It appears a bit extreme now – but it was very common at time when I was a navigating cadet.
As a 17 year old cadet learning to navigate a large 28,600 metric tonnes vessel, one of first things I was asked to do was to make sure that I learnt the entire ‘International Rules of Road’ by heart. Almost all the cadets had to do this. The intention seemed to be that you must have no doubt in times of panic. At a time of impending collision there would be no room to think or maneuver – and the reaction must be automatic.
The Chief Mate (mentor for the cadets) would ask us any rule at any time, and expect the cadets to be able to recite these line, chapter and verse.
Here is short video of the perils of sea – mainly to put thing in the right context.
Most good yachtsmen and navigators would have these rules stuck in their memories no matter how much time has passed since they did their MoT (navigators’ license).
For me, after more than 30 years they are still alive, and many of them serve as good guidelines for practical decision making in strategy.
Here is an example: RULE 7 (COLREGS 72)
|NAVIGATION RULE||STRATEGY GUIDANCE|
|(a) Every vessel shall use all available means appropriate to the prevailing circumstances and conditions to determine if risk of collision exists. If there is any doubt such risk shall be deemed to exist.||Every company should use all available means appropriate to the prevailing market conditions and competitive landscape to determine if significant risk to profitability exists. If there is any doubt such risk should be deemed to exist.|
|(b) Proper use shall be made of radar equipment if fitted and operational, including long-range scanning to obtain early warning of risk of collision and radar plotting or equivalent systematic observation of detected objects.||Judicious use should be made of diagnostic tools and methodologies that are available and appropriate, including long-range forecasting to obtain early warning of risks of significant profit drops, and benchmarking or equivalent systematic observation of risks identified.|
|(c) Assumptions shall not be made on the basis of scanty information, especially scanty radar information.||Assumptions shall not be made on the basis of scanty information, especially poor diagnostic information.|
|(d) In determining if risk of collision exists the following considerations shall be among those taken into account: (i) such risk shall be deemed to exist if the compass bearing of an approaching vessel does not appreciably change; (ii) such risk may sometimes exist even when an appreciable bearing change is evident, particularly when approaching a very large vessel or a tow or when approaching a vessel at close range||In determining if risk of significant profit drop exists the following considerations shall be among those taken into account: (i) such risk shall be deemed to exist if the performance of an appropriate benchmark does not appreciably change; (ii) such risk may sometimes exist even when an appreciable performance change is evident, particularly when approaching a turbulent market condition, or when benchmark itself has become irrelevant.|
Almost as much as rules of any game matter to the champions of that game. If you are a competitive sailor, or a golfer you know how vital it is to know the rules of the game and play by the rules.
Otherwise, you risk being disqualified, or getting penalties.
Just consider Tiger Wood’s two shot penalty at the US Masters in 2013 for a wrongful drop. If even the best player in the world, who has been totally immersed in the game since he was 2 years old can make mistakes about the rules, what chance do we lesser mortals have?
While there are general set of rules as per the legal principals in the country, the rules of engagement are left to the parties.
For this reason it is vital to take complete control of the game by designing the rules of the game in such a way that you meet your objectives for the game.
Now, does that mean your vendors have to lose along the way?
Most companies structure and run the market engagement process in a rather formulaic and archaic manner. Perhaps this is a legacy of procurement protocols or legislation enforced by governments or anti-corruption departments.In my book Outsouring 3.0 you can read the key questions to ask during Market Engagement preparation.
Several years ago it was this:
Some band-aid solutions are rolled out – mostly to restore public confidence and get the demand up again. However, a comprehensive supply chain security regime is never put in place.
Having done large scale supply chain transformation projects for companies as sensitive as explosives, chemicals, fertilizers, food stuff, soft commodities, bakeries, meat, dairy, livestocks, and many others, we have seen both – the vulnerabilities and some really cutting edge supply chain security in practice.
Unfortunately, supply chain security, in conceptualisation and training, has not kept paced. There is no university course that covers this topic sufficiently. Conferences skirt this topic. Books cover it sketchily. Regulatory framework is patchy and officious.
And after complying with the regulatory burden most people relax in the belief that they have done enough.
