Tag Archives for " 5-STAR Business Networks "

Unique Supply Chain Challenges of Oil & Gas Industry

One of the common problems cited by the boards and senior management is that the consultants they hire do not understand their unique challenges.

This problem applies even more to large cookie cutter approach based consulting houses with thousands of consultants where the guys who have the knowledge are too senior (and too involved in their company’s internal politics) to focus on your problems, and the junior people who have all the time have little knowledge or experience.

Time and time again I hear clients complaining about this problem, and their aversion to teaching very expensive junior consultants everything about their own business, only to have it all regurgitated back to them in a report.

That is why our approach works – we focus knowledge on problems.

Let me give an example.

I was recently asked a question about the Key Challenges in the Supply Chain the Upstream Oil & Gas Companies Face?

See below my answer, and understand how unique the challenges in this industry are. All the generic supply chain challenges fade away in comparison.

My answer below:

I am going to assume that you are looking for challenges that are unique to this supply chain, and not generic challenges faced by all supply chains. I am also assuming that the boundaries of upstream go till the refinery and beyond that is the downstream oil and gas industry.

In the exploration stage, the investments are big and the probability of success is low. Exploration equipment, seismic survey vessels and equipment is very expensive. Today, it is also very data intensive work. You must procure contracts for equipment at the best possible rates, and keep them productive at a very high level of utilisation and availability. Getting parts to remote locations where exploration is underway and machinery or vessel is broken down is often a big challenge. The machinery itself is highly sensitive and must be treated with a lot of care.

Booms and busts are common in these markets due to oil price fluctuations. When the oil price is high all producers are rich and wants to explore and make more ‘finds’, and increase their proven reserves. When the prices are down they give up on exploration and a lot of equipment is ‘parked.’ MAnaging the economic cycle of the industry is one of the biggest challenges as a result.

Moving from exploration to pre-production, and then on to production has its own set of challenges. Consortiums of some of the largest companies on earth are involved in these processes. Co-ordinating these large companies’ activities is never a simple affair.

The business network becomes very complicated. Outsourcing is very common, and sometimes badly managed. I wrote the story of Deepwater horizon in my book Outsourcing 3.0 | Outperform | Outsource | Outprofit – Vivek Sood and will reproduce some parts below to give you a sense of the complications:

Deepwater Horizon, a semi-submersible oilrig owned by Transocean was a dynamically positioned drill rig of this type of vessel. A highly acclaimed rig for its numerous deepwater successes, it was deployed off the shore of Louisiana at an approximate cost of $1 Million per day to drill an exploratory well for British Petroleum (BP) who owned the exploratory rights for the block it jointly owned with two other unrelated parties. BP had chartered the oil rig from its owners, the Swiss entity, Transocean. Transocean operated this rig through a subsidiary – Triton Asset Leasing also based in Switzerland, although the rig carried a Marshall Island flag of convenience.

5-STAR Business Networks come together in many forms

As the exploratory well it was digging nearly came to completion, on 20 April 2010 Deepwater Horizon became front page news on nearly every newspaper on earth. The incident was reported in a press release by Transocean [1] as follows:

“Transocean Ltd. (NYSE: RIG) (SIX: RIGN) today reported a fire onboard its semisubmersible drilling rig Deepwater Horizon. The incident occurred April 20, 2010 at approximately 10:00 p.m. central time in the United States Gulf of Mexico. The rig was located approximately 41 miles offshore Louisiana on Mississippi Canyon block 252.”

“Transocean’s Emergency and Family Response Teams are working with the U.S. Coast Guard and lease operator BP Exploration & Production, Inc. to care for all rig personnel and search for missing rig personnel. A substantial majority of the 126 member crew is safe but some crew members remain unaccounted for at this time. Injured personnel are receiving medical treatment as necessary. The names and hometowns of injured persons are being withheld until family members can be notified.”

The details of the incident, as per the figures from popular mechanics [2] were attention-grabbing:

4.9 million: Barrels of oil (205.8 million gallons) leaked from the Deepwater Horizon well, about half the amount of crude oil the U.S. imports per day
 
19: Times more oil leaked from Deepwater Horizon than spilled from the Exxon Valdez in 1989 (10.8 million gallons)
 
62,000: Barrels leaking per day when the wellhead first broke, roughly the amount of oil consumed in Delaware each day
 
53,000: Barrels leaking per day when the well was capped on July 15, roughly the amount of oil consumed in Rhode Island each day
 
397.7 million: Dollars’ worth of the oil spilled at current market prices ($81.17 per barrel)
 
665: Miles of coastline contaminated by oil

The resulting investigation to establish the causality, contributing factors and liability will fill up a book many times the size of the one you are holding.

