value-chain &laquo; WordPress.com Tag Feed http://en.wordpress.com/tag/value-chain/ Feed of posts on WordPress.com tagged "value-chain" Sun, 27 Dec 2009 09:26:35 +0000 http://en.wordpress.com/tags/ en <![CDATA[Why Alliances have gained prominence?]]> http://consultingforcrm.wordpress.com/2009/12/24/why-alliances-have-gained-prominence/ Thu, 24 Dec 2009 14:40:41 +0000 harshie http://consultingforcrm.wordpress.com/2009/12/24/why-alliances-have-gained-prominence/

Over last few years, Alliances have gained more prominence than the regular route ot mergers and acquisitions. Monetary considerations have played an important role but, are not the sole reason for organizations going in favour of alliance formation. I have listed below a few important points that have driven forces for organizations going the “Alliance Way” :

1. Core Competence:

Companies tend to build on their core competence and this very fact can give a differentiating  edge on other competitors. Thus, leaving one’s core competence and getting into a new field can be a disaster unless handled very carefully. Aligning to one’s core competence and creating an ecosystem around the core competence is the right way for expansion. The creation of ecosystem can be done through acquisitions, mergers or alliances. Mergers and Acquisitions may lead to diversifying into new territories and may dilute the core competence of the company. Thus, unless handled carefully, alliances should be the first choice for expansion.

2. Affordability:

Not every company can afford an acquisition or a merger. The costs of M&A are both in terms of tangible and intangible resources. Some companies might not have money or scale for M&A and other might not have scope for M&A.

3. Government regulations:

Sometimes government regulations prevent mergers and acquisitions. For example antitrust laws in the US or anti-Monopoly laws in other countries may hinder the M&A process. Thus, forming an alliance is the most favoured way out.

4. Entry Barriers:

Some markets and sectors have entry barriers due to favours by the home governments, access to raw materials, access to distribution channels etc. In such a case also forming an alliance with an existing player in the market or sector  is the most favoured way out. 

5. Competitive Landscape:

Companies do not operate in isolation. The company takes actions in response to the changing market dynamics and for any action that a company takes, the market forces respond to it. In a competitive environment, sometimes companies bleed to death fighting each other. Over time companies have realized that cooperation gives better results than competition. 

For example when Air Tel entered Sri Lanka, it signed a pact with the biggest telecom player in the market to use its towers and some other infrastructure.

6. Role Play in Value Chain:

All companies have been playing a particular role in the extended value chain. Sometimes the strategic role that the company plays in the value chain prohibits it to go for M&A, hence the Alliance route.

Another big factor in avoiding the M&A option is that only 43% or M&A are successful. The failure rate in IT-ITES is a staggering 80%. This can be because of many reasons. Most important out of which is that companies do not have compatible cultures and even compensation issues.  In an Alliance the companies work together to achieve the desired results, but as separate entities tied by the common goal. The cultural issues and compensation do not hinder the process.

]]> <![CDATA[Is the future of business free ?]]> http://talesofmanagement.wordpress.com/2009/12/18/is-the-future-of-business-free/ Fri, 18 Dec 2009 12:37:24 +0000 comoperroygato http://talesofmanagement.wordpress.com/2009/12/18/is-the-future-of-business-free/

I have a couple of objections to it, as everything as to be paid, and if is not from one side of the value chain it will be by another element, but in the end someone will have to pay it, and usually in our history, who ends up paying everything is always the same … YOU (Tax Payer, Consumer).
here is a copy of the article by Chris Anderson.

WIRED MAGAZINE: 16.03

Free! Why $0.00 Is the Future of Business


By Chris Anderson


Email

02.25.08

FEATURE

Webmail Windfall

How Can Air Travel Be Free?

How Can a CD Be Free?

How Can a DVR Be Free?

How Can Directory Assitance Be Free?

How-To Wiki

The March 2008 “issue for free” offer is now closed.

At the age of 40, King Gillette was a frustrated inventor, a bitter anticapitalist, and a salesman of cork-lined bottle caps. It was 1895, and despite ideas, energy, and wealthy parents, he had little to show for his work. He blamed the evils of market competition. Indeed, the previous year he had published a book, The Human Drift, which argued that all industry should be taken over by a single corporation owned by the public and that millions of Americans should live in a giant city called Metropolis powered by Niagara Falls. His boss at the bottle cap company, meanwhile, had just one piece of advice: Invent something people use and throw away.

One day, while he was shaving with a straight razor that was so worn it could no longer be sharpened, the idea came to him. What if the blade could be made of a thin metal strip? Rather than spending time maintaining the blades, men could simply discard them when they became dull. A few years of metallurgy experimentation later, the disposable-blade safety razor was born. But it didn’t take off immediately. In its first year, 1903, Gillette sold a total of 51 razors and 168 blades. Over the next two decades, he tried every marketing gimmick he could think of. He put his own face on the package, making him both legendary and, some people believed, fictional. He sold millions of razors to the Army at a steep discount, hoping the habits soldiers developed at war would carry over to peacetime. He sold razors in bulk to banks so they could give them away with new deposits (“shave and save” campaigns). Razors were bundled with everything from Wrigley’s gum to packets of coffee, tea, spices, and marshmallows. The freebies helped to sell those products, but the tactic helped Gillette even more. By giving away the razors, which were useless by themselves, he was creating demand for disposable blades. A few billion blades later, this business model is now the foundation of entire industries: Give away the cell phone, sell the monthly plan; make the videogame console cheap and sell expensive games; install fancy coffeemakers in offices at no charge so you can sell managers expensive coffee sachets.

Chris Anderson discusses “Free.”

Video produced by Annaliza Savage and edited by Michael Lennon.

Thanks to Gillette, the idea that you can make money by giving something away is no longer radical. But until recently, practically everything “free” was really just the result of what economists would call a cross-subsidy: You’d get one thing free if you bought another, or you’d get a product free only if you paid for a service.

Over the past decade, however, a different sort of free has emerged. The new model is based not on cross-subsidies — the shifting of costs from one product to another — but on the fact that the cost of products themselves is falling fast. It’s as if the price of steel had dropped so close to zero that King Gillette could give away both razor and blade, and make his money on something else entirely. (Shaving cream?)

You know this freaky land of free as the Web. A decade and a half into the great online experiment, the last debates over free versus pay online are ending. In 2007 The New York Times went free; this year, so will much of The Wall Street Journal. (The remaining fee-based parts, new owner Rupert Murdoch announced, will be “really special … and, sorry to tell you, probably more expensive.” This calls to mind one version of Stewart Brand’s original aphorism from 1984: “Information wants to be free. Information also wants to be expensive … That tension will not go away.”)

Scenario 1: Low-cost digital distribution will make the summer blockbuster free. Theaters will make their money from concessions — and by selling the premium moviegoing experience at a high price.

Once a marketing gimmick, free has emerged as a full-fledged economy. Offering free music proved successful for Radiohead, Trent Reznor of Nine Inch Nails, and a swarm of other bands on MySpace that grasped the audience-building merits of zero. The fastest-growing parts of the gaming industry are ad-supported casual games online and free-to-try massively multiplayer online games. Virtually everything Google does is free to consumers, from Gmail to Picasa to GOOG-411.

The rise of “freeconomics” is being driven by the underlying technologies that power the Web. Just as Moore’s law dictates that a unit of processing power halves in price every 18 months, the price of bandwidth and storage is dropping even faster. Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero.

But tell that to the poor CIO who just shelled out six figures to buy another rack of servers. Technology sure doesn’t feel free when you’re buying it by the gross. Yet if you look at it from the other side of the fat pipe, the economics change. That expensive bank of hard drives (fixed costs) can serve tens of thousands of users (marginal costs). The Web is all about scale, finding ways to attract the most users for centralized resources, spreading those costs over larger and larger audiences as the technology gets more and more capable. It’s not about the cost of the equipment in the racks at the data center; it’s about what that equipment can do. And every year, like some sort of magic clockwork, it does more and more for less and less, bringing the marginal costs of technology in the units that we individuals consume closer to zero.

