This is my ninth installment in a series in which I look at acquisitions and divestitures and related processes, and examine businesses from a very modular prospective as to how value is created and sustained (see Business Strategy and Operations – 2, postings 358 and following for Parts 1-8.)
Early in this series I conceptually and operationally divided businesses built around acquisitions and divestitures trading, as fitting either of two fundamental business model patterns: the chop shop model and the value added model (see Part 8: the chop shop acquisitions and divestitures business model where I define both terms, and where I at least begin a discussion of the chop shop model and how it is most certainly seen as the public face for acquisitions and divestitures now, at least as of this writing.
I stated at the end of Part 8 that I would continue that discussion here, this time delving into at least the primary features of value added model businesses. And I do so here, by picking up on a scenario that I briefly touched upon in Part 8 where the acquisitions and divestitures per se consist of salvageable resources from a failing business that could not successfully recover through change management approaches and remediation.
• Admittedly oversimplifying here, a chop shop model business that acquires a failing company for saleable parts is not likely to attempt to turn it around to see if it can in fact be salvaged as an overall business concern.
• Premium would be placed on packaging, marketing and selling off anything of marketplace value and as quickly as possible, and at as little direct expense or risk (indirect expense) as possible to the acquisitions and divestitures business that sets up and manages – and profits from those transactions.
• A value added model business would calculate risk and benefits determination from a wider perspective and along a longer timeframe. If they could save the business and turn it around to be profitable again, the value receivable there might not be as high on a short-term basis as what could be realized from selling off the parts as scrap, but longer term value would in many cases be higher, and over time even considerably higher.
• Here, a salvaged business acquired by such a management and development oriented company, sees at least a potential worth considering of developing long term, new revenue streams. And a recovered business could always be spun off and sold and for a return on investment there too, if it did not fit into that acquisitions and divestitures portfolio of held resources or fit into its long term strategic plans or priorities.
• The basic approach is fundamentally different, with the value added business selling quickly if necessary, but also pursuing longer term investment strategies in what it acquires. And in this, the words “value added” become centrally important. The more an investment acquisition can be increased in marketable value and the more competitive a market can be developed for businesses and entrepreneurs who might want to acquire it, the higher the price point it can be marketed to and the more it can be successfully sold for.
• Here, the calculus of risk and benefits in play balances costs for preparing an acquisition to be profitably marketable and to some likely specific selling price range, against returns actually receivable after making that investment. And the goal is to develop a divestiture offering so as to realize the greatest possible profitable return on investment from it, and under circumstances where that greatest return on investment or at least a return close to it is most likely to be achieved.
• This can best be done by developing an acquisition to show significant value and even defining and distinguishing value for any business that acquires if from the value added model business. That is where competitive interest can be developed when divesting this repackaged and perhaps reorganized business asset, and that is where the greatest return on investment can be achieved.
• The chop shop business is quick to take out up-front service and related fees from any liquid assets available in an acquisition they take on. They in effect gut the business of its immediately available liquidity and then walk after extracting any other removable value. The value added model business seeks to increase value in what they acquire then sell off, creating new value for everyone involved – as that makes their transaction processes sustainable and supports long term gains.
It is easier to find acquisitions and divestitures businesses that run closer to the chop shop model as most businesses in general think and act short-term. Whatever their basic business models, more should think, plan and act with more of a long-term awareness.
I am going to finish this series here with this posting. Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2. I have also included this series installment in Startups and Early Stage Businesses.
Commoditizing the standardized, commoditizing the individually customized 4: acknowledging the consumer demand for choice 2
This is my fourth installment in a series on the changing nature of production and commoditization (see Business Strategy and Operations – 2, postings 364 and loosely following for Parts 1-3.)
Up to here, I have been discussing the development of the first automobiles, and how Henry Ford reinvented the car for the general public, and certainly for its emerging middle class. And in Part 3 I began a discussion of how the public began to demand variety and choice in the cars they bought, and for both practical reasons and for variety that would reflect their individuality. I also at least noted how economy of scale made assembly lines more cost-effective for production of product variety that would support consumer choice.
I refer here, back to Part 1 and Part 2 of this series where I wrote of the importance of standardization in making assembly lines work at all, and how end product variety serves as a stressor to assembly line cost-effectiveness per se.
So in a fundamental sense, I left Part 3 with a contradiction in needs and a fundamental challenge to the assembly line production system per se.
• Yes, it is true that a company such as Ford’s could maintain much of the efficiency of single process and single product-type work flow in its assembly lines by scheduling single type runs for producing different specific product builds.
• And with production scale they could essentially recapture all of the potential of a single process and work flow system by running separate and parallel production lines, one for example producing a coupe model car and another a Model TT truck design.
• And for real efficiency, every part and process going into assembling one of these vehicles that could be, would be standardized and fit equally well into any other Ford vehicle produced – and across vehicle lines and from year to year too.
• But the middle class and their expanding consumer base that came to want and need cars and trucks wanted more and more variety, and new models and designs.
• And the increasing competition of other businesses that also built for this growing and demanding market offered more and more variety and choice too.
• Annual new model releases became a basic fact of life for the mass production automotive industry and the pressures became intense to offer wider and wider variety in any given year too. And something had to give – either the basic price point that a car would have to go for would have to go up, or the profit margin per vehicle assembled and sold would have to go down, or consumer demand for variety would have to be thwarted.
• But competitive pressures made it difficult to simply increase the price of a car or truck, and it made it difficult to simply ignore consumer demands too. This, among other things meant a rethinking of the assembly line per se and its cost centers and how it could become more streamlined and effective.
And with this, I cut away from the early days of the mass produced automobile to much closer to today.
