Category Archives: Strategy

HBR’s Breakthrough Ideas for 2010 are Good for Your Supply Chain, Part I

The Harvard Business Review recently ran a great article on “Breakthrough Ideas for 2010”. While many of the ideas aren’t new (as a few can easily be traced backed decades), for many, their application would be. But more importantly, their application could fix a lot of problems in the world today.

What really struck me was how they all had good supply chain equivalents that could help you revolutionize your supply chain. So, over the next three posts, I’m going to explain how their supply chain equivalents are ideas you should strongly be considering if you haven’t implemented them already.

  1. Motivate Your Employees With Meaningful Goals, Resources, and Encouragement.
    Recognition does indeed motivate workers and lift their moods. As the authors note, you need to take great care to clarify overall goals, ensure that people’s efforts are properly supported, and refrain from exerting time pressure so intense that minor glitches are perceived as crises rather than learning opportunities. And your benefits will multiply if you cultivate a culture of helpfulness and of learning. Happy, challenged, engaged workers are productive workers.
    In addition, if you’re a manager who knows that the head of Sales from down the hall is Maury the Management Moron who likes to constantly promise first, worry about delivery later, and then bug your people on a regular basis for this piece of information or that report or participation on a last-minute call, you need to put a stop to that behaviour immediately. You need to make it very clear that *ALL* requests go through you, and no one else, and that if you ever, ever, ever catch him bothering one of your hard working sourcing or IT professionals without your approval, you will take him to task, and if he keeps it up, you’ll bring in Mr. Louisville if you have to. Nothing is more disruptive to productivity than when Maury the Management Moron is out of control. Nothing.
  2. Remotely Monitor Your Supply Chain Health.
    Just like remote monitoring of patients using a kiosk or similar device is a health-care breakthrough, remotely monitoring the status of your OEMs and shipments is a breakthrough for your supply chain. A supply chain visibility solution that lets you keep track of where your raw materials and inventory is at all times is truly priceless. It enables you to detect minor deviations before they become major disruptions and fix them. And if something major happens, such as a natural disaster shutting down a factory, a civil disruption cutting off a transportation route, or a political embargo closing borders, you’ll know almost immediately and have time to implement your risk mitigation plan.
  3. Fund an R&D Center.
    I’ve said it before, and I’ll say it again. R&D labs are what made North America great in the latter half of the 20th century. Pretty much every major technological advance that didn’t come from a DoD sponsored initiative came from a private research lab like the ones that used to be (significantly) funded by AT&T, Bell, Xerox, and TI — and which are on the verge of going extinct. (We hardly hear of AT&T labs anymore [just endless commercials about their network], Bell is now Alcatel-Lucent, Xerox Parc is now just Parc, and the original TI Labs have been replaced with the new “Kilby Labs”.) Breakthroughs come when you have time to sit down and think about the bigger picture and experiment, not when you’re trying to meet quarterly targets.
    The R&D lab doesn’t have to be a big one. You could start with one person who’s job is to simply evaluate potential technologies and processes that could improve your supply chain, and then slowly add a couple of people to help with the institutionalization of best practices, staff development (after they attend train-the-trainer workshops), and system maintenance. Then bring in an engineer to work with your supply base to take cost out of the process and a systems architect to help your vendors build better systems that meet your needs. After a few years, the ROI will be simply extraordinary as you transform into a best-in-class world-leading organization.

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The New How, A Book Review

Nilofer Merchant’s The New How: Creating Business Solutions through Collaborative Strategy is a great book for those that truly want to collaborate but also need a framework for collaboration along with some practical advice on how to actually get down to the business of collaboration. A veteran of strategic thinking and innovation in the business context, Nilofer goes beyond simple academic frameworks and packs each chapter with examples and real-life situations that illustrate her points.

