It takes effort, skill, and investment to be a hub

When we think of Facebook we often think of it as a social networking site.  Yesterday, for a period of time, people trying to log into other, 3rd party, sites which use their Facebook account for authentication were redirected to an error page.

At this point it became clear to them that services such as Facebook and Twitter have become much more that just social networking sites.  In the race for global domination, many players in this space have a strategy of creating an ecosystem that revolves around them as the hub.  The success of their business model is ultimately tied to volumes of users, and the digital footfall of those users.  This has led them to ‘open up’ their authentication services to other sites.

For the user, the benefits are that they need to remember less passwords, and they have come to largely trust Facebook et al with their security.  From the other side it allows the hub to follow what the users are doing in order to ‘curate their life’ which is a valuable commodity to advertisers.

In taking this approach they have quietly built ecosystems with them at the hub or as the keystone.  However, as people such as the Food Standards Agency, O2, Blackberry, and others have found in the recent past, the hub position is one that has significant rewards, however, it isn’t without significant risks.

If for any reason the hub fails in a way that destabilises the ecosystem then it can have catastrophic effects.  Deep trust can take years to build, and seconds to lose.

In this increasingly networked world of services and products, companies clearly see the opportunity of being the hub, however, how many of them have truly invested in the skills, and capabilities that are required to sustain such a position?

A hub has to: be robust yet flexible; considered yet agile; active yet in the background.  These are all balances and trade-offs that have to be taken in a multi-dimensional, dynamic way and constantly through time.

Whilst the examples that we have seen are largely the result of technical failures, what is shows is that to play such a pivotal role the hub has to be robust in terms not only of the technology, but of their processes/policies/practices, their information flows, communications, and their connections to the rest of the ecosystem and the users.

Shocks will happen to ecosystems, however, the level of impact is will be driven by how well the keystone player rebalances the ecosystem to counter the shock.  Get this wrong and it can be catastrophic for the ecosystem, get it right and the past investment can pale into insignificance.

Has Blackberry created a new recipe that includes less Apple?

Some had said that the release of the new Blackberry 10 device and OS was its last chance.  There was certainly a lot riding on it.  Since Blackberry’s high point in terms of innovative poster child, other players, notably Apple, have taken that crown.

Apple in particular, from its consumer roots, has created some revolutionary devices and functionality.  It has in more recent times seemed to have been trying to lose its crown through some major own goals, including: the buggy iOS6, the dysfunctional Apple maps, and the clumsy approach to 4G with multiple device types globally.  This said where Apple has been better than the rest, is in deploying a wider portfolio of commercial innovation.  They have embedded the devices into their ecosystem, getting users invested in terms of apps, content, and accessories.  In doing this they have created a ‘transfer cost’ to users of moving to another platform.

So the challenge for Blackberry is significant in terms of slowing or stopping their competitors march.  Having looked at new Blackberry releases yesterday, it would be easy to see them as ‘me too’ devices.  In terms of the hardware they seem to have created something that will appeal to users in terms of aesthetics and functionality.  If you look at the operating system, they also seem to have created something that is in the same zone as their competitors.  Neither of these would be enough to overcome the ‘transfer cost’ though.

Where Blackberry has been clever, is in terms of truly understanding its existing customer base of c.80m users, and using this to build a reason for them to stay.

Blackberry’s roots are in the business world and it hasn’t forgotten this.  One of the biggest challenges that Apple has had in getting enterprise adoption has been around security.  Data protection is an increasing challenge for organisations both in terms of external threats and also internal threats.

Blackberry has, in creating a device that can segregate the user’s personal world from their business world it allows for differential policies to be adopted, has created a real differentiator.

Network segregation is likely to become a growing trend over the coming years, for example, when you perform on-line banking, this is increasingly likely to be in a segregated zone.  Key to this trend will be the devices that we use and their ability to robustly support such segregation.  In this area Blackberry has stolen a march on its rivals and therefore likely bought itself time.

What will be interesting is how it uses this time to develop its own ecosystem of commercial innovation in order to win back market share over and above its core business users.

Related articles

• UK first to get Blackberry 10 phone (bbc.co.uk)

How well do you know your supply chain?

As I have written before (“Supply Chain Shocks – A Risk or an Opportunity?“), in today’s connected world, companies can no longer just focus on the layers of the supply chain that directly contract with if they truly want to guard their own success.  They need to understand the second, third, and further tiers, such that when some kind of shock happens to it they can react quickly and effectively.

