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Tag Archives for " business transformation "

How To Get The Biggest Bang For Your Technology Buck

There were only 24 hours left. Tomorrow the board would pull the plug on the project which had continued for well over 3 years. The total costs as per internal calculations had run into hundreds of millions of dollars.

External consultants reckoned that when you included the costs of internal resources seconded to the project from rest of the organisation, and other costs buried elsewhere in P&L’s the real total was at least double of that.

However, the project had built a momentum of its own. No one was willing to point at the elephant in the room, let alone to lead it out. Careers were at risk. Good careers – built over several years.

I will talk about the outcomes later in this piece. Before, I do that I want to spend some time talking about how did the company arrive here?

How did so many competent people miss obvious and easy signs that the project was not on track. More importantly, where did it all go off the rails?

Was this a unique situation – with no lessons for  others grappling with technology outsourcing?

Of course, I have covered these, and other similar questions in my book OUTSOURCING 3.0, and in my blogs and videos. The book, in particular, carries a very comprehensive model and diagnostic tool kit, which is value for money.

In this piece, I want to focus on only a few key points. And, I want to frame it as a positive affirmation of key things that would build momentum towards success.

  • Create Congruence in Thinking

Three kind of congruence is important:

  1. Congruence between business strategy and supply chain strategy
  2. Congruence between supply chain strategy and IT strategy
  3. Congruence between IT strategy and business strategy

In the case quoted above, while minor lapses occurred in all three, several major gaps very readily apparent in #2. It appeared as if IT team was working in total isolation from the Supply Chain and Business Transformation team – though their projects were closely linked.

  • Think Beyond Tactics

Short term, tactical thinking – predominantly related to cost savings and control issues and considerations tend to dominate. It is quite easy to lose track of the big picture in the process. All the initial discussions and dreams of gaining competitive advantage are thrown out of the window at the first opportunity.

Then, what is the point in spending all the money? The project appeared like a lot of effort, just to stay in the same place.

  • Visualise How The Life Will Change Once The New Systems Are in Place

This takes more than a flight of fancy. A lot of things will change when one thing changes. You cannot ever do enough of visualisation and preparation. Every time you do this exercise, you will discover some more things that need to change in parts of the processes, infrastructure, skill sets, SOPs, contracts, warehouses, etc. Change it.

  • Do Not Underestimate the Time and Money Requirements

That brings me to my last point. All this difficult work is highly specialised; it also takes considerable time and money.  It needs skills rarely found inside organisations, or even in IT service providers.

While it is well known that most IT projects run into time and money problems, the scope adjustment problem is less well articulated. Yet, taken together, these can wreck havoc on your business outcomes.

supply chain management

The above graphic – taken from my book OUTSOURCING 3.0 sums up the situation nicely.

In the case study quoted at the start of this post, the outcomes were a lot different than what was expected by the majority. The board made a bold decision and pulled the plug on the project in the middle. That single decision most likely saved the company in the long run. They could have saved a lot more money if, at the outset, they are created governance structure to ensure just a few key points.    After all, prevention is better than cure.

 

Why Good Management Consultants Are So Expensive?

although I am writing this blog post to note down my precise thoughts just for a handful of people, it might be useful for  a whole lot of other people too. That is why I am making it public.

This post is written in response to a frequently asked question that I face – and having no FAQ section in our website, this will have to act as a substitute.

Once again, this week, I was asked to justify the ‘very high’ hourly rate that I charge for my work.

Somehow people have no qualms paying nearly double of my rate (including support staff) for a large branded consultancy service – but resent a much lower rate when it comes from a much more competent consultant without a famous multi-century brand.

However, the conversation always starts as a justification for the hourly rate without any comparison points.

I recall several l years ago a similar conversation where I was challenged to justify the rates by a highly (extremely) competent senior executive. He, rightly, pointed out that he could do almost everything that I could do, so why would he need me.

I replied there is only one of you in the company, and not many more in the world.

But then, I pointed out that today’s executives are working at a pace which is akin to driving at 150 km/h (90 mph) on an extremely busy and rowdy highway. There are vehicles large and small rushing at breakneck speed from all possible directions. people are barely keeping to their lanes and easily cutting each other off. Risks of accident are extremely high. Those who meet with an accident are left on wayside. Those who make it to the destination, barely have time to recuperate before they start on another project.

No one has time to look in the blind spots. If you slow down you are overtaken and left behind – never to catch up again. Others are ready to jump into your seat at a moment’s notice. And, if they are not as competent as you – it does not matter.

If you don’t look in the blind spot, you risk accidents.

What you need is an early warning radar system that assists you to plot your way through the maze around you – taking all the relevant data points into consideration.

You pay the price for collision avoidance, for arriving safely at your destination with your sanity intact, and for enjoying the journey to a large extent.

After some thought, my friend on the other side added his keen wisdom to the conversation.

He said (and I paraphrase) “for a moment I was disturbed by the thought that if they are not as competent as me, it does not matter. But then I realised it is true, because branded mega-consultancies act a airbags, or other bags, of some sort. So my main decision now is whether I want preventive care, or palliative care!”

