[MUSIC]. I want to talk about supplier constraints. So suppliers are the people and the, the capital. Let's think of it as capital; knowledge capital, human capital, different things that supply in an industry brings in the raw material. And so we need these suppliers in order to help the industry work. Alright. So, these are the suppliers that either work for an organization or even work outside the organization. Kind of things that I want to talk about just real quickly are labor mobility. How do we get people? Where is labor? Can we get it to the place where we need it? Then, also, the information technology transfer. So these labor, these people have ideas. They have knowledge and they have know-how. And how we get that to the place where we actually need it then, in the sort of, the technology transfer sense? So the three kinds of constraints I want to talk about just briefly are; suppliers tend to favor their own interests, and we all favor our own interests but suppliers have special interests vis a vie, the organizations they might work for. talking about the diff-difficulty getting the kind of people that you need. Sometimes you need a certain kind of person but that person doesn't make it easy to get that person, even knowing who it is. And then the third thing we're going to talk about, the third constraint is these powerful professions and guilds, things like unions and trade you know, like teachers, doctors, lawyers. Those are the professions and also the trade unions. And those kind of guilds that can be constraints to innovation. I'll talk to you a little bit about how that can be. A big supplier constraint has to do with this labor mobility, that people may have the skills but they may not be where we need them, or the skills may not even exist if it's a new industry, right, so they are creating this new industry called the digital camera. Digital photography, then they're may not be people available who are experts, who are able to bring in and help us do this thing called innovate around this new technology. Also what are the motivations of people? Are the people who would supply you with their knowledge, with their mode of power are their interests aligned with yours Usually not. But they're interested in is a long term contact. They would like to be able to be stable. Whereas what you're may be interested in more is having a, short term contract and being able to swap people in and out and play people against each other. And the suppliers don't want you to be able to do that. To make suppliers compete with each other. Sometimes people are available, they aren't willing to do it at the price that you're willing to pay. So, besides labor mobility, we have this issue of information transfer. How do we find out what's going on in the industry, what other people are doing inside of our industry? and usually it's the suppliers that we're going to use to find that out, but what is their interest in telling them? Also towards enter they control what we can see or what we can't see as supplier its not, its in my interest to not let you see too much about what I'm able to do and how I'm able to do it. Right, because I would like to keep that as the competitive advantage for myself that gives me bargaining power with respect to you. And also sometimes we tend to look at suppliers for the information. That we need, and if we're only using suppliers, we have to assume that that information may come in in a biased way. And it's not that this is a nefarious, that is a real super negative, cynical conspiracy. It really is just to say if we just look at the interests, the interests are not aligned with each other and they have an effect that they're going to move people in different directions. So the information transfer can really be a problem. Finally, we have this technology development problem. So one thing is, is to know how, to find the people that know, but how can those people actually do the thing that we need them to do in our context, in our organization. Because someone can do something inside of Kodak, does not mean they can do the same thing inside of Sony. Nowadays if you can do something in Apple can you do the same thing in[UNKNOWN], right. So we recently saw an executive move from one to the other. And is the know-how translatable into the[UNKNOWN] called the do-how, can we do it? Can we translate for that knowledge out of the supplier into ourselves. I want to talk about professionalization Professionalization is when people begin to behave like what we call professionals. Professionals are a group of people that have a practice domain, that produce a particular domain that society has said, hey you can solve all the problems of a certain kind within that domain. So let me give you an example of doctors. Doctors have a domain called human health and they're in charge of that. And they're actually self regulate so if you want to be a doctor, you get licensed by other doctors to be able to practice inside of that domain. Same as law, same as education and so on. So these are the professions and we called them. And what professions are able to do is they're able to control behaviors. So they get to decide what it means to be a doctor, and how it is that you have to behave if you're going to be a doctor. And how it is that you behave to not be a doctor. They have traditional knowledge bases, they have certain ways of doing things and they have certain ways that they've been educated to do things. Proposing to do things in a different way may not be in the interest of the profession, and they become not interested in doing things in a different way. Professions can also gauge in guild like behaviors, and basically by having certification requirements, by controlling movement of people, through maybe degree requirements. Even advertising practices, so for example law firms, they are not allowed to advertise prices for services, and that is, and doing that, you can actually get thrown out of the profession. And so these guild-like behaviors act to protect due to sort of reinforce what's happening inside the guild. And so as you can imagine, this does not really lend itself to innovation. That is, it does not push innovation to happen because what the guild wants to do is keep things the way they are. And by keeping things the way they are they're able to maintain that power. Of course there are going to be innovations, but the innovations are going to come in much more slowly. We think about how innovation happens in the profession. Well, think about it this way. you, you start out by learning and so, learning