Three Questions People Are Afraid to Ask….

by Lora Cecere on October 29, 2014 · 0 comments

Groupthink is a psychological phenomenon that occurs within a group of people in which there is a desire for harmony within the group, but the result is an irrational or dysfunctional outcome.  Wikipedia

You know the drill. The meeting is on everyone’s calendar. It has been set up by the CEO or a board member’s assistant months in advance. The room is big, the PowerPoint deck is large, and the coffee cups are arranged in neat rows on the counter of the side of the room. There is an abundance of pastries flowing from the basket, and the stage is set for an impactful meeting. Even though things seem to be going well (all of the meeting details are well-executed and the speaker is giving an energized presentation), the room is eerily quiet. The speaker is speaking, the beautiful slides move quickly at the front of the room, but the audience is not engaged.

In my travels, I attend these meetings frequently. They are precipitated by a strategic relationship between a consulting company and the executive team. The consulting team pitches a theme—vision of supply chain best practices, big data analytics, or demand-driven value networks—to the executive team, and a new project is initiated. The first step in the journey is a kick-off meeting. The second step is usually a large implementation of a technology project—Enterprise Resource Planning, Customer Relationship Planning or Analytics. I feel that the industry is engaged in ‘Group Think’. No one in this meeting is going to ask tough questions. The board has not set up the team for success. Here are the three questions that I would like people to ask:

Table 1. Comparison of Results for Best of Breed Solution Providers to ERP Expansionists in Supply Chain Planning

Question 1: What drives a successful implementation of supply chain planning?  Supply chain planning is now in its fourth decade. The first evolution of technologies were built by best-of-breed solution vendors. These solutions were usually implemented by the technology provider by consultants with specialized skill sets. The promise was the delivery of a decision support system that would allow the organization to optimize the relationships between cash, cost, and customer service against the strategy.

The second-generation of solutions were built and marketed by Enterprise Resource Planning technology companies like SAP and Oracle. The promise of these solutions was that an ‘integrated planning solution with ERP would deliver greater value’. (This solution is termed the ERP Expansionist in Table 1.) This new solution was favored by the Information Technology (IT) organization. By purchasing planning and transactional systems for a common vendor, they had one throat to choke and they were familiar with the architectural elements. It was also the preference of the consulting partners because the projects were longer, more costly and better aligned with the consulting model. But, did it add more value? The answer is no. As shown in Table 1, the movement to adopt “integrated ERP and Supply Chain Planning software from an ERP vendor” moved the industry backward. Ironically, the solutions implemented by the consultants, as contrasted to those implemented by the technology vendors, also produced less desirable results.

How do I know this?  The results in Table 1 come from a nine-month research project of 120 respondents representing 183 instances of demand and supply planning. (The average company has more than one instance of both.) In the study, the respondents were asked to rate time to Return on Investment, and satisfaction. We also correlated the results to balance sheet performance. What do we find? Best-of-breed solutions have a higher Return on Investment and are quicker to implement. They also have higher satisfaction rates. The highest satisfaction comes when the technology vendor implements the solution. It is significantly different at a 90% level of confidence. In the data, we can also see that the implementations from the ERP Expansionists have significant gaps—requiring more planners, longer times to plan, and greater difficulties getting to data.

Why does this happen? Leadership teams struggle with the trade-offs between cash, cost and customer service. As a result, supply chain planning is often a targeted project when the strategic consulting partners talk to their clients at a board level. The strategic consulting partners are respected in these relationships and seldom questioned, and the stage is set. In parallel, there is a low-level of trust for the best-of-breed technology vendors. Many are very sales-driven and difficult to work with. The market was overhyped at an early stage and trust eroded. Would the board deliberately select a system that takes longer to implement, with a lower Return on Investment, requiring more ongoing labor and producing lower results? Of course not. But, the industry is in a groupthink. No one is having a fact-based discussion. This is how we see our role.

Table 2. Characteristics of those Satisfied with Supply Chain Planning

Q2: Who does supply chain planning well? What can we learn? As shown in table 2, the companies that are the most satisfied with planning are smaller organizations with 15 or less planners and without high item complexity.

