Archive for the ‘alliances’ Category

« Older Entries

Teamwork works for Netflix Prize competitors

Monday, June 29th, 2009

Netflix has undoubtedly gotten much more than $1MM in publicity for its contest awarding a cool million to anyone able to improve its recommendation engine by more than 10%. But the contest appears to be winding down. According to the New York Times, a group has surpassed the 10% barrier, starting a 30-day countdown for any competitor to beat their performance and claim the prize instead.

It’s not likely to happen. That’s because the leading group is an alliance of several of the top performers in the competition, who abandoned their individual projects for a joint effort to push the needle past the magical 10% threshold. The Times wrote:

BellKor’s Pragmatic Chaos [the alliance's name] is a pretty elite crowd. The group is a collection of the 2007 and 2008 winners of the Netflix Progress Prizes — $50,000 a year for the teams that made the most progress toward the 10 percent improvement — and a pair of engineers from Montreal who have long been near the top of the contest’s leaderboard.

One of the tenets of alliances is that it’s better to get 25% of $1MM than 100% of nothing. For longtime competitors to band together shows how difficult the 10% barrier was, and the significant incremental value of combining different ideas.

In these times, it may be prudent to throw out the old rules of going it alone, and restricting alliances to those you don’t compete with. It worked for BellKor’s Pragmatic Chaos.

(Disclosure: I am a Netflix subscriber.)

Related posts:
Netflix demolishes own business model
Follow-ups: Netflix and “Harry Potter Marketing”

Tags: , , , , ,
Posted in alliances | Comments

“Need Cash?” teaches you how to improve working capital use, but be careful

Tuesday, April 28th, 2009

I have mixed reactions to the article “Need Cash? Look Inside Your Company” by Kevin Kaiser and S. David Young in the May Harvard Business Review. There’s no doubt that better working capital management can help lots of companies get through this difficult environment. At the same time, offloading your problems to your suppliers is a recipe for long-term difficulties.

I’m speaking of the practices around accounts payable management. The authors identify a mistake companies frequently make: assuming that receivables timelines and payables timelines are symmetrical. If I get paid net 30, I should pay net 30. Instead, they assert, each company should assess its environment, power over suppliers (or vice versa), and from there determine how it should pay/be paid. It may be possible to get paid by customers net 15, and pay suppliers net 60. This has a huge beneficial impact on a company’s working capital.

However, paying suppliers terribly late has nonfinancial costs. While a supplier may accept lengthy payment terms, there may be resentment, that can cause difficulties when contracts are renewed or new business contemplated. Suppliers may prioritize the needs of other customers who pay more timely. Other terms, such as delivery, might be tightened, which has impacts.

Worse than all this, though, is trying to changing payment terms unilaterally, or even invisibly. This is the old “hiding the invoice in the desk” trick, the “I didn’t get your invoice, please resend” trick, or the “phantom dispute” trick. In this case, the supplier negotiates net 30 terms but ends up getting paid at the whim of the customer. These kinds of techniques might be needed when you are truly distressed, but be prepared to be treated like a distressed company if you use them.

My experience, in account management, sales and executive leadership, has been overwhelmingly as a collector. Knowing that my company treated invoices from its suppliers as serious commitments helped me hold customers accountable to pay timely.

The authors are correct that companies should negotiate payment terms based on their strength in the situation and try to create an environment where they pay late and collect early. However, companies must live up to those negotiations. Don’t ignore payment terms or mess vendors around when their invoices come in.

Your collectors will thank you for it.

Related post:
If your key suppliers are in trouble, so are you

Tags: , , , , ,
Posted in alliances | Comments

If your key suppliers are in trouble, so are you

Monday, March 23rd, 2009

When times get tough for businesses, they use the tools at their disposal to manage through till things get better. The tools that can make a difference quickly are blunt instruments that often have detrimental side effects. There has been a lot of creative thinking this time around about the wisdom of one of those tools, layoffs, and possible alternatives.

There is another set of tools that is easily used but which has not received as much scrutiny–shifting some of your issues to your suppliers. The favorite of these is s-t-r-e-t-c-h-i-n-g out payments. Perhaps, rather than paying your raw-materials vendor, or outsourcing provider, in 30 days, you let that stretch to 45, or 60, or more. Perhaps you wait till suppliers lose patience and escalate before you pay, and then, pay only the oldest invoice. You can also dispute invoice items and hope the supplier eventually credits that amount to you. Voila! Better cash flow.

In the current issue of the Wall Street Journal Business Insight supplement, Robert Handfield of North Carolina State University makes a well-reasoned case as to why companies should think twice about trying to solve their problems on the backs of their suppliers (”United They’ll Stand“). In particular, the costs of a significant disruption in the supply chain can overwhelm any savings in working capital due to slow-paying.