• Employee salaries and benefits are expensive, and I have to add that pension systems can with time become even more so as the major auto manufacturers in the United States all found out the hard way.
• Skilled employees and the human eye and touch are needed and will remain so for a significant time to come, but automation of more and more rote production processes, from spot welding to painting and more, have transformed the assembly line completely – and some assembly line systems are already fully automated except for quality control and managerial oversight.
• But for purposes of this discussion, I would focus on a none-of-the-above for rethinking the assembly line: rethinking what product variety and even personalization mean.
• And in that regard I note that the one, and in many respect only place where variety of product really has to show a distinctive difference is where you see it.
Let’s say, to take that out of the abstract that you are building cars with three different types of seating for the driver and front passenger: a standard model bench seat and two different bucket seat styles, and with each available in three cover materials, and each of them in five colors that would be coordinated with paint color selected. Just considering seating, this means 45 different combinations and 45 different model differences that would have to be supported in an assembly line system. But let’s also say that everything that goes into those seats and both for design and materials, that can be standardized across all of them are standardized.
• So they all connect to the chassis of the car at the same basic assembly points, and with the exact same bolts and brackets too. And the seat padding is the same for materials used – just the seat covers differ.
• So you set up your assembly lines to be supplied for parts and materials using lean just in time strategies and operational approaches for managing what you need to have in inventory, and for getting that where it is needed when it is.
• And you automate as noted above wherever possible.
• And you leverage this with smart information technology for tracking and preparing for demand for each and every product variation that you would produce, and as close to real time as possible so you can produce and ship as quickly as possible, and with the right balance of product output produced, and shipped to the right dealerships at the right time.
Now expand out the range of options that can be modified and even customized across the entire vehicle and allow for the customer to buy any of a huge range of options and choices, depending on how much they would be willing to pay to get that extra special feature or build. And this brings me to the Scion: a Toyota Motor Corporation brand manufactured primarily for their North American market, which for purposes of this posting and series, I would hold up as being as much a benchmark at that first Model T.
• The basic idea behind the Scion is not that you buy one of a select set of basic, preconfigured models with for example one paint color going with one seat cover color – it is that you be able to buy a car that you can see as personalized to you, as the range of options and combinations of them available to choose from, expands past the “standard options” range to a personalization range for the variety that can be selected from.
• So going back to the first true assembly lines and the first mass produced Model T’s and with this in mind as an evolutionary descendant of that, with the modern assembly line as exemplified by the Scion, assembly line meets what amounts to artisanal for variety and even individualization of products possible – but with assembly line efficiencies and costs.
• And I see the Scion and its production in this as just a first step in what is going to become much more the basic and standard assembly line and mass production approach – mass production of the individualized and personalized, and for what I expect to be a progressively wider range of products and product types.
I am going to turn in my next series installment to consider 3-dimentional printers and single copy-friendly printing kiosks for on-demand book publication while you wait. Meanwhile, you can find this and related postings at Business Strategy and Operations and its Part 2 continuation page.
Opening up the online business model for new and emerging opportunity 3: blue ocean strategies and business models 1
This is my third installment to a series on new and emerging online business models and on developing best practices for finding and creating new and novel online business opportunity (see Part 1: outlining some of the basic issues and challenges and Part 2: online target demographics oriented marketing.)
I wrote Part 1 of this series with two goals in mind: to set up a basic foundation for a more detailed discussion to follow, and to raise some basic and still open questions that have to be addressed, and that do not have simple, standard, algorithmically applicable answers. I began addressing them with Part 2, where I wrote about group marketing demographics in a globally reaching online context. And I continue that here in this posting where I address some explicitly identified open questions, beginning here with this:
• When is pursuit of a true blue ocean strategy and business model realistic and how might a new business’ chances be improved for succeeding there in an online context?
There is a reason why I started this overall discussion of open issues in Part 2 with a discussion on defining and understanding group demographics and using that insight in marketing more effectively in a geographically and culturally open online context. Any valid answer to the above question on blue ocean strategies has to be at least partly grounded in how you address that set of issues. So I begin addressing this question of blue ocean strategy and opportunity in terms of marketing demographics and from the fundamentals about both: blue ocean strategies and businesses and the development and offering of the disruptively novel, and the demographic groups that you would have to reach to make that work.
• When you think and plan and develop a business with a blue ocean strategy and performance goal, you do so with an objective of offering something to the overall marketplace that is disruptively new and that breaks away from what is already out there and also from consumer expectations as to what is out there for them to choose from. That is what blue ocean means – if you pursue this goal of moving past and away from any current competition, that calls for coming up with and successfully offering something that no one else provides or can provide, at least now and through the near-term future and that no one has provided before. (As a basic reference on blue ocean strategies and businesses see:
Kim, WC and Mauborgne, R. (2005) Blue Ocean Strategy: how to create uncontested market space and make the competition irrelevant. Harvard Business School Press.)
• And this means you are going to be building into uncertainty. That includes uncertainty as to what precise marketing demographic to market to and uncertainty as to how best to present and represent your new product or service even where you do have a clear idea as to who to market to. And I add the people you would want to reach also start out unaware of the existence of what you would offer them or the possible value to themselves from what you would offer them.
I have written a number of times in this blog about the issues of that last bullet point and about adaptor curves and finding and bringing in involvement and interest among pioneer and early adaptors. I have also written about the role of social networking and viral marketing there, so my goal in this posting is not to simply recapitulate what I have already written on these issues. The question that I would address here is actually a core risk management issue.
If you offer a completely novel and disruptively new product or service to the marketplace, you might or might not succeed in bringing it to market and generating revenue flow and profit from it.