In recent days the Irish food standards regulator has found up to 29% horse meat in beef burgers sold through some of the well known supermarket chains in both UK and Ireland.

Whereas a few years ago we would perhaps buy meat from our local butcher who would have bought it from a national or local supplier, with the drive for cheaper food we as consumers have become accepting of cross border supply chains that have many more ‘food miles’ involved.  In these extended chains we place a reliance on the supermarkets, product producers, processors, and farmers to all work to high standards, set by and enforced through the various regulators.

This ecosystem is well documented and from the outside gives the perception of being strong and robust.  Yet, since this issue arising, each layer in the supply chain seems to have pointed the finger at the one prior to it in the chain saying that they were relying on their supplier to ensure that the products were as specified.

In today’s world where communications affords us a level of transparency that has not been there in prior generations, we already know the details of the products, supermarkets, and suppliers that have been implicated.  However, almost a week on from the story breaking there is still uncertainty as to how wide the issue is and therefore in the eyes of the consumer other processed meat products are also tainted with the same risk.

Once the dust has settled, the regulators are unlikely to be able to hand out more than a soft slap on the wrist in the form of small fines, however, the real damage has been done already in that all of those involved have lost the consumers’ trust.  For some companies, such a reputational impact could result in catastrophic consequences.

There will always be a risk of rogue operators within something as complex as the food chain, however, could there have been a different outcome?

Well, yes.  As I mention above and in my previous post, you cannot mitigate all potential risks, however, you can invest in being able to react quickly and effectively when something does happen.  Had there perhaps been a greater investment in this, then it is possible that within a couple of days it would have been possible to confirm the source of the issue, that it had been contained and identify all products affected, and equally those that weren’t.

On this occasion the supply chain seems to have been asleep on duty.  It’s equally possible that with a more hands on approach to supply chain management the issue would have been identified by one of the links in the supply chain rather than an outside regulator, who will usually be a final level of security.

All in all not a good advert for supply chain management, however, it does highlight its importance and underscore the recent research by IACCM in the area of the return on investment for improved contract management.  This highlighted that the average impact to the bottom line of weakness in contract management or commercial assurance is 9.15%.  On this occasion, it is likely that this single event of non-adherence to the contractual specification will contribute heavily to this for those involved.

Rewarding by Results – a natural phenomenon

There has been much in the news around measurement or payment by results over the last week or so whether it is the reforms proposed within the UK justice system or the bonuses of top executives.  What ever we call it rewarding by results has been around for many centuries and can be seen in many contexts, however, in the modern dynamic and connected business world, creating an approach that is balanced for all parties is more challenging.

I listened to Chris Grayling, the Secretary of State for Justice in the UK on the radio last week talking about the changes that he has proposed for the probation service.  My interest was not primarily in the changes but that a fair proportion of the interview focused on the approach of ‘payment by results’.

Payment by results is often portrayed as a way for private companies to get their feet in the door in order to ‘cherry pick’ the work that delivers the outcomes and therefore profits.  This is of course a risk if the approach to measuring the results is too simplistic and doesn’t match the aspirations of both parties.

What was reassuring was the interview this morning was the first time that I had heard a robust and thought through response to this challenge from a government representative.  What Chris Grayling got across was that whilst measuring the desired outcomes would not be simple in this case, what was needed was a blended approach, including a set of coherent measures, and a portfolio view of the outcomes.

Whilst time on a prime time interview is short and we only see a top level view it shows a window into perhaps a more mature set of thinking.  If I unpack the points above another level then:

Blended Approach – the art here is finding a blend that matches the opportunity and risk profile.  The idea of having a 100% success based approach is likely to be appropriate for a small number of opportunities, however, they are likely to be of relatively low risk for the supplier and/or require a relatively low investment.  At the other end of the continuum, guaranteed payment is likely to only appropriate where there is a relatively high risk and/or a high level of investment.  The majority of opportunities will likely suit a blended approach where suppliers have relative certainty to cover their investment and/or costs plus a low rate of profit and are then rewarded to drive performance.

Coherent Measures – as I mentioned in my opening paragraph often understanding ‘success’ as defined by each of the parties is a significant challenge.  The agreeing of the measures and the setting of the targets must be done as a joint activity, it should consider a more dynamic approach though time to raise the bar and encourage innovation, and should have a robust review process built in.  Often during the development and negotiation phases of opportunities the parties spend too little time on these areas preferring to spend time negotiating limits on liability and indemnification.  Each year the IACCM looks at the most negotiated terms and it was heartening this year to see an increase in the importance of ‘scope and goals’, and ‘responsibilities of the parties’.