Handfield recommends an open dialogue between vendor and customer to ensure that risks to the supply chain (like the vendor’s ability to survive) are identified. He also urges customers to engage more closely with its best suppliers to ensure they have a relationship that will last beyond the current crisis. (In other words, if you want to take out your suffering on your suppliers, you may pay later by losing them.) Finally, he makes the point that times like these are ripe for innovation, including improving how companies and their suppliers work together.

Handfield writes, “The decisions of supply-chain managers in the current crisis may be among the most important they’ll ever make.” Rather than distance yourself from your suppliers, this is the time to bring them close. And that may mean, God forbid, staying current with your payments to them.

Tags: , , , ,
Posted in alliances | Comments

The new media onslaught is making entrepreneurs out of creators

Thursday, April 17th, 2008

An article from the New York Times earlier this week (”Bridging The Gap, The Sequel“) starkly illustrated that venture capitalists from Silicon Valley and creative types from Southern California are having difficulty cooperating to create financial and partnership models for new media.

One of the biggest obstacles, according to the articles, is the Southern Californians’ focus on upfront cash rather than long-term equity.

How this situation came to be is easy to understand: when the means of production of creative property were expensive, there was a distinct separation between the “suits,” who raised needed capital, and the “talent,” who wrote, acted, sang, directed, etc. The suits financed productions and paid the talent, who worked job to job. It was in the talent’s interest to get as much of their payment upfront as possible because (1) they didn’t know when their next job would come through and (2) the suits could, and wanted to, maintain full ownership of the property.

Now production costs can be much smaller, for music, video, text, etc. Prices for distribution are coming down too as new outlets emerge for digital distribution. And media companies are looking to hedge their risk as the old moneymakers (CDs, DVDs) erode.

As a result, an entire new entrepreneurial class has emerged, between the suits and the talent, combining the ability to raise money, cut deals, etc., with songwriting, producing, or acting. Around this “middle class” is a new set of technology and business enablers that are providing key pieces of the production and distribution infrastructure for these creators. (This edition of the radio program “Fresh Air” discusses some of the new models and companies emerging in the music business. Companies like Indieflix provide distribution services for video/film producers.)

Here’s an example of the new world order for music: the LinkedIn profile for Fran Ten of the LA band West Indian Girl:

oversee and run all the departments of the west indian girl business – management, marketing, new media, touring, merchandising, promotions, licensing, legal, accounting, art, etc etc.

music is a business and musicians that dont understand this are at a disadvantage.

this job is just as much a blue collar job as the one i had in high school working at a brake factory in grand rapids, mi. sometimes i think it’s even dirtier.

Technology advances have made internet video and mobile entertainment accessible to consumers on a wide scale. The business models are lagging behind. The old way–suits and talent–isn’t going to be able to work them out. The “middle class” will have to do it.

(Photo: a still from “Fields of Mudan,” the all-time best-selling DVD on Indieflix.)

, , , , , , ,

Posted in New York Times, alliances, business models, media, mobile, music, technology, video | Comments

Channel partners are not your direct sales force

Monday, April 14th, 2008

There’s a nice post over at the Achieve Market Leadership blog talking about why B2B companies struggle to sell through channel partners. In sum, companies treat channel partners as if they were direct sales forces, instead of treating them like retailers.

A direct sales force sells what the company has. It has no option to sell anything else.

Retailers pick and choose which products they stock, decide where to place them, and simply remove those that don’t sell enough. Companies selling through retail realize they need to entice their retailers, either with incentives, great product, or pull-through marketing.

Channel partners often don’t have issues with shelf space, but they still decide which products to recommend to customers. If you treat them like a captive sales force, you will be blind to their priorities and issues. As a result, your program won’t fit what they need, and they won’t push your product.

There’s a lot more in the post. It’s well worth reading in full.

, , , ,

Posted in B2B, alliances, channels, indirect sales, sales | Comments

LEGO knows partnering

Monday, February 11th, 2008

My two sons, ages 7 and 5, are all about Star Wars. They know every episode, every character, every spaceship. It amazes me that a 30-year-old film (and its successors) could have a hold on little imaginations as strong as if it were released last year.

They also love Legos. And what could be better than combining these two obsessions?

(Well, nothing actually.)

Legos have come a long way since I was a kid. Then they were basic building blocks–eights, sixes, fours, twos, a few windows and wheels. That was it. Now Lego has morphed into a modeling architecture–like the plastic models of my youth, without the nasty glue and paint. It’s a nightmare if you want to sort parts, but for a kid, being able to build an exact replica of an AT-AP is priceless.

Going even further, there’s a Lego Star Wars web site, as well as a video game, which is permanently installed in our Wii.

In order for Lego to enter this new phase, they had to get comfortable with partnering up. They worked with Lucasfilm Ltd. to license the Star Wars characters, scenarios, etc. (This is one of several licensing projects that Lego is involved in: have you seen the Lego Hogwarts Castle?) In so doing, they extended their brand and made it relevant to an entire new generation of customers–without losing what was distinctive and different about Legos.

