There were only 24 hours left. Tomorrow the board would pull the plug on the project which had continued for well over 3 years. The total costs as per internal calculations had run into hundreds of millions of dollars.
External consultants reckoned that when you included the costs of internal resources seconded to the project from rest of the organisation, and other costs buried elsewhere in P&L’s the real total was at least double of that.
However, the project had built a momentum of its own. No one was willing to point at the elephant in the room, let alone to lead it out. Careers were at risk. Good careers – built over several years.
I will talk about the outcomes later in this piece. Before, I do that I want to spend some time talking about how did the company arrive here?
How did so many competent people miss obvious and easy signs that the project was not on track. More importantly, where did it all go off the rails?
Of course, I have covered these, and other similar questions in my book OUTSOURCING 3.0, and in my blogs and videos. The book, in particular, carries a very comprehensive model and diagnostic tool kit, which is value for money.
In this piece, I want to focus on only a few key points. And, I want to frame it as a positive affirmation of key things that would build momentum towards success.
Three kind of congruence is important:
In the case quoted above, while minor lapses occurred in all three, several major gaps very readily apparent in #2. It appeared as if IT team was working in total isolation from the Supply Chain and Business Transformation team – though their projects were closely linked.
Short term, tactical thinking – predominantly related to cost savings and control issues and considerations tend to dominate. It is quite easy to lose track of the big picture in the process. All the initial discussions and dreams of gaining competitive advantage are thrown out of the window at the first opportunity.
Then, what is the point in spending all the money? The project appeared like a lot of effort, just to stay in the same place.
This takes more than a flight of fancy. A lot of things will change when one thing changes. You cannot ever do enough of visualisation and preparation. Every time you do this exercise, you will discover some more things that need to change in parts of the processes, infrastructure, skill sets, SOPs, contracts, warehouses, etc. Change it.
That brings me to my last point. All this difficult work is highly specialised; it also takes considerable time and money. It needs skills rarely found inside organisations, or even in IT service providers.
While it is well known that most IT projects run into time and money problems, the scope adjustment problem is less well articulated. Yet, taken together, these can wreck havoc on your business outcomes.
The above graphic – taken from my book OUTSOURCING 3.0 sums up the situation nicely.
In the case study quoted at the start of this post, the outcomes were a lot different than what was expected by the majority. The board made a bold decision and pulled the plug on the project in the middle. That single decision most likely saved the company in the long run. They could have saved a lot more money if, at the outset, they are created governance structure to ensure just a few key points. After all, prevention is better than cure.
Nobody sets out thinking, I have no purpose for bringing this technology into our company, but I will do this anyway (well a few rare twisted souls might do it – totally driven by a side deal that meets their self-interest). Yet, post-hoc analysis reveals so many IT projects fail due to a variety a reason that one has to ask – what happened to the original purpose. Where did not lose track of that? I have written in detail earlier about why IT projects fail. For example in my book THE 5-STAR BUSINESS NETWORK, I wrote the following:
Many large scale information technology deployments derail!
Data, anecdotes and case histories abound on the misapplication of information technologies for supply networks. Not too many years ago, a very large corporation operating worldwide, made news with the downgrading of their earnings expectations due to supply chain system’s implementation setbacks. The expectation was that the new system would reduce the new production cycle from 1 month to 1 week. Furthermore, it would better match the demand and supply of its products to place the correct products in the right locations and quantities, all at the right time – a very lofty goal. The company spent an enormous amount of money, exceeding US $400 million in order to achieve its aim. However, the software system ‘never worked right’. It caused the factories to crack out too many unpopular products and not enough of the trendier ones in high demand. While making the earning downgrade, the CEO asked the rhetorical question, ‘is this what we get for $400 million?’
The market analysts were not surprised. One respected market analyst [AMR] commented, ‘ fiascos like this occur all the time but are usually kept quiet unless they seriously hurt the bottom line.’ Another respected market analyst commented that while the CEO made it sound like it was a surprise for him, if he did not have checkpoints for the projects, he does not have control over his company. A third analyst commented that companies are confused by escalating market hype and too often underestimate the complexity and risks. Another [Forrester Research] commented ‘when the software projects go bad companies are more likely going to scurry up and cover it up because they fear that they are the only ones having trouble. But far from it; our conversation and research reveals this company was not unique or the only one having this kind of trouble‘.
