| Issue 15 |

As low-cost as possible

Companies that are on the left end of Porter's Smile enjoy a high level of profitability and very high revenues - despite the fact that their products are not different from others. In fact, this is the secret of their strength. They supply exactly the same products as competing companies, but at a lower price. Giant corporations, such as Teva (generic pharmaceuticals) and Keter (plastic materials), are thriving thanks to their control of costs. How do they do this? At first glance, it seems that being the least expensive is enough … "cheap" and superficial. But in reality, it entails a very sophisticated and complex process that requires patience, planning and especially precise implementation:

• How do you buy at lowest cost? The bigger the company, the greater its buying power - it can obtain lower prices and easier terms from its suppliers. For example, the Kupat Holim Clalit HMO and the Steimatzky bookstore chain buy at lower costs than their local (and relatively smaller) competitors. Not every large company chooses to pass such cost savings on to their customers. But a company that does so and chooses to be the lowest priced over time, must also be the largest in the field.
• How do you grow? Organic, natural growth via internal resources usually is out of the question. In order to grow rapidly enough and enjoy an insurmountable size advantage, you have to focus on external growth via mergers and acquisitions. This is precisely how Keter, Teva and similar companies have grown. And since the large majority of company mergers fail, this is a very difficult path to implement. When people say that Teva excels in strategic planning, they are referring, among other things, to its uncommon ability to successfully acquire and integrate more and more companies.
• How do you merge successfully? First, you have to buy the right companies at the right time. For this purpose, you should maintain detailed files over the years on each candidate for acquisition (including economic parameters and the character and motives of senior executives). In addition, you should assess the economic benefit that can be derived from the acquisition and compare this to the candidate's market (stock) value. When the right moment comes, and only then, sometimes after long years of anticipation, you should act. And this is just the easy part. Mergers usually fail due to organizational problems. Therefore, even before the acquisition or merger, you should prepare a plan of operation that ensures the smoothest and most rapid integration possible of the two companies. And this plan should be implemented with due respect and also with the necessary determination.
• How do you leverage the advantage of size? The larger the organization, the more complex it becomes. It has more employees, more processes to manage, more products and services to provide, and more customers to serve. Size can become a burden if the management is sloppy. When things become more complex, costs can skyrocket. There are added costs of mid-level managers. The bureaucracy grows. There is the danger of complacency. Unless you focus, all the time, with determination, on lowering costs. This is precisely why this strategy is called "controlling costs." You need to constantly think about how to raise efficiency, how to improve and how to lower costs. And the good news is that the bigger the organization, the more possibilities there are for saving costs within the organization. Relatively modest salaries (in return for economic stability), business process management (BPM), information management, and transitioning to full automation are a number of ways to lower costs.
• And what about innovation? When you are trying to provide products at lowest cost, you should focus on technological and operational innovation, find new ways to design, manufacture and transport products and packages, and to provide services and support in a less costly way. Keter concentrates on manufacturing products that contain less plastic (and more holes). Teva focuses on producing generic pharmaceuticals at costs that are several times lower than producing ethical (original) medications. Both companies do this while carefully meeting the required quality standards. In both cases, a lot of intelligence and engineering wisdom is involved.
• And what about globalization? In today's world, companies that seek to supply products at the lowest cost must usually be truly global. This is another aspect of leveraging their advantage of size. This may entail procuring raw materials in one country, manufacturing in another country, packaging in a third (because of surplus trade agreements) and selling the product in a fourth country. Similarly, global corporations must acquire companies in many countries and know how to bridge between very different cultures.
• And … a bit of modesty won't hurt. Products that are supposed to be the least expensive must also display "low prices." Otherwise, no one will buy them. The design should be simple and not ostentatious. For the same reason, the organizational culture should be modest. You cannot expect employees to suffice with a modest salary and managers to focus on cutting costs when the executive offices are too luxurious. Someone visiting Teva's various sites would not suspect that it is such a large and rich company. And this is good.
• So, where do you start? This is truly a difficult problem. In most sectors today there are already giant competitors and there is no point in trying to catch up to them. They simply have a huge lead and are so big now that it is impossible to surpass them through a campaign of mergers and acquisitions. And even if you have almost infinite funding and make an attempt, the gap would only widen because their response (mergers and acquisitions, of course) would be more efficient and successful. This is their specialty, remember?
• Nonetheless, where do you start? You first need to identify a field where there is no clear decision, preferably with a dozen mid-sized competitors (so that there will be something to acquire); and then: acquire one company, focus on cutting costs, acquire another company and successfully integrate the merger, leverage the company's size and cut costs, track additional candidates for acquisition, improve the efficiency of processes and reduce costs, acquire another company, refine processes, tighten the belt, improve operations, deploy globally, and ultimately, after about 50 years, become a giant, inexpensive and … modest. Simple, isn't it?

• For seminars on Inventive Thinking in Technology (and cutting costs) :
  click here  (PDF, in Hebrew)
• For articles on strategy and other topics: click here
• Information on strategic consulting: click here

Ideas for innovation in the bathroom

The following ideas were developed using various thinking tools, and do not exist at present (to the best of our knowledge):

1. An expandable bathtub that opens into a double tub when needed.
2. A bathtub that turns red to warn when the water is too hot.
3. A bathtub that maintains the desired water temperature - with heated walls and a thermostat.
4. A bathtub with a mobile drainage opening that can be lowered to ensure a water level in which an infant will not drown.
5.  A shrinkable bath (to make it a suitable size for an infant, or to clear space in a small bathroom).
6. A bathtub that plugs up automatically - the plug closes when the faucet is on to fill the tub.
7. A Pyrolite bathtub that cleans itself after being used.
8. A slanted bathtub - one side is higher than the other side (comfortable to lie down in; water is less deep near the head)
9. A bathtub with a small propeller, which mixes the water as it fills the tub so that the heat is distributed uniformly in the bathtub.
10. A bathtub_______________________________ (invent something yourself, okay?) 

• Articles on Systematic Innovation  
• To learn about Systematic Innovation Workshops : click here
• We will be glad to read your comments and suggestions

Hebrew calendar in Outlook

When is Purim? Why isn't anyone answering in France? When is the New Year in Kuwait? Should you send a holiday greeting to customers in Japan for their Spring festival? Outlook , the electronic calendar on your computer, knows how to display for you the holidays of any country you choose. You just need to nudge it a bit. Here's how you do it in Outlook 2003:

• Select Options from the Tools menu of Outlook.
• In the window that opens, select Calendar Options from the Preferences tab.
• Select Add Holidays from the new window that opens.
• Select the countries you wish to add from the new window. Then select OK three times to close each of the three windows.

That's it. Your calendar now includes the holidays you desired. Enjoy. This can help you plan meetings in Israel and travel abroad, but also to surprise (and excite) countries from countries from Finland to Yemen when you sent them a greeting on their special holidays.

• For installing the calendar in other versions of Outlook : click here
• For information on ZOOZ workshops: click here
• For news on ZOOZ clients: click here