Photo Illustration: Jeff Mermelstein

As much as we complain about how expensive things are getting, we’re surrounded by forces that are making them cheaper. Forty years ago, the principal nutritional problem in America was hunger; now it’s obesity, for which we have the Green Revolution to thank. Forty years ago, charity was dominated by clothing drives for the poor. Now you can get a T-shirt for less than the price of a cup of coffee, thanks to China and global sourcing. So too for toys, gadgets, and commodities of every sort. Even cocaine has pretty much never been cheaper (globalization works in mysterious ways).

Digital technology benefits from these dynamics and from something else even more powerful: the 20th-century shift from Newtonian to quantum machines. We’re still just beginning to exploit atomic-scale effects in revolutionary new materials — semiconductors (processing power), ferromagnetic compounds (storage), and fiber optics (bandwidth). In the arc of history, all three substances are still new, and we have a lot to learn about them. We are just a few decades into the discovery of a new world.

What does this mean for the notion of free? Well, just take one example. Last year, Yahoo announced that Yahoo Mail, its free webmail service, would provide unlimited storage. Just in case that wasn’t totally clear, that’s “unlimited” as in “infinite.” So the market price of online storage, at least for email, has now fallen to zero (see “Webmail Windfall“). And the stunning thing is that nobody was surprised; many had assumed infinite free storage was already the case.

For good reason: It’s now clear that practically everything Web technology touches starts down the path to gratis, at least as far as we consumers are concerned. Storage now joins bandwidth (YouTube: free) and processing power (Google: free) in the race to the bottom. Basic economics tells us that in a competitive market, price falls to the marginal cost. There’s never been a more competitive market than the Internet, and every day the marginal cost of digital information comes closer to nothing.

One of the old jokes from the late-’90s bubble was that there are only two numbers on the Internet: infinity and zero. The first, at least as it applied to stock market valuations, proved false. But the second is alive and well. The Web has become the land of the free.

The result is that we now have not one but two trends driving the spread of free business models across the economy. The first is the extension of King Gillette’s cross-subsidy to more and more industries. Technology is giving companies greater flexibility in how broadly they can define their markets, allowing them more freedom to give away products or services to one set of customers while selling to another set. Ryanair, for instance, has disrupted its industry by defining itself more as a full-service travel agency than a seller of airline seats (see “How Can Air Travel Be Free?”).

The second trend is simply that anything that touches digital networks quickly feels the effect of falling costs. There’s nothing new about technology’s deflationary force, but what is new is the speed at which industries of all sorts are becoming digital businesses and thus able to exploit those economics. When Google turned advertising into a software application, a classic services business formerly based on human economics (things get more expensive each year) switched to software economics (things get cheaper). So, too, for everything from banking to gambling. The moment a company’s primary expenses become things based in silicon, free becomes not just an option but the inevitable destination.

WASTE AND WASTE AGAIN

Forty years ago, Caltech professor Carver Mead identified the corollary to Moore’s law of ever-increasing computing power. Every 18 months, Mead observed, the price of a transistor would halve. And so it did, going from tens of dollars in the 1960s to approximately 0.000001 cent today for each of the transistors in Intel’s latest quad-core. This, Mead realized, meant that we should start to “waste” transistors.

Scenario 2: Ads on the subway? That’s so 20th century. By sponsoring the whole line and making trips free, the local merchants association brings grateful commuters to neighborhood shops.

Waste is a dirty word, and that was especially true in the IT world of the 1970s. An entire generation of computer professionals had been taught that their job was to dole out expensive computer resources sparingly. In the glass-walled facilities of the mainframe era, these systems operators exercised their power by choosing whose programs should be allowed to run on the costly computing machines. Their role was to conserve transistors, and they not only decided what was worthy but also encouraged programmers to make the most economical use of their computer time. As a result, early developers devoted as much code as possible to running their core algorithms efficiently and gave little thought to user interface. This was the era of the command line, and the only conceivable reason someone might have wanted to use a computer at home was to organize recipe files. In fact, the world’s first personal computer, a stylish kitchen appliance offered by Honeywell in 1969, came with integrated counter space.

Photo Illustration: Jeff Mermelstein

And here was Mead, telling programmers to embrace waste. They scratched their heads — how do you waste computer power? It took Alan Kay, an engineer working at Xerox’s Palo Alto Research Center, to show them. Rather than conserve transistors for core processing functions, he developed a computer concept — the Dynabook — that would frivolously deploy silicon to do silly things: draw icons, windows, pointers, and even animations on the screen. The purpose of this profligate eye candy? Ease of use for regular folks, including children. Kay’s work on the graphical user interface became the inspiration for the Xerox Alto, and then the Apple Macintosh, which changed the world by opening computing to the rest of us. (We, in turn, found no shortage of things to do with it; tellingly, organizing recipes was not high on the list.)

Of course, computers were not free then, and they are not free today. But what Mead and Kay understood was that the transistors in them — the atomic units of computation — would become so numerous that on an individual basis, they’d be close enough to costless that they might as well be free. That meant software writers, liberated from worrying about scarce computational resources like memory and CPU cycles, could become more and more ambitious, focusing on higher-order functions such as user interfaces and new markets such as entertainment. And that meant software of broader appeal, which brought in more users, who in turn found even more uses for computers. Thanks to that wasteful throwing of transistors against the wall, the world was changed.

What’s interesting is that transistors (or storage, or bandwidth) don’t have to be completely free to invoke this effect. At a certain point, they’re cheap enough to be safely disregarded. The Greek philosopher Zeno wrestled with this concept in a slightly different context. In Zeno’s dichotomy paradox, you run toward a wall. As you run, you halve the distance to the wall, then halve it again, and so on. But if you continue to subdivide space forever, how can you ever actually reach the wall? (The answer is that you can’t: Once you’re within a few nanometers, atomic repulsion forces become too strong for you to get any closer.)

In economics, the parallel is this: If the unitary cost of technology (“per megabyte” or “per megabit per second” or “per thousand floating-point operations per second”) is halving every 18 months, when does it come close enough to zero to say that you’ve arrived and can safely round down to nothing? The answer: almost always sooner than you think.

What Mead understood is that a psychological switch should flip as things head toward zero. Even though they may never become entirely free, as the price drops there is great advantage to be had in treating them as if they were free. Not too cheap to meter, as Atomic Energy Commission chief Lewis Strauss said in a different context, but too cheap to matter. Indeed, the history of technological innovation has been marked by people spotting such price and performance trends and getting ahead of them.

From the consumer’s perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you’re in an entirely different business, one of clawing and scratching for every customer. The psychology of “free” is powerful indeed, as any marketer will tell you.

This difference between cheap and free is what venture capitalist Josh Kopelman calls the “penny gap.” People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that’s the difference between a great market and none at all.

The huge psychological gap between “almost zero” and “zero” is why micropayments failed. It’s why Google doesn’t show up on your credit card. It’s why modern Web companies don’t charge their users anything. And it’s why Yahoo gives away disk drive space. The question of infinite storage was not if but when. The winners made their stuff free first.

Traditionalists wring their hands about the “vaporization of value” and “demonetization” of entire industries. The success of craigslist’s free listings, for instance, has hurt the newspaper classified ad business. But that lost newspaper revenue is certainly not ending up in the craigslist coffers. In 2006, the site earned an estimated $40 million from the few things it charges for. That’s about 12 percent of the $326 million by which classified ad revenue declined that year.

But free is not quite as simple — or as stupid — as it sounds. Just because products are free doesn’t mean that someone, somewhere, isn’t making huge gobs of money. Google is the prime example of this. The monetary benefits of craigslist are enormous as well, but they’re distributed among its tens of thousands of users rather than funneled straight to Craig Newmark Inc. To follow the money, you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties, only some of which exchange cash.

The most common of the economies built around free is the three-party system. Here a third party pays to participate in a market created by a free exchange between the first two parties. Sound complicated? You’re probably experiencing it right now. It’s the basis of virtually all media.

In the traditional media model, a publisher provides a product free (or nearly free) to consumers, and advertisers pay to ride along. Radio is “free to air,” and so is much of television. Likewise, newspaper and magazine publishers don’t charge readers anything close to the actual cost of creating, printing, and distributing their products. They’re not selling papers and magazines to readers, they’re selling readers to advertisers. It’s a three-way market.

