Sep 20, 2021 | Change, Innovation, Operations
Moore’s law is well known, understood, and has stood the test of time since published by Gordon Moore in 1965. Wright’s Law is less well known, and has also stood the test of time since the mid 1930’s.
Formulated by Theodore Wright, a pioneer aeronautical engineer, Wright’s Law describes quantitatively the relationship between volume and cost. It provides a reliable framework for forecasting cost declines as a function of cumulative production.
It states: For every cumulative doubling of units produced, costs will fall by a constant percentage’.
In various manufacturing operations I have been associated with, and many I have observed, I have seen this in action, but until recently I was unaware of Theodore Wright.
In effect, Wrights Law reflects the outcome of ‘learning by doing’.
Wright observed that for every doubling of output from the Curtiss-Wright Aeroplane factories, the production labour costs dropped by 10-15%. Other sources of cost reduction that together give a consistent cost reduction relationship are process standardisation and optimisation, labour specialisation, network effects, machine availability and efficiency, all things in the modern engineering toolbox.
Look around now at what is happening to the cost of Solar panels, Lithium-ion batteries, industrial robots, and what has happened to cars over a very long period.
Intuitively, Wrights Law stands up, and there is plenty of empirical evidence that supports Wrights 1936 thesis.
As Australia embarks on a path to some level of sovereign manufacturing capability, it will pay us to observe the realities of Wright’s Law.
This means we should find a way to judiciously apply patient funding to manufacturing operations that offer the opportunity to reach the volume inflection points that lead to a sustainable manufacturing base of key manufactured products.
We have thrown away many such opportunities, let’s not repeat the mistakes of the past.
As an aside, we now have another federal industry minister after the (necessary) resignation of Christian Porter yesterday. The now incumbent temporary minister Angus Taylor, is unlikely to do anything useful, but someone has to warm the seat. Being the eighth ‘seat-warmer’ in a government formed in 2013, 7 of whom would not know an ‘industry’ if it whacked them on the head is hardly an ad for consistent policy and investment confidence. Sadly this is in a time where both are desperately needed.
Header photo courtesy Wikipedia.
Jul 30, 2021 | Governance, Innovation, Strategy
The old saying that ‘he who pays the piper calls the tune‘ is almost always true.
The piper in this case has been the orthodoxy prevailing over the past 40 years in Australian manufacturing.
I have been actively observing the trend towards outsourcing for a long time, deeply concerned that as a country we were collectively making a huge mistake, by focussing on lowering costs by outsourcing. By slicing off the things that are not deemed to be ‘core’ in some way to your profitability, you can reduce costs while maintaining revenue.
I guess it is much easier than being truly creative, taking risks, betting on a future different to the present.
As a result, manufacturing businesses in this country have progressively outsourced manufacture of sub-components, then whole components, then manufacture and assembly of finished products, and finally, because the manufacturers in China, Vietnam, or Thailand are closer to the technology, the design.
All Australian manufacturers, those few that have survived so far, are left with is a brand, with nothing to support it.
A brand without the supporting ‘brand infrastructure’ is a bit like a heavily inflated balloon. At some point a bugger with a pin will come along and, ‘bang’, you have nothing left.
The bugger with the pin proved to be a virus.
Supply chains have been ‘kneecapped’ and there is suddenly a recognition of the need for ‘sovereign manufacturing’.
Being driven by short term profit at the expense of long-term commercial sustainability has been a dumb choice.
I understand how it has happened.
Along with outsourcing manufacturing, we outsourced good old common sense to the educated but inexperienced crowd who applied IRR (Internal rate of return) and RONA (return on net assets) models shoved down their throats in MBA classes. These led to incremental investments in little, short term things at the expense of longer term and less certain but potentially bigger returns, to satisfy IRR hurdles. Reductions in the denominator in ROI calculations by flogging off productive assets made them look good by increasing RONA numbers.
They forgot that cash, and intellectual capital are not ratios, you either have them or you do not. Without cash you will be dead tomorrow, without the intellectual capital underpinning operations, you will be dead by a slower route, but just as dead.
Covid has awakened us to the effects of those decisions made over an extended period. Question is, do we have the resources and resolve left to start playing a different tune, one that common sense rather than capital ratios dictates?
