Archive for December, 2009
Once upon a time there lived two orange farmers in sunny Florida.
They were called: Jack and Steve.
They both were friends, came from the same town, similar age, socio-economic background and skill set.
They both worked hard for their co-operative. They both were hungry to progress in their line of work. They both were ingenious in the way they approached their work. But there was ONE vital difference between the two: Jack and Steve had completely different outlooks on business.
Jack was good at ensuring every last drop of juice was squeezed out of the oranges he used for their co-operative’s juice-making facility. However, Steve was more intrigued by the idea of how he could produce more oranges and sell them to new sets of customers in different product formats and through wider distriution.
Jack continued to come up with innovative ways to squeeze out the last drop of juice in the oranges that were grown in their co-operative’s orchards. It gave the orchard a handsome 10% increase in juice yields.
Steve, on the other hand, had no immediate results to show for his efforts in experimenting with crop yield improvement techniques. He tinkered with new innovations in how his co-operative’s oranges could be used in other products and categories — food & beverage (non-carbonated drinks, soda, candy, etc.) and personal care (soaps, facial creams, etc.), among others. He even engaged with new distributors from across the pond in Europe to sell more of his product. All of these efforts amounted to very little as most of these initiatives resulted in marginal marketshare gains but significant expenses over the short-to-medium term.
While Jack was delivering measurable “results,” Steve was been criticized and chastised for apparent lack of pragmatism and bottom-line results.
But one fine day, Jack realized he had reached the limit of squeezing every drop of juice available in an orange and could go no further. Meanwhile, right about this time, Steve’s non-fizzy, special orange and mixed fruit juice blend began to take off. Over the next few quarters, the drink gained national popularity.
In that year alone, sales went up by 35% and margins approximately: 20%. And there seemed to be no stopping the popularity of the drink — which a major beverage company was interested in licensing for US$ 300 million for an exclusive, multi-year agreement to produce and distribute the drink. This would be 10 times the annual US$ 30 million turnover of the entire orange co-operative and 100 times greater than the US$ 3 million extra margin improvement that Jack had painstakingly operationalized by improving juice yields from their orange stock.
Moral of the story: Yield management and cost reduction have their logical limits. Growth and diversification, on the other hand, is only limited by the resourcefulness and creativity of the people involved.
What company are you?
Jack — the cost-squeezing innovator with a natural limit to your value creation capabilities…or Steve — the relentless strategic innovator with boundless value creation capabilities.
What is your outlook on business…and life?