• A novel product for example, might or might not cost-effectively scale up for production and with sufficient quality control for you to want to ship your new products out the door.
• Assume you can build your new offering at a commercially viable scale and cost-effectively and with good, solid, consistent quality control. You might or might not actually know what your best target market is, and who would, by demographic characteristics, be your best marketing audience and most reliable customers. Experience shows that truly novel offerings tend to attract unexpected primary buyers and markets.
• Assume you do have a clear idea as to who you should market this offering to. You would have to be able to effectively reach these prospective buyers with a marketing message and a sales opportunity, but simply offering a new idea or product on the internet in general, and even with carefully selected and targeted pay per click and similar marketing might or might not cost-effectively work.
• The issue that I write of here can all be reduced to burn rate challenges, where you need to develop a business out of a new offering and with all of the expenses that involves before you run out of the funds you have available to commit to this – before you run out of liquidity for this venture (see my series: Understanding and Navigating Burn Rate at Startups and Early Stage Businesses, postings 67-78.)
• So the question that I noted towards the top of this posting is about what else you can and should do that might not offer as much prospect as a successful blue ocean venture, but that is fairly certain to bring in a steady stream of revenue that can among other things help bankroll that blue ocean attempt.
And this brings me to what can perhaps be seen as a fundamental paradox:
• Established businesses can approach blue ocean novelty opportunities from a position of having significant cash reserves, and having successful if more standard business lines that can serve as sources of new venture support. But an established business might not be as nimble in what it could consider doing, in taking a blue ocean strategy risk. And their business-as-usual systems might thwart the innovative exploration of new possibilities that would make their trying to develop a blue ocean venture possible. Established businesses can become set in their ways and anything but agile in having an ability to conceive or pursue new.
• Startups might start out with less organization and strategic rigidity and with more openness to the possibility of developing and offering something dramatically new, but they generally lack the cash reserves and the supporting, stable business lines that an established business could tap into in support of innovative advancement.
I am going to continue this discussion in a next series installment where I will address this paradox where:
• The businesses most able to support innovation financially, can be the least able to do so strategically and organizationally, and those most able to do so strategically and organizationally can be least able to do so from a firmly supportive financial base.
And the goal of any such discussion is to explore and present approaches for combining sources of necessary strength so “able” and “willing” can come together in support of innovative excellence.
Meanwhile, you can find this and other related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.
Innovators, innovation teams and the innovation process 3 – identifying, developing and supporting the individual innovator 2
This is my third installment in a series on innovators and the process of innovation (see Part 1: an organizational and functional story and Part 2: identifying, developing and supporting the individual innovator 1.)
• I began a discussion of working with individual innovators in Part 2, primarily considering there how innovator employees fit into and contribute to a business in keeping it competitive.
• And I sketched out very briefly how innovation and the work activities of innovators can be disruptive and how this can provoke pushback.
• But even as a business’ leavening of creativity and the push for new disrupts and creates new costs and risks, these employees also create that business’ long-term future too.
I finished that posting with recognition of what can be considered the first of a series of, and even a gauntlet of challenges that the innovative business faces:
• How do you as a business owner or manager identify creative and innovative potential in perspective new hires and in employees already in place?
• And beyond that, how do you best cultivate their potential?
I would argue that there are no set, absolute, universally applicable answers to either of those questions, and that point can be considered the first and perhaps most important part of my responses to both of them. Don’t just think in terms of rote standardization. Even if you do need to standardize your business and its operations, and for most businesses that is a necessity – always leave room for wild card variability and flexibility in identifying and managing innovation potential too, and approach innovation and innovators with an open mind. That said, I offer some general principles that I have found to work.
• Value and look for the novel perspective and for people who can view the issues and circumstances that they work with from unexpected directions.
• Particularly look, in this regard for people who can bring their perspective and understanding into sharable focus so others can see and understand it too. In this, a great idea that cannot be coherently developed and explained is not likely to go anywhere even if its creator is given full and active support. An idea or understanding that can be cogently and intelligibly conveyed, holds potential for being developed into practical and marketable products or services, or into functionally valuable new supporting business practices or approaches.
• Look for a balance of being able to communicate with and work with others, coupled with an ability and a willingness – and even a drive to seek out next possible steps and steps forward in unexpected directions.
• This places some very real demands on managers and at all levels, that they be willing to listen and with a more open mind. Managers who can only do things or allow things “by the book” and with no variations or deviations from standard and tried and true, do not work well in an innovative environment, and creatively innovative employees do not tend to work comfortably or creatively with them either.
• So finding and bringing in and supporting and cultivating creative and innovative employees, calls for a matching effort in finding and bringing in and supporting and cultivating managers who can create a more open and innovative work environment.
• Functionally, this is all driven by how both these hands-on employees and their managers are performance reviewed, and how this insight in turn is used in determining and allocating raises and bonuses, and promotions and other benefits.
• Even if every employee in a business is required to meet certain standard types of performance goals as a core performance objective and even if everyone at a business has a list of goals and stretch goals to work towards that fit into the business’ ongoing here-and-now, creative and innovative contributions that are made outside of that framework should always be rewarded too.
• And when these contributions make a clear and demonstrably monetizable contribution to the business, the reward shared from that with that innovator should be proportionate to the new and novel value created.
• At the same time, it is also important to remember that an innovative proposal does not always work out. They can die early in initial attempted development. They can appear promising at the bench testing and initial develop stage but fail to prove cost-effective or even fully functional at a more formal prototyping stage, or they might not be cost-effectively scalable to full production or implementation.
• Be quick to reward success but be much slower to penalize failure and particularly when the development and testing efforts employed were well thought out and well documented so this effort at least offered a real learning curve opportunity.
