Monthly Archives: May 2011

Benefits of Coopetition

As this recent HBR post on how to “make your competition work for you”, even if you are afraid that your allies will steal your business, in today’s economy, a creative collaboration with your biggest competitor may be the best opportunity for revenue and survival.

They key to survival is coopetition — finding a way to partner with your competitor in such a way that both parties can substantially benefit from their shared resources without stealing customers or damaging credibility. While easier said than done, there are advantages.

  • Best of Both Creates New Markets
    If your strengths differ from your competitor’s strengths in a complementary way, a strategic combination of your solutions can win in a new segment of the market which neither of you could enter.
  • Economies of Scale
    If companies work togehter on business segments where they can minimize costs but not jeopardize unique attributes, they can share costs and economies of scale.
  • Opportunities for Upsell
    If a customer would benefit by having another product that you sell, or that your competitor sells, there will be an opportunity to upsell the customer at a later time.
  • Integration for Critical Mass
    If your competitor has a product your customer base also wants, it can help you get critical mass a lot faster.
  • Cross-Endorsement
    If your competitor isn’t directly competing with your market, then you can refer business to each other without losing customers.
  • Potential Investor
    Once credibility and value has been established, a strategic partnership can extend to a financial relationship. They could have the finances you need to launch more NPD. Or a merger could allow for economies of scale that will free up even more money for NPD and marketing.

And once both companies are working in sync, there will be the following benefit:

  • Supply Chain Streamlining
    You can partner on procurement, logistics, and NPD. And, if you’re lucky, you can conquer your space like Apple conquered theirs through a best-in-class supply chain.

For More Savings, Turn Your Sights on IT

Every organization has it’s sacred cows, be it legal, marketing, or IT. And every head of the sacred cow organization says that Procurement couldn’t possibly help it save money because of the nature of the relationships it needs to maintain and the need for highly specialized, expensive skills. And while this is true to some extent, any automated discovery program that does X, Y, and Z may do the trick; printing is not a highly skilled and specialized operation; and most hardware is commodity these days, so Procurement does have a role to play in reducing cost in each of these organizations.

And now that many software systems are becoming commodity and the cloud is making IT a utility, Procurement has an increasingly important role to play, especially for “Factory IT”. As per this recet McKinsey Quarterly article, which is well worth the read, on “reshaping IT management for turbulent times”, IT can be broken down into “Factory IT” and “Enabling IT”. “Factory IT”, which composes the bulk of an organization’s IT activities, is amenable to standardization, simplication, scale, and outsourcing to increase efficiency and reduce cost — and a perfect category for Procurement to help IT identify significant cost savings. While “Enabling IT”, that helps organizations respond more effectively to changing business needs and gain a competitive advantage through innovation and growth, may need expensive resources with rare skill sets or custom built systems, Factory IT can often be bought like a commodity.

So don’t overlook IT. It’s ripe with cost savings.

The AchieveGlobal Model for an Innovation Culture

A recent article over on Chief Executive outlined “The “Six C’s” Model for Building A Culture of Innovation” from AchieveGlobal. The model was created by examining the practices and behaviors of the Boston Consulting Group’s top 100 innovative firms around the world and is worth a review.

  1. Collaboration
    Innovation now requires the collaboration of large, diverse groups of people. Not only has the size of research teams grown by 20% per decade over the last 50 years, but a paper is six times more likely to get at least 1,000 citations if it comes from a team, which should be made up of a socioeconomic mix of people at all levels up and down your supply chain, from different departments, functions, divisions, brands and plants.
  2. Customer Centric
    A culture of innovation requires a deep commitment to understanding customers’ expectations and providing them with value. In addition, it looks for user innovation and situations where users use products for unintended purposes or refine the products for particular needs.
  3. Context Rich
    Leaders in innovation put lots of effort into the development of formal and informal systems to collect and share information throughout the workforce.
  4. Curious
    Innovative leaders encourage their employees to question authority, to question their assumptions, to ask why, why not and what if? Innovation leaders give their employees time to research, explore, and even wander down blind alleys.
  5. Confidence Focussed
    Businesses that excel at innovation actively increase their employees’ capabilities and self-esteem. Innovation requires the confidence to explore, experiment, push-through the darkness, and succeed.
  6. Challenge Culture
    Innovative companies focus on meeting challenges and aiming for new heights. They are never content with good enough or solving today’s problems. They strive for excellence and solutions to tomorrow’s problems.