I truly hope so for the sake of my grandchildren.
Header cartoon courtesy www.Gapingvoid.com
Jul 19, 2021 | Change, Customers, Innovation
Edges are often fuzzy, but are where the action happens, in nature and in business.
At the edge, there is less homogeneity, more opportunity for the different and interesting to be seen, trialled, and if successful take hold. By contrast, in the ‘middle’ there is little but homogeneity. It is why large businesses have trouble with innovation, their model is to do the same thing repeatedly, optimising it continuously, removing the opportunity for the unusual and unexpected to influence the way things are done.
If you think about where the ‘edges’ are in your business, they seem to fall into three categories:
The technology edge: where the existing technical status quo bumps up against development happening elsewhere. These days this is remarkably common. I once found a simple Bill of Materials program based on MS Access for a client. It successfully managed his inventory, costs, and associated information in the form of a program designed to manage the recipes and inventory in a restaurant. It worked perfectly well in an entirely different environment; the names just needed some changing.
The customer edge. The point at which you initially interact with your new customers and engage with potential customers is an edge. The interpretation of your value proposition changes depending on the context, and the challenges faced by people inhabiting a niche you may not have seen or considered relevant.
The core/non-core edge. This is an ‘internal’ edge. What is seen by the leaders as core and what is non-core to a business. The debate about what is core, and what is non-core capabilities, and competitive advantage started by the outsourcing movement 30 years ago remains. Enterprises seek operational excellence and differentiation by innovation at the same time. Often these are mutually exclusive objectives. I have seen businesses move one way and then another, as the competitive environment around them evolves. It can be argued that we are on a significant inflection point in the core/non-core debate currently. Supply chains are being disrupted by climate change, Covid, increasing complexity and the resulting reduction of item invoice price as the determining factor, and the growing awareness of the value of sovereignty.
To find an ‘edge’ opportunity, ask yourself four simple questions, continuously, during the strategy development and review processes:
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- What are the challenges our different types of customers face?
- What could or should our solution include?
- Which of our capabilities may be useful elsewhere, and by who?
- Which of our assets would others value, and why?
You might uncover something surprising that delivers a new lease on life.
Jan 15, 2021 | Collaboration, Innovation
Today, January 15, 2021 is the 20th anniversary of the launching of Wikipedia.
It would be easy to pass it over, but few innovations amongst the millions over the past 20 years, would have had such an impact on so many people as Wikipedia.
The evolution of Wikipedia has democratised knowledge in a manner only approached by one other innovation in history I can think of: the printing press.
I can remember being envious of those kids at school who had Britannica on their bookshelves. It was way too expensive for my parents to buy, and besides, it was out of date the day the latest version was published.
The creation of Wikipedia came out of the fertile, original mind of Jimmy Wales.
Working in finance, Wales played around with early web portals and video games, recognising the power of the net to connect people. In the mid-nineties, he was fascinated by the idea of a web-based encyclopedia, replacing the hugely expensive monolithic offerings then available. In 2000 with a couple of friends, and funding from his modest success with the web portals, he founded Nupedia, which aimed at consolidating articles written by experts voluntarily, and peer reviewed, with advertising as the revenue generator needed to make a profit.
It bombed.
The academic status quo standards for peer review almost ensured that submitting an article for the review was akin to waiting for feedback on an academic paper submitted for review, a lengthy and undefined time, with no chance of a no revision acceptance.
In early January 2001, as an experiment, Wales and co-founders Ben Kovitz and Larry Sanger created a ‘wiki’, at that time a new technology, that aimed at removing the academic barrier by opening articles to anyone to review and edit in real time.
The academics involved with Nupedia would have nothing to do with it, but such was the response, that a week later, on the 15th, the Wiki, by then named Wikipedia, was launched on a separate domain.
The idea of an open source, editable encyclopedia had its challenges, some of which remain today. However, the original vision of Wales and Sanger to ‘Imagine a world where every single person on the planet is given free access to the sum of all human knowledge‘ has been largely realised.
Wikipedia continues to evolve, managed by the Wikimedia Foundation, a non-profit organisation founded for that purpose by Wales in 2003. Wales remains a critical voice in its management.
