Outsourcing Non-Core Competencies?

Last week I was involved in a conversation which encouraged me to think about the outsourcing of non-core competencies. This particular conversation revolved around advertising, more specifically the design of posters, newsletters, brochures and other time sensitive marketing materials. The firm that formed the basis of the conversation has a diverse portfolio of businesses but no in-house designer. As a result most of the abovementioned materials are designed and produced by local graphic designers. On face value this seems like the sensible approach, given the increasing emphasis of ‘do what you do best’ strategies proposed throughout business press. However, like most things, one needs to dig a little deeper and place this pearl of wisdom within the context of the firm.

Graphic designers serve their purpose creating and publishing materials far and above the quality and creativity of a desktop publishing software system, I should know I am a web designer. This is why I was surprised that their firm was going to send this non-graphic designer to a short course focusing on graphic design. I questioned the motives of the firm and it was her reply that I found interesting. She explained that they often reuse materials for a couple of years or seasons and all they need to change are the dates, prices and other text information.

I know that even the smallest changes in a web site or piece of graphic design work are expensive. The designer must access the source files, re-orientate themselves with the previous work, make the changes, submit to the client for approval, and then complete the appropriate administration. For a small change the cost and commotion is enormous.

The diversified firm wanted to reduce these costs and time delays by bringing this service in-house. They did not want to hire a full time graphic design and their equipment but wanted to find a happy medium and not be at the mercy of their graphic designers when changes were required.

This conversation showed me that you need not apply business strategies blindly but rather explore the firm specific processes, constraints and requirements to see if the strategy is applicable. In this case it was not a black and white decision regarding the outsourcing of advertising but rather the degree to which it would provide the most value to the firm.

New Player in NZ Online Accommodation

Jason Travel Media have announced the deployment of a commission-free online accommodation booking application. The new system will benefit small operators as it streamlines allocating rooms to individual outlets or resellers. Last year Jason began online bookings through the acquisition of Holiday Guide and have been working on this current online application ever since.

If you familiar with Wotif.com, New Zealand's largest online booking system you will be asking yourself "How is Jasons offering different?"

Jasons, primarily a travel guide publisher, earns the majority of its revenue through advertising throughout its publication portfolio. Wotif.com on the other hand revenue stream comes from commissions and booking fees.

In the absence of commissions customers can change systems easily as the switching costs of doing so are low. Jasons content is rich in travel information drawing many more would-be holiday markers seeking not only accommodation but information relating to activities and transport within their destination region. This differs greatly from wotif.com which is simply a mechanism for booking discounted online accommodation. I think there are two questions to ask. (1) Will this difference in target market be distinct enough for for the systems to co-exist? (2) Will Jason's advertising revenue model work in the online accommodation booking space?

The ASICS Run 100 Miles in a Month Challenge

Today I signed up the ASICS Run 100 Miles in a Month Challenge. A few days ago I signed up to a free MapMyRun web application and after looking through a multitude of bells and whistles found the "Goals" section.

Goals are important both in personal life and in business, and with this in mind I decided to set myself one. I am not too sure if I have bitten off more than I can chew but I thought I would give it a go - I have nothing to loose! Maybe ASICS might even see this product placement and send me a free pair of shoes?

Major Government Intervention in Economy

The biggest government intervention in the New Zealand equity markets took place today blocking the Canadian Pension Plan's $1.7 billion bid for 40% of Auckland International Airport. Such a major government intervention begs the question "What economic system drives New Zealand?" Is it still a market economy, or are we moving towards a mixed economy? We are far from a mixed economy and I doubt that we will ever be one ... but its worth a thought. The Asian Tigers have showed that governments can pick winners and they have had a positive effect on their economies (pre 1997).

Government intervention is often justified if the market fails. This is why the government provides health care, justice, defence, education, roading and other social services and infrastructure. If left to the market these services are unlikely to be provided because of free riders, the difficulty in charging individuals, and the often uneconomic provision of merit goods. So what is the market failure that prompted the government to quash the CPP bid?

Activly Environmental

Today marked a turning point in my recycling / eco-friendly lifestyle. Up until now I have been recycling, composting, installing energy saving light bulbs and keeping the right amount of air in my tyres. But today I brought toilet paper made from recycled paper and eco-friendly dish washing liquid. There was not a great deal of price difference between these and their everyday equivalents so even on a student budget it was affordable.

As a student in Dunedin I can remember the uproar when 'user pays' rubbish collection commenced. We now had to pay for all our rubbish collection. At the same time the DCC also introduced recycling bins. Although some may think that students waste excessive amounts of money on alcohol and other luxuries this is not the case when it comes to rubbish collection. For this reasons students whole heartedly embraced recycling to decrease the cost of rubbish collection. It is probably for the same reason that students also install eco-friendly light bulbs ... it saves money!

