Business Transformation Is not easy

Two things will never change: the will to change and the fear of change.

There I was, ploughing through lists and lists of the plants, the products, the distribution locations, the customers and the services of this fast-moving-consumer-goods company. Impressive they were, but also painfully complex.

A complexity that had accumulated gradually in bits and pieces over a number of years, nay, decades.

Table Of Contents

1

WHAT DOES IT TAKE TO TRANSFORM SUCCESSFULLY?

2

The Strategic Component And The Overall Vision

3

The Physical Component

4

The Informational Component

5

The Process and Service Component

6

The Financial Component

7

DON’T WALK A LONELY ROAD

8

PUTTING YOUR FUTURE IN GOOD HANDS

What is driving the need for change, and what is the vision for a changed organisation?

WHAT DOES IT TAKE TO TRANSFORM SUCCESSFULLY?

When discussing the responsibilities of a transformative CEO, Indra Nooyi – the current CEO and Chairman of $66 Billion Pepsico said

“The one thing I have learned as a CEO is that leadership at various levels is vastly different. When I was leading a function or a business, there were certain demands and requirements to be a leader. As you move up the organization, the requirements for leading that organization don’t grow vertically; 

they grow exponentially,” Nooyi explained. “When I was president of the company, I said, ‘Okay, I can do this– 

piece of cake.’ Then when you are the CEO,

the responsibilities multiply enormously because you worry about everything.” In a different way – more in terms of capabilities than in terms of responsibilities – this is true of transformation experts too. 

In our experience with more than 400 large and small business transformations, There are basically five components that you need to master in a business transformation project. When discussing the responsibilities of a transformative CEO, Indra Nooyi – the current CEO and Chairman of $66 Billion Pepsico said

The one thing I have learned as a CEO is that leadership at various levels is vastly different

When I was leading a function or a business, there were certain demands and requirements to be a leader

Figure 1: Top 35 companies out of the 62 companies with Supply Chain 3.0

I am absolutely sure, that this figure is unlike any other figure you might have seen before.

But first, I’d like to draw your attention to the famous concept called the “10,000-hour rule” popularised by Malcolm Gladwell. In a nutshell, Gladwell’s core argument in his book “Outliers” is this: it takes about ten thousand hours of practice to achieve mastery in a field. It should be noted here, before critics jump in and question the validity of this rule, that this concept applies to “cognitively demanding” activities or fields, such as playing chess, composing music or transforming a business for that matter. Also in defence of his theoretical stance against those who place innate talent above practice, Gladwell said:

“Achievement is talent plus preparation,” and that “within a group of talented people, what separated the best from the rest was how long and how intently they worked.”

What I would like to draw from this idea is that if you are to master each and every one of the 5 components, it will take you approximately 50,000 hours, or nearly 30 years for a business transformation.

At the present state of the business world, this 30 years is too long a time period to derive any competitive advantage from transformation. By the time the pupa comes out of its cocoon, other butterflies have already sipped nectar from almost all flowers in the garden. But that is not to say you should take shortcuts. That is one of the reasons for most in-house business transformations to achieve far less that hoped for.

At the present state of the business world, this 30 years is too long a time period to derive any competitive advantage from transformation. 

By the time the pupa comes out of its cocoon, other butterflies have already sipped nectar from almost all flowers in the garden. But that is not to say you should take shortcuts.

That is one of the reasons for most in-house business transformations to achieve far less that hoped for.

Back to the client’s project, we were able to restructure the entire global supply network, expand high performing manufacturing plants, close redundant plants and add a nearly twenty-fold value above the project costs.

We were able to do that by modularising the transformation project these its five critical components: physical (infrastructure), informational (system), process and service, financial, and strategic. 

 Here are the key questions that you would want to ask now and we will address these in the rest of this article:

What are the 5 key components that require mastery?

Business Transformation Is Not Easy

The Strategic Component And The Overall Vision

Time has come to talk about the 5 funny acronyms in the figure below. This is because we want to see how these are linked to the strategic contribution of supply chain management to overall corporate results

Even today, there are not many people on earth who can combine all these elements of the supply chain to create a holistic model while at the same time, see a future model that would work better in future, in order to create a transformational programme.