Portfolio Approach – so much of what we see as ‘balanced’ is underpinned by a portfolio approach, yet how often do we fully consider the measures as a multi-dimensional portfolio?  Often we test the solution or judge the outcomes based on a simplistic one-dimensional snapshot in time.  If we are to unlock the power of the portfolio to create a balanced approach then we will need to bring to bear new skill sets and tool sets such as modelling, analysis, and visualisation.

At the end of the day measurement by results makes sense in so many scenarios and the real challenge is ensuring that we create, manage, and evolve the approaches to ensure that they operate in the zone of acceptability for each opportunity.  This can only be done in an environment where there is openness, and trust between the parties in terms of their goals and aims.  This must be underpinned by strong communications and the appropriate allocation of time and resource to create, implement and manage the framework.

The Role of Trust in B2C Relationships

There have been many column inches given over to the changes announced by Facebook to the T&Cs for Instagram.  Having paid ~$1Bn for Instagram, Facebook is obviously keen to leverage the synergies and find a way of monetizing their new acquisition.

In their move towards these goals, what they seem to have miscalculated is that in approaching it in such a wide manner (some would say clumsy) they have shot themselves in the foot.  Facebook and Instagram’s value is in their userbases.  Lose users it diminishes their value.  It is even more likely that anyone who creates content of value using Instagram will be quicker to move to protect their content, hence, they may have shot themselves in both feet.

Increasingly, in B2B transactions, relationship and trust are seen as powerful elements of creating a successful and mutually value adding propositions.  Often it is trust built from a relationship between people and organisations that allow parties with differing desired outcomes to co-exist and benefit within a business model.

If we look at the recently published ‘2012 Top Terms in Negotiation‘ then we see that Data Protection/Security, and  Intellectual Property remain in the top 10.  We also see that there is a trend of increasing importance of terms in the areas of: Rights of Use, Information Access and Management, and Responsibilities of the Parties.

This is no different in the B2C space where often T&Cs are all but imposed by the dominant party (usually the business).  Often these T&Cs are accepted by the consumer as they have no option if they want to access the services, however, increasingly we are seeing consumers collectively pushing back, particularly in cases such as with Facebook/Instagram.

This isn’t the first time that Facebook has ‘tweaked’ its T&Cs in relation to privacy and each time it has met the same backlash, so it will have seen this coming and if not they it really should have.  Whilst Facebook has been in the ascendancy  it has largely been able to get away with such a broad brush and one sided approach to changes.  As it reaches a more mature phase and has to try and keep user churn under control it may have to think a bit harder about these changes.

It is only time before users lose trust with a company that has a consistently one sided approach.  Such an approach will likely then lead to undermining trust and reputation and often an opportunity for a competitor.  Facebook also needs to remember that it is now publicly listed and therefore issues of reputation can and often do impact the stock price.

You don’t starve the goose just before Christmas

I’ve written before on the issue of cash flow, its importance to business, and the potential for companies to use it as a strategic tool as a part of a supply chain.  It was therefore interesting to read an article in the business section of the Sunday Times today which was describing the plight of retail supply chains in the run up to the critical Christmas trading period.

Christmas is a period of critical importance for them as they can make in excess of half of their sales in this period.  It was concerning to hear of companies that were passing on sales due to lack of cash for stock to fulfil them, large retailers lengthening their payment terms, and imbalances between players at various levels in the supply chain.

In good times when there are healthy sales and margins there is enough ‘slack’ in the supply chain to accommodate changes in demand, changes in terms, etc.. to ensure that the supply chain ultimately delivers and creates value for all involved.  When you get to challenging times the slack has all but gone and the chain is often taught and under stress.

With the tougher trading climate what we are seeing, not unsurprisingly, is the most dominant organisations in a supply chain tightening their terms.  Whilst this may help the Finance Director’s blood pressure, it can have repercussions as it gives less ability to flex as a supply chain and increases the risk of a link breaking.  What they perhaps forget is that one of the inherent risks of a chain is that when a link breaks the whole chain can fail.

The easy and safe option is to follow the pack and tighten terms, however, if that means that your supplier can’t afford to stock their warehouse or innovate for next year then that will ultimately leave you in a worse position.  Will they still be there for you when you next need them?

