Supply chain – a key aspect of Good Growth
Last year I did something I suspect I will never do again in my life.
I took a shower in an aeroplane. It was amazing to step off the plane in London properly scrubbed and ready for action. All on the back of some quality sleep in my bedroom-cubicle type thing with an ensuite bathroom.
The plane was an A380 – that massive double decker behemoth that this week ceased production due to lack of demand. I’m kind of sad but not sad.
Being on an A380 always felt a bit like being on an ark to me – it was so big you could imagine living on it whilst far below the environmental apocalypse came and went. The plane itself quite possibly would have caused that apocalypse, it is a testament to peak globalisation – carting vast numbers of people across continents whilst burning eye watering amounts of fuel and emitting who knows what into the atmosphere.
The A380 is no more because there’s not enough demand and it’s too fuel inefficient. There doesn’t appear to be a second hand market for it either – which goes a long way to explaining its demise after just 14 years compared to the 50-and-still-going-strong that the 747 has clocked up.
The A380 is a superjumbo product from a superjumbo business – Airbus. Brought into the world to be as big as it could be, to capture as much share as possible, no matter how adverse the economics of gigantic planes.
Airbus is somewhat rare in being a European super company – a mega business created from numerous collaborations in order to be able to compete against other mega businesses, mostly Boeing. It was thought that Europe needed a mega-champion to punch its weight in a world of very big businesses – that to compete effectively in some industries it was important to be really big, even if that meant creating a near-monopoly.
This week a similar plan to create a European champion – or Railbus – by merging Siemens and Alstom was nixed by the competition commissioner Margrethe Vestager for the opposite reason. It was more important to avoid the creation of monopolies than to create another mega-business for a mega-world (in this case to go up against the Chinese version).
This has not gone down too well in French and German circles, where many subscribed to the view that size really mattered. “If we want to be able to face competition with Chinese giants, we have to gather the European forces,” Bruno Le Maire, the French economy minister, told the FT last year.
Monopolies – rarely a good thing
Fans of exponential growth such as Peter Thiel like monopolies. To him they’re a good thing – an indication of providing real value. Google is successful and valuable because it’s so big. It’s an example of a good monopoly in that it isn’t a rent seeker. To survive it has to keep innovating.
But it’s all too easy for monopolies to be rent seekers. They have a vested interest in incumbency. They don’t have to pay much attention to what customers want (or need) to survive. They can treat suppliers like crap. They have too much power. It’s very hard for them to do good.
Which is why in forming the Good Growth approach we are very keen to ensure that monopolies are taken out of the supply chain. When monopolies in the supply chain wield too much power – producers suffer.
Monopolies are a by product of this dash for growth that I’ve been banging on about. They are a consequence of the idea that big is beautiful, that growth means ‘get big’. But is it not time to reclaim the word ‘growth’? To recognise that ‘growth’ does not necessarily mean increase in size? That growth can mean increase in value? For everyone….that growth can be good.
We think that growth can be pursued in a way which delivers value to everyone, and in so doing creates positive impact for producers. That this can be designed in from the start. A key part of this is to reject the “get big at all costs” approach that results in damaging (and potentially destructive) monopolies, instead to focus on a growth path that delivers impact and commercial value in lockstep:
In other words recognise that size – in and of itself – does not necessarily deliver value. And that pursuing a growth path that recognises that value is created by meeting needs – customer needs, producer needs, investor needs.
That seems to be what’s happening in the airline industry….smaller, more efficient planes are what’s required, what needed, what’s valued. Ditto in food retailing – about the same time as the A380 was deemed a good idea most supermarkets developed an obsession for big, out of town, boxes. Cavernous warehouses masquerading as shops – now empty mausoleums to the pursuit of scale.
Today it will be announced that Honda is going to shut its plant in Swindon. That will cost a lot of jobs of course but indirectly it will wreak havoc on the supply chain that has grown up to serve that plant. Within the Swindon area that Honda plant was pretty much a monopoly as far as those suppliers are concerned — their livelihoods depended on it.
Which means their survival depended on it.
Structuring supply chains to the benefit of all
This asymmetry of power in supply chains is a massive problem. In agriculture especially it causes untold damage – economically, socially, environmentally. Industrialisation and monoculture drive out craft, turn farmers into labourers, and create real risk of poverty. A decision to switch production (say when Kraft/Cadbury swapped out the chocolate producers for Green and Blacks) can devastate a community.
When we set out to design a better approach to growth, one that hard wired ‘doing good’ into the business, we realised that to succeed we had to address both how investment worked, and how supply chains were structured and valued within the business model. Treating supply chains as a cost to be managed creates the monopolies that lead to social and environmental ills at the producer end.
Which is why the Good Growth approach adopts supply chain structuring as one of the five key pillars of how we work. Business can (and should) be designed in away that treats the supply chain as a source of value – economic, brand, impact value. More on the others soon.