Showing posts with label Innovation. Show all posts
Showing posts with label Innovation. Show all posts

Monday 15 January 2018

(Part 3 - 2018) 30 Different Ways to Build a 1 Billion Business

30 Ways to Grow a 1 Billion Business


Part 3 - 30 Different Ways to Build a Billion Business 




15 Jan 2018



Abstract

If you have not yet read the 1st and 2nd post - we highly recommend that you do for context. You can find it here:


In these blog posts, some well-known international and potentially lesser known examples from South Africa or neighbouring countries are included. These blog articles are aimed at business readers, ranging from corporate executives to entrepreneurs and founders searching for strategies to increases revenue. It is equally suitable for interested parties who wish improve their general knowledge around strategies and growth.

Estimated reading time: 6.5 min or less

This post is the 3rd part in series of blog posts focussing on various approaches to increase company revenue/turnover. Each approach is discussed in brief with examples.



The full series will contain 4 articles. 


===========


0. Background


In Part 1 and Part 2 of this blog, we looked at the roles of the following factors in achieving revenue target:


          1. Product & Market Mix
          2. Price  
          3. Volume
          4. Demand


In this blog, we continue the discussion on demand and also look at the role of innovation.


            4.3.5   Satisfy more of the demand - Integrate vertically or horizontally



Most businesses form part of a supply value chain of sorts. There are usually at least four phases of the typical product supply chain:



Commodities -> manufacturing -> distribution -> retail.


E.g. A forestry company grows trees in their plantation -> trees are cut and send to a lumber mill to saw into planks -> a wholesale wood merchant resells the planks -> a furniture factory buys the wood to make furniture -> shop sells the final product to an end-consumer.



At each step of the process, different activities can take place and (usually) more value is added, typically by different role players. When 2 or more stages are combined within 1 business (or family of businesses) vertical integration is taking place.

  • Backward Vertical Integration is when a company downstream in the value-chain takes on activities which normally happen higher up – e.g. when a supermarket buys a farm to grow its own vegetables for resale.
  • Forward Vertical Integration is when a company higher up in the stream takes on activities which normally happen lower down – e.g. when a mine commences with beneficiation of its own minerals. 
  • Horisontal Integration is when a company takes over the activities of other role players at the same level in the value chain – e.g. buying out competitors and merging them into itself.

There are various benefits to integration (horizontal or vertical):
  • Integrated firms have competitive advantage in that they can compete at more competitive or lower rates, and or are able to extract higher profits to bigger cost savings from integration,

  • Due to controlling their own suppliers (in the case of vertical integration) such business are less prone to external supply chain disruptions,

  • Integration allows benefits of scale – both in the case of vertical and horizontal integration. Integrated firms can buy in bulk and achieve higher cost savings per unit,
  • Integrating with suppliers, retailers or competitors can give access to new markets, technologies, competencies, scale
  • Integrated firms can respond faster to competitors or new products.


Examples of integration (horizontal or vertical):


DEBSWANA

  • In the case of Forward Vertical Integration, Debswana, a mining company based in Botswana, is a good example. Debswana is a joint venture between De Beers and the Botswana Government. 
  • Prior to 2013, Debswana would mine raw diamonds and then typically send these overseas for processing. In 2013 they opened a diamond beneficiation plant (DBGSS) in Gaborone to take responsibility for sorting and valuing of rough diamonds, cutting and polishing, and also got involved in the manufacturing of diamond jewelry. All of which are high value-adding activities, and all of these activities would previously have happened off-shore – in this case mostly in and around London, UK. 


Fig 1.1 Jwaneng mine, Courtesy of Debswana


  • The benefits of local beneficiation to the economy have been significant. Thousands of direct and indirect jobs were created, even in un-related industries like tourism. In 2014, DBGSS completed its first full year of operation in Botswana and directly contributed US$380 million to the GDP, contributing more than the entire agricultural sector in the same period.

STEINHOFF

  • Steinhoff is another example of vertical integration, albeit a controversial inclusion on this list. The group has been in the news for all the wrong reasons lately: top management resignations, allegations of mismanagement and accounting scandals ... so I had some debate with myself whether or not to include them here. 
  • While we agree that they might not be a good example of accounting excellence per se, they remain a good example of an integrated retailer that manufactures, sources and retails furniture, household goods and general merchandise around the world. In specific markets, they control substantial portions of the supply chain from manufacturer to retailer. Before the near catastrophic drop in market value late in 2017, Steinhoff ranked as the world’s second-biggest furniture retailer after IKEA. 


