TomTom Survives a Near Death Experience by Embracing Complexity
One of the most useful and amazing utilities of the digital age is navigation. TomTom was among the first to offer this capability to consumers, and for a while the company enjoyed massive success. Then disaster struck. First came the global financial crisis, including the collapse of Lehman Brothers. That was bad enough for any business, but especially bad for TomTom, which just before the crash had paid three billion Euros for a mapping company called Tele Atlas and was now loaded with debt. Worse, Apple shortly thereafter released the iPhone 3 and Google entered the mapping business intent on giving its navigation product away. The competition was all of a sudden brutally effective, but also essentially free.
For a supply chain organization accustomed to rapid growth, abundant demand and product technology leadership, this near-death experience was traumatic. Gone was the familiar routine of “box shifting”, as described by Consumer Division COO Clive Millington, in which contract manufacturers did the build and the supply chain team needed simply to keep an eye on costs and margins while filling orders as fast as possible. Responding to the crisis demanded not only business diversification into content, telematics and licensing, but also a radical rethinking of the core consumer product offering. Income based on unit sales of satellite navigation boxes sold through retailers was essentially gone, so the company pivoted to wearables.
The resulting product line was developed in partnership with Nike and built on experience with smart devices, geo-positioning and a digital ecosystem that is part product, part service, and part content. As the revenue stream shifted from the traditional model of item purchase up front to one based on end-user subscriptions, the supply chain challenge tilted away from unit margins favoring mass production and instead toward personalization.
TomTom also had to quickly adjust to the rapid rise of e-commerce. In 2011, TomTom Consumer sold virtually nothing online directly to consumers. This year, online sales will account for about 40% of total revenue. TomTom’s new recipe for success demands proficiency with omni-channel sales, massive consumer-level data tracking, and customized product/service bundles that shift over time. The new world of TomTom’s supply chain team has become about handling complexity. Millington offers one piece of advice that really crystallizes the lessons of TomTom’s near-death experience as it applies to supply chain strategy: “Embrace the complexity.”
The role of digital disruption in the TomTom story is instructive. First, it nearly killed the company with terrifying competitors appearing almost overnight, and then made matters worse by raising the bar for customized supply response. But the disruption also opened new routes to success. For one thing, customer registration at TomTom went from optional to mandatory as a way to provide the full wearables value proposition. This became much easier as online sales rose and consumers grew comfortable with the process. For another, retail sell-through data was suddenly much clearer. This meant better forecasting, leaner inventories, and tighter working capital performance. It also enabled channel collaboration and enhanced the end-user’s service experience.
Finally, and most important, it created a massive “data lake” of consumer behavior information. Using powerful analytical tools, TomTom can now precisely tailor offerings to specific customer segments—great for any kind of product, but especially useful for a subscription-friendly category like wearables. The good news is clear: TomTom is up almost threefold over the past five years.
As Millington noted, nothing catalyzes transformation like a near-death experience. Companies like Apple, GM, and IBM can all attest to this. In each of those cases, the key to transformation was acceptance of the new reality. In TomTom’s case it was all about embracing complexity to offer personalization.
Citations
- http://bit.ly/2vnNwH8 Forbes
- http://bit.ly/2xjMJbl – The Guardian
Paycheck to Paycheck: New Economic Reality for Many Americans
With unemployment in the U.S. at its lowest level in 16 years, experts are prone to talk about the economy as if it has fully recovered from the housing crash. But other measures of how Americans are doing reveal a darker picture. Almost 8 out of 10 American workers say they live paycheck to paycheck to make ends meet, according to a new survey from CareerBuilder. That can force people to take on debt or otherwise struggle when an unexpected bill arises. It also raises questions about the stability of the broader economy given that consumer spending accounts for more than two-thirds of economic activity.
The survey highlights a troubling trend in household finances: More than eight years since the end of the recession, the share of Americans who are living on the financial edge is growing, said Mike Erwin, a spokesman for CareerBuilder. While some may want to blame Americans’ spendthrift ways, Erwin pointed to two trends that continue to put financial stress on households: stagnant wages and the rising cost of everything from education to many consumer goods. “Living paycheck to paycheck is the new way of life for U.S. workers,” he said. “It’s not just one salary range. It’s pretty much across the board, and it’s trending in the wrong direction.”
