doctor’s Predictions on the Winner of the Talent War

I recently came across an article over on Global Services Beta that said “Talent War 2012: U.S.A. Set to Win”. Needless to say I was stunned – especially since the first paragraph ended on the U.S. labor market is set to become less open and flexible over the next five years amid fears of terrorism.

The U.S. has been winning the talent war not because it has been churning out the most skilled talent pool, but because it has been attracting the most skilled talent pool from around the world! Let’s face it, the US only has an estimated 301M people of the 6.602B people on the planet, or 4.56% of the world’s population. If we assume raw intelligence and capability is normally distributed throughout the world, which is a very reasonable assumption, that says that for every 100 of the best and brightest, the US can only expect to have 5. Now, it’s true that a great education system is often required to unlock a person’s raw potential, but that can be found in most of Europe, South America, India, South-East Asia, and South Africa. Furthermore, China has 1.322B to the US’s 301M and India has 1.130B. This says that China and India are likely to have four times as many people in any best and brightest list you care to come up with for every person the US has on that list. India already has a decent education system, especially in its richer provinces, and China has the cash to throw at the problem.

Of course, it takes more than bodies and education to build a great talent pool – it also takes the right culture – based in a free and open democracy where anyone with the talent, education, and the will to work hard and succeed (and make the country he or she is living in just a little bit better) is welcome. However, right now, the U.S. is more intent on building fences, preventing people from flying, and delaying permanent resident application processing until long after the original visas have run out – and this just doesn’t fit the bill. That’s not the culture that made the US one of the most admired countries in the world or the culture that attracted the best and brightest from all over the world to start new research programs and enterprises that put the US on the global map for everything from Astrophysics to Zoology, including the technology that launched the information age.

So, who will be the big winner? Although I’d like to say it will be a country like Canada and Australia, since they have the right education system and the right culture, I have to go with India. The fact of the matter is that with only 33M and 20M people respectively, countries like Canada and Australia do not comprise a significant percentage of world population.

What about the EU, you ask? Well, they’re too busy buckling under their own Euro-centric regulations that make it exceedingly difficult not to do business within the EU, or working 35 hour work weeks and complaining that even that is too much, to take a leap forward. It’s not just the US that is having problems being competitive (in “One Explanation for the Expanding US Deficit”).

Now I’m sure most of you disagree with this controversial opinion, and if you do, I’d love to hear yours. Just be sure to follow the comment rules and also indicate why you think I wrote this after drinking one too many Pan Galactic Gargle Blasters and getting Yakko‘s anvil dropped on my head.