COMAIR


  • Comair is the local operator for British Airways and Kulula (a South African discount-airline similar to the UK's Ryan Air). They were frustrated by delays and the quality of food from outsourced vendors, and opened their own air catering company called Food Directions (forward vertical integration). The use of their own in-house food services saved them R 30 million per year, in addition to generating revenue from providing similar catering services to other airlines.


FAMOUS BRANDS


  • Famous Brands, the owner of various large restaurant and fast chains including Steers, Debonairs Pizza, Wimpy, Mugg & Bean, and Tashas, had 2 614 outlets across the country by mid-2016. It is interesting to note the extent to which Famous Brands embraced vertical and horisontal integration. 

  • Not only do they own their own logistics business with 8 logistic centers of excellence across the country, they manufacture food ingredients too. This has been achieved by acquiring one of SA’s biggest producers of French fries and other potato-based products, also a tomato paste factory expected to reach R 100 mil turnover, taking over Coega Cheese Company and rebranding as Famous Brands Fine Cheese Company, and buying or setting up various other companies to supply bread from its own bakeries, coffee, juice, meat, spices, ice cream, even right down to serviettes from its own serviette factory. 

Famous Brands - a vertically & horisontally integrated business
Fig 1.2 - Steers, one of many brands in the Famous Brands stable

  • No wonder then that Famous Brands reported an increase of 33% to R5.7 Billion in Revenue and operating profit Up 18% to R938 Million for 2017



AB InBev


  • One of the biggest horisontal integrations (mergers) in recent times that hogged the headlines for months during 2015-2016, also with strong South African roots - The more than $100 billion merger between Anheuser-Busch InBev (AB InBev) and SABMiller. This merged the world number 1 producer and 2nd largest producer in the world. This was the 3rd largest acquisition in history and the largest ever in Britain. The post-merger firm would be the world biggest beer producer, and the 5th biggest Consumer Goods Company in the world, controlling up to 33% of the world beer market from the word go.


Fig 1.3 - Some of the combined labels and brands in the new company



  • Through this acquisition, InBev gained access to new markets in China, South America and importantly, to the African growth market, where SABMiller previously had the local market pretty much stitched up with an extensive logistical footprint and manufacturing capacity. Africa is seen as a key growth market for beer, with anticipated growth to 2025 of 44%, which is almost 3x the global growth rate. Similarly, SABMiller would gain access to the South American market, controlled by Inbev.
  • This merger is anticipated to unlock pre-tax synergies in the region of $ 1 billion p.a. over areas of procurement, engineering, brewery and distribution, regional head offices and best practices. 



PIONEER FOODS



  • In 2015 Pioneer Food Group (Pioneer), the leading breakfast cereal producer in South Africa, announced that it was planning to enter into a joint venture (JV) with Future Life Health Products (Future Life). Pioneer makes popular breakfast cereal brands such as ProNutro, Weet-Bix and Bokomo Limited, while Future Life focusses on scientifically formulated nutrient-dense functional food products. This merger gave Pioneer access to expertise as well as entrance to the health food market, as well as access to different geographical markets.



4.4 Innovate



Do not underestimate the importance and revenue increasing possibilities that innovation can bring to the table. PWC interviewed board-level executives from 1 757 companies, across more than 25 countries and 30 sectors and published a report called “Breakthrough innovation and growth” in 2013.




Amongst various other findings, they found that:

  • 79% of the most innovative companies in the study had well-defined innovation strategies, compared with only 47% of the least innovative companies.
  • The most innovative are planning a wider range of innovative operating models – e.g. the top 20% were 2x as likely to consider corporate venturing as a means to drive growth.
  • Innovation is a growth multiplier. They tracked the performance of the top 20% most innovative companies out of a sample of 1 757 companies, over a period of 3 years, based on publicly available information. Their findings: the most innovative 20% had grown at a rate 16% higher than the least innovative. This equated, on average, to each of the most innovative companies delivering $0.25bn of additional revenue over the last three years, compared with the least innovative.

4.4.1 Develop new products or services and find new markets


The principle of Blue Ocean Strategy applies here – find, or create new markets to compete in with new products or services for which there is not yet any competition.


