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Think Past Product when You Think about Disruptive Innovation

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Author: Dermott Dowling @Creatovate (2016).

Now more than ever we need to think past new products and improved product performance when we think of truly ‘#disruptive innovation’ that upsets incumbents in industries and creates sustainable competitive advantage for the disruptive innovators.

How many types of innovation can you think of?  Have a go…write them down below as many as you can…can you see 10 or more distinct types of innovation examples?

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Often, when we think about innovation all we think about is new products or improving existing product performance.  This is very important, but one of the increasing challenges we face in a hyper-competitive fast-pace modern business world is the ability of low-cost fast-to-market competitors copying your innovation and reducing your margin on new products and improved product performance as quickly as you can bring these new products to market.

Take this comment from a former Australian PepsiCo® R&D manager – is it symptomatic of your industry as well?

We knew Smith’s Popped Chips was going to be a success as Popped Chips was doing very well in the US and our early prototypes tested very well with consumers and retailers.  What we didn’t expect was 3 other competitor brands and a private label retail brand launching at exactly the same time as we did!” PepsiCo® R&D & Innovation Manager, AIFST Innovation Reloaded Conference, Sydney, 2014.

The following extracts from articles and sources follow to help you think of multiple types of innovation so the next time you come up with a great idea for your business you might also think of some additional types of innovation to build on that great idea and ask your peers and customers and networks inside and outside your business for their ideas to help build a truly ‘disruptive innovation’.

Whatever your company hopes to do in terms of innovation, we suggest that the answer involves innovating within the following 10 distinct innovation areas, classified by the Doblin model:

  1. profit model,
  2. company network,
  3. company structure,
  4. company process,
  5. product,
  6. product performance,
  7. customer service,
  8. customer channel,
  9. innovative branding and
  10. customer engagement.

Let’s take a look at each of the 10 distinct types of innovation and an example of a company using that type of innovation as a key distinct advantage in their industry.  Note that you need to aim for at least 3 and ideally 5 or more different types of innovation to create a truly ‘disruptive innovation’ that can be sustained for a decent period of time in a highly competitive industry (Keeley, 2015).

Profit Model

How you make money | Innovative profit models find fresh ways to convert your offerings and other sources of value into cash. Great ones reflect a deep understanding of what customers and users actually cherish and where new revenue or pricing opportunities might lie. Innovative profit models often challenge an industry’s tired old assumptions about what to offer, what to charge or how to collect revenues. This is a big part of their power: in most industries the dominant profit model often goes unquestioned for decades. (Doblin, Deloitte Development LLC.)

Examples of companies that successfully altered profit models in established industries to include:

  • Gillette – the ‘razor and blades’ profit model has been celebrated for years and adapted to countless other industries from ‘printers & cartridges’ to ‘coffee makers & capsules’
  • Dell – reengineered the go-to-market delivery system when it first launched selling direct causing large share loss for competitors with traditional reseller business models.

Network

How you connect with others to create value | In today’s hyper-commercial world, no company can or should do everything alone. Network innovations provide a way for firms to take advantage of other companies’ processes, technologies, offerings, channels and brands — pretty much any and every component of a business. These innovations mean a firm can capitalize on its own strengths while harnessing the capabilities and assets of others. Network innovations also help executives to share risk in developing new offers and ventures. These collaborations can be brief or enduring, and they can be formed between close allies or even staunch competitors. (Doblin, Deloitte Development LLC.)

Examples of companies that have successfully created value through network include:

  • Target (US) – work with product designers and world-renowned fashion designers to create items only available at Target, other retailers to create Pop-Up stores for limited times only.
  • P&G – Connect + Develop – P&G connects with external innovators and companies who submit innovations to P&G’s Connect + Develop. Connect + Develop is P&G’s program for encouraging open innovation, also known as crowdsourcing.

Structure

How you organize and align your talent and assets | Structure innovations are focused on organizing company assets — hard, human or intangible — in unique ways that create value. They can include everything from superior talent management systems to ingenious configurations of heavy capital equipment. An enterprise’s fixed costs and corporate functions can also be improved through Structure innovations, including departments such as Human Resources, R&D and IT. (Doblin, Deloitte Development LLC.)

Some companies that have created value through network innovation include:

  • Whole Foods Market – is a ‘high trust organization’ where teams are everything from hiring which requires 2/3 team approval to P&L management, transparency is everything and decentralized innovations are amplified quickly instead of achingly slowly (if at all) (Keeley, et al, 2013, p. 28).
  • L. Gore – has used a ‘flat lattice’ organisation model where teams are deliberately kept small and every employee becomes a shareholder after 1 year of service.