Outsourcing is a fact of life in business today

We will however, briefly focus on three relevant parties – BP, Transocean and Halliburton for the sake of discussion relevant to this Chapter – on modularized outsourcing. BP had outsourced the task of drilling to Transocean. At the same time Transocean had bought the Blowout preventer from Cameron International Corporation. Whether it can be argued that BP or Transocean had outsourced the task of Blow-out Prevention (BOP) to Cameron is not certain; neither is the liability on malfunction of the blowout preventer because of allegations of lack of proper maintenance. Cameron agreed to settle all claims related with the Deepwater Horizon tragedy with BP for $250M – without any admission of guilt. The situation with Halliburton is still unclear. As per a CNN news-report [3]:

BP and Halliburton sued each other in April 2011 claiming each is to blame for the deadly explosion on the Deepwater Horizon rig and resulting disastrous oil leak. Halliburton was in charge of cementing the Macondo well and claims that its contract with BP indemnifies (releases) Halliburton of any legal action resulting from its work as a contractor…

In a response filed Sunday, BP asserted that “maritime law prohibits indemnification for gross negligence.”

As part of that four-page filing, BP reiterated that it was seeking to recover from Halliburton “the amount of costs and expenses incurred by BP to clean up and remediate the oil spill.” BP has estimated in the past that the total cost will be around $42 billion, and by the end of November 2011 the oil company it has paid out or agreed to pay out $21.7 billion to affected individuals, companies and governments around the Gulf.

In an e-mail to CNN, Halliburton spokesperson Beverly Stafford said “Halliburton stands firm that we are indemnified by BP against losses resulting from the Macondo incident.”

Outsourcing tasks does not transfer responsibility for those tasks

President Obama quipped in an interview with CNN [4] On May 14, 2010 “you had executives of BP and Transocean and Halliburton falling over each other to point the finger of blame at somebody else…The American people could not have been impressed with that display, and I certainly wasn’t.” The legal wrangling continues and will take considerable time and expense to resolve. We need not go into the gory details of dollar numbers too big to even fully comprehend, but from our perspective in this Chapter three key points stand out:

  1. When you outsource a task, service or suite of services, you could still retain significant responsibility for its full and proper execution.
  2. Brand-names, size of the company or even their experience is no guarantee of performance of the outsourcing service contracts.
  3. No matter how close the ‘partnership’ is at the start, the test of a successful outsourcing contract is how it ends.

What We Can Learn About Supply Chain Security From One of the Shrewdest Pivots In Business History

Here is a story of the fire than tipped the balance within an industry.

Two stalwarts in the mobile phone industry in March 2000 were equally impacted by the same event – a lightning fire in the chip manufacturing plant of their common supplier, Philips, in New Mexico.

Both Nokia and Ericsson experienced the business disruption to an equal extent as a result. Fire damage to the stocks was extensive.

More importantly, the manufacturing capacity was damaged and it was difficult to estimate the time for repairs.

Nokia has invested months, if not years, in creating and perfecting a robust and responsive business network, while Ericsson’s business network was relatively a middle-of-the-line affair that worked well when things were good.

After the fire, Nokia was able to see the full impact of the chip shortage on its own business, as well as the entire industry with a lot more clarity than Ericsson, and even Philips.

Moving quickly, it activated other parts of its business network to shore up supplies, to redesign some of the chips to manufacture them in other plants, and to take pre-emptive steps in the network.

Ericsson let the situation evolve at its own pace and made decisions more reactively.

The resulting gain in profitability and market share for Nokia, and the loss of these for Ericsson tipped the balance of the industry to an extent where within a few years Nokia pulled far ahead of the Ericsson which never caught up with its erstwhile equal rival.

Source: The 5-STAR Business Network http://www.5starbusinessnetwork.com

I write about The Supply Chain CEOs, The 5-STAR Business Networks and Unchain Your Corporations. My website is at http://viveksood.com

What is Common Between Enron and Bitcoin?

I was at a Melbourne Cup luncheon yesterday, and someone asked me why I do not write about Bitcoin.

