Sounds + Food 'n' Retail

HBS Working Knowledge, in an article on lean principles in services industries, lists the four principles that the Toyota Production System is based on:

Rule 1: All work shall be highly specified as to content, sequence, timing, and outcome.
Rule 2: Every customer-supplier connection must be direct, and there must be an unambiguous yes or no way to send requests and receive responses.
Rule 3: The pathway for every product and service must be simple and direct.
Rule 4: Any improvement must be made in accordance with the scientific method, under the guidance of a teacher, at the lowest possible level in the organization.

I love stuff that saves me reading a whole book, but would this work in a food / retail environment? I can't say 100%, but I can hypothesise.

Let's take a restaurant or coffee-shop. The way I see the information-flow is in the shape of a funnel, which is wide on both ends and quite narrow in the middle.


(If the words are unclear, it's, from left to right, a. customers, b. information, d. goods, and b. production (though the last should be c.))

Essentially:

1. customers have a ton of choice when they order
2. they narrow down this choice to their selected items
3. pass it onto the waiter
4. who passes it onto a kitchen
5. where another wide selection of ingredients is narrowed down
6. and the end-product is produced
7. which is again delivered to the customer.

And let's take a look at how this would work if the rules were applied.

Rule 1 - Specification of content, sequence, timing, and outcome?
Content is the stuff on the menu, which can be set to a limited number of choices, matching the availability of ingredients in the kitchen. Sequence are points a to d on the picture. Timing is an unwritten agreement between the customers and the food-place that their order will be delivered as quickly as possible. Outcome will be the satisfied customer (who will pay for his order).

Rule 2 - A direct customer-supplier connection / yes or no communication?
Again, this should be possible, by making the menu as transparent as possible and the kitchen organised to produce pre-specified combinations quickly. As for the direct connection, there are several ways this could be happening. A low-tech way would be a number associated with an item on the menu. Little miscommunication can happen on the way to the kitchen. One high-tech way being used right now is electronic notepads, which communicate with the kitchen or bar. I'm not a fan of it, because I think it erects a barrier (of slowness) between the customer and the waiter, but ok, it's a somewhat direct link. Another way could be to simply give the customer an electronic menu. It works online, why couldn't it work on a food-venue environment? The customer presses some buttons, the kitchen gets the order, the waiter delivers or the customer picks it up. Simple (but probably expensive).

Rule 3 - Simple / direct pathway for every product or service?
I'm a little confused by how this differs from rule 2, so I'll probably have to pick up the book after all… damn.

Rule 4 - Bottom-up scientifically co-ordinated improvements?
The key to successful growth is writing a manual / formula that can be reproduced over and over. If you can capture the components of quality that distinguish your venues from competitors, you can take over the world. What this rule means to me is that with a manual should come expertise, and this expertise should be used to train people from the lowest level upwards. The lowest level in the restaurant-scenario is the customer or the customer-interface. Placing experts in that vicinity, ensures a good bottom-up approach and improvements that are targeted at improving the customer-experience. This will also provide quick feedback about what could be wrong in other parts of the supply-chain, e.g. the communication, the timing, the quality of the food/drinks, etc.

Final thoughts
Now, of course, I won't pretend that these four rules are a replacement for me learning more about lean operations. I'll definitely be picking up The Toyota Way, to grasp the more subtle nuances. This was simply an exercise to see if lean principles can be applied to other—non-car—areas. I think they can. At the same time I don't think that leanness is necessarily an excuse for frugality either. It simplifies operations to focus on other areas instead, like e.g. improve the end-product quality for customers.

For those that don't know, "The Perfect Store" tells the story of eBay, how it was started, who was involved, its community, its growth, and the IPO, basically everything up to around 2001. The book was very well-written, I thought. So much so, that I felt more affinity with the company before it went public than afterwards. For the entrepreneurial section of the book, I was eating the pages up, breathlessly soaking in the stories of many of the people involved—these large number of perspectives included in the book, are one of its strengths. Then, after d-day, the IPO, my sentiments sank. I felt the floor opening up beneath me, all my pioneering instincts gone, given away to the "suits." But I imagine some people will see it from a different perspective, and that is how well-written "The Perfect Store" is.

Normally, I would review a book in pieces, but since I read the book some 4-5 months ago, I'll instead try to summarise the key points I got from the book.

Where you are from matters to where you are going: I notice this over and over again. Pierre Omidyar, eBay's founder, is a Libertarian, which rougly translates to letting people solve their own problems, with as little interference as possible. You can see this play out in eBay's largely decentralised shopping-model. The lesson here is not, I think, that everyone should be like eBay, but that whatever you do, should in some way reflect what you believe in.

Be professional quickly: I don't think eBay would be where it was today, if Pierre hadn't immediately tried to attract talent, starting with Jeff Skoll, an acquaintance and Stanford MBA, all the way up to Meg Whitman, who was instrumental in handling the IPO and is still eBay's CEO today. Many entrepreneurs are in the game because they want to be independent. Opinions may vary, but a smaller piece of a bigger pie is usually better than a small pie all to yourself.