Despite their lofty goals, many of the large information technology deployment projects derail. It takes time for the word to filter out because, in most cases, the executives involved in the process are far too embarrassed to talk about what happened. They do mutter among themselves; after several similar instances the mutterings become more vocal and a trend emerges where a number of people start talking about the shortcomings of the system itself or the implementation process or of the time taken for implementation. Because the cost of this failure is so high – greater than $400 Million in the above case – it is instructive to understand the real root causes of this failure. I am not looking to apportion the fault or apportion the blame in this chapter.
30 years of accumulated wisdom is now available
However, it will be a fallacy not to learn from all the accumulated wisdom of the past. After all, those who do not learn from history are condemned to repeat the same mistakes again and again. This will enable us to understand the steps we can take from the very beginning to increase your probability of success. This will also allow you to confidently move forward with Business Network Information Technology system selection, integration and use in order to achieve the results that you set out to achieve.
The supply networks information technology projects have become bigger and bigger over the last 15 years. It is quite customary now to start with an expectation of spending around $ 50 million but end up spending in excess of $200 million on systems renewal projects.
Rough estimates indicate that, even today, about one third of these projects are cancelled without delivering any benefits, after spending more than $100 million. Another third of the projects are not cancelled, but fail to deliver significant parts of what they set out to achieve. Only one third of the projects achieve most of their strategic goals, but many still incur several budget upgrades and time overruns.
Why is this pattern of failure repeated over and over again?
In general, the original purpose is lost somewhere between the scope creep #2 and #3, and thereafter technology becomes an end in itself, and not a means to achieve a business outcome. There is an admirable drive to digitization underway – but does it suit the purpose of all businesses in all locations? You can find comments on Technology Without Purpose is Like a Missile Without a Guidance System on LinkedIn.
Beware the Story:
Trust Your Emotions AND Verify All Facts
Less that two-thirds of all outsourcing succeed because of the way human brain functions.
If the croc-brain takes over the survival instinct kicks in and the decision is purely instinct or emotion based.
However, if the modern neo-cortex takes over the decision is purely factual and ignores all else.
You NEED to engage all parts of the brain in the decision making process.
We already defined the importance and features of a successful business network, through the necessity of 5 key cornerstones – Fire-Aim-Ready Innovation, $eed-to-$tore Efficiency, Transaction Optimisation Profitability, Advanced Product Phasing, and Results-focused Outsourcing and Modularisation – in the previous article. Now let us prove it by taking an example, which reflects their necessity. Amazon is a perfect example of company applying these five characteristics efficiently, which led the company to an undeniable success. Jeff Bezos, Amazon’s founder, knew how to use them to its benefits. This success enabled Jeff Bezos to “build the largest online retailer in the world, where customers can acquire anything that they desire over the Internet”, said Vivek Sood in The 5-STAR Business Network, when exposing Amazon’s success. The company, through a very efficient and smart strategy, managed to achieve low prices, a wide inventory choice, convenience, and customer satisfaction. This was possible because Amazon’s strategy was based on the 5 cornerstones of successful business networks. The main advantages for customers provided by Amazon were low prices and quick delivery. In fact, customers could get their product very fast by ordering on Amazon.com than any other website. Then, Amazon was far beyond its competitors, and this has been made possible thanks to its thoughtful strategy. First, innovation was very important, especially in terms of designs, and especially at this time because there were only the first fruits of the e-commerce. In fact, online commerce was kind of innovation itself for Amazon, because it enabled people to get whatever they wanted online. Besides, the fast delivery was a result of $eed-to-$tore efficiency: by using efficiently the supply network, Amazon could give satisfaction to customers faster than competitors, which pushed