On my mobile, I showed them a paragraph from my book THE 5-STAR BUSINESS NETWORK written in 2013, where I talk about the emerging Digital Currency Networks.

But the truth is that given the attention Bitcoin has garnered over the past 5 years – I have barely written anything more on it. During the period the price of Bitcoin has been very volatile, and every move has been accompanied with millions of words written by the mainstream press as well as the more respected blog writers.

Take a look at the 5-year graph below:

The value of a single bitcoin rose from nearly 0 in 2016 to over 25,000 AUD in late 2017. Since then it has been very volatile, now relatively steady in the range around AUD 9,000 mark.

Lots of people came on TV and explained all the reasons why it was where it was that point in time.

Braver people made predictions too. Some even proved to be right for a period of time. Some of those reasons sounded even plausible.

Many people asked me for my opinion, and I always referred them to Enron. I explained that around the start of the century when Enron was in a similar place, people in parties would ask my view on it.

Enron was the darling of the quick buck brigade at that time. Some people even made money on it. Much more money that anyone would ever make by flipping houses, or companies.

But there were at least two big reasons I did not offer an opinion:

  1. I never give any investment advice, or offer an opinion that could be construed as an investment advice.
  2. I did not understand Enron

Many friends who knew that I scored the only 100% mark ever in the sloggiest finance course in my MBA would not believe either of those too reasons. And, they would press me for an opinion. Perhaps they had money riding on it.

Some, the wiser lot, even took my unwillingness and inability to offer a point of view as a sign, and made the decision which turned out to be right for them. A few even thanked me. Yet, I claim no credit for saving them a buck, or two.

I was merely stating a fact –

I Don’t Understand It.

And, that is all I have to say about the Bitcoin.

If you want to know about more things that I do not understand – feel free to offer suggestions.

 

High Demand for Real Supply Chain Experts

Good solid supply chain thinkers are in high demand and low supply.

I would know, I run this company called Global Supply Chain Group for the last 17 years.

It appears that it was not too long ago (when we formed this company) – most business people were struggling to understand what is supply chain and what does it do. We have come a long way since then.

Every politicians speech today is laced with references to global supply chains and business networks that run the commerce on earth today. Companies that are seen as supply chain trend setters are leaving everyone else (even in adjoining industries) biting the dust.

Take a look at the chart below:

But Amazon.com is not the only one.

Current trend is becoming clear- companies such as Apple, Zara, Uber, AirBNB have one thing in common – Supply Chain Leaders as CEOs. Integrators are in high demand. Optimisers rule the roost.

Every era has its own heralds and the mantle changes every few decades.

Every politicians speech today is laced with references to global supply chains and business networks that run the commerce on earth today. Companies that are seen as supply chain trend setters are leaving everyone else (even in adjoining industries) biting the dust.

As as example, it only one or two decades ago that strategists coming from McKinsey or 3Bs (BCG, Bain, Booz) were the prime candidates for the role of the CEOs. What made this necessary was the need for strategic thinking that was missing at the highest level before that. But clearly the mantle has passed on the the integrators / real supply chain leaders now. Here are the previous trends:

  • 1900 – 1925: Inventors, Creators
  • 1925 – 1955: Makers, Builders
  • 1955 – 1970: Promoters, Marketers
  • 1970 – 1980: Accountants, Finance
  • 1980 – 1990: Human Resources
  • 1990 – 2000: Strategists
  • 2000 – Current: Integrators, SCM Leaders

I know, you are asking where is the proof. Take a look at the picture below:

It will take a long time to explain the picture above, if you don’t get it by seeing it. It is also perhaps unnecessary in that case. Suffice it to say that two skills are becoming critical for business leadership:

Integration – of various parts of the 5-STAR Business network, internal and external resources, into a complete unit that delivers the customer experience

Optimisation – that enables sound profitability while delivering the customer experience

I have many other pretty pictures to expound these points, but I would rather focus on the outcomes.

So, what would you expect if above two skills were available in abundance? For sure, you would expect good business outcomes. These could take the form of any of the 5 possible themes:

This is the topic I cover in great deal of detail in my book THE 5-STAR BUSINESS NETWORK – so I will not talk about it in this post. Rather I want to focus on the reason I wrote this blog:

Now, if you have read it this far, there is a good chance that you know someone who will benefit from this information. Earn yourself some brownie points by letting them know – by sharing directly, or via groups. It only take 15 seconds.