In a sense, what the Web represents is the extension of the media business model to industries of all sorts. This is not simply the notion that advertising will pay for everything. There are dozens of ways that media companies make money around free content, from selling information about consumers to brand licensing, “value-added” subscriptions, and direct ecommerce (see How-To Wiki for a complete list). Now an entire ecosystem of Web companies is growing up around the same set of models.

A TAXONOMY OF FREE

Between new ways companies have found to subsidize products and the falling cost of doing business in a digital age, the opportunities to adopt a free business model of some sort have never been greater. But which one? And how many are there? Probably hundreds, but the priceless economy can be broken down into six broad categories:

· “Freemium”

What’s free: Web software and services, some content. Free to whom: users of the basic version.

This term, coined by venture capitalist Fred Wilson, is the basis of the subscription model of media and is one of the most common Web business models. It can take a range of forms: varying tiers of content, from free to expensive, or a premium “pro” version of some site or software with more features than the free version (think Flickr and the $25-a-year Flickr Pro).

Again, this sounds familiar. Isn’t it just the free sample model found everywhere from perfume counters to street corners? Yes, but with a pretty significant twist. The traditional free sample is the promotional candy bar handout or the diapers mailed to a new mother. Since these samples have real costs, the manufacturer gives away only a tiny quantity — hoping to hook consumers and stimulate demand for many more.

Photo Illustration: Jeff Mermelstein

But for digital products, this ratio of free to paid is reversed. A typical online site follows the 1 Percent Rule — 1 percent of users support all the rest. In the freemium model, that means for every user who pays for the premium version of the site, 99 others get the basic free version. The reason this works is that the cost of serving the 99 percent is close enough to zero to call it nothing.

· Advertising

What’s free: content, services, software, and more. Free to whom: everyone.

Broadcast commercials and print display ads have given way to a blizzard of new Web-based ad formats: Yahoo’s pay-per-pageview banners, Google’s pay-per-click text ads, Amazon’s pay-per-transaction “affiliate ads,” and site sponsorships were just the start. Then came the next wave: paid inclusion in search results, paid listing in information services, and lead generation, where a third party pays for the names of people interested in a certain subject. Now companies are trying everything from product placement (PayPerPost) to pay-per-connection on social networks like Facebook. All of these approaches are based on the principle that free offerings build audiences with distinct interests and expressed needs that advertisers will pay to reach.

· Cross-subsidies

What’s free: any product that entices you to pay for something else. Free to whom: everyone willing to pay eventually, one way or another.

Scenario 3: It’s a free second-gen Wiii! But only if you buy the deluxe version of Rock Band.

When Wal-Mart charges $15 for a new hit DVD, it’s a loss leader. The company is offering the DVD below cost to lure you into the store, where it hopes to sell you a washing machine at a profit. Expensive wine subsidizes food in a restaurant, and the original “free lunch” was a gratis meal for anyone who ordered at least one beer in San Francisco saloons in the late 1800s. In any package of products and services, from banking to mobile calling plans, the price of each individual component is often determined by psychology, not cost. Your cell phone company may not make money on your monthly minutes — it keeps that fee low because it knows that’s the first thing you look at when picking a carrier — but your monthly voicemail fee is pure profit.

On a busy corner in São Paulo, Brazil, street vendors pitch the latest “tecnobrega” CDs, including one by a hot band called Banda Calypso. Like CDs from most street vendors, these did not come from a record label. But neither are they illicit. They came directly from the band. Calypso distributes masters of its CDs and CD liner art to street vendor networks in towns it plans to tour, with full agreement that the vendors will copy the CDs, sell them, and keep all the money. That’s OK, because selling discs isn’t Calypso’s main source of income. The band is really in the performance business — and business is good. Traveling from town to town this way, preceded by a wave of supercheap CDs, Calypso has filled its shows and paid for a private jet.

The vendors generate literal street cred in each town Calypso visits, and its omnipresence in the urban soundscape means that it gets huge crowds to its rave/dj/concert events. Free music is just publicity for a far more lucrative tour business. Nobody thinks of this as piracy.

· Zero marginal cost

What’s free: things that can be distributed without an appreciable cost to anyone. Free to whom: everyone.

This describes nothing so well as online music. Between digital reproduction and peer-to-peer distribution, the real cost of distributing music has truly hit bottom. This is a case where the product has become free because of sheer economic gravity, with or without a business model. That force is so powerful that laws, guilt trips, DRM, and every other barrier to piracy the labels can think of have failed. Some artists give away their music online as a way of marketing concerts, merchandise, licensing, and other paid fare. But others have simply accepted that, for them, music is not a moneymaking business. It’s something they do for other reasons, from fun to creative expression. Which, of course, has always been true for most musicians anyway.

· Labor exchange

What’s free: Web sites and services. Free to whom: all users, since the act of using these sites and services actually creates something of value.

You can get free porn if you solve a few captchas, those scrambled text boxes used to block bots. What you’re actually doing is giving answers to a bot used by spammers to gain access to other sites — which is worth more to them than the bandwidth you’ll consume browsing images. Likewise for rating stories on Digg, voting on Yahoo Answers, or using Google’s 411 service (see “How Can Directory Assistance Be Free?”). In each case, the act of using the service creates something of value, either improving the service itself or creating information that can be useful somewhere else.

· Gift economy

What’s free: the whole enchilada, be it open source software or user-generated content. Free to whom: everyone.

From Freecycle (free secondhand goods for anyone who will take them away) to Wikipedia, we are discovering that money isn’t the only motivator. Altruism has always existed, but the Web gives it a platform where the actions of individuals can have global impact. In a sense, zero-cost distribution has turned sharing into an industry. In the monetary economy it all looks free — indeed, in the monetary economy it looks like unfair competition — but that says more about our shortsighted ways of measuring value than it does about the worth of what’s created.

THE ECONOMICS OF ABUNDANCE

Enabled by the miracle of abundance, digital economics has turned traditional economics upside down. Read your college textbook and it’s likely to define economics as “the social science of choice under scarcity.” The entire field is built on studying trade-offs and how they’re made. Milton Friedman himself reminded us time and time again that “there’s no such thing as a free lunch.

“But Friedman was wrong in two ways. First, a free lunch doesn’t necessarily mean the food is being given away or that you’ll pay for it later — it could just mean someone else is picking up the tab. Second, in the digital realm, as we’ve seen, the main feedstocks of the information economy — storage, processing power, and bandwidth — are getting cheaper by the day. Two of the main scarcity functions of traditional economics — the marginal costs of manufacturing and distribution — are rushing headlong to zip. It’s as if the restaurant suddenly didn’t have to pay any food or labor costs for that lunch.

Surely economics has something to say about that?

It does. The word is externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we’ve always known about but have only recently been able to measure properly. The “attention economy” and “reputation economy” are too fuzzy to merit an academic department, but there’s something real at the heart of both. Thanks to Google, we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads). Anything you can consistently convert to cash is a form of currency itself, and Google plays the role of central banker for these new economies.

There is, presumably, a limited supply of reputation and attention in the world at any point in time. These are the new scarcities — and the world of free exists mostly to acquire these valuable assets for the sake of a business model to be identified later. Free shifts the economy from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of all the things we truly value today.

FREE CHANGES EVERYTHING

Between digital economics and the wholesale embrace of King’s Gillette’s experiment in price shifting, we are entering an era when free will be seen as the norm, not an anomaly. How big a deal is that? Well, consider this analogy: In 1954, at the dawn of nuclear power, Lewis Strauss, head of the Atomic Energy Commission, promised that we were entering an age when electricity would be “too cheap to meter.” Needless to say, that didn’t happen, mostly because the risks of nuclear energy hugely increased its costs. But what if he’d been right? What if electricity had in fact become virtually free?The answer is that everything electricity touched — which is to say just about everything — would have been transformed. Rather than balance electricity against other energy sources, we’d use electricity for as many things as we could — we’d waste it, in fact, because it would be too cheap to worry about.

All buildings would be electrically heated, never mind the thermal conversion rate. We’d all be driving electric cars (free electricity would be incentive enough to develop the efficient battery technology to store it). Massive desalination plants would turn seawater into all the freshwater anyone could want, irrigating vast inland swaths and turning deserts into fertile acres, many of them making biofuels as a cheaper store of energy than batteries. Relative to free electrons, fossil fuels would be seen as ludicrously expensive and dirty, and so carbon emissions would plummet. The phrase “global warming” would have never entered the language.