Venture capital is not just money: eBay was consistently profitable from day one, so they actually didn't need financing. But there was one important reason for going to a venture capitalist: professionalisation. eBay needed to send a signal to the world, that it was an important player on the market. It needed to attract talent, and form a growth strategy. All of which happened after it took on venture capital.

Community matters: eBay's key to success was not only her low capital costs (no stock, little overhead), but also her close ties with the users of the site. At the beginning, little in features was introduced on the site without consulting the users first. Because of this and ultimately the high switching costs, eBay benefited from what is known as the Network Effect. That said, as a company grows, community-involvement cannot be as strong, and new mechanisms must be put in place to place to stay in touch with your core-users. eBay had a lot of problems in this area.

IPO's can be traumatic: Somewhat related to the point about communities and change, when Ebay went public, it created a rift between the core-values of her original workforce and users, and the values of the financial community and the media. There's not much to say about this, except that just as it takes a particular type of people to start a company, the same applies for people taking a company public, and as a founder (and start-up-employee), you must learn to let go.

Make your IT-infrastructure scaleable: this is the only tech-advice in this post, but Pierre had no idea how quickly eBay would take off, and the company was plagued by technical issues from the start. Only some years later, when Meg Whitman became the new CEO, did proper staff get hired and was the infrastructure upgraded for scale.

That's about it. I'm sure, I forgot some key-points, and would appreciate comments on this, if you have read the book. I do remember thinking that "The Perfect Store" was the absolute best book I ever read on starting a company, interacting with community and stakeholders, and the effects of an IPO. So, highly recommended for this reason alone, and also to gain a good insight into eBay as a business until 2001-2.

(This review is mirror-posted on Tech IT Easy.)

The five-forces model, as developed by Micheal E. Porter, illustrates the biggest factors that may enter into the strategic decision-making process. These are, on a vertical level, suppliers and customers, on a horizontal level, competition from products, new entrants (can also be vertical), and rivals.

To explain the horizontal/vertical, often when you talk of horizontal, you mean companies and products that are on the same level as you, competing for the attention of the same customers (and suppliers). Vertical relationships are those which a company depends on, either their relationship with suppliers or their relationship with customers. Each of these also operates on their own horizontal axis. The more powerful players on that level become, the more they can affect players on the other levels.

There are different levels of importance per force, depending on the context and type of the firm. When a company is more powerful horizontally, a market-leader, even a monopolist, it does not have to worry about suppliers as much, and is perhaps able, financially, to integrate vertically, taking over some of its suppliers and/or some of the middle-men that stand between the company and its customers. Vertical integration can be important when you want to control the supply chain for some reason, e.g. to increase the level of quality of your products. It can also become important if competition on your horizontal axis is threatening or may become so in the future.

3 examples
You can see this play out in a number of retail-situations. Apple, which is strictly focussed on design and marketing, outsources the manufacturing of most of its products, but is fairly vertically orientated towards the customer-side, doing most of its business in its retail-locations and online stores. Because of this concentration of power in the middle and proximity to the customer, it also has more power over its suppliers, able to make strong demands, and it's also better equipped to compete with horizontal players like HP or Sony, who are not as vertically integrated towards the consumer. The added benefit of a close customer-presence is also that you can use this as an opportunity to create customer-focussed products, something a lot of non-verticallly integrated players are not so good at.

Another fascinating company is Amazon, who spotted an opportunity to surpass brick & mortar stores, by becoming a distributor with a web-based store-front. Traditionally, the book-industry was organised as follows. A book gets printed, it then gets distributed, it then lands in a store, and then the customer buys it. Amazon integrated three of these functions: distribution, store, and customers (four, if you include ebooks into the formula). The end-result was that the customer became empowered: he could review books, even sell books second-hand. Which disempowered other stores where this was not possible, and publishers, who were before able to simply push out best-sellers downstream. Publishers are still powerful of course, essentially acting as a gatekeeper to writers, but this will change as soon as online publishing can be consumed comfortably.

A final example is Ikea, which is surprisingly similar to Amazon. It also started as a distributor, back in the day when a store-front was a newspaper-advert and phone-line. Ikea saved money, by working closely together with manufacturers in Poland, even building and buying machinery for them. The end-result were standardised designs, at low costs, and produced on a massive scale. It became close to the customer, by using its warehouses as store-fronts, and enabling customers to buy via catalogue and later via the web-site. Its competition was the traditional furniture store, conservative and producing designs that were both expensive and focussed on exclusivity (which translates to small-scale production). Because of this perceived strength, they were arrogant enough to not worry so much about prices on the vertical axis, both from their suppliers and for their customers. All of which could be exploited by some frugal and out-of-the-box thinking (a combo which fits surprisingly well together).

These are all three examples of durable goods. If you get into food however, even restaurants, the formula changes. But that is a story for another day.

Be a thief
Isn't 5-forces fun? I think so. So what can we learn from this? For one, that it's important to consider strategy on multiple axes. How will a business deal with its suppliers, its customers, its competition?