• And remember that innovators can be difficult to work with but so can your more rote-process and unimaginative employees too. Support and encourage open mindedness and creativity but require that everyone meet at least minimal and I add significant standards of civility and cooperativeness, and when working with in-house colleagues or with outside participants such as vendors and suppliers, or customers.
I am going to continue this discussion in a next series installment where I will return to the two questions at the top of this installment, but from a different direction. There, as a foretaste of that next installment I note here that some employees might best work as full time innovators and inventors, but that every employee is at least occasionally a valuable source of innovative insight and effort. Both ends of this innovative spectrum should be supported, and all points in-between. Making that work in a fundamentally lean and agile business context is the topic for my next installment.
This is my eighth installment in a series in which I look at acquisitions and divestitures and related processes, and examine businesses from a very modular prospective as to how value is created and sustained (see Business Strategy and Operations – 2, postings 358 and following for Parts 1-7.) And in a fundamental sense I address with this posting, what many have come to see as the public face of acquisitions and divestitures per se – when they are not lumping the different business arena of mergers in with them.
I stated at the end of Part 7: divestitures in a troubled selling-business and change management context that I would turn in this posting to consider:
• Businesses that acquire other businesses and functional areas of them,
• To sell off those assets as marketable products, and with that acquisitions and divestitures process and any intermediate steps added in constituting their basic business models.
And in that regard, I noted that such businesses can be at least roughly divided into two camps and as pursuing two very different basic types of business model approach.
• One of these models, starting with the negative side of this overall phenomenon, is what I call the chop shop model (after businesses that “acquire” cars to dismantle them and sell them for parts – see chop shop as this term is used in its more standard automotive context for perspective.)
• The other basic model focuses on creating overall systematic value, and generally that means creating unique new sources of value for the acquiring companies they sell to as a means of creating value for themselves. This, I call the value added model.
The former and more negative and even pernicious of these two approaches is, unfortunately, all too often the only approach that comes to public mind for acquisitions and divestitures businesses and I will at least begin this part of the discussion by addressing that and by citing a still current news example, as of this writing, as a case study.
When Willard Mitt Romney ran for President of the United States as the Republican Party candidate in 2012 he did so claiming to be a successful businessman and a job creator from that. One area of his work experience that quickly became a very active topic of debate and I add point of contention was his leadership of a private equity spin-off of Bain & Company (where he worked for an earlier part of his private sector career) called Bain Capital. The point of controversy that developed out of Romney’s role at Bain Capital and that I add followed him through his years there included how Bain acquired controlling interest in, managed and sold off other businesses. And in some very significant cases that meant acquiring solidly performing businesses with good cash reserves seemingly just to gut them with massive fees while selling off their key assets until there was little of real value left – except the red ink value of debt. Charges and accusations were made that like the chop shop of the business model name, Romney and this company that he led acquired to break and take – and that for too many of its business acquisitions the goal was simply to bring large returns on investment into Bain Capital’s coffers, even as those acquisitions themselves died off as viable businesses and their employees lost their jobs as a result.
My goal here is not to take a position on whether or not Bain Capital in general or Mitt Romney in particular made their fortunes out of breaking up businesses for scrap, or if this was true, how much Bain Capital built its business around that approach during Romney’s watch. I cite this story and briefly note this political conflict and debate here to raise the specter of a very real phenomenon and how it sits in the public mind.
To put this business model in a fuller perspective, consider a business that is failing and that cannot be recovered through change management – and a discouragingly high percentage of businesses that enter change management processes still do fail anyway. The chop shop model as I call it could under those circumstances also be viewed as a liquidation model where whatever value that can be recovered in a business failure is.
• The problem that arises here is when this same approach is applied to sound businesses, and more specifically to businesses that are undervalued but that are basically sound and that could become better positioned in their markets again and more highly valued there too.
And this brings me to the driver that makes the chop shop model work, when it is actually pursued as such:
• Businesses that are targets of opportunity for chop shop model acquisitions and divestitures firms are essentially always undervalued. Their intrinsic overall value as determined by reasonable and prudent measures of resources held, debts held and on what terms, and ongoing business performance exceed and even greatly exceed presumed values assigned to them through their publically traded stock prices and related measures – the price they could be acquired for, at least as a matter of capturing controlling interest.
• Think leveraged buyouts and hostile takeovers here as mechanisms deployed to make that work.
Concerns that Mitt Romney was this type of businessman and that he pursued that type of business model did as much as anything to unravel his presidential bid – and whether or not this view of him is valid. And the political dialog revolving around Bain Capital and his role there over his 17 year tenure solidified the image of acquisitions and divestitures as a business model as being tantamount to “corporate raider.” But that should only be seen as one part to a larger and more complex story.
With that as complicating background, I come to consider the second basic approach to the acquisitions and divestitures business model: the value added model – which is all too often lost as a possibility under the press coverage and public opinion that chop shop model businesses and their threat create. I am going to more fully discuss the value creating model in my next installment in this series. Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2. I have also included this series installment in Startups and Early Stage Businesses.
Commoditizing the standardized, commoditizing the individually customized 3: acknowledging the consumer demand for choice 1
This is my third installment in a series on the changing nature of production and commoditization (see Part 1: a brief historical sketch as background for discussion and Part 2: some initial thoughts on a post-assembly line and mass produced world.)
I wrote in Parts 1 and 2 of assembly line mass production and of system stressors – sources of variation and of deviation from an optimized high-efficiency single work-flow model. And in this I turned back to consider Henry Ford and his invention of the assembly line system for manufacturing his Model T automobiles.