Take coffee as example: According to legend, somewhere in the 11th century, an Ethiopian goat herder called Kaldi noticed something peculiar: when his goats ate berries from a specific tree they became very energetic. Kaldi went to report his discovery to the abbot of a local monastery. The rest, as they say, is history. So the coffee market is not exactly new. Enter Nespresso stage left, an autonomous part of the Nestle group. Around 1986 they had a simple idea: enable anyone to create the perfect cup of coffee, just like having a skilled barista at home, or at the office. They launched into B2C and B2C sectors, launched an e-Commerce website in 1998, then launched their first stand-alone boutique store in 2000. 

Fig 1.4 - Nespresso




Nespresso developed a hybrid business model, partly integrated and partly outsourced, disrupting the typical coffee business model and supply chain. The perfect coffee machine was designed jointly with external design partners and specialists to perfect taste, temperature and water pressure – 1 700 patent applications were filed in this process. To this day

Nespresso’s revenue is based on the following logic:

  • High-quality coffee machines are sold for a reasonable price through licensing partners. Nespresso does not profit from coffee machines
  • Income primarily comes from Nespresso capsule sales. Gross margins are estimated around 85%, compared with 40% - 50% for traditional competitors.
  • Secondary income comes from cross-selling of coffee accessories.

Fast forward to 2015, by which time Nespresso had grown its presence to 64 countries worldwide, more than 12,000 employees and 450 Boutiques selling coffee, machines and accessories. By 2015 they had 10 million registered customers and over 320,000 customers visiting the company’s e-commerce platforms daily. Nespresso was the worldwide leader of the “portioned coffee” industry, with estimated annual sales of over CHF 4bn.


How did they do it? Nespresso’s key growth drivers focussed on:
  • Market segmentation, Unique value proposition and business model innovation;
  • Consistently highest quality products and services;
  • Creating long-lasting relationships with customers and suppliers, including the coffee supply chain;
  • Effective sales and marketing as well as sustainability of the business.


Summary (Part 3)

In previous posts, we looked the role of product mix, price, volume, and experimenting with demand. In Part 2 of this series of blog posts we looked at other examples of diversification, integration, as well as innovation - all of which can play a very significant role in achieving target Revenue. Please note there is at least 1 more blog post to follow in this short series dealing with ways to increase turnover.  


If you liked this blog post, please share or tweet or repost this article to others who may also be interested in these topics.

Did you gain any new insights regarding diversification, integration or innovation? Which other strategies specific to volume and demand have you used to increase revenue?



Also why not subscribe? Simply scroll up and enter your email on the top right for notifications. We publish approx 1-2 posts per month on business-related topics. 





© Cogniplex (Pty) Ltd - 2018  - Visit us on www.cogniplex.co.za

Friday 17 November 2017

Tesla disruptive Semi Truck 5 Real-world business implications

How Tesla's new Semi Truck will disrupt the Cargo & Freight Logistics Industries

17 November 2017

Introduction


On 16 November 2017 Tesla, and its founder Elon Musk, may just have pulled the carpet out under other truck and Semi manufacturers around the world. Competing manufacturers and fleet owners might have sleepless nights over the Tesla Semi Truck

Elon Musk launches the new Tesla Semi Truck
Elon Musk launches the new Tesla Semi Truck. Photo Credit: Elon Musk / Twitter

In a highly anticipated press release, choreographed more like a pop concert, the founder of Tesla threw down the gauntlet at other manufacturers as he arrived at the event in a new futuristic proto-type Semi Truck. The very imposing Semi Truck drove in and parked in a huge hangar where the launch event took place. 

A visibly excited and wise-cracking Musk jumped out and immediately starting sharing key performance stats with the audience:

Tesla Semi Truck Factsheet 


The vehicle is in every way as innovative and disruptive as it looks. Data below as presented at the launch:

  • Claimed Speed

o   0-60 mph (96.6km/h) in 5 secs unloaded
o   0-60 mph (96.6km/h) in 20 secs loaded at 80  000 pounds (36.2 ton)  gross max vehicle weight
o   Tesla can reach 65 mph (104.6 km/h) up a 5% incline compared to traditional diesel 45mph (at max gross weight)
  • Claimed Range

o   500 mile (804.6 km) range on a full charge at full weight at highway speed
o   Vehicle can charge sufficiently for 400-mile range in 30 min
o   Recharging through a planned solar-powered Tesla mega-charger network which could mean lower electrical costs compared to current Utility rates

