Monthly Archives: May 2014

Thinking different about suppliers and customers

Furthering the discussion about innovating from my last post, here another upshot of a conversation I had with office mate Peter Tunjic, which I want to extend a little.

Perhaps the traditional concepts of customer and supplier lead you to bad thinking and behaviour. Perhaps a better way of thinking is that there is just the business, and everyone else is a trading partner.

Thinking differently about trading partnersOutrageous you say! Heretical you say! Well consider this. Business need cash to survive, your trading partners either provide you cash, or resources that you utilize for an eventual transformation into cash.

So who can give your business cash?

  • Investors give you cash for shares – so you can start to operate.
  • “Customers” give you cash for products or services – so you can continue to operate.
  • Benefactors give you cash for good behaviour – so you can grow
  • Government grants give you cash for research – so you can grow
  • Banks give you cash in return for a promise to repay it in the future – so you can grow
  • Perhaps there are more?

So who do you give cash to?

  • “Suppliers” take your cash – in return for products and services you use to operate
  • Employees take your cash – in return for labour that you use to operate
  • Governments take your cash in return for the right to trade.

Now why this is important is that sometimes :

  • Its not obvious where to place the traditional of supplier and customer .
  • By labeling our trading partners in this way we mask opportunities.
  • By labeling our trading partners in this way, we poorly allocate resources to manage them.

Consider the two sided market place such as 99 Designs. They have designers competing to win projects (and perhaps get paid cash for their work, but perhaps not) and businesses logging design jobs and eventually receiving a design for the money they pay. Both are critical trading partners for 99 Designs to survive. The designers won’t come to the site if there are no customers supplying design jobs, and the businesses won’t come if there are no designers to do the work. In a two sided market place you need two groups to interact. But who is the customer here?

Consider the online business that generates content, wrapped in advertising, that is read by people who also pay a small fee to read content behind a paywall. The people supply eyeballs that the business sells, but they also provides cash for content.  The journalists supply content in exchange for cash but they also receive profile which they may trade on, and the advertisers supply content and cash. Again, clear demarcation of customers and suppliers is impossible.

So an innovative company may look at all the trading partners it traditionally calls suppliers and ask the question “what are they prepared to give me cash for?” It may also look at the trading partners it traditionally calls customers and ask “what are they supplying that I can sell for cash?”

Thinking this way gives rise to management of relationships based on their importance in the supply chain, not just sales people managing customers and purchasing officers managing suppliers. Which is why we start to see job titles such as community manager, engagement manager and supply chain specialist!

So to reiterate the point of my last post – if you want to innovate successfully, question the basics of everything you do.

So you want to innovate like Steve Jobs?

This week I had an interesting conversation with my office mate, Peter Tunjic, about innovation. Peter likes to point out that most management theories are like the Emperors new clothes – and there is usually a competitive advantage in questioning and rejecting the theories.

Steve JobsSo this weeks conversation was on how Steve Jobs innovated.

Apple became the words most valuable public company by innovating in design and products, by innovating at the business model level and by innovating at the corporate level. Plenty has been written about Apple’s products & design and the impact of disruptive models such as the App Store and iTunes. but very little has ever been said about Apple innovating at the corporate level.

So lets set the scene with some facts – Apple paid a minor dividend until 1995 at around 10-12c a share, then discontinued the plan. The dividend plan was only restarted in 2012 after Steve had stepped down as CEO, and was then run at $10-$12.  Peculiar no?

So what happened?  You could argue that the answer is hundreds of years old, so some history first.  When chartered companies first started to appear in around 1,600 they were formed with a specific monopoly or charter, given by a royal family or parliament. Fast forward to around 1844 and legislation appeared in Britain around forming companies, so that anyone could do it and have their own agenda. When a company was formed, it was called “incorporation”. ie it was considered a body in its own right (corporal form). Early companies couldn’t own other companies because of course that would be considered slavery!  Shareholders, were simply the people that gave the company money so that it could operate, and they did so hoping to get a return. The company was pre-eminent, not the suppliers of cash.

Fast forward to 1970 and a peculiar management theory started to take hold that went along the lines of “the purpose of the company is to increase the wealth of the shareholders”. This position was obviously highly popular amongst the masses who were investing, as they were now perceived as being more important than the company. Executives also loved it because no one would complain how much they earned, if the shareholders were making a good return. Even if the dividend was sucking badly need resources out of the company.

Today the concept of investors first, is gospel. Even if it regularly doesn’t make sense. i.e. how can you have strategy to increase the wealth of shareholders (not some but all), when under modern trading conditions some can be on the shareholders register for a tenth of a second and others for a decade.? Why also should a company weaken itself, giving away hard won cash to people who usually  aren’t the initial investors and therefore haven’t added value to the company?

So Steve Jobs rejected this investor first gospel and embraced the older company first idea. He repaid the cash of initial investors through dividends, but once done he ceased paying dividends as giving away cash made Apple weaker, not stronger. This strategy helped build the biggest publicly traded company in the world, with cash reserves larger than the UK treasury.

So if you want to innovate like Steve Jobs, question the basics of everything you do.