Daily Archives: May 18, 2010

ASG Software Proves the Peter Principle

There’s a reason “leaders” generally only account for a small percentage of the total market (no more than 30%, and usually only 10%). That reason is the Peter Principle which says that in a hierarchy, every employee tends to rise to his level of incompetence. In other words, your average company will continue to promote its “rising stars” through the executive ranks until they implode into black holes and suck the company down with them.

As proof that these “rising stars” are promoted until they implode into black holes at your average company, I offer up this press release from ASG Software which describes the results of a commissioned Enterprise Management Associates study of IT and business executives that found that two-thirds of executives say dashboards deliver clear financial advantage.

In other words, it found that two-thirds of respondents were brain-dead corporate zombies who thought that dangerous and dysfunctional dashboards were a money saving tool — even though I’ve told them twice how dangerous and dysfunctional the average dashboard was. The reality is that, even in the best case where the dashboard is properly designed to show you what’s not working, where data is missing, and where you need to investigate performance, it’s not going to save you money. It’s just going to point out where you need to take action to improve performance and save money.

However, you have to determine the action to take and then you have to take the action … and, more than likely, you will have to apply another tool (which will likely cost money) to take that action. Now, if you select the right action, the right tool for the action, and implement the action properly, then you will improve performance and reduce operational costs and, over all, save more than you spend buying the tool … but these savings will not be the result of the dashboard. They will be the result of the appropriate tool and / or your action.

And, furthermore, if you decide to rely solely on the dashboard to judge overall corporate health, it will end in disaster. All a properly designed dashboard can tell you is that there are no problems of documented types. It can’t tell you that there are no problems of undocumented types. For example, it can tell you that the production line is still pumping out finished units within an acceptable range on a weekly basis. It can’t tell you that no one has bothered to properly service the one-of-a-kind robot arm in over a year, even though it’s supposed to be serviced every three months or 30,000 units, and that it’s 30 units from a major lock-up that will cause it to self destruct and shut the production line down for at least a month. And while it can tell you that your new phone is still selling within the forecasted range, it can’t tell you that sales are about to drop 80% next week because the market is going to suddenly prefer your competitor’s new product coming out next week that the model didn’t account for. The false sense of security the dashboards provide will, if you’re not careful, lull your business into an eternal sleep.

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Would Guanxi have saved Alcatel?

A recent article in the April 17th Edition of The Economist in the special report on innovation in emerging markets noted how Li & Fung, a Hong Kong-based company, has long been a pioneer, working closely with a network of about 12,000 companies operating in more than 40 countries. It puts together customized supply chains from its vast network of associates and keeps an eye on quality and order fulfillment. Similarly, Dachangjian, a motocycle-maker in China’s Guangdong province, works with hundreds of parts suppliers.

Specifically, it noted how these post-modern guanxi have several powerful qualities. For instance, they can contract or expand with demand. As a result, Li & Fung and Dachangjian seldom have problems with excess capacity when times are hard or with waiting lists when times are flush. Furthermore, they can be turned into engines of innovation. Li & Fung relies on its partners to help solve problems, not just fulfil orders. Dachangjiang provides its suppliers with rough sketches rather than detailed blueprints and encourages them to innovate.

Guanxi, the linking of two people in a relationship of mutual dependence, is common in Chinese business. While it has its downsides, as every gift of significant value will soon be followed by a request for a huge (personal) favour, it also has its upsides. Your partners stick by you in your times of need because you stick by them in their times of need.

I can’t help but think that if Alcatel had more of a guanxi relationship with their suppliers and kept track of the basics, as noted by Dick Locke in his recent piece, that they wouldn’t be blaming their suppliers for their recent 10% sales decline. But I’m not the expert, so I asked Dick Locke (SI’s resident expert on global trade) to elaborate on the advice he provided and whether guanxi would help Alcatel. This is what he said:

     

Well, doctor, sometimes I think we’re doing point-counterpoint. I didn’t see Alcatel blaming suppliers and I can’t imagine they could. I don’t know where their supply base is so let’s not put a country-specific name into the conversation. Let’s just call it “relationships”. But yes, they would have done better in their upturn if they had done something different. It could be maintaining better personal relationships, it could be a better matching of business strategies and it could be the existence of better contracts.

I’m not sure where they fell down. I do know that the telecom industry tends to see supplier relationship management as primarily a contractual issue. In my seminars, I usually ask how many people work at a company that ever took a supplier to court. About the only companies that say yes tend to come from the telecom world. Maybe it’s a legacy of being in a regulated industry. If Alcatel’s supply base is in Asia, most companies there value relationships over contracts. If it’s in Germany, it’s contracts over relationships.

I was bothered by the Li & Fung story. Suppliers able to contract and expand on demand? The economist made a nice assertion, but there was nothing to back it up. And putting a middleman between buyer and seller? How can you ever develop relationships? In a world where a toy manufacturer’s paint supplier’s pigment supplier can cause millions of dollars of expense and an an untold amount of reputation damage, buyers need to meet, understand and build relationships with several layers of their supply chain.

I did note that Li & Fung’s primary market was fashion and consumer goods. Clothing is built to old fashioned quality standards, with AQL plans still the norm for quality mangement. Buyers are willing to accept lots with 10′s of thousands of out of spec goods per million. That method of quality management isn’t adequate for most other industries.

Actually, it’s perception vs. reality. Point vs. CounterPoint is when there are, theoretically, two equally valid ways to approach a public issue. What we’re doing is addressing a perceived reality and either affirming it or denying it, so that, at the end of the post, a buyer can make not just a truly informed decision, but the right one. (Which, in this case, is a focus on the core principals of supply management: better strategy, better contracts, and better relationships.)

Thanks, Dick!

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