Category Archives: Economics

Five Steps to Long-Term Growth – Huh?

Even though I was browsing the HBR Bogs, I was still a little surprised to see a post titled Five Steps to Long Term Growth because, to be honest, thanks to Wall Street, I didn’t think anyone knew what Long-Term Growth meant anymore. And I’m being serious here. The focus on quarterly earnings calls has gotten so intense that it’s almost obscene — the nosedive a stock takes in the market after a bad earnings call is typically so severe that one would think the world is going to end.

Not only did this intense focus on short-term profit cause the end of the famed research labs in the 1990s (like Bell Labs, Xerox Parc, Texas Instruments — and yes, I know that Bell, PARC, and TI still exist, but what we have today is not what we had then), two major market busts in the naughts (as everyone tried to IPO at unsustainable valuations), and the loss of hundreds of thousands of jobs (because people cost money and it’s more profitable to operate at skeleton crew levels and make everyone, in fear for their jobs, work unpaid overtime than actually be responsible and use the obscene amounts of profit the corporation is making to actually hire the headcount the organization should have), but it pretty much spelled the end of any thought to growth plans beyond the next year in the corporate boardroom – at least as far as I can see.

Of course, it is this lack of focus on the long term that captures everything that is wrong with the marketplace today. Once long term growth and sustainability take centre stage, short term profit becomes unimportant, Wall Street is told to go <expletive> themselves, people become as important as product, and the market changes — for the better. If you would like the market to change for the better, and become successful beyond your wildest dreams when it does, you can start by taking Vijay Govindarajan’s advice and take the following Five Steps to Long Term Growth.

1. Decide What You Are Playing For

Are you playing for the fat <expletive>s on Wall Street? Or are you playing for yourself and your stakeholders. If the latter, then you have to take a stand and do something about it. No one is going to do it for you.

2. Get Everyone Speaking the Same Language

Once you decide you’re playing for the long term, the next thing you have to do is something different. Growth means fostering transformational or breakthrough innovation. This will require identifying value propositions that will expand your business into new markets with new advantages.

3. Imagine Your Future

If you want sustainable growth, you must have a sense of what the future will be, what it will require, and how you will win. Then you apply your breakthrough or transformational innovation to achieving that vision.

4. Align Your Actions With Your Intentions

As Def Leppard said in a fit of Pyromania, it’s Action, Not Words. You have to remember that your people are used to hearing a lot of big talk about great new initiatives that never come to pass and without some action behind them, they will assume that your words are just another corporate fad that will be forgotten as time passes. If you say you are going to eliminate all traces of phosphate from your products, assemble teams to do it. If you say you are going to create 50 jobs with a new initiative, start hiring!

5. Do It!

Growth is hard work requiring strategy, judgment, and leadership. It involves risk. It involves you. You will have to keep doing it. Day in. Day out. Day over. Day under. Day torn asunder. And back to day in.

Risk 2011: Economic

In our last post, we discussed the top three geopolitical risks facing your Supply Management organization that were chronicled in the World Economic Forum‘s 6th annual Global Risks report. Chronicling thirty seven types of risk divided into five categories, this report did a tremendous job of covering the types of risk that an average Supply Management organization needs to prepare for. Today, SI is going to continue its coverage of the report by discussing what it believes are the top three risks from an economic perspective.

03: Asset Price Collapse

Most of an organization’s capital is tied up in two things – its people and its assets. This includes its buildings, its inventory, and the raw materials that will be used to create future inventory. If all of a sudden the value of each of these assets drops 50% over night, the organization loses 50% of the value of these assets – and will likely sustain additional losses when it has to sell its inventory at a deep discount.

02: Extreme Energy Price Volatility

Today’s organizations are ultimately dependent upon three things – people, raw materials, and the energy required to transform the raw materials into the product the organization will sell. If oil doubles in price, that could make the difference between being able to produce the goods in China and import them into the US for sale at a profit and having to import them into the US for sale at a loss (or risk losing the entire inventory).

01: Fiscal Crisis

The fiscal crisis can lead to many things – currency volatility, a credit crunch, and overall infrastructure fragility. Weakening currencies can cause costs to skyrocket. A credit crunch can severely restrict cash flow and make it almost impossible for an organization to temporarily borrow the cash it needs to secure the inventory required to produce the goods it plans to sell to create revenue and, eventually, generate profit. And infrastructure fragility, which weakens every time there is insufficient cash to invest in necessary maintenance, can result in transportation lanes, power plants, and basic utilities becoming unavailable overnight. The ramifications of a fiscal crisis can reach far and wide.

De-Mystifying Economics

A few months ago, Bob Rudzki pointed out a great article on economics that appeared over on the Talking Points Memo (TPM) site this summer where the “CBO Schools Tea Party Freshman on Basic Economics”.

The article, which reprints a letter from Douglas W. Elmendorf, CBO director, starts off by noting that changes in government spending can affect the economy in two different ways: in the short term, by changing demand for goods and services and over the long run, by changing the potential supply of goods and services. Then it goes on to note that economic activity can deviate for substantial periods from its potential level in response to changes in aggregate demand and that increasing government spending can increase aggregate demand and thereby narrow the gap between the economy’s actual and potential levels of output. But most types of government spending have this short-run effect on demand and changes in government purchases and transfers create demand-side effects that are usually only temporary because they raise or lower output relative to what it would be otherwise only for a while because, over time, stabilizing forces in the economy tend to move output back toward its potential.

In other words, government intervention has only a temporary effect and can not be depended upon to increase demand for your products in the long term. In order to increase demand, you need to understand that demand — which is the desire to own, the ability to pay, and the willingness to pay — is dependent upon price point. It could be the case that while only 100 people want your product at $100, 100,000 could want it at $80.

Thus, if the organizational goal is to increase demand, the price point will have to be effectively lowered — and if the organization is going to get through tough times, it’s going to be dependent upon supply management to either reduce costs, increase quality, or find a way to offer more (value-add) features without increasing the price point. That’s why supply management is one of the most critical functions in today’s enterprise and why they need better tools and technologies to achieve their goals. And a few SCRAPS to help them keep the focus to get there.

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.