Can you imagine the last year, disconnected, without Wikipedia as a source?
Happy 20th Wikipedia.
Dec 8, 2020 | Customers, Innovation
Everyone wants ‘innovation’.
Fair enough, unless we innovate, we stand still, and get killed in the rush.
However, in my experience, it is not the number or quality of ideas that is the limiting factor, it is the execution of those ideas that limits us.
We do not need more ideas, we need more of them to see the light of day. Even if they fail, you will learn, and hopefully do better next time.
It is also necessary to define what you mean by ‘innovation’.
To some, an innovation is a change of pack design, to others, it means the development of an entirely new application of some basic science. Most fall somewhere in the middle.
To my mind, anything that results in new value being created can be classed as an innovation.
Then you get those who refer to innovators as disrupters, further clouding the landscape.
For example, Uber is often cited as a disrupter, a source of disruptive innovation. Do they create new value? Yes, a bit, but there have been taxis around since the Romans were building on the seven hills, so that is not new. What is new is the app that puts the ordering, payment and progress of the Uber to your pick up point in one place. The disruptive element is that the previous cosy registration systems of most cities and their taxi services have been thrown away, so what has been disrupted is something that added no value. The exception to this is the London Black taxi service, where ‘The knowledge’ is a huge barrier to entry, while delivering sustained certainty of high quality service.
I also do not like the ‘fail fast fail often’ crowd, as that becomes an excuse for a lack of due diligence.
What I do like is a stream of disciplined experiments, aimed at testing the veracity of a hypothesis, which becomes a platform for improvement.
In some markets this experimentation is easy, in others, it is extremely hard.
Similarly, in some contexts it is easy, and in others very hard.
For example, the successful tech companies are running A/B experiments all the time on their websites, making evolutionary changes to their algorithms constantly.
By contrast, if you want to test market a new consumer retail FMCG product aimed at mass distribution, you have a real problem. The choice is South Australia, or Western Australia, which some might say are not representative anyway. Testing your product in farmers markets, food service, or your wife’s friends remains an option, but rarely a good model for supermarket distribution.
Red herrings abound!
Do not let them distract you from the hard work of creating new value for customers.
Nov 18, 2020 | Innovation, Marketing
Almost every piece of advice about selling, including a lot on this site, contains in one way or another, the notion that in order to be successful, you have to solve a problem for the buyer.
In other words, scratch the itch and the itch will go away.
We all know that is not always true, the itch often remains, just a bit relieved, or satisfied for the moment, perhaps to return.
There is a further step you can take.
Frame the proposal as an investment, something that will deliver ongoing value, rather than just be the antidote to an itch, the solution to a problem.
Many years ago I worked for Cerebos in Australia. One of the now disappeared brands we had was Cerola muesli, back in the days when muesli was a bit unusual. The breakfast cereal market was nowhere near as fragmented and competitive as it is today. Cerola was doing OK, generating increasing sales at good margins, albeit a minnow in comparison to the major cereals on the market.
With the support of the then marketing manager, I worked up a proposal to spend a significant chunk of money to manufacture and market a ‘muesli bar,’ a snack product that would sit between the perceived goodness of breakfast cereals, and convenience and taste of a confectionary bar. A wholesome breakfast on the run, and snack. I had a lot of subjective material, trends that seemed to be converging, gaps in consumer behaviour that may accommodate such a product, an admittedly dodgy bit of limited market research done with prototypes made by hand in the lab, and a strong conviction.
My failure to convince the MD at the time was total, and quick. No way would he accept such a proposal in the absence of strong quantitative reasons, little risk, and certainty of a quick return.
Nine months after getting my arse kicked for proposing something so dumb, Uncle Toby’s came out with their version of a muesli bar, and cleaned up.
The lesson I took away from that disappointment was that framing a proposal to spend money to a profit sensitive MD is like suggesting we stick a few holes in the bottom of the boat, and hope they do not let in any water. Instead, the proposal should have been framed as an opportunity to turbo charge the motor we already had, an investment in a profitable future. Such a framing would have had a way better chance of gaining the support of the MD.
A second lesson I took, which was the outcome of youthful arrogance and stupidity, is that you never say ‘I told you so’ to someone who does not like to be told.
