Category Archives: rants

Is It Time To Move Your (Supply Chain) Operations to an Emerging Economy?

After reading this recent piece in Chief Executive (CE) on how US companies are “garotted by red tape”, SI is wondering whether the time has come to follow the lead of IBM and other big multi-nationals and move your supply chain, followed by your headquarters, to China or another emerging economy. Even though I still think North America is going to retain the edge in High-Tech Innovation for a few more years (despite the fact that the numbers say that both India and China should be producing four times as many geniuses each year), the cost of doing business, or at least of keeping your supply chain and headquarters, in the US is becoming too high.

Consider these vary scary stats from the CE article:

  • In 2010, the Feds spent 55.4 Billion enforcing regulations
  • In 2009, economists Crain and Crain estimated the true cost of the Feds’ regulations was 1.75 Trillion – or 12% of GDP – compared to only 1.46 Trillion in pre-tax profits businesses earned
  • The Federal Register that compiles regulations is over 81,405 pages long
  • Since Obama took office, regulators have imposed 38 Billion in new costs
  • There are 2,785 proposed rules in the pipeline and 144 are economically significant and will add burdens of over $100 Million each for a collective burden of over $14 Billion on this 5%!

At the moment, federal regulations are a runaway train that no one can stop. And until the US gets a Denzel Washington or a Keanu Reeves that can deal with the situation, it’s only going to get worse before it gets better.

As a result, it might be time to consider moving your supply chain operations somewhere where the regulations are a little less severe … even if you have to pay a few government bribes or deal with a few pirates. After all, 238 Million (which is the amount paid to pirates in 2010 for ransom) is a lot less than 1.75 Trillion (at 0.01%), and a few hundred thousand goes quite a long way in developing economies where bribes are concerned. And while SI is not condoning bribery or pirate ransoms, there are much better uses from an innovation and jobs standpoint for 1.75 Trillion dollars than red tape.

Maybe if a few big companies start leaving and the feds realize that if they don’t stop the runaway train that the city will be empty by the time it arrives they’ll bring in a Denzel or Keanu to deal with it. SI doesn’t know, but thinks it’s a good question to ask.

Thank You Brian! Building Apps IS Wrong!

In a recent post over on Software & Services Safari, Mr. Brian Sommer tells us that Building Apps is Wrong! and, as far as the doctor is concerned, he couldn’t be more right!

According to Brian:

      Software application development has been going on for decades. In the old world of software, applications took a (usually accounting) business event and then validated, stored and reported it. These were internal usage utilities that dealt with internal data. That’s the wrong perspective to have today. Businesses don’t want apps – they need ‘capabilities’. Moreover, they need capabilities that serve different kinds of information to different kinds of smart devices to mobile, interconnected workers.

And, as Brian points out, not only do interconnected workers that want to access information whenever and wherever they are, they want one user interface no matter how many solutions are serving up information on their device.

This means that a Desktop App, an iOS App, an Android App, a Windows App, each customized to the browser or platform, is not the way to go. When you customize to the platform, you tend to drift away from the current UI to the new UI until you have a hodge-podge of interfaces across a dozen platforms. Unless you want to develop your own extensions to the default development libraries on each platform, and alter your UI to be observant of the limitations of each library, you need to focus on a platform-independent delivery method (such as mobile-compatible HTML 5) and focus on what the user really wants — a slick, information-rich, user experience, and not a solution exclusively oriented around the data and the capabilities of the platform.

After all, as Brian points out, what the user really wants is:

  • Context to enrich and complete transactions, customer interactions, etc.
  • Information served up at point of need
  • Information designed to answer the worker’s or customer’s needs
  • Information beyond transactional data
  • A solution that makes the most of data, voice and video

and not flash. If they want HD graphics, they’ll fire up a HD game.

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.

Stop Hoarding and Invest In Your Supply Chain

By now you might think SI is a broken record, since this is the third day in a row it has complained about the fact that the “Global 2000” are hoarding cash like it’s never to be seen again, but when even Forbes.com decides companies are hoarding too much cash, as per its recent article on how cash isn’t king, this should drive the point home.