Point to Remember - Two Keys to Success:

Integration – of various parts of the 5-STAR Business network, internal and external resources, into a complete unit that delivers the customer experience.

Optimisation – that enables sound profitability while delivering the customer experience

 

The Single Biggest Mistake in Business Transformations

 

If I have seen it once, I have seen it a hundred times.  A new person is brought in with a clear mandate. The things are meant to change. Out with the old, and in with the new. The new person comes in with a great fanfare, and takes over. Then he/she starts taking stock of the situation. And takes more stock of the situation. Gets the consultants. Does a study. And, more studies. And more stock of the situation.

Meanwhile, the chairman is stewing in his chair. The board is exasperated. They see a lot fancy reports from the consultants. But they are waiting for action. Which comes in small dribs and drabs. Seems like one step forward and three steps backward. They start saying things like – ‘even the wrong action is better than no action.’

And, that is when you know that the single biggest mistake in business transformation is being repeated again.

Here is a typical scenario:

It had been two months after the internal announcement about achieving a milestone, and no one had seen the spark of business transformation yet. The momentum has been lost. When employees clapped their hands a couple of months ago on hearing the speech about successfully increasing efficiency by 10%, an impressive quick win, management should have taken the opportunity to introduce the next initiative.

Unfortunately, cases like this are not rare. Driven at the wrong speed without an appropriate line-up of actions will extinguish the initial enthusiasm, causing boredom and even withdrawal. As we have seen in my book UNCHAIN YOUR CORPORATION, the journey from supply chain 0.0 to 1.0, to 2.0, to 3.0 is very interesting, and challenging. Here is the relevant framework from the book:

supply chain management

Obviously, if your company enjoys healthy margins and is in relaxed circumstances, you can move just one step at a time – from SCM 0.0 to 1.0 or from SCM 1.0 to 2.0 or from SCM 2.0 to 3.0. All you might need is a slow evolution over number of years, where your company comes to the realize the need to change over 2-3 years, and then gradually carries out that change over another 2-3 years.

During this process, if the market conditions change and, margins experience a squeeze, your company can always hasten the cycle by deploying professional change managers, where a six-year planning and execution cycle can be easily halved to 2-3 years.

However, companies can also jump one step in the process, from SCM 0.0 to 2.0, or from SCM 1.0 to 3.0 by deliberate supply chain transformation, which helps them achieve faster results, with less risk of always chasing the trend. In this particular case, the danger is real that the process can be carried out too slow or too fast, depending on how the transformation is created.

To give you an example of a transformation which was carried out too fast, let’s consider the case of British Petroleum and its oil rig in the Gulf of Mexico. The full case study is our book Outsourcing 3.0 but here we will repeat just the most pertinent facts. Obviously, their supply chain 3.0 was configured with a number of suppliers of BP, including the owner of the rig, the operator of the rig, the supplier of the underwater equipment used on the rig, which failed, and the user of that underwater equipment. Unfortunately, the transformation had been carried out so rapidly that the risks were not being managed prudently enough. As a result, a small failure in the supply chain resulted in massive losses, amounting to tens of billions of dollars and a blame-game at the end of it all.

On the other hand, examples also abound where companies drag out the transformation too long, at the pace of slow evolution or change management. We have seen numerous companies go bankrupt, rather than hasten the transformation process.

supply chain management

In fact, take a look at any company declaring bankruptcy, whether in automotive, aviation or any other sector, and you will see apparent signs of failed transformations due to a slow pace, or a lack of understanding of the various stages along the way.

On the other hand, if you want to see examples of companies that have carried out the transformation just right, try and examine those whose share prices have gone up significantly in comparison to the market benchmarks, and then discern whether this result is due to a stroke of luck – for example, a fertilizer company getting lucky thanks to the right amount of rain 3 years in a row – or whether it is the result of a professional business transformation, carried out from one stage to next in a systematic manner.

supply chain management

What Two African Entrepreneurs Have Learnt from Amazon.com – Globalization in Action Serving Humanity

Boasting exponential growth since its inception in 2012, Jumia became the first e-commerce site to bring the coveted Play Station 4 to Nigeria. The company announced the offering after just two days of the release in the US. The Nigerian would-be Amazon is following the global giant’s footsteps in becoming a super networked business, although there is still a long way to go.

