Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

How are you dealing with long tail in your business 2

875 views

Published on

Costly mistakes are not necessarily made in complex terrain. Repeatedly, we find that
organizations make simple decision making errors that have catastrophic impact on their
businesses. This caselet, gives a glimpse of such a simplistic error, that is not uncommon. It
then, tends to expose a larger issue of ignoring industry characteristics, when crucial
decisions are made.
Longtail is such a characteristics (phenomenon) in most of the organizations that have a
portfolio of offerings to deal with. Surprisingly, most of the managers feel that it is solvable
only in digital domain. An introduction to the phenomenon is also a part of this caselet. Just
on the way is also a sequel to this caselet that provides direction to the solution in dealing
with Long Tail from strategic and operational point of view.

Published in: Business
  • Be the first to comment

  • Be the first to like this

How are you dealing with long tail in your business 2

  1. 1. How are you Dealing with Long Tail in your Business ? Dr. Shridhar Lolla CVMark Consulting lolla@cvmark.comDraft 2.0May 2011,Vikroli, Mumbai, INDIAKey words: Long Tail, Business Model, Effect Cause Effect, Business Logic, Measurement, BusinessImprovements, Business Model Canvas, organizational thinking, simplicity, performance Improvement,Thinking Capabilities, focused execution, business rules, business fundamentals, built to last, BHAG________________________________________________________________________Costly mistakes are not necessarily made in complex terrain. Repeatedly, we find thatorganizations make simple decision making errors that have catastrophic impact on theirbusinesses. This caselet, gives a glimpse of such a simplistic error, that is not uncommon. Itthen, tends to expose a larger issue of ignoring industry characteristics, when crucialdecisions are made.Longtail is such a characteristics (phenomenon) in most of the organizations that have aportfolio of offerings to deal with. Surprisingly, most of the managers feel that it is solvableonly in digital domain. An introduction to the phenomenon is also a part of this caselet. Juston the way is also a sequel to this caselet that provides direction to the solution in dealingwith Long Tail from strategic and operational point of view.Copyright © 2011, CVMark Consulting, All rights reserved. 1
  2. 2. How are you Dealing with Long Tail in your Business ?“Thank you very much and wish you all the best,” I said, as I snapped out the Video Displaychord and begun shutting down my laptop. I looked at Prasad and he walked towards me.The QnA session of the ‘Operational Centric Business Models’ ran for almost 40 minutesand the audience was not yet in a mood to stop shooting out queries. Prasad had to power-stop the session.Nobody was moving out of their seats; probably they were waiting for Prasad’sannouncement.Prasad shook my hands and said, “This was a powerful session, and the audience just likedit. Thank you Sir.”I said, “Thanks to you too Prasad, for bringing this participative and engaged group ofexecutives…. Let’s move now.”Prasad then turned towards the 30 odd executives and made announcement for the schedulefor the next month workshop.He then turned back and said, “ I am sorry, I could not inform you earlier. A gentlemanwants to meet you, before we drive back to Airport.”I said wearily, “Prasad ! I am already exhausted and you know that I run on low energyinventory. Also, there is not much time left for the flight, we need to rush.”Prasad said, “ Yes Sir, but this gentleman came from no where, and entered the session inthe afternoon only to meet you. Seems like an interesting case. Here, he is coming.”As I turned my head, I saw a stout gentleman, wearing grey color suit, almost rolling intome with both hands extended. Before, I could realize, he had pulled my right hand, shook itand said, “Sir, I am very happy to meet you. I wanted to meet you for many days, ever sincemy colleagues told me about you.”He waved his hands to some people in the hall to join us.“Sir, this is my management team. They had attended your workshop a few months back inBangalore and tried to do something. I wanted your help to guide us through what we aredoing,” words just rolled out of his lips.“ Nice to meet you. Why do not we meet next month, when we have the extendedworkshop?” I said.Copyright © 2011, CVMark Consulting, All rights reserved. 2
