BP’s oil leak and Bankers’ dervatives are similar downstream distasters

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If you think about it everyone is coming down heavily on BP for allowing the underwater well to burst. BP is to pay for the clean-up and livelihood losses of fishermen in the coast for the downstream disaster from the oil leak. Metaphorically speaking Goldman Sachs and the Banking sector created derivatives and sold them onward and forgot the basics in banking : "stay close to the customer." The derivatives turned out to be like the oil leak to coastal flora and fauna – devastating to millions in America and the world.

I guess it is easier to actually see the oil spill and the  poor oil-coated birds and everyone gets angry. You really don't see the moving derivatives move from bank to bank  and connect the dots to the  home foreclosure signs or unemployment lines.

Call it the paradox of the "service" economy where those creating products whether auto or oil seem to face far more public and thus political wrath (when things go wrong) -than the banking and investment folks who failed to "cap" the mortgage well as it started leaking with disastrous downstream consequences.

The SRM you receive depends on Risk-Value position- are you a bottleneck or leverage supplier?

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Treating suppliers with respect is an organizational culture thing to some extent but it largely  depends on what type of risk-value you bring to the table. For example are you a bottleneck supplier or a leverage supplier?

For example, if you are a supplier of a bottleneck item to a customer or segment of customers you can be sure that these customers would like to keep some stock on hand and would not negotiate too much for price but would be concerned about reliable quality. This bottleneck item could be a valve in a food plant where if it malfunctioned  the entire production line could be shut down. The funny part is that the same valve could be a leverage item in an  upstream equipment making plant where you would have to go through the hoops of bids,negotiations and delayed payments with strong global competition. Naturally in the second case your billing would be large but the SRM from the buyers side will involve much tougher negotiations. In the former case, you could expect much lesser bill (after all the valve is a critical spare and not more leisurely OEM). In other words, the SRM you expect from each customer segment would depend a lot on where the customer places your category of goods/services.

100 years of Mark Twain- 4000 words a day with an ink pen while at Hartford !

Today, April 21, 2010 is 100 years of Mark Twain one of the most interesting denizens of Hartford,Connecticut. If you ever pass through Hartford do check out the Mark Twain House on Farmington Avenue. Here Twain spent many of his most productive years as a writer.

When you take the tour of the Mark Twain house you’ll see his writing desk and pens that he would dip in ink and write long hand. The writing desk is on the third floor along with the billiard table.Amazing that without a computer or laptop Mark Twain regularly churned out 4000 words a day. What productivity!

But more than productivity is the enduring influence of Mark Twain on American life. Also, Mark Twain’s  travels and global outlook makes for fascinating reading.

About StratoServe.

On the passing of CK Prahalad -core competence and bottom of the pyramid

Professor CK Prahalad passed away last weekend on 16th October, 2010. He was one of the most influential business thinkers of our time and has influenced me a great deal.I think two of his ideas are particularly fascinating. These are core competence of the corporation (co authored with Gary Hamel) and Bottom of the pyramid (with Stuart Hart).

The question of outsourcing and re-defining what is core competence in the globalized,internet connected world is the kind of long term “evergreen”application that makes the core competence idea so powerful. The Internet came after the core competence idea was put forth and yet informs some of my own forthcoming academic papers.

The other great idea of Professor Prahalad  that will endure as long as there are poorer market segments in the world is the “bottom of the pyramid” idea. Marketers have always assumed that the less wealthy cannot afford products-therefore it’s really not worthwhile to think of the less wealthy (about 5 out of 6 Billion people on earth!) when formulating business and marketing strategy. For example, we have heard more groans than cheers as 30 million US Bottom of the pyramid have been added to the health care system from the health delivery chain. In fact, there are unique opportunities for insurance companies,doctors,pharmaceutical companies that a bottom of pyramid approach can bring.

Here is a video where Professor Prahalad extrapolates how core competence considerations have changed in the new world. Managing talent and managing information technology (IT) will count in the future says Professor Prahalad.IT is becoming cheaper and yet organizations are struggling to align the new IT with the business and its global strategic intent.And managing talent is even more difficult when talent at every level of the organization must do more than just routine stuff. Business will miss CK Prahalad and continue to be enriched and inspired by his ideas.

About StratoServe.

Slow recovery or fast recovery? depends on tapping into global innovation

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Robert Reich and Jeremy Siegel were on a radio talk show and each had a different take on how long the recovery will take. Reich felt that the economy will take a long time to recover but Siegel was more optimistic with the hope that the Internet has drawn in about a billion people through the Internet to a global innovation engine that was fast,furious and cheap.

Both views have merit but since this blog takes a “getting it done ” or implementation view I am not entirely clear as to how individuals in America will be able to tap into the global innovation engine unless they are part of a US organization that has global innovation teams working. Who would such organizations hire? It is unlikely that these global innovating organizations would hire those who were fired in the last round to co-ordinate global innovation projects. In fact the core question is “How will US organizations capture value of global innovation teams ? and what is the incentive to hire in the US than overseas?” When organizations capture value they have the option of hiring locally provided the local employee brings huge value to the enterprise for employee cost that is relatively high compared to global costs.

