Innovation in the B2B and supply chain: you are less locked-in than you think

Most supply chain managers feel locked in by the the users stated needs. The user might be in manufacturing who is responding to the B2B market and the sales forecast put out by the sales folks. Frequently in many parts of the developed world the supply manager deals directly with marketing as the whole product is outsourced from a low cost global location. Larger, more globalized  companies have their own subsidiaries in low cost locations while others might have the sourcing folks either travelling to the foreign suppliers or might actually be positioned in Singapore, Shanghai or Mumbai to be nearer to the source for better co-ordination.

Trying out something new from a supplier is something that makes supply chain managers nervous particularly if the component is to be supplied as a feed to making the top selling offerings of the organization. It is precisely this kind of phenomena that led to the famous disruptive innovation theses of Christensen. You can almost imagine the 8 inch disk drive supplier's organizations coming up with smaller less efficient disk drives and their B2B marketing folks making only half hearted efforts to convince the computer company buyers to try it on their production line. It would disrupt production the computer buyer folks must have said if the B2B marketers had asked. Things were going well for the B2B marketers of the 8 inch drives- they were meeting quotas,getting bonuses that they just shut their internal folks up. The 5.25 inch drive makers were upstarts,new suppliers to the computer industry and some supply chain folks must get the credit for encouraging the innovation. The 5.25 inch drives were initially lower performers than the 8 inch ones but the caught up and the entire 8 inch disk drive watched in disbelief as they became extinct. But wait the story repeats as the 5.25 inch disk makers and their B2B marketing start to love the big steady orders that the computer industry gives them. Even when their internal folks suggest a smaller less efficient disk drive to try, the marketers are reluctant to push their customers to try in a limited fashion within the buyer seller relationship. And the story repeats, the 5.25 inch drive industry dies out while the "nothing to lose" entrepreneurs improve the 3.5 inch disk drive with the help of some innovative and receptive supply folks at the computer company.

So how do you break this cycle? Leaders and managers at buying and selling organizations can do two things:

  • At the marketing end encourage your B2B marketers to take innovations to trial and market. If they ask, they'll find innovative supply managers who are willing to try. If you do not have a quota -set one like : we'll get 10 % -40% of sales from new products -depending on the rate of change in your industry.
  • At the supply end do not just focus  on lowering costs for routine buy items for meeting the sales forecast. Encourage supply managers to talk to suppliers about innovations that can be tried out. Try a quota , a small one that you want 10% new products from your supplier. In you have earmarked bandwidth to try new products from existing and new entrepreneurial suppliers- you'll spur innovation.

You'll find that your are less locked-in than you think. Check out an older post for a diagram.

Contact StratoServe.

Pfizer Nutrition acquired by Nestle: Baby food for emerging markets

Nestle has reached an agreement to acquire the Pfizer Nutrition business for $11.85 Billion. A big focus of the merged enterprise will be serving emerging markets in Asia,Latin America and Africa where baby birth rates are not declining as in the developed world. Dual earner families want the best for their infants and the Pfizer pharmaceutical pedigree coupled with Nestle's grocery marketing prowess should help both organizations as the deal seeks regulatory  approval. Pfizer would like to focus on prescription drugs and try and replace the revenues of the blockbuster cholesterol drug Lipitor that has gone out of patent. With sales of $2.4 Billion the Pfizer Nutrition portfolio of brands (see ad alongside) is a wonderful addition to the  lineup of Nestle baby foods and its great distribution channel in emerging markets. Nestle has access to tiny villages and retailers in far-flung corners of emerging markets where it takes its dairy products. The depth of Nestle's distribution channel is certainly more than Pfizer's reach into pharmacies in these markets because very often the pharmacy might not be a viable business in a small village and yet the small grocery store will need milk powder. It will be interesting to see how Nestle changes the medicine like positioning of the Pfizer Nutrition brands as it integrates the Pfizer supply chain and distribution channel to its own. Contact StratoServe.

Innovation : top management need to get involved in the first three stages

It’s sort of amazing when top management in a variety of industries from high tech aerospace to comparatively low tech outer packaging seem to be disengaged and “hands off” in the first three stages of  of innovation (see  previous post on the 5 stages). Top leaders start taking interest when the product is in serious development(Stage 4)  and many top managers become alert and awake as the product is getting launched(Stage 5). At this time things are too far ahead to change except at high cost. These include airfreight when sea freight might have worked on the supply chain side, customer apathy in the market because concept testing was not done well and there was no time to do product and market testing because top management was  so un-involved that the budgets were not approved when the New Product team had put them up.

It is as if top leaders got to know of the new product just as the media plan and budget was being approved.  A paradox because these top managers are experts with years of experience in the industry and sometimes the company and would have spotted the problems far in advance and then the New Product team would have devised solutions to these obvious problems.