• End product variability is the one systems stressor that cannot simply be minimized or even eliminated through production process and flow redesign, so supporting product variation and diversity is the one area where it is most difficult to limit production cost increases.
• Ford realized this so he only offered his cars in that one famous color – black, which I add both increased his ability to build less expensively on a per-unit basis, and to sell less expensively too.
• And I add, black does not show dirt or grime as readily as lighter paint colors would so a car can look better in black with less cleaning and particularly where it is being used on dirt roads. Ford knew that too.
My goal for this posting is to at least begin adding consumer choice and the drive for product distinctiveness and variation into this model. But as a starting point and for purposes of building a foundation for that discussion, I begin once again with Henry Ford and his Model T’s. He began with that single open body model but as his sales and his business took off he did expand consumer options, coming out in 1915 with his first closed body cars that would protect the driver and any passengers from the elements. His Ford Motor Company began producing sedans, coupes and even trucks, with his truck bodies identified with a Model TT designation.
This became both economically feasible, and I add necessary from a marketplace and a business growth-requirements basis as production scales expanded so as to be able to support multiple assembly lines, and with different assembly lines and even separate facilities building different makes and designs. But for purpose of this discussion, I would start much earlier in this story than there, and with that first production assembly line and when Ford Motor Company was more dream and promise than established fact.
Henry Ford did not invent the automobile.
• Steam powered vehicles that can be seen as early precursors can be found in reference at least as far back as 1672 (see Ferdinand Verbiest and his invention of a steam-driven wagon.)
• The internal combustion engine goes back at least as far as 1807 with Nicéphore Niépce’s and his brother Claude’s Pyréolophore and
• The simultaneously if independently developed De Rivaz engine with vehicles built with that power system.
• Gustave Trouvé demonstrated an electrically powered automobile in 1881 at the First International Exposition of Electricity in Paris.
By 1908 when the first Model T’s were produced, a great many businesses were producing cars, and with a surprising variety of power sources, designs and features. But all of these earlier competitors held a few crucially important features in common.
• They were all essentially hand built according to the older artisanal model.
• They were all prohibitively expensive to purchase or maintain except by the very wealthy and essentially as big exotic toys in most cases.
• And as long as they were envisioned, designed, built, marketed and sold as they were, they were going to stay that way.
Henry Ford’s goal was to democratize the automobile, opening up and catering to the needs and preferences of an increasingly large and increasingly collectively wealthy new middle class. His approach to single-process and single-product outcome assembly line manufacturing made it possible to build cars that people in general, and certainly members of that new middle class could afford.
But once all of those people began buying these new Ford autos, and when they began to see this as a more standard purchase and possession, and even as a necessity – and not just as an exotic purchase and a luxury, they began demanding product variations – so they could own a different car than their neighbors and one that stood out as theirs.
The more people bought and owned autos, the more of an economy of scale there was that would support building more varied lines of end product cars, and I add trucks too. And competitors got into this business and that greatly increased product choice and it drove every participating manufacturer to adapt to change in what they built too – slowly at first, but with time at a rapid pace. And of course, all of this helped develop and build entire supporting industries, and for fuel and motor oil and other products needed to keep these vehicles going, and for parts manufacturing and repair services and more. And when people drove, this changed and expanded what “local” meant for bricks and mortar businesses everywhere, and it changed the nature of communities as a whole. But those are other stories for other postings and series. For purposes of this posting and series, the important point is that people who bought cars became people in general who at most selectively, simply fit into that growing middle class. And they came to demand variety and choice and of a type and range not considered in those first Model T days, or even possible then.
At approaching 1000 words now, I am going to stop this posting here. I am going to continue this discussion in a next series installment where I will delve further into the issues of breaking out of the single pattern constrained assembly line model. And I am going to fast-forward in that to consider a very different type of business model than Ford envisioned, as driven by the history of motor vehicles that grew out of his company, and that has been driven by consumer and marketplace demands, expectations and assumptions. I initially said that I would look into the Scion business model in this posting. I actually will do so next. Meanwhile, you can find this and related postings at Business Strategy and Operations and its Part 2 continuation page.
Opening up the online business model for new and emerging opportunity 2: online target demographics oriented marketing
This is my second installment to a series on new and emerging online business models and on developing best practices for finding and creating new and novel online business opportunity. I began this series from a largely Web 2.0 oriented perspective (see Part 1: outlining some of the basic issues and challenges) but admit here that my goal for this series is more ambitious than simply that of suggesting some here and now-obvious best practices for developing a business in a current-generation Web 2.0 context, with or without explicit development of matching current Web 3.0 and semantic web capabilities.
I explicitly raised several open issues in Part 1 of this series, and my goal for this installment is to at least start addressing them – beginning with a complex of issues that I raised towards the top of that installment, and only briefly touched upon in what followed: marketing to a targeted demographic as a business’ local community. And I want to begin that by noting a basic fact that should be obvious, but that still can hold significant marketing and sales surprises when considered in practical detail:
• A targeted marketing demographic can be and usually is defined in terms of a set of shared member traits that can be correlated with varying degrees of certainty to likelihood of buying specific types of products and services, at specific price points and when marketed and offered in certain ways.
• That, at least represents the goal, connecting an understanding of who would be marketed to, to their behavior when marketed to, and in ways that can lead to insight as to how best to develop and complete sales.
But essentially any real group of people share traits in common that are not considered or included in the marketing data collected, and even in a big data context – here if data is collected but not effectively integrated into these models, it effectively does not exist from their perspective. And at least as importantly and particularly in an online context, any such group is also going to differ, and to be partitionable according to factors and traits that are not under consideration too, and for which data is not being collected or where it is but once again where these differences are not being allowed for in the marketing model.
