How are you Dealing with Long Tail in your Business ?

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					          How are you Dealing with Long Tail in your Business ?
                                                    Dr. Shridhar Lolla
                                                   CVMark Consulting
                                                   lolla@cvmark.com

Draft 4.0
May 2011,
Vikroli, Mumbai, INDIA


Key words: Long Tail, Business Model, Effect Cause Effect, Business Logic, Measurement, Business
Improvements, Business Model Canvas, organizational thinking, simplicity, performance Improvement,
Thinking Capabilities, focused execution, business rules, business fundamentals, built to last, BHAG
________________________________________________________________________

Costly mistakes are not necessarily made in complex terrain. Repeatedly, we find that
organizations make simple decision making errors that have catastrophic impact on their
businesses. This caselet, gives a glimpse of such a simplistic error, that is not uncommon. It
then, tends to expose a larger issue of ignoring industry characteristics, when crucial
decisions are made.

Long Tail is such a characteristics (phenomenon) in most of the organizations that have a
portfolio of offerings to deal with. Surprisingly, a vast majority managers feels that it is
solvable only in digital domain. An introduction to the phenomenon is also a part of this
caselet. Just on the way is also a sequel to this caselet that provides direction to the solution
in dealing with Long Tail from strategic and operational point of view.




Copyright © 2011, CVMark Consulting, All rights reserved.                                              1
          How are you Dealing with Long Tail in your Business ?

“Thank you very much and wish you all the best,” I said, as I snapped out the Video Display
chord and began shutting down my laptop. I looked at Prasad and saw him walking towards
me.

The QnA session of the ‘Operational Centric Business Models’ ran for almost 40 minutes
and the audience was not yet in a mood to stop shooting out queries. Prasad had to power-
stop the session.

Prasad shook my hands and said, “This was a powerful session, and the audience just liked
it. Thank you Sir.”

I said, “Thanks to you too Prasad, for bringing this participative and engaged group of
executives…. Let’s move now.”

Prasad then turned towards the 30 odd executives and made announcement for the schedule
of the next month workshop.

He then turned back and said, “I am sorry, I could not inform you earlier. A gentleman
wants to meet you, before we drive back to Airport.”

I said wearily, “Prasad ! I am already exhausted and you know that I run on low energy
inventory. Also, there is not much time left for the flight, we need to rush.”

Prasad said, “ Yes Sir, but this gentleman came from no where, and entered the session in
the afternoon only to meet you. Seems like an interesting case. Here, he is coming.”


As I turned my head, I saw a stout gentleman, wearing grey colored suit, almost rolling into
me with both hands extended. Before, I could realize, he pulled my right hand, shook it
vigorously and said, “Sir, I am very happy to meet you. I wanted to meet you for many days,
ever since my colleagues told me about you.”

He waved his hands to some people in the hall to join us.

“Sir, this is my management team. They had attended your workshop a few months back in
Bangalore and tried to do something. I wanted your help to guide us through what we are
doing,” words just rolled out of his lips, while others joined us.

“ Nice to meet you. Why do not we meet next month, when we have the extended
workshop?” I said.




Copyright © 2011, CVMark Consulting, All rights reserved.                                   2
“Sir, if you could permit, I would like to talk to you briefly. We are facing a problem and we
are probably missing something stupid. If you permit…”, He folded his both hands together
in request.

I felt embarrassed and looked at Prasad. Prasad murmured into my ears, “ Sir, he is a
prominent businessman of this place. If you do not mind, let him join us along to the
airport.”

Puzzled, I said, “OK.”

I picked up my laptop and started walking down the aisle, while Prasad murmured in the
ears of the gentleman and pulled his hand along to walk with me.

As we stepped out of the building, Prasad’s black Toyota Camry was waiting at the porch.
He requested us to sit in the back seat comfortably, asked his driver to take leave and set
himself on the wheels. The gentleman’s colleague settled himself next to Prasad.


The gentleman again held my right palm and slipped in a card. It was his visiting card that
read, Jayesh Patel, Managing Director, PureHealth Group of Companies. He introduced
himself, “Sir, I am Jayesh and he is my CEO, Arun.”

The gentleman seating in the front, extended a hand shake and passed on his visiting card.

Jayesh, then looked into my eyes and said in one breath, “Sir, we are a medium to large
specialized Neutraceutical organization from Mumbai. We suddenly realized that the
market is getting crowded much earlier than we thought it would; and we are in the trouble
of gradual erosion of our competitiveness.”

He continued, “It is important for us to sharpen our competitiveness, so that we could hold
our leadership position in the market. What do you say Arun Bhai?”