Elon Musk at the launch of the Tesla Semi Truck
Elon Musk at the launch of the Tesla Semi Truck 
  •  Claimed technical specs

o   4 independent computer-controlled electrical motors
o   Effectively 1 continuous gear
o   Built-in computer system that can potentially integrate with 3rd party fleet IT systems
o   Drivetrain guarantee 1 million miles
o   Quasi-infinite brake life
o   No transmission, emission scrubbers or differentials
o   Thermo-nuclear explosion proof windscreen glass
o   Remote diagnostics – connected to Tesla Mobile Service
o   Predictive maintenance
o   Location tracking built-in
o   Built-in communication with Dispatch
  • Claimed Aerodynamics

o   Drag coefficient  0.36 vs traditional trucks 0.60-0.70
  • Safety

o   Enhanced auto-pilot
o   Automatic Emergency braking
o   Automatic lane Keeping
o   Forward collision warning
o   Built-in protection against jack-knifing via independently controlled electrical motors on wheels
o   IT communications connected to Emergency services

You can watch the launch here (redirect to Tesla's site) or below

Video material courtesy Market Reaction's Youtube Channel & Tesla

Overview 


The Tesla Semi Truck leapfrogs the traditional heavy vehicle / semi-truck segment, and not only in the way it looks. It threatens to make many other traditional competitors’ vehicles redundant.  

This Semi truck rewrites many of the rules associated with large vehicles. It has 4 independent computer-controlled motors. Tesla claims it is guaranteed that it will not break down next to the side of the road. So convinced are they that they offer a 1 million mile (1 609 km) drive train breakdown guarantee. This claim is based on the fact that the vehicle can continue to be driven even if 2 of the electrical motors fail simultaneously.


Tesla Semi Truck Interior - Driver's view
Tesla Interior - Driver's view - Pic Credit: Tesla / Business Insider

The cabin has been redesigned with the driver seated in the middle, surrounded by screens and huge windows. The screens update the driver continuously with relevant information, and presumably also display rear-facing cameras. 

The windows specifically are made of thermonuclear explosion-proof glass. This means the windscreen is less likely to crack from typical industrial or on-the-road type accidents or require replacement. Fewer replacements and maintenance requirements mean more time on the road generating revenue.


Tesla Semi Truck Interior - Cabin view
Tesla Semi Truck Interior - Cabin view. Pic Credit Tesla / Business Insider 

The brakes are regenerative, meaning every time you step on the brake that energy goes back to recharging the batteries. According to Mr Musk, theoretically, the brakes can last forever without needing replacement. At projected fuel rates of $2.5 / US gallon for diesel (1 US gallon = 3.78 liters metric), it is anticipated that a fully-loaded diesel fuelled truck will be at least 20% more expensive per mile than a new Tesla Semi.

The Tesla range also comes with convoy technology, allowing vehicles to operate as a road train in convoy (safely following one another). In the convoy scenario, a group of Diesel trucks is claimed to be 2x as expensive per mile to operate than a group of Tesla Semi trucks. This means the Tesla Semi even becomes serious competition for Rail freight in certain markets.

5 Real-world business implications of the Tesla Semi Truck


While the information available is limited and in some cases projected at this stage, sufficient information is available to conclude that this vehicle will be a game changer. Some of the real-world business implications might include:

  • Speed of business



The speed at which business can be conducted has just increased significantly. Leaving the impact of conventional traffic flow out of the argument, for now, trucks can arguably reach their destinations faster and more reliably (less roadside breakdowns). This means current capacity constraints are shifting, theoretically resulting in higher freight load capacity throughput. Whether or not this will be limited to marginal capacity increases, or not, remains to be seen.


The knock-on effect of higher capacity is that warehouses, docking areas, and loading bays will be under more pressure to turn-around vehicles. This, in turn, may necessitate the handling, racking/packing or dispatching of more SKUs per operating hour. Scheduled delivery windows will be impacted. Various aspects of business efficiency will be affected, also in downstream logistic clients such as the retail industry.

  • Income and Operating Costs including maintenance



Final market retail pricing is yet to be announced and the vehicles have to be tested and driven under less than ideal fleet and operational conditions. If however the trucks are priced not too disparate from traditional diesel trucks, this could translate to higher tonnage turned around per vehicle per day, and theoretically higher ROI.  

