Boards always ask the hardest questions. That is why these gentlemen (and ladies) get to be on the boards. They know just the right questions to ask at the right moment. Towards the end of this blog I will relate my recent experience with one such question. They may not know the answer, but they know that they are facing fundamental disruption.
And, they take their roles very seriously. Sometimes, more so than the management.
On one hand, they can massage the quarterly (or monthly, or annual) numbers and pretend that the results are much better than the actual results. A temporary high can be achieved month after month, quarter after quarter, year after year till the fiction can be no longer upheld.
Then you end up losing a tremendous part of your market value in a short period of time. While this story is all too common, the most usual alternative is not pretty either – read the story I recount in this blog post.
So why do many companies resort to massaging numbers? Are they not aware of the consequences? Or, are they just hoping to kick the can down the road till the next market explosion?
One of the reasons is clearly hard nature of the other side of the road.
But clearly thinking is not enough. There are already enough strategists who have done nothing else but thinking (and writing what they think).
If you are wondering why so many of strategists’ reports just gather dust on office shelves – the real answer is simple. Lack of confidence.
Confidence in the findings, as well as, in the ability to implement the recommendations. After all, by now we have a generation of advisers who have made nothing but slides all their lives. Most practitioners have serious issues with that.
Most strategies fail to foster confidence because they are based on industrial age thinking. You cannot fault the managers. Even the best business schools continue to teach outdated industrial age thinking today. And, in the rough and tumble of the real world, very few managers have time to think and work out that they have been taught an outdated business thinking process.
I have written many blogs on the difference between the industrial age thinking and the information age thinking, so I will not repeat entire blog posts here. But I will put in one simple slide to highlight the difference:
So while leaders talk about disruption, there actions remain embedded in traditional thinking. Fresh thinking is even harder than traditional thinking.
Not just that, there is a new kind of leader that is required for disruption. For strategists data is everything – it allows them to focus on the select few things that matter.
Supply Chain CEOs think differently. They are able to focus on the entire B2B network simultaneously – both on the demand side, and the supply side. And they know which levers to pull when to make them match in real time. My book THE 5-STAR BUSINESS NETWORK covers the nitty gritty in a great deal of detail. But here are the five key levers in a nutshell.
My next book THE SUPPLY CHAIN CEO will cover scores of case studies and practical examples of the difference, and how you can apply these techniques in your company.
Before, I stop penning this blog, let me highlight the question that the board asked. The question was – Why can’t we do both the things together?
It is a great question, and I am still thinking of the answer.
If you are in Australia, it is more than likely that you already know this saga. If you are not in Australia, or do not follow the news cycle, take a look at the video below:
Several years ago it was this:
Some band-aid solutions are rolled out – mostly to restore public confidence and get the demand up again. However, a comprehensive supply chain security regime is never put in place.
Having done large scale supply chain transformation projects for companies as sensitive as explosives, chemicals, fertilizers, food stuff, soft commodities, bakeries, meat, dairy, livestocks, and many others, we have seen both – the vulnerabilities and some really cutting edge supply chain security in practice.
Unfortunately, supply chain security, in conceptualisation and training, has not kept paced. There is no university course that covers this topic sufficiently. Conferences skirt this topic. Books cover it sketchily. Regulatory framework is patchy and officious.
And after complying with the regulatory burden most people relax in the belief that they have done enough.
Yet, dozens of incidents have demonstrated that regulatory framework is never enough. Each company has to develop its own supply chain security framework, based on its own particular circumstances. Even compliance with insurance requirements is not enough. Reputation damage to your business is a non-insurable loss in most cases.
Complying with regulatory and insurance requirements is a good start. You also need a more robust, holistic and comprehensive supply chain security framework that provides the guidelines for your own company’s supply chain security model.
Our report titled SUPPLY CHAIN SECURITY – A COMPREHENSIVE, HOLISTIC FRAMEWORK provides the information to get you started.
Better still – run a one day workshop based on the content of the report. It will be the best 20K your company ever spent.
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.
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.
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.
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:
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.
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.
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 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.
So what kind of thinking is required?
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.
In other words:
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.
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 email@example.com for the document (available selectively).
Most CEOs and CXOs think about how to improve supply chain. They are surprised to discover that what they thought was a well-functioning Supply Chain turned out to hide such a tremendous amount of problems.
The big companies are often confronted with this problem. The different departments of the firm are not sharing information properly, and in case of failure the departments tend to evade responsibility.
