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2013

Recently, I wrote a blog post that contrasted Colgate and Unilever. As a follow-up to this article, I wanted to talk one-on-one with the leadership teams of the two companies and get their insights on the ten-year comparison. In this blog post, I share insights from Michael Corbo, the head of supply chain at Colgate.


Michael Corbo from Colgate-Palmolive

Tell me about your job as a leader at Colgate. I am very impressed with your organization’s delivery of results over the last decade. What do you believe has driven this success?


We believe in consistency. My job starts with the shelf and service to the customer. I am responsible for the supply chain processes that deliver the goods and services to the shelf globally. This is not a new mission for the supply chain organization. Over the last decade, we have had consistency in leadership and purpose. Eleven years ago we defined the supply chain organization to focus on improving processes from the customer’s customer to the supplier’s supplier.

 

As a team, we believe in funding the growth. We ask the organization to take out waste and invest it back into the business. 60% of our focus goes to business expansion or driving productivity. We partner with the business leaders.


In doing this, we want to leverage scale. We are data driven and hold ourselves accountable to the balance sheet. We realized, in this journey, that we needed to build systems to analyze data to drive better decisions. To do this, six years ago, we built a support group of supply chain finance to support our decisions. It is a parallel group to our corporate finance group that reports directly to me.


It is easier said than done. Our business is complex. We have worked hard to get good at understanding the financial levers of the supply chain. We are disciplined in making capital investment decisions. For example, we seldom outsource manufacturing. We take pride in our innovations in manufacturing. Today 95% of manufacturing is directly managed by the Colgate team and we have taken steps to vertically integrate some of the operations. For example, we make the tubes for our toothpaste. This has allowed us to improve operating margin, and return on assets (ROA); but has hurt the revenue/employee productivity numbers in your analysis. This is a conscious choice.


updated_comparison_table Colgate vs Unilever including 2012


You are what you measure. We manage supply chain metrics. We pay attention from case fill to customers’ customer feedback, on-time deliveries, plant efficiencies and forecast accuracy. Success is never final.


Thanks Mike these are great insights. I have written a lot about supply chain talent, and I question if it is the true missing link of the supply chain. What do you think? Do we have a talent crisis?


As an organization, we believe in building talent systems and hiring from within. I take my job as the leader of the 22,000 global members of the Colgate supply chain team seriously. I oversee succession planning for the supply chain organization. When it comes to talent management, it is a “single threaded needle.” While I am supported by an experienced and talented supply chain human resource team, managing talent is a large part of what I do. It takes time. It is 30% of what I do on a day-to-day basis. As a result, the reward and feedback systems for talent development are very consistent. The leader of the supply chain team has led succession planning for the last twenty-five years.


When people come to see me and ask for career advice, I tell them to do their current job VERY well. My advice is to “get real good at something and drive value today.”  I believe that success is not always about moving up. I encourage members of the team to take enrichment opportunities in other areas of the company or other geographies; but I don’t want them to just spend time, I want them to contribute and learn. I believe that we should encourage people to move across the organization to get a greater understanding of the business. We do succession planning three times a year. I value cross-functional experiences.


I strongly believe that we cannot let regions operate as islands. We hire with the expectation that people will spend time in multiple regions and multiple functions.

 

How do you see Supply Chain 2020?


When we were starting to plan for Supply Chain 2020, the first thing that I asked my team to do was to imagine ourselves on a beach somewhere enjoying life. We took ourselves out of the equation and imagined how we can pass on what we have built to this next generation. We want to continue the culture.


We have significant opportunity to strengthen inventory management. We know that corporate sustainability and enterprise risk management are going to play a larger role in our future vision. I believe that we have made great progress on the integration of corporate social responsibility programs into our continuous improvement efforts. I also believe that we are making good progress in the use of digital and mobile in the factories. We want to continue these paths.


We are also trying to embrace change. We are asking ourselves, “What is the role of ecommerce in our future vision?” We are reconsidering the role of ecommerce (demand signals from others like Amazon or direct shipments to customers) on our supply chain. I asked my team to think harder about the management of end-to-end processes and our relationship with the shopper.


I am excited about the future with analytics. We want to make data work for us. We want to better manage the present and shape the future. I think that the use of advanced analytics holds promise.


