Monthly Archives: September 2011

Energy Buying Is Definitely Not For Those Looking for a Quiet — or Easy — Life

A recent article over on the CPO Agenda on how “energy buying is not for those looking for a quiet life” made some great points. As the article notes:

  • there is continuing political unrest in many oil-producing nations (and 20%+ of available oil goes to international shipping alone [Source])
  • the recent Japanese disaster has cause a renewed apprehension to nuclear energy production (and Germany is going to decommission its nuclear plants that supply 25% of the country’s electricity)
  • in most countries, renewable sources still account for less than 5% of electricity production
  • demand for fossil fuels is still rising, and the rapid rise of China and India which, combined, hold over 1/3 of the planet’s population combined, isn’t helping

Plus:

  • significantly increasing energy production from renewable sources, while now a technical feasibility, will cost many (many) Trillions of dollars which have to come from somewhere (as a side note, 2010 saw a record level of investment of over 240 Billion — but we probably need at least 10 times that for a rapid increase in the production of renewable power)
  • deregulated energy markets, which will soon account for a majority of state markets in the US, allow money grubbing financial types to play hedge games (and we know what eventually happens to hedge markets when Wall Street types get involved)

And:

  • energy cost models can be complex: costs of generation, transmission, storage, distribution over third party networks, and taxation, each with their own cost models, need to be taken into account

All-in-all, you are dealing with a very complex, and very volatile, commodity whose price performance can be almost impossible to predict even in the short term. And even if you manage to lock in a mid-term contract at great rates, what happens if prices spike and your provider goes bankrupt because it predicted downward performance and signed too many deals at the start of what was actually an upward trend? Or if you decide to generate your own electricity and your fuel supplier all of a sudden stops delivering? There will be sleepless nights. Unless you thrive on them, beware of energy buying. It’s not for the faint of heart.

Collaborate, Collaborate, Collaborate, Collaborate … NOT!

Over on the HBR Blogs, Andrew Campbell recently wrote a post on how “Collaboration is Misunderstood and Overused” that was awesome. I don’t necessarily agree with it, but it’s thought-provoking and contrarian and almost ranting in its tone … and I love it!

As you may have guessed by the increase in the number of rants the doctor has written lately, he’s getting fed up of the bland, thoughtless drivel that is becoming common on many “leading” news and blog sites these days. In his view, if you can’t find something new, exciting, and innovative to write about, then, unless you can find something exciting and undiscovered in the same-old-sh*t that you’ve been writing about for years, don’t write anything at all. Stuff gets old and stale very fast on the internet. And those who are leaders, and not laggards, get tired of stale bread very quickly. But I digress.

In his post, Mr. Campbell, who is a director of the Ashridge Strategic Management Centre, notes that collaboration, which often fails because it’s a risky, time-consuming endeavour with hard-to-resolve competing objectives, is often confused with teamwork and that’s the big issue.

In his mind, teamwork is performed by a team that is created when people need to work closely together to achieve a joint objective. And in this team, someone is given the authority to resolve disputes, ensure coordinated action, and remove disruptive or incompetent team members. As a result, even teams at odds can succeed with a good leader.

In contrast, collaboration occurs when either two more individuals (departments, or other entities) identify shared goals and decide to work together to achieve those goals, or, more likely, when a senior executive creates an initiative that spans intra or inter organizational boundaries. But, unlike a team, there is no leader and no guaranteed way to ensure progress. And if the collaboration was mandated, the collaborators can’t walk away when they disagree. As a result, it’s easy for collaboration to come to an unresolvable standstill.

These are good points. If a dispute cannot be (forcefully) resolved (if necessary) and if the participants can just walk away at any time, there is no guarantee of a result — and no way to show collaboration ever took place. As a result, as the author points out, success depends on whether:

  • the participants are committed to work together
  • the participants have high respect for each other and each other’s competencies
  • the participants have the skills to creatively bargain with each other

and, most importantly, at least in the doctor‘s view,

  • the participants can swallow their pride and their ego and admit when someone else has a better way (which can be very hard for Type A’s and PhDs).

Based on this, the author suggest that you should only set up a collaborative relationship when you cannot use a team or a customer-supplier relationship and when some form of interaction is absolutely necessary. And even then, it shouldn’t be a permanent solution.