Also, it is actually a weakness to be too vertically or horizontally integrated, as that creates a certain arrogance and/or passivity towards how you deal with these parties. New entrants will eventually come, and probably on a different axis all-together. Being too integrated, means that the business has many dependancies, which will make it all that more slower to react to changes.

What I think always pays off, is to be close to customers. By constantly adjusting your strategy, so that the value proposition for customers is increased and personalised for them, you ensure a certain loyalty (which gives you time to change) and you can sense it sooner when their attention drifts towards other types of products.

A final thought. Business is very much an art-form and in art there is one great saying: "Good artists copy, great artist steal." The copying refers to that everything has been done to a degree. People have sold computers, books, furniture, and those products are clearly fulfilling a demand, which, for now, continues to exist. Where people can innovate is in creating new combinations of things. In other words, if you copy a competitor's business-model, you gain only the part of the market that does not already get served by the existing business-model.

If instead you steal the good parts from other business models, and create your own combinations of these good things, you can create greater value-propositions for customers than already exist. This applies just as much to combinations of five forces, as it does for anything else.

IBM's nice white paper, which I briefly touched on before, describes a model for mapping how customers make decisions in a given setting. It looks at three types of retail-outlets: Grocery, consumer-electronics, and apparel (clothing), and explains how each type of store has different types of customers, with different motives for visiting, and different in-store behaviour.

For instance, with grocery-shoppers, they map two types of shoppers, those that shop for replenishment and those that shop for convenience. The figure below shows the different reasons why they would visit a store and what they value inside the store:



Really, what this flows out of is an analytical technique, IBM calls: "consumer decision process (CDP) modelling," which analyses consumers in five phases:

1. Qualitative market research, to identify elements that impact target decisions: what, who, when, where.
2. Create individual CDP maps and organise elements into stages
3. Validate and create a market-representative view
4. Develop quantitative model to prioritise impact of 100s of "why" elements
5. Leverage CDP insights to drive revenue opportunities

In English: data is collected through traditional research methods, and IBM crunches this data into a system that scores different variables according to their importance and comes up with focussed advice on how a retailer can improve their marketing strategies and the shopping experience.

For instance, in the case of customers for complex electronics, like high-end sound-systems, customers would benefit from a focus on education at the beginning of the decision-making process, and on a high level of technical support after the purchase had been made. This has implications on staffing and marketing. At the same time, this can also affect stock-inventory. With products like these, where people prefer home-deliver and possibly installation, it is often not necessary to carry large amounts of stock within the store, again reducing costs on that front.

Note: this article will be mirror-posted on Tech IT Easy.

A few weeks ago, I wrote a little about how small leisure-businesses deal with ecological issues, and how that is sometimes stimulated by government-subsidies. In my ignorance, I saw this mostly as a marketing-issue, though an article by Michael Porter and Forest Reinhardt in the October-issue of HBR, made me look at it a little differently. In it, Porter and Reinhardt propose a strategic look at climate issues, both inside-out—pertaining to the company's activities—and outside-in—assessing how external factors can affect the business.

Inside-out
By looking at activities along the value chain of a business—meaning all the activities that affect the final value to the customer—and calculating eco-costs per activity, the company can evaluate what activities cost in terms of total emissions and make a decision as how to deal with them. Note, that both in a strategic and a marketing-sense, both direct and indirect costs are relevant.

Assuming that emission costs are a certain expense in the future, looking at a value chain in this way can have severe consequences on seemingly innovative activities, like just-in-time supply chain management, which is quite transportation-intensive; e-commerce, which often depends on small shipments; and offshoring, which can severely lengthen transportation-routes.

Some examples of how to deal with emissions inside out are:

• Using tools within the enterprise, like Toyota's life-truck, that is designed all around for reduced cost to the environment.
• exchange information with your partners regarding gas emissions, reduction targets, and other climate-change targets.
• Have your own procedures in place to evaluate not only your own emissions, but also those of your suppliers' products coming in and those of your end-products, when used by your customers. This also involves visiting your partners' production-facilities, forming collaborative emission-reducing strategies, and understanding how your customers use and dispose of your end-products.
• Creating an incentive structure with your partners, which involves carbon credit-trading and other rewards for their good behaviour.
• Similarly, set up information-exchange policies on a departmental and business-unit-level regarding emissions and reduction-strategies, and implement a reward-system.
• When on land, using rail-road transportation instead of road, as that is far more efficient in terms of emissions.
• Evaluate your activities, and focus on optimising the high-value ones and either eliminating the low-value ones or outsourcing them to more efficient companies.
• Jeremy Fain, at Tech IT Easy, also proposes some measures on how to implement IT-related cost-reductions

Ultimately, the company that can be most innovative in its emission-reducing process, can gain significant cost-advantages over those that are lagging in this respect.

Outside-in
According to the article, there are two external threats to businesses: that of actual climate-change and how that will affect regions that may be important to a firm's bottom-line; and regulations imposed by governments, which may impose costs on certain activities. Both are very hard to deal with.