Yet, dozens of incidents have demonstrated that regulatory framework is never enough. Each company has to develop its own supply chain security framework, based on its own particular circumstances. Even compliance with insurance requirements is not enough. Reputation damage to your business is a non-insurable loss in most cases.
Complying with regulatory and insurance requirements is a good start. You also need a more robust, holistic and comprehensive supply chain security framework that provides the guidelines for your own company’s supply chain security model.
Our report titled SUPPLY CHAIN SECURITY – A COMPREHENSIVE, HOLISTIC FRAMEWORK provides the information to get you started.
Better still – run a one day workshop based on the content of the report. It will be the best 20K your company ever spent.
It is common knowledge that the failure rate of complex outsourcing arrangement remains stubbornly over 50% depending on which survey you read. With such a long history and accumulated lessons from outsourcing, this is simply unacceptable.
However, it is not only outsourced projects that fail. Internal projects – especially large scale IT systems development or technological developments have an equally unimpressive track record. For an amusing example of the reasons, I encourage the reader to peruse this blog post:
So, what exactly do we do in the preparation stage? We should ask and answer several key questions:
So what happens when you fail to prepare? The obvious answer is that the outsourcing arrangement turns out to be sub-optimal, and sometimes even disastrous.
Not a single day goes by without a mainstream newspaper decrying the job losses or closure of some facility due to outsourcing. These are legitimate concerns. However, if outsourcing is carried out for the right reasons (and we discussed the reasons in detail in the previous chapter) it provides ample growth and profitability opportunity to the businesses and the economies. Certainly there are displacements and adjustments in the economies that need to be handled with compassion, creativity and flexibility. At the same time, we must remember that if the luddites had carried the day, we might have never seen the industrial revolution.
I say this at the outset of this Chapter in order to ask you to be objective and rational when you examine the myths surrounding outsourcing. There are probably dozens, if not hundreds of myths that keep circulating on this topic. Most are self-serving rumours started by people directly affected by the decisions and events. Some are part of the sales arsenal of the service providers, while others are defensive myths designed to freeze any potential moves towards outsourcing in their tracks.
So, why should you read this chapter with interest?
Recognizing the key myths, and understanding the reasons why they are false will help you discern specious arguments, whether during sales process, or in subsequent management of the outsourcing arrangement. It will also spur you on to dig out facts, and use facts to foil attempts of disinformation. Using facts to make decisions, and to present information will help you gain credibility, profits and promotion. Moreover, if you think deeply enough about why people perpetuate myths about outsourcing, you will discover what questions to ask of your outsourcing service providers in order to retain the leverage and advantage.
I have been writing about the myths and communication issues prevalent in outsourcing almost since I co-founded Global Supply Chain Group in 2000. Many of my articles and white papers on the topic have been published in a plethora of business magazines from which I have distilled the key essence in this chapter.
Outsourcing, or as it was then labeled „contracting out‟, has been in use on an industrial or commercial scale since the advent of the industrial revolution in England during the 1700‟s (Brown & Wilson 2005; Kakabadse & Kakabadse 2003), with firms facing the "make or buy‟ conundrum that resulted from the greater production efficiencies that characterized eighteenth century England (Domberger & Hall 1995). In support of this contention, Greaver (1999, p.10) wrote that "outsourcing is similar to subcontracting, joint venturing, and strategic partnering concepts, which date back hundreds of years‟, citing the following examples: farmers hiring migrant workers; construction companies subcontracting electrical and plumbing activities; and governments subcontracting defence materiél production to private companies.
The first systematic use of outsourcing can be traced back to the 1940's, during World War II, when organizations provided systems facilities management services to the U.S. government (Greaver 1999). However, it was the growing dissatisfaction with the underperforming post World War II ideal of economy-of-scale driven conglomeration (Hunter & Cooksey 2004) and the introduction of timesharing mainframe computer services in the 1950's and 1960's (Factor 2002) that set the scene for the wider adoption of outsourcing methodologies.
Is there a way to distinguish between good outsourcing and bad outsourcing? What are the tell-tale signs? In a later chapter we will deal with the objective measure, but at this point I want to note a few tell-tale signs that generally apply.
