5 steps to understanding the global value chain

In today’s world, trading systems are global and with their global reach, they are complex.  Each of us has to find our niche, and the big question is how do we “insert” ourselves into a vibrant and rich value chain.

  • How do we access the chain?
  • How do we compete successfully?
  • How do we capture gains in a way that we can grow and become more competitive?
  • How do we take part and take part gainfully?

We aren’t interested in every value chain in the world, but for those that fascinate and attract our attention, we want tools to understand who does what and how to find our place.

  • We want to describe what we make in this value chain and how we make it.
  • We want to think geographically about where everything is.
  • We want to know how the chain cooperates within itself and how it makes sure everyone does their part well and reliably.
  • We want to know how we relate to other value chains and in particular how we honour our obligations to be good citizens in every country where we work.
  • And how is our value chain changing?

These are notes I made from Global Value Chain Analysis: A Primer.  They should be helpful when you are thinking ahead about thorny issues of developing a supply chain.  Once you have the basics, they it would be best to go back to the original source at Duke University.

 #1 What do we make in our value chain?

Our value chain includes everyone who is in it – from people who think up ideas, to people who supply raw materials, to the people who make things, move things and sell things to the people, yes, who pick up the waste and recycle what we throw out.

We map out everyone in the system, initially simply, and then in more detail showing what each person needs and use and what they get back in terms of wages, profits and new possibilities.

#2 Where does everything happen?

Value chains are global but the different parts of the value will happen in different places?  Where?  Can we show the value chain on a map?

And is there a good reason why things happen in any place?  Are the natural resources there?  Do they have a long history in making what is made?  Is the market there?  Are transport lines particularly good?  Does the government give the players special privileges?

What are the opportunities for capturing parts of the value chain and moving them elsewhere?  And who else is looking at the value chain seeing the same opportunities for themselves?

#3 Who has the power  in the network?

Sometimes it is easy to spot a big player like Walmart who dominates the entire chain?  Knowing the ‘type’ of chain that we are in also helps us learn from chains in other industries that we might think are different but are organized in the same way.

  • Price-driven Markets.  Is what we are producing so basic that our buyers do not have a say in what we produce? They buy what is there based on availability and price?  The consumer petrol (gas) market is an example.  There is no difference in buying from BP, Mobil or Shel
  • Order-modulated Businesses.  Do we deliver to customers exactly what they ordered but along the lines of simple combinations of orders as we do with a menu in a restaurant?  Do we offer our customers choice but within a fairly simple range so that cost of taking orders and conveying them to production is fairly low when spread over all our customers?  And equally, is it fairly cheap for our customers to switch to another business that offers a similar service?
  • Relationship Businesses.  Do we need to understand quite a lot about our customer’s needs?  Does it take time to listen to them and do our costs fall dramatically as we get to know them?  Equally, do customers prefer to work with someone who knows them well and work problems out rather than switch to someone else?  Do we have the same relationship with our suppliers?  Do we know what they are particularly good at making and do we prefer to work with them for their special expertise?
  • Captive Networks.  Is our value chain dominated by one buyer on whom we all depend?  Does the dominant buyer pretty much dictate terms?  Does the dominant buyer have the capacity to compensate for our dependence on them with secure contracts and other assistance such as ‘extension’ workers who will help us improve our operations?
  • Hierarchical Governance.  Is work in our value chain so complicated that it has to be completed within a single company structure run by managers experience in co-ordinating the intricate work in that sector?

Governance structures do three things: they express power differentials – who depends upon whom, they provide mechanisms to coordinate ourselves for our mutual prosperity, and they define relative profit margins within our value chain.   Our natural inclination is to manoeuvre ourselves in to a better position and we will do so whenever we can.  So as with political government, good governance is not static and rigid.  It is dynamic, it is aware of shifting sands and it is fair.  Nothing ruins a business relationship faster than the sense that the spoils are divide unfairly.

Sometimes we dismiss governance as ‘politicking’ and sometimes, it is.  But it is as important as doing the work. It is every changing and we are doing business at a time when the rise of the BRICS and the growth of IT and web technology is changing business models.  We need to pay attention and see where our value chain is going.

 #4 PEST Analysis

The relationship between our value chain and the wider world can be thought through using a standard PEST analysis.  In each place where any part of value chain operates, what are the political, economic, social and technological issues and how are these changing?

#5 Making our value chain

Everyone taking part in our value chain is there to make a living and the best living they can.  Hopefully, it is well governed and we can be competitive and innovative without destroying each other and destroying our value chain at the same time.

