Monthly Archives: March 2010

Are You Relevant?

Before you answer, think about it.

Carefully.

Because you’re probably not.

That’s right, there’s a good chance that you’re not relevant.

And the worst part? Most likely, it’s not your fault.

The business landscape is changing, the old normal is coming back, and it’s no longer about better, faster, cheaper (or lean and six sigma) or closed systems. As noted in this HBR post about “The New Paradigm of Advantage”, we’re returning to a time where innovation and creativity rule, and where only the relevant companies are going to succeed.

Given that most companies are still struggling, with more going bankrupt every day, it’s pretty obvious that most companies are still not offering relevant products and services. So even though they did well in the last upturn — and let’s face it, it’s hard to fail when money is flowing like the reservoir will never empty — it’s pretty obvious that it wasn’t because they were relevant, but that their success was just a side effect of the overall buoyancy in the market.

Since only a few companies are succeeding right now, relatively speaking, it’s obvious that most companies are not relevant. And these companies are dragging you down with them.

So what can you do?

Get creative. Get innovative. And show your company what they should be doing. As per my recent post on the talent innovation imperative, these companies are not succeeding because they’re wasting their resources — namely, they’re wasting your talents. And there’s no need for it. So get busy and show them what you got. And if they don’t listen, join the majority of your colleagues who are already looking for new opportunities with relevant companies. Because YOU deserve to be relevant!

What’s Your Procurement Value Level? … or Transformational? (III)

In Parts I and II I reminded you that Pierre Mitchell of The Hackett Group invited you to participate in a study designed to help you identify where you were on your procurement journey by way of 18 value streams that range from “naive apprentice”, where you’re measuring performance at an elementary (tactical) level, to “expert sourcerer”, where you’re extracting procurement value at a very advanced (transformational) level. Then I covered some of the seven tactical value streams and some of the six strategic value streams. In today’s post I will cover the final five transformational value streams, which range from:

Internal Procurement process cost savings are found from process re-engineering
through
Benefits due to currency hedging, inflation hedging, options/derivatives, etc.
to
Revenue uplift from supplier collaboration (e.g., innovation, diversity advantage, joint marketing, etc.)

Very few companies are transformational in their procurement. A company that is transformational goes beyond just taking cost out of the supply base, but finds ways to take costs out of all aspects of company operations while making the entire company leaner, meaner, and smarter about it’s organizational finances and processes. A truly transformational Procurement department positively impacts every area of the organization.

Internal Procurement process cost savings are found from process re-engineering

Instead of being reactive and trying to reduce costs after 70% to 90% of costs are baked in during the design phase, Procurement works with Engineering and R&D to help them select materials and specifications that will be the most cost-effective in the long run when multiple options exist. Instead of shaving a few percentage points off of list price, Procurement can be shaving a few dozen percentage points off of total cost by going out to market with designs that are much more cost effective to produce.

Benefits due to currency hedging, inflation hedging, options/derivatives, etc.

Instead of just looking at the total cost in today’s market, Procurement looks at the expected total cost over the lifetime of the contract and works with finance to select options that will insure the expected cost reductions are realized in spades over the contract duration.

Revenue uplift from supplier collaboration (e.g., innovation, diversity advantage, joint marketing, etc.)

Once a Procrement organization has truly embraced transformational procurement, it works with its suppliers to not ony take cost out of the end-to-end supply chain, but also to inject more value that will allow for greater revenue on each sale. Cost are reduced, revenue is increased, and the company’s profitability becomes world class.

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Does Innovation Begin and End with Leadership?

After reading a recent article on “Boeing’s Innovative Approach to Leadership”, I have to ask. Boeing found that engaging the workforce in innovation requires positional leaders and managers to abandon the command-and-control style of management that is so prevalent in business today. Instead, leaders must employ a more participative approach and solicit collective ideas from the workforce rather than imposing initiatives on them.

