THE BIGGEST LOSER IN THE WORLD: SNAPCHAT

You may have come across with the news that a US technology firm called Snapchat turned down an offer made by Facebook (and Google). Since it was a very very brave decision to reject a $3bn offer I just wanted to share my thoughts and the reasons why I believe the owner of Snapchat will be the biggest loser in the world.

First of all, I believe that social-media sites, mainly Facebook (FB), Google+, Twitter, LinkedIn, are the most over-valued companies in the world. Facebook has gained its popularity because there was a need for people to create their identities (social identities) on the web (through sharing photos, updates, likes, chats etc), and share/connect their life with people around them (in a common platform). Twitter did exactly the same thing but using a different method (called micro-blogging) to let people voice their thoughts via 'tweets'. Mobile applications such as Whatsapp, Viber, Tango etc. have all benefited from increased use of social-connectivity by means of mobile applications.

Obviously there is a huge demand out there but that does not make these companies highly valuable investment in the long run. This is because they do not MAKE MONEY. Their revenue stream is limited to ad-revenue only (oh by the way, marketing through social media is not as effective as it is made to believe)

But lets have look at the reasons why FB made an offer for Snapchat in the first place. I think there are two reasons behind Facebook's offer. Firstly, FB is losing interest from its young user base. Although it is not a very big issue for them at the moment they are fearful of the fact that the fast changing trends in social habits of the society can make them a history; just like its old rival MSN Messenger (Windows Live) which died peacefully soon after FB gained its popularity. Hence, my guess is that they wanted to buy Snapchat to maintain their popularity with its young user base and as a way of overcoming some of their fear with fast changing social habits of its young users. But even if FB acquired Snapchat it would not benefit them anyway, just like purchasing Instagram did not really work for them (considering how much they invested on Instagram). By now FB should have understood that. To illustrate the point in another way, FB is following the footstep of Real Madrid which buys the most expensive players in the world but still can't beat their rivals Barcelona and/or win the big trophies every year.

The second reason for FB's interest in Snapchat is quite simple: competition, but its the least probable one. FB is scared of any kind of competition. They are extremely competitive but they compete with their competitors by overtaking them and... killing the competition. As they have no strong competitor in the market, the biggest proof to this is their product development strategy. Their product development is  hugely criticized as a 'window dressing' exercise to make the FB platform look fresh (or less boring). Since its birth FB has not made any significant change in its platform (Timeline feature is not a significant change) but rather made incremental development work (cosmetic changes) to maintain an up-to-date/fresh interface.

With regards to Snapchat, I think the idea of it is too simple. It appeals to certain segment of the social-media user market. In other words, I don't think the idea is that great to attract that much attention in the first place. Also, similar to above-mentioned companies (FB, Twitter etc.) Snapchat does not have any source of income. This is because they are not designed to generate revenue. Their existence and continuity relies on their social-geniuty not in their marketing geniuty. Unless they build something which will revolutionise the marketing domain and bring HUGE revenue to the company, it will be the biggest loser in the world.

However, Snapchat will remain the biggest loser in the world because they turned down an offer of $3bn for a very simple and greatly 'exaggerated' concept, which they could have easily sold and laughed to the bank (where in that case Facebook or Google would have inherited the title of being the biggest loser in the world).

By the way you can read a more in-depth review of Snapchat's snub here...

RESEARCH PROPOSAL FOR INVESTIGATING THE NUMBER OF SUPPLY CHAIN FIRMS IN CONSTRUCTION PROJECTS

Further to my previous post on Supply Chain Interface Management I am keen to become involved with a research project with someone (ideally an undergrad./masters student) to satisfy the below aim and objectives.

The aim of the research would be to identify the number of key upstream and downstream suppliers involved in medium/large sized construction projects. The size of the project would be measured by its contract value which would be anything, say, above £5m.

The research objective would be to:

(i) provide literature study on project complexity and supplier involvement in construction projects,
(ii) review of studies that establish methods of measuring project complexity (especially Gidado, 1996) and
(iii) using one or combination of these methods to analyse project complexity during different project phases.