Furthermore, while the book does introduce some new terminology that, for the most part, is unnecessary, it’s pretty much limited to:

  • The New How
    which is Nilofer’s way of saying that siloed businesses can no longer survive and that they have to embrace more collaborative ways of working together,
  • The Air Sandwich
    which is Nilofer’s way of referring to the void that exists between the executive suite and the trenches in an average large organization, filled by middle management who are supposed to be bridging the gap but who, usually, only widen it with their inability to truly understand both the corporate strategy and shop floor details that they are not part of on a daily basis,
  • Murderboarding
    which is Nilofer’s process of using a razor-sharp tool to slice away at fuzzy thinking and kill off good ideas to let the great ideas thrive, and
  • Chief of Answers
    which is Nilofer’s characterization of the current, doomed, organizational model where one person is responsible for driving all strategy.

Furthermore, while most of the book is focussed on Nilofer’s QuEST (Question, Envision, Select, and Take ownership) process for the collaborative creation of strategy, Nilofer also realizes that collaboration requires more than just a process. Thus, the first part of the book spends a couple of chapters on how to “be” a collaborator — which requires us, at a minimum, to listen and understand, and the last part of the book focusses on the bigger picture and provides us with the “glue” necessary to mesh the people with the process in a way that can produce real results.

But what makes the book great is that even if you tossed the framework, every chapter is filled with practical, down-to-earth advice, on how to become a true collaborator and real-world examples of not only how to apply the concepts, but what might happen if you don’t. For example, Nilofer starts the book by describing one of her own experiences where she was in charge of revenues for the Americas in a large multi-national software company. She described how, one day, the VP dropped by to explain how the company had decided to diversify their product line six-fold within the coming eighteen months — with no input at all from the trenches or even (senior) middle management — based solely on the results of a market exploration which convinced senior management it was “the right idea”. Somehow, sales and marketing would generate demand while new products were developed in parallel. The CEO said “We Must”, the (senior) VPs said “We Will”, and everyone charged forward on the vision, and edict, handed down from on high.

The results were, as we would now expect, predictable. A few months into the new revenue cycle, Nilofer received a call from the lead product manager for the new suite. It started off with “We have a problem here. You know the lead product? Yeah, the one that’s supposed to net us most of this year’s revenue? We’re not going to be able to ship it with all the features we originally planned.” Meetings and chaos resulted, with the typical end-result where the product was shipped on the planned release date, knowing full well it wouldn’t live up to the expectations marketing had created. And it didn’t sell well. Revenues were weak. Customers that bought were unhappy. The team was demoralized and the corporate culture took a nosedive. Several talented staff members resigned. And it took a while for the company to recover.

And it was all preventable. Had the strategy not been created in a vacuum in the senior executive suite, but collaboratively with the front-lines who could have provided feedback on what could be done, and when, chances are that a simpler vision could have been successfully delivered to greater profits than the unmaintainable grand vision that was decided on the simple basis of a market-study with no cross-company input.

After all, as Nilofer points out in the Introduction, there’s not much difference between strategy success and strategy failure. The formula for both is summarized as:
good intent + good idea + talented direction + hard work + "magic black box".

The difference is that in a successful strategy, the “magic black box”, or the details of a successful execution are worked out before the strategy is adopted and launched. Strategy fails when the keys to making a strategy operational cross-functionally are not uncovered soon enough. This happens when a company jumps from “grand vision” to “execution” without sufficient exploration and planning, not because the idea is bad, or the direction is off, or the people aren’t talented and hard-working enough. And that’s why Nilofer wrote the book, to try and help people understand how to replace the “magic black box” with a “successful execution strategy” so that you can be a winner every time. (Because winning today is not enough, you have to win tomorrow, and smart companies go for a series of smaller wins rather than betting the farm on one big win.)

And while I’m not going to get into the nitty gritty details and give it all away, since this is another book I believe you should carefully read cover-to-cover (I did), I am going to give you some examples of the practical, down-to-earth advice that the book is crammed with.