the company towards the leaderships, about the online commerce. Jeff Bezos once said, “Life’s too short to hang out with people who aren’t resourceful”, a sentence that speaks for itself. It shows that Amazon knew how to choose the right partners and benefit from all the resources of its supply network. In fact, there is no point in collaborating with suppliers that do not offer the best results. Provider selection is very important despite the number of them available on the market. Then, Amazon is very good at Transaction Optimisation Profitability, and this is what made the company so profitable, and created a virtuous circle. About Advanced Product Phasing, it is obvious that Amazon was also very good. In fact, if you look at the evolution of the products sold by Amazon, you can easily notice the logical evolution, which follows the innovation and product life cycle. Finally, Results-focused Outsourcing and Modularisation have also played an important role in Amazon’s success. In fact, according to Vivek Sood, “Outsourcing and Modularisation form key underpinning of Amazon’s ability to act”. Services are outsourced in a very efficient manner for the company to achieve better results. In effect, this is a results-oriented outsourcing. Besides, IT services and logistics services are both chosen according to a result-oriented process and they work in a results-oriented environment too. The data driven approach is mainly responsible for that, and it was very helpful to have this approach for Amazon. Indeed, data are very important when building a global business network, and it will be the basis of provider selection especially, so data collection cannot be neglected. by Anais lelong
China’s three-year-old technology company Xiaomi has recently announced the sale of its flagship Mi-3 smartphone will be on the Chinese top messaging app Wechat. This is another in a series of tactics deployed by Xiaomi to get to the heart of consumers and spur their demand.
Already with 7.2 million handsets sold last year in China, Hong Kong and Taiwan, and a revenue of $US2.1 billion, Xiaomi continues to pursue its drip-feed supply strategy. It will be selling 150,000 units of the flagship Mi-3 smartphone on WeChat on November 28th and customers can reserve their spots in advance.
Xiaomi has been famous for its lightning fast sold-out rates through its solely online distribution channel. In November, two records were made during China’s Single’s Day flash sale: Xiaomi sold over 200,000 smartphones in just 3 minutes, making it the first company on Alibaba’s Tmall to break the $16.4 million benchmark.
A similar picture is expected with the upcoming sale on WeChat, with potentially added credibility to both partners since WeChat is seeking to be a payment platform as well.
Being compared to Apple with both positive and negative connotations, Xiaomi seems to be faring better than the global giant. Although the two companies have manufacturer Foxconn in their supply chain and are praised for innovation, Xiaomi’s considerably lower price range has earned it a 5% Chinese market share, surpassing Apple’s 4.8% in the second quarter of 2013.
Xiaomi’s latest funding round put it at $US10 billion in value, more than what Microsoft just paid for Nokia’s handset division. Xiaomi, already profitable since September this year, is one of the 15 most heavily venture-backed mobile start-ups ever.
Some analysts have gone as far as saying Xiaomi was able to do in a month what Apple did in a year, pointing to Apple’s 2012 sale of 125 million smartphones globally.
Xiaomi’s achievements so far have been attributed to a number of factors: the right partnerships (e.g. with China Mobile, the country’s state-owned telecom giant; with Google for running its Android operating system; with Foxconn for assembling its phones containing components from Qualcomm and Sharp).
The key differentiator, however, is Xiaomi’s acute attention to innovation and customer service. While Apple takes a top-down approach to innovation, Xiaomi thrives on idea crowdsourcing, leveraging user feedback to develop and release a new version of its Android-based software every week.
Xiaomi’s founder Lei Jun said: “We’re trying to create greater products while selling a product that is close to the manufacturing price”.
“Preferring to be compared to Amazon, Xiaomi follows the business model of selling low-margin devices and making profits from customers as they use them, just as Amazon sells Kindle and e-books. In that case, Xiaomi probably wants to grow into a super networked business like Amazon too, with innovation, efficiency and outsourcing optimisation already achieved at admirable levels” – said Vivek Sood, author of “Move Beyond the Traditional Supply Chains: The 5-STAR Business Network”.