Therefore leaders  from the top management team including  chief officers from marketing,supply chain, production and finance  need to review projects tightly at the early parts of the process and here are some questions to ask:

  1. Opportunity or idea generation Top managers don’t need and should not be responsible for ideas to encourage well -innovation.  Leaders should encourage and ask their teams as to how the portfolio of new products are shaping up. Merely asking helps a great deal. The executive team should have a brief in every monthly meeting about the status of projects in this stage.
  2. Concept generation tries to articulate multiple concepts that tap into the same customer needs. Merely asking each New Product Team to provide a brief on how concepts are shaping up to the executive team will allow some discussion. And this converstation will build strategic consensus and provide guidance to the New Product teams.
  3. Concept evaluation has two parts as mentioned in the previous post  (a) marketing evaluation  that involves market research and concept testing with potential customers and (b) a number crunching sales and financial forecast of the concept.  Top leaders sometimes do not demand some form of market insight as in (a) and do not vigorously question the numbers in (b) at Executive review meetings. After all money is not spent yet – so why upset a colleague to whom one of the New Product team reports?  Not to suggest that executives understand the flaws and keep quiet- its just that  the individual  mental bandwidth is not deployed at this time.

Yes not much money is spent in the first three stages and that is the point. Because as you slip into the stage 4 Development and 5. Launch and Commercialization suddenly large amounts of money are involved. After all it is in the launch stage you start advertising and for consumer products this can be in millions.

Thus,  at the risk of being “spoil-sports” top managers must be critical at the first three stages of  innovation projects. If you stop one project be sure to ask for a new one and your New Product team will be glad to oblige.

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Why does innovation create jobs?

An earlier post on how innovation create jobs is rather popular. However,people seem to have questions about the “why” in the link of innovation and jobs. Why should creating a new product or service result in new jobs?Where in the process of innovation are these jobs created? 

The answer to these questions lie in the process of innovation or the stage gate model. Let’s look at the five stages of developing a new product and why some of these stages create jobs.

  1. Opportunity or idea generation invariably is either by entrepreneurs (eg Chegg.com) or by companies. The latter tend to think through their strengths and weaknesses and try to take up projects that appear on the face-doable. No jobs at this stage.
  2. Concept generation tries to articulate multiple concepts that tap into the same customer needs  based on above. This also is an inside the company activity but with some look at the market and its needs. No jobs at this stage as well. 
  3. Concept evaluation has two parts (a) marketing evaluation  that involves market research and concept testing with potential customers and (b) a number crunching sales and financial forecast of the concept. This would include skeptical or at least conservative estimates of sales volumes and prices. It’s really important to get this part right and champion winning concepts forward while killing the projects that either do not seem to fly with customers or where the sales numbers and margins don’t make sense. Also, not many jobs at this stage.
  4. Development involves a whole lot of work  and is full of job opportunities for the right skills. Thus a pharmaceutical company has many clinical trials going on that require co-ordination management and data gathering. Similarly any engineering project needs considerable drawing, pilot production  etc. that require fresh employees. While lots of jobs happen at this stage , globalization does tend to outsource many of these high end knowledge tasks to low-cost locations globally. So someone,somewhere gets a job!
  5. Launch and Commercialization is the last stage and if the previous stages were done well the product should succeed in the market. If it does succeed then production needs to be ramped up and that requires employees and creates jobs.Successful innovations need to produced and create jobs across the supply chain.

No matter how successful the product the “if it ain’t broke don’t fix it” principle does not apply to creating the next innovation. Because standing still does not prevent technology, other countries on the globe  from moving forward and consumers changing their tastes. As soon as consumers change preferences the back end supply chain and B2B scrambles for the next innovation and thus the innovation cycle continues. About Stratoserve.

Innovation is always in context of customers,stakeholders and society

If  we think of innovation, invariably  we think of radical innovations like the iPhone or Facebook. By doing so, individuals succeed in just beating up themselves and their organizations – and for no reason. Consider that after the iPhone or Facebook started taking off entire industries (eg. smartphone for iPhone) and social media (eg. LinkedIn and Google+ for Facebook)  took off. And if you look within each of these categories innovation was about trying to improve outcomes for customers, stakeholders  and society. Sounds like incremental innovation? Sure but so does the innovation from the  iPhone 4  to  iPhone 4S.

