You Can Make Book On It

    

One of the many great lines in Charlie Wilson’s War came when Julia Roberts’ character, Joanne Herring asked, “Why is Congress always saying one thing and doing nothing?”, to which Charlie Wilson replied, “Well, tradition mostly.” That explanation for inane behavior in Congress applies to the book industry, as well.

In the last week we have seen two events that show just how far off the mark management can go when the value proposition in an industry goes up for grabs. First, after Barnes & Noble floundered around in the hardware business with its Nook idea, their CEO had a “You can’t fire me, I quit – You can’t quit, you’re fired” moment, and was replaced by an accountant.

Then, the U.S District Court in Manhattan confirmed what everyone involved in writing and selling books already knew – that Apple was guilty of colluding with and/or coercing publishers to fix the prices on books to be downloaded to their iStuff. That was pretty much standard operating procedure for Steve Jobs – to sell cool hardware, then set Apple up as the content/application funnel. Apple users could only get content from Apple, and content providers could only sell though Apple. Strongarm techniques to make a lot of money from the value authors, musicians and software developers create for end users has long been the ugly part of Apple’s business model, but this time they went too far.

The problem with books is like the problem with a lot of industries. If we were to value stream map the process from author’s at one end who create the lion’s share of the value, and readers at the opposite end of the map who define and pay for the value, we will find a lot of time, money and resources in between that neither create nor define much value, if any.

Publishers, printers, trucking companies, warehouses and retail stores such as Barnes & Noble may have once been necessary, but, once again, “necessary” and “value adding” are not the same thing. As soon as the world changes, that fact becomes painfully apparent. Make no mistake, Apple and Amazon are the new “necessary”, but they do not create value. That designation is reserved for authors, and the only elements of the value stream that can be counted on to exist permanently are the authors and the readers who pay for the value authors create. Everything and everyone in between is living on borrowed time.

Those in the middle will go to extraordinary means to stave off the inevitable, from Apple’s muscle approach to Barnes & Noble’s attempt to transition from yesterday’s necessary to a more modern version but they can no more change the fact that they are making money without creating value – and therefore are operating at very high risk – than they can stop the sun from coming up in the morning.

It may be sooner, and it may be later, but someone with some innovative idea is certain to come up with a way to provide their necessary function cheaper, faster and at higher quality levels, but even that will be non-value adding waste and is certain to change too. That’s lean 101.

What does any of this have to do with manufacturing? Nothing, directly (unless of course you manufacture books); but it has everything to do with it indirectly. You see, manufacturers are to their supply chains/value streams what authors are to book value streams. They are the value creators, and somewhere out at the end is the person who pays for that value. And just like authors pay for a great deal of the waste in their value streams, so do manufacturers in theirs.

In the old model, if a book was worth $25 to a reader, the author – the value creator – received about 10% of that, and the rest went to the aforementioned necessary non-value adders. The reader was certainly not going to pay the author the $25 the book was worth, then pay an additional $22.50 to support all of the rest of the folks in the chain. No, their cost came out of the $25 worth of value the author created.

The same is true with any manufacturer. Your gizmo might be worth $10 to some Walmart shopper. But you get a very small portion of that ten bucks. The cost of all the waste comes out of the value you created. That should make the downstream waste in your value stream pretty important to you.

Just like Apple and Barnes & Noble will go to great length to come up with creative and often dubious schemes to remain in the chain and take some of that value authors create, so will those in any manufacturer’s supply chain. You are paying for these guys, whether you know it or not. And you may think they are necessary, and they may well be … for now. Many are not necessary, so why are they there and why are you paying for them? Well, tradition, mostly.

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