I’m not sure this is the right view. And I’m probably the most cynical of all the supply chain bloggers (because I know almost all marketers lie, that many, for lack of a better word, “analysts” in the space don’t really know squat about the fundamentals of technology, and that the current state of technology in an average enterprise organization is pretty dismal compared to what it could be)! Yes it often fails, but it’s usually the people and not the process. If you want to work together, you’ll work together. If you don’t, you won’t. Team, customer-supplier, or collaboration. Doesn’t matter. Collaboration can work just as well, even though, in reality, the odds of success might be less. Or maybe I’m just an optimistic cynic.

It’s Time for a Digital Strategy Audit

And it should be part of your annual planning process. Why do you need a digital strategy audit? Here are five compelling reasons from a recent Chief Executive article that presented what it thought were 11 Reasons Why It’s Time for a Digital Strategy Audit.

  • Digital Mistakes are for the World to See
    Most companies’ topline digital strategies are transparent to an experienced analyst, and readily available for analysis and scrutiny. As a result, mistakes are impossible to conceal and any attempt to do so will cause a media pile-on that makes the torch-bearning lynch mobs of old look like a Sunday picnic.
  • Digital is Cross-Function
    Even a simple e-mail marketing campaign involves sales, marketing, operations, and IT. Only supply chain is as far reaching, and if the digital supply chain strategy doesn’t complement the physical supply chain strategy, you have a disaster waiting to happen.
  • Numbers Tell a Story
    An organization’s spending on R&D tells a lot about its viability in the long term. Plus, digital strategy performance benchmarks can identify competitor strategies and threats and allow a company to make a proactive, rather than a reactive, response.
  • Digital Investments are Probably Higher Than You Think
    And probably generating less of a return than you think. In some enterprises, digital investments account for 5% of operating costs and 20% of marketing spend, and run in the eight digits in Fortunate 1000 companies. But without a coherent strategy, the returns in digital investments are often dismal to none. Consider the emerging mobile market with average click through rates on ads of 0.1%, for example.
  • Digital Affects Everything
    As the article says, no industry is unaffected by digital trends. But, few companies have formal, well-defined digital strategies that articulate the vision and govern investments and behavior. Typically, it’s an afterthought and pushed down to IT to figure out. But if IT is only a support organization in the company …

And, more importantly, unless you do a digital audit:

  • You Still Don’t Know How Unprepared You Are for the Digital Age
    Unless you are an IT company, chances are your infrastructure doesn’t have the scalablity, reliability, falut-tolerance, and, more importantly, the security to go all-out with a digital strategy. If even the Sony Playstation Network can be hacked and taken down for a week, and Sony has a very strong IT division operating a very large on-line service, how long do you think it would take a hacker or organized underground hacking group to your network down if you got in their cross-hairs. Assuming you could even scale up to support a superbowl size response. Online service leaders have experienced network overloads for years. AOL in its heyday had scalability problems and had to offer customers refunds to keep them in late 1996, Toys “R” Us was hit with a class action lawsuit in 2000 for taking orders for Christmas it could not deliver, Nintendo could not keep up with Wii orders in 2006 and Sony could not keep up with Playstation 3 orders in 2006, and the Playstation Network has hacked earlier this year.

Before you launch a digital initiative, you need to make sure that IT is ready to support it, and if you are selling something, that the supply chain is ready to supply any expected spikes in demand. Forget the meaningful opportunities for cost-savings, new revenue channels, and/or competitor vulnerabilities the Chief Executive author promotes. Chances are that you’re not even ready for that.

McKinsey Just Gave Us the Best Argument for Next Practices

From a recent McKinsey Quarterly newsletter:

Spurious frameworks and torrents of data often obscure the basic principles of good strategy. To beat the market, companies must exploit imperfections that stop (or at least slow) its workings. Such competitive advantages are scarce and fleeting because markets drive a reversion to mean performance … . Good strategies therefore emphasize difference …
     From “Why best practice isn’t the best strategy”

But more importantly, an analysis of ROIC and EV/IC for top, middle, and bottom quintile companies from 2001 to 2009 shows an drop in ROIC of almost 75% (from above 15% to below 4%) and a drop of EV/IC of almost 85% (from about 3.2 to 0.5).

Best practices aren’t enough anymore. We need next practices.

As a side-note, the next Next Practices Xchange, hosted by the Mpower Group and one of the few forums dedicated to the discussion of next practices, is November 4, 2011.