Ryanair and the risk of the race to the bottom

Our previous observations on the benefit of having a clear strategy, using Ryanair as an example of clarity and the way that drives choices, had one predictable outcome: a number of comments on individuals perception of the service provided by Ryanair.

This does highlight one of the challenges of using a clear and easy to understand direction as a means of driving other decisions. When an absolute becomes the driving guide (the cheapest, the largest, the fastest..) then that can be used to override other considerations. Where it works well ( such as driving an adoption of lower cost airports) then it makes sense. When it breaches customer sensibilities, then there can be issues. Even Michael O’Leary has been heard to suggest stepping back from some of the more extreme elements of their approach.

The largest parallel example of this in procurement strategies is where cheap is allowed to overpower other requirements. There are a number of examples where excess zeal in price reduction has led to operational challenges in a number of sectors (names withheld to protect the guilty). This underlines the need for sophistication in the development of strategies,  where a clear balance of approaches is well developed and understood.

This takes us back to the need to be absolutely ruthless in defining and agreeing what the balance of business requirements really are. Disaster awaits where one requirement is assumed to take precedence over others without having tested and agreed that assumption with the owners of the other, and balancing requirements. To do this, there needs to be an established mechanism whereby the various parties involved can discuss and debate the priorities and record the way in which the balance of requirements is worked out. Of course, it’s still open to debate and discussion – this is a fallible and subjective set of concepts, involving organisational politics, rather than a structured scientific process. However, having an agreed approach is far better than having nothing.

On occasion, it is clear where a policy or values driven approach has taken precedent over other areas; often evident in industries where there is a high level of physical risk, then there is an acceptance that Health and Safety will always have priority. Even here it is necessary to reiterate the reasons why this precedence exists to ensure that the underlying issues are both understood and addressed.

So, what can we take away from this?

  1. A clear strategy does help, because it provides some fundamentals against which we can test a variety of possible solutions.
  2. It is likely that we will be dealing with a more complex mix of requirements, even when there is a clear strategy
  3. We need to make sure our understanding of the various business requirements is both clear, and agreed with others involved
  4. It is better to have a structure in which this is done.

None of this is news; however, the thoughtful use of these approaches is less well embedded than we need it to be. Working in this area and getting to excellent outcomes is a fundamental of good delivery.

Mark Hubbard thinks about sales and procurement at www.smartbrowndog.com

IMG_2071

Posted in Uncategorized | Leave a comment

Can Procurement learn anything from the Australian Ashes performance yesterday?

No.

 

Mark Hubbard thinks about Procurement and Sales at http://www.smartbrowndog.com

Posted in Uncategorized | Leave a comment

The Ryanair Approach to Strategy

Often, when reviewing procurement strategies being developed in businesses, the standout feature common across many is the sheer lack of ambition. There’s often a host of reasons for this, including poor change management, limited time, bad governance, insufficient commitment or understanding, poor training / coaching / mentoring to name a few. Great strategies are often the product of both good quality individual and team thought, but also a range of supporting activities which allow the creative bit to work well.

In amongst all that, there is the need for a good level of creativity to flourish within the team addressing a particular category, and to find ways of throwing away a series of constraints. This can be hard to do from inside the bubble of a particular environment, so it can be useful to look elsewhere to see the way others have tackled issues of ‘breakthrough’.

Ryanair is a great example to think about, as it shows how a simple idea can be delivered through a host of transformation activities. The core of that simple idea is low price fares delivered through a low cost operating model; they are generally recognised as having some of the lowest price fares and the lowest cost operating model.

This simple vision then drives a whole series of approaches to get to that lowest cost operating model. As an example, Ryanair have a younger fleet than most airlines, giving fuel efficiency benefits (possibly the largest cost driver being faced until recently). They also have identical planes: all 737-800 which provides a significant benefit in negotiating position, servicing and maintenance and spare parts acquisition. They go to less popular airports and have leverage with the airport owner. Their approach to luggage and boarding times is legendary. As is food. However, the whole effect is coherent and drives a simple aim the customer can understand: get the ticket price down.

Clearly, get the price down is a very focussed target, and may not work well in all category strategies. However, finding a focus in a category can be very helpful as it really determines the general direction.