I describe this as the turning point because I class the above mentioned measures as passive as they do not cost money or in the case of the light bulbs are a one off expense. It is only when one begins to choose everyday eco-friendly products that one turns the corner towards active eco-friendly, sustainable practices.

How does this relate to business? I can think of two paths to walk; supply side or demand side. In today's post I am more interested in the supply side or production path even though I really enjoy the demand side branding of the Ecostore product that I purchased (maybe a future post?)

The press often portrays business and environmental practices as mutually exclusive but when it comes to energy conversation this is not true. If businesses can reduce their energy costs through decreased consumption then this is a win-win situation.

Businesses should embrace the initiatives publicised by the multitude of eco-worrier groups aimed at individuals to practise energy conservation. These savings transmit to the bottom line - what is there to loose ... nothing!

NZ / China - Free Trade Agreement

After 15 rounds over the past three years a Free Trade Agreement (FTA) was signed between New Zealand and China on 7th April 2008. As a proponent of Free Trade I welcome the agreement.

Over the coming weeks I will delve a little deeper into international trade, FTA, and what this means for New Zealand consumers and business. Read below for a little of the ideology.

A Free Trade Agreement (FTA) involves the elimination or reduction of tariffs agreed upon by the member countries.

Trade Creation and Trade Diversion

The most obvious advantage of an FTA is that the economies exports can enter its FTA partner’s economy without tariffs having to be paid. Whether or not a nation experiences an increase or decrease in welfare due to the elimination of its own tariffs largely depends on the extent of trade creation and trade diversion.
Trade creation relates to the increased quantity of imports due to the elimination of tariffs on imports from member nations. As well as consumers receiving cheaper imported goods, the increase in imports also leads to a reallocation of resources away from the production of goods that the nation is relatively less efficient in producing favoring output in which they have a comparative advantage. Thus trade creation increases the efficiency of resource allocation.

Trade diversion arises when the formation of an FTA causes imports to be sourced from a member country that is not the worlds lowest cost producer. This reduces efficiency.

Free trade relationships that do not involve New Zealand can still impact on New Zealand’s economy. New Zealand may be at a price disadvantage if competing in markets where the competition has a FTA.

Both Winners and Losers

Although benefits from trade are received by a country they are not distributed evenly amongst it. Those who work or own the industries that we are relatively inefficient in comparison to China, such as textiles and manufacturing and textiles, will suffer the most while those in the efficient industries of agriculture will benefit the most. It is here that we should pause and think about the effect that this has on New Zealand's largest exporter, Fonterra. The Dairy industry has averaged NZ$363 million of export over the few years, of which Fonterra accounts for 95%. Knowing that they have a lot to gain from these tariff phase outs. However, China still has some mechanisms to delay reductions if exports exceed a certain quantity but this is still better than the current situation.

If you are an export then try the Tariff Finder to see how you will be affected.

Public officials must weigh up the gains and losses. One way would be to help displaced workers by offering retaining subsidies and relocation grants. Will the government help these displaced workers ... I guess only time will tell.

Selling Ice to Eskimos - The Business of Water

Last week I found myself in a second hand shop in Milton and discovered a soda siphon. Frosted onto the glass was its maker, Lanes Ltd, and its description, Gold Metal Aerated Water. Given the proliferation of packaged watered it lead me to ask - What is the story behind bottled water?

After a little internet surfing I found that sparkling mineral water or “fizzy water” was first machine made during the seventeenth century when an English reverend Rev Joseph Priestly applied carbonic acid to pressured water. The benefits of natural mineral water had long been associated with good health and finally the production of such an elixir was one step closer to reality.

Three years later in 1771 a Swedish chemist, Tobern Bergman, fabricated a machine to facilitate the commercialization of this process but was unsuccessful. It was not until 1790 that a feasible production process was conceived by German Jacob Schweppe, a name synonymous with carbonation.

Amazingly enough I discovered that the oldest bottled water company in the world is a New Zealand one, Waiwera Infinity established in 1875. They are still at the top of their game being named best water by Decanter in the UK and also best bottle design at a design competition in Italy in 2006. Unfortunately I was unable to find much information on Lanes Ltd (except for another soda siphon on Trademe) so there ends a brief history of water.

How did drinking water become so trendy? Perhaps the need to drink eight glasses a day, a fact ingrained in my generation, is what water marketers are tapping into?

New Zealanders drink (still looking for the statistic ... help?) of bottled water a year.