Business Transformation Is Not Easy

The strategic element, the most important part of the business transformation, is the glue binding all other components together. It dictates how the physical, the informational, the process and service, and the monetary components of the business network fit together. 

Now this strategic component may be different or similar to the original corporate strategy. After all, not everyone knows right from the start they are going to walk a different path sometime in the future. Some elements may be merged or weaved in together, or some be taken out and replaced completely

What is driving the need for change, and what is the vision for a changed organisation?

Within the new vision, what are the trade-offs – between costs and service levels, between various drivers of costs and between customers preferences and how to make those trade-offs profitably?

What are the key leverage points – how can you get the best transformative results in the shortest period of time?

What will the new business model look like? How can you define this model in great deal of detail so that implementation teams have a sense of direction, yet have ownership and flexibility to adapt?

How will you reward each and every player for their contribution to the business transformation?

How will you structure the contractual relationships in the new world?

How will you prevent intellectual property thefts in the business network?

How will you encourage research and development field?

How will you encourage the new product development?

How will you encourage the organisation of a pipeline where one product after another is created systematically in several generations?

In the transformation project we were working on, obviously, the big strategic question to ask was which plant to close. As you can imagine, there were massive conflicts of interests between different plant managers, who all held their factories so dearly.

At some places, for the first time, workers and their managers seemed to be sympathetic with each other and became united for a single cause: making their case for the plant to stay.

As much as top-level management was tempted to make decisions based mainly on emotions (mainly from seeing which plea was the most heart-wrenching), our team created a highly complex analytical model that gave them a rational basis for the decisions. To help them see things clearly, we built this manufacturing footprint optimisation model, based on the knowledge of cost base, skills/ capability/competence base, and asset base in each of the plants spreading across 5 continents.

In other words, we helped them to take a step back from all the emotion and information overload, and really figured out what was in the best interest of the company. 

By definition, this model and its outcomes had to be tested and defended on several fronts for it to become a viable basis for making decisions. The final strategy is an artful combination of both logic as in what works and will work; and of compassion as in how to minimise any negative repercussions. 

That is not to mention other types of conflicts that may arise with a business transformation project, such as conflict of perceptions, conflict of generations, conflict of concepts etc. These will be the topic of discussion in a future article.

The Physical Component

If the strategic component is complex because it is amorphous, undefined and a m b i g u o u s , then the physical component of large scale business transforma – tions are complex for exactly the o p p o s i t e reason. 

It is far too complex, widespread and requires a thorough, in-depth examination of facts. Firstly, after taking the overall views from top, you need to get down to earth and do a lot of ground work.

Firstly, after taking the overall views from top, you need to get down to earth and do a lot of ground work. That is to understand the full length and breadth of the entire business network in concrete terms. There are millions of moving paths in every business network: suppliers, customers, factories, procurements, products, SKUs, warehousing locations, transportation companies, vendors, ships, aircrafts, regulatory authorities, legal structures and so on.

image of a group of trekkers depicting difficulty in business transformation

Without this infrastructure and equally important, the knowledge of this infrastructure, transformation stands as a groundless concept. 

Ask yourself, for instance, how many products does your company make? Then how many factories does it take to manufacture those products, or how many service providers and partners does it take to deliver services to your end-customers? 

How many machines are there in each plant? 

How many pieces of equipment are there in each location? Then on top of that, you need to know the underlying complexity stemming from each piece of infrastructure, such as how this component links to another, 

how a malfunction in one area can cause bottlenecks, the maintenance/renewal schedules, the costs, the regulatory changes etc. 

That is not to mention other types of conflicts that may arise with a business transformation project, such as conflict of perceptions, conflict of generations, conflict of concepts etc. These will be the topic of discussion in a future article. 

The list can go on like a seemingly infinite scroll lining the path from your desk out to the open streets. 

Just because you cannot see what is outside the walls of your office, it does not mean the interplay of factors out there can be underestimated. 

Just to give you a small example of the complexity, imagine the container stowage plan for a large container vessel. 

Reefer containers can only be stowed in certain slots where reefer power connection is available, open top an hi-cube containers can only be stowed on deck and in the top layer, 

if the cargo must be stowed under deck then the options are further limited and if there are any dangerous goods in a container, then a whole new set of very complex segregation requirements come into play. 