I pointed out the obvious – that prevention was far more valuable than palliation.

And, that size or brand image had only a small impact on the style of consulting practiced by a person.

In the end, it all came down to personal ethos. And, that should be the most important consideration when you hire a management consultant.

How to Gain Meaningful Employment Over 50

First time I heard it, I was astonished. A friend (and an ex-client) was visiting Sydney with his wife, and we were sharing a dinner.

We had worked together more than a couple of decades ago, on some key projects, when I was still learning the art and craft of consulting.  He had gone on to build a great career, culminating at the C-Level in one of the blue chip companies.

And, that is when the disaster struck, and he was made redundant during a clean sweep, that happens from time to time is such organisations.

In passing, he confided that now that he was over 50, he did not expect to find a steady job because of how the odds were stacked against it.

He was only a few years older than I was, and got me thinking. And, he was not the only one who quietly voiced this thought.

On several different occasions, many career executives confided similar thoughts.

I feel the need to unpack the dynamics a bit more and see what is sitting inside.

Clearly it is illegal to discriminate on basis of age (as much as anything else). And, there are many ways to do a statistical analysis to prove such discrimination, if someone puts their mind to it.

Yet with so many people voicing similar thoughts, there might be some real underlying dynamics at play here. After all where there is smoke, there is fire.

Why do some people behave as if people above 50 are un-employable?

I was trying to think of possible reasons.

Besides the inflexibility, and the unwillingness to take a step backward from lofty heights already achieved in the careers, are there any other dynamics are play?

I had to relate it back to my personal experience in order to think through the situation.

I was reminded of this blog post titled Why Collaboration Is The NEW Advantage? that I wrote many years ago.

While the entire post is worth reading on its own merit, here is the most relevant extract:

Steamship Titanic sank when it hit an iceberg going full steam ahead in fog. Since that day, fog navigation is every Ship Captain’s worst nightmare. I still remember when I joined sea as a cadet, the moment the ship hit a fog bank – Captain would take over the navigation personally, station lookouts on Crows Nest, Monkey Island and many other exotic sounding places on the ship and try and listen to foghorns of other ships – all this despite the presence of 2 wholly functional radars.

Some captains were trained in the art of navigation long time ago – when radars did not exist. Many of these ‘navigate by feel commanders’ never got comfortable with radars – to their own peril and to the peril of their shipboard crew. As a result, shipping companies gradually eased these people out of command, making way for a newer generation of Masters who could make full use of available technology appropriately.

We stand on the cusp of a technological revolution in the corporate world.

Today, an ability to learn, adopt, adapt and optimise new technology – all the while running the ship in its steady state – will become paramount.

No doubt, irrespective of their age many executives can, and will make, the transition into the brave new world. Yet the wall street is not betting on it – for an example try and decipher the chart below, and think of the underlying causes:

But that is just one of the reasons I do not bet on the wall street at the moment.

 

CFOs’ Guide To Supply Chain

It is ironic that though the CFOs are at the absolute center of the universe within their organisations, when it comes to succession into CEOs role, boards are as almost as likely to overlook the CFOs candidature, as they are likely to give them the nod.

At a first sight it looks like a puzzle.

But, when you think about this a bit more your realize that most CFOs are so good at their job, that moving them to a bigger and better role would be a huge loss to the organisation.

If you are a CFO (or in a position close to being a CFO), in this blog post I am not going to show you how to get worse at your job so that you can fill bigger shoes.

Instead, I am going to unpack this phenomenon (some of the observations and stories come from my book UNCHAIN YOUR CORPORATION), so that you can move into bigger roles with an equal ease.

A Real Life Story

Let us start with a real life story (critical details are disguised a bit to make sure we protect the identities of the people involved).

When I flew into the big city with the continental HQ for our client, it was middle of winters. As it so happened, the next day was scheduled for the monthly senior management meeting. The business had been under-performing for  last three years, and everyone was looking for a turnaround, or a scapegoat.

The CEO, and all the regional heads, were strongly sales oriented individuals. They were all cut from the same cloth – strong personalities, heavily market focused and not very analytical.

Other two people in the room were the head of finance, and the head of supply chain. As they all saw it – one of them was charged with making the deliveries, and the other was charged with doing the numbers. A very simple arrangement in their scheme of the world.

global supply chain

No wonder the company was losing money hands over fist in almost all markets.

Almost all negotiations with the customers were based on seat-of-the-pants calculations made from half baked numbers.

Bluster was  common, and in face of threats to use of competitive products, significant price discounts were made available to the large customers who formed bulk of the revenue base.

Not only that, nimbler supply chain partners, well aware of the analytical deficiencies, were milking away the system.