But the prosperity of the entire value chain does change in time and so does our position in it.

At first, obviously we know little about the value chain. But we can learn about the chain as a whole. We can park out the parts that we do know. And we can mark out who else knows what.

And we can be particularly alert to the best order of learning more and learning about the governance of the chain.

The best example of taking over a value chain was the move by Indian IT firms into software.

At first, we might be able to bid easily for repetitive work.  Then we can gradually increase our skills to handle more difficult work that commands a higher price.

Some sectors are well documented and we can even get government statistics to understand how the value chain works.  In others, we have to resort to special reports and even proxy metrics.  The important thing is to keep paying attention and to keep learning.

  • What are the entry points into this value chain?
  • What are the paths from entry points to more commanding positions?
  • When and how do people broaden their command of the value chain?
  • When and how do people specialize because it is profitable in both the short and long term (20-50 years) to do so?

There are three neat tricks to anticipating where a value chain will go.

  • Layout the present chain so that you can see what is going on
  • Do a 4×4 with the pest analysis showing the interactions of economic and social drivers and social and economic drivers, and so on.
  • And then consider the local education policies.  The labour market has very low elasticity – which means it is slow to respond. Simply, it takes a long time to train people. If the local industry is not well organized about bringing people into the work force and training them 10, 20 and even 30 years ahead, then people will not be available. Correspondingly, when they have the skills, they are motivated to drive change.

Thinking about global business and managing future prospects

So that is it in nutshell.

    • What? (from what into what)
    • Where? (from where to where)
    • Who? (who does the work and who has the dominant voice?)
    • Why? ( why are people in this business and not another – PEST)
    • What’s next? (what is changing and what will change in the next 10-20-30-40-50 years?)

What do we learn about occupational identity from Amartya Sen?

Sail Boat by Lee Cannon via FlickrPlural identities

I’ve just finished reading Amartya Sen’s Identity and Violence.  He ends:

“As an eleven year-old boy I could not do much more for Kader Mia as he lay bleeding with his head on my lap.  But I imagine another universe, not beyond our reach, in which he and I can jointly affirm our many common identities (even as the warring singularities howl at the gate.”  We have to make sure, above all, that our mind is not halved by a horizon.”  (pp. 185-186)

Identities as a concept in organizational psychology

I picked up Identity and Violence partly because of the author’s fame but also because identities are a hot topic in contemporary organizational psychology.  We encourage people to develop personal identities that are stronger than the identities of the companies with whom they work.  Instead of being a small boat bobbing about on the choppy waters of a stormy ocean, rather be the ocean and let the company bob about on you.

It’s a fine aspiration and possibly the only way to stay sane.  But I wanted to be able to think about this core idea critically and what better way that to pick up a highly readable book by a Nobel prize winner with command of philosophy and world history and an inclusive outlook.

What are the dangers of encouraging strong personal identities?

I think Sen would not regard our exhortations as entirely foolish.  Sen counsels developing our commitment and appreciation of multiple stories and identities as parents, as children, as professionals, as members of churches, as patriots and as members of organizations that cut across international boundaries.  We are all of these at the same time.

“To halve our horizon” by narrowing our world to one identity and then too, to narrow that world to a formulaic lifestyle laid down by others – that’s what he counsels against.  That’s what he believes is used easily to manipulate us into actions we might in other times and other places (my words) find unacceptable.

Thoughtful multiple identities are strong occupational identities?

A strong occupational narrative might narrow our world.  I suspect though, that narrow occupational narratives turn us into the small boat on choppy seas.  When we see ourselves as part of an ocean able to accommodate many small boats of identities, we feel more comfortable.

That’s my humble reading, anyway.

You want in on the dream team? Meet them 20x before they will hire you!

How much work will it take to land your dream job?

The first time I migrated,  I set up the 100:10:1 ratio.  100 applications: 10 interviews : 1 job.

I set the ratio for psychological reasons.  I was being practical.  My goals and plans include the endurance I need to succeed the race.

Do you go green at the sight of these figures? Want to puke?

Truthfully, most people don’t have the stomach for these figures.  They go green, and then grey.  They aren’t motivated by these figures.  They are depressed.

Now I tell you, that the position is far worse than this

If you are a migrant, which you may be for many reasons, or if you are changing career track, the figures will be a lot worse.  Think of 200 applications.  Think of 300 applications.  Think of 1000!

And think of the worst possible behavior on the part of people who process them.  They ignore you.  They patronize you.  They stand you up (even when they’ve paid for your air ticket).  They lie.

Oh those 999 who don’t hire you are seriously depressing!