With its high price-performance ratio smartphone line, Xiaomi is also tapping into other technology products, such as smart TV (MiBox, MiTV) and a newly announced wireless router. Originally operating without brick-and-mortar retailers as middlemen, Xiaomi recently announced the upcoming launch of 18 stores, albeit they are only for selling accompanying accessories and services.
As Apple ventures into the growing Chinese market, Xiaomi is looking outwards. In August, Hugo Barra, a Google executive, was hired to develop new products for international markets. No detailed plans have been released yet, but analysts point to some criteria that Xiaomi would consider in a prospective international market: high activity levels on social media and a robust e-commerce infrastructure.
“It’s still early to tell if Xiaomi will create a disruptive force like Apple did when it first introduced the iPhone. But if the Chinese firm knows how to balance the current needs for profits and future needs for products, how to match its product maturity with supply chain maturity, it can be a game-changer”, said Vivek Sood, CEO of Global Supply Chain Group.
Taipei-based Foxconn Technology Group, whose biggest client is Apple, is to invest $US40 million in the United States to boost its high-end production chain. The move, welcomed by the US government, is part of the growing trend to seek a non-China outsourcing location. The world’s biggest contract electronics manufacturer will commit $US30 million to build a high-tech plant for making precision tools, components for telecommunications equipment and other advanced technologies. Foxconn flagship company – Hon Hai Precision, will also fund $US10 million for research and development in robotics at Carnegie Mellon University in Pennsylvania. The main rationale behind the investment, which also creates 500 hundred jobs in the US soil, is to meet customers’ demand for more of their products be domestically made. “This is an example of results-focused outsourcing in which the customer retains control of the relationship. Although Foxconn can also win by investing in US-based manufacturing, the original call was made by its customers.” – said Vivek Sood, CEO of Global Supply Chain Group. Foxconn will not move the production of Apple’s iconic iPhones or iPads to the US, amid the growing trend for American technology companies to relocate manufacturing plants so that their product designers can be near the manufacturers for quality control. “We won’t be migrating Chinese production lines, but creating high-precision, high-tech, high value-added manufacturing in the U.S for future technology trends,” Terry Gou – Founder and chairman of Foxconn said. The company has its fingers in multiple pies, as most service providers, and is responding to the modularisation trend. “We’ll go from original component R&D through to a complete high-end production chain. However this is not, as assumed, manufacturing for a specific brand”, said Gou. “Many technology companies are now seeking modularisation to achieve homogeneity, where products start looking similar, eventually leading to falling prices. Foxconn knows they are playing in an increasingly commoditised market and their decision to raise their bar is understandable in ensuring the leading position.” – said Vivek Sood, author of “Move Beyond the Traditional Supply Chains: The 5-STAR Business Network”. On the other hand, many US companies are not reaping desirable benefits from their outsourcing in China and moving their production back to their homeland. “This insourcing movement is a result of poor supply chain strategy planning. Many companies choose to go with the obvious benefit of low labor costs while ignoring other factors, which may well offset the former” – Sood added.
Although Information Technology systems have evolved over the past decades, failures are still frequent. Most IT systems fail because their implementation does not follow the process and the conditions that it should. The people in charge often realize it too late, when the process is already in place. In fact, they only realize it when the first results are available and are not as good as expected – if not worse. There are four major areas of mistakes in IT systems deployment.
The first crucial mistake is the strategy itself. Executives and managers usually set a strategy according to what happened before in their organization. Of course the past experience must be taken into account but it is not the only element that impacts on the future. Besides, tactical thinking predominates the IT and outsourcing strategy, which is a big problem because different people with different goals have to implement the strategy. Thus, they all try to serve their own interest when making a decision, which prevent the alignment with the business strategy. When it comes to the strategy development, another problem is the lack of visualization. They do not make good decisions because they focus too much on the short-term and they do not have a clear view of the future changes that will affect the organization after the implementation of a new IT system. Also, they do not make good prevision and it often ends with budget overruns because of the improper budgeting process.