What advice do you have for ecosystem partners trying to help supply chain leaders move forward?


I would like for the community to work on improving the experience of using analytics. Our vision is that it is as simple as the application on a mobile phone …or downloading a digital book from Amazon. Today, we are a long way away from applications that are this easy to use. I would like to see more work on a shared vision of how we can make data work for us. We lose too much in the complexity.


Thanks Mike. I appreciate the interview. For more on Colgate results and their role in driving supply chain excellence, check out their results in the Supply Chain Insights Report, Supply Chain Excellence, a Step Forward and a Step Back. Also see the previous blog post: Unilever and Colgate: Two Bookends?

I am proud to have launched the Supply Chain Index on April 25. It is my hope that the readers of this blog will take time to listen to the on-demand recording of our Launch of the Supply Chain Index webinar and to the second webinar in our continuing summer series, Supply Chain Index Part II - How and Why?

 

The Supply Chain Index has been two years in the making. The genesis started with the writing of the book Bricks Matter.  As I sat at my kitchen table, I reviewed spreadsheet after spreadsheet of corporate performance data on supply chain financial ratios. The relationship between corporate financial performance and supply chain metrics was complex; and in my first attempts, I was unable to derive a correlation. However, as many of you know, I am stubborn. I wanted to know more. I hungered to know the patterns. I was driven to find out which supply chain financial ratios really mattered to corporate performance and stock market valuations.

 

Why did I care?  The year 2012 marked the 30th anniversary of the use of supply chain management as a cross-functional process for source, make and deliver in the commercial sector.  I wanted the book to be a critical look at what we have accomplished as supply chain professionals during that 30-year period.  I feel that there is too little primary research in the area of supply chain management. I believe that there is more hype than substance in most supply chain writing, and that we have not held ourselves accountable enough to financial balance sheet performance.

 

When I started writing the book, I believed that supply chain process improvements had reduced costs, improved customer service, and increased invetnory turns.  Sadly, while writing the book, I found that this was not the case.  What I found was that we have improved employee productivity through the investment in processes and technology, but that most industries were stuck in their ability to manage the trade-offs between growth, profitability, cycles and complexity. I termed this concept the Supply Chain Effective Frontier. As I wrote about this concept, and worked with Abby Mayer (@indexgirl) to write the Supply Chain Metrics that Matter series of reports, I discovered more on the depth of the complexity. It has taken us eighteen months to build the database of supply chain financial ratios and find the patterns and start building the formulas.

 

My goal was to help corporate financial and supply chain teams align. I believed that supply chain excellence could not be generalized from industry to industry. I strongly believed that it varied by industry sector and that it was a series of complex relationships. I wanted to build a useful tool that could help companies irrespective of size or geographic location.  As a result, I commissioned work to try to build a formulaic representation of supply chain metrics (financial ratios) to tie corporate market valuation to the definition of supply chain excellence. I wanted to better understand which metrics truly mattered. This work has been in progress for the past year, and it is far from done.

 

The launch of the Supply Chain Index is a start, and should not be viewed as an end point. Now, we will start to socialize the concepts. We are on a journey. This work will continue throughout the summer and culminate in the release of the Supply Chain Index for 36 Industry Sectors at our Supply Chain Insights Global Summit at the Phoenician in Scottsdale, Arizona on September 11-12, 2013.  Over the summer, we will be sharing the insights of this work through a series of webinars and reports. As we progress, we will ask for supply chain leaders everywhere to join the discussion in our Supply Chain Insights Community. We want to get it right. We want to hear your voice. My goal is to help supply chain leaders everywhere to better align the metrics that matter to define supply chain excellence and its relation to corporate performance.

 

Definitions

To understand the concepts, let's start with the definitions:

Supply Chain Index: A formulaic representation of supply chain financial ratios correlated to stock market capitalization.
Supply Chain Effective Frontier: The balance of growth, profitability, cycle and complexity metrics to deliver a supply chain strategy.  It may or may not maximize the company’s market valuation. (This should be a conscious choice.)
Supply Chain Excellence: The behavior of companies working to maximize value through the setting of targets for supply chain financial ratios, and aligning metrics that matter, which are tied to value chain strategy.
alignment.png

What We Know Today

 

The Metrics That Matter Are Different by Industry Sector. The correlation of supply chain financial ratios to corporate stock performance varies by industry. The concepts of supply chain excellence cannot be generalized. As shown in table 1, and in figure 1 outlining the consumer value network, industry sectors within a value network are rewarded by performance on very different metrics. For each supply chain it is the management of a system, but the levers for each industry are very different. I firmly believe that you cannot put all industries in a spreadsheet and shake them up.

