Archive for 2010

Krispy Kreme’s Value Chain

Monday, December 20th, 2010

My final post on value chains is an actual example. There are lots of posts on value chains but I don’t see many examples so I thought it would be interesting to quickly perform an analysis and show the final result. In this exercise we are going to be focusing on the internal value chain of Krispy Kreme doughnut which is a vertically integrated business so the internal and industry value chains are very similar.

What does an example of a value chain look like?

Developing a value chain from an external point of view is quite difficult as a lot of the support activities are not easy to analyse, so for this exercise I have focused on on only the primary activities of Krispy Kreme.
Most of the data was gathered from financial reports, analyst reports, press releases and other research and PR articles.

Krispy Kreme internal value chain example

Supplying fresh doughnut mix to all stores:

  • Begins with the secret recipe (formulation and consistency)
  • Unique taste
  • The mix is centrally produced, controlled and consistent and distributed to all stores and franchises

Manufacturing of proprietary doughnut-making equipment:

  • Design and manufacture of the proprietary doughnut making equipment
  • This is then sold to stores for profit and ensures consistency of end product

Retail distribution channels:

  • Mixture and equipment is distributed to large factory stores from central hubs
  • Mix of factory stores that supply smaller stalls and kiosks
  • Outsourced retail channels in service stations and Walmart

Fresh doughnut and doughnut theatre store experience:

  • Worldwide locations
  • Doughnuts are freshly baked and produced each day
  • Original glazed sign
  • Large capacity for production
  • Simple product line

Cult brand:

  • Targeted local campaigns (no above the line campaigns)
  • Store demand is driven by word of mouth
  • Very recognisable brand
  • A lot of brand loyalty
  • Drives demand for franchise opportunities

Internal Value Chain Analysis Methodology

Friday, December 17th, 2010

In the last post on value chains we looked at what a value chain is and what it is use for. In this post we are going to look at the steps involved in performing an internal value chain analysis.

The methodology for constructing and using a value chain involves four steps:

Example: Value Chain Activities For A Distance Learning Company

Step 1: Identify internal value chain activities

The first step is to assess all the discrete activities that create value in fundamentally different ways. Each of these activities should be distinctively different:

  • Costs
  • Cost drivers
  • Assets
  • Involve different personnel etc.

Secondly look at the big picture by separating out three categories of value chain activities:

  • Structural (e.g number and location of stores)
  • Procedural (e.g. quality control, training)
  • Operational (e.g. donut production, distribution)

It is best to focus on structural and procedural activities as this helps you to plan for the longer term.

Step 2: Determine which activities are strategic

To determine which activities are strategic a company must identify which product characteristics are valued by existing customers. You should then find characteristics that it can exploit, and thereby create value for future customers.  Examples of these characteristics are quality, service, or any tangible or intangible product features.

Step 3: Trace costs to activities

This is probably the hardest step as you need to use your accounting system to trace costs to different value chain activities. This is important for a company to focus on these value-added processes, so they will be able to manage them more efficiently.

Step 4: Improve management of value chain analysis

To achieve a competitive advantage a company must manage their value chain better than their competitors. This means reducing a company’s total cost while enlarging the competitive advantage. This does not however mean that all costs have to be reduced, it means that all costs that do not adversely affect the competitive advantage can and should be reduced.

In IT It Pays To Follow Not Lead

Wednesday, December 8th, 2010

Just a quick thought today. I listened to a talk where the case was made to follow not lead when it comes to technology. The speaker gave the following reasons:

  • Technology competitive advantage is usually temporary
  • Delayed IT investments decrease your risk of buying-flawed or soon to be obsolete applications
  • Following the leaders means you are more likely to invest in standards and best practice

Information Security to 2020

Wednesday, December 8th, 2010

We had a superb speaker come in to present to us last night on Information Security. William Beer is a very passionate, engaging presenter from PWC and has a long history working in technology and technology security companies.

In April 2010 he co-authored a research paper called Revolution or Evolution: Information Security 2020 which was commissioned by the Technology Strategy Board and jointly prepared with PricewaterhouseCoopers LLP (UK).