Process

How you use signature or superior methods to do your work | Process innovations involve the activities and operations that produce an enterprise’s primary offerings. Innovating here requires a dramatic change from “business as usual” that enables the company to use unique capabilities, function efficiently, adapt quickly and build market-leading margins. Process innovations often form the core competency of an enterprise, and may include patented or proprietary approaches that yield advantages for years or even decades. Ideally, they are the “special sauce” you use that competitors simply can’t replicate. (Doblin, Deloitte Development LLC.)

Examples of companies that have created value through process innovation include:

  • Zara – using fast fashion trends and supply chain optimisation Zara can move from the sketchpad or fashion runways of this world to the shop floor in just 3 weeks, the clothes will hang from Barcelona to Berlin to Beirut (Helft, 2002).
  • Toyota – ‘lean’ production system reduced waste and excess, driving astonishing efficiency and continual product and process improvement across the business.
  • IKEA – ‘flat-pack’ furniture with no variation by region or country with the same hardware and instructions regardless of where bought or sold streamline internal production processes.

 

Product Performance

How you develop distinguishing features and functionality | Product Performance innovations address the value, features and quality of a company’s offering. This type of innovation involves both entirely new products as well as updates and line extensions that add substantial value. Too often, people mistake Product Performance for the sum of innovation. It’s certainly important, but it’s always worth remembering that it is only one of the Ten Types of Innovation, and it’s often the easiest for competitors to copy. Think about any product or feature war you’ve witnessed — whether torque and toughness in trucks, toothbrushes that are easier to hold and use, even with baby strollers. Too quickly, it all devolves into an expensive mad dash to parity. Product Performance innovations that deliver long-term competitive advantage are the exception rather than the rule. (Doblin, Deloitte Development LLC.)

Examples of companies that have used Product Performance innovation include:

  • Dyson – from vacuum cleaners to hand-dryers to fans Dyson continuously innovates on ways to deconstruct what is not working well in existing industries and then rebuild products on platforms that offer customers superior product performance and charge premium prices for the privilege of use of these products.
  • Mars – with My M&Ms people are able to add their own messages, logos, or images to specific colour M&M candies – personalising product and opening up new uses. Ferrero has done similarly innovative things to reinvent Nutella and put it back on the table at home or out and about in cafes and shopping malls.

Product System

How you create complementary products and services | Product System innovations are rooted in how individual products and services connect or bundle together to create a robust and scalable system. This is fostered through interoperability, modularity, integration, and other ways of creating valuable connections between otherwise distinct and disparate offerings. Product System innovations help you build ecosystems that captivate and delight customers and defend against competitors. (Doblin, Deloitte Development LLC.)

Companies that create product system innovations include:

  • Microsoft – Office – initially the products that went into MS Office like Word, PowerPoint and Excel were sold as individual products, now bundled together with Outlook and more they create an integrated system that is used as a productivity suite globally.
  • Scion by Toyota® – Scion allows consumers to build their own car choosing from a selection of models and colours, paint and tyre trim modifications, radio, and more.

Service

How you support and amplify the value of your offerings | Service innovations ensure and enhance the utility, performance and apparent value of an offering. They make a product easier to try, use and enjoy; they reveal features and functionality customers might otherwise overlook; and they fix problems and smooth rough patches in the customer journey. Done well, they elevate even bland and average products into compelling experiences that customers come back for again and again. (Doblin, Deloitte Development LLC.)

Some companies doing the obvious great are:

  • Zappos – who would of thought buying a pair of shoes could be so much fun and so rewarding for the founders – Zappos sold to Amazon for US$1.1billion in 2009. ‘Deliver ‘WOW’ through service’ is the first of Zappos 10 core values.
  • Sysco – one of the largest food distributors in North America with $43b in revenues, to elevate service in a relatively commoditized industry, Sysco created ‘Business Reviews’, a FREE consulting service helping clients to design menus or plan back-of-the-house logistics.

Channel

How you deliver your offerings to customers and users | Channel innovations encompass all the ways that you connect your company’s offerings with your customers and users. While e-commerce has emerged as a dominant force in recent years, traditional channels such as physical stores are still important — particularly when it comes to creating immersive experiences. Skilled innovators in this type often find multiple but complementary ways to bring their products and services to customers. Their goal is to ensure that users can buy what they want, when and how they want it, with minimal friction and cost and maximum delight. (Doblin, Deloitte Development LLC.)

An example of a company who connected their offer to customers in new and innovative way:

  • Xiameter® from Dow Corning is a web-based sales channel first launched in 2002 that assists customers with a new way to buy silicone. Cost conscious buyers without the need for technical support or advice were able to select from 1,000s of product options, choose pricing and terms that suit them and lock in price and volume commitments in a simple but effective no frills business model that ran alongside the mother company.
  • Nespresso® has retail stores and coffee shops worldwide, operates concessions inside department stores, online club for ordering capsules and machines, retail resellers for machines, partnerships with hotels like Ritz-Carlton & Hyatt, Airports and a Chefs and Sommelier program for harmonizing coffee with food and wine. Multiple channels are used to engage customers and consumers.