 

Public Financial Markets Reward Alignment and Balance. What is common for each industry is the management of trade-offs on the effective frontier.  While the formulas are different and the supply chain financial ratio correlations vary, there is a strong trend for balance  and alignment (management of Days of Inventory and Payables). I am also struck by the need for cross-functional alignment to perform against these metrics. These type of performance cannot be achieved through a focus on functional metrics.

 

Supply Chain Performance Matters. The term supply chain should be easy to define; but sadly, I find that it is a politically charged term within organizations.  I define the term as the processes that align the processes of sell, deliver, make and source outside-in from the customer's customer to the supplier's supplier.  When I go to a  software conference, the term supply chain is often very narrowly defined as supply chain planning and supply chain execution software. The technology vendors talk in three-letter acronyms about pieces of the software that drive supply chain performance. Conversely, when I speak to many organizations, the term supply chain is very narrowly defined as a supply chain function often limited to logistics, distribution and customer service. It is only in enlightened organizations that I find a holistic definition that spans end-to-end processes.

 

value-chain.png

 

There is No Substitute for Leadership. As I go through balance sheet after balance sheet, and spreadsheet after spreadsheet, I associate the numbers with the names of the leaders and the faces of the teams that I have worked with over the last decade. I remember the discussions on the choices on the selection of technology and organizational design. In the numbers, I see that some companies that have made clear and conscious choices. The work has taken many years. I also see that companies with a focus on end-t0-end process management are outperforming peers. Supply chain excellence matters.

 

Next Steps

 

We will be tying the results of cross-functional alignment in supply chain metrics to organizational  and process design through our quantitative survey on alignment. If you would like a customized assessment based on your company's Supply Chain Index, please have three or more functions within your company fill out this assessment. Share this link with members of your Information Technology (IT), financial, corporate social responsibility, sales and supply chain teams. The link to share within your organization to take the study is http://tinyurl.com/sci-ali-lc

 

We look forward to hearing from you! Let us know what you think.

lcecere

Bait and Switch

Posted by lcecere Apr 17, 2013

Bait and switch: A form of fraud. A dishonest marketing tactic where a marketer advertises a very attractive value proposition and then switches the offer to something else after gaining interest by the buyer.

Source Merriam-Webster Dictionary


DDSN. DDSC. DDVN. CDSN. The acronyms keep coming…. The cadence does not stop. Everyone seems to have a new one. Today, they swirl in the market forming a fog. The term demand driven has become vogue again, but what does it really mean? And, should it be taken one step further to orchestrate bidirectionally market-to-market in market-driven value networks? Or will companies stumble on the path by mistakenly implementing supply-centric processes and calling them demand-driven initiatives?

 

There are a number of newly anointed experts writing articles about becoming demand driven. They are piling up on my desk. As a writer of research on demand-driven supply chains for over eight years, I find many amusing. I like the idea that this old concept is gaining new steam; but unfortunately, too few people writing the articles really understand the concepts. Instead, I see a behavior that I call bait and switch. The article is written and the story is spun, but the solution offered is a supply-centric solution based on yesterday’s technology. The original principles of a value network that can sense, shape and translate demand with near-zero latency are being lost in the fog.

 

Why is this happening? The market for large ERP programs is slowing. The gravy train is coming to an end. User satisfaction with planning systems is low. The market shift is towards analytics, but this new market is confusing. It is still early.

 

Supply chain leaders feel stuck. Their current technologies are inadequate. They are struggling to manage the challenges of simultaneously driving growth, improving profitability, absorbing complexity and reducing cycles. Frustration is mounting. The concepts surrounding demand driven sound right. Companies are interested. As a result, articles are written proclaiming demand-driven results and then the reader is given a solution that is anything but demand driven. Each time that they are published, the Shaman sighs and chuckles in her little apartment in Baltimore.