The quality of the service is directly affected by a broken Supply Chain. Customers are not only looking for a good quality offer but also reliable one. Brand image is at stake here.
The weakness of the reliability of the supply chain makes the work of the sales force more difficult as the brand image of the product is becoming less attractive. Even low prices are less appealing to the customers, because the competitors win on service. And, when you win by reducing pricing, you encounter the next problem.
A broken Supply Chain is a handicap that hits on both fronts. Rising logistics cost raises the cost of the goods sold. At the same time, poor service can only be overcome by lower prices.
The company faces a dilemma. Either raise the price to maintain the margins at the risk of losing sales, or accept the drop in profitability. Most companies opt for the second option – and blame the competition. Only a few recognise the root cause – the broken supply chain.
Many CEOs are surprised to find both the problems at the same time – overflowing warehouses, and missed deliveries. The reason is simple – their supply chain carries the wrong type of inventories, and in the wrong places. People do their best – by hunting around for the right inventory in the shortest period of time, and by expediting. But, a better solution is to carry the right inventory in the right place.
Good solid supply chain thinkers are in high demand and low supply.
I would know, I run this company called Global Supply Chain Group for the last 17 years.
It appears that it was not too long ago (when we formed this company) – most business people were struggling to understand what is supply chain and what does it do. We have come a long way since then.
Every politicians speech today is laced with references to global supply chains and business networks that run the commerce on earth today. Companies that are seen as supply chain trend setters are leaving everyone else (even in adjoining industries) biting the dust.
Take a look at the chart below:
But Amazon.com is not the only one.
Current trend is becoming clear- companies such as Apple, Zara, Uber, AirBNB have one thing in common – Supply Chain Leaders as CEOs. Integrators are in high demand. Optimisers rule the roost.
Every era has its own heralds and the mantle changes every few decades.
As as example, it only one or two decades ago that strategists coming from McKinsey or 3Bs (BCG, Bain, Booz) were the prime candidates for the role of the CEOs. What made this necessary was the need for strategic thinking that was missing at the highest level before that. But clearly the mantle has passed on the the integrators / real supply chain leaders now. Here are the previous trends:
I know, you are asking where is the proof. Take a look at the picture below:
It will take a long time to explain the picture above, if you don’t get it by seeing it. It is also perhaps unnecessary in that case. Suffice it to say that two skills are becoming critical for business leadership:
Integration – of various parts of the 5-STAR Business network, internal and external resources, into a complete unit that delivers the customer experience
Optimisation – that enables sound profitability while delivering the customer experience
I have many other pretty pictures to expound these points, but I would rather focus on the outcomes.
So, what would you expect if above two skills were available in abundance? For sure, you would expect good business outcomes. These could take the form of any of the 5 possible themes:
This is the topic I cover in great deal of detail in my book THE 5-STAR BUSINESS NETWORK – so I will not talk about it in this post. Rather I want to focus on the reason I wrote this blog:
Now, if you have read it this far, there is a good chance that you know someone who will benefit from this information. Earn yourself some brownie points by letting them know – by sharing directly, or via groups. It only take 15 seconds.
Integration – of various parts of the 5-STAR Business network, internal and external resources, into a complete unit that delivers the customer experience.
Optimisation – that enables sound profitability while delivering the customer experience
I have been asked this question a lot on Quora, as well in my board and other speeches. A lot of supply chain commentary is becoming too technical and mysterious. Supply Chain Software sellers have a vested interest in creating the mystique – similar to what McKinsey used to do about 20 years ago. But Supply Chain Management (SCM) need not be mysterious. Remember, if someone cannot explain it easily enough – they do not understand it well enough. The purpose of one of my books – Unchain Your Corporation – was precisely this – to demystify the supply chains. This books is written for layperson, can be read in 2–3 hours, and had more than 200 stories and anecdotes to help the readers use complex concepts. At its core, SCM is just about two things – integration, and optimisation. Integration of various functions (purchasing, production, logistics, inventory management, finance, sales) within a company. And, Integration of of various companies that form a supply chain together to serve an end consumer. Optimisation – is the art of getting the best results from the same inputs. You will be surprised to know that most GPS software do not even give you the optimum route even if they have real-time traffic information. The key to testing optimisation is by doing the same exercise manually and comparing against the results of the software. There are clearly degrees of Integration and Optimisation. Higher levels of Integration and/or Optimisation will lead to higher level of efficacy in supply chains. See the figure below – that comes from one of my board speeches:
If you supply chain consultants are not telling you these two simple truths, then all the talk of automation, big data software and driverless vehicles is a pipedream without a purpose. And, if your Supply Chain MBA is not teaching you these two basics then you might have wasted 2 years and thousands of dollars. Here is why… …Everything else in supply chain stands on those two foundations. Your supply chain relationships are part of integration effort, and automation is part of optimisation effort.
