Is the West Going to Lose the Talent War?

I have to say that I’m worried after reading “grow, grow, grow” in the special report on innovation and emerging markets in the April 17th edition of The Economist. Near the end of the article we are told, point blank, that the best companies in emerging markets treat “talent” as a supply chain that needs to be relentlessly managed, not an isolated problem that can be solved on a piecemeal basis and that firms invest heavily in creating “educational ecosystems”.

While the first thing we do is slash the training budget every time money gets tight, companies in eastern emerging countries dispatch managers to give speeches at Universities. For example, GE has charged its top ten managers in China with cultivating relations with a particular university where they can spot bright youngsters and treat them to campus tours and scholarships (that will grow the brand and attract these future superstars).

While we expect unreasonable exceptional performance for a meager base salary and verbally lash out at anyone who doesn’t exceed her performance metrics by at least 10%, eastern emerging companies celebrate good performers. Haier prominently displays photographs of good performing managers, celebrates outstanding innovators in public ceremonies, and names new products and business innovations after their creators.

While we still assign undue praise to the University you attended instead of the degree you earned, your GPA, or, more importantly, what you actually learned, Infosys has adopted the mantra of “no caste, no creed, only merit” for its modern campus in Mysore. Furthermore, to ensure its employees had a better chance of not only climbing the ladder but becoming a millionaire than if they worked for a foreign multinational, Infosys was one of the first Indian companies to issue stock options.

And while we are the first to walk our best talent out the door every time the market dips, even though we just told them they were our most valuable asset the day before (as we, obviously, lied through our teeth), companies in emerging countries, who are experiencing much more rapid turnover than we need to deal with, will stick by their talent through thick and thin — cutting staff is the absolute last resort, not the first.

All told, it looks to me like we’re going to lose the talent war, which means that we’re also going to lose the innovation war, which we were supposed to win by outsourcing all of the manufacturing and back office to focus on our “core strengths” which, apparently, is middle management, junior art directorship and telephone cleaning, as that’s all we will be able to do if we don’t start focussing on talent, the true producer of innovation.

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What is The Price of Flexible Supply Chains? Part V: Eternal Vigilance

In this post, I’m going to discuss highlights from the CPO Executive Debate on “the price of flexible supply chains” and focus on why you have to be eternally vigilant.

Getting straight to the point, in response to how does emergence from the recession affect supply chain flexibility, Andrew Vaughan noted that there is a dynamism in the whole supply chain piece and therefore you have got to keep reviewing it constantly. Raw material shortages can bring an end to a product’s life, earthquakes can take out factories, and bankruptcies can take out suppliers literally overnight. One day your supply chain is running like a well-made Swiss timepiece … the next day it’s brought to a screeching halt as your fine tuned Ferrari slams into a brick wall.

Even if you, as Colin Davis points out, maintained a reasonably broad supply chain during the recession and maybe compromised some of the commercial advantages you could have taken in those situations so that you can then call on people as you go forward, if your suppliers or partners are in worse shape than you are, despite their good intentions, they might not be able to respond to the call. The safety net you think you have can be taken down at any time. Just like that information flow you painstakingly set up can disappear over night if you built it on a proprietary copper network which was just dug up and sold for scrap.

Furthermore, you need to keep an eye on the entire supply chain, which, as Andrew Vaughan points out, doesn’t necessarily end when you get the product delivered to the installer or customer. For many products, there is also the service chain to consider. Whereas many customers will just as happily trade up to a new model when their current cell phone dies, most customers want to keep their cars and high end (Apple) computers for a few years (or more). You need to be able to provide them with parts and services quickly when they need maintenance or repairs … because it all affects your image as a provider of quality goods and services.

Furthermore, not only do really advanced procurement supply chain organisations understand today the ripple effects that a natural disaster, or an epidemic, has on their overall supply chain, and take immediate preventative action even though only a sub-tier supplier to their main supply base is directly affected, as Martin Hogel notes, but these organizations also know that a ripple effect can start anywhere … even in the retail stores. For example, retailers can notice that product sales for a new category of product, like e-readers, is heating up across the board. They place orders into distributors for more product, who place orders into manufacturers for even more product, who place orders into component suppliers for much more flash memory, which is in limited supply. In this classic bullwhip effect scenario, the flash manufacturers will quickly sell out of all available inventory, and an artificial shortage will be created in the market. Those manufacturers who are not vigilant will not be among the first to get their orders in, their products will be delayed, and this will likely result in lost sales.

All in all, the need for eternal vigilance — in addition to strategy, customer obsession, and a strong supply base — is pretty clear and the debate (on the price of flexible supply chains) was quite an interesting one. If you haven’t yet done so, and can spare the time, I’d strongly recommend that you check the entire debate on the price of flexible supply chains and join in the discussion. It’s your supply chain on the line.

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Emerging Markets Will Disrupt Your Home Markets

An article in the special report on innovation and emerging markets in the April 17th edition of The Economist on the power to disrupt made some very good points on why things will move faster and further this time with emerging markets that deserve to be repeated and discussed because they will, ultimately, disrupt your home markets and the supply chains that serve them.