 

The first definition of Demand-driven Supply Chains was pushed into the market by AMR Research (now part of the Gartner Group) in 2004. What the articles that flood the market do not tell you about is:

  • Slow Adoption. Eight years after the evolution of the concept, there are only a few companies making progress on demand-driven concepts. If asked, I would only cast a vote for the demand driven work that is happening at Cisco Systems, General Mills, Pfizer, PepsiCo, Procter & Gamble, and Kimberly Clark. Each of these pioneers would tell you that it is hard work. No one company—technology provider or supply chain line of business leader—has figured it out. Most have implemented the concepts in parts of their businesses. The most successful have used best-of-breed solutions. (We will show how the adoption of these practices have improved market capitalization in our webinar on April 25th. Join us for the launch of the Supply Chain Index.)
  • Hard Work. Many companies that have started demand-driven initiatives have abandoned them. The rewards are high, but the cultural barriers are difficult. They are sometimes insurmountable.
  • Misunderstood.  A frequent reason for failure is a lack of understanding of the basic concepts of demand latency, sensing, shaping and translation. As a result, many well-intentioned companies have mislabeled supply-centric initiatives as demand driven.
  • Demand-driven Concepts Are Not an Evolution. They are step change requiring either the redeployment of existing technologies or the purchase of new platforms. Details matter. Data model structures are the difference between success and failure. Today’s architectures are inside-out not outside-in, and to be demand driven, the process focus needs to change. This often means a reimplementation of APS, and a change in focus for the company.
  • Be Careful of the Word “Integrated.” The promise of the integrated supply chain sounds attractive, but tight integration of the supply chain has reduced agility and made the supply chain response less flexible. Today, due to tight integration, only 10% of companies are satisfied with their “what-if" modeling capabilities, and only 23% can model supply chain profitability. Both are essential. The goal should be synchronized demand and supply with role-based dashboards, workbenches and optimization engines that allow users to work across the supply chain. To accomplish this, demand has to be sensed, shaped and translated.
  • Change Management Issues Are High.  The largest challenges are in the redefinition of process flows from inside-out to outside-in. Demand-driven concepts are expansive they extend from the customer’s customer to the supplier’s supplier, but the areas of sales and procurement are often very resistant to the demand-driven concepts. To do this companies need an end-to-end leader. Only 1% of companies have defined this role.
  • Most Have Defined “Demand” too Narrowly. Demand in the demand-driven network is about much, much more than forecasting.
  • It Needs to Be About More than Demand.  Supply is volatile. Shortages abound. It is for this reason that I have defined market-driven value network processes in the book Bricks Matter. The definition is: An adaptive network focused on a value-based outcome that senses and translates market changes (buy- and sell-side markets) bidirectionally with near real-time data latency to align sell, deliver, make and sourcing operations.

As we move forward, there are no silver bullets. There are no well-defined industry platforms. I coach companies to take the following steps.

  • List All the Forms of Demand Data and Map Its Usage. This includes unstructured text data (this can include data from social networks, ratings and reviews from blogs and websites, and channel data), weather data, and transactional data. Some supply chains also have inputs from the evolving world of the Internet of Things where machine sensors transmit frequent streams of data. This is the case for heavy equipment, vending machines in the field, and smart shelves.
  • Map the Process Outside-in from the Channel Back. Start with the channel, and map the requirements of the channel. Evaluate how to reduce latency by using downstream data to sense demand and implementing demand translation technologies to make the downstream data usable. These technologies include the work by Terra Technology and ToolsGroup. (While SAP has purchased SmartOps and is marketing a demand sensing/demand translation offering, I have not been able to validate the solution through references. It is clear that math matters. Neither Oracle or JDA references were able to meet the challenges in the field.)
  • Build What-if Analytics. Technologies like Kinaxis and Steelwedge are frequently undervalued for supply chain visualization and what-if analytics. Cloud-based analytics for sourcing and the management of supplier networks are evolving and should be embraced. Consider solutions from GHX, Elemica, E2Open and SCA Technologies to improve end-t0-end visibility.
  • Design the Network. Actively design the network with clear push/pull boundaries and right size buffers. The strongest solutions in the market continue to be Llamasoft, Insights and JDA. And, the strongest consulting partner for network design is Chainalytics. I also like the work that is happening at the Demand-driven Institute on the redesign of manufacturing to be more demand driven.
  • Focus on End-to-End Orchestration. Build processes that enable the alignment between demand- and market-shaping levers to orchestrate end-to-end bidirectionally through outside-in horizontal processes. Actively orchestrate demand through shaping, and the supply response through the market-driven levers below. Charter the end-to-end process manager to orchestrate a market-driven value network that connects and orchestrates bidirectionally between markets.
  • Use New Forms of Data. Embrace Digital. Think long-term on the use of digital signals. Map the use of mobile/social and eCommerce on the future of the digital path to purchase, and the impact of machine-to-machine interfaces in manufacturing on digital manufacturing. It excites me to see the revitalization of manufacturing applications to be more demand driven based on the Internet of Things in process industries and 3D printing in the discrete industries.
  • Experiment with Best-of-breed Technologies. This innovation is not going to come from the large players. It will require large manufacturers to take risks with smaller players like Applied Predictive Technologies, Enterra Solutions, Orchestro, Retail Solutions, and Signal Demand.
  • There Is No Substitute for Leadership.  Success happens when there is an inspired leader that believes that the supply chain needs to own the supply chain from the consumer/user to the supplier’s supplier.
  • Focus on Building Horizontal Processes. These bridge the gaps between functions. The four main horizontal processes to tackle are revenue management, sales and operations planning, supplier development, and corporate social responsibility.