For the FMCG company mentioned earlier, the physical component was apparently vital. 

Not only did it require understanding all of the plants and their machineries, the onus was on the transformation team to reconfigure each factory in its future state imagining a fully operational supply chain. 

In this case, each plant had a different manufacturing capability, machinery, level of the work force’s skill base, and even different manufacturing quality level. 

As it turned out, the easy bit was actually moving machinery from one plant to another. The hard bit was dealing with the aftermath, such as land clearance, and fine-tuning new factories so that machines could run and be run happily. 

Disposal of excess machinery is always another important consideration because you do not want to create competitors where none exist. 

Disposal of excess land has different considerations – including rezoning, remediation, valuation, taxation and realising greatest good, among others.

image of snow capped mountains depicting difficulty in business transformation

The Informational Component

Next component in business transformations is the informational part of the
business network, which is strongly defined by its IT systems. A word of caution, though, IT should always be viewed as a means to an end rather than the

end itself. In other words, systems are implemented to facilitate information exchange that is conducive to business transformation. 

“IT should always be viewed as a means to an end rather than the end itself.”

In the project I was working on, the challenge was indeed, moving the system from the regional to the global structure

Apart from having islands of data to consolidate, the company also found themselves dissatisfied with to a system that met only 70% of its needs. As mentioned above, even though IT is not a solution to

every problem, it should not be allowed to create even more problems than in the first place. 

I have dedicated a whole chapter to IT systems in my book The 5-Star Business Network and here I would like to focus only on a few key things. 

To get this component right, you also need to see things

If a supply chain forms the backbone of your business, then IT is like the vascular system that helps circulate blood around the body.

through the eyes of the system provider. It is a delicate dance between rigid functionality and flexible business outcome. Even though you may be tempted by flexibility as it offers more room for manoeuvre in the future, too much of it breeds complexity.

importance of information technology in business transformation

IT professionals know best how it feels to build the kind of flexibility so desired by inflexible, giant corporations.

To some extent, if a supply chain forms the backbone of your business, then IT is like the vascular system that helps circulate blood around the body

Here, IT acts as a conduit for data transmission just as blood vessels in a living organism. Information travels from the central management to different depart ments the way arteries – a type of blood

vessel – carry blood away from the heart. The exchange of information between departments is similar to how capillaries work; and finally how reports are then transferred back to the top is the same as how veins keep blood flowing back to our hearts. So if you are to transform a business, take into account these internal dynamics.

To get a more realistic picture of the complexity, type “supply chain software” into Google and you will get more than 75 million results. How do you know which one is the right one? Though many of them will pretend that they can, there is not a single piece of software that can do everything that you require from a supply chain software solution. That means you are to pick and choose the right mix from 1 to 15 software solutions which will do the trick. 

How do you choose the right software for, say forecasting, from among more than 2,500 such systems? How do you link this system to the other systems it needs to work closely with – say inventory management software? How do you pick the right inventory management software from among more than 2,000 systems that claim to do more or less the same thing?

long-term IT partners, chances are that you may still need to cut the list, which means there will be resistance from them. A lot of this is passive resistance where they will try to make themselves indispensable. changing needs in a business transformation. Your job is to mix and match a best-of-breed solution suite, then configure the pieces to form an integrated system, that meets your rapidly changing needs in a business trans

supply chain table

Figure 1: Key mistakes in Supply Network IT systems deployment

Do you go for a single solution that is about 50%-60% right, at best – or do you go for a best-of-breed solutions that can cover more than 85% of your need, if you do it properly? All these are very complex questions to answer. 

Even though you might already have used solutions from long-term IT partners, chances are that you may still need to cut the list, which means there will be resistance from them. 

A lot of this is passive resistance where they will try to make themselves indispensable. changing needs in a business transformation. Your job is to mix and match a best-of-breed solution suite, then configure the pieces to form an integrated system, that meets your rapidly changing needs in a business transformation. 

Now to revisit the question “How do I choose the right IT system?”, firstly we need to review the strategic component, to see if there is a disconnect between the corporate strategy and the IT capabilities. 