Often, whether it’s the reserves that banks hold or the trading terms in supply chains, what we see is that businesses react to the environment rather than pre-empting it.  Ultimately, this exasperates their condition and accentuates the risks they face.

What should progressive organisations be doing?  Well they should be taking a counter position.  When times are good they increase their reserves, such that when times are tough they can then deploy them to remove some of the impact.

What you often find is that in good times money is expensive to borrow (to dampen inflation) and in challenging times money is cheap to borrow (to stimulate growth) and therefore by lengthening payment terms in good times and shortening in challenging times it can actually be better for the Finance Director’s blood pressure.

Whilst this isn’t the case for all companies, how many procurement professionals understand true cost and impact of the terms that they flow down?  Some do, working with their finance colleagues closely, having simple tools to work out the cost of various payment terms, and using this to tailor the terms for different supply chains.  However, they’re probably the minority.

Innovation in a functional context can be a completely new business model or something small such as a tool that can change the way that you negotiate and lead your supply chain, so how about a New Year’s resolution to see what you can do?

Organisational Cross-braces

SearchCIO.com’s recently published an article on ‘Six ways the CIO job description is changing‘ which focused on the top 6 new skills that CIO’s are expected.  A number were unsurprising in the context of today, however, there were some which showed a change and maturing of this increasingly important role as part of an organisational makeup.

We are increasingly aware of the importance of information in the success of organisations and their business models. Increasing numbers of these roles are migrating from IT Directors to IM&T Directors or CIOs and what we are seeing is a migration of the roles and responsibilities along with the underpinning skills and experiences required.

Whilst there were a number of more technical skills included (enterprise data management, project management, and security and compliance), what was more interesting, were the more functional skills: legal expertise (#6); corporate finance (#5); and vendor or partner management (#3).

The rise in importance of skills in these areas indicates that organisations are beginning to understand and invest in the skills and competences required to ensure that information becomes a fundamental cross-brace to their organisations.

In the connected era that we are increasingly finding ourselves in the potential value of using information will be critical to the success of organisations and their ability to respond to changes in the market environment that they live in.

Whilst it is good to see the emergence of these skills in relation to CIOs they cannot be looked at merely in isolation of the CIO role.  Most organisations already have functional skills in these areas, legal, commercial, finance, and supply chain management teams to name a few.  Therefore, what is also important is that CIOs leverage these, also cross-bracing, skill-sets and vice versa.

Whilst all functional teams have a tendency to believe that they are the lead team, in reality they all have their strengths, and if better harnessed together, then they are more likely to achieve what organisations want from them.  Those CIOs (and General Counsels, CPOs, CFOs, etc..) who really rise to the challenge are those who are able to create those strong working relationships with their peer functional leaders and their teams.  By doing so creating symbiotic and value adding solutions that may surprise the wider organisation.

Related articles

• CIOs undervalued and under-utilised: Ernst & Young (zdnet.com)
• Changing business demands are changing CIO role: Hudson (pcadvisor.co.uk)

Are you biased?

With many countries struggling with tough economic times there has been much focus on the issue of taxes, who should be paying, and what is the right balance.  In the UK last week it was the turn of three global companies to come under the interrogation of the UK’s Parliamentary Accounts Committee which I briefly touched on in a post last week (“Time to Wake Up and Smell the Coffee in Terms of Innovation?“).  As a ‘hot topic’ it was carried forward by the press over the weekend with many column inches spent on how consumers can boycott companies that are not seen to pay their fair share of UK corporation tax and the political-economic views of the debate.

What struck me was that most, if not all, of the commentary was inward focused on a particular aspects of the issue and was usually fairly one-sided or partisan by the nature of the topic.

If I look at the challenges that organisations have with creating business models, then often I see similar traits to those above.

Driving this are a multitude of inbuilt, natural, human bias’ which come into play.  This can be the disproportionate weighting given to past experience irrespective of whether it is directly relevant, the emotional attachment to elements of the business or debate, or the tendency of groups to align with their leaders.  There are many more and they are built into each and every one of us to a greater or lesser extent.  Often they manifest themselves individually or overlaid on each other and in a group debate you will see different bias’ appearing from different people or groups and interacting.  What you’ll see is a  complex picture.