What is the difference between bottled water and tap water? Apparently not much, at least in the US. Both Coke and Pepsi main stream water brands are nothing more than packaged municipal water. It’s hard to believe isn’t it? Is this the case in New Zealand also? Where does PUMP water come from?

However, most New Zealand tap water does not taste the same as its bottled equivalent. Added chlorine and little bubbles that produce a murky appearance mean that there is a difference. Is this difference worth the premium we are paying?

An emergence of premium waters is taking place, especially in restaurants. New Zealand brands Antipodes and Mt Pisa and are fetching up to $10 for 750ml at our trendiest spots. Perhaps it is an attempt to compete with the world wide water tycoons Evian and San Pellegrino which have featured for years on wine lists. It is has never been more trendy or acceptable to drink water, especially premium priced New Zealand water. Claridges Hotel, London, sell 42 Below Volcanic water for 21 pounds for 420 ml!

Ten dollars may sound extravagant but cult waters are surfacing. Bling H20, a Hollywood accessory, sells its water online for around $20 - $40 depending on design and how many Swarovski crystals are stuck to the bottle. Triple this and this is what you can expect to pay at an A list venue.

One can not deny to marketability of water as given that Aquaplus specializes in branding water for your organization.

What impact is all this having on our environment and landfills? Opinions vary. Gary Hemphill, a New York marketing executive, splits the water market into ‘water replacement’ and ‘refreshment’ segments. Obviously tap water replacement business means more plastic in landfills. On the other hand, refreshment consumer at the drinks cabinet, are making a health choice not an environmental one as most refreshment products are packaged in plastic bottles. Ceteris paribus, buying water is not creating more rubbish but different rubbish. But all things are never the same and are the health benefits increasing refreshment purchases?

One blog I read suggested that tap water is going to come back into favour as the world rethinks the environmental impact of what we consume. Lately I have found myself buying more sparkling than still water as a refreshment purchase. I am proud to say that it is New Zealand water that I drink.

The marketers of water are doing a great job and the adage of selling ice to Eskimos holds true in this industry as we are sold something that we already have in abundance.

Brian Richards - Branding

As I think about the direction for my Master of Entrepreneurship thesis the more I am drawn to branding. I looked through what I had learned in the past and found some notes that I had written after hearing Brian Richards speak. Here they are.

“These unshaped islands on the sawyer’s bench, waiting for the chisel of the mind” - James K Baxter

In the past as economic times get tough New Zealand has taken the easy road. Although it made sense in the time we simply expanded production in the area that we were good at, namely agriculture. We built bigger freezing works and farmed more sheep. This is unsustainable – it is time to add value to the things that we do good, to make the things we do great!

In the past we have been a low cost producer but this cannot last as developing countries begin to undercut our prices. We need to focus on the New Zealand brand and tell a story to entice consumers with the attributes our country possesses. We are unaffected, honest, open, young, active and fresh.

We must first understand who we are and what it is to be a New Zealander. Why are our most successful domestic winemakers named Montana, a dry state in America, and Villa Maria, a name derived from Spanish, Cloudy Bay is evocative of New Zealand but Verve Clicquot, a French company owns it.

Branding attempts to bridge the gap between what one needs and what one wants. A Jaguar is technically inferior to many other automobiles but commands a price premium over other cars. People are in love with the story of Jaguar and the way it makes you feel as you sit in the cockpit. We assume that the wheels will turn and the breaks will work, our needs, so it is our senses and our heart that make the decision for us.

Marketers will tell you that you need four ingredients for a successful product: differentiation, relevance, esteem and knowledge. This is true. It is the focus on these elements that is often misguided. By knowledge we mean that everyone knows about the product. That’s well and fine but at the crunch when the advertising dollars have dried up it is esteem and the affection that consumers place on a product that will sell it, not knowledge that the product exists.

We need to be storytellers. The advent of mathematics has advanced society greatly without which we would have no building, no computers and very little consumables. The downside of this is that it has restricted our creativity and way of thinking. Now, greater than ever, products are becoming similar and we need to touch the hearts and emotions of people. We need them to want our product and the feeling consumption of it brings.

Otago University - 28/07/06

Branding To New Heights - Virgle

Virgle ... the merging of two brands that attempt to personify generation X & Y are launching a quest to inhabit other planets in our solar system, starting with Mars. All you need to do is submit your 30 second video (to the Google owned) YouTube on why you should become a Virgle Pioneer.

Perhaps Sir Richard Branson is trying to highlight issues of global warming or maybe Virgin and Google are trying to establish some sort of 'NASA Youth' program to relight humans desire to explore? More likely it is another media stunt so these brands remain on our minds and positioned as more exciting than there respective competitors.