To drive maximizing the value of planning, organizations need to be aligned against an operating strategy. Companies adopt planning to optimize the organization’s response from the customer’s customer to the supplier’s supplier. The supply chain planning cannot be effective if implemented by a supply chain function that is focused only on customer service, logistics and distribution. It requires the support of the organization to optimize the response for the end-to-end value chain that crosses functions.

What can we learn from this table, and the research? A successful supply chain planning implementation is about more than technology. The implementation of decision support tools needs to be a way of life. Planners need time to plan, and the organization needs to be aligned against a shared vision or operating plan. It cannot be about the optimization of vertical silos within the organization. This leads to a sub-optimal response.

The second thing that I learned from the research is that we do not have good solutions for large organizations in the market today. If you have a large number of planners and high item complexity, you are at risk. This I think leads us to the Third act of Planning.  In the third act, I believe that the technologies are very different from those in the first three decades of evolution. In the Third Act, I believe that the processes and technologies are redesigned outside-in from the channel back to the enterprise. I think that it is a new world of cognitive learning, rules-based ontologies, concurrent optimization, and B2B Networks based on canonical infrastructures with many-to-many data models. These new technologies are evolving. (I will write more on this in my next blog post.)

Q3: How do I become demand-driven? Data surrounds the company. The data in the channel is changing faster than the company can adopt processes and technologies to use it. It is piling up on the doorsteps of most major companies. Some may be used by the digital marketing teams for marketing purposes, but the average company does not know how to use it. They struggle to listen to and interpret market signals. It is ironic that there has never been a time in history where customer data is more available, and the demand higher for companies to operate a customer-centric value network to sense and respond to true demand, but the solutions to use the data are evolving. Today, they do not exist.

Most consultants and technologists are guilty of bait and switch. The discussion is on becoming demand-driven, but the recommended solution is a traditional approach. When the pretty slides are over, the consultant submits a project plan to implement the traditional forecasting, order management and supply planning that does not sense market demand and translate it into usable outcomes. The audience listening to these presentations does not have the courage to raise their hands and ask the question, “How do you define demand-driven value networks?” and then follow with the question of, “Can the traditional technologies really help us to become demand driven?” The consultants are incented to recommend the solutions that they are familiar with in implementing. Most know very little about the true definition of demand driven.

Tomorrow, I get to deliver this message to a large manufacturing client. I am speaking at their global kick-off. I am going to encourage them to not be guilt of industry groupthink. In this blog, I hope that I push you too. I want you to raise your hand and question the status quo. And, if you do not have the courage to do it directly, share the research and ask your leadership team to give me a call. I answer all emails and phone calls. I want to change the dialogue. It is tough for me to see that nine out of ten companies are stuck, and not making progress, at the intersection of operating margin and inventory turns. I grow weary of all of the consultant presentations of how supply chains can reduce inventory without looking at the form and function of inventory and the real needs for inventory to be a buffer of demand and supply volatility.

Join us next week for our webinar on Supply Chain 2020. In this session, we will share research on the future of supply chain technologies, and I will be joined by a panel of two leaders that will share their insights on what the future means for them. In addition, I am now done with the page proofs for my new book, Metrics that Matter. The book is a story. It is a fable about a guy by the name of Joe that does not want to be an average Joe. Instead, he wants to drive supply chain excellence and build the metrics that matter. To do this, he has to build a guiding coalition and  define outside-in processes. Like you, he works with a group of characters within his organization, and is struggling with how to define the opportunity for the company. To do this, he has to use political capital, against great opposition, within the organization to redefine supply chain excellence. The book publishes in December 2014. In parallel, we are busy building a simulation game for organizations to play to understand the concepts of managing the metrics as a system and the importance of outside-in processes. Attendees at our 2015 Global Summit will get to participate in the launch of this new simulated exercise. We hope to see you there!

 

 

 

Throw a coin in the air. There is a 50% chance of heads and a 50% probability of tails. Today, based on a recent study with 113 process companies, an organization’s probability of success with an IT project is almost the same as the toss of a coin. Based on a recent study of 113 process manufacturers, only 58% of companies report that their projects meet their business objectives. So, within manufacturing organization, the chances of an IT project meeting successful business outcomes is about the same as a coin toss. Scary? Yes, I think so.

