We enter 2012 with a lot of unknowns. Will the European debt crisis be resolved effectively and expeditiously or will it lead to another recession? Will the American economy that is showing some signs of improvement, be able to strengthen during a U.S. election year that will likely produce more political gridlock? Will the expected surge of foreclosed homes further depress the U.S. housing market and the economy or will the buyers of these homes create a resurgence in home renovation? Will North American consumers drive a solid increase in the purchase of goods and services at the expense of higher debt per capita or will this be a year to pay down debt and hunker down for what is expected to be a long and slow economic recovery? Will business leaders feel confident enough to take some of the trillions of dollars that have been parked and invest in plant, equipment and new hires or will they keep their hands in their pockets and drive the unemployment rate higher? I wish I knew the answers to these questions since they will have a material effect on freight transportation.
With these issues as a backdrop, here are some suggested strategies to lead your freight transportation organization in 2012.
1. Expect the Unexpected and take an “Emergent” Strategy Approach
In such a volatile climate, a “proceed with caution” approach would make good sense in 2012. This would include everything from fleet purchases to new hires.
Unless a clearer picture begins to appear from the shadows of 2011, it would be wise to take an “Emergent” strategy approach first suggested by Professor of Business Strategy Henry Mintzberg at McGill University in Montreal. Instead of the more commonly used deliberate approach, the emergent approach is the view that strategy emerges over time as intentions collide with, and accommodate, a changing reality. It is a more grass roots, front-line oriented approach where solving real business problems lead to new strategies. Executives should look for new business opportunities among their front-line troops and middle managers. They should test a number of these opportunities using an approach known as Jugaad.
2. Encourage Frugal Innovation or Jugaad
Jugaad is a Hindi word that, in short, refers to making do with what one has to solve one’s problems. In a business context this means bringing innovative products to market despite limited resources – if not thanks to limited resources, since it is financial constraints that drive it in the first place. Frugal innovation results in great value — no-frills, good quality, and functional products that are also affordable. The idea is to plant a number of seeds, scale up those experiments or pilots that work. Then, when they have proven themselves, ramp them up and spread the key, few winning innovations across the organization. This connects middle managers who are close to the customers with access to the senior executives who control the purse strings. Using an “Emergent” strategy approach and Jugaad, allocate capital and resources to the ones that work.
3. Create Capacity, hire Drivers to fully Capialize on the Winning Pilots
If the expectation is slow growth in the years ahead, one must be careful to add capacity to those opportunities that produce profitable growth. Using the successful pilots as a guide, add to your fleet and driver pool to scale up the revenues and profits from these successful business opportunities.
4. Create a Driver Friendly Culture to expand your business
Driver turnover rates are increasing again. As a variety of demographic, economic and regulatory (e.g. CSA) forces play out, driver retention must be a key element of any trucking company’s business strategy. In order to capitalize on your company’s successful new transportation service initiatives in 2012, there will be a requirement to recruit, compensate, train, manage and retain a quality driver team.
5. Maintain Yield Management Strategies and Pricing Discipline
With tight capacity, many trucking companies became far more focused on their costs, their competitive strengths and their margins to improve profitability. This pricing discipline should be maintained in 2012 as companies seek to grow their revenues from their successful pilots.
6. Ramp up your Dedicated Trucking Business Strategy
The challenging economy should continue to drive manufacturers that do not have the critical mass or skills to run a private fleet, to outsource this function to the professionals. A dedicated trucking operation is a way for shippers to lock in capacity and reduce freight costs while for carriers it provides a steady revenue stream and guaranteed capital recovery over multiple years, a true win-win proposition.
7. Migrate from being a Transportation Company to a Supply Chain Solutions Provider
One of the major trends over the past 10 to 15 years has been the emergence of logistics service providers. These companies have been able to become the “go to” suppliers for a range of supply chain services including warehousing and transportation. Shippers have become increasingly comfortable outsourcing their logistics requirements to these middlemen.
In addition, established trucking companies of all sizes have been extending their services portfolios into new areas (e.g. global, intermodal, truckload etc.). Trucking companies, even small niche players, need to take a careful look at their customers’ requirements and calibrate their value propositions and service portfolios to them. This involves far more than creating a “logistics” division to broker loads that they cannot move on their assets. It implies redesigning their companies to provide a range of services, some of which may not be available today. This expansion should be closely linked with their “Emergent” business strategies.
8. Kraft an Intermodal Strategy
Intermodal transportation has historically been a small slice of the total freight pie. That is changing. The rails have made big investments in service, reliability and in their networks. The effective intermodal length of haul is moving from over 1500 miles a few years ago to as little as 650 miles. Even for niche players in the transportation arena, it is time to take notice of what is going on in the railroad industry and develop a strategy to take advantage of these changes.
This year is predicted to be one with slow economic growth and potential surprises. An “Emergent” strategy coupled with a Jugaad approach may be an effective way to create and expand successful new service pilots into consistent revenue streams.