Arun looked back at me and said, “True Sir, and it became very clear to us once we attended
your workshop in Bangalore during the last quarter, that when innovation in new products is
no more an advantage, we need to make operational strategy drive our competitive edge.”

I murmured looking at Arun, “ I see.”

Arun took out his seat belt and almost sat across on his seat. I tried to see Prasad’s
expressions, but could not succeed.

Arun then said, “As you said once, speed at which things are done, is the foundation of any
operation. And speed is a very potent weapon to build competitiveness under ever changing
market conditions. We, therefore, decided to build a capability to respond to the market
needs much faster than any of our competitors.”



Copyright © 2011, CVMark Consulting, All rights reserved.                                     3
He continued, “If this competitive edge could become decisive enough and it would be
difficult for the competitors to replicate quickly, it would not only help us in protecting our
current market position and in retaining clients, it will also allow us in snatching invaluable
opportunities. Actually, several opportunities come on our way regularly, to supply short
time deliveries to the market, but seldom we are able to take advantage of.”

I listened, still struggling to sense the problem. I then realized that perhaps the gentlemen
were trying to describe a situation.

Arun continued, “We therefore chose, ‘Response Time’ as the key indicator for our
operations. Where, Response Time is defined as the time between creation of a customer
order to the moment it is delivered to the customer. This is same as you define, Lead Time.”

Jayesh, looked at him and said, “Let me explain, how my team explained this to me.”

“They said that the average industry Response Time (the generally quoted Response Time)
for a customer order is around 60 days. And most of the players would agree to supply to
this Response Time. However, the OTIF (On Time In Full, a measure of fulfilling an order)
of the industry has been very poor and there are compromises made by both clients and
suppliers. This has only led to creation of artificial safety factors to buffer the variability
(inefficiency) in demand and supply, and as a consequence, its impact appears in
significantly inflated prices of products.” He spoke out almost in one breath.

Gasping for his breath, he looked at me if I understood. I nodded.

Arun took from here, and said, “Now beyond these problems, often, there are requirements
from the clients (more often than what our intuition would tell us) for shorter than 60 days
response time, because of various urgencies and Murphies prevailing in the system. Now all
these are triggered by the ‘rapidly changing’ (diversity and variability) nature of the market,
which makes the current method of operations based on long term forecasting increasingly
unreliable. And therefore, if ‘speed’ with which an organization can respond to change is
improved, it has a better chance of competing in the market.” I thought that probably, he
wanted to bring forth the issues in operations.

He asked me, “Isn’t the logic correct Sir.”

I said smilingly, “Absolutely, you are bang on target !”

Gaining confidence, Arun reiterated, “So, we made a decision to choose Response Time as
the key indicator for the organization, which made performance of operations, including
manufacturing plants, to be measured in terms of their Response Time.”

Gesturing with his hands, he said, “ We also learnt that, it is very important that when the
overall strategy of the plant depends heavily on its operational strategy, the goals must be
unambiguous and specific. It was therefore, important that the goal is Big, Hairy and



Copyright © 2011, CVMark Consulting, All rights reserved.                                         4
Ambitious (BHAG [1]), so that it gets due attention and is worth rallying organization
along. The organization, thus, took the target to cut down the Response Time to 30 days. “
[1] BHAG: as defined by James Collins and Jerry Porras


“Wow!”, I exclaimed.

He paused. Jayesh pitched in, and said, “We had never taken a BHAG earlier. And it is not
built in our DNA to go through a transformational change that is needed to achieve the
goal.”

Suddenly he switched the context and said, “Traditionally, in this industry, there is a
tendency to look at top 10% products that contribute a majority of the company’s supplies,
and hinge big decisions (read ‘strategy’) on their impact on these top 10% products.”

He explained, “For example, when volume of top 10% products grows by 10%, their impact
on overall sales and profitability is disproportionately higher, compared to the effort made
on these products. Thus, within corporate strategy, there is often a tendency to give an
inordinate attention to these products in asset, resource and time allocation. In fact, often,
future expansion strategies are guided by top 10% products. As a normal practice, we
therefore, decided to attack top 10% products and reduce their Response Time. By
traditional logic, it should ultimately reduce overall Response Time of the organization.
This is also thought prudent , in order to prevent exhausting too many valuable resources too
early. “

I did not feel to object his logic.

Arun explained further, “Our team, then broke down the Response Time of the value chain
into tiniest parts, installed proven operational management systems, placed a SMART
measurement system and institutionalized a review mechanism to execute its vision for
building a decisive competitive edge based on shorter response time.”