Obviously, for the latter—the regulations—the best way is to implement as many "inside-out" savings as possible. In addition, it is important to work closely with watchdog-agencies and institutions to be compatible with most recent trends, as well as be prepared for what may come.

For the first—safeguarding against climate-change—only companies that can either keep their supply-chains flexible enough to deal with regional changes, or those that can invest in scientific "cures" for climate-changes, such as drought-resisting crop, can have some sort of advantage in this regard.

Final thoughts
The scientific community is fairly aligned in their perception of the problem. And for the business-world, Porter and Reinhardt see this as a revolutionising force, equalling or outweighing globalisation and information technology.

A lot of business are still receiving mixed messages from the political, scientific, business, and consumer-community. But what is certain is that legislation will continue to become more strict in this regard. So from a cost-perspective, it certainly is a wise choice to implement emission-reducing measures as early and as wide-spread as possible.

Similarly, as I wrote in my last post, there is a public-relations angle. Customers are becoming much more aware of environmental factors, and may prefer to shop at places which respect this reality.

The picture is courtesy of firstnationalpower.com.

As has become my custom, during my brief life as a blogger, I like to review books, while reading them, not necessarily after I'm finished. The book, I'm currently reading, is aptly titled "Ikea - The Secret of Its Success," a Dutch translation of a German biography of the business and its founder, Ingvar Kamprad. I've until now read very little in terms of European business, and looked forward to getting a grasp on the European mentality if there is such a thing. To be honest, there are vast cultural differences between countries in Europe, though Ikea's continental growth does serve as an interesting lens to understand some of the issues at play.

My initial thought when meeting people and businesses is that where you are from and when you are from matters a great deal to where you are going. There are a great number of social values that come from living in a given location, at a given time. Similarly, Ikea has had a particular past, which I think define the company and explain its goals.

Where Ikea's from, Sweden, is a strange, alien place to me, even more so, 80 odd years ago, when Ingvar Kamprad, Ikea's founder was born, and 60 years ago, when he founded the company. Painfully, I notice that my own business-education has been coloured by "Western" values, or rather Anglo-saxon capitalist ones, which give (the illusion that) individuals (have) pretty much free reign to reach their dreams, and Ingvar's story is very different from that (though he did achieve his dream, I think).

Briefly, before I describe Ikea's history, what is different about the company, as opposed to other multinationals?

• It is still a private company
• It thinks like a community, which has major consequences on work-relations and innovation
• Work-relations: historically, wages are kept low, workers are treated like family, there are no large power-differentials, and I don't think people get fired much.
• Innovation: the way the business develops often comes out of collaborative thinking—how can we make life easier for our workers, how can we make life easier for our customers? Very organic, pragmatic, and frugal!

Ikea was started in Sweden, a country marked by deep socialist (or shallow communist) values that have affected the way businesses were run and even lead to (insane) tax-levels up to 85% (and even more in some cases). A kind of media-revolution was started by the author, Astrid Lindgren, who noticed that she was paying over 100% in taxes on her income and wrote a lengthy article about it, which was published in the Swedish newspaper, Expressen. This ultimately lead to the fall of Swedish socialist democratic party in 1976, who had been in power for 40 years, though later they would regain their throne.

Ingvar Kamprad, who had by that time already migrated to Denmark for related reasons, had himself had a particular past. He grew up on a farm in a small commune, where value was placed on hard work and family. Originally of Germany, emigrated to Sweden, his family felt some affinity with the Nazi-cause of freeing parts of Germany, separated after the first World War. Ingvar only abandoned these values in his late 20s, after having finished a business-degree and getting married.

By that time he already possessed a strong trader's spirit, importing small goods like pens at low cost, and selling them via mail to his customers at a small profit. He later expanded this to furniture, which organically evolved to what became Ikea. Much of his thinking was pragmatic and he wasn't afraid to listen to the advice of his co-workers, and ignore the advice of his competitors—the more established furniture-retailers. Business boomed, of course, and he soon built more warehouses (which acted as store-fronts) in other major cities in Sweden.

But the taxes were killing him. So much so, that he had to live in debt for several years, while being the owner of a very well-todo store. So, for this, and other reasons, he decided to migrate with his family to Denmark, while keeping Ikea in Sweden. Later he would move to Switserland and do something that probably goes against the grain of every capitalist out there. He gave the business away.

He did so for reasons of continuity. He did not want there to be confusion after he was gone, and he did not want his kids to feel pressured to take over the business. Instead he created a foundation (stichting), called INGKA, in the Netherlands, to make sure that Ikea belonged to Ikea, and not to the whimsical demands of its (future) leaders.

That's as far as I'll go today.

Every book has a different lesson in it. This one on Ikea is about its heritage, its values which are deeply ingrained into the Swedish perception of social community, and how these can be preserved as the business grows. I can't wait to learn more about Ikea and find out. I'm about 50% into the book, writing this, and I want to write about Ikea's expansion at a later date, as well as their internal workings. If you do read Dutch, I do recommend picking the book up here, and for German, check the German Amazon-store here.