  • Even bright, talented, and motivated people cannot jointly create effective strategies until the fundamental enablers of collaboration are in place.
    Some people have to be guided, and, more importantly, the organization has to foster a culture of collaboration. If the corporate culture is “I own my domain, you own yours” and every manager is always trying to one-up the manager down the hall for greater recognition from the CEO, collaboration is not going to happen.
  • Setting direction is an art and a practice.
    Just like strategy is a noun and a verb. You have to have a vision not only of a goal, but of a realistic execution strategy to get to the goal.
  • The hallmark of thorny strategy problems is that they involve contradiction – that is, they contain a set of conflicting goals or imperatives that create a tension that defies objective resolution.
    And there’s rarely just one right answer. To find the answer, you’ll have to take on tough debates, uncover tacit issues, and work with your “foes” to developer a deeper understanding of the issue that will allow everyone to collectively reach a solution that everyone can live with, get behind, and execute on. Furthermore, by acknowledging and addressing those tensions as we develop ideas rather than smoothing things over, we’ll end up with an even stronger, more viable set of options. It’s one of those pay-me-now or pay-me-later choices.
  • It often happens that our Achilles heel as leaders is attempting to come up with the answers and solve the tough problems by ourselves.
    Even a genius doesn’t know everything, and a true genius admits it.
  • In the long run, what truly matters is not what each of us knows today, but out ability to continue expanding the aperture of what each of us can see and understand tomorrow.
    That’s pretty much the reason Sourcing Innovation exists!
  • Powerpoint slides are just another form of air in the sandwich.
    Powerpoint slides capture high-level ideas, not understanding. For a corporate strategy to be successfully executed, everyone in the organization has to understand it, not just 1 in 20 individuals (which is the number of individuals who understand corporate strategy in your typical organization today). You don’t want to be in the situation where you were looking for a strategy, but only found a PowerPoint.

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Could Escrow Accounts Return Us To Long Term Thinking?

Besides the fact that you’re probably as fed up as I am at the ridiculous compensation packages that many Executives are getting these days despite the fact that they are on their way out the door having just tanked the company, there’s also the fact that their focus on short term gain is hurting the company and your ability to do your job.

You want to switch to sustainable sources of supply, because you know that the long term savings (as energy, water, and carbon costs are all poised to go through the roof) will dwarf any short term savings you can negotiate, but because there are up-front investment and switching costs, you’re prevented from making the right choice.

You want to license that new strategic sourcing decision optimization platform because you know the 12%+ additional savings you can expect across the board on every event you run through it will give you an ROI of 10X to 20X within a year, but you can’t because an additional overhead cost will decrease EPS for the quarter, which will temporarily decrease the stock price, and, most importantly, impact your CPO’s and CEO’s Christmas bonus. Thus, even though you could probably double EPS and pump up the stock price within a year, you can’t make the right move.

And so on. And to be frank, it just stinks. We’ve made it too damn easy for fat-cats to get big rewards today for results that may or may not materialize tomorrow, and it just shouldn’t be that way. For instance, in Canada, shareholders are only now getting “say for pay” at most public companies — and all that right gives them is the right to tell the Board what they think should happen. The Board, once elected, can still do what it wants. And at many corporations, the shareholders only have two choices when it comes to electing the Board, vote for the nominees put forward, or abstain from the vote. But if even a single person votes for the Board, they Board is elected and, after allowing the shareholders to provide “input”, can still proceed to do whatever they want. Could you imagine if you were told “you can vote for Mr. X for President, or not, but if even one person in the whole United States of America votes for Mr. X, he’s President”. Scary, eh?

Anyway, a new proposal by Alex Edmans, Xavier Gabaix, Tomasz Sadzik, and Yuliy Sannikov (from Wharton, NYU, and U of C) on Dynamic Incentive Accounts could hold the answer to fixing some of these problems. According to the authors, if executive compensation packages were deposited into escrow accounts that vest over a two-to-five year period, with only a certain percentage allowed to be withdrawn each month, it could push executives to focus on the long-term. After all, if an Executive can’t access his Million-Dollar stock bonus for five years, he’ll be highly incented to make longer term decisions that will insure the stock price rises over the long term. And if the company were to grant more stock during a downturn, he’d be double-incented to turn the company around.

