Today CEOs and senior executives face tougher pressures than ever before
Let me start with one story.
Glen was the CEO of a mid-sized business, and he had flown himself as well as his core executive team to a retreat for the final presentation of our diagnostic. We had carefully collected and analysed the data in the past six weeks, and come to certain conclusions. After the meeting, Glen shook my hand and thanked me for our work. His hands were shaking when he told me: “I did not know that the situation was this bad. I knew that we had excess inventory, and I knew that some of our physical infrastructure was not in the right location. What I did not realize was the severity of the problems, and their significant adverse impact on our profitability.”
He had engaged our company to do a logistics review of their third party logistics service providers and we were able to find some savings in that arena for the business which we pointed out. We also did preliminary modeling of the supply chain network, as well as their inventory holdings of more than 50,000 different items supplying nearly 650 locations. The conclusion was that only 24% of the inventory was productive; the rest was unproductively held, while they were still only meeting about 50-60% of their orders in time. It is ironic that his business was clamoring for more inventories when almost all the warehouses, as well as stocking locations were overflowing.
So the problem was not that they were short of inventories; it was that they carried the wrong inventories in the wrong places. A bigger problem was that almost all the places were wrong. They were located further away from the customers than necessary; thus, the cost of fulfillment to the customers was very high. In fact, as per our estimate, 83% of the movements would have been made redundant if the network had been in the right place, and there was no inter-depot movement due to short supply.
Glen was shocked when we showed him the analysis, as well as the conclusions. In other words, while his company could have saved some money by being stricter with their third party logistic service providers, transportation carriers and warehousing operators, they would have saved a lot more money by being smart about what items to carry, how many to carry and in which locations to carry them. Yet, everyone in his company had so far assured him that it was primarily the fault of third-party logistics service providers that their supply chain was so inefficient.
His hands were shaking because his company had gone through a massive round of redundancies only four months earlier, after which he thought his company was in a comfortable position. However, the basic underlying problems still remained. He could already feel the pressure from his board as well as CFO; he knew that the business would suffer if he had to let go even more people.
Now, what was wrong with his business? This is not a situation which is unusual. In fact, if a business comes to a point where they have to resort to redundancies and mass firings to save profitability, somewhere along the line, all the senior executive teams have missed some crucial dot points which they could have connected earlier to save the situation by a business transformation exercise.
Very rarely do business conditions, market place and circumstances change so dramatically that redundancy would be the only option without undergoing other, structural, transformations. In other words, redundancies and mass firings might need to be used only sparingly and rarely. Constant vigilance for minor change management is required, and then occasional business transformations will be required every two to five years to save the business from the pain of mass redundancies, which are sudden and devastating to the morale of the company. I must add that I feel the pain of executives and CEOs when I spend time with them.
In Glen’s case, he was an extremely people-oriented person with a background in sales and marketing; he felt personally responsible for having to fire so many people in the past six months. At the same time, he also knew that if the profitability did not improve, he would have to perhaps take his company through a similar exercise one more time.
The solution has be equally creative and high impact
CEOs face unprecedented pressures and challenges which were never faced by CEOs in the earlier decades. Today, they are living and working under constant scrutiny of numerous stakeholders and self-appointed guardians of society’s well-being like NGOs and think-tanks, regulatory bodies, and of course, the corporate board itself. They have to do more with less, in fact much, much more with lesser and lesser resources.
Surely, technology will provide part of the answer as how to do more with less. However, alongside technology, the entire business model must be transformed in order to make use of technology in a judicious and wise manner.
CEOs also face an extremely volatile economic climate where markets are going up and down like a yoyo; commodities as well as finished products themselves are so driven by extreme fluctuations in pricing, supply, and demand that it has become very difficult to manage the budgetary cycle.
CEOs also have to fight too many other stakeholders and competing interests, who all want companies and CEOs to do things for their interests at the expense of the company or the shareholders, ranging from politicians to lobbyists to non-profit organizations.
But the list of pressure sources does not stop there for companies and executives. Globalization means today, that your next competitor will not come from wherever the traditional competition came from. It can come from anywhere. It could be anyone. It can come up anytime.
In this massive era of globalization, consumers are pushing their way to the center of the picture. They are no longer prepared to accept a peripheral role in how companies run their business. They want to take a critical role in running of the businesses whose products they consume.
One more massive change is really the explosion in bandwidth which has really made it possible for people to work from anywhere, anytime, in any way, on critical projects. As a result, flexible, temporary teams of people can come together fairly quickly for a set project or purpose, work together successfully and disband. People call it the freelance economy.
In the face of this kind of massive and unprecedented change, there is no doubt that creating and embracing strategically aligned business models will make the difference between leading the charge and falling off the map. For example, in the story I just described, the only way the company could have avoided the next round of mass redundancies would have been by revamping the entire business model to get very close to the customers.
As such, customers then become their raving fans because the company understands the customer needs so well that they can create segmented supply chains to respond to each customer segment. Only in this manner could they have gotten the best value for their customers and for themselves, and create a business model which was sustainable enough to survive in the next decade.
There is not much time to start your journey
The alternative for Glen would have been to really go through more and more rounds of redundancies till there was nothing more to downsize. When we pointed this out, Glen was ready to embrace a business model transformation in order to create a corporation that could be sustained through next decade or more.
This book has been written for the purpose of delivering four or five simple messages. Traditional business models are no longer adequate. This is the era of business-to-business networks and Supply Chain 3.0. To keep up with change, Supply Chain Management (SCM) based business transformations are imperative but these are not small feats. You need high levels in both, business transformation expertise, and good intention to successfully transform your business. Not surprisingly, over 60% of business transformations fail but you don’t have to go down that path.
If you agree with me and take these messages on board, you may be able to get the best out of this book by merely skimming the content. However, if you need more evidence or if you want to go deeper into the methodology, then I encourage you to read this book quite thoroughly.
We have no doubt that despite all the challenges, good companies will survive.
They will indeed thrive through all economic conditions no matter what the situation turns out to be: no matter how much volatility, how much globalisation and how much bandwidth explosion, buffets them.
Because CEOs, executives, and these companies will get a powerful mix of internal and external teams to craft the business transformations strategy, they will adjust their game plans carefully and they will execute their game plans to extract maximum value out of their supply chains for their stakeholders. In effect, the decision that any company has to make is whether they want to thrive or just survive.