Jeff Immelt: Small Business tends to hang out with Big Business in the supply chain and jobs get created

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GE Chairman Jeff Immelt in his interview with Fortune magazine said something really insightful today which tends to get lost in the jobs discussion. Yes, it is right that most jobs are created by small business  but how do they do so?

Most of these small businesses are B2B suppliers in the supply chain to big businesses. Recent perceptions of Government populist bashing of big business (Health Insurance,Banking and Finance,Auto, yes and the extraordinary BP bashing etc.) has made them nervous about putting out the money to expand.  But if companies like GE start hesitating on building a new plant a whole host of small businesses who supply to the plant either equipment,construction workers or raw materials and spares suddenly have no work and so no hiring. What's interesting is that the local sandwich lunch place gets no business and folks have no money to spend on a trip to the Gulf and help bail out the tourism industry after the oil spill. In other words, small businesses mostly live by supplying to large businesses.

So large businesses need to get a break and not feel anxious that the public and government will go after them for the smallest infraction. Check the news everyday and you'll find there is some big business bashing story that is making headlines. It's just the climate but the point is that this does'nt help confidence and does'nt lead to small business growth and jobs.

Jeff Immelt has direct access to President Obama and Immelt assures that there is going to be more focus on the economy and jobs going forward. To do this everyone needs to back  off from instinctively bashing big business for any mistake made.  Also once  a business sector corrects mistakes it must move on and not get stuck as  with  the few takers in the mortgage market despite the record low rates of mortgages. But I'll write about the current semi-frozen mortgage market tomorrow.

Why are great companies like Apple (iPhone4) and Glaxo (Avandia) not able to deal with post new product launch problems?

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It is really surprising why otherwise great companies don't have a post-launch plan to deal with new product problems. It seems Steve Jobs asked consumers to hold the new iPhone4 at an angle. Other "innovative" solutions in the market is to put duct tape and there is every hope that Apple will extend warranties, offer a 1$ case that solves the reception problem.This is after a thumbs down from Consumer Reports.

Avandia and Glaxo are unbelievably reported to have settled thousands  of lawsuits about the heart problems that some consumers have faced since the product was launched  eleven years ago. A product withdrawal has been  barely averted  today with the FDA panel recommending stronger warnings and restricted use.

These companies seem to not have a well articulated plan for dealing with post-launch problems of new products. Surely there can be a well defined ( say 10,000 consumer complaints on the web about iPhone4) metric or 100 lawsuits (for Avandia) when the plan can kick in.

Or is it that both high tech companies can't accept (and therefore don't plan for the unthinkable) that something might not work in the market and there was some stuff inadvertently missed at the development stage.Consumer companies,like McDonald, seem to be much more  real about the pitfalls of the New Product Development  process and are able to deal much better with post new product launch problems.

Wall Street starts hiring but Main Street needs to go global

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Wall Street has started hiring again and that could be  a leading indicator of job recovery in the US.But what exactly would the Wall Street employees do? They'd be managing the money side for the global operations of larger companies. And would the global companies care about where the work (manufacturing or services) was done? No because they'd go where ever the work can be done cheaper.  Large multinationals would continue to  open production subsidiaries in low cost countries moving beyond contractual outsourcing. This leaves pretty few options for the mid-skill, mid level American.

If you think about it every American's ancestor was an immigrant (save the Native Indian American). Early immigrants did not have  Skype and almost free phone calling to keep in touch with relatives  and friends in the mother country. So most early Americans have little connection with family in the mother country. In fact, the second generation  of  probably all ethnic groups in America have very little connection or patience with the old world.

The reason American immigrants arrived here in the first place was to get away from the old country and its "old" ways but guess what – shutting out the old world is no longer an option !

Because the old world particularly the old developing world seems to be growing much faster and middle America needs to find career solutions like Brendan the iPhone doctor.Or actually reach out to world markets that are growing.

Behind every successful risk management is a routine- an example from BP supply chain risk

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Repeated success in risk management is not by chance but because the organization has a routine in place.

There are some key data that are captured, the key data points are reviewed and action is clearly laid out and communicated both down the organization and across. Sounds simple but seems hard to do particularly in turbulent times when individuals just want to hold on to their jobs.Here's an example of how you set up a supply chain risk routine for say a bottleneck item. Bottleneck items are those that may not cost much but if they fail your costs can skyrocket (think of the BP blowout preventer which is ultimately costing a great deal to BP, the Gulf  etc.). A simple routine like:

  • What is the bottleneck item?
  • Are the quality specs clear and is there enough tolerance at the inspection stage?
  • Is there a feedback routine when the item is in use?(think of the chunks of the valve that was floating up)
  • Is there a rapid supply response?
  • Is the process clearly defined for each step and are individuals clearly identified. You can think of at least four functions (procurement,quality inspection,production,finance) and multiple contractors as in the case of BP.