Today it’s digital technologies, not electricity, that have become too cheap to meter. It took decades to shake off the assumption that computing was supposed to be rationed for the few, and we’re only now starting to liberate bandwidth and storage from the same poverty of imagination. But a generation raised on the free Web is coming of age, and they will find entirely new ways to embrace waste, transforming the world in the process. Because free is what you want — and free, increasingly, is what you’re going to get.

Chris Anderson (canderson@wired.com) is the editor in chief of Wired and author of The Long Tail. His next book, FREE, will be published in 2009 by Hyperion.

]]> <![CDATA[Back to the Future - The Revival of Vertical Integration]]> http://mitchellosak.wordpress.com/2009/12/06/vertical-integration-back-to-the-future/ Mon, 07 Dec 2009 02:29:25 +0000 mitchellosak http://mitchellosak.wordpress.com/2009/12/06/vertical-integration-back-to-the-future/

Is vertical integration as a business strategy back in vogue?  Perhaps if you see some recent corporate moves as the beginning of a trend. A number of bellwether firms have reversed outsourcing mandates and begun to  take key operations in house.  Two recent examples are Oracle’s purchase of hardware vendor Sun Microsystems  and PepSico’s acquisition of two of its bottling operations. PepSico and Oracle join other industry leaders such as ExxonMobil, Apple, Reliance Industries, American Apparel and Google who leverage vertical integration to drive competitive advantage. 

Obviously, a small number of corporate decisions do not portend a global trend.  And, there are still many firms that will continue to focus on core competencies and outsource non-core activities.  Yet, there are sound reasons to reconsider vertical integration as a core business strategy, especially when the firm has strong cash flows and ready access to capital.  Some of these reasons include:

Drive cost reduction

A difficult climate is forcing companies to challenge conventional wisdom around outsourcing and creatively think about how to cut costs and reduce complexity.  In many cases, outsourcing has not delivered target cost objectives and has too often led to significantly higher  indirect costs in areas like relationship management and travel.  Properly executed, vertical integration enables firms to deliver significant cost reduction by achieving higher scale economies and recapturing economic rent (i.e. the outsourcer’s profit).  Where some operations are outsourced as well as provided internally, vertical integration helps ensure suppliers deliver services at the lowest possible cost and highest quality. 

Improve supply chain responsiveness

Working with outsourcing partners has many benefits but high speed, flexibility and control do not rank near the top.  Redesigning outsourced operations, particularly fragmented and global ones, is nigh impossible in the short to medium term, especially under conditions of rapidly changing client tastes and fluctuating demand. Furthermore, once long term, fixed cost outsourcing deals are signed, the outsourcer often has little inclination or incentive to pass along efficiency improvements or innovation to their client.  

Enhance the customer experience

Improving your customer experience is one of the few areas that firms can generate sustainable differentiation.  To build a winning experience, companies need a high degree of control over their delivery model including a common vision, stable operating processes plus feedback mechanisms. Unfortunately, this is very tough to achieve when disparate firms are involved in the value chain.  As well, troubleshooting is often a challenge due to outsourcer process complexity and hidden employee turnover.

Reduce business risk

In dynamic markets, there usually is no problem in securing access to raw materials and specialized labour.  However, when economic or political turmoil occurs or markets become less competitive, companies run the risk of losing access to key inputs or operations.  Vertical integration can reduce business risk by ensuring these critical ingredients are available to the organization as needed.

It remains to be seen whether the actions of a few firms reverses 30 years of corporate orthodoxy around outsourcing’s superiority.  However, a number of trends may be creating a ripe environment for vertical integration including ever-shortening product lead times, continued economic turmoil and insecurity around access to specialized materials or skills. Should current economic conditions continue, we will likely witness  more firms seeking to control their value chain through vertical integration.

For more information on our services and work, please visit us at Quanta Consulting Inc.

]]> <![CDATA[When honour is at stake, this vow I will make]]> http://davidgillespie.wordpress.com/2009/11/29/890/ Sun, 29 Nov 2009 23:03:12 +0000 David Gillespie http://davidgillespie.wordpress.com/2009/11/29/890/

I’ve been thinking a lot about The Three Musketeers – my framework for business models which places them (perhaps overly simply, but simply none the less) into two baskets: All-For-One (self-serving pursuit of value) or One-For-All (pursuit of value for an ecosystem). The former is business as usual up until the advent of Google, at which point things seem to turn, and we see more and more businesses cropping up and being successful by creating value

I had, for the longest time, felt uneasy about Facebook. My sense was that it was founded with All-For-One principles, and I have a hard time viewing it as a business that seeks to create value for an eco-system; it is, to my mind, the second coming of Microsoft rather than the second coming of Google.

I say that, but I also now can’t help but acknowledge the market they have developed for small and local businesses to target customers, and the platform they have provided for brands to interact on a more personal level with fans. In some ways, it lessens the role of the ad industry, which to my mind has a hard time justifying itself as even remotely One-For-All, and so can only be viewed as a good thing.

Your friend and mine Umair Haque takes aim at Facebook in a recent Harvard Business blog: over the Farmville debacle

Once, banks held debt till maturity. The great unnovation was being able to sell it to the next guy, who sold it to the next guy, and on and on and on. What was once a simple, short value chain lengthened to the point of absurdity. Exactly the same value chain pattern is surfacing in media. Ads used to be bought and sold through a short value chain. Facebook ended up serving toxic ads because they were sold through lengthening chains of intermediaries — each of whom shifts the buck to the next guy.

The argument does and doesn’t hold water in places – to my mind it swerves dangerously close in places to the kind of opinion that states ISPs are responsible for their customer’s illegally downloading music. The overall point stands however, which is sacrificing the end-user for the man with money is a short-sighted strategy.

We need to spend more time creating things that user wants in the first place.

That is what One-For-All is all about.

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]]> <![CDATA[Value Network Monetization]]> http://toddsherman.wordpress.com/2009/11/27/value-network-monetization/ Sat, 28 Nov 2009 01:43:57 +0000 toddsherman http://toddsherman.wordpress.com/2009/11/27/value-network-monetization/

TechCrunch has a piece on 6 Reasons Why Twitter Japan’s Subscription Model Might Work (In Japan).  The ‘In Japan‘ part being rather important because of the different cultural dynamics around the mobile web, celebrity and paying for content (amongst other points). EDIT: TechCrunch is now reporting that Twitter will in Japan will remain free.

When thinking about networks, how they create value and make money, it is useful to understand the models that describe them.  The value chain (Porter, 1985) doesn’t effectively explain how value is created in organizations like Twitter.  However, Fjeldstad & Stabell’s value networks describe a configuration which emphasizes value being created between customers when they interact facilitated by the value networks.  Understanding how to best monetize these networks seems like an art at times.  Check out Øystein Fjeldstad & Espen Andersen’s Casting off the Chains [pdf link] for some strategies for managing the revenue yield of a network.

]]> <![CDATA[Building a socially valuable chain of activities at Ben and Jerry's]]> http://internationalbs.wordpress.com/2009/11/28/building-a-socially-valuable-chain-of-activities-at-ben-and-jerrys/ Fri, 27 Nov 2009 22:46:22 +0000 Andre Sammartino http://internationalbs.wordpress.com/2009/11/28/building-a-socially-valuable-chain-of-activities-at-ben-and-jerrys/

Wednesday’s presentation from the Ben & Jerry’s founders was certainly a popular event (I guess free icecream trumps the pain for many of us standing for an hour+). They told some fantastic tales of their almost accidental rise to fame and fortune.

The main message of their talk was how a business can be run in a socially responsible fashion. They offered some intriguing examples of (as they put it) “improving the quality of life in our community” without necessarily contradicting the usual modus operandi of business (i.e. pursuing customers with an attractive product).

It was great to see how they had leveraged their existing value chain and capabilities to deliver genuine social benefits.

At the supplier end they discussed their involvement with Greyston Bakery in Yonkers, New York. This bakery offers training and employment opportunities for socially-disadvantaged folks. Rather than just throwing these guys some money to keep up their good work, Ben & Jerry’s designed an ice-cream (Chocolate Fudge Brownie) using the Bakery’s output. They said this now sends around $4m worth of business the bakery’s way each year. See more on this here (including a cool video).

