Category Archives: Problem Solving

A Chief Executive’s Advice for Performance Improvement

In Turnaround Time: Ways to Jump Out of a Slump, Mark Gottfredson and Steve Schaubert wrote a remarkably perceptive article that outlined a clear and simple process for navigating your way out of a downturn:

  1. Diagnose the “Point of Departure”, or where your business went wrong
  2. Identify the “Point of Arrival”, or where your business needs to be at the end of a period of time to be successful again
  3. Define a small number of key initiatives that will sequentially get you from the “point of departure” to the “point of arrival”

Ok, maybe it’s not so simple as many business have a hard time identifying, at least internally, where they went wrong, have a harder time figuring out what will make them successful, and often have the hardest time of all identifying that sequence of innovative initiatives that will take them from here to there. However, the article does note that when businesses start to fail for performance reasons, the vast majority of the time it is because they violate one of the following four fundamental laws that, despite not being built on an economic theory, do capture, in an almost eery way, some fundamental truths of business:

  • Costs and Prices ALWAYS Decline
    It is a basic law that inflation-adjusted costs and prices in nearly every competitive industry decline over time. Raw material costs going up? Then you have to find an innovative method of production to keep costs done, or a way to make the product from an alternative, cheaper, material, or a way to make a higher quality product that carries more (perceived) intrinsic value. (Successful cell phone manufacturers live and die by the latter.)
  • Competitive Position Determines Your Options
    Leaders are always in a good position to gain more market share through investment or to raise industry standards in quality, service, and innovation. Followers are stuck with doing their best to keep up until they hit upon an aggressive innovation strategy that can move them into a leadership position.
  • Customers and Profit Pools DON’T Stand Still
    The desires of your customers will change over time, as will the amount of disposable income they have. You need to know what your most profitable customer segment is and meet their needs.
  • Simplicity gets Results
    In addition to simplifying your processes, you must also simplify your strategy, organization, breadth of product line, and, most important, usability. Apple understands this well.

The authors also give you a good working definition of “point of arrival”. Specifically, it means a set of defined, numerically specific goals that can be accomplished in just two or three years. In other words, don’t shoot for the moon if you haven’t even successfully launched a rocket into space yet. Although the goals should be bold and compelling, they must be realistic. No amount of motivational speaking will get your employees behind something they know is fundamentally impossible.

Finally, they give you some advice on how to select the right initiatives to get you there. Specifically, select ones with measurable metrics that address the following characteristics of the four laws:

  • Law 1: Costs and Prices Always Decline
    • Cost/Price Experience Curve
    • Relative Cost Position
    • Product-Line Profitability
  • Law 2: Competitive Position Determines Your Options
    • ROA/RMS
    • Market Share Trends
    • Capability Assets and Gaps
  • Law 3: Customers and Profit Pools Don’t Stand Still
    • Customer Segments and Trends
    • Customer Loyalty
    • Profit Pool Migrations
  • Law 4: Simplicity Gets Results
    • Product & Service Complexity
    • Organizational & Decision Making Complexity
    • Process Complexity

Design Thinking Your Way Into Innovation

The Harvard Business Review recently ran a great article on Design Thinking and how thinking like a designer will transform the way you develop services, processes, and even (operating) strategy. The article, which starts off by noting:

Thomas Edison created the electric lightbulb and then wrapped an entire industry around it. The lightbulb is most often thought of as his signature invention, but Edison understood that the bulb was little more than a parlor trick without a system of electric power generation and transmission to make it truly useful. So he created that, too. Thus Edison’s genius lay in his ability to conceive of a fully developed marketplace, not simply a discrete device. He was able to envision how people would want to use what he made, and he engineered toward that insight.

has some very good points. Innovation is often powered by a thorough understanding, through direct observation, of what people want and need in their lives because any innovation that doesn’t make someone’s life easier is not likely to catch on. And I think the author, Tim Brown of IDEO, is right when he says he believes that design thinking has much to offer a business world in which most management ideas and best practices are freely available to be copied and exploited. After all, simply asking a designer to touch up an existing idea is tactical while allowing a designer to come up with ideas that better meet your market’s need is strategic, and there’s much more value in strategic work than there is in tactical.

In addition, innovation also involves (rapid) prototyping, to allow a design team to quickly zoom in the solution the users really need. The prototyping should not be rigid, but should be flexible in nature and require only as much time, effort, and investment as are needed to generate useful feedback and evolve an idea. It’s about getting to the solution, not getting bogged down in the process.