Senior managers in Boeing’s C-17 program took a bold first step toward establishing this new leadership paradigm by gathering all 10,000 C-17 employees in a hangar and communicating their philosophy directly to the front-line employees and the epic event just changed everything inside the Boeing C-17 culture. As a result, the program went from the brink of cancellation in the early 1990s to he model acquisition program for the U.S. Air Force,” earning the Malcolm Baldridge National Quality Award in 1998. The innovation captured by the program saved over 90M in less than a decade.

While I believe that innovative thinking begins and ends with the individual, if the business doesn’t support the individual and harness the innovation she produces, then it doesn’t go anywhere. And if the leaders don’t see the value in the innovation, it won’t get harnessed. Which suggests that innovation begins, or ends, with leadership. What do you think?

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Managing Alliances with the Balanced Scorecard

In the first Harvard Business Review of 2010, Robert S. Kaplan and David P. Norton, the original developers of the balanced scorecard, are back with an article (co-authored with Bjarne Rugelsjoen) on “Managing Alliances with the Balanced Scorecard”. Quoting a recent study by McKinsey & Company that fond that half of all joint ventures fail to yield returns to each partner above the cost of capital, they argue that a methodology is needed that will dramatically improve the odds of success.

Not surprisingly, the authors are recommending the adoption of the balanced scorecard management system (BSC), a technique that can help companies switch their focus from operations and contractual obligations to strategy and commitment, which the authors argue is the key to success. Proper application of BSC techniques should clarify strategy, drive behavioural change, and provide a governance system for strategy execution. As an example, the authors presented a detailed case study based on Solvay, a top-40 pharmaceutical company, and Quintiles, a contract research company providing a wide range of clinical research and trial services for pharmaceuticals that Solvay selected in 2001 to manage all stages of its trial processes across all of its pharmaceuticals under development. After an initial five year partnership, which worked well (but not as well as each side felt it could), the companies wanted to move up to an alliance, but needed a way to accomplish it successfully. They chose a variation of the BSC process — that they called JSC, formed an alliance management team — led by an external impartial consultant, and got to work. And while it took some time to make things happen, the alliance based on the new JSC (BSC) approach reduced total cycle time for clinical trials by approximately 40% (which not only considerably reduces costs but accelerates profits as the products hit the market faster) and generated a new methodology for managing non-performing sites that halved the number of non-performing sites (which don’t recruit enough patients) and saved 25,000 to 35,000 Euros per site. (Considering that a study can have up to 150 sites, this new methodology can save up to 5.25M Euros per study. And while that might only be 5% of the cost of bringing a new pharmaceutical to market, it’s not pocket change!)

The methodology is based on the collaboration theme scorecard that captures metrics that allow you to track your progress on objectives under each theme. The general format for each scorecard is the definition of:

  • the process objective,
  • joint wins,
  • metrics, and
  • initiatives.

The scorecards are the tools of an alliance strategy map that defines the intended collaboration, business processes, and expected values. The article presents the strategy map used by Solvay Pharmaceuticals and Quintiles in the definition and execution of their alliance.

The article also mention’s Infosys’ success with its relationship scorecard and LagasseSweet’s success with its own modification of the balanced scorecard, which has helped it to identify 150M in new revenue opportunities. Thus, if you are willing to take the extra time required to jointly build the alliance strategy map and theme scorecards, you might just see a much bigger ROI than you might expect with your own implementation of the BCS.

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Supply Chain Excellence Pays Off In Spades

“Does Supply Chain Excellence Really Pay Off?”

You don’t even have to go beyond the first page of this recent article in the Supply Chain Management Review (subscription required) to find the answer. According to a recent study by Morgan L. Swink, Rajdeep Golecha and Tim Richardson at Michigan State University, which analyzed the financials of top supply chain management companies and their nearest competitors from 2004 to 2007, supply chain leaders clearly outperformed their closest competitors across the following 10 metrics:

  • 50% higher net margins
  • 20% lower operating and SG&A expenses
  • 12% lower average inventories
  • 30% less working capital expenses
  • 2X the ROA
  • 2X the ROE
  • 44% higher economic value add
  • 2X the return on stock price
  • 2.4X the risk-weighted stock return
  • 46% greater market value-to-assets ratio

Excellence pays. What else do you need to know?

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