Ask any executive, when to outsource, and when not to outsource – you will get a quick answer. If it is a core competence, do not outsource. If it is not a core competence then consider outsourcing.But are there situations when you must NOT outsource? We were faced with a situation like this in one of our projects. One of the directors was dogmatically against outsourcing of any kind. In his executive career, prior to becoming a non-executive director, he had faced several outsourcing situations where the outsourcing service providers did not deliver the promise. In addition, he had seen an erosion of capability within his own company to an extent where it lead to dependence on the outsourced service provider, even for minor tasks related to the service. At times, he felt that the service providers charged inordinately high prices for these minor services, especially if they were not covered by the initial contract. All these memories had created a bias which is not uncommon.
Meanwhile, as you cast your mind wide and far within your company – how many services did you think of that can be outsourced. Think about all the various departments in your company – the Information Technology department, Human Resources, Marketing, Sales, Production and Manufacturing, Logistics, Purchasing, Finance, Administration, Legal – and try and imagine all the various possibilities for outsourcing that exist in each of these departments.
Fundamentally, each of the department carries out its tasks at four different levels – the highest level being strategic, the next lower level being tactical, the next lower level being operational and the finally the lowest level is the executional level. At the lowest level the execution of the task is carried out, while at the highest level the plans are long term all-encompassing plans.
Let’s take the example of a typical finance department. If you make a list of all the activities carried out in the finance department they will roughly fall in the pattern of a pyramid shown in Figure 1.1.
Figure 1.1: Activities carried out in a typical Finance Department
The exact details and the nature of the tasks at each level will differ based on the type of company we are talking about and the industry it is part of. However, the pyramid of tasks will look somewhat similar in most companies. In fact we have drawn similar pyramid of activities for most other departments as well – Information Technology, Operations, Sales and Marketing, Human Resources and Administration.
In case you are interested, you can do the same thing for your company too. In our workshops where cross functional teams from the same company can come together for strategy formulation – we frequently like to encourage executives to jointly draw up a similar activity pyramid for each department.
The Last business network we will consider in this chapter is the network of finance houses of New York, London and Frankfurt that gained strength in the 20th century. With massive industrialization came the need for massive financing of the industry. At the same time, growing world trade needed the finance network to be global in nature. Imagine an oil trader has no way to ensure that the seller will deliver him exactly what he purports to offer and that the buyer will pay for the oil on time - unless the modern finance house steps in with supply chain financing solutions, such as humble letter of credit.
From such simple finance instruments, the modern world of commerce and industry finance has developed into complex and bespoke financial arrangements that suit the needs of investors, commerce, industry and speculators. Facilitating all these transactions, and keeping trust in the system, is a network of businesses involved in the business of finance. Without going into the history of the finance houses, such as Barings, Rothschild, JP Morgan and others, we will take the key lessons from the outstanding success of these business networks. Undoubtedly, the first reason for their success is the value they create for their customers, since no business can thrive for any length of time without that. This is underpinned by their ability to understand a diverse set of business circumstances that their own customers face and to readily come up with flexible solutions to meet those circumstances.
Ability to attract, train and retain talent is the key to understanding your customers. Patience, ability and willingness to shape legislature, ability to formulate and enforce a trust-building mechanism in the network and a willingness to work through the ups and downs of the business cycles, are some of the other drivers for success. A key feature enabling the success of this business network is the overwhelming practical nature of the participants, without any dogmatic adherence to outdated ideas. To the extent this network retains its ethos of service and humility, it will continue to prosper and retain its relevance in the coming era of simultaneous globalisation and fragmentation.
Business networks have thrived through the ages in various forms. In this chapter, we briefly examine six relatively well known business networks from the history. The Silk Road - a vast, ancient business network - comprised hundreds of sub-networks, each functioning on its own, in order to achieve a vastly superior business outcome. Venice - the powerful business network of the middle ages - started the trend towards consolidation of power for achieving business outcomes. The Spanish empire - an imperial business network took this trend to extremes, where it became impossible to distinguish between the business goals and the imperial goal of the network.
The East India Company - the first multi-national company - established commercial networks that still thrive after more than 250 years. American railroads, a business network that opened up the continent to thriving commerce and led the industrial revolution in the new world. Global finance houses, winning business networks of the 20th century, funded the industrial Revolution in the new world. Global finance houses, winning business networks of the 20th century, funded the industrial Revolution and benefited from its vast reach.
