Sign with words "evolution". Source: Kevin Dooley @ Flickr https://www.flickr.com/photos/pagedooley/1856663523/
Business 2.0, Design

Do you need a digital strategy?

I’ve been giving the topic of “digital strategy” a bit of thought lately—what does it mean, exactly, in today’s marketplace, to have a digital strategy?

In jamming around some ideas, I recently jotted down the following:

The lines between what’s digital and what’s not have been permanently blurred. Our customers and stakeholders no longer see digital as something separate to their day-to-day “real world” experience. So you can’t afford to either.

The biggest opportunities are often not found in a simple app or product. They require a rethinking of how we do business—how we engage stakeholders in the definition, design and delivery of solutions. How we organise our own resources. How we manage our business to manage risk and build a culture of innovation.

The general vibe I was trying to capture was that having a separate “digital strategy” is problematic in a world where mobile and social technologies enable increasingly integrated experiences—where the “online” and “offline” distinction is less and less meaningful.

I was interested to read, then, a post from McKinsey entitled ‘Transformer in Chief’: The new chief digital officer. So, when early in the article, Tuck Richards notes:

Digital isn’t merely a thing—it’s a new way of doing things. Many companies are focused on developing a digital strategy when they should instead focus on integrating digital into all aspects of the business, from channels and processes and data to the operating model, incentives, and culture.

…it all sounded rather familiar. Continue reading

Business 2.0, Sustainability

Definition of shared value

This is a cross-posting of a post originally published on the IDX Backstage blog. Note that Ben from SVA has commented on the original post.

Over at the SVA Blog Ben McAlpine asks the question Shared Value – Is it worth the hype?.

Specifically, he notes a colleague asking how Shared Value is different to “smart business”.

Shared Value, is of course, smart business. But Ben’s description of Shared Value I think has an issue that I see in an awful lot in discussions about the topic. It touches on only the first of 3 pillars that are outlined in Porter and Kramer’s HBR paper that launched the term into the business mindset.

Continue reading

Business 2.0, Sustainability

Case Study: MTC Group

This post is part of a series outlining my learnings from interviews with a number of small and medium businesses exploring how they have benefited from a shared value approach. These case studies support a paper I wrote exploring strategic CSR (PDF 1.3MB).

The MTC Group is an Australian-based specialty coffee importer and roaster that has grown out of the Mountain Top Coffee Estate, an Australian coffee plantation. MTC supplies coffee to local and overseas markets, sourced from Brazil, Indonesia, Ethiopia and Papua New Guinea in addition to that sourced from the local plantation.

The business has demonstrated strong returns during its three years of operation, with revenue more than doubling year-on-year over that period and volume increasing 300% according to Andrew Ford, MTC Group’s CEO and President. During this time the business has grown from two to six full-time staff and has established successful joint ventures with partners in Indonesia and Papua New Guinea. The group is continuing its expansion with the recent appointment of an Australia-based group manager and the opening of its first international office in Hong Kong to better service customers in the Asia Pacific region.

The Australian specialty coffee market—which Andrew estimates is roughly 10% of the total local coffee market—is highly competitive, with pressures impacting importers from both directions in the supply chain. Upstream pressure is caused by the significant rise in coffee prices in recent years. Additionally, downstream pressure has been applied by retailers and distributors, who are themselves facing tough trading conditions, for roasters and importers to maintain, if not reduce, prices. Lastly, importers are facing increased competition not only from competitor importers, but from their own customers. Andrew explains:

…the retailers that were the core business of these specialty coffee roasters, and they were the core business because they were good at what they did, they owned one or three or five stores at high- volume … those same guys now are saying well, “why am I buying coffee from the wholesale roaster? Why don’t I set up my own roaster and become my own roaster/retailer?”

