Apr 10, 2011 | Innovation, Strategy
This appears to be a counter intuitive statement, but when you think about it, the outcome, innovation is all about directing resources to where they will deliver the best outcome, seeing the opportunity, managing towards a common goal, enhancing the customer experience, and so on.
How do you learn to do all this stuff better if not by understanding the risks and rewards of particular courses of action, being prepared to try them without betting the farm, learn from the outcomes, then refocusing and trying again? In other words, managing the risks by gathering data, understanding the drivers of behavior from experience and knowledge rather than gut feel.
The risk management behavior here is not the bloke in the green eye-shade who naysays everything, stopping anything that has less than an entirely predictable outcome, rather it is a process of continuous improvement of understanding of where the edge of the current envelope lies, and pushing hard to move it along.
Mar 23, 2011 | Branding, Communication, Marketing, Social Media, Strategy
How does a branded product withstand the power of a retailer duopoly that controls 65% of Australia’s supermarkets?
That question has exercised the minds of proprietary FMCG brand owners for over 30 years, since the first house-branded “No Frills” products appeared on the now almost defunct Franklins shelves. It has become a really serious question over the last couple of years as the big two retailers more actively set about building a brand of themselves as more than a place to shop, but also a range of products to buy, following the patterns set in the UK by Tesco and Sainsbury, and it hotted up a month ago with the beginning of the “milk war”.
The Nielsen Global Private Label report puts Australia’s private label penetration at 14%, not really accurate if you happen to own a milk brand. Milk had a sales channel split between supermarket and route sales about 60/40, with Housebrands holding a share around 50% in supermarkets, but nothing in route, until a month ago. Overnight, the “milk war” has dragged sales from route into supermarkets, (I do not have the numbers) and the house-brand sales must be now 85-90% plus, again, I do not have the numbers, just a set of eyes. “Dairy Farmers”, “Farmers Union” “Paul’s” all venerable brands in the milk market have had their value decimated almost overnight.
Now it seems we have Fosters pulling their beer brands from the shelves of Coles and Woolworths owned liquor outlets as a defense against the risk of having their brand equity, built over long periods, with huge investments, being trashed by under cost sales by retailers. It may lose them lots of sales in these outlets, but the 50% of the market still controlled by independent retailers will be cheering, it offers them a competitive advantage over the chains to have brands like “VB” on shelf when Woolies and Coles owned Dan Murphy and First Choice do not.
Suppliers of produce to supermarkets have faced the dilemma for many years. The retailers simply will not allow proprietary branded products on their shelves, if you want distribution of your oranges, potatoes, or lychees, it is as unbranded produce, or increasingly branded with the supermarket brand. In these categories, housebrand share is 100%, so I wonder where the innovation will come from in this drive to the bottom of the price equation, and will consumers in the long run be better off?.
Back to the core question, to which I wish I had a simple, glib answer, but I don’t. However, I think the answer is tangled up in the way we manage the changes emerging from the digital revolution we are undergoing.
- Mass media is dead, the cost cannot in the long term be recovered if hard won brand equity can be destroyed overnight by a retailer who wakes up with a good idea. In the future, mass media will not be used to build brands, with the exception of a few huge multinational brands. Apart from the cost/risk equation, the “mass audience” has fragmented anyway, and is increasingly hard to find. Time to sell your shares in TV networks.
- Social media now has a framework for communication, like it or not, that framework has two major dimensions, called “Facebook” and “Twitter”. As we figure out how to use them, these two related frameworks, and the others offering similar but more specifically targetted access to individuals, will drive the way brands engage with their adherents, attract new ones, reward their loyalty, and build equity that is remote from the ravages of duopoly bricks and mortar retailers.
- Marketers have to get to grips with this stuff, mostly it is beyond the young brand manager who does not understand, and should not have the power anyway to make brand related decisions. The case for the CEO to be the “Chief Brand Officer” in any business is getting stronger daily.
Building a brand just got a whole lot harder. Dollars to spend now bears no relationship to success, nor does longevity, (facebook had its 5th birthday day before yesterday), so just hanging around is not an option. Instead, markets have to do the hard yards to really deliver value, huge value, to customers, and keep “value-innovating” as if their lives depend on it, as it surely does.
Feb 27, 2011 | Leadership, Personal Rant, Strategy
It seems to me that the government is on the horns of a dilemma.
On one hand, they need to appease the Greens, securing their votes, by introducing a carbon tax, a course of action that seems very sensible in the long run when you consider the weight of scientific evidence.
