Headwinds: A force of resistance
Tailwinds: A favorable force blowing in the same direction
When I travel from company to company and discuss the future of business processes, the term “digital” is ubiquitous. A digital fever abounds. I liken it to the e-commerce frenzy of 2001 (when an “e” proceeded every strategy).
Fear abounds. Growth is slowing. Amazon is expanding. Unlikely players are driving change. For example, Google and Tesla are redefining automotive. Airbnb is changing hospitality. Worried executives question, “Could my industry be next?” Just as Blockbuster missed the online movie experience, and Kodak failed to monetize digital printing, company boards struggle with the thought “Will our story be framed in the next Harvard Review case study of a company that missed the digital pivot?”
The tension within an organization is growth. Public markets reward revenue increases. Average growth for companies for the period of 2011-2016 was 1/3 the rate of growth for the period of 1986-2007. The political environment for globalization is worsening. Trade is tougher.
At the Supply Chain Insights Global Summit last week Gita Gopinath, a Harvard University economist, forecasted worldwide global growth at 3.6%, but only 1.9% for the more advanced economies in Europe and North America. In contrast, she forecasts growth rates in the emerging economies of Europe and Asia at 4.8%. For the global multinational, powering global growth in China and India is tougher, and with greater intellectual property risk, than driving a digital transformation in North America and Europe.
Times of slow and negative growth bring new tensions to the organization, putting pressure on the supply chain organization. Traditionally, the supply chain focused on cost reduction. Transforming the supply chain as an engine of growth is a new charter requiring a transformation. This includes defining new business models, building test-and-learn capabilities, and driving process innovation. Most supply chain teams have never even ideated with their digital marketing teams, let alone begun the journey of defining new business models. These activities fly in the face of the traditional supply chain charter.
The starting point is aligning on the potential of growth. In our work we see a consistent pattern of over-forecasting. Most companies over-forecast the growth potential of demand shaping activities of sales and marketing to drive growth. This starts a cycle. The company over-forecasts and attempts to drive growth through sales and marketing activities. As actual market results from the first two quarters post, the organization becomes reactive with a focus on reducing costs and inventory. This whipsaw happens year after year.
Driving a Digital Transformation
So, what does digital mean? There are many possible definitions:
- Autonomous Supply Chain: Automation of supply chain processes through cognitive learning and artificial intelligence, eliminating labor, and reducing the need for people to touch data. This includes driverless transport and local delivery.
- Value Chain Uberization: A platform to enable shared resources across a community. Examples include Uber and Lyft. Last year I was in Nigeria and witnessed a platform for farmers to share farm implements with payment through the use of MPesa. Each value network has their own opportunity.
- 3D Printing: Localization of manufacturing through the sharing of digital images using additive manufacturing.
- Internet of Things: The use of machine-to-machine streaming data to improve supply chain outcomes. This includes more accurate sensing of replenishment needs, digital manufacturing strategies, redefinition of service for asset intensive industries, and wearables in healthcare to sense vital sign deviations.
- Multi-Tier Networks and Redefinition of B2B: The building and execution of multi-tier networks for data sharing, collaborative workflows, and improved decision making. This includes a discussion of blockchain, network canonicals, cryptocurrency and interoperability. While we have discussed value networks for many years, only TSMC and Walmart used market power to drive differentiation through the building of value networks.
- Cloud-Based Computing: The promise of cloud is federation and democratization of data, in both private and public clouds, with the promise of a lower cost of ownership. Newer cloud-based solutions are lower cost with greater capabilities than the traditional licensed offerings.
While most companies bandy the word digital about, few define it. In the current frenzy, when I ask clients what digital means to them, they look at me like I am the dumbest analyst in the world. While I know that this is a possibility, I also know that the first step in driving change is a clear charter for group empowerment. I just think that a digital transformation cannot be actionable without a definition.
A digital transformation requires big feet and big wings. The wings represent vision and the feet action. The greatest action for companies is happening through chartering small and scrappy teams focused on solving a business goal. The wrong starting point is hiring a large consulting group or engaging with traditional technologies.
Companies on a forced march to implement multi-year ERP and decision support (APS, SRM and CRM) will need to rethink how to drive innovation at the edge to redefine the core. (ERP becomes the system of record while cognitive computing, machine learning and IOT redefine decision support.) Abandon the thoughts of a bimodal strategy where there are haves and have-nots, and begin to redefine business processes outside-in with a focus on the customer. Break traditional functional silos and build processes to sense and translate market opportunities while effectively defining business requirements.
How to get started? Focus on a business goal. Or a peevish problem. Redefine the atoms and electrons to drive value. Technologies abound. Nanotechnology. Blockchain. Cryptocurrency. The Internet of Things. Cognitive Computing. Cloud Computing. Wearables. Additive Printing. The list can go on and on. However, one of the things that is clear to me is a digital transformation is not about technology for the sake of technology.
Let me give you an example. I reviewed a strategy document last week that listed technologies of interest and the desire to test, but the focus was on the automation of today’s processes. As I read the document, I shook my head. Making today’s processes more efficient misses the objective of the digital transformation. For me it is about the use of the convergence of technologies to redefine processes to build new business models, to improve value, and improve insights/decisions. It is not about technologies for the sake of technologies. Build with a goal in mind.
The building of outside-in processes improves value. Today’s processes focused on inside-out processes to optimize and make functional silos more efficient. This did not deliver effective supply chain processes.
- Ability to Drive Innovation. Technology and process maturity are only a good fit for early adopters. Today only 14% of companies are early adopters. (Early adopters are willing to spend money and participate in co-development with uncertain outcomes.)
- Lack of Process Innovation. A digital transformation requires a process innovation focus. Most companies are good at product innovation, but lack processes for process innovation. Process innovation, new formats and new business formats need to find a place within the organization.
- Organizational Learning. There is a need for leadership and an investment in a digital strategy. While many companies talk the talk, they do not know how to walk the walk.
- Tradition. Organizations have a strong focus on traditional functional silos and supply chain processes. These are a barrier for change. The digital transformation requires cross-functional process redesign.
- IT Focus. Long roll outs of traditional IT architectures from legacy ERP providers are an opportunity cost for digital innovation. These are a barrier for digital innovation. IT teams focused on standardization will push the organization to partner with traditional technology providers, and as a result, the organization will miss the larger technology opportunities.
- Confluence of New and Promising Technologies. A barrier is that new technologies are maturing at a faster rate than companies can adapt to use them. Invest in getting to know new and promising best-of-breed technologies and invest in co-development.
- Shifts in Business Models. The shifts in business models in our personal lives are igniting questions for traditional business processes. The closing of traditional retail stores, the redefinition of logistics, and the evolution of mobility drives new discussions.
- Recognition of the Growth Opportunity for Digital Businesses. Amazon, Google, and Tesla are leading the way with premium market capitalization. As Amazon separates from the pack redefining retail, the digital vision is getting clearer. It is no longer a retail phenomena. The Amazon effect is now pervasive across multiple industries.
- Pressure from Shareholders to Drive Growth. The pressure at the boardroom is intense. The impacts of M&A and globalization from the last decade were largely disappointing. Companies are seeking new answers.
These are my thoughts. I look forward to hearing from you! Watch the site. The videos and presentations from the Supply Chain Insights Global Summit will be available this week.