MTC’s vision is to develop the Asia Pacific market, both as a sales target but also for sourcing. Regions play an important role in the marketing and positioning of produce within the international coffee market, with highly-regarded regions commanding premium prices. MTC is an early mover in the Asia Pacific region, seeking to gain a deeper understanding of this new market and stronger relationships within it, which Kanter1 highlights is a key to successful corporate social innovation. This has resulted in MTC supporting the development of key infrastructure to support traceability and market transparency in Indonesia and Papua New Guinea, where the coffee trade is less established. Andrew explains:

Kenya [is] highly regulated, highly structured, government intervention, everything runs from an auction so just by us being there and participating we’re providing the same sort of presence if you like, traceability and vision to our client base just by being there, participating at auction level. Indonesia [is different, it’s]: deregulated, no government intervention, dysfunctional…

Such active engagement with the community to develop the capacity of these local, emerging markets, is an investment in cluster development. The impact of such infrastructure on business competitiveness is noted in the context of both shared value2 and cluster development in general.3

A key differentiator of MTC’s business is its close direct relationships with producers throughout the coffee production stages, from red cherries through parchment, green bean and roasting processes. This is part of an overall strategy to differentiate MTC Group from competitor importers. Andrew explains: “as a business we want the market to perceive us not only in quality but in terms of innovation and in terms of … being an origin-based seller not [just] an importer.” MTC Group has developed a multi-tiered approach to its origin-based offerings, with brands being developed at a variety of regional levels. An example of this is the Tairora Project in Papua New Guinea, where MTC source coffee from a variety of villages and suppliers in the region, but have also developed sub-brands for beans sourced from Bonta (village) and Baroida (farm).

MTC values these relationships highly and invests significant resources in their development, providing support in the form of training (e.g. to evaluate bean quality) and market intelligence (e.g. sharing MTC’s experience of coffee market dynamics and buyer expectations). Andrew characterises this support as building “the capacity within the supply chain of our business, our exporters and even at the farmer level, to ensure we meet the market’s demand”, illustrating with an example:

What we’re doing is supporting Baroida farm to put in place quality initiatives … in terms of processing, drying, batching, garden collection, cupping and review matching the garden to the cuppings … giving guidance, … saying ‘the market’s asking for this’… ‘this involves steps A, B, C, D,’ … they’ve got the skills and the ability to do it on their own but we’re providing that feedback. … [we support them in] the evaluation process … in terms of building the database and the management of data or data collection so the comparison between activity ‘A’ and what your result is in the cup.

These skills not only support MTC’s business through increased quality of supply, but they also build the skills and feedback to growers about market trends and expectations, ultimately enabling them to command higher prices for their produce. This depth of relationship with suppliers helps provide MTC with competitive advantage that new entrants (including MTC’s customers) will find more difficult to copy. This re$ects Scott-Kemmis’s contention that a business model that is “deeply embedded in the specialised capabilities and collaborative links that a firm possesses”4 is a key component of innovation in the Australian market. It is also a key dimension of sustainable business practice, where “[r]elationships with suppliers and buyers are based on greater trust through which long- term contracts and relationships are emphasized, providing greater traceability of both products and their impacts.”5

This advantage may deepen into the future, if the market continues to shift towards what Andrew calls the “relationship business model” in the coffee market:

…the way I view our industry is that right now at trade/retail level to the consumer, the big buzz is relationships, in other words it’s all about the coffees… I guess the ‘90s was all about fresh and local and they do roast it locally, “we’re round the corner, we pack it fresh” … the 2000 decade was all about baristas, it was you know, “my barista’s the best barista, barista champion”, … and this decade is all about relationship properties in the market. And in this decade where it has never been more important than knowing where your coffee’s come from and having the integrity…

A key challenge with this shift within the broader market is that customers who see appeal in this model have not adjusted structurally to adequately the longer-term view that is required to support it. Andrew explains:

…we’ve built the relationship model with our Sumatran supplier, great relationships, you know, we refer to each other as our “brothers”, it’s that genuine, good honest, partner of mine, brother of mine. We’ve built the relationship; [our customer,] they buy two or three containers a year—we bring it in. They turned down an offer from us because they got a price discount effectively from another suppler of 5% … I rang the owner of [our customer] and said, “guys you can’t ask me for a relationship-based business model and then go to tender on every contract that we discuss.”

