Seeking Efficiencies
Biutou Doumbia is a wife and mother from Sanankaroni, a tiny village in the West African country of Mali. Biutou (sounds like Be-oo-too) and her family lives in poverty, very close to the line between surviving and, well, you know.Oh, one more thing: Biutou is a small business owner. She makes and sells peanut butter.
In Mali, peanut butter is made, as Roger Thurow writes in a recent Wall Street Journal article on Mali, the same way African women have made flour and other grain staples for millennia: by grinding the seeds on a rock with a large wooden pestle. The thump-thump-thump rhythm of the pestles, Thurow says, is "a trademark sound of the African bush."
As we might say in the industrialized world, Biutou's operation is vertically integrated: She grows the peanuts, and then manufactures, markets, sells, and distributes her peanut butter. But it's doubtful that Biutou thinks of what she does to feed her family as a business, let alone how it's structured.
Division Of Labor = Efficiencies
Over two centuries ago, in The Wealth Of Nations, Adam Smith explained how markets are made by the division of labor. And free markets have created what Ayn Rand called "the only system geared to the life of a rational being" - capitalism.
Biutou doesn't know Smith or Rand from a warthog. She's illiterate. But she is one of Rand's rational beings, and as such, she recently recognized the efficiencies of division of labor when someone made a diesel-powered grinder/blender available. Now, for 25¢ and a 10-minute wait, Biutou's 15 pounds of peanuts turns into better peanut butter than she would have made grinding all day with a pestle.
Chocolate And Vanilla
Intermediation, a kind of fancy modern-day word for division of labor, is the process of adding middlemen - or intermediaries - to facilitate business. It's a valid business strategy, as is its opposite - you guessed it - disintermediation: The process of removing middlemen in order to become closer to customers.
These two strategies are as different as chocolate and vanilla, but like ice cream, choosing one doesn't mean the other is wrong, just different. Biutou had practiced de facto disintermediation only because she didn't have a choice. But when the opportunity to add a middleman created efficiencies, like improving her product and getting back several hours of her life in the bargain, she became a staunch practitioner of intermediation.
Is it possible that we could learn something from Biutou? Yes, I know. Her intermediation decision is a pretty dramatic example of low-hanging fruit. Who wouldn't reach out and pluck so much efficiency?
But I'm not going to let us off the hook. Let's look a little deeper into our own operations to see if there are efficiencies we can find, like Biutou did, to improve our products and get back some time. Who knows? We might even find some low-hanging fruit.
Outsourcing Comes Of Age
As outsourcing has come of age in the past quarter century, we have discovered that there are very few operating tasks that can't be intermediated. Indeed, an entire industry of intermediation services has been born, and that envelope is being pushed further each year.
All of which is good news for small business, because as outsourcing evolves, intermediation services are becoming more bite-sized to fit our requirements and our budgets. We have resources and information available to us today that as recent as five to ten years ago were the proprietary property of our big business cousins.
The Dance
For small businesses, the dance we perform with intermediation and disintermediation is a complicated and sometimes frustrating one. How much should we do ourselves, and what resources are required? If we decide to outsource, how much control do we lose? What about personnel, capital constraints, market resources, and market forces? Plus there is one more issue that often raises its head - our ego.
Focus On Core Competencies
One of the most important things a small business must do is focus on its core competencies - what you do that makes your company valuable to your customers. Virtually everything else could be done outside of your organization.
In that spirit, let me introduce you to one simple, six-word question that you should be asking: Must this task be done in-house?
Now let's look at the issues mentioned above.
• How much control do we lose?
Intermediaries are getting better and better at seamless and transparent delivery. There are many things you consume every year that are being delivered by an intermediary rather than the vendor with whom you have a contract, without loss of control. If they can do it, you can too.
• What about personnel?
As your ability to play on the big playground increases, you won't gain a competitive advantage using in-house personnel for things that don't contribute directly to competitiveness. Outsourcing payroll, for example, could give your financial minds more time to work on capital acquisition, profitability, cash flow, and strategic financial modeling.
• What about capital constraints?
Don't outsource if the capital requirements aren't justified. But I predict you will find that, because of all the bite-sized resources now available, just as Biutou did, you may actually lower operating costs though intermediaries, thus strengthening your capital position.
• What about market resources?
If you can't find someone to do the tasks you have determined don't have to be done in-house, you haven't looked hard enough. Don't forget the Internet. With application services providers (ASPs), there are thousands of intermediary services available online. ASPs are an excellent example of the evolution of outsourcing.
• What about market forces?
Customers and competitors are the most active forces in the market. Here's another prediction: I believe you will find that your customers are well acquainted with intermediation, and will accept your strategy if it is delivered seamlessly, and possibly, transparently. And what about competitors? They are either already outsourcing, so you better get on the ball defensively; or they are not, so you better get on the ball offensively.
• What about our ego?
Business owners large and small have a default tendency to be like a hen; we want all our little chickens under our wings. But in today's marketplace, that tendency is more about ego than best practices. My ego is best fed by success, not my management policies. What about you?
What About The Customer?
Any discussion of whether to intermediate or disintermediate would not be complete without asking how either strategy affects our customers. So after you ask the simple question, "Must this task be done in-house?"; after you go through the dance steps of how you would accomplish your strategy; but before you take steps in either direction; ask this one last simple question: "How will this affect my customers?"
As we used to say in the Army, that is the "go - no go question."
Efficiency = Possibility
So what does Biutou and thousands of other Malinese women do with the time the dozens of new grinder/blenders scattered around their country give back to them? They do what generations of Biutou's forebears didn't have time to do: They go to school to learn reading, writing, and arithmetic. Plus, Biutou now has time to contemplate the marketplace, being a small business owner, and her entrepreneurial possibilities.
Write this on a rock... Both intermediation and disintermediation can create efficiencies. Seeking efficiencies will lead you to the best strategy for you and, I predict, more time to contemplate your entrepreneurial possibilities.