More than ever, this is the time to

Figure 1, taken from The 5-Star Business Network, illustrates just some of the ways a business can falter along their road to IT transformation.

The Process and Service Component

If the above example of the three isolated the 3 types of strategies resonates with your personal experience, you would also concur that despite numerous vocal calls for enterprise-wide collaboration, people still continue to work in silos. 

This is equal to saying many companies are still staying at Supply Chain 0.0 while others are moving towards 1.0 or 2.0 even mastering Supply Chain 3.0. 

As you can see from Figure 2, which shows typical processes in a Supply chain, there are 4 levels that need to be weaved into a cohesive whole. 

Typically, there can be missing links between processes vertically or even horizontally. That means, someone working at the operational level may not know how their work is related to the work of someone at the tactical level. 

Even worse, for instance, a sales scheduler may not know what his next door neighbour – the customer forecast expert – is doing. During a transformation, processes may get streamlined, re-aligned or even created from scratch to accommodate change. 

That is why it is pivotal to keep in mind how they all fit together by devising a visual presentation such as the pyramid diagram here. 

This service part is largely concerned with supply chain services such as trucking, shipping, warehousing, third party logistics, railways etc. Similar to the informational component, 

companies are increasingly given the power (whether or not they realise they have such power is a different story) to cherry-pick service providers that deal with different service modules. 

Before this could happen, service components must be broken up into geographical, asset based and activity based components to discover and engage best service provider for each module. 

This is what known as modularisation. Then, service modules are homogenised in order to create and manage interactions with several service providers at same time. The cherry-picking act enabled afterwards is also known as commoditisation of service modules. 

components to discover and engage best service provider for each module. This is what known as modularisation. 

Then, service modules are homogenised in order to create and manage interactions with several service providers at same time. 

The cherry-picking act enabled afterwards is also known as commoditisation of service modules. 

The end result is the customer managing multiple interactions with several service

model 1 sop pyramid

providers simultaneously, based on clearly agreed service parameters. To give you an example of this dynamics, a pharmaceutical company can have a list of transportation providers for its various needs, 

in which a service provider is chosen based on the best location, asset and scale advantage offered. 

Specifically, the company does not have to engage with only one logistics provider to handle transporting dangerous chemicals, raw products as well as finished products. 

The Financial Component

Money talks, as they say, and money moves too. If you are to undergo a transformation, there are at least two types of events to be aware of: those affecting finance and those affected by finance. 

Of course, these do not have to be one-way streets. For instance, the closing of one plant will affect operating costs and thus, affect book-keeping. 

In turn, the planning and budgeting process will affect how much resources is allocated or how much inventory to carry. If you go over the other 4 components again, you will see how finance is embedded in everything. 

Strategically, businesses want to make profits, and here it is only a matter of deciding how to do it. The physical, informational, process and service components all need money to run. The “butterfly effect” captures the dynamics within the financial component quite nicely. 

When a butterfly flaps its wings here, somewhere across the ocean, a tornado is formed. Likewise, when the cash conversion cycle is disrupted, or prolonged, a company may find itself being swirled into a profit-sweeping storm. 

Taxation impact, inventory impact, shipping impact and impact of shortages of critical parts is rarely well

“Many companies focus too much on what they can see and not enough on what is invisible.”

thought through – in terms of the financial component of business transformation. A notable example of financial transformation is the case of Dell, which is also mentioned in my book “The 5-Star Business Network”. 

No business has transformed its cash cycle as well as this company, even though, recently, Dell may have lost its shine due to its not-so-impressive track record in innovation. In the PC industry when Dell first started, a cash-to-cash (C2C) cycle of 50-150 days was the norm. 

Within only 4 years, Dell was able to reduce it to an extraordinary level of -4 days, before further reducing it to -40 days in the subsequent 5 years. 

The minus sign before these numbers means Dell had been paid even before products were made. 

Thanks to such transformation, Dell was able to enjoy a healthy cash surplus while reducing cash deficit, which commanded a positive market perception of respective growth. 

How did Dell do it? In a nutshell, their knowledge and use of powerful business networks helped compress the time for different layers of processes (in Figure 2), in turn, lowering C2C cycle and increasing profitability. 

