What does it take to be a supplier that can make it? John Sanderson, president and CEO of Siemens VDO Automotive (Auburn Hills, MI; www.siemensvdo.com) in a speech at the 2005 Management Briefing Seminar, delineated seven characteristics of a better business model:
- Customer diversity. If you have an array of customers, chances are if one goes bad, then having the business spread is better.
- Technology and innovation. "You're not going to simply walk in and displace one of your competitors in any meaningful way unless you have some compelling, undeniable technology or cost advantage which is hard to duplicate by the incumbent suppliers," Sanderson stated. Innovation is essential. As he said of suppliers, "As we all take on an increasing role in terms of the technology within the vehicle, you can begin to see a corresponding shift towards deeper partnerships between the car companies and those suppliers who have chosen to become their primary technology providers—not just another commodity supplier."
- Strategic product portfolio. Sanderson pointed out, "This portfolio succeeds most often when it stems from a deep-rooted core competency which in turn can create some form of synergy across the businesses." He explained, "For Siemens [overall parent company] and Siemens VDO, this is electron-ics, software, and electronic based systems. Approximately 50% of our total business is associated with electronic products and systems." There is another approach that he acknowledges, which is to carve out a niche such that "your technology position and core competence is so strong that it creates a barrier for others to overcome."
- Market share position. Remember Jack Welch and his dictate that a business be number one or number two in its category or it would be gone? Sanderson goes to three. Those below don't make money. Which means, he explained, "You can't invest in the technology to compete with the stronger and larger competitors in this space. You don't have the volume or scale effects to lower your overall cost structure on a per-unit basis. You can't provide the continuous price productivity to your customers." In other words: You can't cut it.
- Global footprint. Once again, it is about having a spread across something, in this case a globe. Not only is this about having manufacturing in sites that have low-cost labor, but also engineering and technical capabilities.
- Metrics. Measurements allow people to "face the reality of our situation, however difficult that may be," he noted. But a very important point: "Metrics will never tell you what to do—they will only tell you where to look. What you do is a strategy and a leadership subject."
- People. None of the above can apply without them.—GSV