As a quick and perhaps more technical digression, consider the impact of determining correlations between measures of predictable marketing impact and group identifying traits, when the overall group under consideration is more diverse that is realized. And a possible correlated trait might show as having an insufficiently low correlation coefficient value as a predictive factor to be meaningful across the entire group, and be discounted from the marketing model as a result – where it is in fact very significant for select and numerically important subsets within that larger group. (I cite and offer a link to a more general and open-ended reference for correlation coefficients there as the basic principle I cite here applies across essentially all statistical modeling approaches that might be in use where these values would be determined and used.)
And with all of that in mind, I explicitly turn to consider the similarities and the equally significant differences and diversities that can be found and even within what should be well-defined marketing demographics when they are globally distributed and cut across diverse traditional cultural and linguistic boundaries.
To take this at least somewhat out of the abstract, consider the following admittedly simplified scenario. You own an online business that produces, markets, and direct-to-consumer sells a line of environmentally friendly products – Green technology products in the West. And you come from a country and a culture where this is explicitly referred to as being green so you build your branding and image around that, and by that name and with that color. This may or may not matter as we people as a species seem fairly comfortable with inconsistencies and nuances, and even with cognitive dissonance, where we simultaneously hold two or even more seemingly contradictory views or opinions at once. But as a matter of possibilities, different peoples can see the color green as carrying very different culturally based connotations and implications. Green is a very nationalistic color in Ireland and it is a color associated with religious virtues in Islam and in predominantly Islamic nations, where it is often incorporated into national flags and other symbols. But depending on where you are, green is also associated with envy and jealousy, and in some countries (e.g. Belize) even with death, so the range of associations that would go through peoples’ minds with regard to this seemingly simple trait can be very diverse. (The Wikipedia entry for green sheds more light on this diversity so I cite it here as a background reference.)
My point in this example is that you might be targeting a demographic with a goal of doing significant levels of business with its members, who should as an overall group be positively predisposed towards your green technology products – but how you market this to them and how you use that color per se in reaching out can have varying impact and meaning depending on the cultural context and expectations of the people you reach, from within that globally dispersed marketing demographic. My guess is that by now, you are likely to be thinking that I am pushing “green” to far here. I can only reply to that objection with two points:
• It is the little details that we do not see as significant that can trip us up here, and particularly where they bring up distinctions and differences of bias and preconceived opinion that others might see as more important than we do.
• And we all make our purchasing decisions on the basis of unconscious decision making processes as well as from our conscious and more analytical thinking – and we at times only seem to use our more analytical and conscious reasoning to justify decisions already made less consciously.
And for green as a working example, I also note that this color has been used as a distinguishing identifier in sectarian and other conflict so even a color choice can have real impact.
• Market globally, but with a local face and awareness – and in this context, local means more accurately and adroitly defining all of those similar but still different and distinctively unique demographics, and really knowing where they can and should be combined as a single audience and where they have to be respected for their differences and diversity.
When I wrote my series: Big Data (see Ubiquitous Computing and Communications – everywhere all the time, postings 177 and loosely following) I wrote of the Holy Grail goal of effectively marketing to the demographic of one. Here I write of the equally compelling goal of marketing to the more finely envisioned and more effectively targeted group demographic too – and in a global setting with its bewildering ranges of potential similarities and difference and in both analytical opinion and unconscious assumption and correlation, that becomes more complex than it ever could in a more physically and geographically local market setting.
I am going to continue this discussion in my next series installment, there turning to consider those open questions that I raised towards the end of Part 1:
• When is pursuit of a true blue ocean strategy and business model realistic and how might a new business’ chances be improved for succeeding there in an online context?
• And what should be its perhaps more conservative Plan B, and when should breakout success and blue ocean strategy development that would lead to it be the Plan B?
Meanwhile, you can find this and other related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.
Innovators, innovation teams and the innovation process 2 – identifying, developing and supporting the individual innovator 1
This is my second installment in a series on innovators and the process of innovation (see Part 1: an organizational and functional story.) I began this series with a basic orienting discussion as to how the issues I will discuss here connect with and follow from other postings and series that I have been adding to this blog. And in that regard I particularly note the series: Keeping Innovation Fresh (see Business Strategy and Operations – 2, postings 241 and loosely following for Parts 1-16.)
My primary goal in that series was to discuss and analyze how innovation can be built into an organization as a source of sustaining value for it, in return for investments made and with a focus on the organization itself. My goal here is to focus on innovation as a process and hands-on innovators themselves, rather than on the organizations that they work for.
• I stated at the end of Part 1 that I would focus on the issues of identifying innovative potential and fostering and developing it here, and with an emphasis on working with the individual innovator, and
• I begin that by noting that all innovation ultimately comes from the creative insights and efforts of individuals who are able and willing to look and to work outside of the standard and conventional.
• And all of what I would write in this posting and in installments to follow, stems from that basic fact. Some businesses see innovation as a cookie-cutter process and as a pattern that can simply be pursued by standardized procedures and on a set timetable, and with little if any risk of failure from any “legitimate” innovative effort. None of that is valid.
• Many if not most organizations downplay the value of creativity and foresight, and of innovative potential in favor of a rigid adherence to here and now standards, visions, understandings and above all – procedure.
• Innovation breaks new ground and supporting innovation and efforts to creatively break new ground always carries risks. And it always carries with it a measure of disruption and of challenge to the status quo.
• Even the most successful innovation development efforts can and do run into and have to overcome unexpected challenges that can skew timetables and bring delays and cost increases. The operational and strategic goal of the innovative organization should be to find and pursue a working balance between tried and true and business as usual, and new and experimental and yes, even disruptively so.