For other book-reviews, check out my look at McDonalds "Grinding It Out" here and here, as well as at Starbucks' "Pour Your Heart Into It" here and here.

I just picked up the German magazine "Starting UP" (initial impression, so-so), which featured a number of stories interesting to me. One was the 30 top-franchisers in Germany. I'm a little confused by how they rank these things (English translation: annual growth-rate of franchise and nominal growth-rate), which resulted in some kind of numbering system, where the number 1 got over 3000 points, and the number 2 939 points. Actually, I'm more than a little confused, but it's probably too early in the morning to me.

In any case, the number 1 was Subway, which grew from 190 German partners in 2004 to 600 in 2007 (and got 3113 points). And number 2 is DATAC, which provides accounting-support and proprietary software. It grew from 312 partners in 2004 to 522 in 2007 (and got 939 points.. ah I see, nominal = probably company growth rate). I'll list some more in a second.

Unfortunately the article was very sparing with its analysis regarding what makes a good franchise, which I would've found useful. The advantages listed for Subway are however:

• Low initial investment (ca. USD 10k entry-fee; charges around 8% of profit + 3.5% advertising fee)
• Strong international brand (28343 partners in 86 countries)
• flexible venue-size (doesn't take up much space / can be take-away or seated)
• simple operation (no frying, etc.)
• large health-factor / range of ingredients

From their franchisee-brochure (pdf), I also got some more details on the help you get:

• A 2 week training
• Help with site selection
• Help with restaurant design (though I think personal taste is very limited)
• Help with equipment ordering

I have some more data about what it takes to run a good franchise, so I'll try to write more about it soon.

Back to the list. I segmented the list of franchises into what I considered their primary focus to be.

• Consumer-services: 4 (PC-Feuerwehr; Schulerhilfe; Agentur Mary Poppins; Stage-coach)
• Logistics: 1 (Fastway Couriers)
• Business services: 4 (Datac; Mail Boxes etc.; Im-Press Promotions; Ultimo)
• Food: 4 (Subway; Joey's Pizza; Blizzeria; Haagen-Dazs)
• Health: 5 (CC Calorycoach; Bellissima; Ruck Zuck; Curves; Alkromat-Patrouille)
• Retail: 9 (Engel & Volkers; Videotaxi; Town & Country; Harper & Fields; Mobilcom; Re/Max; Das Futterhaus; Tiroler Bauernstandl; Babyone)
• Installation-services: 3 (Twintop; ; Isotec; Scheibenglass)

Retail is the clear leader, probably because it requires very little in specialised (read: tacit) knowledge to be passed on from the parent-company, and distribution is of stuff like electronics is much easier than say for fresh foods.

There are other underlying factors in running a good franchise, which I will write about at another point. Important to realise is that just because a company grows fast, doesn't mean that it's actually a good company. Many franchises, in my experience, suffer from a lack of shared standards of quality, which can be overcome through a number of methods, but often suffers because of the lack of a centralised control over who works for the company and how they interact with customers.

I still think my last post on how to shift tacit knowledge into the explicit kind is relevant here (also the one on the knowledge-spiral), as what we are speaking of here is really similar. A company is not just the product it sells, but the values of the people, and how to communicate that down the chain is a vital skill for successful companies and franchises alike.

The picture is, if you're wondering, meant to display a room in which you have a choice of (food-)products to sell. Eh, yeah… I'll improve someday, I promise! ;-)

It's a fair question. Look at the picture on the right. This should be a familiar view in just about any city: a long queue for a tall latte. The picture suggests several things. One, that coffee seems to be a popular product; two, that there is space for more coffee-shops; or three, that this particular coffee-shop should perhaps improve its service.

The truth is that this trend is scary for many an existing coffee-shop owner. Because the café, in Europe, has been around for quite some time, centuries for all I know. Yet if you walk just down the street from where I took that picture at a Rotterdam coffee-shop, you'll see a line of traditional cafes, spacious and atmospheric, yet entirely empty. The fact that people would line up at this particular coffee-shop—the only Starbucks-like venue in Rotterdam—suggests that they don't care about space, about atmosphere. All they are about is convenience (if you call waiting for 5 mins. a convenience); coffee-to-go; and exotically-named and expensive coffee. What is happening here is not so much the comoditisation of coffee itself, rather the comoditisation (read: non-importance) of the coffee-selling venue.

I'm not sure if people would care whether they bought a coffee at McDonalds or the Metropole-cafe in Brussels anymore, to be honest. If the selling point is how quickly you can get the coffee and get out, what does it matter if the venue is a palace, ready to serve its customers on its hands and knees?

There are plenty of stories about "how Starbucks drove me out of business" (here's a borderline case), strangely outweighed by stories about "how Starbucks saved my life" (here's one). And with McDonalds increasingly getting ready to become a competitor to Starbucks, and other venues, like Leonidas, a Belgian chocolatier, transforming their previous chocolate-laced focus into a coffee-one, I don't think it's unnatural to be afraid. If a coffee-venue is a commodity, then how hard is it to change your existing venue? Insert some coffee-pumping machines, put a to-go sign on your door, and you're set.