Only Two Problems

The monthly management meeting was an appalling show of solidarity between the regional heads and the CEO who blamed the heads of supply chain and finance (again) for the monthly under-performance. Almost all problems were attributed to one of two things:

  1. Delivery related problems – attributed to the head of supply chain
  2. Transactional compliance, budgeting and analytics related problems – attributed to the CFO

The facts that sales staff were making promises that could not be kept even by supermen at prices that would never make any profits, and that the operations field staff were regularly circumventing the workflow to reduce their work load, and many other similar happenings, were conveniently overlooked.

Someone’s Gotta Go

In this meeting, in my presence, the CEO ended with an ominous warning that one of the two heads who carried the blame would lose their job if the business did not turn around in the next 3 months and came within an acceptable variance to the budget.

On the supply chain side, we worked very hard for verifiable turn around of the supply chain (and demonstrate that bulk of the problems originated from the lack of sales discipline). A number of projects were conceptualised, planned and executed in a short time frame to get supply chain out of the jail house.

On the finance side, I do not know what kind of number massaging was expected from the CFO, but I was unhappy to learn that after a few months he did indeed move on from the organisation.

There are more details which I am not including so that I can focus on the key points of this story.

Why did I recount this story?

Because I believe if he had done something similar to what we did on the supply chain side of the business, he would have clearly demonstrated that the problems did not originate in the finance department – in the way financial discipline, budgeting and variance calculation was structured and executed.

Unfortunately, all the way through he restricted his thinking to accounting data, and its analysis without getting into the nitty-gritty of the business side of the equation too much. Even when he attempted to get into business side of the discussion he was thwarted.

That got me thinking

That incident got me thinking quite a bit. I suddenly realised how your history could easily anchor you. Consider the following figure:

You start into a role in finance or accounting at the bottom of the pyramid, and as you get more experience and capability you rise towards the top. Only those individuals who are exceptionally good at almost all functions in this pyramid will rise to the very top, to get the crown of CFO.

The problem is that what brought you here, will not be enough to keep you here. And, most certainly, it will not take you any further.

 All that competence, all the hard work – burning mid-night hours during audits,  millions of zega-bytes of number crunching using the most sophisticated investment banking models, budgetary cycles – all that dedication was great. It brought you up to here.

To go further, it will not be enough.

So what kind of thinking is required?

New thinking in finance is required because supply chain and finance are now so closely inter-linked that you need mastery in both.

This new thinking will extend:

  1. BEYOND Compliance  – Added layers of auditing and compliance gives more control, but rarely results in higher returns. It gives the right to play, but does not tell you how to play well.
  2. Beyond traditional Working Capital Management – Excessive squeeze on the creditors is now counter-productive, and cost of capital is likely to be volatile.
  3. BEYOND Dupont Formula and other financial tools – These work very well retrospectively, for post-hoc explanations. As tools for future value creation, their application is limited.

Today, boards expect deeper control over the heart of supply chain finance.

Why?

Because, more than ever before, today, one of the most pressing concerns of every board of directors is CEO and executive succession. Clearly, the boards want C-LEVEL executives who can step into a CEO’s shoes at a moments notice, if necessary.

So, what distinguishes a C-LEVEL functional expert from a near C-LEVEL?

It is their ability to see the BIG PICTURE. This is not a cliche.

BUSINESS TRANSFORMATION AND LEADERSHIP SUCCESS COMES FROM CROSS FUNCTIONAL INTEGRATION ABILITY.

In other words:

  1. Ability to get their functional team to play well with the rest of the functional teams.

  2. Ability to take leadership and integrate cross-functional teams.

  3. Ability to understand how one function affects another – in depth.

Here is one simple example of a financial tool for business transformation. No school will teach this:

 

There are many such tools, but most importantly, you will need to design and create your own tools. They all ask (and answer) some common questions.

  • Financial Engineering – view the entire spectrum of Balance Sheet Management, some of which are known to only a few experts. Small differences in these can make a significant impact on shareholder return and outcomes.
  • Strategic Reversal – in the fast moving digital age – why assets might become your biggest liabilities, and liabilities might be your biggest assets – and what companies are doing to create extra-ordinary shareholder value?
  • Profit Optimisation – what lies beyond Cost-to-Serve, and how to leverage big data to optimise margin for every transaction using latest technology (think about UBER and airBNB)?
  • Process Innovation – why process innovation is even more important than product innovation, and what finance tools are available to regularly access process innovation in your situation?
  • Real Strategy – why today’s digitally vocal customers demand REAL supply chain segmentation, not just fake marketing segmentation. How to use this move strategically for financial value creation?

Clearly, it is not easy to do all this. But, neither was it easy to come up the pyramid to the top. Here is a tool which will make it easier – but, in the end, as usual only your own effort will get you there.

If you want more examples such as the smile curve above, I got my assistant to make a 104 page document with sanitized selections from our past projects executed over the last 18 years. It may give you more ideas for similar tools for your business. Contact me on v.sood@globalscgroup.com for the document (available selectively).

Are Good Business Transformation People Worth Their Weight in Gold?