Brand

How you represent your offerings and business | Brand innovations help to ensure that customers and users recognize, remember and prefer your offerings to those of competitors or substitutes. Great ones distil “a promise” that attracts buyers and conveys a distinct identity. They are typically the result of carefully crafted strategies that are implemented across many touch points between your company and your customers, including communications, advertising, service interactions, channel environments, and employee and business partner conduct. Brand innovations can transform commodities into prized products, and confer meaning, intent and value to your offerings and your enterprise. (Doblin, Deloitte Development LLC.)

Companies that have used ‘brand innovation’ successfully to date include:

  • Virgin – starting as a mail order record business and now involved in planes, trains, rockets, telecoms, wealth and health management and more! Virgin is the elastic band of ‘brand’!
  • Aldi – have innovated using brand ‘exclusive’ or ‘destination’ branding that cuts out the middleman and goes direct to suppliers to find unique food products, beverages, and houseware.

Customer Engagement

How you foster compelling interactions | Customer Engagement innovations are all about understanding the deep-seated aspirations of customers and users, and using those insights to develop meaningful connections between them and your company. Great Customer Engagement innovations provide broad avenues for exploration, and help people find ways to make parts of their lives more memorable, fulfilling, delightful — even magical. (Doblin, Deloitte Development LLC.)

Companies using customer engagement innovation to excite and delight customers include:

  • Blizzard Entertainment – World of Warcraft has more than 11million subscribers worldwide who are actively encouraged to engage with each other using a multitude of technology and techniques and ‘team up’ to achieve higher rewards.
  • Apple – shows off its new hardware and software first to its developers and affiliates at its World Wide Developers Conference (WWDC) where tickets are distributed in a lottery system with prices of $1,599 a ticket for WWDC2015.

Winning innovations typically use multiple types of innovation – if you can get 3 or more that’s great and if you can get 5 or more in your next big bet that’s even better!  You are much more likely to create a sustainable innovation that endures when you innovate across multiple types of innovation.

An example of a truly transformational business and industry innovation that transcend many types of innovation follows:

Nespresso

  1. Profit Model – machines were first available widely across multiple channels and retailers at low prices but pods were only available direct from the club.
  2. Network – machine manufacturers were engaged to create truly great coffee and growers were engaged to source elite top quality coffee and retailers were engaged to get the machines out there far and wide.
  3. Structure – Nespresso did not start out as an idea from the inside the mothership Nestle but rather the opposite it was ‘incubated’ across the road from head office in a distinct and different building with a dedicated team set about to disrupt their existing instant coffee business
  4. Process – Nespresso® licensed a unique technology from the Battelle Institute that made coffee in an instant using an entirely new process (Silberzahneng, 2010).
  5. Product Performance – we all can remember the first time we had a good Nespresso and could not believe how good the taste was for a homemade coffee.
  6. Product System – build into the Nespresso club was the unique pods system with multiple types of coffee to suit different palates and desires.
  7. Service – with Nespresso® club and direct engagement of end consumers through the stores, direct mail, social media, etc. Nespresso® took delivery of a staple to a whole new level.
  8. Channel – Machines – sold everywhere Pods – direct from Nespresso®.
  9. Brand – Nespresso did not choose George Clooney as their ambassador – the 2 million friends on Facebook decided he was the ultimate spokesman for their most adored brand.
  10. Customer Engagement – from online to telephone to direct mail to Nespresso shops and stalls in busy hubs like airports, hotels, etc

Systematically determining what needs to be changed inside and outside your company to create innovation that transcends multiple types of innovation typically involves the following steps according to Keeley (2015).

Understand the beliefs, practices and truths. Start by just listing the unchallenged assumptions about rules, tools, techniques and ingrained habits about the industry.  Now think about ways to challenge these orthodoxies.

Starbucks sought to challenge its industry orthodoxies, the first one it faced was the assumption coffee was a commodity for which Americans wouldn’t pay premium prices.

What are your inclinations or predispositions towards doing business in a particular way today?

Imagine life without those assumptions. Consider a customer group that would not behave the way your customers typically behave.  Imagine a business that specifically does the opposite to what you are doing right now?  What would be some of the likely and unlikely outcomes?

Now think about different ways to rebuild the platform.

Now that assumptions are stated, think of all the ways to challenge them, from a new profit model to different customer-engagement tactics. Most companies stop at trying to do product innovation that marginally alters the offering. The big returns come from multiple approaches, (Keeley, 2015).

