Category Archives: Economics

Rampant M&A Does Not Indicate the Demise of Best-of-Breed

On the contrary, it symbolizes the emergence.

But let’s back up. A few months ago, Supply Chain Digest, with a piece on the Consumer Goods Supply Chain Landscape asked if Best of Breed [is] a Dying Breed. Noting an increasingly accelerated accelerated spate of mergers and acquisitions among leading supply chain best-of-breed solution providers, they called into question the long-term efficacy of some of these solutions, as well as the viability of these software companies themselves on the premise that there would soon be no best-of-breed vendors left for a consumer goods manufacturer to choose from.

If there were only N vendors, and the rate of M&A kept increasing, then, yes, we would reach an end-state where there were no best-of-breed vendors left. But this reasoning ignores one very important reality — most startups chase the biggest opportunity, which is typically where they perceive the most action to be. If the most action is in the M&A of best-of-breed, then new companies will see the most value in being best-of-breed and, as a result, we will soon see the emergence of a whole new slate of best-of-breed vendors. And while it’s true some won’t be sufficiently capitalized while others won’t hit upon the right technology, leading to their untimely demise, the reality is that a fair number will make it and that some of these, by the law of large numbers, will be even stronger than the remaining best-of-breed players today.

So, while the choices may be limited for the next year or two, the reality is that the number of options available to your average CPG manufacturer will soon explode. As for the other concerns, they’re not too worrisome either. Let’s take ’em one-by-one:

  • vendor future uncertainty
    Manugistics and i2 were considered market leaders and potential acquirers, not acquirees but were still acquired. The reality is that even a billion dollar enterprise can be swallowed up by a larger company, or, as a few spectacular acquisitions have evidenced, go from market leader to an almost forgotten business unit (like Netscape and Lucent) so this is not a concern restricted to best-of-breed.
  • ongoing support
    As most best-of-breed players have moved to (multi-tenant) SaaS or update subscriptions, which keep a customer on the current version, support is not the issue it once was. Plus, most will agree to code escrow, so, even if the vendor went away, the product could still be supported. Plus, once a best-of-breed vendor reaches a certain size, a number of consultancies acquire a competency and while resources might be expensive, support resources are not unattainable.
  • risks
    No solution is without risk. And a small best-of-breed vendor can be more financially stable than a large aggregator leveraged to the max and highly dependent on aggressive sales targets to meet payroll.

So don’t lament the recent M&A binge of best-of-breed players. It only means that new ones will arise and that more innovation is, eventually, on the way.

Winning the Talent War – Start With A Resource Strategy

In yesterday’s post, that mentioned that the talent war has just begun, we discussed Don Klock’s keynote at last week’s NPX workshop, put on by the The Mpower Group. In his keynote, Don, a Senior Global Procurement / Supply Chain Executive with over 30 years of experience with multiple major multinationals who is now with the Rutgers Business School, Don noted that, as a result of the severe skilled talent shortage,

if you don’t have a Resource Strategy to build your talent
pool, you better develop one.

Why? Because, to put it in the colourful euphemism us North Americans understand so well, you’ll be up sh*t creek without a paddle otherwise. And while Seth Green, Matthew Lillard, and Dax Shepard might have parlayed their situation into a 69 Million gross for Paramount, you won’t be so lucky.

Fortunately, a resource strategy isn’t that hard. A simple one consists of:

  • an internal skills assessment
    to define your skills (& talent) gap
  • a training and development program
    to take the both the resources you have, and the resources you bring in, to the next level
  • a recruiting plan
    to get that talent

Or course, the recruiting plan can be quit an exercise. After all, where do you look? Internally? Externally? Do you use a recruiting firm? Do you use a temporary staffing agency to keep the canoe afloat in the interim? Do you rotate your top performers through temporary assignments to make sure all critical functions, and tasks, get addressed? Do you just outsource? And if you look external, where? Universities? Industry Associations? Job Boards? Your competitors? The answer is typically — as Don notes — all of the above. You need talent, and you need to get it wherever its, whenever you can, through any means necessary.

This will obviously take some work.

  1. First, you will have to identify how you will relate to your job pool.
    These days, talent wants challenging work, good benefits, life/work balance, advancement opportunities, the right culture, and the right management in addition to a good salary. And, in fact, chances are culture, life/work balance, and organizational mission are more important to them. For the Millennials, a lack of focus on environmental stewardship is unthinkable and a kiss-of-death to your organizational future.
  2. Then you have to get that message out there.
    You’ll need a great job description, a great corporate message, and a great communicator leading the charge. And this person will have to connect to your talent wherever they are — job fairs, industry events, and on-line social networks like LinkedIn.
  3. Finally, you have to rope them in during the interview process.
    An interview is a two-way street now. They are interviewing you as critically as you are interviewing them, if not more so. Not only is their unemployment rate as skilled, college-educated talent, approaching an all-time low, but they know that, in many industries, there are not enough people to meet the demand and that they have the power. You will need to address all of their concerns, and (honestly) demonstrate that your organization is not only paying better but also providing a better work/life balance while providing challenging work and advancement opportunities, and that they will shape the path of the organization going forward. (Of course, if all this isn’t true, then your organization has a big problem as it’s not going to attract much talent until it is.)