However, in so doing, Gillard will break what honest John Howard would call a “core promise” not to introduce one, hamstringing her ability to sell such a substantial change, at least without an election where the intention is on the table.
We have a two pace economy, digging stuff up and flogging it is the foundation of current prosperity, but we are no longer making anything, and the current “skills shortage” has little to do with employment levels, but everything to do with the gutting of education, particularly trade skills, over the last 25 years.
Now we are going to gut manufacturing, or what is left of it, with a tax that will do nothing to abate worldwide carbon levels, although it may make those who do not have to produce anything to make a living feel good.
There is some merit in the argument that a tax will stimulate innovation in the development of alternatives, and Australia should be in a good position to leverage the innovation, particularly as regards solar, but that is long term, the pain to manufacturing will be immediate, and I wonder if it is worth the pain, even if a miracle happens, and Gillard et al can sell it, and get re-elected at the same time.
This is what strategy is all about, choices, weighing the relative merits of a range of seemingly mutually exclusive options, determining where the best long term use of limited resources lies, whilst maintaining the current P&L. Posturing will not stand up to scrutiny, it takes intellectual honesty and transparency to make tough decisions and have the stakeholders prepared to support a course of action. Pity there is little of either evident in Canberra, or in the states.
Now we have sorted the carbon management issue, consideration needs to be given to a whole range of other strategic choices in health, education, taxation, Australia’s relationships, immigration, defense, and so on.
We seem to be a bit short on the vision thing!.
Feb 23, 2011 | Strategy
Which is the chicken and which is the egg?
Good strategy always requires good analysis as a foundation, but analysis without a clear understanding of the context of the analysis usually ends up as just data.
Effective strategy development generally has at its core a pattern of evidence that has been recognised as being of critical importance to the enterprise, either as an opportunity or as an emerging threat.
Evidence can be collected and massaged, but the recognition of the patterns in the data is a cogitative process, rather than a quantitative one.
Feb 22, 2011 | Management, Operations, Strategy
Boeing, for a while after it took over McDonnell-Douglas, “owned” the commercial airliner business, with only the Airbus consortium as competition in the large end of the business, although there are others in the small commuter end.
However, the 787 “Dreamliner” being 3 years late, and billions over budget, has seen a number of early adopter airlines move to the big new Airbus A380. In the case of Qantas, this decision took them from a one supplier airline, Boeing, to a two supplier airline, a huge decision in the long term context of the life of an airliner model, the 747 introduced commercially in 1970, and still going pretty strongly, delivering sales of spares, upgrades, training, and maintenance to Boeing.
Outsourcing, or “off-shoring” as it is in some cases often delivers a short term boost to a balance sheet, but the long term cost can be huge if it is not done well, and few do it well. Boeing appear to have stuffed it up with the 787, and will be paying the bill for many years.
I keep banging on about the phantom benefits of outsourcing, and the contrarian option of developing lean disciplines internally to retain and develop the capabilities to compete in the long term, and the very early appearance of a trend for bringing Intellectual Capital sensitive development “home”. The apparent challenges facing Boeing in the delivery of the 787 will provide lots of fodder for the argument.
Feb 8, 2011 | Change, Innovation, Management, Strategy
When one of the giants of industry, in this case, General Electric, takes a position on a topic, and supports that position not just with money and commitment, but sets out to persuade anyone who will listen to adjust their own perspective for everyone’s good, we should all listen.
GE undertook a business transformation driven by the 6 sigma developments of Motorola, and made 6 sigma the management fad of the 90’s, and more recently has embraced an enterprise wide search for “eco-friendly” products and services, termed “ecomagination” which has spawned new business that turned over $US 5 Billion in 2010. They have now turned their attention to the innovation process, publicly embracing an open model across their business units, and have just published a credible survey they have termed the “Innovation Barometer” , which sets out to interpret the views of 1000 very senior executives across 12 countries about the way they see the innovation process evolving. There are some standout conclusions.
- Successful innovation will come from a whole of society benefit, not just a bottom line benefit for the innovator.
- The role of SME’s will increase substantially
- So called “green” innovation will play a pivotal role
- Collaboration across enterprise, geographic, scientific and cultural barriers will become pre-eminent.
Our Prime Minister prattled on last week picking up some of these themes, but failed in my view to provide what every innovation thinker knows is fundamental to success, an objective, (perhaps a BHAG) best exampled by JFK’s 1961 national BHAG of reaching the moon by 1969, providing a driving vision of the end point.