In terms of empirical study, the research would need to (iv) look at previous construction projects and define their complexity during different phases. In addition to this, the research would need to (iv) identify all the upstream and downstream suppliers involved in case study projects. The outcome of the study should give an indication as to where most activities/operations occur and where most stakeholders (upstream and downstream suppliers) come together (physically on site, or virtually on collaborative platforms).

I believe this would be a very exciting project for an undergraduate/graduate research dissertation and I would be more than happy to discuss how we can take this further.

If you are interested please get in touch via:  m.pala [at] lboro.ac.uk.

Thanks,

Mesut



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References:
Gidado, K. (1996), “Project complexity: The focal point of construction production planning,” Construction Management and Economics, Taylor & Francis, Vol. 14 No. 3, pp. 213–225.

10 RULES OF JAPANESE KEIRETSU CONCEPT FOR IMPROVING RELATIONSHIPS WITH SUPPLIERS

The Japanese automotive industry has benefited significantly from the 'Keiretsu' concept which Toyota is praised to be the inventor and leader in demonstrating the effective execution of the concept.  In a recent article by Harvard Business Review, the 'New, Improved Keiretsu' has been described as the most appropriate approach for reduction of costs and becoming globally competitive which has become a significant factor in today's turbulent financial markets.

The traditional Keiretsu concept is a type of relationship; between a buyer (Original Equipment Manufacturers in the case of automotive industry) and its key suppliers, on the basis of an obligational commitment between firms. High levels of trust and goodwill are the most important attributes that define relationships rooted in the concept.

By the new, improved Keiretsu, the article refers to the re-configuration the relationship strategy, strongly emphasizing cost-reduction for globally competitive supply chains.  In short, the article describes 10 rules for effective practice of the Keiretsu concept, which are;

1. Think short-term and long-term at the same when building relationships with suppliers;
2. Become globally cost-competitive by working on the basis of mutual-advantage;
3. Engage with suppliers early in the product development process;
4. Share benefits;
5. Know your suppliers, their processes and work places.  Establish Joint Ventures for key/critical items/commodities/services;
6. Develop trust, cooperation, goodwill and support;
7. Balance explicit and implicit communication with suppliers to avoid miscommunication and mistrust;
8. Know why you are doing business with a particular supplier. Develop a portfolio of suppliers with regards to their performance in:
• quality,
• cost,
• delivery,
• people,
• development,
9. Identify root causes of problems and do not just terminate and switch to another firm; 
10. Build personal relationships at all levels.

The Japanese Keiretsu concept would be a very good model for improving the transactional, short-term and adversarial relationships in the construction industry, however due to many differences in construction industry markets, projects and firms it is very hard to adopt this concept to construction supply chain relationships (See Figure below).

Besides the cultural differences between countries (the conduct of engaging in transactions is very different in the West compared to Japan), construction supply chains are generally characterised by lack of trust which is at the heart of the Keiretsu concept.  Without the trust and goodwill of parties engaging in relationship development process it would be extremely difficult to build long-term, collaborative and sustainable relationships within and between construction supply chains.

There are only a handful of studies which look into how to develop and maintain trust in construction supply chain relationships but more research is needed to investigate the ways in which trust can be built between firms.  Future studies should look at identifying trust from every angle possible in order to understand how to bring the Keiretsu concept to construction supply chains.  Hence the reason why it is very important to study TRUST from ESPIO (Economic, Social, Psychological, Inter-personal and Organisational) dimensions (which I introduced in my previous post, click to read)  for building appropriate trust development strategies for a mutually trusting relationships in construction supply chains.

THEORIES IN SUPPLY CHAIN MANAGEMENT LITERATURE

When doing any scientific research it is crucial to understand the theoretical foundations of the subject being investigated. In this post I will briefly introduce some of the theories applied to SCM which are borrowed from fields such as accounting, management, economics, sociology and engineering.  Majority of the theories that are currently explored in SCM literature has existed for a long time so they are actually older than the SCM concept itself.  These theories are; the Transaction Cost Economics Theory, Network Perspective, Social Network Theory, Resource Based View, Principle-Agent Theory, Game Theory, Systems Theory and Strategic Choice Theory.