To do this well, we really need to have a strong grip on the business requirements: what are we really trying to do in this category. An absolute focus on maintaining supply (at all cost) drives a different approach to an absolute focus on price. Getting to that clarity as early as possible, and working to understand the different possibilities which will absolutely drive in that direction, gives a very potent way of getting alignment.

The challenge is usually to get the true alignment and focus on the requirements for a category of spend and make sure that is aligned to the business needs. Recent experience suggests that the clarity of business strategy can be lacking (or, worse, is perceived as meaningless management speak) which dilutes the rest of the activities which are driven from it. Where this is perceived as a problem, getting back into the detail of business direction will be time well spent.

Some categories, by their nature, will run across a broad spread of business strategies. Car fleet and property both run across environmental, image, H&S, HR strategies, so any category strategy has to work effectively across all of these. Direct categories need to take into account innovation, risk, time to market, customer requirements. There is clearly some complexity in working through how all these areas impact on a category, and the easy default is get the price down.

We need to do better than that. By exploring and challenging in detail what the category needs to do to align to the actual business requirements, we can really test if our ideas progress those requirements or not. The best category strategy drives the largest number of business requirements forward.

Mark Hubbard thinks about procurement and sales at www.Smartbrowndog.com

saltire

Posted in Uncategorized | Leave a comment

The Killer App for Procurement

There’s a whole internet meme out there about Killer Apps for different products and different uses. Historically, I can recall Supercalc 4 being the miracle app for PC’s;  the Microsoft suite took over at some point; whole sets of word processing software surfed the wave, and fell off. SMS arguably was the killer phone app before smartphones.

In all of this, what’s the killer app for procurement? It could be SAP, but it so isn’t. There’s no procurement equivalent to salesforce.com. It might be one of the multi- solution platforms combining e-auctions and eRFX. But I bet it isn’t.

Truth is, there is no killer app for Procurement that stands out. Understanding why that is the case perhaps goes to the root of understanding the challenges facing Procurement, and could guide the development of something truly useful.

To get there, we need to understand what Procurement truly does. There’s a whole set of beautifully crafted phrases, which seem to boil down to ‘helping the business get the best possible value from its supply chain (by re-engineering whatever it takes to do that)’.

‘Helping’ is perhaps the most difficult phrase. As procurement buys almost nothing for itself, it is always working for a mix of stakeholders. The best it can do is to sell a great story about why a change is a great thing. As such, a way of telling a compelling story, with simple but great visuals, is a massive part of a successful, procurement led change program. The limited capability that many organisations, and people, have in this space is sometimes amazing to witness, and is one where dramatic coaching and practice is truly necessary.

The other big area is re-engineering whatever it takes. The best procurement outcomes have always had big change associated with them. to do that, the largest stumbling block is getting brave during the creative part of the category management process. Many fall at this hurdle. Indeed,  one nameless contact felt that developing innovations and options wasn’t necessary as surely the answer was clear ( before driving in another 2% price down).Leading a disparate group through the development of a change program is a big ask for many Procurement folk, and again, an uplift in skills in being able to do this bit is seriously needed.

So, is there an app for that? Both the areas identified need an approach which is personally acceptable, rather than systematically driven. Being brave in the creative part of the process is often about courage and individual comfort with addressing difficult areas, and leading others through it. So a range of both facilitation skills, and creative thinking approaches will help, together with the self possession to use them.

The communication element is tough ( and many apps are surely about communication). Seeking ways to get ideas over more powerfully, in a way that gives leaders the core ideas and issues, and stands out from PowerPoint death, is surely a killer app.

There’s nothing leaping out in the market at the moment, although new Adobe approaches to communications and better brainstorming approaches, linked to mind mapping and planning, are great.

Of course, there’s lots of other areas people need to look at: data gathering, market triggers, price movement, raw materials, rainfall in Idaho; perhaps one of these is a better target.

Procurement is a complex world; the silver bullet isn’t yet available. But we need to keep looking!

Mark Hubbard thinks about Procurement and Sales at Smart Brown Dog ltd.

www.smartbrowndog.com

DSC_0083

Posted in Uncategorized | Leave a comment

Diesel vs. Petrol – and how it affects strategy

More than eleven years ago, I was involved in the development of a broad reaching company car strategy for a large business. Previous efforts had focussed on a  good deal with the the fleet businesses, whereas a good fleet approach needs to encompass a broad range of issues, including accident rates, whole life costs, fleet economy, fuel types, insurance and more.