The authors also found that an increase in firm value must be accompanied by an increase in pay to keep the Executive motivated (and suggested a 6% pay increase for every 10% increase in firm value), but that’s perfectly acceptable (especially since it too will go into the escrow account). After all, if you increase profits by 20 Million, you should get a good chunk of change as a reward. It’s when you lead the company to a 20 Million loss that you shouldn’t get your bonus, and that’s what the real problem is. Now, the proposal has a bit of a downside in that they authors also found that an Executive’s base compensation would probably need to be increased 20% because of the longer vesting periods, and some of the packages out there are quite generous already, but this would still be okay if a good portion of the package was stock in the escrow account and the executive actually produced continued growth over a five year time frame.

Thoughts? Or am I the only crazy blogger who thinks this proposal makes sense?

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Opportunities for Transportation and Logistics Operators Part II

In addition to the presentation of 18 theses around the continued scarcity of energy resources, Volume 1 of the Transportation & Logistics 2030 report on “how supply chains will evolve in an energy-constrained, low-carbon world” by PriceWaterhouseCoopers and the Supply Chain Management Institute also identified some (emerging) opportunities for transportation and logistics operations that are worth close scrutiny by any provider looking to differentiate themselves in the marketplace.

The report provided opportunities in four areas:

  • Products & Services
  • Finance & Accounting
  • Processes & Organization
  • Strategy & Policy

Today, we’re going to overview the process, organization, strategy, and policy opportunities.

Processes & Organization

  • Innovation Management
    Innovation management has not yet been systematically implemented by the majority of logistics companies and offers a significant opportunity for substantial benefits for operations of all sizes.
  • Scenario Culture
    Companies that “think in scenarios” and plan for “alternate” futures can make decisions that maximize their likelihood of success.
  • Research Cooperation along the Supply Chain
    Research efficiency can be significantly enhanced by the participating in research initiatives.
  • CO2 Driven Supply Chains
    Companies may be able to realize competitive advantages over the long-term by reducing CO2 emissions in their processes, documenting such reductions, and actively promoting them to the marketplace.
  • Total Emissions Management
    Leading companies that have already implemented total emissions monitoring systems can take actions to reduce their total emissions and gain additional customers by way of their reduced environmental footprint.

Strategy & Policy

  • Local Patriot
    As consumers demand more locally produced products, those logistics companies that focus on efficient “local” transportation could be the the preferred partner for “local” companies.
  • Corporate Social Responsibility & Ethics
    Logistics companies that develop expertise in the design and implementation of sustainable supply chains will be able to differentiate themselves and win more customers through combined transportation and consulting services.
  • High Tech Logistics
    High-tech logistics providers that provide the latest technology for interaction will gain prominence among customers looking for more visibility into, and control over, their supply chains.
  • Home Delivery Specialist
    Logistics service providers who are able to develop a full,flexible palette of intelligent city solutions which fulfill any newtraffic restrictions could find a promising market as homedelivery specialists.

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Effective Policy Deployment Process

As per this recent article in Industry Week on “planning an effective policy deployment process”, there is a difference between a strategic plan and strategy deployment. While a strategic plan is a three- to five-year vision of where you want an organization to be, strategy deployment is the one-year plan or process instituted to break down that vision into short-term goals that can be assigned, measured, provided with resources, and revisited to determine progress.

While short, it was an important article because many supply chain process improvements fail due to poor execution, which boils down to a failure to not only manage the change, but break the change down into manageable chunks that can be assigned, measured, provided with resources, and implemented in reasonably short time periods to demonstrate progress and interim success before enthusiasm for the initiative wears off.

In other words, the key to effective policy deployment is in the details. A long term vision is important, but so is a manageable path to get there that takes into account the timeframe that will be required which, as per Bob’s recent article on Procurement and Supply Chain Transformation: How Fast, will generally take a good 18 to 36 months.