Each industry has a highly unique and valuable supply network that its participants have created in response to the circumstances, regulations, customer needs, and economic situation in the industry. Either by trial and error or by intelligent design somewhere along the way, each of these networks has evolved over the past several decades to reach into its current state as a result of all the changes in economics, technology, regulatory requirements and customer tastes. Sometimes a new player, such as Red Bull, enters the industry and causes a major disruption to the established supply relationships and networks. In most cases, the established supply relationships and networks in every industry will go through a gradual evolution as the environment evolves. Most CEOs are now familiar with the power of supply networks transformation. Currently in many industries these supply networks are rapidly undergoing massive transformations as CEOs adjust their business strategies to global realities.
We will cover business networks and supply networks in great detail in Section II and III. For this reason, we will devote the rest of this chapter to looking at some other types of networks familiar to you.
The most familiar network to you is your own. A network of
business associates and contacts. Inevitably, they come to your rescue when you need help and vice versa. They are also good sources of information, job leads, business leads and even guidance or inspiration. LinkedIn and Plaxo have put the Rolodex of old online and added far more functionality and possibilities with their web versions In that sense, online networks enhance the possibilities and functionalities far beyond what is possible with the offline networks. An enriching, quasi-structured and purpose oriented interaction is possible using online networking tools - it would be difficult to replicate this in an offline context.
Other examples of offline networks are alumni networks from your schools, colleges, previous work places and similar locations. Many of these are now online, though very few are doing much beyond basic database creation and sharing. Just this year, one of my graduate schools has started systematically co-creating executive education programs with the help of its alumni network - even though the possibility has existed in technological capability for almost a decade.
Some of the more well known formal networks are organisations such as the Freemasons, the Rotarians and clubs including the chambers of commerce. Each of these was created for a different mission and most still adhere to their original formal charters. Many of these formal networks are moving online, at least for the purpose of database creation and sharing. Contrary to some beliefs, most of them are rather benign associations that create a forum for gathering and sharing interests. Many networks of professionals with similar interests exist online either at LinkedIn or through professional bodies where the only condition of entry is your interest in the topic of discussion.
One such offline network where I served on the Global Advisory Board broadened its membership by tens of thousands during the five years I was on the board.
The professional courses, seminars, forums and lecture seminars, forums and lectures series run by the organisation contributed significantly to the body of knowledge on the subject. At the same time, numerous
individuals found suitable jobs and professional progression
advancement though the network.
Another online informal network I have created on a social networking website has grown to more than 6,500 members globally and business opportunities worth more than $650 million are offered every year. It is difficult to estimate the actual trade that results from the network as trade is mostly carried out offline. This network is growing rapidly. Now I am grappling with the question of how to keep its in formal nature and yet enhance its usefulness and relevance
to the participants of the network.
In the rest of this book, we will focus primarily on the
business networks, their efficacy - efficiency and effectiveness and their utility to the participants. More specifically, we will demonstrate how the business leaders of the future are busily building networks that will underpin their business aspirations. There are five key leverage points of the business networks and we will discuss these in details in the next section.
As the business network of the East India Company was getting embroiled in exploitative trades of opium and slaves, another network, far more effective, was being established on the continent of North America. Having won the American war of Independence, the colonies of the eastern seaboard were expanding far into the continent of North America - in all directions. When the technology of railroads eventually arrived, this expansion boomed.
With the rapid industrialization and growth of railroads, it became possible to mine, establish factories and build all the modern transportation and communication networks that underlie modern commerce today. Besides opening up the entire continent and establishing the United States of America as the pre-eminent industrial power of the 20th century, the railroad network also formed the basis of massive fortunes of tycoons such as Stanford, Pullman and Vanderbilt.
Oil, steel, coal, chemicals, power stations, mining operations, grain and passenger transportation were all greatly boosted by the railroad network. It is fair to say these formed the basis of the modern industrial economy of the USA. The key feature of this business network was the clear enunciation of the positive reinforcement cycle, or flywheel effect, whereby other industries got a boost from establishment of the railroad network, which in turn further benefited the railroad networks themselves.