Following bullet points briefly outline each of these theories:

• Transaction Cost Economics: The main question that TCE tries to answer is why firms exist? In SCM context, TCE aims to reduce the costs associated with carrying out a transaction when deciding whether to make-or-buy. There are three attributes which influence a firm's decision to make or buy: frequency of transaction, asset specificity and degree of uncertainty associated with a transaction. In general TCE theory argues that different control and governance mechanisms should be employed to mitigate the risk of opportunistic behaviour of supply chain firms when outsourcing.
• Network Perspective: NT argues that firms rely not only on their relationship with direct partners but with the extended network of relationships with supply chain firms. It argues that competitive advantage can only be achieved through efficiently and effectively orchestrated network of supply chains. Therefore the focus of the NT is to develop long-term, trust based relationship between supply chain firms in supply networks. 
• Social Network Theory: The SNT looks at the behavioural and social aspects of many different relationship types, including firm-firm, individual-firm and individual-individual relationships. It helps to analyse these relationships from different perspectives such as technical, financial and social elements. (Stephen Pryke's Book on "Social Network Analysis in Construction" is a good read for those interested in SNT in construction.)
• Resource Based View: RBV believes that a firm's resources and capabilities are its most important assets so the primary concern of RBS is about obtaining access to another firm's core competencies to gain competitive advantage. RBV is one of the most adopted theories in SCM literature.
• Principle-Agent Theory: PAT is concerned with the governance and control mechanism structure of firms to mitigate the chances of opportunism, conflicting interests and information asymmetry between the Principle (delegating authority) and the Agent. Contracts are used as governance and control mechanisms whilst incentives are provided for meeting the minimum expected standards of the Principle.
• Game Theory: GT is a strategic decision making theory which looks at the conflicting and cooperative behaviours of two intelligent and rational decision makers (supply chain firms in our case) for different scenarios (i.e.: win-win, win-lose, lose-win and lose-lose) to help with the strategic decision making.
• Systems Theory: ST brings together various components of a complex supply chain (that is the human, capital, information, materials and financial resources etc.) to form a subsystem which is then part of a larger system of supply chains or network. The theory argues that for a holistic perspective ST must be employed to understand the internal and external factors that shape an organisation's supply chain performance. 
• Strategic Choice Theory: SCT is a relatively less explored theory due to difficulty and limitations in implementation. The main focus of the SCT is to address strategic issues and political forces related to supply chains as a whole in contrast to functional approach regarding individual supply chain firms. 

Of course the above mentioned theories are not the only theories in SCM literature and there are many  more theories applied to SCM context.  There has been interesting debate on whether SCM should build a unified, single theory of its own or adopt theories from other disciplines (See For example [1], [2] and [3]). The problem with multiplicity of theories is that it makes it very difficult for defining, implementing and studying SCM from a single point of view. Nevertheless each of the above theories have a different aim in management and structure of supply chains so each gives a unique perspective of the SCM phenomenon. This is why there is no unified theory of SCM and there should not be. Because SCM is so broad and complex it should be split into smaller parts such as Operational SCM, Strategic SCM, Organisational SCM and Project Specific SCM. I will try and explain each of these elements in my future blog posts.



Notes:

[1] Chicksand, D., Watson, G., Walker, H., Radnor, Z., and Johnston, R., 2012. Theoretical perspectives in purchasing and supply chain management: an analysis of the literature. Supply Chain Management: An International Journa, 17 (4), 454–472.

[2] Halldorsson, A., Kotzab, H., Mikkola, J.H., and Skjøtt-Larsen, T., 2007. Complementary theories to supply chain management. Supply Chain Management: An International Journal, 12 (4), 284–296.

[3] Naslund, D. and Williamson, S., 2010. What is Management in Supply Chain Management ? - A Critical Review of Definitions, Frameworks and Terminology. Journal of Management Policy and Practice, 11 (4), 11–28.