Think about Starbucks again. The company flipped its industry’s profit model orthodoxy by creating a premium experience. People may not pay more for coffee, but they certainly do pay more for a different atmosphere in which to drink it.

Start with one of the 10 types of innovation you find most interesting, start thinking of different ways you could innovate under that configuration on your business / category / customer today.

Ask questions. ‘how might we?….’ ‘what if?….’ ‘what’s frustrating you right now? ‘what’s frustrating your customers right now?’ ‘If you had a magic wand, what would you change?….’ Answers to the right questions can lead to an idea, an overview sketch of a new strategy, something to share and build upon.

Once you pick the areas you want to tinker with, how will you explain this new way of doing things to your mother? Where will you concentrate first, and then next? What does the new idea add that is fresh and valuable? What should be prototyped to help customers, users, insiders and partners?

Dermott Dowling is Managing Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses create, innovate and growth through sustainable innovation processes and spreading their wings outside their home base.

References:

James Janega, (2014), April 2 Larry Keeley, Doblin and the 10 categories of innovation  http://bluesky.chicagotribune.com/originals/chi-larry-keeley-doblin-innovation-strategy-bsi-20140401,0,0.story retrieved 12/04/2016.

Larry Keely, Ryan Pikkel, Brian Quinn, Helen Waters (2013) Ten Types of Innovation: The Discipline of Building Breakthroughs, John Wiley & Sons, New Jersey.

Business Today, (2011), Dec 11 Cover Story: A Happy Marriage http://www.businesstoday.in/magazine/cover-story/innovation-toshiba-ups/story/20185.html Business Today online viewed on 12/04/2016.

Charles Fischman (1996) April 30, Whole Foods is all Teams http://www.fastcompany.com/26671/whole-foods-all-teams viewed on 13/04/2016

W.L. Gore http://www.gore.com/en_xx/aboutus/culture/ viewed on 13/04/2016

Helft, Miguel (2002) May, Fast Fashion Forward Business 2.0

Philippe Silberzahneng (2010) March 18, https://philippesilberzahneng.wordpress.com/2010/03/18/nespresso-complexity-innovation-process/ viewed on 15/04/2016


How to enter new markets…Investment modes of entry

Investment

Investment modes of entry are the most significant in terms of investment of your resources – $, people and time and correlating to that can be your most rewarding and risky entry mode.  Following on from the all-important Where to Go? Question as you plan your international business growth strategy is the “How to enter new markets?” Question.  In this our third post of our How to enter new markets …, the first being Export and the second being Contractual  we will explore 4 common Investment modes of entry, their objectives, advantages and disadvantages and pitfalls to be aware as you undertake potentially your most rewarding mode of new market entry.

joint venture

1. Joint Venture

Collaboration between two or more known parties with mutual interest that may or may not necessarily be equal in shareholding and usually relates to a single product or market. Fundamental to building any Joint Venture will be trust and mutual interests and understanding.  Often a ‘marriage of equals’ is favoured over an elephant and a flea type joint venture despite the obvious attraction for the flea to partner with an elephant for growth opportunity.  Finding, getting to know and understanding your joint venture partner(s) interests is fundamental as you are literally ‘getting into bed with a foreign company in a foreign land so best you look for your ‘perfect partner’ wisely and use your head as well as your heart in the decision or match making process.

The advantages of a joint venture are that they are good for accessing manufacturing and/or distribution in markets that are hard to enter e.g. Japan or Korea.  They also help to break down ‘physic distance’ or bridge cultural divides where two cultures come together that are very different as they force parties to get to know each other much more deeply than simple transactional business and take time to understand the host market for your new business.  The disadvantages are they take time to a) find the right partner and b) build the relationship of trust to the point both parties are willing to invest and share resources and profit rewards. They can create competitors and if there is misunderstanding or disagreements they can end badly for the foreign company entering the new country e.g. Danone & Wahaha Joint Venture in China that turned sour or Carlsberg & Thai Beverage falling out after 12 years together in Thailand.  Common interests and mutual benefits may dissolve over time and this is something each party needs to be aware of and plan for alternative dispute resolution in their JV agreements should separation become a reality down the line.

Strategic_Alliances_are_Built_Around_Trust_1

 2. Strategic Alliances

Independent partners come together and develop a long term vision or strategy to cooperate rather than compete in the territories of the alliance.  There typically are no equity investments or binding agreements although that may eventuate over time.  The relationship is organised along horizontal lines with sharing of technology, knowledge, systems and resources.  Strategic Alliances are commonly used in the Airline industry e.g. Star Alliance or Oneworld to pool planes and resources.  Alliances are a great way to share the capital cost of accessing new markets.  Another well documented Strategic Alliance that resulted in cross country and company equity investment that has endured in a hyper competitive industry is the Nissan Renault Strategic Alliance.