Jumia started with a relatively similar aim and manifesto to Amazon, which puts customers at the heart of its operation. In the same vein, the Nigerian site also reaps benefits from being one of the pioneers in Africa’s emerging online retail market. “Being first is good, but it is not everything. What fuels Jumia’s success so far is somewhat akin to Amazon’s evolution into a Five-star business network” – said Vivek Sood, CEO of Global Supply Chain Group.

Jumia is not shy of innovation either, given the fact that people are still skeptical about online retailing as well as online payment in Africa. The Lagos-based retailer launched a range of online payment options but steers its technology-shy consumers by accepting cash on delivery and offering free returns. “It’s very important that people know it’s not a scam,” said co-founder Tunde Kehinde. They even take a step further and deploy a direct sales team of 200 to educate Nigerians about secure online shopping, which also serves as a means to build trust. Now with pick-up stations spanning over 6 locations, a warehouse facility, 200 delivery vehicles in Nigeria and 4 other country-specific microsites, Jumia seriously strives to become a one stop shop for retail in Sub-Saharan Africa. “Here you are collecting cash and reconciling payments almost like a bank desk, here you are building a logistics company,” said co-founder Raphel Afaedor.

Both co-founders and Harvard Business School graduates built the business from $75 billion in funding and are bringing “a couple of million” dollars in monthly revenue, a growth rate of nearly 20%. Vivek Sood, author of the book “Move Beyond the Traditional Supply Chains: The 5-STAR Business Network”, said: “Jumia is taking the right steps towards building the five cornerstones of a super networked business: innovation, efficiency, profitability maximisation, product phasing and result-oriented outsourcing. With the promising results so far, perhaps we could see the next perfect example of a 5-star business network besides Amazon.”

BIG PICTURE vs REAL PICTURE – What is Required for Business Transformations?

Global shipping is a very cut-throat business where you can make a lot of money just by buying and selling ships at the right time. So ships in operation are sold quite regularly.

When I was in shipping – there were two kind of buyers who visited the ships to inspect them prior to purchasing them.

The first kind were mainly the big picture guys who would come in and inspect all that voluminous paperwork, look at the ship’s bridge, paintwork and general layout of the ship and then spend a lot of time with the captain, chief engineer and chief officer in the hope that they would pick up nuggets of valuable information that could be reported back to the the prospective buyers. These people essentially relied less on their technical expertise in shipping, and more on their knowledge of human psychology to try and trip up the ship staff in revealing some defects or problems that could be used as leverage to lower the price of the ship during negotiations. Their reports looked very shiny and well formatted, and these were preferred by some prospective buyers who needed such reports – e.g. many banks and trading houses (mainly non-shipping entities).

The second kind would don the boiler suit the moment they boarded the ship and spend a lot of the time going into each and every double bottom tank, engine room bilge, forecastle store room and all the least visited parts of the ships. Frequently they would discover things that even the ships’ staff did not fully know. These people essentially relied on their shipping knowledge to assess the real condition of the vessel to report back to the prospective buyers a very thorough report of the ship, and points to watch out for if they bought the ship. They could also easily help the buyers work out a ship up-gradation program that was cost and time effective. Many of these folks wrote simple, factual reports that were not too professionally produced – but they were preferred by the shipping entities who were “in the game”.

Occasionally we would see someone who combined these two skill-sets marvelously and was a master at the game. When, post MBA, I moved to management consulting with a top-tier global firm I noticed many characteristics of the first kind. I will not go too much into the detail but many readers can likely fill in the picture for themselves, and it is also quite well known what kind of clients prefer these “brand names”.

I also saw there were many folks out there who were more like the second kind. Again, the readers would have likely encountered this type of management consultants too.

In nearly 20 years of management consulting, I have seen very few of the third kind. Whenever I do, I try as much as possible and get them to work with us. In our view that is when business transformation truly succeeds.

What I Learnt About Business Transformations Fighting Pirates (Not in the Caribbean)! – Part 1

I was reminded of this story because I was talking about it in a workshop on business transformation last week.

I repeat it here because it will be relevant to many people fighting the hard corporate battle, many times without adequate backup.

Here is the true incident without any build-up or embellishment. You have to allow for the fact that this incident is nearly 25 years old, and memory does fade after many years and varied experiences.