This cannot be true you say

“I know someone who got a job first time”, you say.   “This cannot be true!  I have never had this trouble!”  “This country needs skilled migrants.”  “They advertised and asked us to apply!”  “You are being cynical.  You are jaded.  This is just sour grapes.”

Indeed.

Let me tell you how it works

Today I found this mantra for advertising.

“The first time a man looks at an advertisement, he does not see it.
The second time, he does not notice it.

The third time, he is conscious of its existence.
The fourth time, he faintly remembers having seen it before.

The fifth time, he reads it.
The sixth time, he turns up his nose at it.

The seventh time, he reads it through and says, “Oh brother!”
The eighth time, he says, “Here’s that confounded thing again!”

The ninth time, he wonders if it amounts to anything.
The tenth time, he asks his neighbor if he has tried it.

The eleventh time, he wonders how the advertiser makes it pay.
The twelfth time, he thinks it must be a good thing.

The thirteenth time, he thinks perhaps it might be worth something.
The fourteenth time, he remembers wanting such a thing a long time.

The fifteenth time, he is tantalized because he cannot afford to buy it.
The sixteenth time, he thinks he will buy it some day.

The seventeenth time, he makes a memorandum to buy it.
The eighteenth time, he swears at his poverty.

The nineteenth time, he counts his money carefully.
The twentieth time he sees the ad, he buys what it is offering. “

This was apparently written by Thomas Smith of London in 1885 and was reproduced to “advertise advertising” and to make the point that we need, what may feel like, excessive redundancy in advertising.

You need 20 contacts to make a sale!

I said 100:10:1.  Yes, that 1 sale will come from 20 contacts.

So if we contact 100 people, and we instinctively home in on that one employer who will eventually employ us, we need to make 100 (inital contacts)+10 (interviews) +20 contacts with the luck employer of me!

And as we are not likely to be so lucky, we need to make initial contact with 100 people and expect to contact each of those 20 times, with the one we stay in contact with employing us!  100 people x 20 contacts = 2000 meetings.

OK so lets get real.  Are you starting cold?

How do some people get jobs more quickly!  Well they are already in a sales funnel.  They are using their Dad’s contacts.  Their university does part of the work for them.  They belong to a network without understanding that they do.

If for some reason you are starting cold, or you get part way down your career and you realize you want to make a big change, you need to take charge and weave your own network.

You cannot afford to act randomly.  You have to be prepared to find out

  • Who you want to work with
  • And assiduously build up contact with them.

If you are at school or university, begin early.

Compare with these figures

In a social network, 1% of people generate content, 9% critique content and 90% consume content (1:9:90).  We see the same “J curve” on student chatter lines and in professional associations.

Ken Thompson of SwarmTeams talks of the 2% economy.  Only  2% of messages to people are opened when they are from someone we don’t know or remember.  We open all the messages from our friends.  And we respond to about 10% of them.

Yup, we ignore 90% of what our friends tell us!

Get cracking!

I strongly recommend listing 10 firms who interest you on 10 old envelopes and look for ways to meet people who work in the department you want to join.

Keep notes.  Add envelopes.  Prioritize them.

Budget your time.

If you are starting a 3 year degree, you need to meet 2 people a day, every day, including Saturdays, Sundays and Christmas, to make 2000 contacts before you graduate.

And think career from the outset.  Don’t think job.  Think career.

Start now

Start exploring now and start collecting information, contacts and know-how.

It all adds up and takes you closer to that team who is doing exactly the sort of work that you want to do and that they need you so badly to do!

(And if you haven’t started and need a job now?  Then divide your time.  Put time aside for this project daily and do whatever you have to do to survive as a separate project.  Just don’t let go of this one. That you will regret.  The lost time will irk you more than flipping burgers.  Begin!)

4 questions to compare how you will make money in your career and make money in your own business

To the accountants who read my blog, this post won’t tell you anything new, except possibly the details of muddled-thinking that the rest of us bring to corporate valuation.  If you spot anything egregiously incorrect, please do say.

3 times when we want to know if a company is makes money or not

For the rest of us, let’s begin with the basics of valuing a business.  There are three times when we want to know if a company is healthy or not.

  1. When we are thinking about investing in a company by buying stocks & shares on the stock exchange, or lending money to somebody running a small business.
  2. When we are thinking of joining a company
  • As an employee
  • As a supplier who will sell the company something
  • as a buyer who depends on goods & services being delivered on time and the warranties and other long term commitments being met.
  1. When as general citizens we trying to understand what is happening in the economy and how to position ourselves for growth, decline or stagnation.