Advantages of strategic alliances are that they do not require immediate equity investments or binding agreements however that can also result in less commitment to overcome initial challenges by the parties to the alliance.  Alliances can be good for product, market and distribution development.  The fact there may not be a solid binding agreement locking the parties together or binding agreement means it is likely they can dissolve once the initial mutual agreed objective is met.  For further tips and guidance on building great alliances you can read Kanter’s blog on 15 Steps for Successful Strategic Alliances (and Marriages).

Greenfield Investment

3. Greenfield Investment

The type of investment is where companies typically build plant, infrastructure or manufacturing and sales capacity from the ground up in the foreign host market. In addition to creating new facilities the parent company will create new jobs hiring local and placing international staff in many cases to run the new subsidiary offshore.  The advantages of Greenfield investment are 100% control of your own destiny on the ground overseas and there are often local host government tax incentives to invest and build infrastructure behind their trade borders.  You immediately avoid costs of import/export, tariffs, and behind the border trade barriers.  Questions you need to consider before such significant investment include if you are not working with local business partners, are you confident you can independently source raw materials, manage and access local government departments, understand local customer preferences and recruit, train and retain talented local staff?  The risk level for Greenfield Investment increases significantly with the cross cultural differences or psychic distance and we advise extreme caution in this regard if your business home country and host country are polar opposites in terms of culture and ways of doing business.  This mode of entry tends to be favoured by well-resourced large multi-national corporations or in countries neighbouring or close to home markets where cultures are not that divergent.

M&A

4. Merger & Acquisition (M&A)

Refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed (Investopedia, 2014). More common than uncommon these days as firms seek faster growth “let the buyer beware” is our caution here as it has been widely researched and documented the vast majority of M&A activity does not deliver a return on investment over time.  Study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90% (Christensen, et al 2011).

The attraction and advantages of M&A include almost immediate access to the new host market with new capacity, people and incoming knowledge and systems to take your own goods or services to market.   Other perceived advantages include a diversification of product and service offerings, an increase in plant capacity, larger market share, utilization of host market operational expertise and research and development (R&D) and a perceived reduction of financial risk compared to greenfield investment.

Time and time again however, we see the same scenario play out post M&A with culture clashes, turf wars, different processes and systems not integrating as easily as planned and dilution of a company brand (Dumon, 2014).  In addition the acquirer often overestimates the synergy savings that can be extracted and in seeking to extract cost saving often dilutes the strength of the independent businesses and brands in the process.

Summary

Investment modes of entry are not for the weak of heart or mind.  Be prepared to stump up more capital, invest more of your top talent time and scarce resources to make new alliances, joint ventures, Greenfield Investments or M&A activity a success.  If you seek to form alliances or joint ventures be sure to use your head as well as your heart to find the perfect partner.  If you seek to be in control and make your own Greenfield Investment or undertake M&A take stock of the cultural and physic differences in your host market.  Audit your own company capability to integrate smoothly into the host market and your understanding of the local culture, customs, and ways of doing business and rule of law and how to interact with government in that market.  Do not be afraid to ask for professional help and services and look to your networks in both your home and host market for case study examples of successful and unsuccessful Investment entry modes into the new market.

Please feel free to add your own comments and experience on investment modes of market entry below and reach out to us for a follow-up face to face discussion at no obligation on your objectives for international business expansion.  Without a clear strategy of Where to Go? How to Enter? Export? Contractual? Or Investment? And lastly when to enter? You risk making mistakes and damaging your growth plans.

Dermott Dowling is Managing Director @Creatovate, International Business consultancy. Creatovate help businesses grow outside their home base from market entry strategy to route to market to go to market launch. Contact Dermott if your business needs help expanding your business internationally.

References:

Clayton M. Christensen, Richard Alton, Curtis Rising, and Andrew Waldeck (2011) The Big Idea: The New M&A Playbook https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook/ar/1   viewed on 4/12/14.

Marv Dumon (2014) Biggest Merger & Acquisition Disaster http://www.investopedia.com/articles/financial-theory/08/merger-acquisition-disasters.asp  viewed on 4/12/2014.

Rosabeth Moss Kanter (2010) 15 Steps for Successful Strategic Alliances (and Marriages), June 10

https://hbr.org/2010/06/15-steps-for-successful-strate HBR Blogs retrieved on 28 Nov 2014.

http://www.investopedia.com/terms/g/greenfield.asp viewed on 4/12/2014.

http://www.investopedia.com/terms/m/mergersandacquisitions.asp  viewed on 4/12/14.