Today, this incident almost seems like from a totally another life and place. I was sleeping in my cabin (about the same size as a studio apartment) when I heard shouts from the deck. On this particular ship, the chief mate’s cabin was not too far above the deck, and since the ship was at anchor in a tropical paradise condition, I had left the portholes of my cabin open to allow fresh sea breeze in. In fact, the air conditioner was defective, and I had to keep the portholes open.

I expected a peaceful night at anchor, but alas it was not to be. The sounds of other boats’ or ships’ engines never disturbed me. The shouts from deck did. Quartermaster (QM) on duty on the deck, and the Officer of the Watch (OOW) were both trying to wake up me, the Bosun, and other crew at the loudest of their voices.

I hurriedly put on a T-shirt and rushed outside to the boat deck to get a picture of the situation. I immediately saw the Quartermaster (QM) and OOW standing on the deck holding a couple of large crow bars or similar implements trying to simultaneously repel boarders and wake up the crew.

Two boats had come alongside. It is difficult to identify the intentions of the boats at sea, especially at night. Most are merely fishermen, petty traders, or offering goods or services to the crew. In high piracy prone areas the standing instructions at anchor are to never let a boat come alongside without challenge and permission. However, this was not a piracy prone area (I will not name the location because I have many good friends from this region and they are sensitive to any perceived criticism of this nature).

QM and OOW were relaxed till they noticed one of the boats throwing a grappling hook over a gunwale (sort of deck railing). That was a clear sign of intransigence, and got QM worked up very quickly, who was shouting at top of his lungs from the deck. Seeing this, I rushed back into the accommodation, and grabbed the first useful looking implement, a fire axe.

Meanwhile, the Bosun had also come on the boat deck with another bunch of crew – each with a useful implement that could be potentially used to defend the ship. Alarm was raised on ships horn, waking everyone up. A crew member was sent to lock all the accommodation doors from inside – barring one, which we were using. Almost the entire ships crew except for a few engineers and the Captain assembled on the port boat deck to defend the ship.

One of the pirates’ nimble ‘associates’ had scrambled over the taut rope – a steep vertical climb of about 20 feet – to the ships deck. He was in the act of pulling up a small rope ladder so that the rest of the lot could scramble up. We still had the advantage, this was the second best time to repel the boarders. The best time would have been to cut the rope from the grappling hook before the first person had boarded.

Because this blog is getting too long – I have broken the story into two posts. The remainder of the incident is recounted in the blog titled Industrial Age Tools vs Information Age Weapons, which can be accessed by clicking on the link.

That title does give away the key learning which is as follows: In another set of situations, I see people grappling with impossible odds with inadequate weapons all the time. I am talking about business  transformations that I help companies with for the last 19 years since becoming a management consultant after my MBA. Traditional tools of industrial age – methodologies, knowledge, practices and power structures are regularly deployed to fight superior forces of information age. Most people do not know the difference between the information age weapons and the industrial age tools, till it is too late.

Take a look at the graphic at the end of the blog. And, if you are still convinced that you have everything for the fight ahead – head out to Surveys Questions to confirm your opinion. On the other hand, if you are still taking stock of the situation, like I was doing from the boat deck before sending the repelling party out, These Surveys Questions will immediately give you the necessary information to formulate your game plan.

Changing Role of Supply Chain Management in Digital Economy

What Did Ikea Do When Suppliers Blockaded Its Business

Imagine if you were a small sized furniture seller, and suddenly your suppliers refused to supply furniture to you because they allege that you are selling at too low a price. And, when you went to another manufacturer, they refused too.

In fact, it turns out that all manufacturers have decided to boycott your business because you are underselling every one of your competitors. What would you do?

As you have probably guessed, this is not a hypothetical situation. This is exactly the situation faced by Ingvar Kamprad of IKEA. The story, related by Malcolm Gladwell in his book ‘David and Goliath’, is illustrative of the power of business networks. Does Your Business Build a Network, or Does Your Network Build Your BusinessWhen I researched the story, there is obviously more to it than what is written in the book.