In other words,  unemployed individuals will be able to tap into the global innovation engine. Or as Reich suggested would these opportunities  have to wait for the next generation of  US workers who are still in school?

For now the workforce would have to be trained to capture global innovation.

Innovation and Seth Godin’s “Linchpin”

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I am about halfway through Seth Godin's new book Linchpin. Seth does a very interesting analysis of the way education has developed to support the Taylor notion of a factory and it's later derivatives of the service workplace. The proven way of getting a good grade in school is to conform. Here, I am not talking about just meeting requirements but the style and content of what you do. In other words, school rewards those who conform by giving decent grades.

Seth argues (brilliantly) that education is geared to feeding the factory force. Every worker is  a replaceable cog and is conditioned to moving widgets around- as required and specified. Since the middle of the last century the US employee's situation was " keep  your head down, do not create trouble you and you would be fine." This is no longer true.

Seth amplifies what Tom Friedman had started talking about the "World is Flat" about 5  years when I started researching into improving innovation outcomes in outsourcing.You really have to do much more than just do your "cog in the wheel" job if someone in India or China or just a machine or software can do your job for much less. You need to help innovate and create value or become a Linchpin-says Godin. In doing so, Seth Godin primes the individuals in organizations to be more receptive to change and innovation that organizational leaders  are desperately trying to push.

Will the Volvo acquisition make Chinese Geely cars seem safer?

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As Jack Trout and Al Reis famously pointed out – when you think of Volvo you think safety. When you think of Chinese goods you are somewhat concerned about safety . The Geely acquisition of Volvo from Ford is just brilliant from the Chinese viewpoint and a good move by Ford as they divest lines that distract management attention.

With all these mergers and de-mergers  the world auto industry seems to be getting more focused around a smaller number of brands. A significant change is   the global presence of China’s Geely and India’s Tata who acquired Jaguar and Land Rover earlier from Ford. Fortunately, the auto industry does not rapidly merge distribution channels or supply chains. Imagine, how much more difficult it would be for Geely to decouple every Volvo dealer if they had got merged. Similarly, the fairly distinct supply chain,R&D and production should make for a smooth transition.

The last mile of innovation- and missing middle managers of the recession

Middle managers  are the last mile of innovation. They serve as the glue of the organization and take care of translating “strategic vision” of the top management to operation and execution. Middle managers calm down the front line employees who find HQ mandates out of touch  as not many  C-suite managers descend from the MBA Strategy case situation to being the undercover boss. Thus, middle managers help adjust  either strategy or  operations  to actually get things done.

The recession has done away with whole swathes of middle managers and the glue is weakened. Junior managers are in awe of top management while top management thinks that the organization is “flat” simply assuming that junior managers have now become middle managers- since the middle managers got fired anyway. This assumption does not work if the culture of the organization has not become “flat.” What is happening today , as numerous executives tell me, everyone wants to merely save  their jobs and no no one wants to call out reality checks.Adjusting either strategy or executions seems like a lot of work- anyway.

The upshot of all this is that the last mile of innovation is missing. Middle managers are gone- fortunately there are consultants who can come in briefly and help sort out the last mile of innovation to actually get it done! About StratoServe.

Restructuring for Innovation- exploiting and exploring capabilities and relationships

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As the economy shows signs of revival CEO's are wondering how to restructure and reorganize around potential innovation and growth opportunities. A great way  to do so is to consider the organization's capabilities and relationships and re-organize  to exploit and explore opportunities.

Exploration and  exploitation are organization learning ideas first explained by James March in 1991 and  very influential, since then, in academic circles . These ideas appear  to be less vigorously applied in real organizations. In the context of innovation organizations need to answer two sets of questions questions:

  • What are our capabilities? What do we do better than competitors? Do we have some new technologies that can create new markets? 
  • What are our relationships ? With suppliers and distributors ?

Next organizations need to create a list of capabilities and relationships that sustain most of their market. Here organizations should be thinking of "exploiting" or improving performance. Initiatives like lean,six sigma and total quality is appropriate for these categories.

Then,there might be a small market where leading edge capabilities are deployed and current revenues are low. There is huge potential for growth and yet people are too busy with the "exploiting" and keeping an handle on existing business to think of creating new ones. Only by balancing the need for exploiting and exploring capabilities and relationships can the organization enable innovation and learning.

Innovation is the solution to job growth- but how to innovate?

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According to Monster CEO Sal Iannuzzi, although the February employment numbers might indicate a stop in the slide, it is innovation that will drive growth and jobs.

The problem is how can companies innovate? Larger companies are hoping that smaller companies will show the way (see the post below) and smaller companies, unless trained in the innovation process are hoping that a bright idea will strike and somehow will get commercialized!

As one major global consumer goods company Chief Marketing Officer once mentioned to me , there is just too much domain knowledge involved even in a mundane category like soap.What perfume might best work in a soap ? has a process of discovery and the in-company personnel are best positioned to do it. With proper training a little bit of hand holding "insiders" can do a far more effective job-economically and quickly in these difficult times. And if more of that new soap sells, yes you get some jobs right down the supply chain – at the perfume company,the soap factory,the distribution channel  and maybe at the advertising agency. Contact StratoServe.