Furthermore, the process works for services and processes as well as it works for products. The author gives an example of service innovation undertaken by Kaiser Permanente, which undertook a project to make its nursing staff more efficient so they could deliver better patient care. At their hospitals, nurses often spent the first 45 minutes of their shift at the nursing station being debriefed by the outgoing shift on patient status. After working through a project to re-engineer the information capture and exchange process, which included the addition of customized software that could be used by nurses to quickly capture information in a friendly format during the shift, the amount of time required to pass information at a shift change reduced substantially while increasing patient care quality. I don’t know about you, but I think it’s pretty rare for a nurse to comment “ I’m an hour ahead, and I’ve only been here 45 minutes” or “[This is the] first time I’ve ever made it out of here at the end of my shift.

So how does a design process work? While it’s different for each project, the three generic stages of inspiration (recognizing an opportunity), ideation (generating, developing, and testing ideas), and implementation (where a path to market or implementation is charted) are common for all projects. Note that the three stages are not necessarily linear. Sometimes you’ll bounce back and forth between them until you have the right solution. But if you make an effort, you’ll get there.

So what does this mean for supply management professionals? If you can identify a problem, you can identify an opportunity. And if you can identify an opportunity, you can identify a solution that improves service and saves money with a little bit of innovation. They key is to be in the right frame of mind.

Open Innovation: The Value of Non-Confidential Exchange

Nine Sigma, a consultancy that helps clients globally find the best innovators and solutions for their needs through it’s Discover-Connect-Solve service offering, recently release a customer insight paper on the Kellogg Company, titled Open Innovation and the Value of Non-Confidential Exchange (with a companion video), that described how an open process connected Kellogg with novel technologies and new solution providers that were previously outside of Kellogg’s reach.

Open Innovation is a powerful approach for producing innovative new product and business solutions by leveraging cutting-edge technology and expertise from the global innovation community. The rewards from open innovation include:

  • A Robust Product Pipeline
  • Accelerated Speed to Market
  • Significant Cost Savings
  • Access to Global Innovators
  • Innovation Sustainability
  • Risk Reduction

Furthermore, an appropriate process that facilitates the free-flow of non-confidential information to identify, qualify, and ultimately activate new ideas from external sources (for productive, profitable, and innovative R&D solutions) can minimize the risks associated with any IP issues a company may have.

The process employed by NineSigma to help Kellogg build a sustainable Open Innovation program started with a combined cross-functional Kellogg and NineSigma task force that began by:

  • identifying Kellogg’s key technical challenges
  • selecting the projects that could benefit the most from open innovation
  • developing the RFPs
  • inviting solution providers to respond on how they’d address the challenges

Once responses were received, the cross-functional team proceeded to:

  • review the proposals
  • establish non-confidential discussions with potential providers

Then, once potential providers were identified, the team:

  • created business agreements, IP agreements, and NDAs
  • reviewed the technology of the potential providers
  • selected preferred providers
  • undertook negotiations with the preferred providers
  • negotiated final agreements

So what distinguishes this process from a normal supplier selection process? Because Kellogg employed NineSigma as an intermediary, they were able to keep their identify confidential until potential providers were identified and NDAs were signed. Furthermore, they were able to keep the product lines they were interested in innovating confidential until preferred providers were selected. And since they went through an intermediary who helped them sift confidential information from non-confidential information, the possibility of a potential provider guessing which company was on the market, or which product line was up for grabs was minimized, and this prevented competitors from identifying potential weaknesses in Kellogg’s operations. In addition, NineSigma experts, once briefed by Kellogg’s internal experts, could take the place of Kellogg’s experts in the initial discussions, further concealing the client’s identity until all parties were ready to engage in a confidential dialog.

Furthermore, the potential providers could also be confident that their IP was being protected, as NineSigma also helped them sift confidential information from non-confidential information and helped protect their identity as a bidder in the process. This allows each company to compete for business on the merits of its proposal and technology, not on an ill-formed opinion an executive might have based on something he might or might not have read about them a year or so ago.

It’s a great approach for companies that need to be overly protective of their IP, as well as those companies that don’t understand what their IP really is. It allows them to enter the Open Innovation Marketplace and still keep their paranoid legal advisors – who are one of the biggest barriers to innovation – happy.

Are You Ready For (a) Divorce (from Your Strategic Source of Supply)?

You might think that divorce rates in North America are high, with some statistics as high as 50%, but in the business world, divorce is the name of the game. As a recent article over on Supply Chain Digest points out, no matter how valuable a strategic “supplier alliance” may be at various points of a relationship, for a high percentage of them, the relationship will change substantially and probably end somewhere along the way.

At some point in time, one of the following indicators will arise:

  • multiple requests on either side before action is taken
  • requests need to be made for items or services that used to be proffered without asking
  • the buying organization starts to feel that it is being “nickel and dimed” by the supplier

At this point, the “marriage” is coming to an end and you’ll start to see the commitment of the supplier decreasing rapidly, the sharing of information dwindling, and contractual language identifying each party’s dos and don’ts increasing … and you will know that problems are brewing.