Cash flow efficiency is only part of the financial component, but it gives you a rough idea of how far-reaching finance can be in many parts of the business. 

Therefore, it is crucial that any financial links and implications are explicitly discussed. 

Many companies focus too much on what they can see and not enough on what is invisible, which warrants transparency and open discussion.

Should We Stick To The 10,000 Hour Rule?

This is like a nature vs. nurture debate between people such as Malcolm Gladwell who believes in the 10,000 hour rule, and people such as David Epstein, who thinks there is no magical number for the time it takes to become an elite performer. 

Let us not get into the academic dispute that has already run across the media for a while now, but retain the key message that it takes dedicated, practice to master an area, and that there can be no cookie-cutter approach to success. 

First thing first, this may seem obvious but we need to know what to practice. 

Many people are too excited and jump straight into rigorous training without having a clue what will benefit them most. 

This is perhaps where you can see the interplay between nature and nurture, i.e. 

to know what to practice, you should have some idea about what you do best. Again, that is not to say you should completely shy away from practicing something new. 

In a business transformation setting, it is reasonable to focus on your core competencies and devote considerable efforts to improving them, while at the same time, recognising the need to catch up in other areas. This is what the next section of this article deals with. 

Secondly, apart from practicing the right things, we also need to practice things right. In other words, failing to have the right training methods is almost as bad as failing the transformation effort. 

I have worked with hundreds of analysts, consultants, managers and executives in the business transformation projects. Based on that experience, Some flaws which I could point out relating to training methods include:

image of clocks depicting business transformation

WORKING AT THE WRONG PACE

To put it simply, training too slow will reduce the initial enthusiasm, causing boredom and even withdrawal; training too fast will increase stress, causing agitation and withdrawal as well. 

Hence, it is unreasonable to expect someone new to understand how the whole organisation in half a day, nor it is wise to let employees sink in piles of documents instructing how to implement a new initiative.

To master something, indeed it shall take some repetitive practice to get the basics, then people should be allowed to challenge themselves and rise to a higher level. 

For instance, to get more out of your IT systems, it first takes some time to get to know the inner workings, mostly by doing the same tasks over and over. 

The next step is to set out more demanding requirements, which force you to engage in problem solving and stretch the performance level. 

PUTTING YOUR FUTURE IN GOOD HANDS

To answer the above question, let us go through the seven levels of sophistication for a person attempting transformation.

image of 2 trekkers at sunset time

What are the 5 key components that require mastery?

The first level describes someone who does know enough to ask any question. He or she may not even believe transformation is needed or feasible. 

Here, people start to notice a few odd things and ask some related questions. 

At the third level, they show more concern for many business aspects and ask a lot of questions, be they relevant or not.

Global Supply Chain Group - vivek sood image

Vivek sood

Vivek is the Managing Director of Global Supply Chain Group based in Sydney , Australia . He has over 23 years of operational and strategic experience in logistics and supply chains. As a management consultant with Booz Allen & Hamilton he has provided supply chain and strategy advice to boards and senior management of clients in a range of industries including manufacturing, chemicals, mining, agribusiness, construction materials, explosives, airlines and electricity utilities.

incorporating projects

His project work in supply chain management has added cumulative value in excess of $500M incorporating projects in major supply chain infrastructure investment decisions, profitable growth driven by global supply chain realignment, Business Process Reengineering, supply chain systems, negotiations and all other aspects of global supply chains.

expertise include

Vivek has spoken at several supply chain conference, forums and workshops in various parts of the world. He has also conducted several strategic workshops on various aspects of supply chain management. Vivek’s areas of expertise include Supply Chain and Logistics strategies and systems, Network and Footprint optimisation, and operations management.

Award

He received his Master of Business Administration with Distinction from the Australian Graduate School of Management in 1996 and prior to these studies spent 11 years in the Merchant Navy, rising from a Cadet to Master Mariner.

Contact Details:

Global Supply Chain Group 102/621 Pacific Hwy St Leonards NSW 2065 Australia Telephone +61 2 8920 0694 Fax +61 2 8920 0689 Email: [email protected] Web: www.GlobalSupplyChainGroup.com

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