 

In summary, progress on supply chain cycles and margins, and balancing the trade-offs of complexity, has stalled. Over the last decade, the only metric that we have improved is revenue/employee (see below). Leaders do not know what to do to power themselves off of this horizontal plateau. The gap between what we have and what we need has widened.

 

Processes are evolving. Technologies are changing. There is no clear definition of what drives value. In an effort to try to drive progress, the system integrators and technology providers have started providing their own research. The problem is that it is not OBJECTIVE, and lacks research rigor. It is largely self-serving and is confusing the market.

 

As the research firms have consolidated, primary research is lacking. Consortia research has not filled the void. While these organizations have the reach, the organizations of APICS, CSCMP, GMA and SCOR lack the understanding of research processes.

 

I want to help. It is for this reason, that I have built this new company, Supply Chain Insights. I believe that supply chain matters. I can see the impact on balance sheets through the successful implementation of demand-driven concepts; and it's even greater when the concepts are balanced by market-driven levers. I look forward to sharing these with you in our Supply Chain Index webinar. While it does not provide all of the answers, I look forward to sharing what we are seeing. We want to stir a healthy debate in the market, and would love to have you join us.

 

One of the things that you will never find us doing is promoting a bait-and-switch program. Our goal is to help supply chain leaders gain first mover advantage.

As they say in Mississippi, "Talk doesn't cook the rice." The essence of this colloquialism is that words have to be converted to action.

 

It seems like yesterday that I transitioned to become an industry analyst. I have worked for Gartner Group, AMR Research, Altimeter Group and now my own company, Supply Chain Insights. I have now been an industry analyst in the supply chain management space for ten years. In this time, I have worked with over 500 companies. I have heard presentation after presentation on supply chain excellence, and I have heard industry leaders wax eloquently on how their supply chain objectives have improved value. I was surprised as I have evaluated balance sheet progress of these leaders over the course of the last year.  For many, I am afraid that these words never get converted to action. I am afraid for many it has been just talk.

 

Last month, the Supply Chain Insights team announced the Supply Chain Index. The Supply Chain Index is a formulaic representation of supply chain excellence based on market valuations. It was launched during a webinar on April 25, 2013 and will be presented in further detail through a series of reports that will run in our May newsletter and throughout the summer. Here, I would like to share some background information on the Index and how I intend to use it in developing a higher level of research.


