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5:28 AM · Jun 14, 2021Twitter Web App

Jun 13, 2021

If you’re an investor or analyst, 7 Powers is a remarkable lens you can use to analyse companies. But if you’re an operator, the book is a little … weirder. What I mean by this: the path to Power is totally weird and unique, and it’s more important to pay attention to that.

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It's generally true that companies have processes that are difficult to copy to some degree. For instance, at my previous company, we competed against resellers with no tech chops, while we wrote our own software. If they wanted to copy us, they'd probably take 3-4 years.

Those 3-4 years would likely be super painful for them. Especially because we ran engineering out of Vietnam, which gave us a lower cost base. But did that give us Process Power? No. 3-4 years of pain isn't a high enough bar for Process Power.

So what is a high enough bar? @SamTaylors_ear, who works in manufacturing (and is the largest Toyota Production System, TPS nerd I know), well he argues: 10 years. If it takes 10 years to copy a process, with little benefit in the middle, then maybe you have Process Power.

Example: at the start of the pandemic, people were going oH No LEaN ManUfacTurinG / SuPpLy ChAiNs aren't resilient! Well, you probably know we have a semiconductor shortage right now. Guess who isn't affected: the OG lean manufacturer themselves, Toyota. How did they do it?

The short version: they got their suppliers, and their suppliers, and their suppliers, and their suppliers, to enter input and output data into a centralised database. So Toyota saw the coming chip shortage before everyone else, and loaded up early in the pandemic.

How Toyota Steered Clear of the Chip Shortage Mess

This was apparently triggered by a chip shortage in 2011, after the Tohaku earthquake. So contrary to the lean manufacturing ethos of 'no inventory', Toyota had been increasing the amount of inventory they held for critical components for a decade now.

bloomberg.com

The auto industry could lose $60 billion in sales this year because of the scarcity of semiconductors. Toyota’s exhaustive monitoring of small suppliers led it to stockpile early.

Think about what this means, though: Toyota managed to get their supplier's supplier's supplier's supplier to change their processes and input outputs into a Toyota run database. Think about how much trust that would take, and how long it takes to build that trust.

Think about how long it took to bring suppliers 4 tiers deep into the Toyota way, and to debug and implement new processes, and the tech to do those processes. That'll probably take 10-20 years, eh? THAT is Process Power.

Here's another example: Zara. When Zara was starting out, it owned these old factories in Europe. At some point they had the idea to increase inventory velocity to make up for their higher cost base. Then they leaned into that — and created what we now call 'fast fashion'.

Zara is vertically integrated. It owns its own factories, and it runs design inside those factories, connected to a global network of store managers who are trained to notice trends. It, too, had to modify the relationship it had to upstream suppliers.

Like Toyota, it had to integrate downstream to its consumer facing stores (Toyota was with dealers). I'm not entirely sure because I'm not from manufacturing, but @SamTaylors_ear assures me it would take around 10 years to modify an existing org to adopt Zara's model.

Like Toyota, Zara stumbled onto its Process Power by accident. So this begs the question: is it possible for a company to deliberately adopt Process Power? Interestingly enough, I think the answer to that is yes.

Steve Jobs President & CEO, NeXT Computer Corp and Apple. MIT Sloan...

In 1992, Steve Jobs gave a talk at MIT's Sloan School of Business. I think most people paid attention to the shade he threw at management consulting. But I found his comments on manufacturing to be more interesting. Jobs TOTALLY UNDERSTOOD Process Power:

youtube.com

Please Subscribe! http://www.youtube.com/c/MITVideoProductions?sub_confirmation=1Steve Jobs, one of the computer industry’s foremost entrepreneurs, gives a w...

6 years later, he found Tim Cook and poached him away from Compaq. Cook spent the next 10 years transforming Apple's supply chain. He famously assigned Competing Against Time to his subordinates. (It remains the best book on building Process Power that I know.)

Competing Against Time by George Stalk Jr.

Link to the book: goodreads.com/book/show/2232 Process Power meant Cook could lock up all supply of hard drives for the iPod, as well as components needed for the first iPad. And it puts Apple's moves into supplier financing in a new light.

goodreads.com

Competing Against Time book. Read 11 reviews from the world's largest community for readers. Today, time is on the cutting edge. In fact, as a strategic ...

Why do you provide supplier financing? So you can dictate the terms of your engagement, and get them to change their processes to fit your JIT manufacturing system.

Anyway, time to wrap this up. The next time you see someone going 'oh, X company has Process Power', ask yourself if it would take an operationally excellent competitor 10 years to copy the process. If yes, then you have Process Power. If no, then heh. No Process Power exists.