  3. 3. “Sir, if you could permit, I would like to talk to you briefly. We are facing a problem and weare probably missing something stupid. If you permit…”, He folded his both hands.I felt embarrassed and looked at Prasad. Prasad murmured into my ears, “ Sir, he is aprominent businessman out here. If you do not mind, let him join along to the airport.”Puzzled, I said, “OK.”I picked up my laptop and started walking down the aisle, while Prasad murmured in theears of the gentleman and pulled his hand along to walk with me.As we stepped out of the building, Prasad’s black Toyota Camry was waiting at the porch.He requested us to sit in the back seat comfortably, asked his driver to take leave and sethimself on the wheels. The gentleman’s colleague settled himself next to Prasad.The gentleman again held my right hand and slipped in a card. It was his visiting card thatread, Jayesh Patel, Managing Director, PureHealth Group of Companies. He introducedhimself, “Sir, I am Jayesh and he is my CEO, Arun.”The gentleman seating in the front, extended a hand shake and passed on his visiting card.Jayesh, then looked into my eyes and said, “Sir, we are a medium to large specializedNeutraceutical organization based out of Mumbai. We suddenly realize that the market isgetting crowded much earlier than we thought it would; and we are in the trouble of gradualerosion of our competitiveness.”He continued, “It is important for us to sharpen our competitiveness so that we could holdour leadership position in the market. What do you say Arun Bhai?”Arun looked back and said, “True Sir, and it became very clear to us once we attended yourworkshop in Bangalore last quarter, that when innovation in new products is no more anadvantage, we need to make operational strategy drive our competitive edge.”I murmured looking at Arun, “ I see.”Arun took out his seat belt and almost sat across on his seat. I tried to see Prasad’sexpressions, but could not succeed.Arun then said, “As you said once, speed at which things are done, is the foundation of anyoperation. And speed is a very potent weapon to build competitiveness in an ever changingmarket conditions. We decided to build a capability to respond to the market needs muchfaster than any of our competitors.”He continued, “If this competitive edge could become decisive enough, such that it wouldbe difficult for the competitors to replicate quickly, it would not only help us in protectingCopyright © 2011, CVMark Consulting, All rights reserved. 3
  4. 4. our current market position and in retaining clients, it will also allow us in snatchinginvaluable opportunities. Actually, several opportunities come on our way regularly, tosupply short time deliveries to the market, but seldom we are able to take advantage of.”I listened, still struggling to sense the problem. I then realized that perhaps the guys weretrying to describe a situation.Arun continued, “We therefore chose, ‘Response Time’ as the key indicator for ouroperations. Where, Response Time is defined as the time between creation of a customerorder to the moment it is delivered to the customer. This is same as you define, Lead Time.”Jayesh, looked at him and said, “Let me explain, how my team explained this to me.”“They said that the average industry Response Time (the generally quoted Response Time)for a customer order is around 60 days. And most of the players would agree to supply tothis Response Time. However, the OTIF (On Time In Full, a measure of fulfilling an order)of the industry has been very poor and there are compromises made by both clients andsuppliers. This has only led to creation of artificial safety factors to buffer the variability(inefficiency) in demand and supply, and as a consequence, its impact appears insignificantly inflated prices of products.” He spoke out almost in one breath.Gasping for his breath, he looked at me if I understood. I nodded.Arun took from here, and said, “Now beyond these problems, often, there are requirementsfrom the clients (more often than what our intuition would tell us) for shorter than 60 daysresponse time, because of various urgencies and Murphies prevailing in the system. Now allthese are triggered by the ‘rapidly changing’ (diversity and variability) nature of the market,which makes the current method of operations based on long term forecasting increasinglyunreliable. And therefore, if ‘speed’ with which an organization can respond to change isimproved, it has a better chance of competing in the market.” Probably, he wanted to bringforth the issues in operations.He asked me, “Isn’t the logic correct Sir.”I said smilingly, “Absolutely, you are bang on target !”Gaining confidence, Arun said, “So, we made a decision to choose Response Time as thekey indicator for the organization, which made performance of operations, including plants,to be measured in terms of their Response Time.”Gesturing with his hands, he said, “ We also learnt that, it is very important that when theoverall strategy of the plant depends heavily on its operational strategy, the goals must beunambiguous and specific. It was therefore, important that the goal is Big, Hairy andAmbitious (BHAG [1]), so that it gets due attention and is worth rallying organizationalong. The organization, thus, took the target to cut down the Response Time to 30 days. “[1] BHAG: as defined by James Collins and Jerry PorrasCopyright © 2011, CVMark Consulting, All rights reserved. 4