This Forbes article gives the following background:

Kamprad started Ikea when he was just 16 (the name was officially registered in 1943) as a general mail-order firm. In 1952 he moved into mail-order furniture and the following year opened a showroom in lmhult. (The name is a combination of Kamprad’s own initials, plus the first letter of Elmtaryd, the family farm, and Agunnaryd.) He constantly tinkered with how the furniture was designed, to keep costs low.In 1955 came a brilliant breakthrough: Trying to figure how to efficiently pack and ship a bulky, long-legged table, Gillis Lundgren, an early employee, later Ikea’s chief designer, hit upon the idea of taking the legs off and mailing them packed flat under the tabletop. Voil! Self-assembled furniture was born. It has been at the core of Ikea ever since.In 1958 Kamprad began opening retail outlets, first in lmhult, then Norway (1963), Denmark (1969), Switzerland (1973) and Germany (1974, now Ikea’s largest market). Then came Canada (1976) and the Netherlands (1978). Later came Ikea’s second-and third-ranked markets, the U.K. (1987) and the U.S. (1985).

Does Your Business Build a Network, or Does Your Network Build Your Business

The article further goes on to state:

In the late 1950s and early 1960s, Sweden’s National Association of Furniture Dealers boycotted Ikea, threatening the country’s furniture makers that if they sold to Kamprad, they could forget about selling to the association’s membership. That led Kamprad to emphasize both in-house designs and sourcing production outside Sweden. In the end, the boycott collapsed.

In his book, Malcolm Gladwell gives the details of how Kamprad built an international network of suppliers by going behind the iron curtain to Poland. While it was not an easy job, it was well worthwhile to start a process which built IKEA into a global powerhouse that it is today. With 139,000 employees and global revenue of Euros 28 Billions, there is certainly more than meets the eyes.

It will take an article of several pages to trace the development of IKEA from its humble origins stated above, to its current lofty position – perhaps a good case study for another edition of my book The 5-Star Business Network. However, it is quite clear that IKEA and its business network co-developed in lock-step with each other, leaving all those members of boycotting Sweden’s National Association of Furniture Dealers far behind.

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Why Business Networks Are Important?

“Call it a clan, call it a network, call it a tribe, call it a family. Whatever you call it, whoever you are, you need one.”

-Jane Howard

Business Networks are important to accelerate and sustain success for any individual or organization. It is imperative to learn from the evolution and success of business networks. Business structures have evolved radically to such a degree that nowadays, most businesses have no option but to create business networks.

Business Networks are more important than your business infrastructure

Naturally your business infrastructure is fixed, rigid and cost accruing. Your business networks, on the other hand, are evolutionary, flexible and revenue accruing.

Business Networks make your business more resilient and responsive – at the same time.

Those businesses which had the most responsive and resilient business networks were the ones to recover from any downfall the quickest. See who survived the global economic downturn during 2008 – 2009.

When Cash is the King – Business Networks Triumph

Data is visibly conclusive that in times of cash crisis, the quality of their business networks saves companies. Those with more robust business networks have far more superior cash conversion cycles, nearly 6 times better. In fact, as pointed out by Aberdeen Group, business network masters improve their cash to cash cycle leading up to the Global Financial Crisis while the rest of the industry went backwards.

In boom times Business Networks Give You Speed

Even relatively smaller businesses can achieve remarkable results quickly based on the responsiveness of their business networks. In economic booms, whether accompanied by economic volatility, or economic stability, business networks allow you to realize higher profits, quickly. The potential of your company’s capabilities are multiplied many times over, by the leverage effect provided by your business network. This is only possible through extensive utilization of business networks that the company has built, nurtured and managed effectively. Most executives grossly under-estimate the value and efficacy of business networks in ramping up capacity rapidly in boom times.

Business Networks Help Smooth out Volatility

Especially during times of extreme volatility, we see airlines and shipping companies forming global service alliances to ride out the season and economic peaks and troughs. In such volatile business environments, budgeting and planning can become a nerve-racking exercise for all companies except those which use their business networks to cushion the lean periods with long term contracts and find scarce capacity during boom periods. Supply chain is unique to every company and industry, formulated over a number of decades in many cases, and is worth several trillions of dollars in value.

Valuation of Business Networks is Astronomical, Though Difficult to Quantify

Estimates range into trillions of dollars, and yet may be underestimating the full extent and power of these hidden business resources. The magic of business networks has made it possible to design, build, launch and sell revolutionary products in less than one-third time of the industry. If you cannot make your business networks more visible and manage them more proactively, you may be silently yielding the competitive advantage to others who can. It is, after all, the obtainable magic.

Want to start now? Create your own 5-Star Business Network today.

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