In summary, risk routines are never  within one location, department or organization but serve the purpose of smoothing out the organizational silo problem.

Can it be done ? Sure  and at real low cost and quickly -if you decide to actively manage risk. Contact StratoServe.

“Go West (now overseas)” or at least source iPhone parts globally for a thriving business !

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The stock market is back above 10,000, BP is looking at distinct possibilities of plugging the oil leak on this 81st day and the heat wave in the North East shows signs of abating.All in all a cheery outlook and like the stock market  the mood seems to be that the job front  news could have been much worse.

But there is a major shift in the employment picture  for the new generation according to the NY times. An interesting  opportunity suggestion from the grandfather generation is  going "west" -in today's context going overseas to markets that are growing. These markets include unusual ones like Peru and Uganda and goes beyond the usual BRIC countries like Brazil,Russia,India, China.

Opportunities are not merely in finding a job overseas but linking up a brilliant idea of iPhone repairs with sourcing parts from China with Dr Brendan operating his business right out of New York!Check out the CNN story here. The sourcing from China is described later in the video. Brendan was a bar-tender and currently has a thriving "house call" iPhone repair business. He's opening his store soon. If you or your friends have dealt with Apple and the difficult "official"  iPhone repairs you know why Brendan's business is a winner. Here is a solo entrepreneur who by just email has been able to organize a brilliant global supply chain and fill a real need in the market. Going by the crowds at the Apple stores for the iPhone4 – you can bet that Brendan's business is going to boom as folks bust their iPhones and need a quicker,cheaper fix. Brendan's website is here.

Clinical Trial participants found easier on Facebook than Google AdWords

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Recruiting pharmaceutical clinical trial participants is a 2.3B$ industry.If you can recruit the appropriate candidate for a drug trial everything becomes more effective starting with low costs,accurate feedback and active patient co-operation.Where are possible participating patients most relaxed? Well one place is on Facebook according to Fortune.

Facebook is quite remarkable with younger people almost entirely communicating via Facebook and moving on from email. What's even more remarkable is the 65+ age group  who are joining Facebook by the droves. People share lots of personal information including photos and seem to be  in it with a far more open approach than other social networking platforms.

Facebook  shows (called "ad serving") ads on some broad criteria like age,gender and so on and prospective clinical trial candidates volunteer with more information. They seem to be four times more responsive than responding to Google AdWords probably because Google Ads are served against search terms in a virtual environment that is not the cafeteria style relaxed "among friends" atmosphere of Facebook. Such an atmosphere makes for a less threatening place to share personal medical type of details on a form.On Facebook people seem to be less concerned about privacy and more trusting than elsewhere on the web.

Clinical trials and the speed of new pharmaceutical product development are likely to become more effective and search advertising just got more exciting.

Gen David Petraeus replaces McChrystal , the COIN FM3-24 strategy and lessons for business

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A great soldier Stanley McChrystal just had to go and the legendary General David Petraeus  has to now handle Afghanistan.

Somehow the middle school locker room  type of comments of Gen McChrystal have been played up in the media but the main issue is democracy. In a democracy once elected leaders decide policy- there is really no discussion on the implementation side.And both the military and civilians are supposed to implement as best as they can what is the "voice" of the people.

I wonder if  Gen McChrystal and his team actually read and really believed the COIN strategy.Here is a free digital copy of FM3-24 from the Federation of American Scientists or you can buy a paper copy from Amazon. A quick browse will tell you  how fundamental the idea of democracy is in the document. The whole idea is to win hearts and minds of the general public in countries like Afghanistan so that insurgents have no safe haven. Clearly the FM-32 is a vision of a very different world than the heavy handed state crushing extremists in  the 20th century. Fundamental and precursor  to the COIN approach is that the US field commander McChrystal also believe in democracy and not deride his own elected  leaders.

But moving on – business and marketing strategy has used  a great deal of learning from military strategy in the 1980's. It's interesting that business strategy writers have yet to pick up on the many insights of this manual from 2006. A notable one is the observation that in most parts of the world the US is considered omnipresent on miniscule   local matters about which the US Government neither really cares nor has the resources to care.

The implication for US multinationals is that  actions by even  local managers tends to get magnified quite out of proportion and have a rub off effect on other US companies and the government.

The FM (Field Manual) 3-24 is truly worth a read for anyone interested in strategy. Incidentally, Gen Petraeus is widely recognized as the author of FM3-24.

Middle Managers becoming extinct but “silo” managers are needed even in the recession

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Middle managers are those who manage junior managers but "silo" managers according to my definition  manage the span of two functions. A good example of silo managers are the production planning folks who deal with production folks ,supply(procurement)  managers and marketing.