Once key issue for the European fleet was the continuing move to the use of diesel fuel. Although more expensive, and with the challenge of shorter service intervals, the overall costs, residual value effects and the fleet economy suggested this was a route that should be followed.

In the subsequent time, the demonisation of diesel fuel has grown, largely triggered by the impact of studies on the effect of particulate emissions, the actual contribution of diesel vehicles to CO2 production and an increased focus on products such as NOx. An analysis of the current position ( http://www.bbc.co.uk/news/business-33254803 ) suggests that there is a case to answer, particularly in areas such as the way in which tests are conducted compared to real world performance.

As this argument starts to take hold, a number of challenges are likely to arise for the owners of fleets and those selling into them.

Firstly, there’s going to be a change in the valuation of used cars in Europe. Diesel, so long a pillar of resisting depreciation, will slowly become less acceptable (and with a risk of suddenly becoming unacceptable). A risk for fleet managers is having a depreciation swing during the life of a vehicle. This is OK if the contracting approach locks in a future depreciation number, but owners of lease schemes will look to make sure this is avoided.

There will be a refocussing on the reporting of fleet emissions. The current fleet may be reappraised to have a significantly worse profile than it has at present, resulting in poorer reporting – possible even a dramatic change in corporate position. This may have knock on repetitional impact.

There will be a swing in the fleet composition. If a move back to petrol becomes likely, then there will be a swing in production facilities and cycles and a swing in availability over time. There may become a premium in terms of depreciation for petrol engine cars. Service schedules may change.

However, given timing, there may also be a change in technology. The move towards hybrid technology is far stronger now than it was, but the volume availability for larger fleets is still not fully realised.

What can all of this mean? The core is, of course, risk contained in a purchasing strategy. Any dramatic move like this tends to require a realignment of procurement strategy  to reflect the new realities of the world. At this stage, the timing issues which are in play (as any change in legislation is likely to be some way behind initial reporting) will mean change in buying behaviour is likely to be gradual. Some large fleets may grasp the nettle and go for a dramatic change in direction, particularly if the need to demonstrate a health or environment focussed attitude gets higher on a board agenda as profitability improves.

On the sales side, the challenge appears to be gauging how fast any change in sentiment is likely to happen and match activity and stories to suit. Marketing have a considerable challenge as well: how to sell an embedded set of behaviours over time, and whether to start early – to increase awareness – or to ride the back of change driven from elsewhere.

This type of reporting, not over-emphasised at present, but providing a good forward indicator of what might be coming down the pipeline, is the sort of thing we all need to watch for and grasp the implications of. Even if we have no immediate need for change, early preparation gives us more room for change later.

Mark Hubbard thinks about Procurement and Sales at Smart Brown Dog Ltd.

http://www.smartbrowndog.com

diesel pump

http://www.smartbrowndog.com

Posted in Uncategorized | Leave a comment

Greece, Germany, Game Theory and Negotiation

Greece and Germany – reflecting on a negotiation

It is rare for a major negotiation to be played out with results and positions tweeted in public; rarer still for one side to have written respected books on game theory and for discussions about the use of game theory in negotiation to make it into newspapers.

At todays standing (14 July) there is a position where Greece appears to have capitulated in what commentators are describing as a brutal negotiation. With limited power on the Greek side, and the weight of levers, opportunities and tools on the Eurozone and German side, then a losing position for Greece at this stage is not unexpected.

However, as in all negotiations, the challenge is actually the outcome which is achieved in practice. In reality, we’re still in the midst of the negotiation, and one particular set of conditions is now being tested. The Greek parliament now has to ratify a coruscating set of conditions before any further action takes place, including enforced transfer of assets to EU control.

If this set of conditions is ratified, there is a further challenge – that of actually implementing the negotiated deal. If one party in a negotiation believes they have lost massively, particularly in the face of a significant display of power, then the likelihood of simple compliance seems low.