The purpose of the roadmap was to set out the drivers that will shape the future Information Security environment to 2020 and beyond. This roadmap was to inform business leaders and security professionals alike, and set out potential future scenarios and issues around information security, allowing the reader to draw implications and conclusions that apply to them. The research focused on the commercial aspects of Information Security, but remains cognisant of trends in cyber security and warfare for military and intelligence applications.

The key point that resonated with me was that information security is about more than just technology it is a balance of people, processes and technology.

Technology is not a silver bullet for information security and needs to be balanced with training, awareness and processes within an organisation. Also another interesting point is the emergence of a CSO or chief security officer that does not report to the CTO or CIO they report directly to the board and this again reflects the fact that info sec is about more than just technology.

If you have a chance read the whole report it is very thought-provoking.

What Is Value Chain Analysis?

Thursday, December 2nd, 2010

What is value chain analysis?

The value chain, also known as value chain analysis, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance. It is an approach for breaking down the sequence (chain) of business functions into the strategically relevant activities through which value is added by the business. The objective is to identify the behaviour of costs and the areas for differentiation.

It can be conducted at the firm level (internal value chain) or at an industry level (industry value chain). For a vertically integrated business the internal and industry values chains are almost the same.

The industry value chain

The industry value chain is composed of all the value-creating activities within the industry, beginning with raw materials, and ending with the completed product delivered to the customer.

So an example the chemical industry value chain may look like:

  • Raw minerals (e.g. oil, gas, air, water)
  • Basic chemicals production (e.g. inorganics and organics such e.g. ammonia, salts, benzene)
  • Chemical processing
  • Advanced chemicals production (fertilizers, industrial chemicals, plastics)
  • Advanced processing and technology (speciality chemicals, consumer care products, life science)
  • Consumer

The objective of industry value chain analysis is to work out how your part in the industry value chain fits in with your suppliers and customers value chains.

The internal value chain

The internal value chain of a business consists of all physically and technologically distinct activities within the firm that add value to the customer’s experience. The key to this is understanding the activities that create a competitive advantage, and then managing those activities better than other companies in the industry.

Porter (1985) suggested that business activities can fall into two headings: primary activities, those that are directly involved with the physical creation and delivery of the product or service; and support activities, which feed both into primary activities and into each other. Support activities (e.g., human resource management, technology development) are not directly involved in production, but have the potential to increase effectiveness and efficiency.

Porter’s generic value chain looks like the following:

Primary activities consist of:

  1. Inbound Logistics – the receiving and warehousing of raw materials, and their distribution to manufacturing as they are required
  2. Operations – the processes of transforming inputs into finished products and services.
  3. Outbound Logistics – the warehousing and distribution of finished goods.
  4. Marketing & Sales – the identification of customer needs and the generation of sales.
  5. Service – the support of customers after the products and services are sold to them.

Support activities consist of:

  1. Organizational infrastructure – support systems and functions, such as finance, planning, quality control, and general senior management.
  2. Human resource management - activities concerned with recruiting, developing, motivating, and rewarding the workforce of the organization.
  3. Technology development – managing information processing and the development and protection of “knowledge” in the organization.
  4. Procurement – how resources are acquired for the organization (e.g., sourcing and negotiating with suppliers).

The internal value chain model is a useful analysis tool for defining a firm’s core competencies and the activities in which it can pursue a competitive advantage as follows:

  • Cost advantage: by better understanding costs and squeezing them out of the value-adding activities.
  • Differentiation: by focusing on those activities associated with core competencies and capabilities in order to perform them better than do competitors.

The hard part is actually doing this for you company and there are not that many examples available. In my next post I will be going through an example step-by-step to get an idea of what a value chain looks like in practice.

Analysis of Nichols Plc – Accounting Coursework

Wednesday, December 1st, 2010

So my first piece of coursework for my MBA was an analysis of Nichols PLC in 1,200 words or less. You can read the full brief here.
My first question was what does Nichols PLC do as I had never heard of them? Well a quick check of their annual report shows that the main brand that they own is Vimto. I love Vimto so I knew that this was going to be a good assignment.