The key step to judging whether a business makes money

The first step is to “think company”.  Accountants do this all the time. Their job is to worry whether the company is a “going concern”.  Will the company still be there tomorrow?

Corporate financiers ask a slightly different but related question.  If I put $1 into the company, will I get back 10c a year, or 20c, or nothing, and moreover find that when I sell my share I get back 85c not $1?

Can lay people really judge the value of a company?

We might ask whether it is so easy to do this. After all, look at all the people who mistook sick banks for healthy banks.

One thing is for sure, though, if we don’t start paying attention, we will get bitten again.  We as employees, suppliers, buyers and citizens will pay the price of not paying attention.

4 basics for understanding whether a business makes money or not

Yesterday, I came across an article valuing companies in the shipping industry.  I am not particularly interested in shipping but the article was well structured and it provided a checklist that we can use as a starting point for understanding any business.

#1  How does organization or company finance itself?

  • Does the company finance itself by borrowing money from a bank or from other lenders of money? That is, with debt.
  • Does the company finance itself with money from investors who will put money into the company for a share of the profit and if it comes to that, be prepared to lose their money? That is, with equity.
  • Does the company finance its new ventures out of profits they are making? That is, from revenue.

The answer will tell you a little about the pressures on the company.  Who are they answerable too?  And what for?

#2  What kind of contracts does the organization or company finance itself?

  • Does the company have any long term agreements with customers or do they come and go?
  • What are the advantages & disadvantages of the ways they have chosen to structure their relationship with their customers?

#3  What dividends does the company or organization pay?

This question about dividends looks as it is for investors who buy stocks & shares.  And so it is. If I buy a share for $1, how many cents can I expect back in each 6 monthly dividend?

We can also ask the question more broadly.  Where does the money go in the business?

Have a look at the director’s offices & vehicles? Check out their bonuses. Company’s like to flash money around in a rather school boy manner and it is a bad sign not a good sign. Flash means money is being used to show off and not being used to run the business.

An agricultural economist once said that he could see on arrival at a farm whether or not it was viable. If they had more vehicles than drivers, then they were in trouble because their money wasn’t being used well.

So look around and followed the money.  Use some common sense.  Sound business people don’t skimp on the necessities, and they don’t allow money to sit around unproductively either.

If they must have to have ‘flash’ assets to impress people in the business they are in, are they really flash, or are they copies, and do they look after their assets. Do they protect their re-sale value?

If they give high bonuses, do they look after their staff, or do they exhaust their staff and then wastefully buy more expensive ones from the market.

It can be tough to separate the appearance of money with sound business. When money is being chucked about, quite naturally we would like to get our hands on some of it. Just stop to do a proper evaluation. How long is this money-wasting going to last?  And when it goes bang, will you be sucked down with it?

#4  What are their assets?

In a shipping company, this is easy. Which ships de they own? In a mining company, we can ask what mines do they own?

In some businesses, they organization owns very little. Is it the John Lewis Shops who deliberately don’t own the buildings they use?  Holiday Inn and Coca-Cola are the same?  They own some of their hotels and some of their bottling plants but they generally stay out property business.

Universities are the opposite. Their wealth is usually in their real estate and you can see immediately the problem. The need to protect their real estate value might become more important than anything else.

With banks in recent times, and indeed now, we have to ask what exactly do they own. This is the ‘mark to market’ debate. The value of their assets is volatile.

But let’s keep it simple for now and ask, what exactly does this company own and how do the assets impact on the business?

Will your career make money?

Now if you see you career as a business, will your career make you money?  Would it be better to start a business.  Let’s compare two scenarios.

Scenario 1

Let’s take a young person who leaves university and goes to work.  The 4 questions apply equally to them.

  • They support themselves through revenue and are paying off the debt of their student loan.
  • They have committed themselves to one customer to whom they are wholly dependent.
  • Their income is their salary and their profit is their salary less their debt repayment, their taxes, insurance, and the expenses of going to work (which in the UK can hit 10000 before tax)
  • Their assets are their qualification which is declining in value by the minute as knowledge replaces itself.

They have one more intangible item which is “career capital”. But I’ll leave that to another post.

Scenario 2

Now let’s take a young person who leaves university and starts their own business (or who prepares to while they are taking some starter jobs to get some experience).