A Large Number of Business Transformations

Over the past 18 years I have  facilitated, worked on, assisted in, and observed a large number of business transformation projects at a very close quarters.  As a result, I have seen a countless number of business transformation people in action – many good, some bad, and a few ugly ones. Luckily this last category (of a few ugly ones) was identified early enough in all cases – before they could do any real damage to the projects in question.

To contrast the good ones against this last category, and for reader’s curious minds, here are a few poignant examples of the ugly ones, that stick in the memory:

  1. There was this very arrogant ex-strategy consulting partner (top-tier big firm) who always believed he knew the answer to every question even before the question was framed. His solution in every problem seemed to be to close the factory and outsource the production. He could not stand taking the second place in any room (except his boss’ office)
  2. There was this academic minded researcher who wanted to prove every hypothesis beyond an iota of doubt. It did not matter to him that in the time taken to do so, the data set would be out-of-date every time.  He just could not stand uncertainty.
  3. There was this experienced executive who could only relate all future change to his past experience. If his past experience did not have an example of something he could relate the future to, he could not move into that future. He could not stand unknown.
  4. There was this conference junkie who was at every industry conference and could spout the latest industry speak at the drop of the hat. Only problem was that rarely was it relevant to the situation at hand. He was notorious for handing over half-finished projects to his successors, and moving to greater heights.  He could not stand staying till finish.

I could go on with list for a while more, but I will stop here despite it being cathartic.

When the quantum of change in business is so big - either in terms of breadth, or depth, or speed that normal change management strategies would be inadequate we call it a business transformation.

Good Business Transformation People Are Rare

I want to focus on the GOOD business transformation people, rather than the other side of the spectrum. It does take a great deal of talent to identify great business transformation people and put them in suitable positions. The rewards accrue both in terms of business success, and talent development.

In this article I will not differentiate too much between ‘business transformation personnel’ and ‘change management staff’ or even ‘business turnaround specialists’. I mention this only because the distinctions, though subtle, are important. These can only be discussed in another article.

Let us start with defining business transformation – just to be on the same song sheet at the beginning. When the quantum of change in business is so big – either in terms of breadth, or depth, or speed that normal change management strategies would be inadequate we call it a business transformation.

In many companies today we need purest business transformation people to take care of the massive change that is needed. Recently I was in a meeting where we were discussing the difference between a person who was operating in a ‘business as usual’ (BAU) and a person who was in a role of  ‘business transformation’ (BT).  It is worth noting that almost all BAU roles involve a degree of ‘change management’, yet business transformation is something else altogether.

In this meeting we were discussing the salaries for some new roles coming up, and many people were aghast at the high salaries on offer to business transformation personnel till I outlined the following analogy.

This Analogy Makes It Clearer

Think about a business transformation person as someone who has to log into the hearts and minds of hundreds of suppliers, thousands of employees, and hundreds and thousands of customers, and read the rhythm of these people to hear the discord, and see the unseen blots and know where the current business model is failing. Then they have imagineer a future state business model that will overcome these problems.

Finally, they have to create the massive transformation in the business so that the rhythm sounds much better, and the picture looks much clearer.

This is a harder job than that of a heart surgeon who is performing an open heart surgery on a heart that is live and beating. He is only operating on a single heart.

A good business transformation person is simultaneously  performing the same miracle on a multitude of hearts and minds.

That is the reason why this person deserves to be paid a lot more than a business as usual person.

In contrast, think of the Business as Usual manager as an operator or driver of a machine who can carry out occasional odd repair and maintenance tasks on the machine – but needs a specialist mechanic when a big scale maintenance is required.

Food for Thought – Further Reading

I was about to go into what does it take to be a good business transformation person, and why good business transformation people are so rare – but I will leave those two topics for later articles. Suffice it to say here that if the job is as difficult as it sounds, then it does take enormous amount of training and experience, and a special kind of person who is worth his weight in gold.

The Second Biggest Mistake in Business Transformations

In this article I want to focus on the second biggest mistake companies make during business transformations.

In case you are wondering why I am focusing on the second biggest mistake rather than the biggest one – it is because I have already written a blog post on that topic last week. Here is the link to it.

But the second biggest mistake is even more common and well known.

It is so easy to recognise that there are a whole lot of cliches used to describe it.

Yet it is so common that it worth spending half an hour writing a blog post about it. Even if 10 business transformations are put back on track after reading this blogpost – it would have done its job. After all each derailed business transformation is a huge waste of human effort and ingenuity.

So, what are the cliches that are used to describe this second mistake. I am sure everyone is familiar with these:

Putting the Horse Before the Cart.

Confusing the Cause with Effect.

Post Hoc Fallacy

A theoretical discussion of human fallacies is out of scope of this blogpost. You can read more about these here.

Practical observation shows that most business transformations require at least some degree of IT upgrade.

In many cases these IT upgrades take a life of their own and business objectives of the transformation projects start taking a back seat to these technological considerations.

In my book UNCHAIN YOUR CORPORATIONS I have given more than 20 examples of this phenomenon, in various contexts. Below I quote from the book:

Modern supply chains collect information at each node of the network. This rich data is methodically analyzed to optimize demand, supply, inventory, costs and service levels to create the best profit results. Not many people know this art – while there might be many pretenders.