So what should an entrepreneur do? Leave or fight? Yesterday's odd post about Beef, of all things, did suggest another way of looking at business: on a system-level. What was essential to the Chinese beef industry, to meet demand? Proximity to the market, amongst other factors. And what is essential to the coffee-industry? Probably not more coffee-venues, but maybe something else.

When you look at the way the coffee-industry is structured, and probably most industries, it's like a funnel: there are a number of coffee-producers (not sure how many), and a definitely greater number of coffee-venues. The latter is battling for the attention of customers. They do so by engaging in new business development opportunities, both internally (e.g. music), and externally (e.g. coffee in cans). They need to open more and more locations to maintain their air of convenience, just look at the picture above. They need to brand themselves as the number one place to go, versus all the 100s of other new and traditional venues. They need properly trained staff. They need good coffee, and other quick food-products, etc.

This would suggest following openings*:

• marketing consultants
• new business developers
• new business providers
• real-estate agents
• customer service consultants
• coffee-buyers
• temp-agencies
• quick food producers, e.g. a bakers
• and I don't know what else.

(* disclaimer: none of the above can be taken as sensible business advice, without conducting your own study)

The point is that, while a certain, most obvious, business opportunity is shrinking, doesn't mean that there isn't a need for more business. As a (creative) entrepreneur, you just have to look outside the coffee-cup (read: box) and see if customers and coffee-venues would not be in need of other services. And perhaps I am wrong, and because it is so easy to implement a "to-go" formula, it is actually easy to start some kind of food-related venue and add the coffee on top.

Anyway, all this coffee-talk is making me thirsty for one myself.

A few weeks ago, it was announced that the world's dairy prices (and anything related to that) will rise by a few percentage points. The reason being that the demand for dairy-products, most often in the form of milk-powder goods, is soaring in China.

But it's not only milk that's hot in demand, another cow-related trend is making the rounds. Surprisingly (or perhaps not), this trend was started by McDonalds-restaurants, who have been in China since 1990. And while traditionally, the use of beef was sparingly reserved for stir-fry dishes, the Mac in McDonalds has caused a drastic taste-change towards more beef-orientated dishes.

Beef-importers would be all excited, if it wasn't for one little snag: the mad cow disease, which lead to at least a few countries being banned as beef-importers to China, including the US. This certainly can't have been comfortable for them, considering they exported around $3.19 billion worth of beef in 2003, which fell to $605 million in 2004 (after the ban), and, only in 2006, did it pass the $1 billion mark to $1.63 billion.

Time Magazine writes about how Western Cattle Company found an interesting method to get around the ban, by breeding the cows in China itself. In other words, they are exporting their know-how to Chinese farmgrounds, in the city of Hohhot, China's dairy capital, which houses two of China's biggest dairy companies, Mengniu and Yili, as well as around a million cows. The Western Cattle Company is not importing cows, it buys them, fattens them up, and its off to the slaughterhouse.

The company plays both a smart and risky game. With China's beef-consumption up 31% since 2006 alone (source: USDA), and US-imports being banned, it firmly implants itself as the leading US beef-producer in China. At the same time, several similarly-aimed joint ventures have failed in the past and a large reason is both the risk of competitors and the lack of a good supporting infrastructure. As for the first, China, as with most of Asia, clearly has a reputation for being quick on the uptake and even quicker to copy. And with a lacking standard-setting authority in China, consumers will find it hard to judge whether beef comes from an authentic source or a local competitor.

Still, beef-businesses are hopeful, that as demand soars, so must complex and hard to replicate mass-production-methods. With large quantities of beef being produced comes a new problem however, that of guaranteeing the safety of the environment. Even if the cows are kept safe, there is no guarantee that the water or air is pollution-free, and that the corn being fed to cows is clear of pesticides.

Clearly, setting up shop in China does not only depend on being there quickly, but also on being able to produce mass-quanities of goods to meet the staggering demand, doing so in a fashion which makes it hard to replicate by the locals, and implementing a lobbying campaign focussed on improving the infrastructure around your production-facility. The last of which will be a nightmare for many, I'm sure.

First of all, "forgot the name?" Indeed I did and that's already a bad sign for any place. I was brainstorming with my dad on business-ideas in a pancake-shop that had just opened. It still smelled of paint and the coffee stunk as well. The owners were stuck at the back, busy with making pancakes. But ok, I can blame plenty of this on lack of experience, growing pains, whatever you want to call it.

But here's a list of some good things, I think a pancake-place should possess.

Pictures of pancakes: these are wonderful creations, can be filled with sweet and savoury things. Why not advertise that. Instead they had this:

Pancakes (list of ingredients).............Small.....Large

1 ingredient.................................price X...price Y

2 ingredients................................price X...price Y

3 ingredients................................price X...price Y

Very organised, but so lifeless. How does this make me want to try one of their oh-so-delicious pancakes. It doesn't.

A take-out menu: I was a vegetarian for two years. One of the things I missed was that there are very few places catering to non-meat eaters. A savoury pancake can not only offer a great alternative to meat-dishes, it's also a great alternative to pizza. Why not grow your business a little?