A year ago, about 75% of U.S. workers said they were living from payday to payday, a number that has grown to 78% this year. The study, conducted by Harris Poll, surveyed nearly 2,400 hiring and human resource managers and 3,500 adult employees who worked full-time in May and June. With the Bureau of Labor Statistics reporting about 122 million full-time workers, the poll suggests 95 million of those adults could be living paycheck to paycheck. Through July, average hourly earnings were up 2.5%, according to labor data—that is still below the 3% to 4% gains seen before the recession. Inflation stood at 1.7% last month. That means workers’ “real” wages were running only slightly ahead of inflation, another obstacle to putting money away.
Not only are less affluent people are struggling, but almost one of 10 workers who earn more than six figures annually said they are living paycheck to paycheck, according to CareerBuilder. That may seem surprising, but families who live in regions with a high cost of living may feel almost as strapped as lower-income households. The findings add to research about the fragile state of household finances. When Pew Research Center recently asked Americans whether they would rather have more income or economic stability, nine out of ten chose stability.
Weak wage growth is partly to blame for the financial stress felt by many Americans. Median household income is still stuck in low gear, with the U.S. Census reporting only one year of income gains since 2007, the year the recession officially started. The end result: American households are still earning 2.4% below what they brought home at their income peaks in 1999. At the same time, expenses for food, fuel, education, housing, and other costs have risen. “Jobs have come back, but we haven’t seen salaries rebound,” Erwin said. “Right now we are in a time when the cost of living is far outpacing the amount of money that people are getting through raises.”
Meanwhile, the labor market is increasingly rewarding workers with higher levels of education and skills, which is borne out in CareerBuilder’s survey and other recent research. About 40% of adults with a high school degree or less said they are scrambling to keep afloat. This is more than twice the number of Americans with at least a college degree, according to the Federal Reserve. CareerBuilder found that about half of workers who earn less than $50,000 per year are always living paycheck-to-paycheck, compared with 28% of those earning $50,000 to $100,000. Aside from the insecurity of living without a financial cushion, the phenomenon has another downside: It hampers Americans’ ability to save for retirement, CareerBuilder noted. The survey found that about 18% of workers said they cut back on their 401k contributions or personal savings in the last year, and more than one-third said they do not put away money for retirement. “That should concern a lot of people,” Erwin said. “If you don’t put money away now, you will rely more on government programs in retirement.”
Personal responsibility does play a role in the financial problems facing many Americans, with the survey finding that only a third of workers stick to a budget. Asked what spending items they would not give up, more than half said they would never cut back on their internet connection or mobile devices. That might seem like an extravagance to some, yet the truth is many Americans cannot work effectively without internet service at home or a smartphone, with employers increasingly expecting workers to check their email while they are out of the office or be available for a call. “We need all of those things,” Erwin noted. Yet there are ways to pare spending on those essentials, such as renegotiating contracts with mobile carriers. He added, “Everything is negotiable.”
Citations
- http://cbsn.ws/2xvrQtg – CBS News
- http://cnb.cx/2wBDMwU – CNBC
The Good News Is . . .
- The composite Purchasing Managers Index (PMI) rose to 56.0 from 54.2 in the prior month. The index showed that weakness in manufacturing is being offset this month by strength in services, which registered a very strong score. New orders for the services sample were at a 2-year high with hiring also very strong. Input costs for service providers were up as were selling prices which are at a nearly 3-year high. Selling prices for manufacturers are also higher this month with input costs also up.
- Intuit, Inc., a global provider of financial and tax software and services to small businesses, consumers, and the self-employed reported earnings of $0.20 per share, an increase of 187.4% over year-earlier earnings of $0.08 per share. The firm’s earnings topped the consensus estimate of analysts by $0.03. The company reported revenues of $842 million, an increase of 11.7%. Management attributed the results to growth in its QuickBooks Online subscriber base as well as online ecosystem revenue growth. The company also cited strength in its Consumer Tax and ProConnect service segments during the tax season.