MTC’s experience demonstrates a reconceiving of products and services where relationships and the origin of produce are valued and act as a heuristic for quality. MTC has built a strong reputation for quality and transparency, developing a premium product in a commodity market. Transparency across the supply chain—an approach championed by leaders in other industries such as Patagonia (clothing & textiles) and Investa Property Group (see other case study)—is also emerging as an important aspect of the coffee commodity business. Certification schemes such as Fairtrade and Rainforest Alliance are one way the industry is adjusting to this shift. MTC’s approach signifies that redefining value in the value chain—developing direct, supportive, trusting, long-term relationships with suppliers—is another. Strengthening clusters through education and infrastructure also provide MTC with a competitive advantage in building the Asia-Pacific region’s profile in the international market, commanding corresponding premiums to the benefit of both MTC and its supplier communities.


Notes

  1. Kanter, RM 1999, ‘From spare change to real change: The social sector as beta site for business innovation’, Harvard Business Review, no. May 1999, pp. 122–32.
  2. Porter, ME & Kramer, MR 2011, ‘Creating Shared Value’, Harvard Business Review, no. January–February 2011, pp. 1–17. [http://hbr.org/2011/01/the-big-idea-creating-shared-value]
  3. Porter, ME 2000, ‘Location, Competition, and Economic Development: Local Clusters in a Global Economy’, Economic Development Quarterly, vol. 14, no. 15, pp. 15–34.
  4. Scott-Kemmis, D 2012, ‘Responding to change and pursuing growth: Exploring the potential of business model innovation in Australia’, Australian Business Foundation. [http://books.google.com.au/books/about/Responding_to_Change_and_Pursuing_Growth.html?id=kxuqMwEACAAJ]
  5. Hutter, L, Capozucca, P & Nayyar, S 2010, ‘A Roadmap for Sustainable Consumption’, Deloitte Review, vol. 2010, no. 7, pp. 46–59.
Business 2.0, Sustainability

Case study: Investa Sustainability Institute

As I mentioned in my last post, I had the chance to speak to a number of small and medium businesses last year about how they have benefited from a shared value approach. This is the first case study that supports the paper (PDF 1.3MB) I wrote exploring strategic CSR.

The Investa Property Group owns and manages commercial and industrial buildings across most Australian capital cities and the ACT1, managing assets worth AUDfi8.6 billion2. With 230 employees as at 20113, Investa is just over the nominal 199 employees that represents a medium-sized business according to ABS criteria. However, the Group’s experience remains worthy of examination as an example of shared value applied in an Australian context.

Sustainability credentials and building efficiency are key competitive factors in the Australian commercial property market, not only infiuencing operating costs, but also building valuations and rents achieved. Beck Dawson, Sustainability Manager at Investa, expands:

…in commercial office, there’s a very competitive market. That competition has bred a lot of forward momentum on sustainability compared to a lot of other industries, because we’ve had that intrinsic industry pressure.

With a desire to encourage greater industry transparency, Investa took the bold step in 2009 of releasing seven years’ worth of historical building performance data as part of their sustainability report. Reported data ranged from energy consumption and water use through to recycling and tenant complaints. The online report included an interactive tool to make this information more engaging and easier to work with. Beck highlights the tool was effective at engaging senior levels of management in understanding the importance of efficiency and to identify key areas for further investment:

[the tool allowed] for the first time that whole portfolio view of environmental performance of the organisation. [It] engaged more people … particularly at the higher level within the organisation, because it was visual. It has specifically encouraged investment in buildings that were not performing. … So the organisation’s gained through making that investment, seeing an improvement and with those come potential valuation uplifts, investment returns and the ability to attract different and more engaged tenants.

Many organisations might consider this kind of transparency radical and/or risky. However, the Investa team see this as a key competitive differentiator, as Beck explains:

At the moment you’ve got five different property companies saying “we’re sustainable.” How do you prove it? So now our partners are saying “well what does a green building really mean?” How do you classify that? How does anybody, any normal ordinary citizen or tenant look at this and go “well that’s a green building, and that’s not?” Well they don’t really have a way of doing that right now, because the detailed data’s not there.

This high level of transparency serves to build Investa’s credentials, providing evidence to support the company’s claims and strengthening their competitive positioning within the market.