At the distribution end the firm has awarded a number of their retail franchises free to not-for-profits in various locations. Again, these NGOs usually offer training and employment opportunities for at-risk youth. These Partnershops look and feel like the for-profit stores, and the charities presumably seek to make surpluses in just the same fashion, equipped with the processes and expertise transferred to all franchisees.

Both of these approaches embrace the power of the firm’s core competitive advantages (designing, marketing and delivering fancy ice-cream) so as to achieve a financially and socially profitable result. It’s a great model for others to follow and adapt.

Oh, and the free Chunky Monkey Ice-cream tasted great. See a brief snippet from Jerry here.

]]> <![CDATA[PSP GO: upsetting retailers and consumers at the same time]]> http://issard.wordpress.com/2009/11/16/psp-go-upsetting-retailers-and-consumers-at-the-same-time/ Mon, 16 Nov 2009 20:23:27 +0000 bissard http://issard.wordpress.com/2009/11/16/psp-go-upsetting-retailers-and-consumers-at-the-same-time/
PSP GO

PSP GO

The latest PSP the PSP Go is quite innovative in its approach to the game market. With this console you don’t buy any more games from a retailer but directly from a Sony on-line store you access thanks to the device WiFi capabilities.
The retailers are then deprived from the game sale revenue which is quite dangerous for specialised retailers. The risk is that those retailers will then recommend to their customers other version of the PSP [or worse a Nintendo] so they can get a little revenue in the future from their customer.

It is the right of Sony to upset its channels, but from a customer perspective the value proposition isn’t so attractive either: the games are at around 20€ compared with physical ones at 40€. What Sony seems to forget is that consumer game library are at 55% second hand games. A gamer owns an average 8.2 games per console and out of these 4.6 are second hand. (source FNAC Head of Gaming interview).If you finish or get bored by a game and want to resell it for a new one there is no way to do it.
Furthermore PSP GO games are very expensive compared to the iPod Touch [5-9€ per game], which is now positioned as a gaming platform by Apple.

OK you may not have the same gaming experience but it is competing in the same space.

Benefits for Sony are to have a direct link with its consumers, and fight piracy. But does it worth it? Wouldn’t have it better to wait for a really next generation PSP to implement this new business model? Trying to make PSP and PSP Go business models working along each other is pretty strange and risky.
PSP Go seems just to achieve to upset retailers and consumers at the same time … for little gain … so far.

]]> <![CDATA[Ever-Improving Competitive Advantage: Hitting the 5 Dimensions]]> http://strategicchange.wordpress.com/2009/10/31/ever-improving-competitive-advantage-hitting-the-5-dimensions/ Sat, 31 Oct 2009 16:13:51 +0000 Rowland Chen http://strategicchange.wordpress.com/2009/10/31/ever-improving-competitive-advantage-hitting-the-5-dimensions/

 

Mario Andretti Watkins Glen 1974A firm exists in competitive environments along several key dimensions. Each dimension (or metaphorically, a competitive marketplace) has its own set of competitors acting in their own self-interests. In each dimension, the players compete for scarce resources (customers, marketshare, industry profit share, people, investments, etc.). A firm improves by increasing its competitive advantage along each dimension. These 5 key dimensions are:

  1. Customers
  2. Financial capital
  3. Talent
  4. Extended value chain or value network
  5. Community

A modern approach to improvement:

  • Covers all dimensions simultaneously.
  • Is integrated, holistic, sustainable, high impact, and a whole slurry of other buzzwords
  • Allows improvement ideas from everyone within a firm to fit somewhere, which draws in full participation (“Full Force Improvement”)
  • Has a goal to enable a firm to constantly ever increase its competitive advantage (as in any Olympic athlete who continually strives for better performance)

To gain ever-increasing advantages, a firm must be, or must be perceived to be, more attractive than the competition.

  • Customers
    • This is what people usually think of when they hear competitive market.
    • A firm competes with other firms in the same industries.
    • More attractive offerings (products, services, innovation)
    • More attractive value proposition (benefits versus cost)
    • More attractive long term relationship
  • Financial capital
    • Here the firm competes for limited investment dollars from investors and creditors
    • Competitors include those offering any number of investment alternatives for an investor: stocks, bonds, commercial paper, cash, etc.
    • Gain advantage by providing more attractive financial returns than alternative investment vehicles available
    • Being more attractive in the stock market drives up stock price
    • Being more attractive in the credit market increases access to capital and lowers the cost of capital
  • Talent
    • The competitors are other employers that require the same skills, experience, and knowledge that a firm requires.
    • The other employers can be from similar, adjacent, or different industries.
    • Competitive advantage includes providing a more attractive work environment, richer total compensation (salary, benefits, wealth creation), and other elements that make a firm a “great place to work”
    • For example, firms like NetApp (Fortune’s 2009 “Best Place to Work”) have an advantage in attracting the best talent.
  • Extended value chain or value network
    • The extended value network includes business partners on both the supply side and the demand side: suppliers, service providers, channel partners, and so on.
    • Good partners are in short supply and a firm gains advantage by being a more attractive partner than other players in the market.
    • Example, Dell is one of the leading channel partners for hard disk drives. Drive manufacturers constantly compete to have their drives picked for the next PC that Dell assembles.
  • Community
    • A firm can gain competitive advantage over others by demonstrating stellar corporate social responsibility.
    • Communities desire firms with a strong sense of CSR.
    • Firms can realize significant tax benefits from state and local governments.
    • CSR also impacts other dimensions such as talent (the feel good factor).

An effective and sustainable improvement approach must be directed towards continually gaining competitive advantage along the 5 key dimensions. A firm can never rest nor ignore others in its ecosystem. The firm must marshall it employees and those in its extended value network to execute strategies for Full Force Improvement.

]]> <![CDATA[Trends vs. Value]]> http://seanvsbusiness.wordpress.com/2009/10/24/trends-vs-value/ Sat, 24 Oct 2009 17:10:49 +0000 seaniewill http://seanvsbusiness.wordpress.com/2009/10/24/trends-vs-value/

Alright I’m watching this video and one thing pops up: virtual products for sales, just watch and then I’ll talk more:

The Surging App Economy | The Businessweek Video Library.

I also saw Ice-T (didn’t know he did anything but make Law and Order SVU episodes and collect royalties from his ‘ganta’ rap/rock band) on Conan talking about virtual product sales. So companies make these games and the users pay real dollars out of their real bank account and it gets them farm goods, clothes, whatever thats in the game. So the company basically has no COG and thus all revenues are are like 100% gross margin. Then your SG&A for that product is like a day or so that it took to program that small feature in to the game, maybe $1,000 bucks. One company made $500,000 in 3 days for a product that they just put in the game. Absurd! Genious?

While I’m all about making as much money as possible. I’m also very concerned with how long money will be made. That is determined by the value chain offered to the customer. How long will people pay real money for nothing? To get to the heart of this: How long will this virtual world game thing be a trend?

I don’t trust trends because they are unpredictable. Its like finding a stray dog. That dog could be the best dog ever to you, or that dog could bite you and you get rabies and die. There is never enough data to tell me where trends are going and how long they will be relevant. Sometimes trends start in the “underground” market, then move to the “mainstream” market, then move to the 12 year old girl/ 40 year old mom market (they both buy the same crap), if the trend is a real strong trend. Point being, that it is really hard to make money on trends.

What I think people should do is create businesses that actually add tangible value to lives. These products outlast trendiness (even though they may start off as one). Point in case: Apple Iphone. That thing was about as trendy as it could be, but there was so much value to the customer that it stopped being a trend. People stopped buying it because it was cool (or ‘hot’ in the gay/LA communities), and started buying it because it changed the way people lived. The product makes us more efficient human beings, and thus sets us up to make more money, be happier and spend time less at computers and more with our friends (if used correctly).

So not all of us are amazing hardware and software dudes that went to MIT or Standford, but we see needs. If we want this economy to turn around, we need to create products and services that add real value. We need to create products that improve lives, not just capitalizes of the lifestyle patterns. This video game product buying thing doesn’t improve the lives of the people playing it. It actually may hurt them because they are spending money on fantasy rather then spending money on something that promotes social or economic growth. (I don’t want to hear arguments about video games being new social devices, they have a purpose but I do feel that they have become too involved in our world. I would like to see people getting together in reality, then over over Xbox 360 wifi whatever).