- The Danish container shipping company A.P. Moller-Maersk said that it has agreed to sell its oil and gas business to the French energy giant Total for $4.95 billion. Oil prices have started to recover after an extended downturn, strengthening profit at major oil producers in the second quarter of this year and opening the door to more mergers in the sector. The Maersk deal would increase Total’s overall production by 160,000 barrels a day in 2018 and would make it one of the largest operators of offshore rigs in northwest Europe. Under the terms of the deal, the Danish company would receive 97.5 million Total shares, or about 3.8% of the French company. Total would also assume $2.5 billion in debt as part of the transaction.
Citations
- https://bloom.bg/2eVhfSb – Bloomberg
- http://cnb.cx/2lwnm3s – CNBC
- http://intuit.me/2wbhAXJ – Intuit, Inc.
- http://nyti.ms/2ixjUVP – NY Times Dealbook
Planning Tips
Guide to Understanding Required Minimum Distributions (RMDs)
The IRS requires that you begin receiving required minimum distributions (RMD) in the year you reach age 70½. That sounds simple enough, but unfortunately, calculating these distributions is not always easy, as there are a number of factors to consider. Below is a brief guide to some of the rules that govern RMDs. You should check with your tax professional or financial advisor to ensure that your RMD calculations and distributions meet regulatory requirements.
RMD Amounts Are Not Rollover Eligible – Amounts representing RMDs must not be rolled over to an IRA or other eligible retirement plan and cannot be converted to a Roth IRA. If you roll over or convert your RMD, it will be treated as an excess contribution, which must be removed from the account by a certain time in order to avoid taxes and penalties. The first distribution from your IRA for any year an RMD is due is considered to be part of your RMD for that year and is therefore not rollover eligible.
Aggregation of RMDs – If you participate in more than one qualified plan, your RMD for each plan must be determined separately, and each applicable amount must be distributed from the respective plan. RMD amounts for qualified plans cannot be distributed from IRAs and vice versa. However, if you own multiple IRAs or multiple 403(b) amounts, you may aggregate the RMD for all similar plans (403(b)s or traditional IRAs) and then take the amount from one account of each type of plan.
Transferring Your IRA in an RMD Year – Prior to 2002, many IRA custodians would not allow an IRA owner to transfer an RMD amount to another IRA custodian. The IRA owner would have been required either to distribute the RMD amount prior to the transfer or leave the RMD amount behind to be distributed by the applicable deadline. This is no longer required. As allowed by the final RMD regulations, you may transfer your entire IRA balance even if an RMD is due, provided you take the RMD from the receiving IRA by the applicable deadline.
Death and Divorce Do Not Affect the Current Year’s Calculation – If you were married on January 1st of the year for which the calculation is being done, you are, for RMD calculation purposes, treated as married for the entire year even if you divorce or your spouse dies later in that year. If your spouse beneficiary is more than 10 years younger than you, this means that you may still use the “Joint Life and Last Survivor Expectancy” Table II in Appendix B of IRS Publication 590-B. Any new beneficiaries are taken into consideration for the following year’s calculation. Upon divorce, RMDs and retirement assets in general can become very tricky, and can vary from state to state. And community property states will likely have different rules than other states. So competent counsel is important, especially to avoid or minimize taxes.
Family-Attribution Rule – An individual who owns more than 5% of a business is not allowed to delay beginning the RMD for a non-IRA retirement plan beyond April 1st of the year following the year he or she reaches age 70½, even if the individual is still employed. If you own more than 5% of a business and your spouse and/or children are employed by the same business, your ownership may be attributed to them. This means that they, too, may be considered owners and could be subject to the same deadline as you.
Citations
- http://bit.ly/2w4Mkez – IRS
- http://bit.ly/2vdy0RQ – Forbes
- http://bit.ly/2w4ODhH – Investopedia
- http://bit.ly/2wbpWP1 – Bankrate.com
- http://bit.ly/2xjkObE – Fidelity