The next component in business transformations is the informational part of the business network, which is strongly bounded by its IT systems. A word of caution, though, IT should always be viewed as a means to an end rather than the end in itself. In other words, systems are implemented to facilitate information exchange that is conducive to business transformation.

In the project we were working on, the challenge was indeed, moving the system from the regional to the global structure. Apart from having islands of data to consolidate, the company also found themselves dissatisfied with a system that met only 70% of its needs.

Even though you may be tempted by flexibility as it offers more room for maneuver in the future, every additional bit of flexibility breeds corresponding complexity.

To some extent, if a supply chain forms the backbone of your business, then IT is like the nervous system that helps circulate pulses of information and intelligence around the body.

To get a more realistic picture of the complexity, type “supply chain software” into Google and you will get more than 75 million results. How do you know which one is the right one? Though many of them will pretend that they can, there is not a single piece of software that can do everything that you require from a supply chain software solution.

Plethora of tools are available – each with its own peculiarities and limitations. Old ERP type systems can lead your operations into a big hole from which it will take years to emerge. Furthermore, each tool is most suitable for certain situations, and unsuitable for other situations. You need the ability get the right tools – just the ones that suit your situation – and combine them well.

Even though IT is not a solution to every problem, it should not be allowed to create even more problems than those that exist in the first place.

I have dedicated a whole chapter to IT systems in my book The 5-Star Business Network and here I would like to focus only on a few key things. To get this component right, you also need to see things through the eyes of the system provider. It is a delicate dance between rigid functionality and flexible business outcome.

How do you choose the right software for, say forecasting, from among more than 2,500 such systems? How do you link this system to the other systems it needs to work closely with – say inventory management software? How do you pick the right inventory management software from among more than 2,000 systems that claim to do more or less the same thing? Do you go for a single solution that is about 50%-60% right, at best – or do you go for a best-of-breed solution that can cover more than 85% of your need, if you do it properly? All these are very complex questions to answer.

Figure below, taken from my book The 5-Star Business Network, illustrates just some of the ways a business can falter along their road to using IT for business transformation.

GLOBAL SUPPLY CHAIN GROUP

FIGURE: PROBLEMS WITH USING INFORMATION TECHNOLOGY FOR BUSINESS TRANSFORMATIONS

Your job is simple – mix and match a best-of-breed solutions.

Then you configure the pieces to form an integrated system, that meets your rapidly changing needs in a business transformation.

How?

We need to revisit the strategic component, to examine the level of disconnect between the corporate strategy and the IT capabilities and carefully find tools that fill that gap.

In the past, it might have been the case that corporate strategies were made up in the air, then supply chain strategies were formed by people down in the warehouses based on their own assumptions about what the business wanted to achieve, and the IT staff work in their own cubicles to provide systems based on poorly articulated needs.

If the above example of three isolated types of strategies resonates with your personal experience, you would also concur that despite numerous vocal calls for enterprise-wide collaboration, people still continue to work in silos. This is equal to saying many companies are still staying at Supply Chain 0.0 while others are moving towards 1.0 or 2.0 or, even mastering Supply Chain 3.0.

Figure – The process and service component

As you can see from Figure above, which shows typical processes in a supply chain 1.0, there are four levels that need to be weaved into a cohesive whole. Typically, there can be missing links between processes – vertically, or even horizontally.

Someone working at the operational level may not know how their work is related to the work of someone at the tactical level.

Even worse, for instance, a delivery scheduler may not know how his work output related to that of his next cubicle neighbor – the customer forecast expert.

During a transformation, processes and services may get streamlined, re-aligned or even created from scratch to accommodate change. That is why it is pivotal to keep in mind how they all fit together by devising a visual presentation such as the pyramid diagram above.

Another practical example may illustrate the point better.

supply chain managementI was having a conversation with one of the senior executives responsible for business transformation in a large-sized industrial company with operations and plants across the developed world. This particular person had come from one of the top tier global consulting houses and obviously was very well versed in the hypothesis-driven problem-solving approach, which both he and I had learned in our formative years in top tier consulting houses. He was adamant that this approach would be enough to carry out a large-scale supply chain transformation in his business. Hence, he was very skeptical about the supply chain methodologies that we were espousing.

In his mind, he could derive the same results from the first principles using his hypothesis-driven approach. And I was patiently explaining to him the difference between going back to the first principles to create a new approach, and deploying a tried and tested approach for supply chain transformations which had the benefit of having adapted the same hypothesis-driven approach.

So I gave him an example of the early stage motorcars where people were still using solid rubber tires and a number of fittings which were a carry-over from the days of horse buggies. Of course, if he had the luxury of time and budget to make all the mistakes there were, he could probably recreate a modern-day motorcar, going through all the stages of evolution. He was smarter than most of the population, so he could perhaps complete the task in 20% of the time that it took for the actual evolution to take place and perhaps, at 20% of the budget. Yet, if a modern-day motorcar was already developed, wouldn’t he be better off testing if it suited his purpose and adapting it for his use?

