Can ‘Platforms’ replace assets?

Can ‘Platforms’ replace assets?

The new commercial behemoths of the 21st century, Google, Facebook, Amazon, et al, are all ‘Platform’ businesses. They leverage technology to create connections up and down value chains, replacing as they have businesses that have hard assets that make stuff.

They are facilitators, not producers.

When was the last time you ate a steak produced by a ‘facilitator’?

In order to produce the stuff we need to live and prosper, we need hard, productive, assets. Bits and algorithms help to leverage the hard assets, to build their productivity, but to believe they will replace them is to believe we can eat them and live.

Amazon may not produce the goods they sell, but somebody does, and it is these ‘somebodies’ Amazon relies on, as do the rest of us, to live. 

 

Is Amazon at it again, remaking retail in their own image.

Is Amazon at it again, remaking retail in their own image.

Amazon launched their ‘Dash’ button in 2015 in an experiment with Procter and Gambles Tide detergent, the monster of the category in North America. It is a one touch, one product order and delivery system that has succeeded, expanding to a range of 350 Sku’s in the middle of 2017 (latest numbers I could find)

Now Amazon  has withdrawn the Dash button from ‘service’. I guess the role played by the buttons is being overtaken by voice operated loyalty systems, largely Amazon Prime and Alexa, and on top, they were recently declared illegal in Germany for breaching consumer laws.

Killing off a successful service that was still growing at a very fast rate, but that was being replaced by a newer set of technologies is a logical move, but one only a company with the power of Amazon, who also owned the replacing technology space, would contemplate.

Clearly, Amazon  is now a technology and data business first, and being a retailer, where they started, is a very long second. 

They know more about many of us, our habits, preferences, and foibles than we know ourselves, and have that knowledge stored for analysis, retrieval and action by emerging AI functionality. They also know that we are not looking for a wide range of choice, despite what we say, that just confuses us and actually reduces purchase. We instead want certainty. 

Put all that together with the now 472 FMCG Distribution locations (450 in the US) Amazon has via the purchase of Whole Foods,  and you have the potential for Amazon to anticipate what we might buy, shape it by adding usage tips, recipes, and thoughtful additions, all in a box that delivers to your door. It combines operational and logistic efficiencies with maximum margin to Amazon while wowing customers.  

Suddenly the withdrawal of the dash button makes more sense than ever, as in the supply chain of the very near future, it would have been just another point of friction.

Meanwhile, Coles and Woolies are tarting up their Deli sections in stores my now three year old granddaughter will probably never visit to do her shopping as an adult.

 

 

 

 

 

 

 

A simple measure of innovation

A simple measure of innovation

 

Innovation is a challenging term to define. One man’s innovation is another’s line extension.

About the only thing that is clear is that innovation is not R&D, the creation of original knowledge. Innovation is the process that takes that knowledge and turns it into a saleable product.

To my mind, innovation has two dimensions upon which it can be measured that accommodates all the various definitions I have heard.

  1. The degree to which the ‘innovation’ creates new demand. This is not a competitive term, it is utterly dependent on the degree to which the pie is made bigger. Let’s consider Uber, often cited as the biggest innovation in personal transport history. Is it new? No, taxis have been around for as long as there have been wheeled vehicles, Wells Fargo started as a sort of taxi company. What Uber did was make taxis more accessible, which no doubt did increase the size of the pie a little, but not much.
  2. The degree to which the ‘innovation’ creates new value. Again, to use Uber, it did deliver considerable new value, in that you did  not have to wait for ages for a taxi to turn up, they are clean, and you can provide feedback. On the other hand, the taxi regulations, bloated, ill used, and anti-competitive as they are, were there for a reason, supposedly to ensure both the safety of passengers, and that the drivers knew their way around. That they fail regularly in both measures is one of many reasons Uber was able to steal so much market share by adding new value.

So, it is a simple matter of using that beloved tool of consultants, the two dimensional graph, and plotting the position along these two simple parameters. Usually that task is not as simple as the idea,

 

 

Economies of technology, not of scale, will be the drivers of success in the future

Economies of technology, not of scale, will be the drivers of success in the future

 

8 years ago I did a research project that required me to have a look at the future of intensive horticulture. As a part of that project I spent a month in the UK looking at what was happening, and was astonished to see the beginning of a production ‘flip’.