• And in that, and addressing the venture towards innovation and change that takes place within a business that seeks to stay competitive, their goal there should be to skew the risk and benefits balance in their favor so prospective risk overall, is less than potential benefits as developable overall from the ongoing innovation effort – while supporting this effort and the innovators who create it, in the face of possible setbacks.
• In keeping with that, I note that Thomas Alva Edison is commonly thought of as being among the most prolific and profitable inventors in history and his invention of a practical light bulb is often cited as being among his best known, most influential and most important innovations. Yet he had to test out some 700 or more possible light bulb filaments before he found one that would produce light of a sufficient quality and intensity and with sufficiently low power requirements and that would last long enough for these new devices to be useful and marketable – and they had to be producible and marketable at a good, competitive price on top of all of that. (The number of tries here is arbitrary as you can readily find numbers quoted from the 700 that I cite here, well up well into the thousands. I decided to cite the most modest end of the scale offered, which is still more than enough to prove my point.)
So innovation and invention are important as their fruits create the competitive business’ future. The innovative process can be messy, and certainly as it can and does violate simple rote organizational planning and processes. And the innovative business has to find ways to be agile and lean and to keep things simple and focused while allowing for and supporting this.
This sounds simple and straightforward in the abstract and as a matter of general principle, but can become more complicated in practice and when dealing with individual employees in the context of actual day to day work flows and work priorities. And I add that even the most creatively valuable and innovative employees that a business has, start out as unknowns – and the more standard revenue generating here and now business practices and processes still have to go on, and with everyone contributing to the business and its ongoing competitive strength.
I am going to continue this discussion in a next series installment where I will discuss talent searching for innovative potential and excellence, and both from outside of the organization and from inside it and from among its current employees. Meanwhile, you can find this and related postings at HR and Personnel and also at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.
Acquisitions and divestitures 7: divestitures in a troubled selling-business and change management context
This is my seventh installment in a series in which I look at acquisitions and divestitures and related processes, and examine businesses from a very modular prospective as to how value is created and sustained (see Business Strategy and Operations – 2, postings 358 and following for Parts 1-6.)
I focused in Part 6: exit strategies and the sale and acquisition of complete businesses 3 on the serial entrepreneur and on building startups with a goal of marketing and selling them as complete business entities for the unique value propositions that they offer. Think of this posting as representing the exact opposite of that situation, with a matching discussion of right-sizing and streamlining a business in trouble with a goal of regaining business viability and strength.
In a startup as commodity scenario, with the business built to be sold as a profitably marketable offering:
• The business itself is built lean and agile around a clearly conceived source of business value,
• Extraneous organizational structure and business facilities are kept to a minimum in developing this, and
• Essentially everything and everyone in place are there for a reason.
• And the exit strategy goal is to build primarily if not exclusively to sell that defining source of marketable value.
In the change management scenario outlined here,
• The business itself is in most cases disorganized and sclerotic, and replete with waste, duplication and inefficiency, and it is likely to be organizationally disconnected and lacking any real strategic or operational center – and certainly for its day to day decisions and actions.
• The overall goal is not to sell the business, but rather to save it and even if that means saving it in effect from itself.
• The areas to be divested would be sold off both to bring in cash and to reduce non-productive and disconnected expenditures that have been bleeding the company out.
• So divestiture resources are more likely to be out of date or even obsolete than cutting edge, and organizational and operational systems that connect them together as a working part of a business are likely to be lacking.
• This means the selling business is not approaching divestiture as a company offering resources of compelling competitive value for an acquisitions marketplace, as much as it is a business selling from a condition of distress where it cannot afford to hold off for best bids. They are more likely to be seen as having blood in the water than as holding a marketing commanding position as they sell.
This all creates very interesting, and I add time-sensitive challenges for the divesting business, and even if it seeks out and secures organizational protection from creditors and through mechanisms such as Chapter 11 bankruptcy filing under the United States Bankruptcy Code.
• First of all its leaders and owners have to determine and articulate what this business actually stands for and does that can serve as an ongoing source of marketable value moving forward. It is likely that at least part of what it has seen as its source of defining value has fallen away from having such value for the markets it now faces, and that it can anticipate facing moving forward.
• Then its leaders and owners and any third party strategists brought in to help with this, have to determine and priorities what is there, and what of that would add value moving forward in support of the re-envisioned mission of the business.
• And they have to coordinately identify sources of ongoing expense and risk that are also being carried by the business that no longer support its mission or its newly forming strategic and operational vision. This is where resources might simply be written off as losses, or if packageable into marketable form be divested as saleable resources. What is more dead weight than anything else for one organization might be of real value to another.
• For the selling business that is undergoing reorganization and refocusing, identifying potentially monetizable, attractively marketable resources that do not fit into its new plans can be an important part of its recovery.
• And organizing and packaging what is to be sold off so as to meet the realistic needs of a potential buyer – and cost-effectively for the seller is an important part of making that work.
Taking this out of the abstract, consider a business that has been maintaining warehouse and production facilities that are out of date and disconnected from current or anticipated business needs for their size, location and technology in place. But they are located in a prime industrial location in a country with a growing market and with real competition for securing good production facility locations. The buildings and perhaps even more so the land they sit upon are going to be the real draw for any prospective buyer. The fact that electrical systems, water and waste disposal piping and other infrastructure are already in place offers real value too. You might very well have to sell off the old and out of date production equipment for scrap, and some resources in place will be discarded essentially entirely as a business loss (with that entered into tax filings as such.) The goal would be to sell quickly while bringing in as much working capital as possible that can go into helping finance the switch over and fulfillment of the change management updates that are being pursued by the selling business. And any tax write-offs and reductions in taxes due, as spread out over an agreed to period of years would offer supportive value for the selling business’ recovery too.