(And if you’re not a kid anymore, like I am, you can still construct a house with eights, sixes, fours and a few windows.)

(Photo: LEGO Star Wars Yoda, from the web site)

, , ,

Posted in alliances, movies, partnerships, toys | Comments

News flash: companies can’t succeed in the technology business all by themselves

Tuesday, January 8th, 2008

From CES, the New York Times Bits blog reports that “the monolithic corporation” is in decline, replaced by networks of alliances, creating “a chaotic alchemy that is making business noisier and strategy even less pointed than in years past here.”

While the acknowledgement of the importance of alliances is welcome, from my perspective, the only news about this is that it is news. Doesn’t everybody know that companies can’t do it all themselves anymore?

Posted in alliances, innovation, technology | Comments

Boeing learns hard lessons about partner management

Friday, December 7th, 2007

(UPDATE: 11 Dec 07 – Boeing confirms it’s on schedule for first 787 flight in 1Q2008)

I wrote a couple of weeks ago that the trend toward collaborative product development would create a premium for partner-management skills rather than pure technical skills for innovators. Nowhere is this in bolder relief than in the Boeing 787 project, some of the travails of which are profiled in a front-page Wall Street Journal article today (link – $$).

What surprised me the most were the issues resulting from inadequate supplier management; specifically this:

“In addition to oversight, you need insight into what’s actually going on in those factories,” says Scott Carson, the president of Boeing’s Commercial Airplanes unit. “Had we had adequate insight, we could have helped our suppliers understand the challenges.”

And this:

But many [Boeing partners], instead of using their own engineers to do the design work, farmed out this key task to even-smaller companies. Some of those ended up overloading themselves with work from multiple 787 suppliers, Boeing says.

The company says it never intended for its suppliers to outsource key tasks such as engineering, but that the situation seemed manageable at the time. “We tended to say, ‘They know how to run their businesses,’” says a Boeing executive familiar with the company’s thinking.

As Boeing knows now, selecting a strategic partner and entrusting it with designing, building and delivering a critical subsystem is far different from sourcing a standard part from a supplier. The prime contractor has the right and obligation to critique, probe and view its partner’s activities from the inside (you need Doubting Thomases).

In the short term, these delays hurt Boeing. There is PR impact. And financial hits, in the form of penalty payments and cash-flow delays. But it is important to remember that the 787 product will have a 30-year life cycle. By that count, a 6-month or even 1-year delay in deliveries will have a negligible long-term effect.

It’s also good that Boeing is not trying to mask its mistakes and instead to discuss and learn from them. Not everyone agrees: the Journal article states, “Lessons that Boeing is learning the hard way could end up helping rival Airbus.” This will be true to some extent–but the highly complex lessons Boeing is learning will be hard to glean from the outside. If Airbus gets too confident in its follower role, it will overlook its own inevitable mistakes and let Boeing get out even farther ahead.

(Photo: the 787 Dreamliner. Courtesy of Boeing)

, , , , , , ,

Posted in Wall Street Journal, alliances, aviation, innovation, mistakes, partnerships, product development, project management | Comments

Innovative companies must excel at partnering

Monday, November 26th, 2007

There’s a fascinating interview at Harvard Business School Working Knowledge with HBS professor Alan MacCormack, covering innovation and how it’s moving away from Corporate R&D and into a collaborative web of partnering & alliances. (You can find a working paper on the subject here.)

According to MacCormack, there are several reasons why this is so:

  1. Products are becoming more complex, and therefore it’s impossible to retain all the competencies in house to create them.
  2. Open standards and architectures help allow work to be more readily distributed to partners.
  3. The growth of developing economies means that competitive, at times distinctive work is available at lower prices.

The implications of collaborative innovation fascinate me. It means that R&D professionals will need more negotiation and management skills than technical skills, and that the ability to manage internal politics will be less important than the need to bridge corporate & geographic cultures.

I’m not aware of anything in business-school curricula to prepare the next generation of managers for this challenge. (HBS students should seek out courses by Bazerman and Malhotra, as well as MacCormack.) There certainly was nothing of this sort that I learned for my MBA–any learning was entirely OJT.

, , , ,

Posted in HBS Working Knowledge, alliances, innovation, negotiation, open innovation | Comments

Mistake Bank #12 – Don’t forget about support!

Thursday, November 15th, 2007

What follows is a sample of a project I’ve been working on called the Mistake Bank. It combines narrative, learning from mistakes, video and web2.0 in an environment that companies can use to train new employees, create a corporate history, connect workers and mentors, and bring more humanity to the workplace. Email me at inquiry@caddellinsightgroup.com if you would like to know more about the Mistake Bank.

When John Caddell began his first job as a product manager, he inherited a new product that was being sold by a large partner. And once the first sale happened, he learned that having a support strategy is not optional.

, , , , , , , , , , ,

Posted in alliances, distribution, information technology, international, learning, marketing, mistakes, narrative, product management, software, technical support, web2.0 | Comments

« Older Entries