So what do you do? Well, you start by calling in the corporate equivalent of the Ashley Madison Agency and discretely find yourself your next partner – before the current relationship ends and before you’re ready to even announce the shift.

As the article points out, you need a plan to end a strategic supplier alliance – and the most important part of the plan is knowing who your new strategic supplier will be. Strategic alliances exist because there is one or more functions that are critical to your businesses that you are not capable of performing yourself, or at least not capable of performing cost-effectively. This means that even if the current relationship is sour, you can’t just end it without crippling your business. Thus, you need to have a new supplier ready to take over.

Once you know who your new supplier will be, you’ll need to prepare for the transition. This will include:

  • getting the appropriate approvals to end the relationship
  • understanding the legal ramifications and taking steps to minimize the damages that could ensue (by working with Legal)
  • understanding which organizational groups will be affected, how they will be affected, and readying the information necessary to address their concerns at the appropriate times
  • understanding which systems and processes will be affected and outlining the necessary changes
  • creating a transition plan to transition from the old strategic partner to the new strategic partner

Finally, you’ll need to break it off. If you’ve done your homework, although it will be painful, it should go smoothly. Regardless, it will, as always, be an experience – so be sure to learn from it.

Spend Analysis VI: New Horizons (Part 2)

Today I’d like to welcome back Eric Strovink of BIQ who, as I indicated in part I of this series, is authoring the first part of this series on next generation spend analysis and why it is more than just basic spend visibility. Much, much more!

Federation

One of the most serious limitations of OLAP analysis is
the schema structure itself — typically a “star” schema,
where a voluminous “fact” or “transaction” file is surrounded
by supporting files, or “dimensions.” In the case of spend
analysis, dimensions are Supplier, Cost Center, Commodity,
and so on; transactions are typically AP records.

Why is this schema limiting? Because there are only certain ways
that a dimension file can be linked to transaction files, and it
isn’t always clear which file ought to be the transaction file
and which files ought to be dimensions. For example, suppose
that the transaction file consists of AP transactions, and a
dimension file consists of invoice line items. The problem is that the invoice line item
file is “moving faster” than the AP file; i.e. for every invoice number
that appears in AP, there are multiple invoice lines that match.
Which invoice line item should we link to?

Well, we could invert the problem and build the dataset from the invoice detail file
instead, except that we typically won’t have invoice detail for
every AP record, so that probably won’t work. Here’s a couple of ideas
that will work: (1) we could build a separate measure column for invoice
line items, and include them as AP record equivalents (coercing
the two record types into a common format); (2) we could drop the
associated AP record whenever we have invoice line item data,
and include the AP information inside those line items, redundantly.

There are other options, too.

But the essential problem is that we have two separate
datasets, and we’re trying to join them at the hip. There is an
AP dataset, and there is an invoice line item dataset, and
never the twain shall meet, except artificially.
Even when there is no granularity issue at all, and when one dataset
can be normalized or snowflaked such that every matching line
item can be joined through from the other, the amount of effort
required to set up the index->index->index relationships can be daunting.

Instead, why not create two separate datasets, efficiently
and quickly; and then as a final step, federate them together on
a common dimension? Suppose the federation logic was “join” — in
that case, we’d drill on an element in dataset A; dataset B would
drill on the common dimension from A; and then A would drill again
on the common dimension from B. What we’d see is the perfect join
of all of the records from A and from B that shared a common key
in the common dimension; and we’d have the ability to reference
all data from any dimension of both A and B.

There are many forms of federation in addition to join —
for example, “master-slave,” where we drill on A, and B shows us
its common nodes; but does not feed those back to A. That relationship
can go the other way, as well, from B to A. In addition, there’s a
“disjoint” operation — show me all the nodes in B that don’t share a
key in the common dimension with A (and vice versa).

Federation represents a key productivity enhancer
for dataset creation, as well as a simplification to
the dataset building process in general. Federation also passes the
“usability” litmus test, in that the resulting datasets are much
easier to understand than massive levels of index indirection and
snowflaking, and have the potential to produce richer results.

The technical challenges for federation are considerable: maintaining
multiple connections to multiple datasets; representing multiple data
dimensions inside the context of a single data viewer; providing mechanisms
for pulling data seamlessly from multiple datasets for reports and
analyses; and last but not least, augmenting the OLAP engine to perform
federation operations effectively and quickly.

Is federation worth it?
I think so, emphatically.

This brings to an end our initial Spend Analysis series.
Thanks for the opportunity, Michael; and thanks to everyone who
took the time to wade through it.

As Eric said, this ends Sourcing Innovation’s initial series on spend analysis. I’d like to thank Eric for his enlightening posts and hope that you learned something from them.