And the situation is even worse than Financial Director and Hackett reported. According to a recent Forbes article, the Federal Reserve reported in June that U.S. businesses were saving cash at unprecedented levels, with balances climbing to 1.9 Trillion! That’s 2.23 times the cash reserves of the top 1000. If the situation is the same in Europe, cash reserves must be topping 1.6 Trillion Euros (or 2.16 Trillion US). That’s an estimated 4 Trillion in cash reserves! To put this in perspective, this is 100 Million jobs for one year at the average US salary, and unemployment is roughly 74.7 Million across the US and the EU. Get the picture?

Now, saving for a rainy day sometimes makes sense, but when you start saving to the point where even your investors are concerned that cash is not being put to work earning a reasonable return, not only are you helping to tank the economy, but you are biting the hand that feeds. And given that, due to the lack of innovation and planning, which is largely due to the lack of manpower to do innovation and planning, your transportation costs are about to soar, your commodity costs are rising across the board, and your current talent pool is overworked, unhappy, and ready to change jobs as soon as the next better offer comes along (with job satisfaction at an all time low), how much longer can you really afford not to invest in new talent and new technology to help them innovate your way to a better future?

Then, as the Forbes article points out, as the ever increasing gap between high-quality borrowers (you) and low quality borrowers (your cash-poor suppliers) widens, more and more of your suppliers will experience cash flow issues (as you are not only hoarding all your cash, but borrowing from limited funding reserves to do so). This will lead some into bankruptcy and failure, which will create disruptions in the supply chain that will disrupt your operations and cost you sales and brand equity and, in the end, time and resources to regain your customers’ trust. But all of this can be prevented by investing into your supply chain up front. It’s your choice. Spend and profit. Or hoard and lose.

Is Good Corporate Citizenship At An All Time Low?

In yesterday’s post we noted that “working capital has bounced back” in Europe and that Europe’s biggest companies have seen the most significant revenue growth in five years. We also noted that, at the same time, these same companies are hoarding their cash and, in many cases, borrowing to do so, while smaller companies remain starved for capital and unemployment remains near 10% in the EU. And SI stated that this is, in its view, disgusting. A lack of jobs is resulting in significantly reduced spending across the board because the people out of work can’t spend while the rest of the people are fearing that they are next on the chopping block given that it’s been all bad news in the job market for a few years now. This reduced spending has significantly contributed to the global economic decline which has brought entire countries to the brink of defaulting on their (sovereign) debt.

Now, as per this recent article over on BNet on how “bad corporate management is killing the economy”, we find out, from a recent study by CFO Magazine and REL (a division of The Hackett Group), the thousand largest companies in the US are sitting on cash reserves of 853 Billion. Given the relative equality between the power, and cash position, of US and European multinationals these days, it’s probably a safe bet to say that the Global 2000 is probably sitting on 1.5 Trillion in cash reserves. Now, while it may be true that this is likely not enough to solve the economic crises of the world, given that the US National Debt is almost 15 Trillion, we have to remember that there are only 11 countries in the world with a GDP greater than 1.5 Trillion. We also have to remember that the national average wage in the US is slightly under 41 K, and that this means that these companies could collectively employ another 36.5M people for one year without going into debt. To put this in perspective, at the current published unemployment rates, there are only 27.9 M unemployed people in the US and 46.8 M unemployed people in the EU. That means half of the unemployed people could be working at the top 2,000 corporations in the US and the EU. This would give effective unemployment rates of 4.5 and 4.8 in the US and the EU. The last time the unemployment rate dropped below 4.6 in the US was back in 2000, and the economy was booming.

So while it’s not an absolute that corporations can fix the economy, it should be pretty clear that the author is right and that big corporations are killing the economy when they could be the economic saviours. Instead of hoarding cash, they should be focussed on innovation and hiring bodies to propel that innovation forward. That’s how you print money in a knowledge economy, and with the current state of affairs in most public sectors and banks around the world, they are the only organization left with a license to print cash. But they have to be willing to use it.