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:
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.
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.
The simplest definition of business is to sell or buy the goods or services. Though, It may define the trading style of the past centuries but now business is not that much simple. One need to compete strongly to stay in the market, to be the best in every sense and above all being a part of business network is almost inevitable. Joining a network is not at all about catching the bandwagon instead it’s a shield which saves you in more than a dozen ways. In other words you can say that your business network is your business’ net worth. Hows and whys are discussed here:
Business network works almost in similar way to the Nokia slogan “ connecting people”. People live in society to avoid isolation and same thing a businessman do by joining an already existing network or creating his/her own network. It serves as a platform to share the ideas and knowledge, to meet new ones, to guide them and get the guidance from the experienced ones. Find out more about how a business network enables connection among the business men here: http://www.forbes.com/sites/geristengel/2013/04/24/6-ways-women-can-power-up-their-businesses-with-networking/
You can learn 100s of the tricks from a book to sell your service or product but only the information which you gained through market research can reveal that what actually the customers want. Loyal and trustworthy friends in a network offer this unique and 100% relevant information. Its better to find few trust worthy people instead of expanding the network to the endless limits.
In “5-Star Business Networks” Vivek Sood, famous business writer, recalls that how he found a group of trustworthy and loyal people ready to share their ideas at Linkedin.com. You may find it interesting to read the whole story and his view point about how joining networks positively effects the business here. http://www.amazon.com/The-5-STAR-Business-Network-Corporations/dp/061579419X Same thing happens when you become part of a network. Joining a business network enables you to find people with common interests and goals similar to yours. Their knowledge and first hand information improves your understanding towards the business.
You may find it difficult to meet new people but in order to expand your business or to brighten your career it is highly recommended to make yourself as much visible as possible. The easiest way to do so is to join a network where simply interacting with others can do wonders for you and your business as well. Wisely chosen or created business network offers you the right place with the right people, to do the business.
No matter whether you need to recruit or to be recruited, in either sense business network can be helpful. By making yourself visible in your network, you can easily be remained in the mind of those who are the part of this network. Business network works like referral programme where the most visible ones are highly refered as well. Once you get referred or having a referral, respond positively. It will create more chances for you in future.
When we discuss business networking, it also means communication between the two individuals. This interaction helps in learning that how a team leader deals with the staff or how a businessman responds in a crucial matters and takes decision. Business networks enable to learn the suitable human behaviour in various situations. Keep interacting with others because only the practice will bring perfection to your communication skills.
Every businessman goes for some market research to find its target market where the offered service or product is highly needed. The loyal and trustworthy members of the business networks help in cutting down the research expenditures and directly targeting the refined market. You may also share your knowledge to strengthen this bond because business network is all about mutual interests.
Remember that you are social being at first and to keep socializing is the basic need of any human being. Business network built on pure relationship is one of the most precious assets you have. So don’t hesitate in making strong relationships much more worthy than your business. For more information on the topic , please follow the link: http://www.cbsnews.com/8301-505125_162-28245723/10-reasons-why-your-network-is-your-biggest-asset/
The concept of business rivalry is fading because the concept of business network has made it possible for the key rivals to sit on a same table or to connect via internet and discuss the common interest of each other and threats being faced .Thus, business networking is working like confidence building measure for the two rivals. Not only the rivals, the two strangers connected through a network also start believing in each other because of the connection built through this network.
Business network is all about mutual trust, which leads to cooperation and finally makes it possible to have a multiplying factor in each sense. This mutual cooperation can lead to the joint ventures or increase in investments and much more. You only need to focus on strengthening your relationships with other members of the network. Be loyal and trust them to get the same in return. For more tips you may follow the link: http://business.financialpost.com/2013/05/27/6-tips-on-how-to-get-the-most-out-of-business-networking/ Using the web for your business is an art and those those who are running their business from home, surely needs mastery because here the situation is quite different from the ordinary business. The guardian pays more light on the issue in the following link: http://www.theguardian.com/small-business-network/2013/feb/25/niche-business-networking-groups
Virtually all its shareholders gave their approval, and with a stroke of pen the Finnish firm that once dominated the global mobile phone market officially announced the sale of its mobile phone unit to Microsoft Corp yesterday.