• Know what your business would divest and how and why.
• Know what types of buyers and prospective buyers would find value in what you would divest your business of and why, and what they might offer for it.
• Then sell competitively against alternative sources of the same types of resources that you would offer so as to get a good competitive price and on as good terms as possible.
• Here, terms of payment and timeframes for that can be as important or even more so, than the overall total that would be tendered in payment over the course of the sale and its aftermath.
I am going to turn back in my next series installment to Part 1: right-sizing and orienting for business strength and growth where I first cited businesses that acquire and divest other businesses and their business resources as their business model. And in anticipation of that and repeating from Part 1, I note that:
• There are two very different but important acquisitions and divestitures business models that merit explicit discussion here, where divestiture product development and commerce flow based upon it can become a major source of ongoing revenue and even the primary source of incoming revenue for a business.
• One of these models, starting with the negative side of this overall phenomenon, is what I call the chop shop model (after businesses that “acquire” cars to dismantle them and sell them for parts).
• The other basic model focuses on creating overall systematic value, and generally that means creating unique new sources of value for the acquiring companies they sell to as a means of creating value for themselves. This, I call the value added model.
Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2. I have also included this series installment in Startups and Early Stage Businesses.
Commoditizing the standardized, commoditizing the individually customized 2: some initial thoughts on a post-assembly line and mass produced world
This is my second installment in a series on the changing nature of production and commoditization (see Part 1: a brief historical sketch as background for discussion.)
I wrote Part 1 as an admittedly cartoon simplification of the history of manufacturing, from small scale and individual production of one-off items to mass production of standardized products that would be marketed and sold. And I finished that posting at least thinking of a famous if perhaps apocryphal dictum attributed to Henry Ford as he built and sold his Model T automobiles: “you can buy one in any color you want so long at that is black.”
This is often cited in the context of consumer choice, or rather consumer lack of choice. And the alternative that is usually cited by way of comparison is the product and consumer choice variability and flexibility of more artisanal design and manufacturing. Consumer choice is very important here, but I would at least begin this discussion by considering the implications of what Ford said, from a different perspective: design and production, and the drive to carry through upon them as cost-effectively as possible so as to keep consumer prices down and still generate significant profits – while offering employees premium wages so as to maintain highest possible production and product quality.
Consider the impact of paint color in building and assembling a production line of cars, and to keep this simple consider the consequences that offering a car in just two colors: black or white would bring. In this scenario essentially everything under the hood and inside the car would remain the same and be standardized to a single SKU option per part that would have to be inventoried and shipped to the production line, as was the case for producing those single option Model T’s – except for the pre-painted body parts. When every one of them is black, any part A that has to be connected to a part B would work together with any part B. When these parts might be painted differently, only some parts A and B combinations would work and inventory flow would have to be adjusted to allow for this extra complexity. One obvious approach would be to warehouse assemble what amounts to two separate car body kits, one with a complete per-car painted assembly for black cars and the other with a complete painted parts set for building out a white car.
These two car colors would be expected to sell at different rates, and quite possibly with seasonal and regional differences so it would be necessary to track production and distribution requirements and both for the painted car body parts and kits, and for the completed cars as they leave the factory and are shipped to market. This adds organizational complexity and it in all likelihood means a larger headcount of employees will be required to support this extra work flow complexity. And that would in both cases increase overall production costs and costs to the consumer – if only by some small increment.
Now consider a situation where that first production model Ford automobile is produced in eight different body paint options, and with five different interiors with different upholstery colors and materials, and differences in the dashboard. Now parts acquisition and manufacturing, inventory warehousing and distribution, and shop floor parts management and work flow are all going to be a lot more complex and I add expensive and particularly when the operational details of running an assembly line system per se, are still under development. Depending on the variations on this basic car design supported, specialized tools may be needed for some car builds but not for others. And as more and more product variability is added, the basic assembly line concept of moving a car in production from one worker who completes one standardized step or at most a short series of them, and as rote processes begins to break down.
Think of these variables introduced here as stressors to the mass production, assembly line system and the most important of them are in end user options and the proliferation of end-product variability. Variability in what ultimately comes off of the assembly line, after all, is the one form of variability here that cannot be eliminated or even significantly reduced by operational process standardization and optimization.
I noted how pre-assembly kits of, in the above case, pre-painted body parts can be bundled for greater ease of assembly and with the right balanced numbers of all kit parts in the right place at the right time. Pre-assembly of subsystems can help and so does running same-build production in batches, where one basic build it done today because it is Friday, but a different one will be assembled this coming Tuesday. This is important when an assembly line has to be at least somewhat reconfigured for a different build. Though optimization can also mean setting up separate assembly lines that are tasked for different models or differently designed builds of a single model. I am not offering any suggestions here that Henry Ford would not recognize and in fact have used, and certainly as his company expanded to be able to effectively afford to run parallel assembly lines.
The overall goal in all of this is simplicity and the cost-effective efficiency that this can bring. That means consistent standardization. This, I add is where people like Frederick Taylor and his time and motion studies enter this picture too, as businesses sought to both develop and improve upon assembly line and collaterally supportive functionalities to create greater business efficiencies and increased marketplace competitiveness.
And with that I am going to fast-forward to the modern car and its production and distribution complexities – stemming in large part from the market driving demand for consumer options and choice and for much more than just paint colors. And I will turn in my next series installment to consider what might be considered an extreme case, case study with the Scion: a Toyota Motor Corporation brand manufactured primarily for their North American market. Meanwhile, you can find this and related postings at Business Strategy and Operations and its Part 2 continuation page.