Lets face it, getting a new project kicked off is tough. The average company spends 1.7% of revenue on technology investments. More and more of this budget is allocated to maintenance support and systems support. As a result, the funds for new projects are fewer and far between. The IT budget is being squeezed. As a result, the hurdles to get money and kick-off a project are higher. There are fewer projects and the technologies are changing fast.

Does this mean that organizations should not attempt to do an IT project? No, we do not think that this is the answer. Instead, we believe that companies need to take five actions to improve their odds of success. These observations are based on work with over 500 companies over the past ten years.

Step 1. Educate the Line of Business User. Line of business users need to take responsibility for project success, but most business users do not know enough to scope and clearly define business requirements. In addition, the IT teams often work in silos. They understand IT, but lack the understanding of business requirements. Business users need to educate themselves through conferences, structured networking and work with strategic vendors. Action item: This can take different forms in different organizations. Experiment and define an approach that can work for you. There are many possibilities. Set aside funds within a supply chain center of excellence for education, and support innovation spending to better understand new technologies without being hamstrung to have a formal project with a well-defined ROI. Support technology innovation and test and learn. For example, one client that I work with hosts an annual IT innovation day and invites technology companies and consultants to participate.  The good news is that many analytics projects are small and incremental with sequential learning. (This is a very different approach than the big-bang approach of ERP.) Another organization that we work with funds innovation funds for business groups to tap to test and learn with new forms of analytics. Project teams submit a proposal to a cross-functional team that reviews potential projects.

Step 2. Consider the Redefinition of Career Paths. Some of the most successful companies that I have worked with have promoted a line-of-business leader into the role of the CIO. When this happens, the CIO has a greater tendency to serve the business. Additionally, the companies that I have worked with that are the most progressive in the management of successful IT projects have career ladders that encourage the cross-functional movement of IT and business leaders between organizations. In these organizations, there is a more natural interchange between groups. The bigger the walls of the silos, the greater the probability of project failure.  Additionally, the more IT outsourcing within the organization, the bigger this issue can be. Action Item: Consider redefining the organizational career paths to develop a greater opportunity for cross-functional process development.

Step 3. Get Clear before You Contact Solution Providers. Some of the largest project failures that I have witnessed started with a project team that was unable to make a decision on a project after an extensive vetting of technology options. When a project team is unable to sort requirements to sort out which technologies and approaches to create the most value, the project starts out badly and is doomed for failure. Instead, the team needs to start with business outcomes and work backwards to requirements. The danger of contacting technology suppliers and consultants first is that the larger technology ecosystem tends to think in feature and function language. As a result, it is important to get clear before you get started. Action Item: Define a project outcome and decision process to make a final decision before you get started. Send out fewer RFPs and work on more upfront definition.

Step 4. Be Realistic. Lets face facts. Today, getting technology funding is tough. As a result, many projects are doomed to failure before they get started because they are saddled with unrealistic expectations before they get started.  Action Item: Set reasonable expectations and stick to a focus on business outcomes.

Step 5. Don’t Hamstring the Project with a Sub-standard Solution from a Strategic Vendor.  Many companies have ERP backbones for transactions or an IT standard for analytics. Over the last decade, the business organization has been hamstrung by a well-intending IT organization to use these ‘more strategic vendors.’ There is a goal to have fewer vendors and one throat to choke. The unfortunate reality is that the gap between strategic vendors and innovation has grown in the past five years creating an opportunity cost of the organization. With today’s options for hosting and cloud, the organization needs to release these requirements and free the organization to drive new levels of innovation. Action Item: Help the organization make the right balance between IT standardization and evolving technologies. The pendulum has swung….

So, can you beat the odds? We hope so. Let us know how we can help. We think that a successful business project should have better odds for success on an IT project than the flip of a coin.

Did I miss any that you would add? Please let me know. I love getting responses on my blog. If you want to connect in person, next week, I will be speaking at the Quintiq world tour in Philadelphia and at Pivotcon on the Digital Supply Chain in New York. Hopefully, I will see you in my travels. All the best….