The $US 7.4 billion deal will see Nokia transform its business model into a telecom equipment and network services provider, a major step towards re-bundling itself into a super networked business. The move was given a green light by virtually all Nokia equity owners, who saw it was time to let go of a high-fixed-cost and increasingly-low-margin division. The company has been lagging behind at number 8th in the smartphone arena, although it still maintains number two position in the overall mobile phone market according to Gartner. Chairman Risto Siilasmaa told investors. “We have no doubt that this is the right decision.”
Talks surrounded Nokia’s string of wrong turns in the past such as investing in the smart phone technology too early (as noted by former chief executive Jorma Ollila), and reaping poor results from software design efforts. “Nokia’s high fixed costs signal underlying issues in its supply chain management.
The network of supplies has not been optimally selected and articulated to maximize its product offerings to the end customer. At the same time, both Apple and Samsung have created partnerships to leverage their business network to the maximum. For example Samsung’s partnership with Android allowed it to bypass costly software development that plagued Nokia. Similarly, most of Apple componentry is still manufactured by its business network partners” – said Vivek Sood, author of “Move Beyond the Traditional Supply Chains: The 5-STAR Business Network.”
A key reason cited for the poor performance of Nokia’s phone division is not enough innovation. While its rivals such as Apple and Samsung continue to gather momentum with their smart phone lines revamped utilizing the core of their business network partners, Nokia’s only notable attempt was when it embraced the Windows operating system in 2011. Even so, the move did not substantially lift Nokia to its market leading position decades ago. Life after mobile handsets for Nokia will include attempts to make its existing business units profitable, by focusing on its infrastructure. Speculations are already underway about the new moves.
For example acquisition of Alcatel-Lucent’s wireless-equipment unit could build a substantial competency base to enable robust market competition. A super networked business is created by a business forming strong supply networks that allows efficiency and effectiveness in three core competencies: customers, infrastructure and innovation. Vivek Sood, who is the CEO of Global Supply Chain Group, said: “Now that Nokia has freed itself of its past legacies, it is the perfect time to focus on its core competency and cherry-pick its partners that can complement the gaps. If done properly, Nokia can then re-emerge as a super networked business again ready for the next few decades.” Click here to get first three chapters of the book The 5-STAR Business Network
19 years ago, when studying for MBA, our Professor in Change Management, Dexter Dunphy told us that Change Management is nothing but management of downside. I understood that his point was every change has a downside – and as a change manager, the most important job you have to do is to understand the downside of the change being proposed, and manage it well enough. When I became a management consultant with a top-tier strategy house after my MBA, I took his dictum to heart, and it served me well through several change management projects. Those who were most affected by change appreciated the fact that the change was managed in a sensitive and caring manner – rather than imposed abruptly.
After a few years, when we started our current boutique consulting house, I started to notice another pattern. This was that many companies could accelerate their change management by skipping one entire generation of Supply Chain Management (SCM) in their efforts to make their businesses more modern. In other words, change management would entail moving from SCM 0.0 to SCM 1.0 or from SCM 1.0 to SCM 2.0 or from SCM 2.0 to SCM 3.0. On the other hand, many companies would want to take up an accelerated path – jumping 2 steps at a time – e.g. SCM 0.0 to SCM 2.0 or from SCM 1.0 to SCM 3.0.
This enabled them to frequently leapfrog their competitors, and transform their businesses rapidly and systematically. This was nothing different from many companies skipping a generation of Microsoft Windows when they upgraded their operating systems – for example skipping Windows Vista and jumping from Windows XP to Windows 7.0. The reasons were different, yet the methods were similar.
While change management entailed managing the downside for those who were affected by change, business transformation was more about understanding and managing resistance. By now, downside management has already become a big enough industry – just look at the number of large outplacement consulting houses, HR consultancies, and the booming business they do through the ups and downs of business cycles. Business Transformations will lead to a second boom in these.
If a business keeps up with the SCM evolution and moves with it, there will be a greater need for leadership training, corporate cultural adjustment, collaboration training and less outplacement and redundancies. And, there will be a need for understanding, managing and using resistance to further business transformation. What is the nature of resistance? What is the reason? How to identify 4 different types of resistance? How to use resistance to accelerate positive business transformations? That will be the topic of my next blog.