måndag 17 oktober 2016

Avoiding the Great Extinction

Regardless of if you are in the manufacturing business, or if you operate in the service industry – competition is a constant, and the pursuit of alternative solutions and suppliers is never ending.  How can you avoid going the way of the Dodo, and stay competitive in business?

Looking at recent history, there are plenty of evident changes where lessons can be learned, and insights into what the differentiating factors may be to either avoid a similar fate, or benefit from the rolling trends and changes occurring.

Manufacturing has continued to migrate and become outsourced, off-shored, over the past 25 years
From textiles, to heavy manufacturing and high tech / electronics, the exodus is moving higher and higher in the value chain.

East and South Asia offer superior labor arbitrage unrivalled on local western markets when global free trade facilitates the transfer of manufactured goods and eliminates trade barriers.
In the pursuit of faster, better, cheaper (and redundant manufacturing capacity where import tariffs still apply) it's a race to the bottom on cost, when outputs and tooling (quality) are standardized

The latest example from a Nordic perspective is the telecom industry where practically all manufacturing is shut down (Nokia, Ericsson) regardless if it is handsets or network equipment.

Design, intellectual property and service (consumer, Customer) relationship resides with local market - together with higher steps in the value chain.  "Designed in Palo Alto, CA - Made in China", is the new black.

The IT and service industry is the current big wave leveraging commoditized outputs and economies of scale.  Callcenters, Customer services facilities, IT Services are under immense price pressure - HCL, Tata/TCS, Tech Mahindra .. the list of huge resource pools of standardized competencies is growing and becoming more complex and sophisticated by the hour.  The argument that it's only applicable for non-creative work is disappearing as rapidly as the budgets allocated to local suppliers.

 As if that wasn't enough to assimilate in existing business models, the hardware and capacity services is undergoing a silent revolution where Amazon (Web Services), Microsoft (Azure), IBM (Softlayer) are offering dollars' worth of hardware capacity on the dime through their massive datacenter investments (Microsoft, Google, Apple, Amazon), combined with extreme flexibility and service expansion "on the dial".  The incentive to invest in in-house server capacity and capabilities is rapidly diminishing, together with related management services, and local hosting services.

What countermeasures are available to local players on the market - what can you offer, what do you need to be and do to become indispensable, essential, to your Customers value creation and offering to their Customers?

To summarize –
1. Package and bundle competencies
2. Offer domain and industry expertise
3. Offer fixed price solutions – minimizing risk
4. Strive for partnership rather than vendor-supplier status
5. Offer Excellent Service

1. Packaging and service bundling of multi-discipline competencies
Like any manufacturing operation will prove, the more complex the output - the better the margin, as more value is packaged and provided to the Customer.  Lumber in a stack and nails in a box yield little margin, but prefab housing is good business.  It's the combination of basic skills, tooling, complex skills and experience that raises the yield in the value chain.

2. Domain and industry offering
Regardless of your industry and business, that is typically what you know best.  If you can get a Customer who's in the same business, you can guide them past all the paths they shouldn't be going down, based on your own experience.

The problem is that the players in your industry and business are most likely competition, rather than potential Customers – but most Customers are looking for something in addition to the bread and butter content of the core offering you provide together with the competition in your field.  Differentiating and leveraging the core offering with domain and industry specific offerings, providing solutions and value rather than just the nuts and bolts for DIY (the assembled table and a takeaway order for dinner rather than the flat pack assembly and directions to the grocery store)

3. Fixed price models
Coupled with taking out risk from the equation for the Customer, and thus offering fixed price for a delimited outcome – suppliers start to become enablers and business partners rather than just vendors.

4. Partnerships - ..
.. with the Customers - becoming part of their operation, winning and losing together, sharing risks and rewards.  Proactively engage and collaborate with their strategic business initiatives.
.. with frontline players who can complement your offerings with domain and industry specific expertise.

Mixing these factors, interfaces and values provided to the Customer – you become indispensable, a critical key component and success factor – to your Customer.

This makes your business incomparable to standardized, commoditized offerings, measured and priced in $/unit (Gb, hour, FTE ..) - making the wave of outsourcing, offshoring and detrimental price-race to the bottom irrelevant.

5. Offer Excellent Service
Realize, accept and act on the fact that the offering, the value, the services and the Customer relationships are only as good as yesterdays’ delivery, and that your competition is constantly looking to get an edge over what we already offer - so should you!

Piece of cake, right – you’re already doing this, or planning to do it?  Perhaps not, but more importantly – there has never been a more advantageous time to endeavor to do it, than now!

The opportunities and capabilities to collaborate closely, share information on Customer behavior, real-time forecasts, etc are unprecedented given the information technology tooling and platforms available.

The Digital Customer Experience, is yet another step towards building that close-knit, indispensable position in relation to your Customer, and obtaining information crucial to creating partnerships with co-suppliers of expertise and complementary value.  Take a step forward to create and capture value in the Digital Dimension!

By Fredric Travaglia, Business Development Consultant @ Enfo