Both gentlemen paused for a while looking at each other. Jayesh wiped his face with both
hands, took a deep breath and said, “It is 4 months, since we began this project, with full fan
fare. Surprisingly, the Response Time of the organization has not moved down even
marginally, rather it’s gone up. This has left the team shocked and forced us to check our
assumptions.”

Arun said, “Jayesh Bhai, we have not stopped our project yet.”

Jayesh then said, “Yes, but we are not yet sure what has gone wrong? Why do we not see
significant improvement in our overall Response Time. And Sir, this is the problem, I
wanted to talk with you and have your guidance in steering us through.”

I thought, “For those, who are used to systematic analysis, it is easy to see through the
holes.” But I did not wish to trivialize the core problem, just based on the available brief
description of the situation. There must be more to it than it seemed.

Copyright © 2011, CVMark Consulting, All rights reserved.                                      5
My cell phone buzzed, and I looked at it, it was an SMS from the Airlines. It said that my
flight was late by 40 minutes.

I told the gentlemen to get into a bit more details. Ajay, opened up his laptop and took me
thorough their corporate presentation, their strategy and the portfolio of improvement
projects. They showed me everything they could, but did not show what I was looking for
“their Business Model Canvas [2,3].” Though the visualization of their business model was
becoming clearer in my mind, I was not sure if they had constructed the model in their
minds. Any way, I thought that it was not going to be a show stopper, for the current scope
of the problem.
[2] http://www.cvmark.com/blog/?p=26
[3] www.businessmodelgeneration.com/



We reached airport much before the adjusted scheduled time. We moved into a Lounge and
spread ourselves around a table. The distribution data of product-wise margins took my
attention. I then snapped the spreadsheet on Arun’s Laptop and converted it into a chart to
visualize the distribution of their products in terms of margins. What we saw was an
amazingly sharp Long Tail.




Figure 1: Longtail Characteristics in Neutraceuticals

I opened up my notes and said, “Jayesh Bhai, the business of Neutraceuticals, as you have
described and as your data represent, has a typical supply (demand) distribution
characteristics. For your organization, just a few products of its portfolio account for large
margins. This is not a 80:20 phenomenon, rather a more skewed phenomenon, which Chris
Anderson [4] called as ‘Long Tail’.“

Copyright © 2011, CVMark Consulting, All rights reserved.                                        6
[4] http://www.thelongtail.com/

“Do you know Long Tail?” I asked Arun.

He said, “Yes, but that is related to digital media.”

“Oh, yes most of the work on Long Tail is in digital media. But here is another case of Long
Tail and perhaps, ignoring this characteristics and trying to solve any problem in your
business may not yield the desired result,” I said, pulling back myself on the chair.

Both Jayesh and Arun looked dumb struck.

Jayesh said, “So what if it is a Long Tail.”

I said, “ Long Tail phenomenon actually divides the organization into two logical parts;
unless care is taken and business model of the organization is aligned to this characteristics,
it will create significant disruptions not only into operations but also into key strategic
decisions.”

Arun said, “Yes, I understand.”

Jayesh asked, “What do you mean?”

“Actually …our strategy to handle Head and Tail has to be different.” Arun fumbled.

Jayesh kept staring at me.

I had no option but to get into basics.

I quickly sketched the Long Tail curve in my notebook. I shaded the Area under the Head
and marked it with an encircled letter ‘A’. Similarly, I marked the area under the Tail with
an encircled letter ‘B’. And then said, “Look at this, the opportunity under the top 10%
products (Head) is area A and the opportunity under the Tail is area B. And pay attention
here! The area B is not too small compared to area A, rather it is comparable.”

“Oh !”, exclaimed Jayesh in surprise.

“Now if you tend to build a fixed strategy for your organization purely based on top 10%
products that contribute, say 50% of your total margin, you are designing yourself to loose
the opportunity under the Tail.” I said.

Immediately, Arun opened up his pain point, “More importantly, there is constant conflicts
in operations about the extent to which top 10% products be given priority, while other
products go on screaming.”




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Figure B: Long Tail Characteristics tells that there is BIG enough opportunity even under
the tail

Of course, I was prompted to ask, why would somebody need to get into such a business.

Asking such a question would only mean to ignore the real issue. The fact is that Long Tail
is the inherent characteristics of the PureHealth’s business, where, often, highly profitable
products will not sell if lowly profitable (and some time, lossy) ones are not supplied along.

I brought them back to the original point of discussion by saying, “As we see, less than 10%
of the company’s products make significant contribution to its margins. Hence, it might
seem logical to concentrate on these products to start with.”