Of course, if your organization does all this right it will be one of the few in a position to find, attract, and retain talented resources, which will soon be the supply chain’s number one talent. Almost 25% of the North American workforce is now eligible for (early) retirement. The only reason they are hanging on is the down economy. When it bounces back, they’re gone, and you’re down another 25% (or more) if you’re not ready. So get ready.

The Talent War Has Just Begun!

This was a central theme of the NPX keynote by Don Klock, Clinical Associate Professor of Supply Chain Management & Marketing Science at Rutgers Business School, a Senior Global Procurement / Supply Chain Executive with over 30 years of experience with multiple major multinationals, including Colgate Palmolive.

Even though unemployment is still near a fifty-five (55) year plus all time high, which was around 10.5% back in the early 80s, it’s becoming harder and harder to fill vacant positions due to the shift in the North American economy which resulted in most Blue Collar jobs being outsourced and the need for more highly skilled white collar workers than the North American economy has traditionally produced. Couple this with declining birth rates in the developed and developing world (even though the global population just hit 7 Billion) and a relatively constant number of University graduates over the last 5 years in North America (approximately 3 Million a year in the US, which is less than 1% of the US population attaining a University degree each year), and the problem starts to take shape. There’s not enough blue collar jobs for those without college degrees, and more jobs that require college degrees and experience than there are college graduates to fill them. When you break down the unemployment rate, as this article in MarketWatch on the “white-collar recession, blue-collar depression” did last year, when the official overall U.S. unemployment rate was 9.6%, and the “underemployment” rate topped 17%, you find that unemployment is less than 4.5% among college graduates vs about 10.8% for those with a high-school diploma and 14.3% for those without one.

This is largely due to the loss of U.S. manufacturing jobs, which have decreased 40% over the last 20 years. The jobs that remain are outsourcing and supply chain management, which involve a lot of skill, experience, and education — which a large percentage of the U.S. population does not have. That’s why we have large multinationals with 500 jobs and no one to fill them!

That’s why, as Don says, the demand for suitably qualified procurement professionals is on the rise and the job of retention and recruiting talent is much more difficult than it has been historically. And that’s why, if your organization is to survive the supply chain talent war, it needs a supply chain resource strategy. Without one, your organization will be left in the dust as your competitors acquire the limited supply of talent that is currently available.

So what should you do? We’ll discuss Don’s suggestion in our next post on the talent gap.

The BRIC is Becoming Really Investment Critical

As per this recent article over on World Trade 100, it’s time to ask if “your company [is] ready to export to BRIC”, it’s time to start thinking about exporting to BRIC countries because:

  • 45% of global GDP is estimated to originate from seven emerging economies: Brazil, Russia, India, China, Mexico, Turkey, and Indonesia
  • it is estimated 55% to 60% of the nearly one billion households that will have incomes in excess of 20,000 will be from the developing world within a decade

However, one thing that needs to be noted is that many of these countries have sub-markets, and if the products aren’t localized to the sub-markets, it could be difficult to maximize your return. For example, China has 20 to 40 different sub-markets on its own. And some of these markets are only two hours apart. For example, Guangzhou and Shenzhen are both tier-one cities in China, located in the same province and just two hours apart but there is a marked cultural difference between the two. According to a study done by McKinsey, “Guangzhou’s people mainly speak Cantonese, are mostly locally born, and like to spend time at home with family and friends. In contrast, more than 80 percent of Shenzhen’s residents are young migrants, from all across the country, who mainly speak Mandarin and spend most of their time away from their homes”.

The article has some good thoughts to keep in mind when planning to expand into China, India, Brazil, and Russia. So ask yourself, “Is Your Company Ready to Export to BRIC?”.

Patent Pirates Are Still Plundering

According to this recent article over on CNN Money, patent trolls have cost investors Half A Trillion Dollars over the last 20 years. Half A Trillion Dollars! That’s an awful lot of innovation down the drain!

At this point, I’m wondering which pirates are worse? The pirates off the coast of Somalia, who have escalated their attacks and brought ocean piracy to an all time high this year, with 142 attacks in the first quarter alone (and 346 attacks as of September 27). Now, it’s true that the attacks are sometimes violent and that 15 people have been killed this year, but for the most part, the Somali pirates are more focussed on taking hostages in return for ransoms, and release the hostages when they get the ransom. And while the ransoms are getting higher, with the average ransom reaching 5.4 Million in 2010, total payments in 2010 were only 238 Million. Yes, this is a big number, and 20 times 238 Million is a bigger number at 4.76 Billion, but that’s only 1% of losses that can be attributed to patent pirates. One percent!

And the “contributions” that the patent trolls supposedly make to innovation are essentially nonexistent. They’ve funnelled less than 10 Billion to R&D, or less than 1/50th of what they’ve cost investors and innovators. All they do is create a disincentive to innovate. And in SI’s view, they should be made to walk the plank.