Feedback-cards: as a new food-venue, i would consider this vital. How do you know that your formula works? Customers (e.g. me) can sometimes be much more creative than you can imagine.

Free internet and plugs: I already made this point before, and I know pigs will fly before it happens, but free internet = viral marketing!

Something to make me remember the name: a take-out menu, feedback-card, business-card, anything; don't be a commodity!

Finally, a better coffee would be nice. I understand that it's a pancake-place but they don't expect everyone to eat pancakes, do they?

And something I was brainstorming about with my dad: the importance and fallacy of personality in running a food-related venue. I'm sure I'll go into that another time.

The picture is courtesy of thisnylife.com

I'm intrigued with finding out more about the creative process of creating real-life things, as it will be helpful in designing venues that work. Last night, I caught an interesting documentary on Discovery, on the creation of the SYN-US, a Ford concept car for the Detroit Auto Show in 2005.

What is the SYN-US?
Well, as you can see from the picture, it's a tough-looking car. Part of its name comes from the word Synthesis, meaning a mix of the hard, edgy exterior, and the soft, flowing interior.

Some of the influences were, as far as I can tell:

• the hard landscape of the US (mainly L.A.)
• possibly post-911 sentiments (speculation)
• the "Pimp my ride" madness, which affected interior design (speculation)
• the pressure of concept-car competition - trying to be different
• the particular profile of cars showcased at the Detroit show - typically manly
• the SUV (exterior) versus the metro-sexual trend (interior) (speculation)
• the engineering platform used (more on this later)

The evolution of the car-image
During the documentary, the Ford's brand-image person, responsible for this project, gave a nice overview of the way the car has been perceived and designed over time.

60s - rebellion = tough cars
70s - confusion = she didn't know if there was a clear trend
80s - status = luxury cars
90s - lifestyle = differentiated cars
00s - choice = more and more fragmentation in design

Project SYN-US
For some reason, Ford decided on a B-model car, meaning a smaller model, even though those traditionally didn't do well in the US. From what I could see, the process was done in several stages: research; design; building phase; and interior design. All of which had different considerations, and was, of course, supervised by Ford's management (e.g. the brand-image person). And then of course, the presentation phase.

Research-phase
Essentially, the team needed to form an image of the current situation in the US, as well as how it would develop, to design a product that would fit in, or possibly lead the way. A couple of (cocky) trend-researchers were hired, who tried to look at all things currently playing on the market (I speculate: post-911, pimp-my-ride, beginning of the green trend, metro-sexuality), from the internet and other media, as well as just driving around. The project was code-named "Gorilla" of that gives you a clue. They came up with a film, which was supposed to inspire the designers while creating the concept.

Design-phase
This was conducted by two main designers, one British and one Italian, I think, who came up with a tank-like model with a soft interior. This model was moulded in clay by an advanced machine, and little tweaks were made on the outside. One of these was to create door-handles which appeared like those used on a safe.

Important is to realise that there was a big constraint to the project: the engineering platform. For economic reasons, it can be useful to use existing technology, because that would make the whole product-process much cheaper (factories don't have to be adapted, etc.). In this case, they choose the existing B-model, the Ford Sierra, which had consequences on the dimensions of the SYN-US and type of engine used. Usually, I think this is done when a previous model in the same category is doing very well, and it would not be sensible to create a whole new parallel production process.

The building-process
I can't say much about that. Much machine work and quite integrated with the previous phase. I can say that the design was exaggerated for effect—auto-shows can be very competitive.

Interior-design
Again, quite integrated with the previous phase. Essentially, a trendy-looking interior designer (female, Swedish-looking) was brought to the project to bring this soft, flowing vision of the interior to reality. She decided on soft, skin-like materials in an equally skin-like colour theme. Noteworthy was that she had the words "do not touch" painted on the door-handle, expecting people to want to touch it anyway. Those quirky designers...

The presentation phase
Not much to say here either. A movie was shown, an executive gave a speech, and people could touch it. Typical auto-show stuff. Apparently feedback was not too negative.

Final toughts: The knowledge spiral
All of this reminds me of the knowledge spiral, a concept known in innovation. Basically it's the movement from tacit knowledge—highly personal, hard to formalise and communicate—to explicit knowledge—formal and systematic, easily communicated and shared—back to tacit knowledge, and again explicit knowledge, moving in a continuous spiral. Essentially this works in a fairly rhythmic pattern, staring with an individual that comes up with an idea.

This idea comes from some kind of tacit place—a feeling, experience, know-how. In the case of the SYN-US, it was the trend-research being done. This can be communicated to others, but slowly, maybe in a participative style (the documentary-film that they produced). This must then be made explicit for the organisation (Ford) to use this knowledge. A design is made as well as a model—explicit knowledge is shared among the project people. If this model is successful, it can be shared throughout the model-B division (like happened between the Ford Sierra and this project) and the explicit knowledge spreads. After a while, it can become internalised in the principles and values of the firm, in which case it again becomes tacit. The company can then use this tacit know-how to develop further innovations, ingraining some of what they know already into future designs.