Is There Enough CI in your NPD?

Considering that the final cost of a new product is often more-or-less determined in the first 10% of the design cycle, you need the best New Product Design (NPD) process you can get. One way to get this is through the application of a Continuous Improvement (CI) Initiative to your NPD process. Through the application of value-stream mapping, you can identify activities in the process that don’t add value to the customer’s perspective. Anything that adds more resources or slows the process down without adding value needs to be scrapped.

The best NPD process is one that includes supply chain and strategic suppliers who can come up with alternative designs that use low-cost raw materials and cost-efficient manufacturing processes. And, if the organization is lucky, a lean transformation will occur and the effort will prevent design creep from adding features and functions the organization’s customers are not willing to pay for. So take advantage of the “unexplored opportunity”. It will be worth it.

How Can the NHS Find 50% More Savings?

A recent article over on the BBC News site notes that NHS hospitals [have been] told to seek 50% more savings by a regulator. A number of factors are being blamed for the target, including greater-than-expected inflation, but regardless of the reason, if the NHS doesn’t find savings of at least 6% to 7% a year, it could be in trouble, as it needs to make up to Twenty Billion Pounds of efficiency savings by 2015 to reinvest in care.

So how can the NHS find more savings without sacrificing services, with wait times that are already at a 3-year high, even further?

The obvious answers are:

  • streamline the supply chain and
  • improved GPO performance for prescription and specialized equipment buys

but the real answer is probably:

  • stop buying like a government agency!

I’m not as familiar with the UK buying rules as I am with the Canadian buying rules, but many jurisdictions within North America, the UK, and Australia / New Zealand have the following rules that do nothing but increase cost, decrease efficiency, and put quality of product and service in jeopardy:

  • bids over some random amount must be public and go to the lowest bidder,
  • you must be on a standing offer before you can bid, and/or
  • past performance cannot be used as a determining factor in the award decision.

Let’s take these one by one:

Bids over some random amount must be public and go to the lowest bidder.
Whoever thought this was fair and/or efficient is a moron. While it makes sense to allow any vendor who can competently provide the service to bid, letting every vendor, and his little dog too, bid is ludicrous. What happens is you get consulting organizations with no appropriate skills whatsoever putting in bids in the hope of getting more work, who, if they get the bid, will then flail madly to hire whomever is available to throw on the project. Half of these people will be unsuited for the job and they’ll have no experience working at a team. Furthermore, many organizations that subsist on government projects have mastered the art of the “change order”. They’ll agree to do “X” where “X” sounds like it is what you want, but really isn’t, and then to get what you really want, because of the tight contract, you’ll have to pay a ridiculous amount in change order fees, and the result is that the net cost will be more than the highest bid, and significantly more than the lowest bid from a competent, honest, vendor.

You must be on a standing offer before you can bid.
This generally takes a lot of time and effort, and is not a good use of time for most private organizations as standing offers only allow you to get no-bid work for an amount not worth it for the effort, or bid for projects you might not get. Proper procurement practice should be to put out a call for participation specific to a project, and then qualify organizations who can bid, not force an inefficient process that wastes nothing but time and money.

Past performance cannot be used as a determining factor.
This is my favorite. Whomever thought this was fair is a complete idiot. How is it fair to penalize competent vendors again and again by allowing an incompetent vendor to repeatedly bid, and, if the low-bid rule is in place, win projects that everyone knows the vendor cannot do at that price point. All that happens is that millions of dollars of public money gets wasted. How is that fair?

So if the NHS really needs to increase savings drastically, my advice would be to identify any buying practices that were inspired by government procurement, and not the private sector, and axe them.