So lets create lifestyle changes rather then just make money on what people are already doing. All the greats have done this (Beatles, Led Zeppelin, Apple, Microsoft, Google, Sony, etc)

Agree? Disagree?

]]> <![CDATA[Triple Bottom Line Sustainability and Value Chain Analysis]]> http://whittblog.wordpress.com/2009/10/20/triple-bottom-line-sustainability-and-value-chain-analysis/ Wed, 21 Oct 2009 05:36:14 +0000 Whit http://whittblog.wordpress.com/2009/10/20/triple-bottom-line-sustainability-and-value-chain-analysis/

Sustainability is a topic that has become more popular and compelling in recent years. However, there does not seem to be a single definition for the term. Many times sustainability is associated exclusively with environmental concerns, health, and standards. The green movement for environmental safety, climate control, preserving threatened or endangered species and so on is also often considered to be synonymous with sustainability. However, I will use the term sustainability as it relates to stakeholders and shareholders of whatever the product, service, or organization the term is being used to describe. Stakeholders and shareholders are included because sustainability relates to the triple bottom line. This triple bottom line is also known as the three P’s, which are People, Planet, and Profit. Other terms that are often used with triple bottom line sustainability are social, environmental, and economic. A truly sustainably acting organization would operate in such a way that it only creates value through its initiatives. The organization would not destroy value in any way for any of its inputs or outputs.

I grew up and am now back in the “Evergreen State” aka Washington State. Seattle is well known for being a “greener” area. Thus, looking out for ways of reducing, reusing, and recycling waste has become commonplace. Going for my graduate education broadened my understanding though. I was first introduced to organizational sustainability through the Business as an Agent of World Benefit and Organizational Behavior department in the Weatherhead School of Management at Case. There I learned how corporate social responsibility, taking proactive environmental measures and other helpful efforts where organizations, for profit and not for profit, can thrive through acting sustainably.

A helpful way to model where and how an organization’s influence, as well as what important factors there are to understand where sustainability concerns can arise, would be to map out a sustainability value chain. The value chain mapping shows the impact areas before, during and after the involvement of products and services from an organization. There are three segments to the value chain that relate to the organization: Upstream, Operations, and Downstream. Upstream refers to the activities and impacts that take place before the direct involvement of the organization. The Operations segment refers to the activities and impacts where and when the organization is taking direct involvement. Downstream refers to activities and impacts that take place after the direct involvement of the organization. Those segments address the economic, societal, and environmental impact areas.

As a hypothetical example, take a manufacturing company as the context. I put together a PowerPoint slide to identify the areas should be addressed in order for the manufacturing company to act in a sustainable manner.

Value Chain Example 

 With a more specific example, the economic, environmental, and societal activities and impacts become clearer. In order for a company to be more sustainable, it would need to partner with upstream and downstream organizations to make the entire value chain more sustainable.

In future posts, I plan to use the triple bottom line as a frame of reference to use and help explain how organizations, products, and/or services are or potentially are not sustainable.

]]> <![CDATA[Demand chains as the competitive differentiator.]]> http://strategyaudit.wordpress.com/2009/10/18/demand-chains-as-the-competitive-differentiator/ Sun, 18 Oct 2009 20:41:14 +0000 strategyaudit http://strategyaudit.wordpress.com/2009/10/18/demand-chains-as-the-competitive-differentiator/

We can learn a lot about supply chain management from successful retailers.

To be successful, generally they have identified their logistics chains as a key source of competitive advantage and they work on it.

Their business model depends on having the stock on shelf when a consumer wants it, but with a minimum in reserve stock, and none “left over” that requires discounting or dumping to clear.

Li & Fung, the extraordinary Chinese supply chain manager  who have had a key role in the boom in Asian sources fashion wear, Woolworths, the dominant Australian supermarket chain, and Spanish retailer Zara have all based their success on supply chain innovation supporting  their service offer to customers.

A usual metaphor when explaining the Japanese Kanban system of managing “flow” through a process is of a supermarket shelf, a consumer takes one off, a replacement is delivered to the hole from a JIT flow from the supply chain. The appearance of a hole on a supermarket shelf is a physical representation of “pull” or demand, the basic building block of a chain that maximises demand chain efficiency, and builds a competitive advantage

]]> <![CDATA[Connected TV: a value chain shuffler ]]> http://issard.wordpress.com/2009/10/10/connected-tv-a-value-chain-shuffler/ Sat, 10 Oct 2009 16:12:03 +0000 bissard http://issard.wordpress.com/2009/10/10/connected-tv-a-value-chain-shuffler/

There is a disruptive technology coming very quietly but which will change dramatically the way we consume TV programs: the connected TV.
Connected TV are no more no less than a TV with a small embedded PC. You will be able to browse the internet but as a remote control is not a friendly way to enter text consumer will be channeled into pre selected contents and websites.

Yahoo Widgets

Yahoo Widgets

This content pre selection will be achieved with widgets or portals. Your TV will then offer web services like weather forecasts, facebook access, etc and premium services like Video On Demand.

As for the mobile phones application stores, the decision maker are the manufacturers. And for once manufacturers seem to be in a strong position.Triple play DSL or cable operators have never bought any TV sets or subsidized it, so they can’t control the TV set market. These connected TVs are putting in jeopardy all the triple play strategy of the operators: with Internet connectivity flat rate the triple play was an approach to get an incremental revenue through premium channel subscription or Video On Demand.

Triple play ad from BT

Triple play ad from BT

Broadcasters are in the same weak position: how can they control what the widget application will display on top of their program? They don’t control 100% of the screen any more.

The introduction of services on TV sets  is disrupting the whole value chain.

Operators don’t control any more what the consumer access to, and the broadcasters don’t control the screen you are watching any more. Imagine watching a serial on channel one and having a pop up window notifying this interesting program on channel 2!

Today, the Yahoo Widgets seems to be the mainflow solution in the US but European broadcasters are trying to join forces to reject it.
This is just the beginning of the battle that will cerntainly shuffle the value chain of the TV ecosystem, and let’s hope, for the consumer best.

]]> <![CDATA[Ouverture et confrontation]]> http://ocplatform.wordpress.com/2009/09/24/ouverture-et-confrontation/ Thu, 24 Sep 2009 09:53:38 +0000 clairefischer http://ocplatform.wordpress.com/2009/09/24/ouverture-et-confrontation/ <![CDATA[¿Qué es el EADA Centro de Retail Management?]]> http://retailmarket.wordpress.com/2009/09/17/%c2%bfque-es-el-eada-centro-de-retail-management/ Thu, 17 Sep 2009 15:09:16 +0000 xbordan http://retailmarket.wordpress.com/2009/09/17/%c2%bfque-es-el-eada-centro-de-retail-management/ <![CDATA[We need each other]]> http://startupblog.wordpress.com/2009/09/17/we-need-each-other/ Thu, 17 Sep 2009 02:45:11 +0000 Steve Sammartino http://startupblog.wordpress.com/2009/09/17/we-need-each-other/

I used to think my skills base limited the areas of business I could play in. I remember thinking back to the dot com boom in the mid and late 1990’s wishing and dreaming that I could some how be involved in the excitement, the fervor, and yes, maybe even the money. But I wasn’t a programmer, a digital designer or media player or a venture capitalist. I was merely a marketing manager trapped in the industrial complex of consumer goods. The bust came and I was quietly happy that peoples paper fortunes and egos got busted too. Which in hindsight was not a nice way to think. It was built on jealously, lack of knowledge and immaturity on my behalf.

dot com boom

Since then I’ve learned this: The type of skills we have matters far less than the fact we have a skill set which is valuable.

Translation: We don’t need to be a technology gurus to be operating or starting up in the technology space.

Maybe we are good at sales, marketing, raising capital, managing and motivating a team, project management, accounting. All of these skills will be needed in whatever business we start or are involved in. What matters is that we can add value in the chain somewhere which takes us from idea to revenue. Where we sit in that chain isn’t as important as we think. What really matters is being able to create the value chain.

It’s a rare combination indeed for a person to have tech genius and business brilliance. Fact is we need each other. We couldn’t have succeeded at rentoid without the business heads or techies collaborating. I wish I’d known this 10 years ago.

Sure it can be an advantage to startup in an area where we have expertise. It can be an incredible way to keep our costs low. But it’s not necessarily a barrier to entry. If we want to success, we’ll have to build a team in any case. And building a revenue infrastructure is what we ought be focusing on as entrepreneurs.

twitter-follow-me

]]> <![CDATA[Size and intimacy in a demand chain.]]> http://strategyaudit.wordpress.com/2009/09/09/size-and-intimacy-in-a-demand-chain/ Wed, 09 Sep 2009 21:31:14 +0000 strategyaudit http://strategyaudit.wordpress.com/2009/09/09/size-and-intimacy-in-a-demand-chain/

Power has shifted dramatically to consumers from the firms that inhabit the supply chains that serve them.

Scale used to give market power that could be leveraged, but IT development has radically changed the location of the power towards the customer.

Scale now just gives the opportunity through scope and access to resources, but that is no longer enough without the one to one engagement with customers enabled by technology.

You do not have to be big to be intimate with a customer, you just have to understand them and react to their needs, thereby turning the old notion of a supply chain on its head, creating a “demand chain”.

]]> <![CDATA[Supply Chain Risk Management]]> http://nettingitout.com/2009/09/04/supply-chain-risk-management/ Fri, 04 Sep 2009 17:39:05 +0000 Robert Eastman http://nettingitout.com/2009/09/04/supply-chain-risk-management/

No sooner did I finish reading this morning’s Wall Street Journal article, “Swine Flu Remains Mild as Vaccine Advances” when I saw former colleague’s Bob Ferrari’s tweet and blog post about his upcoming session on supply chain risk management at the Council of Supply Chain Management Professionals 2009 Annual Conference in Chicago.

While the Journal’s article title strikes an optimistic chord, close readers will have noted that the article also reports that China has sufficient flu vaccine for only some 5% of its population.  In the course of working closely with clients for the past 12+ years on supply chain and IT issues (more than a few times with Bob Ferrari’s wonderful collaboration) I have had several conversations with clients about supply chain risk management.  Often it was induced by a natural disaster in some part of the world that motivated companies to dust off their risk management strategies (or to kick off a risk management strategy).

In the current environment, as people come back from summer vacations, it may well be that the current economic environment and the H1N1 virus push supply chain risk management to the top of the agenda.

There are reasons to be optimistic about the flu virus.  Any company who does any significant amount of manufacturing in China will nevertheless want to watch the situation closely, and, in the spirit of ‘hope is not a strategy’,  either revisit their supply chain risk management strategy, or kick-start a risk strategy where one does not already exist.

Bob Ferrari’s timely session on supply chain risk management is on September 21st.  If I get to Chicago, I strain to think of a more important topic.

Recommmended Reads:

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]]> <![CDATA[A revolution in interaction: un clásico.]]> http://retailmarket.wordpress.com/2009/08/27/25/ Thu, 27 Aug 2009 15:50:08 +0000 xbordan http://retailmarket.wordpress.com/2009/08/27/25/ <![CDATA[Strategic gap analysis]]> http://janesato.wordpress.com/2009/08/20/strategic-gap-analysis/ Thu, 20 Aug 2009 03:04:57 +0000 janesato http://janesato.wordpress.com/2009/08/20/strategic-gap-analysis/

the article contains : creating new market spaces by . looking across substitute industries. looking across strategic groups in industry. looking across chain of buyers .. looking across complementary product and service offerings..looking across functional and emotional appeal of buyers .. looking across time…regenerating large companies.
This article is acccompanies by a power point presentation where various examples have been used al0ng with graphs to explaing the article.
This material was shown by me in my class of business strategy in stanford business school

http://www.gazhoo.com/doc/200906220106050520/Strategic+gap+analysis

]]> <![CDATA[Maailma ja markkinointi monimutkaistuivat]]> http://artomartonen.wordpress.com/2009/08/19/maailma-ja-markkinointi-monimutkaistuivat/ Wed, 19 Aug 2009 16:15:04 +0000 Arto Martonen http://artomartonen.wordpress.com/2009/08/19/maailma-ja-markkinointi-monimutkaistuivat/

Tavarapaljous, viestitä-ähky ja kuluttajien vaatimuksien kasvaminen muuttivat yrityksien arvoketjun ja markkinoinnin kilpailukeinot.

Old Value Chain

Aikaisemmin yritykset pitivät strategioitaan ja kilpailuetutekijöitään tiukasti kassakaapissa muilta piilossa. Osaamista ja tekemistä johdettiin tiukoilla prosesseilla, joilla puristettiin tuote tehtaasta mahdollisimman tehokkaasti ulos. Valmis tuote jaeltiin kuluttajille valitun kanavan välityksellä. Markkinoinnin tehtävänä oli selittää tuote kuluttajalle parhain päin, tekemistä johdettiin tiukoilla luujuuslaskelmilla ja kontrolli oli yrityksen hyppysissä.

Kuva 1

Nykyään tuote on yhtä kuin markkinointi. Arvoketju on muuttunut kuluttaja- ja markkinointilähtöiseksi ja kääntynyt päälaelleen. Tuotteiden tulee vedota asiakkaisiin emotionaalisesti ja niiden pitää tuottaa asiakkaille kokemuksia, joita jakaa muiden kanssa. Menestystuotteet sisältävät tarinan, jota kerrotaan eteenpäin maapalloistuneella markkinalla.

Enää yrityksillä ei ole kontrollia päättää mitä asiakkaat ostavat, vaan asiakkailla on valta vaikuttaa siihen mitä yrityksen tulisi tuoda markkinoille.

]]> <![CDATA[Putting the "I" back in Alliances]]> http://strategyaudit.wordpress.com/2009/08/13/putting-the-i-back-in-alliances/ Thu, 13 Aug 2009 22:23:45 +0000 strategyaudit http://strategyaudit.wordpress.com/2009/08/13/putting-the-i-back-in-alliances/

    The following list was imbedded in an article “putting the I back in Alliances”   by Rosabeth Moss Canter, one of the better management thinkers around. It creates a simple list of things any successful alliance requires.

    • Individual excellence: Both sides bring strengths and neither can be expected to prop up the other.

    • Importance: The relationship must matter strategically to both sides.

    • Interdependence: You need to need each other.

    • Investment: Have a stake in the partner’s success.

    • Information: Transparency strengthens the partnership; hiding information impedes trust.

    • Integration: Create several points of contact across the organizations.

    • Institutionalization: A formal structure can aid in objectivity and ensure the partnership works for both sides.

    • Integrity: Trust is critical and ethics are a must.

     In all the work I have done in alliance formation and management, there is no time when this list would not have been of value.
]]> <![CDATA[Knowledge flow in demand chains]]> http://strategyaudit.wordpress.com/2009/08/11/knowledge-flow-in-demand-chains/ Tue, 11 Aug 2009 21:06:56 +0000 strategyaudit http://strategyaudit.wordpress.com/2009/08/11/knowledge-flow-in-demand-chains/

Technology has multiplied the potential for information flows through a value chain, but often human behavior hampers it as individuals use the available information to enhance their own position. This happens internally, but is even more prevalent in the interactions between firms, as individuals seek to enhance not only their own position, but the perceived negotiating position of their firm.

A key metric to look at when assessing the health of a value chain is the exchange of information between firms. The actual measurement will usually be a combination of hard & soft data such as joint strategic planning, shared KPI’s, availability of data when needed and in a useable form. A technique I have sometimes found useful is an adaptation of an HR practice, do a “360 degree” performance assessment on the available information amongst those who come into contact with it, and have a use for it.

Another of those paradoxes that exist in human relations, elicited by the information exchange in supply value chains:

Why is it that the passionate exchange of information that occurs on social networking sites is rarely replicated in a value chain?

It seems odd to me that people who are willing to share sometimes pretty personal stuff on a networking site are unwilling to share information of a non- personal nature in a commercial situation, even where the commercial case for the exchange is clearly made.

Such information exchange is a pre-requisite of creating a demand chain from a bog standard supply chain.

 

 

]]> <![CDATA[IT and Competitive Advantage]]> http://aufond.wordpress.com/2009/08/10/it-and-competitive-advantage/ Mon, 10 Aug 2009 06:33:42 +0000 Monideepa http://aufond.wordpress.com/2009/08/10/it-and-competitive-advantage/

Porter, M. E., and Millar, V. E., How Information Gives you Competitive Advantage, Harvard Business Review, July-August 1985. 149-160.