So essentially the movement, like on the picture is:
tacit - tacit
tacit - explicit
explicit - explicit
explicit - tacit
etc.

More on the knowledge spiral can be found here.

Final thoughts 2: relating this to Food and Retail
In the sense of architecture, you have two types of design. The original, where you construct a building, which can develop in a similar process as above, and in the sense of an engineering platform—you end up working with the constraints imposed by the internal space, as well as the environment you are working in. In both cases, some interesting lessons come forth from the way the SYN-US was developed.

FnR-businesses are also people-businesses, which can benefit from understanding the way the knowledge-spiral works. Essentially someone (the founder) can have an idea, it is still tacit at this stage. His or her initial partners will also likely share the same values or be able to understand them quickly. But the bigger the organisation becomes, the more important it is to work on the explicit. Developing operational manuals, films, processes, etc. all of which can be shared through training and other communication, are essential to growing large and well-working organisations. Again, the way the the SYN-US was developed—by people and through processes—sheds some light on that issue.

I feel like I've written enough about Apple over the last months on Tech IT Easy, and similarly the blog-space is a-buzz with the news of iPods, new colours, new ways to get media, blablabla, how boring huh?

Well, while I still want an iPhone, especially now that it's dropped to a price where the synergy between media-player, mobile PC, and phone is actually quite compelling, I was much more interested to hear the news about yet another partnership, this time with Starbucks. If you aren't a faithful reader of Tech IT Easy, you may not have noticed that lately I spent a lot of time discussing food-related things (completely unrelated to tech of course) and in particular, several posts about Starbucks. The first was on how Starbucks uses vertical integration to maintain a high level of quality throughout their value chain (it is not a franchise!), and the second, more tech after-all, on the concept of a third place and how the web fit into this.

The third place
I hopefully do not need to go into this again too much, as much of the definition can be found on my post and on Wikipedia. But essentially a third place is the space between home-life and work-life, where we try to find some time for ourselves.

Starbucks has really been pushing this concept, both in their amazing book, and of course in their stores. I should mention that, as a European, I'm quite spoiled as far as third places / food-related leisure venues go, and Starbucks, in my opinion, could use some... personality, for lack of a better word. But that is mainly the legacy of scale economies, which is king in the US, and lead to the global and uniform-looking  chains, like McDonalds (see my other post on that here), that we are used to seeing, of which Europe, in turn, has very little to offer.

How has Starbucks tried to make their venues third-place worthy? Well it starts with creating a place where people like to be. Initially, Starbucks was a coffee-bean retailer, not selling coffee-drinks, and a big credo at that time, and ever since then, was to educate people about coffee. This is based on two vital ingredients: excellent coffee and a staff both qualified and approachable. And education and customer-service are pretty much the core of Starbucks, as I see it.

Second is creating an atmosphere that makes people feel at home. Here, music plays an important part as well as providing places where people can work and browse the internet. This has manifested itself in several partnership, with music-producers and artists, incl. Apple, as well as T-mobile to provide fairly global internet-coverage in their chains.

The latest is of course Apple's announcement that people will be able to buy songs currently playing in a Starbucks at a finger-click through itunes, and at no internet-charge.

Starbucks the retailer
After reading the book "Pour your heart into it," I've always seen Starbucks as much more than a simple coffee-chain. The company is aggressively forming partnerships to offer customers a richer experience in their stores, and expanding their reach into supermarkets as well, in order to gain mind-share. And, as Schultz announced in the Apple Keynote, the company is still in its embryonic stages, which I can easily believe.

Focussing purely on their retail-outlets for now (and not their innovative shifts into people's homes), that is what their coffee-houses are in fact becoming. Building on the reputation of their coffee, Starbucks has been extending that to other products in their stores as well, always using the credo of "quality first." While, similar to Apple, this quality comes at a premium, Starbucks is playing into current market -trends that quality leads to less price-sensitive customers, and as long as the company keeps doing well, it can keep charging these prices.

What I see is a shift from the supermarket, book- or music-stores, to places where people come first of all to relax and second to surround themselves in a type of glamour, listen to good music and buy it, read a good book and buy it, have a great coffee and buy some beans to take home.

This is only made possible because Starbucks has a strong control over their value chain and a lot of marketing power at its disposal. A regular coffee-chain, which does not own its own coffee-factories, nor have the financial capacity to own multiple stores, instead franchising them, does not have the same negotiating strength with partners to guarantee this level of quality.

While Starbucks did not entirely start from the ground up—Howard Schultz actually acquired the bean-maker after a while and took their name, it clearly pays off to start as high as possible on the value-chain, as a manufacturer, while having a keen eye for what customers want. 

One of my current activities is trying to relate everything I learn to the field of HnR, because I believe that the more I know, the better prepared I will be when I start my own venture. This has consequences on better execution and will make it easier to attract investors / partners as well, not to mention run a better business.

The latest Harvard Business Review has a somewhat interesting, yet quite academic article on principles of long-term success. They are: