May 2007 Archives

What's the difference between research and intelligence? Technically, market intelligence is still part of the domain of market research . But there's a very important distinction between the two. Market research is scientific and purposive. It seeks to discover something abo ut the market, and the researcher then devices scientific ways to arrive at thi s information. You know what you want, and you set about trying to get it. But market intelligence? It's more serendipitous than anything else. Intelligen ce is about getting leads, getting info from various sources, and picking up th ings with your "ears" (which, aside from your actual ears, include your network of informants among others). Example: A few years ago, it became "fashionable" for companie s to hire investigators to rifle through the garbage of their competitors. They didn't know what they were going to get, but if they did get something, it may be a goldmine of information. Years ago, a big beer company pirated the brewmaster of its competitor, with th e hope of stealing the secrets as to how the competing brand was formulated. Ta lk about "buying intelligence." And here's a typical tactic done by many large firms: they come out with ads fo r very high corporate positions. For instance, "Looking for a VP for Operations . Must be familiar with high-volume beverage production..." The requirements wo uld be so specialized that the only person who can possibly qualify is, surpris e surprise, the person who happens to run the competitor's plant! It doesn't end there. Chances are, the scheming company doesn't really need a n ew VP. They simply want to gather intelligence. So they'll offer an astronomica l salary and hope that the VP does show up. Once he does, the interviewer prete nds to be unimpressed, leading the hopeful VP to begin tossing in more and more information about the way his company works. The interviewer then starts askin g very specific questions, getting a rich pile of intelligence about the compet itor! And of course, the company never calls back. And the VP, defeated, never tells anybody about how he applied and failed. Moral of the story: Um, is there one? Well, perhaps the best moral for this is to take care of your employees. Because if they are not happy, then there is AL WAYS a way for someone else to get crucial information about your company.

Most Philippine companies treat salaries as confidential pieces of information. And there's good reason for this: for one thing, other companies will have a h arder time pirating your people if they don't know what their going rates are. But it's also possible that you're keeping employee salaries confidential becau se some employees get "special treatment" over others... and you're worried tha t if the others find out what that one pampered employee is getting, then they will start asking for more. I used to think that there was nothing wrong with this setup, until I saw my co lleague, Dr. Elvira Zamora, at work. While she was the Director of the Technolo gy Management Center of UP some years back, she made it a point that what every body gets per project was fully transparent. In other words, the staff knew wha t the consultants, and even what the managers, were getting. Nothing was kept s ecret. Rates were standard, and any bonuses and surpluses were distributed equa lly and openly among the entire group. That blew my mind. Most managers are embarrassed to disclose what they are gett ing, either because of the fear mentioned above, or simply because culturally, salary is supposed to be a taboo topic. Also, overpaid managers get a sense of guilt if people found out about their going rates. More so if they get to avail of "hidden" perks and benefits. But Dr. Zamora was laying everything out in the open. And the result was that t here was no such thing as an overpaid consultant or an underpaid staff member. The rates were very clear, and the transparency even became a motivation for th e people to try to achieve higher levels of performance to go up to higher pay brackets. It takes a tremendous amount of managerial confidence to pull off such a hat tr ick. And it's unlikely that bureaucratically-driven HR departments are willing to go for full disclosure. But full disclosure does have its advantages in buil ding organizational confidence and drive. It's certainly an option to try out f or small and medium-sized enterprises.

A decade or so ago, a new local foods company began a big advertising campaign, promising that "Coming soon, a whole new range of products" would be seen in the grocery shelves. They wanted to be everywhere, selling all things f rom catsup and condiments to canned fruits and packaged foods. And then silence. Nothing came out of this campaign. There was a bit too much ambition involved in that teaser ad. And while ambitio n is normally a good thing, reality has a way of being much less forgiving. Entering the market is a very tough task. So trying to enter the market with a LOT of products at once makes the task nearly impossible. This is because new c ompanies already have very limited resources as it is. So if you had a thousand pesos to spend on promotions, it makes more sense to focus that thousand pesos on just one product, rather than ending up with only a hundred little bucks ea ch for ten different ones. There are two obstacles involved in the above scenario. One, the market would b e suspicious of any new brand that comes out of the blue and brandishing a whol e army of items. And second, the retailers just won't let you get away with it. Retailers need assurance that you're a stable firm... and how can they have th is assurance if you have no track record to speak of? You'll be lucky to get on e product into their valuable shelf space. An entire army of products? Forget i t. You're better off focusing on just one product first. In military parlance, this is called the beachhead strategy. When invaders stor m a foreign land, the first thing that they have to do is to establish a beachh ead. The beachhead is a landing zone where they can concentrate all their milit ary firepower, effectively owning that tiny strip of land and making it their n ew logistical launchpad. Without a beachhead, attacking a foreign country can b e a nightmare since the invading army has no way to establish itself firmly on foreign ground. You can also call it a foot-in-the-door strategy, if you hate army talk. You fi rst need a way to get your foot in the door of your target... and then the rest of your body can eventually follow. Example: Toyota vs. Nissan. In the early 1970s, Toyota and Nissan were both struggling to penetrate the US market. Nissan's approach was to invade everywhere, establishing a network in m any states at the same time in an attempt to quickly create a nationwide presen ce. Toyota, on the other hand, decided to just enter the California market. Why? Be cause this was the biggest market, and it was effectively concentrated. It was the perfect beachhead location. Result? Nissan had a hard time promoting its cars because its resources became effectively diluted. Thus, there was minimal fanfare for its products in each o f its locations in the US. Toyota, on the other hand, was able to focus all of its promotional efforts on a relatively concentrated spot, resulting in a tremendous push for its products in the California market. And since California was a trendsetter among the US states, what worked in California was bound to attract attention elsewhere. So once Toyota had its foot in the door and conquered California, it then graduall y spread out to the other states as well. Application: If you have a company with a relatively small poo l of resources, you can't afford to go nationwide immediately. Your first step is to focus on your initial chosen market (preferably big enough to be a trends etter, such as Metro Manila or Cebu) and pour all of your resources here first. Once you've satisfactorily conquered the market, and then it is time to think of expanding nationwide. Now back to our story about that failed food company. If this firm really wante d to become the next Del Monte, saturating the market with a host of different products, the ideal way to do this, based on our above discussion, is to first get its foot into the retail door by focusing on one or one set of products fir st. Perhaps, say, condiments such as soy sauce and vinegar. Once it builds up a reputation with these products, then it manages to (1) build brand equity amon g the buyers, thus making it easier for them to consider any other products tha t the company comes out with, and (2) gives credibility to the company from the perspective of the retailers, making them likely to allow future products into their shelves as well.

Here's a strange proposition: you can find out what the state of the economy is by checking on the sales of branded hotdogs. Reason? When the economy goes down, certain foods that are at the border of bei ng staples and being indulgences will tend to be sacrificed. Among these are br anded hotdogs. And when the economy picks up once again, the market goes back to buying these items once more. Actually, it goes beyond just hotdogs. Among the first foods to go from the mar ket's diet would be ice cream. So what replaces these lopped off items? Well, for the broad DE market, it happ ens to be instant noodles. As income goes down, instant noodles replace hotdogs as merienda fare. And if one's economic condition becomes really crippling, then instant noodles end up being the staple food, replacing the need to buy real meats and fishes. Ouch. This goes back to the economic concept of inferior goods -- certain products en d up being purchased by the market to cut on costs. But once disposable income increases enough, the market actually goes back to buying these forsaken goods. And so hotdog sales pick up once more. So if you're selling a really cheap item that serves as a substitute for more e xpensive goods, you may be bound to get good sales during lean economic periods ... but brace yourself for when the economy gets better, since your market is b ound to go back to their higher-priced preferences. In which case you can play it safe by coming up with a broader portfolio of products, which include higher value goods for when the economy picks up.