Also in 2009, Investa launched the Investa Sustainability Institute (ISI) as a vehicle for action research, leveraging Investa’s building stock and the data it generates as a “real world ‘testing ground’ where promising ideas, investments in technology and non-technological interventions can be applied and analysed by researchers working with the Institute.”4 Part of the impetus for establishing a separate research arm, particularly one with a non-profit structure, was to reduce barriers to participation by external stakeholders, according to Beck:

…we wanted to participate in research and make good partnerships with other external bodies including academics, other property companies, … clients, tenants in the industry in which we work. … [We wanted to] develop a forum that would allow all those parts to come together to do really good action research. … We really wanted to be an engaged partner in research projects. And that’s much easier to do when you’re a research body.

Such an approach to data sharing and industry-wide collaboration is highlighted by Porter and Kramer:

Major competitors may also need to work together on precompetitive framework conditions, … Successful collaboration will be data driven, clearly linked to defined outcomes, well connected to the goals of all stakeholders, and tracked with clear metrics.
Investa’s initiatives also recognised that efforts at bringing about new innovations would benefit from multi-disciplinary dialogue.

This open innovation approach, incorporating network relationships into their business model, features in the innovation strategy of an increasing number of firms, as outlined by Scott-Kemmis.

Dawson points out the ultimate goal is “improving the environmental performance of the buildings [leading to] improved financial performance.” But while these insights are valuable internally, the Institute has also made efforts to engage a wider group of interested people. This is in part to build a wider awareness and skill set within the local market, to help skill up local practitioners to better support Investa’s goals. But it also aims to educate Investa’s potential customers, “to raise the level of the debate from ‘oh, it’s got green stuff stuck on the outside like solar panels,’ which is very visible … aren’t necessarily very material in terms of carbon emissions from commercial office buildings,” as Beck explains.

External engagement initiatives include the Green Buildings Alive (GBA) program, which seeks to provide “an in-depth look at how meaningful data can trigger actions in buildings that improve performance and services to occupants at the same time.” GBA seeks to provoke multi-disciplinary dialogue between interested parties within the industry.

Pulse building insight

Investa are continuing their drive towards greater data transparency, releasing the Pulse tool in early 2012. Pulse enables near real-time data from a sub-set of Investa’s building portfolio, providing more timely feedback to Investa’s building managers. In keeping with ISI’s action research approach, Pulse builds on the learnings from previous initiatives, aiming to better support building managers in making decisions.

Where earlier efforts to publicise data were in part an attempt to spur a competitive spirit between managers, Craig Roussac, Investa’s General Manager, Sustainability, Safety and Environment, explains that this emphasis has now shifted:

[Previously] we were talking about using an audience or external communications as a means to motivate. It probably doesn’t really motivate [building managers] very much. … rather than someone telling them there’s a problem, fix it, there’s actually this [tool] to give them feedback. And they would have a better idea than anyone else as to what might have contributed to that out performance or under-performance yesterday. … and further, because they’re in charge of whether an issue is worth pursuing or not, they can prioritise their time a lot better that someone saying “what was that six kilowatt hours they’ve used at 3:00am three weeks ago, I want to find out?”

The property market is being transformed by demand for reconceived products and services, with sustainability criteria and so-called “green buildings” emerging as a significant competitive driver in the local market. Investa’s experience demonstrates the need for engagement across the value chain in delivering community benefits (more sustainable building stock), which also illustrates the increasing expectations on suppliers to larger organisations in engaging in the delivery of shared value outcomes. Investa’s transparency agenda provides both internal benefits, but aims to strengthen local clusters by increasing the capabilities of practitioners working towards greater building efficiency. The boundary of this cluster extends beyond the property market, encompassing academics, information technology infrastructure providers, property managers, and more.

Uncategorized

Quick note on strategy vs. tactics

It may seem fairly straightforward, but in a few recent conversations/engagements I’ve noted diverging opinions of what is considered “strategy” versus “tactics”. Damian Damjanovski posted last year on the same challenge (so it would appear I’m not alone in this experience).

In the midst of undertaking some reading for my masters studies, I came across this definition in ‘Strategies for change’ (Connor, PE, Lake, LK & Stackman, RW 2003) citing Robert Lauer, which I thought was pretty succinct (and similar in intent to Damian’s definition:

a strategy is “the general design or plan of action,” whereas tactics are “the concrete and specific actions that flow from the strategy.” While strategies evolve [more slowly] over time, tactics can change quickly, being added or dropped as the strategy for change is implement.

Just wanted to collect it here for future (publicly accessible) reference…