IMPROVING SUPPLY CHAIN RELATIONSHIPS THROUGH IMPLEMENTATION OF BS 11000: COLLABORATIVE BUSINESS RELATIONSHIPS

BS 11000, I quote from British Standards Institute (BSI), is 'the world's first standard on collaborative business relationships'.  Last week BSI organised a half-day event on BS 11000 which, according to Kerry Garratt of BSI, is on the way to becoming an ISO standard (thanks to David Hawkins for the correction!)

One of the presentations which I found really interesting was Garry Phillips presentation which talked about how Skanska implemented the standard with their suppliers and Joint Venture partners on M25 and Cross Rail project. The implementation of the standard was seen as the most effective way to build and maintain long-term, trust-based collaborative relationships with their downstream suppliers as well as JV partners who are Costain, Balfour Beatty, AECOM, and Network Rail.  The intra-company change in terms of adoption of collaborative working practices was boldly emphasised in other presentations rather than the certification process which was referred to as a mere output of the collaborative practices.  David Hawkins, who is the Director of the ICW (Institute for Collaborative Working - link-), correctly stated in his speech that without this 'culture change' the adoption of the BS 11000 is simply a tick-box exercise that will only yield a certificate which is only worth the ink and paper its printed on.

According to BSI, the certification with BS 11000 provides the companies following benefits;

• Better integration and integrity of supply chains,
• A common foundation and language for inter-firm relationships,
• Improved partner selection,
• Improved risk management, confidence and consistency across current and future projects,
• Consistent and structured approach for integration of collaborative working within operational procedures, processes and systems,
• Baseline for continuous improvement,
• Independent accreditation of collaborative working attitude.

However the benefits and the impact of BS 11000 on the success of projects and B2B relationships is so extensive that it is very difficult to provide solid evidence.  From my conversations with a number of attendees I noticed that some companies were rather tentative and unconvinced about the return on investment and quantifiable benefits gained from implementing the standard.  In my opinion I do not believe that companies should be benchmarking their BS 11000 performance with other companies.  By incorporating the BS 11000 into the operations processes companies can obtain lots of direct and indirect benefits, however only those companies who are implementing the standard will be able to realise this, as every company and its inter-firm relationship is unique in its own context.

At the end of the day the success of implementing BS 11000 is determined by the fact how much is it embraced internally within the company and how much support is provided by the senior managers.  Commitment from high-level managers as well as training and support of staff on collaborative working practices is key to success.  Therefore benefits that can be derived from implementing BS 11000 would only be as effective as it's adoption within the intra-company setting.

SUMMARY OF THE "HARNESSING THE POWER OF SUPPLY CHAINS" WORKSHOP

Couple of months ago I attended a one-day workshop organised by ECI (European Construction Institute) to discuss how the three key actors in EPCM (Engineering Procurement and Construction Management) supply-chains (clients, contractors and specialist subcontractors) can work together to improve overall supply chain performance, productivity, relationships and value aspects of their inter-firm supply chain engagement. The workshop was attended by 26 delegates where equal number of professionals from client, contractor and sub-contractor groups were present. Majority of attendees were senior level executives, regional/company directors who had a background in Petrochemical, Oil and Gas, Nuclear and Energy Industry operations.

After introductory speech by Clive Winkler of ECI, the workshop kicked-off with a number of presentations about how to improve productivity and gaining competitive advantage through better aligned supply chains.  Chris Bird who is the Operations Director of Endeavour Energy started the presentations by discussing how to reduce risk and cost over-runs in projects and improve value through good working relationships in supply-chains. Steven Johnson who is Supply Chain Manager of AMEC Europe gave insights into AMEC’s approach to engaging with their selected suppliers and getting them involved earlier in the project and the benefits they derived from such good practices such as reduced workload in engineering and procurement, added-value, reduced risk and end-user satisfaction. Mark Armstrong gave his viewpoints on subcontractor productivity improvement areas, underlining wide range of factors that drive productivity for his team at Tolent Construction. Another subcontractor presentation was delivered by Darren Smith of Zenith Structural Access Solutions who shared their approach to building and maintaining trust-based relationships with their customers. Last presentation of the day was given by Harry Peers Steelwork Ltd’s David J Perkins who outlined how they respond to customer requirements through the use of better specification, Building Information Modelling and modular off-site construction techniques.