Could it ever be wrong to offer too much quality to your market? It is. So if you're a perfectionist and you insist on offering nothing but the best to your customers all the time, read on. First of all, we're not saying that you shouldn't offer quality products and se rvices! Far from it! In fact, kudos to you if you have a quality orientation! But what we're saying is that there comes a point when offering too much qualit y no longer makes business sense. Case in point: Once upon a time, San Miguel's Magnolia was the top fruit juice provider in the market. Their tetra-brick drinks dominated the juice market and they were happy. One day, here comes a new entrant with an "inferior" (in San Miguel's perspecti ve) juice drink, named Zesto. At first, San Miguel scoffed because the re simply can be no way that the market would forego the high quality Magnolia drinks -- which had at least nine percent real fruit puree -- in favor of somet hing that was mostly water, sugar and food coloring. Surprise. The market opened up and embraced Zesto and, before long, Zesto becam e the number one juice drink in the market (despite Magnolia's protests when Ze sto boasted this fact in the papers in the early 1990s). What happened? Apparently, while there would be a loyal following for Magnolia' s juice drinks, the bigger chunk of the market didn't care about stuff such as puree content. Instead, they were concerned with the balance between affordable price and "quality" in terms of taste. Zesto tasted like juice... therefore it must be juice. Despite what the ingredients say. In this case, Magnolia was offering too much quality to the broad C and D marke ts. They couldn't care less about fruits in their drinks. So Magnolia floundere d on this demographic. Okay, the AB market perhaps still appreciated the Magnol ia bricks, but even this market saw erosion as more and more people felt happy enough with the cheaper substitute. Moral of the story? If you do want to pursue a purely quality orientation, then you will be better off focusing on an upscale market that can appreciate what you're doing. And if some competitor starts offering a cheap substitute with in ferior materials, you have no right to complain if the market opens up and a hu ge swarm of buyers flock to his door. Because by virtue of your insisting on a quality orientation, you are effectively saying that you do not intend to compe te in the broader markets anyway. Postscript: As you may know by now, San Miguel eventually gave up and launched its own lower-priced line of water-and-sugar fruit juices as well, under the Funchum brand. And today, this particular market is already swamped with brands from many different firms.

In our January/February issue, we talked about creativity as a strateg y. This becomes a particularly essential tool if you happen to be in the manufa cturing sector. Let's face it, almost all manufacturing is now being done in China (and soon, V ietnam) because of their cost and logistical advantages. China is aggressively attracting producers from all over the world, promising low costs and high prod uct quality. This means that if you are in the manufacturing sector, chances are that either you already face tough competition from Chinese imports, or you eventually wil l. So where does that leave you? The Philippines does not have cost advantages. La bor here is not exactly cheap when compared to that of other countries, and we even have disadvantages in utility costs. And we can't exactly compete in terms of quality because, after the quality-conscious 80s and 90s, quality is now ta ken as a given. Which leaves us with design as a product strategy. China and its ilk have advan tages in terms of volume manufacturing, so why not focus on high-value, high-sk ill production that requires not assembly lines, but careful attention to detai l and craftsmanship? This is where design comes in, because design goes hand in hand with craftsmanship. Our furniture sector is leading the way with this, incidentally. Our Januar y/February issue, for instance, featured Cebuano Kenneth Cobonpue who is n ow an international celebrity in furniture, and who is now preaching the gospel of design. We cannot compete when it comes to knock-down furniture because the re's Sweden and Thailand (and of course Taiwan and China) that can do these mor e efficiently. But when it comes to high value handcrafted furniture, then that 's where we can have a fighting chance. A design strategy means rapid progression and rapid turnover of ideas. It means having brilliant creative minds who can churn out interesting new designs to q uickly make previous designs obsolete... and therefore nullify any imitations t hat would eventually come out from manufacturing-strong countries and competito rs. See our story on Sapato de Manila (November/December 2 006).