I had occasion to recently re-visit this article, a must include in almost all introductory graduate MIS courses. The article was one of the first to explain how information technology (IT) can provide competitive advantage to firms. It analyzes five ways in which this can happen – (1) by supporting or transforming activities in the value chain and the linkages between, (2) by changing the nature of the product, (3) by changing industry structure by changing one or more of the five forces, (4) by supporting the particular competitive strategy (e.g. cost, differentiation) of the firm, and (5) by spawning new businesses.

Although written almost 25 years ago, many of the ideas put forward by the authors have begun to see compelling examples illustrating them only recently, more specifically with the maturing of those systems and applications that aid in inter- and intra- enterprise integration. As examples of value chain transformations, we see firms like Amazon and Dell, which have “mirrored” physical processes associated with product search, configuration and order taking and customer interaction on the internet, thus making them faster and more efficient. Dell in particular has exploited value chain linkages using real time B2B links with its suppliers – its close relationships with suppliers like Sony ensures up-front quality, eliminates the need for incoming goods’ inspection and delivery at Dell’s factories and thus allows these suppliers to ship directly to customers (see Magretta 1998). iTunes and Netflix are examples of changing the product through IT – the first by delivering mp3 files instead of physical CD’s and the second by streaming movies online instead of shipping DVD’s. Wal Mart is a good example of using IT to support a low cost strategy. Through extranets with suppliers and near real time inventory tracking and management across all of its stores, the firm is able to address its critical success factors, i.e.,  maximize its inventory turnover and minimize inventory, thus leading to low costs.

Most interesting however is to try to understand how IT spawns new businesses and revenue streams. Recent moves by firms like Google, Apple and Amazon provide examples. Google has used its search capabilities to become a leader in online advertising, which is essentially a “search” processes matching the advertiser with the consumer. Apple has used its digital platform for iTunes to expand into applications for the iPhone, through the Appstore. Amazon has used its order taking platform to host the B2C interfaces for a host of “affiliate” companies, opening up a new revenue stream. However, the question that arises is – do business models spawned by IT lead to sustained competitive advantage? Based on technology, are they not replicable? Even worse, technology being an ever-moving frontier, aren’t they prone to obsolescence when technology advances? Current research ideas provide examples and reasons why this may not be so. Piccoli and Ives (2005) offer what they call the “barriers” view, stating that IT creates “lag drivers”, that is, it makes it difficult for imitators to copy a particular strategy such that by the time a competitor duplicates it, the original firm has already changed or expanded its strategy, again aided by its IT leverage. Sambamuthy et al (2003) term this phenomenon as agility and entrepreneurial alertness facilitated by IT. How does this happen? Take the example of Amazon. It was one of the first online retailers and now the online retail space is crowded by many other firms such as www.buy.com. However, Amazon continues to “move” the target and spawn new revenue streams by – (1) offering an increasing number of products through affiliations with other merchants, (2) excelling in customer service, delivery and logistics –facilitated by IT and (3) by using its platform to provide selling and hosting functions for other retailers. So any company that wants to “copy” Amazon successfully will have to look at the above three aspects, plus any new ones that the company comes up with. Also to be kept in mind is the fact that these aspects are not just about IT, they are about embedding IT in organizational processes, inter-organizational relationships, and cultural routines – thus they are not as imitable as the technology itself. Further, leveraging existing IT to enter new businesses would require deep understanding about markets and customers proximal to current ones, again something that is not easily copied.

This article therefore provides a useful and technology-independent framework and starting point from which to analyze how IT creates strategic advantage, and forms a good basis for explaining current strategic actions by Internet based firms.

References:

Magretta, J., Power of Virtual Integration, Harvard Business Review, March April 1998. 73-84.

Piccoli, G., Ives, B., 2005. Review: IT-dependent strategic initiatives and sustained competitive advantage: A review and synthesis of the literature. MIS Quarterly. 29 (4) 747 – 776.

Sambamurthy, V., A. Bharadwaj, V. Grover. 2003. Shaping agility through digital options: Reconceptualizing the role of information technology in contemporary firms. MIS Quarterly. 27(2) 237–263.

]]> <![CDATA[Use Value Chain Analysis for Customer Satisfaction]]> http://gscmotion.wordpress.com/2009/08/07/using-value-chain-analysis-for-customer-satisfaction/ Fri, 07 Aug 2009 23:30:39 +0000 Betty Feng http://gscmotion.wordpress.com/2009/08/07/using-value-chain-analysis-for-customer-satisfaction/

When a company starts to hear their customers saying “it’s very difficult to do business with you” without providing exact details; when a company sees their internal customer service scorecard showing good numbers, but the customer survey result shows “poor service”; or when a company starts to see their long term customers switching to their competitors; it is the time for the company to evaluate their value chain to understand what they need to do win the trust and confidence back from their customers.

However, it seems difficult to figure out what customers are really looking for, and it’s difficult to decide which actions to take to improve the customer experience. There are many functions in the company, what exactly are the areas causing negative customer experiences? In order to understand what activities are leading to customer satisfaction, we can begin with the generic value chain and then identify relevant firm specific activities.  “A value chain is a chain of activities. Products pass through all activities of the chain in order and at each activity the product gains some value.” (Wikipedia) Using value chain analysis will quickly help a company map out “touch points” with customers, capture pain points, and identify opportunities for process optimization. I’d like to use a case of an equipment rental company to explain how value chain analysis is used to identify issues in order to enhance customer experience.

In this case, customers choose to rent instead of buy equipment for a lower cost but at the same time expect good service. Customers can have the company deliver equipment to them or pick them up with their own trucks. After finish using the equipment, the customer can self return them to the company service locations or the company will arrange collection from customers upon request. Customers pay an initial fee when they receive equipment and then start to pay rent based on the days of usage. Below is the value chain analysis I did for the company to understand how each function interacts with customers and how they can impact customer services. Please note below analysis only include primary activities. Supporting activities such as procurement, technology, human resource and firm infrastructure are not in the analysis, although they can also indirectly impact customer experience from different prospective.

A Value Chain Analysis

Primary functions of inbound logistics, operation, outbound logistics, marketing & sales, and customer services are interacting with customers on a daily basis; hence activities under those functions directly influence customers’ satisfaction and their purchasing decision. By breaking down those functions into activities, we can easily see the components in the value chain and how they create and build value for customers. By asking questions for each activity, we can thus realize what customers are expecting for each activity and whether there is enough to be done to guarantee customer satisfaction.

I’m not going to explain each activity in detail. The result of this exercise is to help company executives realize the challenges from their existing process structure and to make the right decisions and actions to truly “serve” customers. Executives should also face the fact that internal metrics are not always reflecting a customer’s true experience. When the metrics are designed to meet internal criteria and when those numbers are tied to employee performance bonuses, we can expect that employees are incented to make a good number instead of to provide good service. For example, on-time delivery performance is a key measurement for each employee in the company. However, the company only measures the shipments with Prove-On-Delivery (POD), and thus filters out at least 10% of data from measurement because carriers do not provide POD for every single shipment. The company measures on-time based on the final date stored in the system. When a shipment is going to be late, the employee in Logistics calls the customer to get “approval” of changing the date of delivery in the system, as if customer had another choice. At the same time, the company defines the on-time delivery window which is not necessarily what the customer is asking for. Using a six sigma term, there is a gap between internal specifications and external customer measurement. Unfortunately, because of political reasons and high pressure for “performance”, even functional high level executives are not willing to change the wrong measurements to correctly reflect real performance. No wonder that even with high performance numbers in the service scorecard, we can not prevent customers from switching to competitors.

From such a value chain analysis exercise, many functional experts can identify process improvement opportunities and take necessary projects to reengineer processes. However, without further data analysis, the analysis won’t lead to a priority list to allow the company to put the limited resources to the most critical processes. Besides, the company will not make fundamental changes without establishing performance metrics truly reflecting customers’ requirements. Value chain analysis can help companies to understand where they can create value for customers.  However, only when the company truly embraces “customer experience” and makes fundamental changes will the value chain create real value for customers.

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