Looking for Love? Partnering for growth internationally

10 KeyInternational Partnerships Eyes to unlock a Perfect Match and grow your Business Internationally

In business just as in personal life finding a partner is very important to reaching your full potential and growing.  Different cultures, geographies, tyrannies of distance and cross-culture misunderstanding all lean towards partnering as a fast efficient and effective mode of new market entry.  Finding the right partner is something you should not rush and likewise something you’re your business should drive rather than be driven towards by direct approaches from potential overseas partners.  In this post we talk through how Creatovate works with our clients to help them find the perfect match and create what we hope will be long lasting profitable relationships for our clients and their partners in market.

 

 food-industry-scale-efficiency1.     Efficiency & Scale

When looking for a partner to help you market, sell, distribute and store your goods in market you will inevitably have to give up some margin in the value chain between you the producer and the end customer and consumer of your products.  One of the most important factors in the equation will be the gross margin or ‘cost of doing’ business requested by your partner in market.  We do not recommend you start talking about this immediately but leave it till last or second last but it is an important piece of the puzzle you need to take away from any potential partner conversation.  What margin do you and they need to make a living? What trading terms are they requesting? Allowances for date and damage stock? How much do you need to allocate for customer trade spend? Advertising and Promotion support? What forms of business reporting do they use and how frequently will you see sales numbers, forecasts, stock reports?

 

Leverage

2.     Leverage

The mere fact you are considering entering into a partnership or distribution agreement in an overseas territory is demonstration you are seeking to leverage the skills, capabilities, networks and trading relationships and infrastructure of another party.  Leverage is a key means to grow your business and just as in financial leverage can help grow your business leveraging partnerships can increase your scale and size very quickly if done well.  The types of questions and leverage opportunities you are looking for could include partner reach and channel coverage – do they reach all or most of your potential sales channels? How have they grown in the past with other principals and what other principals/brands/products do they have in their stable that you can leverage in co-promotion opportunities e.g. If they are importing wine and you are cheese brand can you partner up for promotions?  What is the extent of their customer and supplier relationships and are they complementary to your own brands/products/services?

Capability

3.     Capability

One of the pillars of any successful market entry strategy will be a mode of entry that demonstrates capability to succeed.  Recognise you are in a foreign territory.  Rules, regulations, customs, consumer and customer behaviours and attitudes are different to your home country.  Capability of your local partner will be multi-faceted including the vital first priority – People. What are the competencies of their trade marketing, sales, management?  Systems and Processes – what means do they have to manage order to delivery, accounts receivable, warehousing and distribution, sales and marketing?  Infrastructure – what level of competency and capability do they have to adequately warehouse and distribute your goods to customers?  Do they have their own facilities or is it outsourced to reliable and reputable third parties?  If they are outsourced to third parties are those facilities professional, efficient and well kept.  Make sure you visit the infrastructure facilities where your goods will be warehouse.  If you can afford the time and cost attempt to follow the first shipments from your factory through the entire supply chain to make sure your goods arrive in the customers and consumers hands in the same condition they left your factory floor.

Need

4.     Need

One of my earliest leaders and mentors, Dr Ong used to say there is only one good trading partner ‘one where you fill their rice bowl’ or in other words one where ‘if they don’t sell your products, they don’t eat that night’.  This is the defining characteristic in terms of partner choice.  Do you go for ‘lean and hungry’ or ‘small and nimble’ or ‘large and well established’?  There are potential costs and risks for picking either / or option.  How willing is your trading partner to invest in building your brand with you.  Will they share promotion costs and expenses below the line to drive sales?  What split is fair and reasonable to you and them 50/50, 60/40, 70/30?  How passionate is your potential partner for your business?  Did they approach you or vice versa?  Do they have a passion for your products and category?  What is their expectation from you in terms of marketing and promotion and price support to drive their sales and your brand equity in their market?

Open & Honest

5.     Open

Image courtesy of Far Reach
Transparency builds trust and open and honest dialogue and exchange of each other’s interests, operating margins, business models and a general willingness to do a full work-back and/or up on costs and margins in the value chain is important.  Does your potential partner have a mission, vision and values that align with your own?  Are they equally interested and keen in doing the business with you and will the relationship be win-win and generally equal in nature or win-lose or disproportionate in the value created and shared you and your partner?  Your initial face to face meetings and ways of sharing information will be an important indicator of your future working relationship.  We all seek to build solid long lasting partnerships so open and honest feedback and dialogue is most welcome.

reputation

6.     Reputation

What is your potential partner’s reputation and intimacy with the local trade like?  Has their business just started or has it been trading for years with credibility in the trade in the market you are seeking to enter?  How long has the ownership structure and senior management been in place.  What are the staff turnover like and their relationship with local government, customs, officials, etc.  What are the differentiating factors for this partner compared to the rest of the options available to you to choose from in this market?  You partner will be the face and arms and legs of your brand on the ground so it is vitally important they act with integrity.

