Category Archives: Strategy

Do You Know Your Legal Risk In An Acquisition?

Chief Executive just ran a great article on “how to evaluate legal risk in acquisitions” that I believe is a must read for any Supply Management department asked to consult on a Merger or Acquisition. Especially since, like the article states, it is nearly impossible to find a company not involved in some sort of litigation. The traditional analysis of the management team, cash flow, and market share is not enough — a risk assessment on pending litigation must also be made.

So how do you assess legal risk? The first thing you do is get an expert advisor, and a litigation manager in particular. Once you have this individual, who is an attorney with a significant business background as well as a litigation background, you work with her to evaluate the:

  • materiality of the litigation, the
  • potential for future suits, and the
  • connection between the litigation and the business plan.

The materiality is important not just from a relevancy perspective (that attempts to define the validity of the claim and the chance of success by the claimant) but from a cost perspective. If the cost of defending the litigation, regardless of expected outcome, will cost the company more than it can afford, the company will be bankrupted. The potential for future suits is also important because if the business model, or technology platform, opens the company up to other potential litigations based on equally (in) valid claims, the company could be bankrupted as it grows (and becomes a target by patent pirates). Finally, it is critically important to understand if the litigation exposes a problem with the core business model. If this is the case, and there is no easy, or at least manageable way, to correct the model, there is not only a great potential for further suits but a great potential for failure and bankruptcy.

However, if a litigation manager properly evaluates the potential for materiality and future litigation, and the connection between the litigation and the business plan, and finds no significant risks, then investors, who can make informed decisions, with a full understanding of the legal risk associated with a potential company, can confidently invest in the acquisition.

Be sure to check out the article on how to evaluate legal risk in acquisitions. It has a lot of great advice and a great case study on how a residential and commercial brokerage firm sized up the risk of an acquisition.

Want to Beat Commoditization? Follow Dow Corning’s Example and Embrace It!

A recent article over on Chief Executive on “how Dow Corning beat commoditization by embracing it” tells a great story about how the onset of commoditization might actually provide an advantage to your company and your supply chain and how a careful study and segmentation of the market can be productive and profitable.

About ten years ago, when Dow Corning realized that silicone was about to become a commodity as the markets matured, it did a strategic customer segmentation exercise that revealed that not only did its customers exist within four segments, but that there were still opportunities for success in each segment through better service and appropriate strategies. In particular, Dow Corning realized that it could be much more profitable if it could find a better way to serve the “price seeker” segment which knew what products it needed, and how to use them, but also knew that it didn’t need high value services bundled into the price of the product. This segment simply wanted standard silicones at the lowest possible price point.

However, as CFO Don Sheets realized, you can’t win the price seeker segment merely by cutting prices, as that inevitably results in unacceptably, and sometimes dangerously, low margins. The only way to win is to define and implement an appropriate business model specialized to that customer segment that provides value to the customer (low cost) and the business (reasonable margins).

Sometimes merely cutting value added services (that the price seekers don’t want) is enough, but sometimes it isn’t. If the organization was focussed on high-value, chances are the processes don’t support the price points necessary to win the “price seeker” segment as low-cost was never the primary goal, as in Dow Corning’s case. In order to support the target price points that were identified as necessary to win in the space, production and distribution had to be optimized and, in Dow Corning’s case, minimum order quantities and order lead times were required to create the necessary efficiencies in the supply chain to lower production, logistic, and storage costs sufficiently to support a lower price point. This ensured that all prices could be minimized with proper planning. In addition, Dow Corning created the new product line as a web-enabled business to allow the customer to place orders with no human interaction to minimize resource overheads. This allowed for the creation of a low-cost brand that allowed Dow Corning to tackle the price-seeker market, earn back their investment in three (3) months, and drive a majority of business from new customers.

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.

Mulally’s Turnaround Strategies Are Good Fodder for Supply Management

A recent article in Industry Week on “management lessons you can learn from Alan Mulally” presented six pieces of advice that should be taken to heart by any Supply Management organization looking to turnaround its operations and take its performance to the next level. Simply put, they are:

  • One Vision
    Just like Mullally created a “One Ford” plan, which charted a course for product development, manufacturing strategy, and financial rehabilitation, your Supply Management organization needs to help the business construct its own “One Company” vision that defines what products and services its going to focus on, the manufacturing strategies it is going to employ, and the market goals. Then Supply Management needs to create the “Single Supply Management Operation” plan that describes how Supply Management is going to operate to support the “One Company” vision.
  • Act with Urgency
    Why put off until tomorrow what can be done today? That being said, there is a difference between acting with urgency and rushing things out the door. Never put anything off, but take the time that is needed to get it right.
  • Develop the Guiding Coalition
    Be sure to involved all of the affected stakeholders, internal and external. This will significantly increase buy-in and support for Supply Management.
  • Communicate the Vision
    Everyone inside and outside of Supply Management needs to be on the same page. Savings only materialize if contracts are adhered to, best practices only provide value if followed, and efficiency is only obtained when operations are in sync.
  • Generate Short Term Wins
    Go for the low-hanging fruit, get some success stories, and then communicate them up the wazoo.
  • Make Change Stick
    Instill a disciplined sourcing review process and make sure it is followed at all times. Support will be easier to obtain after the organization sees some short-term wins.

In addition, it will help if you are a charismatic, creative, and decisive collaborator. You need to work with your stakeholders, but when an impasse is reached, you have to clear the way.