The impact of this is that it makes it easy for us all to get drawn down into sub-set of the real discussion. We are likely to see this as positive as in our minds as it ‘simplifies’ the issue and makes logical sense in our personal construct of the world.  In reality it is boxing us into a closed space and is unlikely to create a solution on its own in a complex situation.

Whilst we all have inbuilt bias’, some people are better, either through training or naturally, at dialing out their own bias’.  This allows them to rise up and out in terms of their view of the issue at hand, at the same time as others are going down and inwards.  By doing this they are better able to look at the issue in the round, and find the trade-offs that are inevitably required to create a coherent and balanced solution.

It is a skill that is required in many areas such as  dispute resolution, complex negotiations, and consensus building.  I would also argue that it is critical in creating business models as it requires a holistic, balanced solution including a lot of disparate business viewpoints.

Yet how often when we are discussing a bid that is due for submission or an opportunity do we spend most of the time debating the pro and cons of a particular issue such as risk, pricing, or market view and miss the real issue which is how does the whole package fit together and does it give the desired outcomes?

So what can we do to address this?  One simple thing is to be clear and transparent about the desired outcomes at the beginning of the discussion, allowing them to be deployed as a mechanism for checking the value of a discussion when it goes down the inevitable ‘rabbit hole’.

Equally, we can each focus on dialing down our own bias’ to a level where we still feel comfortable but that allows us to rise up in the discussion.

Looking back to the debate around tax, what is really needed is to move the debate up a few levels to look at our national business model, ensuring that it functions in a way that makes the UK the natural choice for businesses to bring and/or create their higher value jobs here.  Only when we achieve this will we get the right outcome for the nation which is that value sticks with all in the economic ecosystem.  However, at this level of complexity it will require a lot of bias dial down.

Related articles

• Time to wake up and smell the coffee in terms of innovation? (kommercialize.wordpress.com)

Based on current trends we’ll be chasing an exponential curve – an opportunity for commercial innovation and cultural innovation?

The Lemon Cannot be Squeezed Too Much

Increasingly in relation to business models we are seeing the use of terms such as ecosystem, keystone, and networks.  This is not in itself new, as we have been used to the concept of supply chains more many years and they have been used throughout history.

What we are seeing increasingly, is many organisations adopting a different balance in their supply chains with a move towards acknowledging that they are supply networks rather than supply chains.

With traditional supply chains the approach has been to create them and then hold them in a relatively static equilibrium for as long as possible.  With supply networks, however,  whilst they are also held in equilibrium it is done so by regularly adjusting the tension between the various players in the network creating a solution that is robust yet able to flex to accommodate changes and shocks.

The levels of effort required to create, grow, and maintain a supply network are subtly different from those required for a traditional supply chain.  With a supply chain, once it is put in place, changes are often minimised as much as possible, and it is expected to be self managing with players only expecting to communicate with the players who are directly connected to themselves.  It is a relatively ‘lumpy’ style of activity and relationship, with bursts of effort when issues require it.

If we look at supply networks, the level of effort is often far smoother in profile, with a ‘little and often’ approach to interaction.  Additionally, there is a need for a much greater awareness of the overall ecosystem, for example, to understand the impact of change in one area on the overall balance.  It requires a portfolio management approach which in turn requires people who can think and communicate at a systems level.

The role and skills of supply chain professionals in the world of supply networks is therefore different to that of a traditional supply chains.  Skills such as communications, modelling, relationship management, environmental awareness, and systems thinking to name but a few become more important.

Whilst many professionals would say that these skills were equally important in relation to supply chains, I would suggest that whilst this may be true to a certain extent, the importance, and their relative balance, in relation to supply network management is different.  In order to create a forward-looking supply network management team we need to address this skills balance and equip professionals with the right blend and depth of skills.

In addition, we need to ensure that we surround them with an organisational mindset that accepts the need to balance the ecosystem in terms of value flows.  An acceptance that it must remain in dynamic equilibrium both on a short and long-term basis, and that value doesn’t pool inappropriately, nor does it get sucked to the largest or highest players.

As Vittorio Colao, CEO of Vodafone, so eloquently put it during his results presentation “the lemon cannot be squeezed too much“.  He was speaking about the upcoming spectrum auctions and the fact that hopefully this time the approaches being put in place had taken on an understanding that there needed to be balance that particular ecosystem in order to maintain the overall economic benefit that his industry brings.

Related articles

• Supply Chain Shocks – A Risk or an Opportunity? (kommercialize.wordpress.com)