 

Possible-Conflict-of-Interest

7.     Conflicts of Interest

Conflicts of interest can occur frequently when you are seeking a trading partner who has experience with the types of goods or services you sell.  Trade partners can only get that practical experience by selling competing brands or their own and that is a conflict with your interest to see them focus solely on selling your brands.  Alternatively do they have business with common end customers selling adjacent category products or are the products they sell in the same category as your own from distinctly different geographies with distinctly different prices and positions in the market?  These factors are very important to consider as ideally you want a partner solely focused on selling your products and not in a dilemma as to which principal in your category to devote their time and attention and focus.

Knowledge

8.     Knowledge

Anyone can have a go at selling something and anyone can try and drop prices relative to the incumbents or competing brands in your category.  Knowledge brings wisdom in terms of a context that your trade partners can use to help educate customers why they need to pay more for your products or how your products or services can improve their own business performance.  Knowledge about your own business and a genuine interest in your plans, research before you meet and some care and diligence in forming a possible partnership are all indicators of a passionate partner who values long term over short term opportunity.  To truly lead a category on the ground in the market overseas the potential partner will also need in depth customer, category and consumer knowledge and show some willingness to invest some of their own resources behind gaining that wisdom.

Opportunity

9.     Opportunities

Does your potential trade partner have capability or partnership opportunities you can leverage to create value 1+1=3!  Do they have customer partnerships that can create new products, services and development down the line, do they have access to local manufacturing facilities should you decide after a successful export market entry strategy that you would like to manufacture your brand locally?  Are they open to partner more intimately down the line in terms of marketing and distribution – Joint Ventures or introduce you to other principals with whom you can partner up in multiple markets?  This is the longer term horizon 2 or 3 opportunities that you are thinking about should this trading relationship go well in the early years and your business get off to a good start.  How can we form a more connected deeper engagement with or through our partner in market to grow further in that country or other countries internationally?

References10. References:

Rather like a job interview meeting face to face with potential partners, reviewing their office, staff, logistics, systems and capability you are assessing if they have the skills, experience, competencies and passion to partner and do your business.  If key indicators 1-9 are all positive and you are feeling this partner has the potential to be “the one” for your business the next logical step is to ask and then do some reference checks.  You should ideally reference check your trade partner from both sides.  What other principals can you talk to who can speak positively of their trading relationship with your potential trade partner.  Likewise, what customers of theirs can you talk to assess their service levels, reliability, and ability to deliver on their promises and supply products consistently?

Scorecard

Scorecard

10 x 10 = 100% perfect match!  You are unlikely to find the perfect match in life and reflecting on your personal and professional relationships to date will highlight that fact.  However, you can see that one possible way to independently evaluate multiple potential trade partners might be to use a scorecard rating each potential partner on these 10 factors with a highest possible score of 10 for excellent or 1 for no/low score.  This can help you objectively as well as subjectively evaluate your perfect match!  Creatovate developed the above tool for trade partner screening and matching in partnership with one of our first clients when looking for “the perfect match” for them and we have successfully used this tool with multiple clients since, receiving positive feedback and builds on the tool.  You can create your own ‘perfect match’ scorecard and series of key factors and indictors that works for your business, product or service.  We wish you well in your search for love and a long lasting business partnership.

Dermott Dowling is founding Director @Creatovate, Innovation & International Business consultancy.  Creatovate help businesses create, innovate and growth through sustainable innovation processes and spreading their wings outside their home base.


Are you a winner or a loser?

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Here are some lessons learned from time spent listening to and talking to @RosabethKanter @ #ACBC12.  For those readers who have not heard of Rosabeth Kanter, she a renowned Harvard Business Professor who has inspired cutting-edge innovation, strategy, leadership and culture. She has worked a broad spectrum of for-profit and non-profit industries, including celebrated corporations like IBM, Proctor & Gamble and Verizon. I spent some time interviewing Rosabeth at #ACBC12 on behalf of Anthill Magazine and here is a summary of here are 5 key lessons learned from Kanter.

Her advice is equally applicable for new businesses as it is to established businesses.

Lesson # 1) Good moods, stickiness & parties!

When people in business are winning they are in a good mood and its contagious infecting others with more energy, there is less absenteeism, and people turn up even when they do not have to and take initiative rather than waiting for instruction.  Winners get invited to the best parties and thus, the opportunity to network with more successful organisations. Losers are left out.  Networks are vital and why many small companies flourish and grow.