If the claimed costs materialize as low as promised, this means a huge shift in operating costs. Electrical engines have completely different maintenance profiles compared to fossil fuel combustion engines. Whether Tesla will allow owners to service their own vehicles in the same manner that some current truck manufacturers do, is unknown at this stage. This has a huge potential impact on current in-house workshops, stock keeping of spare parts, and stock levels, staffing and tooling requirements at in-house workshops. Also very significant implications for the spare parts and aftermarket value chain.

Driver training and the required skill set to qualify as a driver will be impacted as drivers may have to be more technically savvy than the traditional driver.


The whole efficient frontier shifts. Lower operating costs translates to either higher operating profits and or potentially putting old-school competitors out of business.

  • Fuelling and operating range


The vehicles are designed to have operating ranges sufficient to address typical US standards - 500 miles (804.6 km) range on a full charge at full weight at highway speed. How this pans out in e.g. places like Australia or North Africa where huge distances between towns are an issue, remains to be seen. 

The impact on the fossil fuel industry will be substantial. Truck stops may have to either join the Tesla network (if that is even possible) or convert infrastructure to switch over to electrical charging. The demand for solar technology and solar parks will increase substantially. 


At this stage it is not known if there will be alternatives to stopping at a designated recharging station - a workaround may be required either in the way of extra batteries to extend the range for remote regions, or local charging ability e.g. via solar panels.

  • Environmental considerations


City ordinances and environmental approval requirements that apply to approved locations for the traditional type filling stations or truck stops, may have to be changed. The current risk associated with fuel/gas storage or spillage or toxic contamination of water resources by oil, is either eliminated or materially reduced when using electrical vehicles.


In the long-run, emissions will be substantially reduced, so it is more environmentally friendly.

  • Big Data and Data Analytics


The vehicles are effectively permanently online and generating data – both technical data (e.g. typical operation data such as vehicle speed, battery charge level, and range) but also logistical information (GPS tracking location, distance remaining, time to destination remaining) – all real-time data feeding into logistical systems. 

The volume of data in real-time will increase exponentially. This means in some locations technical IT and telecoms infrastructure may need to be increased to provide the necessary capacity. More data storage will be required. Analytics capacity will have to be able to cope effectively with real-time data and a huge increase in data volume.


Overall the quality of Management Information Systems (MIS) may have to improve. This means Business Intelligence will improve, allowing management to make faster decisions on the fly.  This means reskilling and training in the back office at the head office too, and also at clients.


Conclusion


If Tesla’s final product holds up to the promises made, it will disrupt the heavy vehicle industry as well as the logistics industry. The knock-on effect of potential efficiency gains will be felt in all industries dependent on semi trucks. 

Tesla may very well have a product here that makes many competing products redundant … that is if competitors do not innovate and play catch-up FAST. In a speculative future scenario, fuel-driven vehicles may be banished to 3rd world countries, or only retained for very specific applications or deliveries to areas without the electrical and technical infrastructure required to support the Tesla Semi.

Production is targeted to commence in 2019, with delivery from 2021 onwards. Pre-orders are already open with a pre-payment of $ 5 000 per #Tesla Semi.  

If you liked this post, please share or tweet to others who may also be interested in this topic.

© www.cogniplex.co.za 


Wednesday 6 September 2017

Business Model Innovation

Time for another blog post!

We found another interesting video which we believe would be relevant for business owners and entrepreneurs to see:

 This time on Business Model Innovation, brought to you courtesy of the Universität St.Gallen (HSG) 


Video courtesy of Universität St.Gallen (HSG)

4 Key questions at the heart of every business:

  1. Who is your target customer?
  2. What services or products do you offer to this customer?
  3. How do you create a Value Proposition?
  4. How do you generate Revenue?


Recommended viewing for entrepreneurs, founders, business owners and executive management. 

Cogniplex (Pty) Ltd claims no rights to this content - ownership resided with the creators and owners.

Wednesday 26 July 2017

Disrupt or be disrupted!

BY JEREMY GOETSCHE AT TREND HUNTER CONFERENCE 18 JAN 2017


Recommended viewing for entrepreneurs, founders, business owners and executive management 

We claim no rights to this content - ownership resided with the creators.


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