  1. Senior Management Talent Markets are LiquidGreat management talent can not come from anywhere, but can go to anywhere. And chances are that where ever they go, they’ll have access to highly developed capital markets for merger, acquisition, and expansion.
  2. Emerging Markets are Already Larger Than You ThinkThe emerging-market export machine has engines in almost every industry. ArcelorMittal in Luxembourg is the world’s biggest steel company, Infosys and TCS in India are among the world’s biggest IT companies, Haier in China is the fourth largest manufacturer of home appliances, and ZTE in China is a top-ten mobile handset manufacturer expected to soon be a top-five.
  3. Emerging Markets Offer VolumeDue to the slim profit margins in emerging markets, emerging market companies are obsessed with volume and ways to expand their footprint.
  4. Emerging Markets are Sources of Growth and InnovationNo longer the sweatshops of the world, emerging markets often offer more potential customers and innovation opportunities than home markets.

If you don’t keep a watchful eye out, the end result could be that your top talent defects to a competitor in an emerging market, which aggressively goes after your market share and wins because the innovative new offerings, which can produced more economically using frugal processes and economies of scale, cost less, which will become of increasingly greater importance to the cash-strapped developed economies suffering from stagnating growth.

To maintain your lead, you’ll have to recruit senior talent from emerging talents to revolutionize your supply chain, merge with emerging market companies in local markets, find ways to support even larger volumes at lower costs, and look for innovation the last place you’d expect it.

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What is The Price of Flexible Supply Chains? Part IV: Active Supply Base

In this post, I’m going to discuss highlights from the CPO Executive Debate on “the price of flexible supply chains” and focus on why you have to include the supply base.

The reality is that, no matter how much you try, only so much innovation and flexibility is going to originate from within your four walls. Most of the innovation, should you be ready to accept it, is going to come from your partners, and your supply base in particular. Furthermore, an A+ supply base can revolutionize the way you do business and significantly increase your profit potential. Consider the case of Zara, as discussed by Martin Hogel. Zara sells 85 per cent of its store stocks on initial price and the average in the clothing retail industry is 60-70 per cent. Zara’s on-target price:sales ratio is clearly an effect of a well-crafted and executed supply chain strategy … a strategy that is significantly increasing it’s revenue, and profit, by enabling it to outsell it’s competitors on an additional 15% to 25% of its product offerings.

While the obsessive customer focus discussed in the last post is critical, as Austen Bushrod notes, you need to get the supply base involved in that too because you truly need to have every stage of your supply chain involved to maximize your success. Even if it means, as Michael Walsh points out, that you have to nurture the supply base where they are struggling. After all, if you help them, they’ll remember that in your times of distress and help you. While there may be a few sociopaths in the business world, most people in business want to do what’s right, and that generally means helping you when you help them.

So how do you get there? As Guy Allen noted, you start with a transparency of information flow, then you, as noted by Colin Davis, cooperate, and finally, when it comes time for negotiations, leave the gun, take the cannoli. And before you’re done, you should, as Martin Hogel puts it, have a really good understanding of the structure of your supply base: which are strategic suppliers, which are, let’s call them preferred suppliers, and which are commodity suppliers or vendors. Then you can work with your strategic and preferred suppliers to come up with products and services that are truly value add to the customer, which, as per our last post, should be your obsession.

In our next, and final post, we’ll talk about how the final price of a flexible supply chain is eternal vigilance.

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More Reasons the Cloud is Not a Fluffy Magic Box

Soon after I told you that the cloud is not a fluffy magic box, I found this great post over on an Information Week blog on “3 things that could kill the cloud” which points out some more sobering realities of the cloud, which is just really an abstraction of the multi-tenant SaaS model where one provider provides the software and another provides the infrastructure the software runs on. The article has some good points that should be taken into account before you decide that the cloud is the answer. (Sometimes it is, sometimes it isn’t.)

  1. Scalability is not UnlimitedFirst of all, at any point in time, the infrastructure provider has a limited amount of hardware and bandwith available. When that is reached, you’re out of scalability until the provider ramps up. Furthermore, even if the provider ramps up, there’s still a practical limit dictated by the software. Most databases start to fail miserably when you get to the Terrabyte range. Most analytics applications fail miserably when you ask them to process millions of records in real time. Etc.
  2. Security is not AbsoluteThe cloud does not inherently provide more security as some vendors would have you believe. In fact, it might even provide less. In reality, the security of any platform comes down to the knowledge and vigilance of the provider’s people and how well they are at identifying potential holes, locking them down, and keeping up with patches. If the software vendor assumes a certain port will be locked down and the infrastructure provider leaves it open or if the hardware vendors assumes the software vendor will patch core applications and vice versa, security is weakened.
  3. Prices can be HigherWhile up front prices are quite cheap as you’re primarily paying for energy costs (to run and cool the CPUs) and bandwidth, and while the Cloud will be cheaper for small-scale applications, the reality is that for large scale, high-bandwidth, applications, the total costs can be more expensive than running your own data centre as most providers don’t yet have the scale and expertise to beat in-house costs. You have to do the analysis.
  4. Your application can disappear in a puff of smoke.Thanks to the Patriot act, if a drug dealer happens to be using the same multi-tenant provider, in the US the FBI can sweep in and seize *every* server in the data centre, regardless of what else is on the servers, shutting down the entire operation of the infrastructure provider for an unspecified time — like they did to Core IP Networks in April.

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