The role of “process” in business transformation cannot be overemphasized or under-emphasized.

Obviously, on one hand, you can become too rigid and attached to the process itself. On the other hand, robust processes, based on experience from a number of similar business transformations in the past, are far more useful than some skeptics envisage.

After all, who would you like to be your guide for a climb – a person who can theoretically show you a path through a map of a mountain, or a person who has actually traversed that particular journey several times before, and knows all the pitfalls along the road?

Now let us talk about the “service” bit in the process and service component.

One of the hangovers from the last century industrial organizations which never ceases to surprise me in a modern-day organization, is the importance attached to a product in comparison to the importance attached to service by the company.

What do I mean by that?

Most companies still think they are selling a product, when it is clear that in today’s information economy, most companies are selling the combination of product and service.

The service might be just fitting the product, or providing the right information about the product, or helping customers choose the right product for their needs.

To give you an example, if you are a customer of a motorcar company like Ford or General Motors and you are looking for a particular part, you will be amazed to know how many different possibilities there are of fitting the right part for the purpose. You will then need to discuss your particular needs with someone called a Parts Interpreter in order to pick a suitable part for your motorcar. It is a very specialized job and invaluable service provided by the car industry to its customers. It is the service that makes the cost of parts more expensive than the base cost of manufacturing and selling that part.

GLOBAL SUPPLY CHAIN GROUPIn almost every project we have done, when we calculated the overall cost-to-serve, it is very clear that the product component of the cost was supplemented by the service component of the cost, which was quite substantial to start with, and getting higher progressively.

In other words, the overall cost-to-serve is made up of cost of product plus cost of service, each a fairly significant component of the overall cost-to-serve. Then why do companies keep ignoring the cost of service or treat it as a minor hassle, rather than manage it as an overall part of the full cost equation?

In many companies, especially engineering-oriented companies, product takes the center stage, because it is tangible and visible, and these companies take great pride in creating superior products.

Hence, service is merely an after-thought, even though the cost of service might, in many cases, be higher than the cost of product.

That is the reason why a cost-to-serve analysis is an eye-opener for senior management teams or for boards of directors, when an overall cost breakdown is laid out, clearly showing that cost of product is far less than the cost of service. Suddenly, the entire orientation of the management changes towards managing the service component much more efficiently and effectively than they have ever done in the past.

We have noticed that tendency in airlines, in the automotive industry, the mining industry and in many other industries.

If you look at it from a customer perspective, the service is the most important part of the transaction – experience is well remembered long after the part (or the product) has been fitted and used.

Similar to the informational component, companies are increasingly discovering their ability to cherry-pick service providers that deal with different service modules. Before this can happen, service components must be broken up into geographical, asset based and activity based components to discover and engage best service provider for each module. This is known as modularization.

GLOBAL SUPPLY CHAIN GROUPThen, service modules are homogenized in order to create and manage parallel interactions with several service providers at same time. The cherry-picking or commoditization of service modules enables you to configure a best-of-breed customized business-to-business network that would be impossible to emulate for your competitors, and provide flexibility, cost advantage and risk mitigation to your company.

All this is possible only if you avoid making this second biggest mistake in business transformations and keep the focus firmly on the business – not on the tools – IT systems, or processes – used to achieve the business transformations.

Sure you will need the right tools, and deploy them rightly – that is important. But much more important is why you are deploying them, and are you getting the right results from them?

The Single Biggest Mistake in Business Transformations

 

If I have seen it once, I have seen it a hundred times.  A new person is brought in with a clear mandate. The things are meant to change. Out with the old, and in with the new. The new person comes in with a great fanfare, and takes over. Then he/she starts taking stock of the situation. And takes more stock of the situation. Gets the consultants. Does a study. And, more studies. And more stock of the situation.

Meanwhile, the chairman is stewing in his chair. The board is exasperated. They see a lot fancy reports from the consultants. But they are waiting for action. Which comes in small dribs and drabs. Seems like one step forward and three steps backward. They start saying things like – ‘even the wrong action is better than no action.’

And, that is when you know that the single biggest mistake in business transformation is being repeated again.

Here is a typical scenario:

It had been two months after the internal announcement about achieving a milestone, and no one had seen the spark of business transformation yet. The momentum has been lost. When employees clapped their hands a couple of months ago on hearing the speech about successfully increasing efficiency by 10%, an impressive quick win, management should have taken the opportunity to introduce the next initiative.

Unfortunately, cases like this are not rare. Driven at the wrong speed without an appropriate line-up of actions will extinguish the initial enthusiasm, causing boredom and even withdrawal. As we have seen in my book UNCHAIN YOUR CORPORATION, the journey from supply chain 0.0 to 1.0, to 2.0, to 3.0 is very interesting, and challenging. Here is the relevant framework from the book:

supply chain management

Obviously, if your company enjoys healthy margins and is in relaxed circumstances, you can move just one step at a time – from SCM 0.0 to 1.0 or from SCM 1.0 to 2.0 or from SCM 2.0 to 3.0. All you might need is a slow evolution over number of years, where your company comes to the realize the need to change over 2-3 years, and then gradually carries out that change over another 2-3 years.