“Now, under initial condition, i.e. 4 months back, the Response Time was 60 days. Let’s
break the Response Time vertically, into 10:90 percent products,” saying this, I looked at
Arun.

Arun took the data of client orders for the period preceding implementation of new practice
and quickly got following results:
Table-1: Breakup of Response Time, between head and tail products (Initial Condition)
 Products       Response Time, days
 100%           60
 Top 10%        30
 Bottom 90% 63

I then said, “So when we look at the Response Time, we realize that Response Time of the
top 10% products is 30 days, while that of the bottom 90% products is 63 days.”
Copyright © 2011, CVMark Consulting, All rights reserved.                                        8
Arun also showed the data as the implementation progressed.

Looking at the results, I said, “Now when based on the principle of dissociation, focus was
increased on top 10% products; the team did exemplary well and the Response Time of
these products was reduced by 25% to 23 days.”

And then continued, “But since the organization Response Time is dominated by orders
from the bottom 90% products, the improvement on overall Response Time of the
organization did not improve much. Which means that the impact of Long Tail on Response
Time is much much higher than the impact of top 10% products. “ I then constructed the
following data Table.


Table-1: Breakup of Response Time, between head and tail products (After Initiative)
 Products               Response Time, days
 100%                   65
 Top 10%                23
 Bottom 90%             79



And said, “Further, since the decision to improve Response Time of top 10% products led to
increased focus on them, and since, most of your products share common facilities and
resources, the Response Time of Long Tail fell down. The overall impact was, therefore to
elongate the Response Time significantly. Thus, the Response Time actually worsened.”
The argument clearly brought out the operational conflicts the gentlemen were struggling
with.

I looked at Jayesh, he was looking tense. This was really a tough situation to be into, when
you have rolled out a transformational initiative, set a BHAG, and chosen Response Time as
the key measurement, and most importantly, rolled it out across the organization and started
appraising people on the overall performance of the organization.

He said after a while, “Now it looks a very trivial problem, which was the failure to clearly
link the scope of actions to that of the expected impact. Surprisingly, in the grind of day to
day work, we succumb to make this type of basic error.”

Jayesh continued, “Of course, the logic that if Response Time of top 10% products
improves, overall Response Time of the organization would improve; is not analogous to the
cause-effect logic of ‘if sales of top 10% products improves, the overall sales grows
significantly.’”

He then looked at Arun and said, “Arun Bhai, actually, the problem is not just linked to the
alignment of the scope of cause and that of expected effect. The real point now is, how do
we deal with Long Tail in our business. And therefore, the question is, ‘What is the
operational strategy best suited to continue making money from the Head i.e. top 10%
products, while simultaneously exploit the BIG opportunity lying under the Long Tail.’”

Copyright © 2011, CVMark Consulting, All rights reserved.                                        9
Prasad interrupted, “Sir, your flight is boarding.”

I looked at him, kept my notebook back into the bag and got up. Quickly, shaking hands
with Jayesh and Arun, I said, “Gentlemen, I must move. I hope to meet you next month and
do let me know your ideas on dealing with the Long Tail.”

I shook hands with Prasad and he walked with me to the security check, before I bid him
goodbye and gestured to talk on cell phone.
------


Reflections
In the above description of the situation, was setting an overall plant target, while focusing
on top 10% products was wrong purely from measurement perspective, or something else?

Do you find businesses taking ‘one rule fits all’ decisions by ignoring Long Tail
characteristics? How do we deal with LongTail, or rather, does Long Tail phenomenon give
us a reason to tweak improvement tactics?

Do you have an experience to share?


…………….

To learn : how to model your operations, in order to make best of the Head and Tail of your
product margin distribution curve, follow the author at http://www.cvmark.com/blog/ for
the sequel to this article, or write him at lolla@cvmark.com.




Clet:11-27




Copyright © 2011, CVMark Consulting, All rights reserved.                                        10
vmark.com.




Clet:11-27




Copyright © 2011, CVMark Consulting, All rights reserved.                                        10

				
DOCUMENT INFO
Description: Costly mistakes are not necessarily made in complex terrain. Repeatedly, we find that organizations make simple decision making errors that have catastrophic impact on their businesses. This caselet, gives a glimpse of such a simplistic error, that is not uncommon. It then, tends to expose a larger issue of ignoring industry characteristics, when crucial decisions are made. Long Tail is such a characteristics (phenomenon) in most of the organizations that have a portfolio of offerings to deal with. Surprisingly, most of the managers feel that it is solvable only in digital domain. An introduction to the phenomenon is also a part of this caselet. Just on the way is also a sequel to this caselet that provides direction to the solution in dealing with Long Tail from strategic and operational point of view.