The final outcome of this set of discussions is still far from clear, and the long term position is even less known. However, we can reflect on some elements of this as a learning point for commercial negotiation. If we are driven through an imbalance of power to drive in an agreement which is far more to one parties favour than the others, we do need to break out the risk analysis tools. What happens if the other party cannot fulfil the agreement over time? What happens if the sales team cannot deliver the agreed conditions in practice? What happens if all goodwill is withdrawn from the relationship? What happens if we have to manage to the strict contractual terms – particularly if we know we have some weaknesses on our side?

Over the longer term, we’ll have to live with the consequences of the negotiated agreement, even if the other party is struggling.

Was there another way? There is an approach in Game Theory which is described as the Trust game: in essence, one party has to offer something to the party with greater power in the hope of receiving a larger award ( in essence). Greece clearly had the opportunity to do this at an early stage of the negotiation, but instead seemed to be playing a game of chicken with a larger concept:  the desire of the other parties to keep Greece in the game. This is where the preparation of negotiation gets so important. Do we really understand what the other sides requirements are, and are we confident enough to bet a whole country on the outcome?

Of course, we might see some other elements working within that overall mix of negotiation conditions. If one side gets sufficiently annoyed at the tactics of the other side, and brings emotion to the table, then previously held positions may change dramatically; not because the positions are wrong, but because of the underlying emotion.

It seems likely that the eventual; outcome will provide students of negotiation with rich material to evaluate over time. However, for any of us involved in negotiation, it is wise to look at the current events and reflect on how we would set our own approach out.

Mark Hubbard thinks about sales and procurement at Smart Brown Dog Ltd.

http://www.smartbrowndog.com

greek-flag

www.smartbrowndog.com

Posted in Uncategorized | Leave a comment

Understanding Strategy

Understanding Strategy

Both Procurement and Sales need to have a good grasp of the customers strategy; one side to make sure they are addressing the core needs of their customers strategy, the other to make sure they are servicing the needs of that strategy.

So, here is the issue; getting to the working parts of a company strategy is less easy than it should be. There are often grand statements and visions, obscure references or detail of simple change programs. Although these items can help us understand, there is often a gap between the statements and the real strategy. Often, the key statements being made by executives about strategy fail to be linked closely into more day to day activity.

This means that both sales and procurement need to spend some time exploring what their customer is aiming to achieve at a high level, and look for the alignment or contribution that a particular area of sales or spend will be able to deliver.

Clearly, in some areas, the links can be tenuous. As a simple example, where businesses are acquiring office supplies, it can be hard to see the links to strategy. However, even here, it is possible to find links to CSR statements and targets and show linkage in those areas. In other areas, linkages can be far more specific. Where a business is seeking to extend its ability to innovate, and deliver innovation to customers, identifying the way the specific category contributes to that strategic intent can focus both the way in which the procurement activity works, and the approach to a sale.

However, there are often several areas within an overall company strategy, not all of which have the same weight at the same time. This suggests that we also need to judge which areas to prioritise and which may be reasonably ignored. If we talk to stakeholders inside the business, we will get different views of the importance of various areas; a consolidated view is often hard to come across, but testing and challenging this hierarchy is significant.

What can we do if we have a good view of actual company strategy? From a procurement direction, there is an opportunity to structure business requirements to reflect key elements of strategy. This can move procurement rapidly from tactical activity to a more strategic delivery. From a sales perspective, we can start to target sales linked to the core business issues, rather than a tactical sale. In both cases, this is going to lead to more in depth and longer term approaches ( as much as is possible in the particular area) which can lead to extended delivery of benefit for both sides.

There are dangers in the approach. In organisations with limited development of strategy, changes in direction are a risk. In areas where strategy is emergent (which I translate as based on what we’re doing), there is risk of correction and change as the strategy evolves. However, there is also a likelihood in these cases that strong intervention from either side can firm and inform strategic direction, so the risk is worth taking.

Start out by seeking and clarifying the key areas of strategic intent, and match those to any targets for delivery over time. From here, map the way in which the strategy can be influenced by either the category of purchase or the product/ service characteristics.

If we can do that, then we can ensure that we have tight alignment, which gives a far stronger foundation for the sale or purchase activity.