During this process, if the market conditions change and, margins experience a squeeze, your company can always hasten the cycle by deploying professional change managers, where a six-year planning and execution cycle can be easily halved to 2-3 years.

However, companies can also jump one step in the process, from SCM 0.0 to 2.0, or from SCM 1.0 to 3.0 by deliberate supply chain transformation, which helps them achieve faster results, with less risk of always chasing the trend. In this particular case, the danger is real that the process can be carried out too slow or too fast, depending on how the transformation is created.

To give you an example of a transformation which was carried out too fast, let’s consider the case of British Petroleum and its oil rig in the Gulf of Mexico. The full case study is our book Outsourcing 3.0 but here we will repeat just the most pertinent facts. Obviously, their supply chain 3.0 was configured with a number of suppliers of BP, including the owner of the rig, the operator of the rig, the supplier of the underwater equipment used on the rig, which failed, and the user of that underwater equipment. Unfortunately, the transformation had been carried out so rapidly that the risks were not being managed prudently enough. As a result, a small failure in the supply chain resulted in massive losses, amounting to tens of billions of dollars and a blame-game at the end of it all.

On the other hand, examples also abound where companies drag out the transformation too long, at the pace of slow evolution or change management. We have seen numerous companies go bankrupt, rather than hasten the transformation process.

supply chain management

In fact, take a look at any company declaring bankruptcy, whether in automotive, aviation or any other sector, and you will see apparent signs of failed transformations due to a slow pace, or a lack of understanding of the various stages along the way.

On the other hand, if you want to see examples of companies that have carried out the transformation just right, try and examine those whose share prices have gone up significantly in comparison to the market benchmarks, and then discern whether this result is due to a stroke of luck – for example, a fertilizer company getting lucky thanks to the right amount of rain 3 years in a row – or whether it is the result of a professional business transformation, carried out from one stage to next in a systematic manner.

supply chain management

BIG PICTURE vs REAL PICTURE – What is Required for Business Transformations?

Global shipping is a very cut-throat business where you can make a lot of money just by buying and selling ships at the right time. So ships in operation are sold quite regularly.

When I was in shipping – there were two kind of buyers who visited the ships to inspect them prior to purchasing them.

The first kind were mainly the big picture guys who would come in and inspect all that voluminous paperwork, look at the ship’s bridge, paintwork and general layout of the ship and then spend a lot of time with the captain, chief engineer and chief officer in the hope that they would pick up nuggets of valuable information that could be reported back to the the prospective buyers. These people essentially relied less on their technical expertise in shipping, and more on their knowledge of human psychology to try and trip up the ship staff in revealing some defects or problems that could be used as leverage to lower the price of the ship during negotiations. Their reports looked very shiny and well formatted, and these were preferred by some prospective buyers who needed such reports – e.g. many banks and trading houses (mainly non-shipping entities).

The second kind would don the boiler suit the moment they boarded the ship and spend a lot of the time going into each and every double bottom tank, engine room bilge, forecastle store room and all the least visited parts of the ships. Frequently they would discover things that even the ships’ staff did not fully know. These people essentially relied on their shipping knowledge to assess the real condition of the vessel to report back to the prospective buyers a very thorough report of the ship, and points to watch out for if they bought the ship. They could also easily help the buyers work out a ship up-gradation program that was cost and time effective. Many of these folks wrote simple, factual reports that were not too professionally produced – but they were preferred by the shipping entities who were “in the game”.

Occasionally we would see someone who combined these two skill-sets marvelously and was a master at the game. When, post MBA, I moved to management consulting with a top-tier global firm I noticed many characteristics of the first kind. I will not go too much into the detail but many readers can likely fill in the picture for themselves, and it is also quite well known what kind of clients prefer these “brand names”.

I also saw there were many folks out there who were more like the second kind. Again, the readers would have likely encountered this type of management consultants too.

In nearly 20 years of management consulting, I have seen very few of the third kind. Whenever I do, I try as much as possible and get them to work with us. In our view that is when business transformation truly succeeds.

What Data You Got is Not As Important as What you Do With It

First let me start with a story. I have some personal experience in 1990 with this ancient mariners’ rhyme:

The Rime of the Ancyent Marinere:

Day after day, day after day,
We stuck, nor breath nor motion;
As idle as a painted ship
Upon a painted ocean.

Water, water, every where,
And all the boards did shrink;
Water, water, every where,
Nor any drop to drink.

I was a 25 year old newly appointed Chief Mate

This was on a ship with a very intransigent bunch of crew from an aggressive Marxist union. What I did not know at this point was that all the crew ratings received a hardship allowance for every day they spent on the ship under water rationing conditions.

The ship embarked on a several weeks voyage across a vast ocean with sufficient stock of water, and then some surplus. This was one of my responsibilities.