The second half of the workshop involved an interactive exercise between the delegates in the client, contractor and specialist subcontractors groups where each group discussed their most important priorities in terms of risk management, contract arrangement and relationships. In general, the delegates in the contractor and client groups had a less agreement amongst themselves on what their priorities should be. This was probably due to the fact every client and contractor organisation employed a unique approach to their operations and supply chain engagement strategy. Also, as argued by the delegates, majority of supply chain engagement strategy were dependant on the contextual factors such as the type of the project, stage of the project and complexity of the project.

Contractors' priorities for their clients generally revolved around meeting the performance targets of projects; setting up better cash-flow mechanisms for payments; building reputation with clients for repeat business. With regards to their downstream supply chains contractors pointed to the need for integrated teams; collaborative relationship and company culture; better in-house capability and post-completion support.

Clients on the other hand demanded safety, quality and environmental aspects of projects to be met and complied fully by the contractors and subcontractors. The technical experience and expertise of two groups of supply chains (contractor and downstream supply chains), partnering with selected suppliers, management structure of firms and collaborative approach to projects were the highest priorities for the delegates in the client group.

The delegates in the specialist sub-contractor group had a more united view on what their priorities are and what they expected from their clients and contractors. Early involvement, environment and safety concerns of projects and complying with certain quality standards were on the agenda of many delegates. There was a lot of emphasis and demand for contractors to honour their agreed payment terms on time and without any unfair encounters.

In summary, the discussion by the delegates in client, contractor and specialist subcontractor groups indicates that there are different priorities for supply chain engagement amongst these three groups. This was also reflected within each group where delegates had a different approach for engaging with their upstream and downstream supply chain firms. Although delegates agree that there needs to be a common understanding and agreement on project goals, the inter-group discussion by the delegates reveal that each group has different agenda inherently embedded into their own business goals and strategies. This suggests a serious issue with alignment of supply chains as it would be very difficult to integrate and unite supply chains if each group has a diverse set of priorities. Perhaps a discussion on what are the commercial, social and technical mechanisms that drive supply chain integration is one of the questions that could be explored in future workshops?

SUPPLY CHAIN INTERFACE MANAGEMENT IN CONSTRUCTION PROJECTS

In my previous post I introduced the theory of interfaces in construction supply chains. In this post I will introduce the key supply chain interfaces and briefly explain 'interface management' during a project's life-cycle.

Depending on type, nature and sourcing of a project most construction projects go through a linear or concurrent phases of brief, design, procurement, construction and operations.  The number of suppliers involved at each phase depends on the contractors' capacity to source them internally but generally in-sourcing only accounts up to 10% of projects' activities; hence around 90% of projects are outsourced from specialist subcontractors and suppliers.  In terms of firm-to-firm interactions, the number of project stakeholders involved in a project increase as project design and production information becomes finalised and concrete. Construction stage is probably the busiest stage where many firms are involved for practical completion of the project.  It is where many activities are executed on site in a simultaneous and concurrent process. Once the construction stage is over few firms engage with the operations or facilities management of the project. It is also worth to note that due to interdependencies, some supplier engagement may halt at a stage and resume later on when the specific conditions are formed or established. For example, a subcontractor may get involved in the design stage and wait for the project to progress to a certain stage to carry out its activities.

Figure:Timeline of supplier involvement in construction projects

In terms of managing the relationships with suppliers, one of the primary tasks of a contractor firm is to identify the key/critical suppliers in the execution of a project. For example, depending on the attributes of the project, the outcome of risk management strategy can give an indication to manage it's relationship with a mechanical subcontractor. Managing the relationship with a subcontractor, in turn, requires identification of interfaces with that subcontractor. Once these key interfaces are determined appropriate relationship management procedures can be applied for the relationship. Just to re-iterate, these interfaces can vary at different project stages, between organisational units/disciplines/teams and processes. Below diagram shows some of the areas of concern for interface management at different project stages. I will write more about this in my future posts..