Horticulture is relatively intense compared to other forms of farming, but it still required lots of land, water, and labor. In the UK I discovered technology was in the early stages of taking over. Innovators had ‘flipped’ the model and were producing vegetables in capital and IT intensive greenhouses. The day I visited one of the leaders, Barfoots of Botley in 2010, they were completing the commissioning of the first 3 anaerobic digesters  at their main farm in Sussex, using the green waste from produce grown in greenhouses which was already powering the indoor growing beds and packing shed.

In the 8 years since, the progress has been amazing. AeroFarms in the US has attracted significant venture funding, and is one of those changing the face of agriculture by bringing it back to where the population lives, and Barfoots has expanded geometrically.

In Australia we have  very few  examples of this sort of innovation. One is Green Camel farms at Cobbitty on Sydney’s southern outskirts, which has combined greenhouse production of organic herbs and tomatoes with an aquaculture infrastructure producing barramundi in a closed loop system.

The point is that agriculture, like all other industries is being disrupted by technology in ways almost unforeseeable a decade ago.

Technology and capital intensity is replacing scale as the defining feature of success.

Lean Manufacturing seeks ever smaller production runs delivering an even flow of finished product matched to customer demand, as it evolves, eliminating WIP and finished goods inventories while delivering customer specific finished products with minimum lead times.

The days of huge integrated manufacturing plants cranking out product at volume to reduce costs by finding the economies of scale are gone.

Equally, production volumes from thousands of acres of open farmland will be replaced by a vertical capital intensive farm in a disused warehouse somewhere  in the inner city, close to consumers. Bit hard with livestock, but what are feedlots if not capital intensive small footprint farms?

Irrespective of the manufacturing environment, and I see agriculture as just another form of manufacturing, with inputs, WIP, risks, lead times, and all the rest, ‘de-scaled’ manufacturing will become the model our grandchildren will be familiar with. They will probably also be making engine parts in their bedrooms on desktop printers, it will be as normal as CAD software is today.

Header photo: Aerofarms towers

PS. After reading the post, a friend in the business sent me this link to the Panasonic vertical farm in Singapore. The more I dig around, the more convinced I become of the speed and volume of changes about to hit the supply chains of horticulture.

Pharmacists: Amazon is coming for you!

Pharmacists: Amazon is coming for you!

 

My mother lives by herself in a large regional city in NSW. At 90 she is pretty remarkable,  although some of the bits are wearing out, so she has a pharmacological regime that would make your average teenage party-goer green with envy.

Her pills are made up from the actives by a local chemist with the compounding License that allows him to assemble her prescriptions and combine them, which he then delivers weekly in a pack that reflects the changing nature of the prescriptions written by her doctor.

A great service, and the young entrepreneurial pharmacist has the geriatric market in the town sewn up.

I was thinking of him last week when I saw that Amazon had bought US startup Pillpack for almost a billion dollars. As  a result, the share prices of listed pharmacy retailers, Walgreens and others fell into a hole, a now common outcome when Amazon comes around.

Jeff Bezos has long signaled his interest in the pharmacy market, being a part of Drugstore.com in the 90’s which was eventually bought by drug store chain Walgreens for $400 million, and closed down. He has made other investments in various areas of the health industry over a long period, which should have provided an early warning alarm to the incumbents.  More recently he has launched a venture in collaboration with Berkshire Hathaway and JP Morgan to disrupt the huge but cosey health insurance market.

I can only wonder at the hand wringing going on in the Walgreens board room. They had a decade to build a moat around their business,  but failed to do so, and now the pirate has returned. This is exactly the same mistake Blockbuster made a couple of years later, by dismissing the overtures of Netflicks, and disappeared as a result. By contrast, the young pharmacist in Armidale will be well insulated, and I suspect will have his own plans to keep his business thriving. Meanwhile I suspect the Pharmacy Guild in Australia will again tread the road of trying to use the regulations as a protective mechanism, and try to fight the tide of change, which is ultimately going to fail.

As I have noted before, love him or hate him, Jeff Bezos is changing the world, perhaps like none before him. The incumbent public  and private institutions of our democratic western economy simply seem unable to accommodate the inevitability of the changes and their impact, and show no sign of being able to evolve sufficiently to do so. The assault on the pharmacy market is simply another example of the speed and certainty of change, which without sufficient ‘strategic intelligence’ being applied, will be the end for status quo driven incumbents.