Mark Hubbard thinks about sales, account management and strategic purchasing at Smart Brown Dog Ltd.

http://www.smartbrowndog.com

Posted in Uncategorized | Leave a comment

Valentines Day – fall in love with your customer or supplier again

We can blame Chaucer and his friends for the current version of Valentines Day: it moved from a fairly typical saints day to the current symbolic expression of romantic love. Equally, it becomes an annual feat of timing and memory, moving from day to day appreciation of your significant other into a pink, floral and chocolate driven moment of intense expression.

This annual affirmation of love has striking similarities to a lot of supplier and customer relationship activity. The sudden need to express and renew that relationship, with the exchange of gifts (of little or no economic value to tie to new corporate policy), perhaps a meaningful lunch, moments of introspection and some debate about whats going well and what could be worked on, followed by a gentle slide back to the every day.

The danger of an annual ritual is that it takes more than the once a year pink card to keep that relationship running. Both sides need to stand back and consider how it would be if there was a  more mindful relationship, where the shared needs are kept to the forefront and regular progress can be made.

Recently, the need for some counselling between the two parties has become evident: the box of chocolates seems even less likely to repair the rifts which can be seen from the outside. “Sales teams don’t understand what I need (or want)” says the Procurement team. “Procurement only want one thing – for me to be cheaper” cries the Sales team. The scale of the gap is generally worrying for those looking on. Concerned friends talk behind their back about how how, for the sake of all concerned, it needs to work better, but don’t know how to broach the subject.

As with all relationships, understanding the meaning of the other side is a lot of the challenge. Interpreting the drivers of behaviour correctly, being able to listen without judgement, being able to hear a different point of view, are all critical in making sure that the relationship develops well. And it has to be done uncynically, with the avowed intention of strengthening the relationship, not just going through the motions.

As with all work on a relationship, this isn’t a one off event; it can’t be an annual quick fix which, via a corner shop bunch of flowers, suddenly erases the previous 12 months of sharp comments and acrimony. Instead, there needs to be continual and heightened exploration of both parties expectations, great listening and regular self evaluation.

Doing this well isn’t easy; some external help to get the meetings running and to provide meaningful feedback on how it went is often necessary. It’s hard to hear the right message when you’ve got your headphones on and not listening, and having someone remind you to take them off and listen can be helpful.

The other thing to remember is not to have too many significant relationships. If you’re paying attention to many, then the ones that matter may slip away. More investment of quality time and listening, throughout the year, will make a difference to the outcome.

There’s still a place for Valentines Day, of course. A reminder of who’s important and a celebration of that is a great thing, and it’s not just about cards and chocolate; but they help as well.

Happy Valentines Day!

Mark Hubbard thinks about procurement and sales at Smart Brown Dog Ltd.

www.smartbrowndog.com

DSC_0289

Posted in Uncategorized | Leave a comment

Buyers and sellers – 10 things to think about in 2015

It’s a time for reflection and resetting, and as Smart Brown Dog is lying on the boundary between Sales and Purchasing, we thought there are some areas which both sides can think about in the next few months.

Understand the Requirements – knowing what we are buying, and how to address that need, remain the primary challenge for both sides. Having time to explore and understand the real needs which have to be satisfied is key to both a successful purchase and a successful sale. Too often, this is rushed; when defining what needs to be bought, when asking for proposals and when answering proposals. Even better, if we don’t know what is happening, find time to test and challenge understanding

Understand the Market Position – both sides need to know the reality of the marketplace, otherwise the discussion can descend into fact free posturing. The Procurement side needs to know how the dynamics work in the market place and how they are positioned within it, and the seller needs to be realistic about their own position and uniqueness (or ubiquity).

Use the word ‘strategic’ carefully – a word which is thrown around so carelessly it becomes meaningless. There is no point unpretending that a particular area is strategic or that a particular relationship will receive lots of attention if it sin’t going to happen. Far better to embrace the reality of the position, and work to optimise that. If you’re told you’re a strategic supplier, ask ‘why’? It may well not be clear to either side, and therefore is meaningless.

Prioritise honesty – not that people are deliberately deceitful, but there is a real risk of falling into the trap of delivering smoke and mirrors derived statements. Selling features which don’t exist, making promises on volume which are impossible, all weaken the working relationships which need to develop.