  5. 5. “Wow!”, I exclaimed.He paused. Jayesh picked up from there, and said, “We had never taken a BHAG earlier.And it is not built in our DNA to go through a transformational change that is needed toachieve the goal.”Suddenly he switched the context and said, “Traditionally, in this industry, there is atendency to look at top 10% products that contribute the maximum volume of thecompany’s supplies, and hinge big decisions (read ‘strategy’) on their impact on these top10% products.”He explained, “For example, when volume of top 10% products grows by 10%, their impacton overall sales and profitability is disproportionately higher, compared to the effort madeon these products. Thus, within corporate strategy, there is often a tendency to give aninordinate attention to these products in asset, resource and time allocation. In fact, often,future expansion strategies are guided by top 10% products. As a normal practice, wetherefore, decided to attack top 10% products and reduce their Response Time. Bytraditional logic, it should ultimately reduce overall Response Time of the organization.This is also thought prudent , in order to prevent exhausting too many valuable resources tooearly. “I did not feel to object his logic.Arun explained further, “Our team, then broke down the Response Time of the value chaininto tiniest parts, installed demonstrated operational management systems, placed ameasurement system and institutionalized a review mechanism to execute its vision forbuilding a decisive competitive edge based on shorter response time.”Both the gentlemen passed for a while looking at each other. Jayesh wiped his face withboth hands, took a deep breath and said, “It is 4 months, since we began this project, withfull fan fare. Surprisingly, the Response Time of the organization has not moved down evenmarginally, rather it’s gone up. This has left the team shocked and forced us to check ourassumptions.”Arun said, “Jayesh Bhai, we have not stopped our project yet.”Jayesh then said, “Yes, but we are not yet sure what has gone wrong? Why do we not seesignificant improvement in our overall Response Time. And Sir, this is the problem, Iwanted to talk with you and have your guidance in steering us through.”I thought, “For those, who are used to systematic analysis, it is easy to see through theholes.” But I did not wish to trivialize the core problem, just based on the available briefdescription of the situation. There must be more to it than it seemed.Copyright © 2011, CVMark Consulting, All rights reserved. 5
  6. 6. My cell phone buzzed, and I looked at it, it was an SMS from the Airlines. It said that myflight is late by 40 minutes.I told the gentlemen to get into a bit more details. Ajay, opened up his laptop and took methorough their corporate presentation, their strategy and the portfolio of improvementprojects. They showed me everything they could, but did not show what I was looking for“their Business Model Canvas [2,3].” Though the visualization of their business model wasbecoming clearer in my mind, I was not sure if they have constructed the model in theirminds. Any way, I thought that it was not going to be a show stopper, for the current scopeof the problem.[2] http://www.cvmark.com/blog/?p=26[3] www.businessmodelgeneration.com/We reached airport much before the adjusted scheduled time. We moved into a Lounge andspread ourselves around a table. The distribution data of product-wise margins took myattention. I then snapped the spreadsheet on Arun’s Laptop and converted it into a chart tovisualize the distribution of their products in terms of margins. What we saw was anamazingly sharp Long Tail.Figure 1: Longtail Characteristics in NeutraceuticalsI opened up my notes and said, “Jayesh Bhai, the business of Neutraceuticals, as you havedescribed and as your data represent, has a typical supply (demand) distributioncharacteristics. For your organization, just a few products of its portfolio account for largemargins. This is not a 80:20 phenomenon, rather a more skewed phenomenon, which ChrisAnderson [4] called as ‘Long Tail’.“[4] http://www.thelongtail.com/Copyright © 2011, CVMark Consulting, All rights reserved. 6
  7. 7. “Do you know Long Tail?” I asked Arun.He said, “Yes, but that is related to digital media.”“Oh, yes most of the work on Long Tail is in digital media. But here is another case of LongTail and perhaps, ignoring this characteristics and trying to solve any problem in yourbusiness may not yield the desired result,” I said, pulling back myself on the chair.Both Jayesh and Arun looked dumb struck.Jayesh said, “So what if it is a Long Tail.”I said, “ Long Tail phenomenon actually divides the organization into two logical parts;unless care is taken and business model of the organization is aligned to this characteristics,it will create significant disruptions not only into operations but also into key strategicdecisions.”Arun said, “Yes, I understand.”Jayesh asked, “What do you mean?”“Actually …our strategy to handle Head and Tail has to be different.” Arun fumbled.Jayesh kept staring at me.I had no option but to get into basics.I quickly sketched the Long Tail curve in my notebook. I shaded the Area under the Headand marked it with an encircled letter ‘A’. Similarly, I marked the area under the Tail withan encircled letter ‘B’. And then said, “Look at this, the opportunity under the top 10%products (Head) is area A and the opportunity under the Tail is area B. And pay attentionhere! The area B is not too small compared to area A, rather it is comparable.”“Oh !”, exclaimed Jayesh in surprise.“Now if you tend to build a fixed strategy for your organization purely based on top 10%products, you are designing yourself to loose the opportunity under the Tail.” I said.Immediately, Arun opened up his pain point, “More importantly, there is constant conflictsin operations about the extent to which top 10% products be given priority, while otherproducts go on screaming.”Copyright © 2011, CVMark Consulting, All rights reserved. 7