Report highlights

Nichols group comprises two divisions; soft drinks and dispense operation. The brand portfolio consists of Vimto, Panda and Sunkist, available in over 65 countries.

Financial Highlights

Figures in (£’000) 2009 2008 Movement
Revenue £72,378 £56,221 22%
Operating Profit £12,501 £9,804 22%
Earnings £8,568 £7,306 15%
Dividend £4,445 £4,085 8%
Cash £11,215 £6,048 85%
Capital Employed £29,301 £24,988 15%

Nichols continued to increase revenues, operating profit and earnings through acquisition and organic growth.  Nichols is in a secure position with high cash reserves and low gearing with no formal borrowings.  It has an opportunity to continue growth through the use of cash reserves or increasing gearing through borrowing.   This would enable additional acquisitions or market expansion with a view to maximising shareholder returns.

Major events

  • International sales increased 33% to £12m (Middle Eastern sales grew 40%; African 11%).
  • Marketing campaigns drove national and international growth, netting 1 million new customers.
  • Acquired control of Dayla dispense operations (2008) giving access to the European premium juice dispense market.
  • £5.5m goodwill impairment (2008) due to review of acquired brands.
  • Post balance sheet acquisition of Ben Shaws ‘soft drinks on draught’ business.

Strengths

  • Out-performed the UK soft drinks market.
  • Strong core international brand.
  • Strong cash balance could fund future expansion or acquisitions, accelerating growth.
  • Diversified into growing energy drinks market through acquisition.
  • Acquisitions consolidated Nichols’ position as number three in the dispense market.

Weaknesses

  • Gearing could be considered too conservative and does not maximise shareholder returns for an outperforming business.  For example, borrowing could be used to fund expansion in emerging markets, building upon their international growth pattern.
  • Limited portfolio; high risk exposure to small number of core brands.
  • High dependency on UK market and third party suppliers.
  • Dispense operation dependent on pub growth which continues to contract within the UK.
  • Deficit in return on pension scheme assets.
  • Low investment in non-current assets despite high depreciation charges.

Our methodology

Doing an executive MBA means you have to balance study, work and family so you cannot afford to waste time. Like myself most of the people in my team have high-level project management experience so we quickly developed a methodology and ran a very tight ship. We kept meetings very short and concise meaning which meant we all had to be well prepared and up to speed. We all performed the basic analysis separately and then all came together to discuss common trends and to decide on the report structure. Then one person wrote the first draft of the document and everyone took turns at making changes until we had a final report we were happy with.

Final thoughts

Most of the coursework on the Cass MBA is done in groups and this is both a positive and a negative. It is great to work in a group of smart, driven people and I am very lucky that I am part of a very good group, but as with any group sometimes it can be quicker and easier to do it by yourself. Getting the first piece of coursework out of the way was a great bonding experience for our group and we have learnt a lot about each other on the battlefield.

The word count was very strictly applied and really makes you think about what is important. Our first draft was over 2,000 words so removing the less relevant parts meant you ended up with only the essential information.

Efficiency is key there is no point spending twice as much time for a few extra marks, you need to get the time vs. marks balance right.

Our final mark was well above the distinction grade so I think we deserve a big pat on the back all round.

If you want to read our full report we wrote I have linked it here.

What Every COO Should Know About Their Business

Wednesday, November 17th, 2010

Some more insights following on from my last blog post from John Devine.

1. You need to know/ develop the organisation strategy and deliver it

In order to do this you need input and feedback loops (in order to calibrate) from the:

  • Internal environment (risks, challenges, options)
  • External environment (context, cycle, major risks, regulation)

2. Do you understand your organisation?

  • Culture
  • Risks
  • Value proposition
  • What your organisation does
  • How things really get done

3. What is your internal value chain?

  • Are you a product, service or manufacturer (or a mix of these)?
  • What do you really do?
  • Do you need to change what you do?

4. What is your process/ strategy for your place in the market?

5. Do you know your strengths and weaknesses?

  • Leverage and extend your strengths
  • Minimise your weaknesses (by outsourcing or delegating)

6. What stage is your organisation in market maturity?

  • Business as usual? – efficiency, execution
  • Crisis management? – task orientated, fast, decision making
  • Strategy development?