Winner tip: Act bigger than you are if you are small and network with successful companies. Start-ups that dominate their industries usually had better partners early in their start up life.

Lesson #2) Warning! Winning can be boring! It’s hard work.

Just like an Olympian you need to practice every day and not become complacent.The people who make up teams in winning organisations may change but, the culture that perpetrates the organisation keeps the team winning.

Likewise, the complete opposite can occur for losers. There’s a U.S. college football team that lost every game of for nine years! The members of the football team changed, but the culture and attitude didn’t, so the team kept losing.

Winners monitor and measure their performance. They live by the saying ‘what gets measured gets done’

Winner tip: Use key success indicators with precision meticulously, to get things done.

Lesson #3) Winners are leaders who take responsibility.

Winners are leaders who take responsibility. Winning companies are run by people who are not afraid to say the three hardest words to say in business: ‘I was wrong.’

Losers love cover ups and do not say these words.

Winning businesses have a strong set of values and core purpose. P&G, founded in 1837, codified its values 20 years ago when it acquired Richardson Vicks.

P&G created its PVP (Purpose, Values, and Principles) to guide and unify the company with a common cause. It helped to create the company’s growth strategy of ‘improving more consumers’ lives in small but, meaningful ways, each day’. The PVP inspires P&G people to make a positive contribution every day.

These lessons are highly applicable to start ups, many of which are now writing and codifying values and purpose. Kanter pointed out a growing recognition that people cannot share in something they do not create. A PVP is a core part of a business, any business, that can be created by the whole team, not just the Founder.

Winner tip: Know what you stand for. Make sure your team does, too.

Lesson #4) Winners think small as well as big

Winners focus on small wins and one step at a time.  They get right back to work the day after a success.  If all you have is a big vision for your business then you will get demotivated  This is because the gap between the now and the vision, is too big.  Toyota changed from five year plans to five week plans. If you have a five year plan you will only start working on it in the 11th month of the 4th year!

Winners use open brainstorming, their initiative and feel everyone can make a difference to the business.  Losers go it alone, set unreasonable goals and, think no one else has valuable input.

Kanter’s advice is to focus on ‘small wins’, especially in tough times. Winning companies will provide teams with tasks and goals they can achieve.

Winner tip: Break it down; project by project. Focus on achievable components to build on success.

Lesson #5) the real difference is how winners handle losing

Winners like to get together with other winners, and share their experience. They are more likely to share mistakes and take on board feedback and, tips to improve.  Losing becomes an opportunity to learn for a winner.

Losers, by contrast, need to improve but, are less likely to heed conversations about losing. Nor do they take on board feedback to improve.

All winners have bad patches, or products or services that do not go well. They make changes, learn and stay focused and resilient.

Businesses that are resilient can always come back. McKinsey & Company gave free consulting to U.S. businesses post the GFC in the knowledge those companies would bounce back and appreciate their help in tough times. Then, when the opportunity arose for the company to engage a consultancy, McKinsey would be at the top of the list.

Winner tip: Remember Kanter’s law: Everything can look like a failure in the middle. Refocus, redirect and you can become a winner.

So, those are the five key lessons to help you and your company, be a winner and not a loser.

But wait! There’s more!

Bonus Tip #1: Innovation – be courageous but not stupid!

Kanter recalled how businesses often call her asking how they can be more innovative and immediately follow up with: ‘what are other businesses doing?’

It takes an innovator with courage to bring out something radically different and, not just something incremental. I mean, really, how many different varieties of toothpaste do we need? Do something different!

Incremental strategies reach a peak. In order to get more success, you need to have more failures. You need to try more ideas, more often, before you find the one that works.

Bonus Tip #2: Values matter! Your business is bigger than you!

Kanter points to a greater need today for openness in organisations today.  Founder-led companies can fall into bad habits because the founders can think they know everything. However, an autocracy cannot flourish.

Founders need to be surrounded by great teams. They also need to accept that they may not stay on as the CEO forever.

Bonus Tip #3: Partnering skills matter most!

Business alliances come and go and, they are really difficult to do well. Take Verizon and Google, for example. These two huge companies partnered to create the Android phone but, that alliance no longer stands.

The best alliances have a very specific outcome and an end. It needs to be recognised that the interests of the companies in the alliance can, and will, change.

What every start-up needs is the skills and knowledge to identify and make alliances with the best, and most suitable, partners.

If you are interested to read more on the differences between winners and losers, go to Kanter’s blog.

This article was published on http://anthillonline.com/are-you-a-winner-or-a-loser/ on 14 Sep 2012.

Dermott Dowling is an Innovation & International Business Consultant with a passion for building great brands, businesses and teams. He is the founding Director @Creatovate.


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