Strange times are upon us. Creative destruction has been turbocharged. The downturn is coming and is manifesting itself in various forms. But, there is also a sea of opportunity in front of us all. For when there is change, there is opportunity. Firms can emerge from the rubble having reconstructed and strengthened. The irrational status quo, the defenders of old ways of working and unable to embrace technology, do not deal with turmoil and change well. This is good.
At DeepStream we took swift – and positive – action. Our financial position is strong, with a loyal client base, and all employees and contractors were fully prepared for working from home and had everything they needed to do so.
Many of our clients were not only getting hit by COVID-19 related issues, but also were in the energy sector, and with oil getting hammered, were feeling some extra pain.
Fast forward a month and 2 big wins
Whilst there has been some negative paralysis from target clients (“I just can’t do anything right now because of COVID-19” type blanket answers), the positives have far outweighed the negatives – we have seen a strong uptick in inbound inquiries from target companies.
It definitely feels like the recent turmoil is shaking the industry in a way that was forcing the supply chain to be more efficient – specifically around reducing costs in the system. Lean digital technology is the fastest way to achieve this, and without entrenched “blockers” thinking the old way is the best way, adoption has accelerated.
We are seeing the current forcing a material re-alignment in how traditional enterprises are viewing digitalisation within the supply chain – and these are the reasons why.
1. Cultural behaviour has changed – quickly
Digitisation is being forced upon everyone – within a matter of weeks, barring a few of us we have all been required to work from home. This has meant that meetings have been moved over to video conferencing, pen and paper effectively scrapped for getting agreements in place, e-signatures streamlined. On-premise software has been a pain to use. Cloud software has been a breeze.
The world which lean technology was built for has become a reality for the enterprise – and for all users, with less technology savvy workers required to adopt it as it is the only way to keep going. And guess what – it has been totally fine. Better than fine! We have realised we do not need stamps, fax machines, printers and handshakes to keep business going.
2. Opportunistic re-tendering activity to suppliers increased
Costs have come to the fore for most, if not all, companies. Given that ~50% of total costs for industrial corporates runs through the supply chain, this has been a massive area of focus.
With the downturn, buyers have had to reduce costs and suppliers have had to get leaner and fight for business. Buyers have seen this as an opportunity to go out for more business, getting better terms for the cash they have.
Furthermore, whilst having a small supplier base that costs you on average +15% in cost vs. a truly wide and competitive supplier base has been OK during good times – no longer. Buyers are re-tendering out to more suppliers to get the best terms.
3. A 9 month+ implementation cycle for software is just ridiculous
Cost comes in various forms. One of those forms is time. With an implementation of 9-18 months, traditional enterprise software has not been delivering in this area, and been getting away with a bloated implementation schedule for too long (ignoring the fact that, if you need 9 months to get trained up to use software, it is extremely unlikely to be the most intuitive software out there…).
Seeking a solution to an immediate, fast moving problem – waiting over 9 months to see results can be fatal for a firm. Particularly now, with the availability of lean, slick, agile technology that gets started delivering value within a matter of weeks. Buyers are – quite rightly – scouting around for the best solution.
4. Enterprise software should not set a company back $ millions
Again, cost sensitivity has increased, moving enterprises away from the software companies that have 70% of their costs in expensive grey haired sales guys, and towards the leaner agile technology companies that deliver agile technology and lead with their product.
The luxury of being able to spend $20mm+ per annum implementing software that not only does not deliver but also other providers can deliver on the pain points at a fraction of the price, is over.
Don’t believe me? At random I was flicking through Saipems annual report, EUR 23mm were spent in 2018 on SAP Implementation… (Source: Saipem ANNUAL REPORT 2018, PDF page 156). And if you think this is a one-off… check out the 2017 annual report…
5. The supply chain is “contracting”
The “supply chain” is just the interaction between multiple businesses in contracting for goods and services (and the delivery of such goods and services). This process is theoretically very simple, but in practice bloated with many participants that often trade if information asymmetry. Furthermore, engagements are overcomplicated by controllers of the process. All of this (an “extension” of the supply chain) adds costs in the process. These costs are ultimately passed on to the end buyers, and suppliers who are the actual purchasers and suppliers of goods and services.
Contracting the supply chain reduces these costs. Given that the largest source of indirect costs within the supply chain is information asymmetry, technology solutions which reduce information asymmetry are the source for making the supply chain more efficient.
6. Sitting at home watching Netflix has its benefits
And I am not talking about Netflix and Chill.
I am talking about men and women who have not really engaged that much with new, lean, consumer technology. That delivers to their needs, and is super user-friendly. Working from home, people have sought to communicate with each other remotely and engage with remote sources of content, and found the consumer facing technology that they were perhaps not previously aware of, or more likely they were aware of but had not engaged with that much.
Suddenly, that piece of software that their management had paid EUR 23mm to implement last year but had delivered them nothing but headaches… well, it’s just lacking sex appeal.
The required benchmark of user friendliness for software has increased, which plays into the hand of newer leaner technology solutions.
“We have a limited number of software engineers and software engineering is definitely not core to our value proposition as an industrial conglomerate. Let’s build a technology company in house to deliver on our needs!”.
Believe it or not, the answer to this was often “Excellent, who do I write a blank cheque to?” rather than “this makes absolutely no sense – is there not a digital market based solution available that we can use?”
Similarly, you will hear big energy conglomerates say things like “I get that all of our procurement department is still mainly using pen, paper, emails and attachments. But I really think we need a massive department called Digital Crusaders For Technology 8.0 who will, amongst other things, create AI driven robots that will be able to 4D print all of the goods which we normally procure from suppliers, with everything logged on our yet to be developed proprietary block-chain”. I’ve written previously about why this is not a great idea.
In a constrained environment under fire, firms revert back to their core competencies, where they can deliver most value. This is key to a functioning market economy, and delivers value to shareholders – whilst creating demand for external innovation.
Opportunities in the age of Covid-19?
I am not seeking to make light of the current situation in any way. But I do think it is incredibly important to see the silver lining that many clouds bring. And how there are positives to draw from ruptures in business continuity, when change happens our brains are given space to create new pathways.
When the industry is trucking along with momentum, to disrupt and tack to a new way of working does incur a cost in the short term, regardless of the long term gains which it may bring. But when disruption is forced upon us, the cost of change has already been assured. In many ways we have been given a gift – an opportunity – to tack towards a brighter, leaner, tomorrow.