After the strategy is decided, they have to choose between all the possibilities for their new IT system, which means they have to choose the software and the provider. However, this step is quite crucial because it will determine everything after that. The software must fit to the requirements of the organization. Besides, they must also analyze all the providers’ proposals, to determine if they correspond to the criteria. Beforehand, they must determine what criteria are important to their company. However, they often have unclear expectations of the providers they choose. Besides, it can also happen that they want a new system for the wrong reasons. Maybe they do not actually need it, or not this kind of IT systems, but they do it to follow competitors, or any other wrong reason.
One cause of failures in IT systems deployment is the implementation step. Indeed, many mistakes appear during this step. This is mostly a matter of time and cost: it often takes more time than expected to finalize the implementation, which involves additional time needed and costs. Besides, because of the lack of visualization of future changes, they do not think enough about the training needed for employees who will use the new system. Indeed, they need to adapt to a new system, but training is generally not enough. Likewise, systems are not enough tested before being actually used, which will be the cause of unexpected problems later. All this lead to bad management because people are not prepared enough for this shift and systems are not tested enough. Thus, problems appear over the implementation process and after.
Because of bad implementation and not enough beforehand preparation and analysis, many problems keep happening while the IT system is in place. Although the system can work and give some good results, usually the capacities of the systems are not exploited fully. Besides, this is also due to insufficient data accuracy or completeness. More failures appear because of improper feedback mechanisms, which prevent from solving the problems noticed. You can find a more detailed approach about these four key areas of mistakes in Vivek Sood’s book, The 5-STAR Business Network (http://bit.ly/5-STARBN). by Anais Lelong
When establishing a business strategy, CEOs and other executives often do it on random criteria. However, it is necessary to determine specific criteria and axes beforehand. In fact, every organization is particular and has its specificities, which implies different approaches in terms of strategies. The strategy you decide to implement has to be adapted to your business requirements. However, there are 5 key cornerstones that are the basis of successful strategies. They are defined and exposed in Vivek Sood’s book, The 5-STAR Business Network (http://bit.ly/5-STARBN). In fact, this book is entirely based on this approach of the 5 key factors that will help you build a great business strategy. The very essence of this book relies on business networks, and how they must be built. According to Vivek Sood, there are 5 stars that will enable you to build the best business network. The first one is innovation or “Fire-Aim-Ready (FAR) Innovation”, as Vivek Sood defines it. This is the first cornerstone of your 5-STAR Business Network. Innovation have been existing for a long time, but this is a specific approach, on which every organisation must base its strategy. In fact, this book explains how to combine the key factors to be more efficient and effective, at the same time. Although innovation has already played great roles in business, like during the Industrial Revolution, this is not the same any more. Nowadays, innovation must be steady and specific, relying on your business area. Besides, it is not only about products, but also management innovations or strategy innovations can be found. The second star is “$eed-to-$tore ($t$) Efficiency”, a term that needs to be explained in more details, but we will dedicate an entire article to this term. To explain it shortly, $eed-to-$tore Efficiency relies on a good management of the supply chain and of the entire process, from procurement to storage and distribution. In fact, this is all about management, and its efficiency obviously. Then, Transaction Optimisation Profitability is also a key cornerstone. This is obviously about profit. With this expression, “5-STAR”, Vivek Sood explains how to capture the more profit you can, by using efficiently your business and supply networks. In fact, everything relies on your network. Networks are becoming bigger and bigger and they are now the main cause on which all your decisions and strategies depends. Transaction Optimisation Profitability (TOP) is the way you use your network to capture the greatest profit and value. The fourth key of your 5-STAR Business Network is Advanced Product Phasing (APP). This term will also be defined in a later article. What we can say for now is that APP is about product life cycle and innovation cycle. You must pay attention to them in order to act accordingly and make your business evolve in agreement with these cycles. Finally, the last one is Results-focused Outsourcing and Modularisation (ROM). This is quite a complex one, but also very important. Indeed, it will be the subject of Vivek Sood’s next book: Outsource, Outsmart, Outprofit. This term reveals the power of modularisation and networks will play a great role in this strategy establishment and implementation. Consequently, we have here the 5 key cornerstones of a great business network. They can now be defined as business boosters because they can push your business towards great results if they are well aligned and well used together. by Anais Lelong