Keep an eye on the broader issues – it is too easy to get stuck in one area, such as price or a particular feature, and loose track of the broader picture which is being aimed at for both sides. This works in the sales / purchasing process , within negotiations and within the ongoing relationship.

Recognise each others perspective – both sides have a story and issues, and understanding what those are can make a huge difference in reaching a conclusion or maintaining a relationship. We don’t have to own those issues, but understanding them makes a big difference.

Balance the long and the short term – too often, short term wins out over all other considerations, although we know we’ll be living with the deal for a long period. A puppy is not just for Christmas.

Allow for the challenge of change – a great new relationship invariably means significant change and that can be really hard to deliver in the context of the business environment. Starting to plan for that early, with a high degree of realism, will increase our chances of success.

Watch the larger environment – change is coming over the hill at us at alarming rates, and having a really good understanding of the PESTLE analysis will help prepare for the impact that has on business relationships and positions. Oil at $50 a barrel: who was ready for that? And we’ll bet a barrel of dog biscuits that it won’t be a stable long term number!

Maintain the relationship – spend the right amount of time on that relationship, make sure it’s working as needed for both sides, keep it alive. Who knows when you need a friendly ear?

There’s little rocket science in this, but all these areas get obscured in the pressure of delivering day to day business. If we can keep these areas open, we’ll have more success.

Mark Hubbard thinks about purchasing and sales at Smart Brown Dog Ltd.

www.smartbrowndog.com

DSC_0289

Posted in Uncategorized | Leave a comment

Google, NLP, Marketing and Procurement

Google ( and its competitors) has become an integral part of life in Procurement organisations. Desktop searches of marketplaces, looking for information on potential suppliers ( and indeed existing suppliers) in an effort to shine a light on alternative approaches are as normal as breathing.

There is a challenge which Procurement face when undertaking this work. Search engines appear under optimised ( which is a euphemism for terrible) at more technically based searches, which can mean that significant contributors to a particular marketplace are missed in the search activity. Although there is some element of problem in the way the search engines provide results, there are also significant challenges in both the way Procurement teams ask questions, and the way in which marketing organisations target B2B knowledge transfer.

Lets start at the first area here. Although the internet was originally conceived as a scientific journal and paper system, it clearly has a massive commercial direction in its current form. This means that the marketing input into the information provided to the web is considerable and indeed the best designed web sites have a large amount of thought going into messages and structure.

In the areas much of Procurement is working in there seems to be a less thoughtful approach going into the marketing effort. The key data and insights needed by Procurement are often missing or seriously challenging to find, and as such opportunities on both sides go missing.

However, part of this is about the way Procurement teams organise themselves to be creative when searching. There often seems to be some self-limitation going on in the word choice being used to create searches; limits in market area, or product type or triangulating across related areas to trigger more results.

The search engines themselves seem to contribute to this by having a particular set of outputs which are unsurprising whenever they are seen (although full marks for thinking that e-bay might be able to supply industrial amounts of concrete, in a recent example). More specialised alternatives, such as DevonAgent (which seems to act as a more intelligent summariser of results) do seem to be able to provide a more rich picture than Google at al can typically manage.

However, there is help on the horizon. NLP  (in this case, Natural Language Programming, not the pseudo scientific cure for everything) is developing slowly into a far more interesting way of structuring search requests. Current examples of the development of the approach can be seen in Siri and Cortana, but these services are scratching the surface of what will be released in coming years. More complex expressions of interest will be parsed and provide far more closely matched results than current efforts tend to achieve.

For this to work well, then there will have to be a triumvirate of approaches developing: the search engines need to understand how the broadly spread use case that is Procurement works; marketing organisations need to feed their sites with materials and approaches which the Procurement teams actually need; Procurement needs to raise its profile in this area still further and speak out about its needs to get them addressed.

With all that coming together ( and the bones of it are in place) then we’ll see the opportunities spread swiftly on all sides. As ever, the early adopted will gain greater advantage, so we should see this whole area accelerate wildly.

What would you like to see developed in this area?

Mark Hubbard thinks about Procurement , sales and marketing at Smart Brown Dog Ltd.

http://www.smartbrowndog.com

tightRope

Posted in Uncategorized | Leave a comment