What is it about being transparent? It has become the everyday, every deal, statement that is made as easily as saying hello or shaking hands. The promise of being transparent has become so overused that it is seemingly almost an admission of being less than transparent, or not honest at all. For if you do business honestly, why would you need to state your desire to be transparent? It’s a false positive or a positive falsity. Take your pick. So, perhaps it should be less of making the transparency pronouncement, and more about an explanation of what result may come to the business, the partner, or the client by virtue of a transparent business dealing.
In the lumber and building materials industry, we need to better examine how we use transparency for mutual gain, and in so doing, alleviate the sour connotation it has in the industry. When used in dealing with material suppliers and intermediaries, it incites an immediate negative reaction. In the lumber and materials industry, the typical use of the word means “you show me your costs, so I can dictate how much margin you make when you sell to me.”
Historically, national builders beat the transparency drum in an attempt to reduce cost, a zero-sum game where transparency given by suppliers becomes the stick to whack prices to the lowest common denominator—“you give me transparency, I gain, you lose.” The fact is that not all transparency is the same. It’s like the difference between Transparency with a capital T and transparency with a small case t. When being transparent gives an unfair advantage or causes an unfair loss, then transparency isn’t working and perhaps, just isn’t necessary.
This leads us to the case for ‘Beneficial Transparency’ which exists in the form of “When we create transparency among ourselves, we have potential gains.” An example is a data cooperative where collective data becomes transformational operating leverage and insights, yet not necessarily to the detriment of suppliers.
Another example is a shared supply and demand plan, where price discovery is informed by the value of product availability in time and not a thinly traded spot market; supply and demand planning reduces operating cost and increases profit.
Technology, with a capital T, has proven itself an outstanding driver and purveyor of transparency. The first transparency gains come from automation of price discovery. Think of price discovery in real estate (Zillow), equities (Robinhood), or shoes (Zappos)—these enterprises used transparency of accelerated discovery to the benefit of their platforms. Losers in tech-enabled transparency have perpetuated their value on opacity.
Whether you spell transparency with a capital or lowercase T, really doesn’t matter. But making transparency work for you and your business always will.
One real positive in the industry, and a very specific one too, is transparency around lead times. When you know how long it’s going to take the mill to send you product, you have something to plan around, that helps you and helps the mill. This type of transparency is beneficial to both parties. You can negotiate your price off of the delivery time; you can both plan better; and you can both execute your business better, because you have transparency on a key variable: “When will this material be available?” That’s different from transparency that focuses on “What is your cost? Let’s compare. How do I control your margin?” Transparency on lead time can improve both of our businesses. It allows us both to win and succeed.
When unique value is being created, it will always remain. Even transparency through the explosion of digital technology doesn’t change the dynamic that unique value can outlast transparency. Just look at the role of the travel agent. The agents that provide a unique value will benefit. If you want to fly from Seattle to Boston, for example, you check Expedia or the airline sites to find your flight and purchase your ticket. But if you want to spend three weeks on safari in Africa, you call a travel agent or a touring company/guide to help coordinate the plans. In this case, technology-driven transparency really changed an industry (travel by the likes of Orbitz, Travelocity, and Expedia), but where unique value could be found, that travel agent value remained.
An important reality about transparency in the lumber and building materials is that it already exists, yet is over-looked. Many of the companies in the industry are publicly traded and, therefore, have reporting requirements by the SEC that, by definition, are intended to bring transparency to these businesses and the ecosystem. A simple review of financial statements and filings sheds light on the costs and margins of the business.
When faced with the numerous complexities of business, best practices will always point toward accountability. And this is the truest essence of transparency. Taking ownership of making decisions that ensure a business’s viability and the shared success of customers and partners. Transparency is not a mandate; it is a choice and should be an enhancement to your strategy and operations.