The point is that organizations exist to serve customers, stakeholders and society with customers being first. Things get a little complicated when the customer is defined in error (eg. students are not customers in higher education) or when organizations remember shareholders but miss out suppliers in the stakeholders category. By sharply  focusing on these three groups you can set your innovation agenda. Here are some questions to ask:

  • Customers: Do we understand who our customer really is?  A favorite of this blog is the confusion in US higher education about the student being the "customer," because the student pays. Not so for the purpose of an education today is to enable the student to compete in the global job market of both today and tomorrow. Within organizations, supply managers consider internal  users as customers which is fine, but it is really important to understand the next piece of the users task. Thus,  look closely at your industry and try to define the customer in terms of the real value you provide not just to the immediate internal user but down the user's  value chain. 
  • Stakeholders: are not only shareholders. Consider suppliers including contractors. They care a lot about your organization and would help innovate if only you asked them, preferably early in the innovation process, through early supplier involvement.
  • Society: is really important today because whatever your organization's business you need to consider your impact on society in terms of environment,sustainability and social responsibility. If you market or source overseas  you do  need to look  at  your global social responsibility as well. When your organization cares  about society in the innovation process, customers and shareholders notice and there is a positive financial impact on business as well.Contact StratoServe.

Does the DOJ-Apple lawsuit disintermediate publishing and hurt authors?

The DOJ-Apple lawsuit seems fair to consumers who would gain $2-3 for every e-book they allegedly over-paid for. This $2-3 was more than the Amazon's wretched $9.99 price which is supposed to have squeezed the margins of publishers. These publishers are then alleged to have teamed up with Apple and in doing so forced Amazon to raise prices as the video alongside suggests. But where are the authors in all of this?

Publishers are like agents or distributors of the author's work. Some publishers work harder to make a book a success and some others do not- just like distributors in every other field. Publishers add unique value to authors because they are able to monetize content for its own sake. Keep in mind that otherwise the only direct way to monetize digital content for the content creator is through advertising.

Thus disintermediation of publishers is not exactly like  removing the neighborhood travel agent who has all but disappeared with the onslaught of travel sites like Expedia and Travelocity. Why ? because unlike airlines or hotels who just have to upload the available rooms or seats into a database – any creative marketable content needs the support,guidance and hand holding by a publisher who has the rest of the supply chain organized to monetize the content that authors come up with. A bit like the movie producer who gets everything together to produce a movie. The movie producer takes the risk  with obviously no guarantee of the size of the paying audience at the theatre or via Netflix. If you removed the movie producer actors,directors or camera-persons would have a hard time coming up with the finished ready for the theatre movie. The same with books.

One might argue that singers and musicians  can find small niche markets via iTunes and monetize their  creativity and perhaps books will go the same way. Depends whether you consider a book  closer to a movie  that needs a producer or publisher to help develop for the market. Or you consider a book closer to song that can be put straight to the digital market without a whole lot of market or product planning.

Either way the publishing industry  needs to re-look at its value proposition in the digital age,  given that we are talking about the retailers Apple and Amazon  and their consumer prices. Contact StratoServe.

Happy Easter Egg Roll and Egg Safety

Today the White House Easter Egg Roll turned out to be a fun event by all accounts and sort of encouraged this blog to revisit a popular post on the egg supply chain on a more happier note. For on Easter Monday it is nice to think of new beginnings, of Spring and the question of egg safety. The egg safety mantra seems to be cool in distribution and supply chain and hot before you eat :

  • Cool in  the supply chain/distribution from farm to retailer and consumer

Eggs are popular worldwide with the US having a production of  75 billion eggs that is only 10% of the world production  compared to top producer China who produce 390 billion eggs or half  the world production (see the Chapter 9 video at the American Egg Board). In the developing world, poultry keeping is an occupation of the marginal farmer or landless labor and offers the potential for income and nutrition to large parts of the world's bottom of the pyramid. As larger egg farms become more popular worldwide there are really two things to keep in mind when it comes to egg safety. The American Egg Board recommends in #11,  immediate cooling of eggs at the farm to 40-45 degree F or 5-7 degree C which is difficult in large parts of the world including Africa,Asia and Latin America. In these places the best bet is to move eggs quickly from farm  to retail outlets. The distribution channel for at least 50 % of the world's eggs ( at a guess about 350 Billion eggs per year ) could probably do better with refrigeration in the supply chain or distribution channel right from the farm to retail stores. A potential opportunity for the refrigeration and cooling industry.

  • Heat to at least "doneness" guidelines before eating

Meanwhile consumers need to just cook eggs properly. And this is defined pretty well in the American Egg Board's "Doneness" guidelines . According to these guidelines 160 deg F or 72. 2 deg C kills off salmonella. This happens when the egg white completely sets in poached egg and the yolk is still partially liquid. Hard boiled eggs are the safest and need to be kept in the shell and eaten within seven days even if you have them in the fridge.So in case you have painted hard boiled eggs in the refrigerator from Easter, be sure to eat them soon ! Contact StratoServe.