Is your company hemorrhaging manpower? Do you have job positions that have seen different people filling their seats every couple of weeks? Are you getting ti red of giving the pink slip to people who are just not up to your standards? If you ever find yourself nodding in agreement, then the bad news is that there 's something wrong. And your employees are not the problem. Letting go of people is always expensive for business. It's expensive because i t means (1) the loss of company investments in training; (2) the loss of potent ial networks and linkages; and (3) the loss of time, which is probably the most valuable resource sacrificed, as you have to once again start from scratch and hire someone new and suspend your programs while you train for that position a ll over again. Ouch. Turnover is a two-way traffic problem. One, the people must fit well with the f irm. And two, the managers must do their part to make sure that the people fit in. MAKING THE PEOPLE FIT. High turnover can happen when new recruits neve r seem to fit into the company's standards in the first place. So the company e ventually fires them and assumes that it's the employees' fault for not living up to their standards. This argument would be understandable if firings are more of an exception than a rule. But if turnover is high, then it's a sign that it's the company's hirin g practices that are the problem. It's a sign that the company's hiring policie s have to be reassessed. After all, why hire someone in the first place if that person won't fit in anyway? You just end up wasting his time, and you end up w asting your company's time (and resources). Therefore, beef up your hiring policies. Make them tougher, stricter, and more rational as per your job requirements. Excellent companies are characterized by having really stringent hiring policies that ensure that only the best-fitting people enter the firm. MAKING MANAGERS DO THEIR PART. The other side of the coin is when the people are all competent... but it is the managers that end up making their liv es difficult. And this would lead to the high turnover. This is actually a more expensive problem than the earlier one because, if your hiring policies are tough and tight, then this means that you are losing VERY good people because of your managers. And that's a tragedy. The right way for managers to deal with quality employees is with mutual respec t. Many employees confess to resigning from their jobs because they do not feel respected as individuals, or that their managers have somehow made them feel i ncompetent. Which is unfortunate because, as we've established earlier, the fac t that these employees managed to enter the company in the first place should a lready vouch for their competence. So managers are also tools for reinforcement. Their job is not just to get thin gs done, but to treat their employees as investments -- making them grow in the ir jobs. And this includes boosting their confidence as well as their capabilit ies. If your company has a tightly-run screening function and managers who are inten t on making their employees grow, then you already have the recipe for a loyal and potentially powerhouse organization. Otherwise, well, expect your turnover to be high. And this means sacrificing the growth of your company as you bleed employees continuously.

A surprising number of MSME owners (micro, small and medium enterprises) tend t o rely on their credit cards when they end up being strapped for working capita l cash. The convenience that credit card cash advances offer may seem attractive at fir st glance. After all, these allow you to withdraw a substantial chunk of cash o n the spot and in a flash. No paperwork, no collateral, and that's that. Here's the problem: from a financing point of view, using cash advances is a se rious no-no. Why? Well, first of all you have to pay for the transaction fee, w hich may be as high as five percent of the loan amount. And since you only have about a month to use your quick loan, that translates to an interest rate of 5 percent a month, for an annual interest rate of roughly 60 percent! And if you decide to pay in installments, then you will be further subjected to the monthly finance charge, which at 3.5 percent a month (compounded monthly) comes to at least 50 percent per annum. By contrast, if you get yourself a pretty cozy credit line at a bank, you can g et a rate of 10 to 12 percent a year (less if you have a good credit history). Unfortunately, many SME owners are averse to dealing with banks because of the paperwork and requirements involved. But that's where revolving credit becomes useful -- do the paperwork just once and you will eventually have quick access to cash when needed. And if it means saving over 40 percent in interest payment s on your loan, then wouldn't that be worth the hassle of the paperwork? So avoid using your credit cards for cash loans. It just doesn't make good busi ness sense.

For the participants of our recent Manage your Business Advantage seminar, please note that the presentation materials are now available for download. Just click on the Download button above!