Tarsnap – Online Server Backups For The Paranoid

Tuesday, November 16th, 2010

I have lost data so many times over the years that I know how valuable it is. If you are a service business then it is one of your main assets so I am very diligent about backing up all of my computers. But what about your servers? Most people realise the need to backup personal computers but their server is often neglected.

I have all of my servers with ovh.co.uk who are a superb company and offer great value for money. One of their key selling points is that every dedicated server comes with 100Gb FTP backup as standard. It is not the easiest to use as you can only access the FTP server while logged in via SSH to your server but it is a great way to backup your server.

What about if you do not have a dedicated backup server? Should you buy another server to backup to? One solution I have found recently is Tarsnap.

From their website tarsnap.com “Tarsnap is a secure online backup service for BSD, Linux, OS X, Solaris, Cygwin, and can probably be compiled on many other UNIX-like operating systems. The Tarsnap client code provides a flexible and powerful command-line interface which can be used directly or via shell scripts.”

It is easy to install and allows you to send files to the Tarsnap server via SSH (and the files are encrypted). I assume it uses Amazon S3 as the pricing follows along the same lines you pay for what you store and how much bandwidth you use in uploading and downloading. I have only been using it a short while but the service looks promising. One to watch for the future.

Password and Paranoia – Which Encryption Method Is Best?

Tuesday, October 19th, 2010

I did some client Unix system admin today and I found some text files with plain text passwords! I didn’t think that anyone would store their passwords in plain text so it got me thinking about encryption protocols.

1. Plain text

If you are storing your passwords as plain text… stop it now!

2. MD5 or similar

A lot of off the shelf software packages (especially PHP ones) use this method. MD5 is a widely used one-way 128 bit encryption hash. However it does have its draw backs due to the use of rainbow tables. I have seen enough MD5 passwords to spot the obvious ones (test, hello etc) and a rainbow table allows you to match the MD5 hash password to the equivalent plain text password.

Some people then try to solve this by adding a SALT with the MD5 hashing but this is still not advisable due to the speed of MD5, it is very fast. Fast is exactly what you do not want with a hashing encryption.

3. SHA1

The next step up from MD5 is SHA1 or SHA256. Like MD5 it does have some flaws in mathematical weaknesses. Also like MD5 it is very quick to use if you benchmark a script and again you do not want in an encryption hash.

4. bCrypt (Blowfish)

So what should you be using? The latest thinking seems to be bCrypt (which uses the blowfish cipher). It is a very secure but the downside of this is that it is slow. Depending on which language you use bCrypt can take about 0.5-1.0 seconds to encrypt a password (compared to 0.001 seconds for MD5) but this is exactly what you want in a cipher and I think that your users will forgive this time delay for the added security it will give you.

Bash Script To FTP Backup Your MySQL Server

Monday, October 18th, 2010

I have just been configuring a client server and wrote a short bash script to back up their database server via FTP and I thought someone else might like to learn from the code.

Configure the code below based on your server settings and add it to the cron tab to execute as often as you want.

#!/bin/sh

# MySQL variables you can set for your server
MYSQLUSER=’YOUR MYSQL USERNAME’
MYSQLPASS=’YOUR MYSQL PASSWORD’
OUTPUTDIR=/home/backups/
HOST=”localhost”
MYSQL=”$(which mysql)”

# FTP variables you can set for your server
FTPHOST=’YOUR FTP HOST’
FTPUSER=’YOUR FTP USER’
FTPPASS=’YOUR FTP PASSWORD’

# Get a list of databases on the server
DBS=”$($MYSQL -u $MYSQLUSER -p$MYSQLPASS -Bse ‘show databases’)”

# Loop through each database and dump each database to a separate file
for DB in $DBS
do
TO=$OUTPUTDIR/$DB-$(date +%Y-%m-%d).sql
mysqldump –user=$MYSQLUSER –password=$MYSQLPASS –databases $DB > $TO
done

# Upload the sql files to the remote server
tar zchf – $OUTPUTDIR | ncftpput -u $FTPUSER -p $FTPPASS -c $FTPHOST db.tar.gz