How was it developed? Over the course of the last year, Abby Mayer (@indexgirl) worked with the Supply Chain Insights team to build a database of 20 years of information with over 50 supply chain financial ratios. To understand supply chain excellence, Abby and I have been studying pattern recognition for industry peer groups at the intersection of the metrics in the Supply Chain Effective Frontier of growth, profitability, cycles and complexity. (Based on inquiry, we do this analysis free of charge for members of our Supply Chain Insights Community.) We have performed over 50 analyses for companies. Each time that we run a new evaluation, we learn more. As a result, we have built a database of how companies have made trade-offs on financial ratios over the last decade. This analysis has been fun and insightful. However, we have found that only a few companies are improving the potential of their supply chain to balance supply chain metrics.
How is the Supply Chain Index different from the Supply Chain Effective Frontier?  Last month, we decided that it was time to take this analysis to the next level. We feel that it is not sufficient to just plot the patterns at the intersection of the Supply Chain Effective Frontier (the balance between growth, profitability, cycles and complexity). But instead, a additional need existed to build a formulaic representation of market valuation. We are using data from ycharts.com based on Morningstar sectors to build a formulaic representation of market valuation for over 35 industry peer groups. We find that each peer group has a unique equation based upon what drives value in their specific value chain. While we have known this empirically, it is fascinating to see the differences between industries and across value networks. (A value network is a group of companies that trade together to satisfy a market need. An example is retail/consumer products/chemical/transportation or hospital/pharmaceutical companies/medical device companies/medical distributors.)
How does the methodology compare to the Gartner Top 25. Why do we need a new Index? This methodology differs in a number of critical ways.  We hope that it provides new and critical insights for the supply chain leader. We believe that the Gartner Top 25 is flawed in three primary ways:
  1. Value chains are not created equally: You cannot put all companies in a spreadsheet and shake them up. Each company and value chain has a different value proposition. The Gartner Top 25 methodology, by definition,  is biased to reward the high-tech and electronics industry. As a result, asset intensive companies or service providers will never do well via this methodology. We believe that companies need to be compared within their peer groups.
  2. A long-term view of leadership is needed: We believe that the data needs to be based on a longer time horizon than three years.  Supply chain excellence happens over the course of many years, and the relative positions of companies, and the movement over the past decade, is just as interesting as the index itself.
  3. Objectivity: We are correlating the formula based on quarterly stock market valuation data. We want to understand the differences between industries, and across value chains, to help teams better align and to improve collaboration between trading partners.
  4. A fit for all companies: The Gartner 25 is limited to analysis of only large companies (Fortune 1000). This new analysis allows us to compare all companies.

How will we use it?  It is our goal to use the Supply Chain Index in four different ways. It will become one of  the cornerstones of our research.
  • Discovery: It is our goal to tie financial balance sheet data together to quantitative surveys and do a deep analysis on supply chain excellence. We are busy trying to figure out what practices and technologies drive supply chain excellence.  So after we announce the Index, all publicly held companies will be given an index factor, based on annual performance, and grouped into segments based upon maturity.  We will then use this as a comparison table to understand the processes and technologies used by more mature companies.
  • Selection of our Global Summit speakers: On September 11-12, 2013, we will be holding our first Global Summit.  The companies that have performed the best on the Supply Chain Index will be selected to be our speakers.
  • Supply Chain Strategy Sessions.  The sharing of performance on the Supply Chain Effective Frontier helps companies to understand their performance against their peer group and the overall trends of the market. Similarly, the Supply Chain Index allows companies to better prioritize strategies.
  • Publication of our next book. We plan to release two epublications this year; one on Supply Chain Metrics that Matter, and the other covering the Supply Chain Effective Frontier and the Supply Chain Index. They will be digitally shared through Amazon, iTunes and other sources.

How can you and your teams gain benefit from this research? We hope that it can help you better define supply chain excellence, and articulate why supply chain matters.

We would love to hear your feedback. If you are interested in more information about the Supply Chain Index please view our on-demand webinar.

This month we are also completing three studies. We are continuing our practice of "If you give us 10 minutes, we will give you an hour."  In short, if you fill out our surveys, we will share the results with you and your team on a one-hour call. These new studies will be the first where we will be able to complete the financial analysis and tie the Supply Chain Index to the quantitative analysis in each study.  We would love to have you participate.  The links are listed below:

S&OP:  A State of the Union.  Does S&OP improve agility?  Improve the ability of the company to better compete. Understand where you are on maturity and how S&OP improvements can help your company.

Alignment: Where are we on supply chain functional alignment?  For leaders in corporate finance, Information Technology, corporate sustainability and Supply Chain.  Understand where you are against peer groups on supply chain alignment.

Healthcare: How Do We Heal the Healthcare Value Chain.  For manufacturers and distributors of pharmaceuticals, medical device components, healthcare providers and consultants in healthcare. A look across the value chain on how companies can align to improve patient outcomes.