You might righteously argue that "silos should not exist"- but they do and do so for a reason in some cases like production planning.If production directly spoke with marketing and procurement (supply) you don't need a production planning function. Sure – but then the production folks energy, that should be singularly focused on production and associated tasks of reducing waste,enhancing quality and generating production related innovations gets  diverted to co-ordination work. The impact on marketing productivity is even more drastic. Instead of dealing with customers and understanding their problems- marketing folks land up dealing with production problems that are internal. Thus although "production planning" sounds unglamorous  like a "staff" role, production planners do serve  a vital role.

The recession based expediency of doing away with vertical layers (middle managers) is getting extended to eliminating silo managers which might result in serious organizational problems. And ERP systems alone cannot help without knowledgeable people behind them.  So before you think of eliminating these  staff sounding positions like "production planner" think carefully about the potential downside.

For the CEO:Three differences between your “buy” side and “sell” side folks

The contrast between the buy side  folks and the sell side folks of the same firm is truly fascinating. Here are three fun differences between   the  buy side (supply chain, procurement,purchasing ) folks and sell side (marketing and sales people) of the same firm. As a CEO try using what applies to your firm:

  • Understand what scares them : Stockout and quality problems with supplies is the worst nightmare of the supply manager. The sales manager needs to make the sale-compulsively without always considering your capabilities or profitability. Be aware of these but don’t rub them in.
  • How do you motivate them?: Find out how much the supply manager has “saved” the company. Mention it in a meeting and put out a challenge in a category that needs work. For the marketing and sales folks – these are challenging times. Identify the great relationships that these people have developed and celebrate- even if business is not coming in as you expected.
  • Emphasize Good Buyer-Seller Relations: While the sales people are proud of their customer relations the supply side folks, by the nature of the task, need to present a tough front to the supplier. If you can’t pay the supplier in time, clear and kind  communication will go a long way and build partnerships that will help you ride out the recession. Let the supply managers know that its OK to lighten up!  On the marketing side reduce exposure to risk with more frequent supplies and closer monitoring of customer credit and frequent communication with credit risk customers- “How’s it going” is the preferred tone rather than  the incessant “When are you paying” !

Your supply and sales people are your window to the world directly linked to your firm. A slow economy need  not mean that your firm’s relationships have to lapse.

[ Note: This post was updated for formatting on February 6, 2021. Originally posted on June 11, 2010- the ideas continue to be applicable in 2021]

About StratoServe

Jack Welch and the “Buy-Make-Sell” sell for non-profits

I am again (!) reading Straight from the gut  by Jack Welch. With many contacts with present and former executives from GE what amazes me is that these variety of executives sing the same song as Jack Welch even ten years after Welch retired. And guess what – they have not really read Jack’s books- just imbibed the GE culture.Not that Jeff Immelt is not moving things forward- Immelt had the tough task of facing the great recession, after all -but quite simply – Jack Welch -gets it. Frankly this book sets out some fundamentals of business that you don’t really find in any one book or article. One fascinating concept  is the Jack Welch notion of Buy-Make-Sell a more “gutsy” depiction of the “input-process-output” model.

Every organization, profit or non-profit, ultimately is about buy-make-sell or input-process-output. If you “get” this simple idea straight – you’ll find that things start making sense. The buy or input side is the purchasing-supply chain end of the business and the sell is the marketing and selling piece at the other end of the business.The “make” or “process” is the value add piece which marketing folks keep emphasizing as the central reason and purpose of  any organization.

So how does this concept extend beyond the plastics,appliances,finance and aerospace business of companies like GE in the non-profit domain? Here are some examples from non profits with the make piece italicized:

  • Healthcare like hospitals : patients-treatment- “wellness” or the cured
  • Education like colleges: students-education-jobs
  • Professional associations : members-education and networking– more successful members
  • Religion like churches etc: seekers-sermons,confession,meditation  etc– salvation or at least peace!
  • Poverty alleviation volunteer organizations: poor/unemployed-skill addition or aid- survive and thrive

The “make” or “process” piece corresponds to the production function of the industrial factory. This central piece involves huge domain knowledge ( you can’t preach if you don’t know your particular scripture!) and as the knowledge economy escalates and globalizes this piece becomes more and more specialized. Just listen to  Bill Gates talk about the work the Melinda and Bill Gates foundation is doing and you’ll get a sense of how involved this “make” piece is today.

The point is that the buy and sell side for each organization calls for different skills that have some domain familiarity but are ultimately about “buy” and “sell” skills. Of the two Jack Welch should get much more credit for pointing out that the buy part is really important. More on that in another post. About StratoServe.