As usual I was very careful with monitoring the water stock on board

I was also closely monitoring the daily usage. I had the cadet and chippy (carpenter) take sounding morning and evening – and write the daily water consumption on a blackboard in the crew mess, as well as the officers ward rooms.

I took daily rounds in the accommodation to monitor the dripping taps to stop wastage of water. Any jump in water consumption was promptly investigated – all for a good reason. I wanted the ships company to arrive with sufficient water stock.

I will never work out where it was a sabotage

Perhaps it was just an accident – but somehow sea water gained entry into every fresh water tank on the ship (but that is a long story about unions and compensations which is best told at some other time).

The captain (and I) was left with a dilemma, whether to rely on the fresh water generator on board for a long sea voyage, or not. There was no shortage of water – it just was too salty for most purposes.

I will tell you how this voyage panned out at the end of this blog post.

But I want to change course here

to the real purpose of the post – the over-abundance of un-usable data, and the opportunities that it presents for start-ups.

In my last blog post I recounted a real life story of a business transformation project where information technology fell woefully short.  This is not the only such situation I encountered. In fact I recount more than 20 similar examples in my book ‘UNCHAIN YOUR CORPORATION’.

Data, Data every where – and not a blot to think

Look at the growth in global data storage capacity below:

File:Hilbert InfoGrowth.png

By Myworkforwiki (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Obviously it is not just the capacity – but also the data that is growing. There are many graphics showing growth of data – a few of them are Every Day Big Data Statistics, Data Generated On Social Media Every Minute and 4 V’s of Big Data and all over the cyberspace. The key story they all are telling is just one –

WE ARE FLOATING IN  SEA OF DATA.

Just like the ancient mariner had no dearth of water, we have no dearth of data. And, just as minute quantities of salt (3.5%) that is present in all that seawater, is enough to make raw seawater unusable for most practical purposes, minute quantities of data error is enough to make most of the raw data unusable for practical purposes.

On the ships (and in many locations on land) we deploy fresh water desalination plants such as Sydney Desalination Plant. The sole purpose of these massive plants is to parse seawater, take it into a pressure chamber, evaporate it at high temperature (because that requires less energy) and then condensate it into distilled water. Further processing is required to remove other contaminants such as bio-hazards. Check here for infrastructure of the full process in some more detail.

The biggest opportunity

In information technology the most bang for the buck is not in generating or collecting more data, but in making the data more usable.

I was asked a question at a recent speech why I was not as bullish as everyone else on big data. I likened the current big data set-ups to an ocean full of seawater. It still takes a huge expense to desalinate the seawater, and to make the data usable.

Start-ups are still woefully short on this

Any start-ups that figure out a better way to collate, parse, access, and make usable the data to create insights would be a tremendous success. If you know of any, please let me know in the comments below.

Coming back to the story

In the voyage above, we had to put into an emergency port to get fresh water rations.  Without doing this none of our sailors would have survived.

In the emergency port, we had to fight with a bunch of sea pirates, which is a whole new story .

 

How Organizational Silos Can Ruin Your Supply Chain

Organizational silos are based on the division of labor, on organizing the labor in such a way that each individual specialized in what he/she knows best, so that it can all be integrated in such a manner that a cohesive whole which is created in the result is much better in quality and much cheaper in price. This gift of the industrial age to humanity allows to make a production must better in quality and must cheaper in price. Indeed, because of the period of time, the person will become very good at his production and work at a much faster rate, even if the technology is the same. Each employee will make his work much faster, and he would make it much better quality than if he was making the whole product.

By the 70’s, the division had been carried too far, in fact, so far that each person would pretend that as if he has nothing to do with the other employees. To give you an example, I was working in a business transformation project in a mid-sized airlines and I was sitting in the office of the person in charge of maintenance planning of the aircrafts. At one point in the conversation he dug out and e-mail exchanged with his colleagues from across the room and this e-mail exchange had been carried on over a period of 18 months. This trivial matter could have been solved by just walking across the room in an authentic spirit of give-and-take and collaborating across the silos. People in both silos have entrenched themselves into such a position where no action could be taken, the decision-making was extremely slow and people were pointing fingers at each other.

In fact, every organization we have seen, to some extent or other, suffers from this silos mentality. The bureaucratic organization of supply chain 0.0 leads each department to become a pyramid. Any information which needs to be passed from one department to another would have communicated with the head office of one department to another. Imagine the time wasted and the problem of information distortion in the process. By killing the spirit of collaboration, it hampers efficiency and effectiveness.

No wonder this kind of organizations find it very hard to compete against even rudimentary supply chains, such as supply chain 1.0. Many companies struggle with one business transformation after another without addressing the root cause of information holding and silos in supply chain 0.0. If the company stays stuck in organizational silos, no appreciable improvement will be seen: Information holding will become rife and selective information sharing, the norm. Blame will be the name of the game in such a situation.

Below are 20 questions that every executive should ask about the supply chain in their business:

 

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