  • They support themselves through revenue and are paying off the debt of their student loan. They could look for venture capital and share their profits with a financier or they could work with friends and share their future profits as partners. They can also borrow more money from family and friends. Those are their basic choices.
  • They will be thinking through who their customers are. In their early stages they probably go to one of two extremes. They have lots of small customers on B2C model or they desperately look for one large customer who acts like an employer. They have many choices though. Will their customers be consumers or businesses? What kinds of contract go with the services they offer? How can they encourage repeat business & loyalty? What mix of customers do they want? For many people, solving this puzzle is the key to future autonomy and freedom for dependence on “rats & mice” business at the one extreme and dependence on an employer at the other.
  • The income of the young person is now salary & revenue from the business, less student loan, less taxes, insurance and going to work & of course, expenses of running the business.  Other choices the young person needs to make are whether to spend their free money on travel, on property or investing in the business. It is very likely that someone climbing the corporate ladder looks fairly flush. They are travelling to and from work (at 10 000 per year), they are buying expensive clothes for another 1000 or so, and they are probably buying a good house.  A large salary helps get consumer credit and living will look good.  Look twice though. What is their eventual wealth going to look like> And what will happen if their one and only customer lets them down?  And what is the probability of their own an only customer, their employer, letting them down?
  • Their assets remain their qualification and their ability to keep it up-to-date. What else do they have?  What exactly are they working on that has value over and above their own skill and know how? You can see I am in services because this section is thin. Maybe somebody else can flesh this section out.

4 questions to manage your career and your business

So there you are. Here are your choices.

  • How do you intend to finance your company? Debt, investments or revenue.
  • What kind of contracts with customers match your style of business (and why)?
  • What do you intend to spend your proceeds on? Consumption or building your base further?
  • What assets are you developing that you could sell or convert into regular revenue?

That’s not hard, is it?   Now why didn’t we understand the banks were in trouble?  Because we confuse consumption with wealth.  Consumption is the opposite of wealth.   Look twice when someone is living large.  Something is wrong.  At best, they don’t know of any way to make their money work for them.

Do we pay enough attn to world politics in local career planning?

Daft question?  I hope not

Today, I whizzed over my Acorn feed.  I recommend it to you. It is always well written – up there in the top class with the Spectator and The Economist.

It is erudite and informed, topical and up-to-date.

Acorn discusses political economy and international relations through India’s eyes. I find it so useful.  Somebody is asking thoughtful questions about the world in a systematic way.

It is particularly useful to understand the conflict in Afghanistan. I also read it to understand the race for Africa’s resources. You will find expertise on topics that interest you, I am sure.

The importance of a professional diplomatic service

Today, Acorn argued that a country must systematically map out the power relationships in the world, and that failure to do so, will lead to loss of world status. I couldn’t agree more. I doubt we can be any stronger than the combined abilities of our diplomatic service.

Foreign affairs and career planning

But surely each and every one of us should be consciously mapping world relations too?

Why, dear fellow career professionals, do we not check that our clients understand the world economy and international relations?

I know they are fretful about the decisions they need to make now. But unless they get into the habit of understanding the vested interests in the world, aren’t they going to continue ‘lurching from church to school’?

We need simple visual renditions and we need to be informed ourselves

I would like to spend more time gathering simple information together so that people can see their goals in relation to other people’s goals, and to see it all unfold in real time.

Work & organizational psychology in the 21st century

I suspect that the main practical contribution by work psychologists in the turbulent economy of the 21st century will be to provide dynamic feedback to help people position themselves relative to the others.

So good on the Acorn. I recommend it for your own edification.

If you are interested in slurping data and presenting it on the net to help people understand where they are in relation to the world, please give me a nudge.

Consider your career shift this weekend!

Sleepwalking to work, through work, at work?

David Bolchover, who wrote The Living Dead: Switched Off Zone Out – The Shocking Truth About Office Life and guest posted for the Timesonline, wrote on his book blurb that he left corporate life to do something with his life!

I also got an email for an organization that specializes in Career Shifts – you know those awkward career changes when you are going to do something different. They quote Howard Thurman whom I am sure David would like too.

“Don’t ask yourself what the world needs; ask yourself what makes you come alive. And then go and do that. Because what the world needs is people who are alive.”

British poet David Whyte says similarly:

“There is only one life you can call your own, and a thousand others you can call by any name you want.”

If you can’t bunk out to the nearest bookstore to look for one of his books of prose or poetry, spend part of Easter listing all the times at work and play that you have felt truly alive.

It would be great to hear which of those you could sneak into your work life . . .

UPDATE:

To sneak good stuff into your job, look for Dr Rao speaking to Googletalk (on YouTube). There is no reason to be in job that is deadening.  But it might be way we “hold the conversation” that needs to change.