When you need some of that rare strategic intelligence, more focused than is demonstrated in these pages, call me.

 

8 ingredients for  an idea stew

8 ingredients for  an idea stew

Ideas do not emerge from nothing, despite the hype, they do not just appear in the shower. They are always a product of a process, conscious or unconscious that connects and curates thoughts, knowledge, ideas from other domains, that can be used in a different way, connected where there was not pre-existing connection, and that have a hook of some sort that does something new. As J.M. Keynes observed:  ‘The difficulty lies not so much in developing new ideas, but in escaping from the old ones’

Ideas evolve and like any evolution require a set of conditions that encourages individual survival, evolution over time, and eventually success for a very few.

There are 8 ingredients to an idea stew.

Allow Prep time.

Every stew has a base, a foundation upon which the variations can be built. While the base is often obscured, it is nevertheless critical. Taking your time to determine just what you have available for  the stew, that will meet the objective, and then organizing the ingredients in the right amounts to be added in a sensible order with any necessary ‘sub-assembly’ being done will improve the outcome. Your idea stew is built in the same way, on a solid  foundation with research, and the results of previous trial and error to hand. The more work you put into the prep, the better the outcome usually is.

Have a pot.

To create a stew, you need something in which to hold the ingredients as they cook, each ingredient influencing the others, and the outcome. Making a great stew without the resources necessary, the time, access to ingredients, the right implements,  and obviously a kitchen, is pretty challenging, next to impossible. While you do not necessarily need the top of the range, you do need enough to manage the process with some degree of control and efficiency.

Have a deadline.

Usually when preparing a stew, it is for something specific. Dinner tomorrow night, for the weekend when the neighbors come over, or standby for the freezer.  Creating an idea stew is no different. The presence of a deadline, perhaps counter-intuitively, creates tension, pressure to get things done, and it focusses attention on the details so things do not get left undone.

Have a picture of the outcome.

The stew you are cooking has to serve a purpose, it has an audience, and the audience shapes the stew. Just as you would not put a pile of chili in a stew your young kids will be eating, you need to ensure that the ingredient in your ideas stew are consistent with the sort of outcome you are seeking.

Be prepared for diversity.

Sometimes, someone who may be a great pastry cook, but knows little about stews can bring across something from his discipline that adds something very different to the stew.  While this diversity in the ‘cooks’ often draws comment, the last thing you want if you are looking for a different stew, is to have only those who are used to the current recipe involved in thinking about the options that may be there.

Have a process plan.

Every stew is made in some sort of sequence, separate steps taken in some order, with interdependencies amongst the ingredients. While each step is not necessarily fixed, there are some things that must come before others can be properly done, to get the best outcome. A stew also takes time for the flavor to develop, for the little touches to be added that make all the difference, a pinch of this, a dash of that, all in the context of the plan, to avoid mucking up the result with that little last minute addition.

Creativity: The vital ingredient.

Perhaps a better word is ‘catalyst’ in a commercial context, as there are elements of creativity in all of us. However, for many it has been beaten out by the education we have, the institutions we work for, and at a more base psychological level, some of us are simply not risk-takers, not outside the box thinkers, so are of limited value for creative input. It is in effect the difference between a very good cook, and a chef. Give a great cook a complicated recipe and they will execute it by following both the recipe and the methodology, but give them a limited pantry and no recipe, and many will struggle. By contrast, the chef gets bored with the recipe, and  prefers to experiment. The outcomes are varied, most will be disasters, bit a few will be spectacular successes. Businesses succeed by doing the same things over and over, getting  better at it all  the time. A necessary ingredient of this mix is to get rid of those who cannot follow the process. However, for a business to renew itself, to cook an entirely new stew, it requires those who do not go by the rules, who think outside the box, sometimes outside the postcode. You also need to keep diligent records so that the unexpected great outcome can be reproduced, often a challenge for the creative ones who get bored with the recording when they can be doing. Pity you got rid of them all because they are a pain in the arse to manage!

Ask a friendly customer.

Asking someone you hope might put their hand into their pocket and give you their heard-earned in return for a taste of your stew seems to be a good idea at some point before you commit to the expensive launch. Generally, the earlier the better, and the more informed and critical their opinion of your evolving stew, the better.