In closing, I want to thank you for your support of our Open Content research model.  We look forward to sharing more with you on the Index and why supply chain excellence matters to balance sheet results.  After all, we all know that it take more than words "to cook the rice."
lcecere

Model N

Posted by lcecere Apr 9, 2013

Model N, a revenue management enterprise software provider, went public on March 20, 2013.  The company raised over $100 million in its initial public offering (IPO).  I first met the founder Zack Rinat thirteen years ago. When he rang the bell on the New York Stock Exchange, I raised a glass for a toast. He did it. There have been too few public offerings in the world of enterprise applications. I applaud Zack for taking his third company through a successful public offering.

 

I only know of two public offerings in the enterprise applications market in the last year:  Model N and E2Open. They are very different models serving different industries with different management styles; but one thing that I do know, there have been too few IPOs in the enterprise applications software space.  I caught up with Zack by phone to discuss his journey.  I wanted to share his insights with readers.

 

Lora: What advice do you have for other founders of enterprise applications in the market?

 

Zack: I have a fundamental belief in ‘build to last’ rather than ‘build to sell’.  Great companies are built with a strong culture that is based on core values.  The core values serve as an “internal compass” to driving long-term vision and strategy. In the process, you may be unpopular in the market for a long period of time.  However, you need to stay true to your vision and strategy.  That is what we did at Model N.

 

We have four core values with DARE as the acronym:

  • Demonstrate respect for individuals and their personal choices.
  • Adhere to a hierarchy of responsibilities:  customers first, followed by partners, company, department, and individual.
  • Reach for the dream with the assurance that risk taking is protected by an internal safety net.
  • Exemplify uncompromising integrity, and a passion for excellence in all things:  attitude, journey, and outcome.

 

We have eight pillars to our strategy.Zack Rinat’s Eight Pillars for managing Model N:

  1. Foster a company character and culture built around the Core Values.
  2. Create Revenue Management as a broad, independent, enterprise software category.
  3. Claim and visibly demonstrate thought leadership in Revenue Management.
  4. Specify and deliver the best, easy to use, most comprehensive, and seamlessly integrated Revenue Management Application Suite.
  5. Provide exceptional customer value through verticalization of the product and a go-to-market approach.
  6. Focus on customer success by creating a unique customer experience in the way we sell, install, implement, and support the product that makes customers so successful that they are vocally positive references.
  7. Drive Model N as a software company and create an industry around the Model N solution.
  8. Drive to a scalable, sustainable, predictable, and profitable business model.

 

It was our goal to create a category for revenue management. To do this we needed to solve a business problem that mattered to customers and was backed by great customer stories. We were fortunate to work with great companies like Amgen, Johnson & Johnson, and Novartis.

 

Lora: Any advice for software companies working with Venture Capital Funds?

 

Zack: The key is alignment.  I was fortunate that I could select any VC that I wanted. I self-funded the companies for the first eighteen months and only then raised money from two exceptional investors Accel and Accel-KKR. We raised one more round in 2003 from another exceptional investor Meritech. I am proud that in ten years since 2003 we grew the topline 10X and the number of employees 10X, doubled the size of the company in the last 2 years, and still had more cash on our Balance Sheet than what we raised almost 10 years ago. Our investors shared our vision of building a great software company and were great supporters of the company through the years. They shared the same philosophy that I had about ‘build to last’ and how to build it.  They agreed to have only a one VC on our board and supported me in hiring great independent directors.

I believe that relationships with investors, like any other relationship, need to start with cultural alignment, values, and philosophies of how to build a company.  It needs to continue with understanding of the definition of success and in building trust. Our investors were paramount in providing me with advice, support, and direction and were always there for the company and myself.

 

Lora: One of the goals for Model N was to create a new category. I know that this is not the first time that you have created a category.  What have you learned about category creation?

 

Zack: It does not happen overnight.  It is very challenging. Category creation happens when you can identify a clear value proposition, and you orchestrate the understanding of the category to analysts and thought leaders through client testimonials. You need to have compelling case studies from missionary customers.  You also have to guide the organization through lots of skepticism. It does not happen overnight. It took me four years to have revenue management recognized as a category.