  8. 8. Figure B: Long Tail Characteristics tells that there is BIG enough opportunity even underthe tailOf course, I was prompted to ask, why would somebody need to get into such a business.Asking such a question would only mean to ignore the real issue. The fact is that Long Tailis the inherent characteristics of the PureHealth’s business, where, often, highly profitableproducts will not sell if lowly profitable (and some time lossy) ones are not supplied along.I brought them back to the original point of discussion by saying, “As we see, less than 10%of the company’s products have significantly higher margins. Hence, it might seem logicalto concentrate on these products to start with.”“Now, under initial condition, i.e. 4 months back, the Response Time was 60 days. Let’sbreak the Response Time vertically, into 10:90 percent products,” saying this, I looked atArun.Arun took the data of client orders for the period preceding implementation of new practiceand quickly got following results:Table-1: Breakup of Response Time, between head and tail products (Initial Condition) Products Response Time, days 100% 60 Top 10% 30 Bottom 90% 63Copyright © 2011, CVMark Consulting, All rights reserved. 8
  9. 9. I then said, “So when we look at the Response Time, we realize that Response Time of thetop 10% products is 30 days, while that of the bottom 90% products is 63 days.”Arun also showed the data as the implementation progressed.Looking at the results, I said, “Now when based on the principle of dissociation, focus wasincreased on top 10% products; the team did exemplary well and the Response Time ofthese products was reduced by 25% to 23 days.”And then continued, “But since the organization Response Time is dominated by ordersfrom the bottom 90% products, the improvement on overall Response Time of theorganization did not improve much. Which means that the impact of long tail on ResponseTime is much much bigger than the impact of top 10% products. “ I then constructed thefollowing data Table.Table-1: Breakup of Response Time, between head and tail products (After Initiative) Products Response Time, days 100% 65 Top 10% 23 Bottom 90% 79And said, “Further, since the decision to improve Response Time of top 10% products led toincreased focus on them, and since, these products shared common facility with long tailproducts, the Response Time of long tail fell down. The overall impact was, therefore toelongate the Response Time significantly. Thus, the Response Time actually worsened.”This clearly brought out the operational conflicts the gentlemen were struggling with.I looked at Jayesh, he was looking tense. This was really a tough situation to be into, whenyou have rolled out a transformational initiative, set a BHAG, and chosen Response Time asthe key measurement, and most importantly, rolled it out across the organization and startedappraising people on the overall performance of the organization.He said after a while, “Now it looks a very trivial problem, which was the failure to clearlylink the scope of actions to that of the expected impact. Surprisingly, in the grind of day today work, we succumb to make this type of basic error.”Jayesh continued, “Of course, the logic that if Response Time of top 10% productsimproves, overall Response Time of the organization would improve; is not analogous to thecause-effect logic of ‘if sales of top 10% products improves, the overall sales growssignificantly.’”He then looked at Arun and said, “Arun Bhai, actually, the problem is not just linked to thealignment of the scope of cause and that of expected effect. The real point now is, how dowe deal with Long Tail in our business. And therefore, the question is, ‘What is theCopyright © 2011, CVMark Consulting, All rights reserved. 9
  10. 10. operational strategy best suited to continue making money from the Head i.e. top 10%products, while simultaneously exploit the BIG opportunity lying under the Long Tail.’”Prasad interrupted, “Sir, your flight is boarding.”I looked at him, kept my notebook back into the bag and got up. Quickly, shaking handswith Jayesh and Arun, I said, “Gentlemen, I must move. I hope to meet you next month anddo let me know your ideas on dealing with the Long Tail.”I shook hands with Prasad and he walked with me to the security check, before I bid himgoodbye and gestured to talk on cell phone.------ReflectionsIn the above description of the situation, was setting an overall plant target, while focusingon top 10% products was wrong purely from measurement perspective, or something else?Do you find businesses taking ‘one rule fits all’ decisions by ignoring Long Tailcharacteristics? How do we deal with LongTail, or rather, does Long Tail phenomenon giveus a reason to tweak improvement tactics?Do you have an experience to share?…………….To learn : how to model your operations, in order to make best of the Head and Tail of yourproduct margin distribution curve, follow the author at http://www.cvmark.com/blog/ forthe sequel to this article, or write him at lolla@cvmark.com.Clet:11-27Copyright © 2011, CVMark Consulting, All rights reserved. 10

×