Interactivity: why the video gaming industry is booming

An earlier popular post on video gaming being three times music and twice the movie industry begs the question why? The answer will  be apparent if you try this experiment with millennials i.e. those born between 1981 to 2000. Here is the experiment:

  • Put a bunch of millenials in a room with each in front of a computer that has the Internet. Give them a few minutes to check their email,get on Facebook and do any type of surfing on the Internet.
  • After about ten minutes ask people setting next to each other to talk with each other on a defined topic or to just get to know each other – face to face.
    • Will they stop the Internet ? And focus on the face-to-face conversation….
  • Or  after the initial ten minutes try switching on a moderately interesting TV program like news and ask the millenials to focus on watching/listening to the news.
    • Will they stop the Internet ? And focus on the TV news ….

Probably not.If the Internet access and speeds are good chances are that neighbors will not talk and also will not watch TV news. Is it because face to face discussions involve a much slower interactivity than interacting with the Internet? Or is the TV just an idiot box that really does'nt want and also cannot take your input? Either way millenials do clearly prefer the Internet and its interactivity.

Add the special graphics,experience and great hardware (like PlayStation) and you have moved several notches above the Facebook experience. Video gaming is just much more interactive and exciting than conversation. Particularly in the US where 43% of the population are reported single and 38% of the millenials  are happy to be single. Clearly for the millenials  interactive forms of entertainment like video games help as do pets. Both offer interactivity….without the complications of human interaction !

Millenials and those younger will should find more companionship from interactive video games so that industry should continue to grow compared to one way entertainment like music and TV. Contact StratoServe.

New : See  Innovation in video gaming to go mobile and social: the monetizing challenge.

Organizational bases of power: what’s up and what’s down with the Internet ?

"Power" in distribution channels is a fascinating topic and so is the notion of organizational power on which Jeffery Pfeffer had a book out that this blog discussed in an earlier post. But this post is about the six bases of power (see the lower part of the Wikipedia page)  that seem to be changing with the Internet. These are:

  1. Positional or legitimate power  is the title (President CEO etc.) that  makes the person sort of worth listening to. This is highly influenced by the culture of the country as in some countries there is a large power distance – so the boss is always right. Social media seems to be  eroding some of this with instant assessments of legitimate power by underlings. Down.
  2. Referent power is the power of a reference point like celebrities in advertising. Social media including YouTube helps to magnify the referent power of the brand and organization in both B2B and B2C contexts.  Up.
  3. Expert power is really going up with the Internet and social media. It was earlier that you had to ask around ( the snow ball technique) to search out knowledgeable folks. Now it take seconds to search the Internet including Google Scholar to identify the top thinkers in any field. Up.
  4. Reward power and the Internet seems to be ambiguous at the moment particularly with the final revealation by researchers that beyond $75,000 money does not make one happy. Since friends make you happy and the Internet helps a great deal organizations are stuck on this one as well. Down.
  5. Coercive power never really worked because it  builds resentment. With climate surveys becoming easier via the Internet and employees taking to Facebook, coercive power is avoidable. Down.
  6. Informational power was discussed in an earlier post. Down.

Four of the traditional six bases of organizational and inter-organization bases of power seem to be under siege by the Internet. Time for leaders and managers need to re-think old approaches to energize their teams within and between organizations. Contact StratoServe.

Best Buy to close fifty stores: rethinking the value of face to face advice with the Internet

If you have visited  any US  Best Buy store you would have noted the quite extraordinary knowledge and talent of their store sales force. So it is a disappointing to learn  that Best Buy will be closing 50 stores. Because neither the stores or the sales people can be much better. It's just that the value of face-to-face advice has come into serious question in the Internet age. People seem to go to Best Buy to learn and understand complicated technology from the great salespeople and then compare prices at Amazon.com. A few hundred dollars less does matter in a tough economy.

The trouble is that this is happening in different sectors of the economy. Here are  three examples:

  • Doctors: If you feel mildly sick you first check symptoms on the Internet before thinking about your doctor and the co-pay. And if it is routine stuff like the Flu shot you could go to the local pharmacy or a nurse at 20% of the cost.When you do see the doctor you might be carrying a thick folder of printouts of "possible diagnosis" as a friend does. One can imagine that the doctor is not happy with all this self diagnosis, even from respected sites like Mayo Clinic.
  • Lawyers: are losing routine business to all kinds of software for standard stuff like Wills etc. from sites like LegalZoom.
  • Accountants and Tax preparers: are wondering at why their remaining clients balk so much at fees. Clients are thinking  of on-line free or at least low cost tax prep software like TurboTax.

Note that all three examples above are situations where highly trained neighborhood professionals, with years of training are facing the onslaught of the efficiencies of the Internet and search. The routine parts of the professional's jobs are being done by an Internet based service.

So what should all folks in knowledge based professions do? A first step is to understand and accept that all routine stuff in that profession will be digitized and will be available online – almost for free or at a fraction of what the professional charges today. The higher end complicated stuff needs more knowledge and training but the market does get smaller. In other words, a competent professional  who  does mainly routine stuff might become an endangered species in all professions to :  the Internet. Contact StratoServe.