the art, other than to call it. So for example, I have a sister who's a doctor, and she had to learn the art of doctoring. And so, she went through her undergraduate, then she did went through medical school. she's, she graduated from medical school and she started doing residency, then she started doing fellowships. And so it takes a long time to get from the learning part to the mastery part. Once you master it, you're able to do practice. And so for her, that was a long process to go from learning through mastery, through practice. You know, maybe like a 20, 30 year period for doctors. And then other professions it can take equally as long. So when you ask people in the profession to update, that is to say okay, we're going to change how health care works. We're going to change how doctoring works. Well, that's a really hard thing if someone's trained to do this thing for 30 years in the way that they have. And also, keep in mind, that along the way they'd been told the deal is, if you work really hard now, yeah, I know you'll be poor, I know you'll work really hard, you'll have terrible hours, but when you've, when you're finally able to practice, you'll be compensated for that and you'll be well compensated for that. And so, I did my part. I learned, learned, learned and, and mastered and then, and now finally I practiced. And now, you want to change everything? Like I don't want everything to be changed. And so, this can be also part of what we see, the kind of constraint that we see from education, the kind of constraints that we see from law, the kind of constraints that we see from health care. in these kind of professions where there's a really long preparation period, before someone is allowed to practice. And the idea of the cost of update seems very very high to them and they're going to oppose it. On the other hand if we think of innovation as a, like It's called a professional software engineering, right? Where I learn something, by the time I learn something in in in learn master and practice in software engineering I can go really quickly. It's only our 14 year old kids now who are able to, to very quickly go through this cycle here where they're able to learn something, apply it and then master it and then learn a new thing, apply it and master it. And the cycles are so short here that even in the, in these kinds of professions we might think that learning is part of the profession. You have to be able to learn quickly in order to stay alive, to be able to be a member of this profession. And so, those would be the kinds of differences that we would see between the kinds of professions and constraints that they pose as suppliers in an industry. Ad so again, supplier constraints, the goals for suppliers who really want to increase the value of their expertise. If they have an expertise and they want to increase the value of it. We all do. We all have something of value and we want to increase the value of that. They're going to do it by controlling labor resources. That is who's able to be in that field. How they're able to get into that field. What they have to do in order to be in, remain a member of the field. They're going to control knowledge flows. Often we have jargons and technical ways of, of having Really a sort, we'll call secret information about how it is we do certain things. and also we're going to embed our value into proprietary system. Let me say that in a different way, to say that if I know I have something of high value, I don't want to give that directly to my the organization that is that I'm supplying to. I don't want to give them the value in a way that they can sort of desegregate it and take it apart and use it to their own devices. If I give them the whole package, in a way that they can't take it apart, then actually I've maintained some value. So my interest in innovation, in innovating is innovating for myself, in the proprietary system not innovating for my, the organization to which I'm supplying, my value. So how do we overcome these supplier constraints? What can we do as a way of getting over, or, or at least mitigating the kind of, of dynamics that cause suppliers to want to be not super open to our innovations? One thing we can do is not to outsource our core. Often we have to make a decision, know, in the, in the, development of an innovation. Do we make a part of it or do we buy a part of it? Well one thing to think about is what is the, how core is that piece to the value of what I produce. And so in terms of the digital camera I have to sort of think about what's the most valuable part of that and let me not supply that, let me not outsource that thing. Let me make the things that are most important to me where I create a value. Let me outsource the things where they are not core value that I can actually set up contracts where I can get suppliers to bid against each other. for something. Also, we need to know the threat of our innovation. When we propose innovations, it's going to threaten our suppliers. And so what does it do to them? Does it make them feel like not professionals anymore, does it drive down their costs, does it drive up their costs, does it drive down their their profit? And if we know that, we're much more likely to be able to mitigate the threat. We might be able to understand how they're likely to behave. With this innovation in mind. You want to share the "Returns Innovation"? So when you innovate and you're able to get some advantage from your suppliers, can you share that? Can you share that with them? They're much more likely to go along with you to help you innovate if they understand that[UNKNOWN] some return to that. So if the process is more efficient so you need fewer[UNKNOWN] or their services maybe you can give them a higher price or maybe show them a way that they can actually get more customers doing the same kind of thing. And then also one of the cas-, costs of capital, understanding the cost of capital, you know, what strings are attached when you take money from a bank? Right, so a bank could be a supplier to you, supplies money to you. What strings are attached are there certain loan covenants for example that require you to have a certain amount of money in the bank and if you have to have that money in the bank you can't be innovating with it. And so those are the kinds of costs that might come with the capital that you take in. Same with human capital. Well, that's a discussion of a supplier constraints. Now I want to move to the market and we're going to talk about the kinds of constraints we face by being in the market.
