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2011

In my earlier post, I note how the only constant in today's economy is change. I also mentioned how U.S. industries lost out to Japan in the post-World War 2 era. This was, in large part, due to the fact that U.S. managers clung to management orthodoxies that proved to be of a passing era.

 

Sadly, management orthodoxies still stop most companies from changing in ways that would make them more profitable. Far too many managers and executives still envision their organization only in terms of production lines and departments. They manage them the same way. They still firmly believe that optimizing some part of the organization makes the whole organization--the whole system--perform better.

 

This reminds me of the folly of the 1980s, when a major U.S. automaker announced that it had improved its accounts payable processing. The firm had invested tens of millions of dollars in new automation that allowed it to pay its vendors faster and more "efficiently." Nevertheless, this automaker--along with most of the other U.S. automakers--were stilling losing money at unheard-of rates. Losses ran into the billions while executives teams tinkered with "accounts payable" and other departments that were clearly not the system's bottleneck to making more money.

 

Meanwhile, the U.S. auto industry's Japanese counterpart was making improvements that really mattered. They were speeding the work, eliminating waste and accelerating the flow of inventory end-to-end in their operations. They disconnected the accounting department from plant operations. To the accounting department, the flow of inventory through production was a "black box." Nevertheless, these plants became increasingly successful at producing products people wanted--even in America--at prices people were willing to pay. And, to the consternation of orthodox-bound U.S. management, these Japanese auto producers were making money, too.

 

The Japanese learned to collaborate with their supply chain in everything from small parts to the very machines and equipment that became capital investments in their plants. While U.S. automakers still were taking days to change over some production machines from model-to-model, the Japanese had worked with their machine tool manufacturers to produce equipment that could be changed from model-to-model in less than an hour.

 

Executives and managers are bound to their old ways--to their orthodoxies--mostly by the fact that they have no idea how their "system" works. Far too many executives and managers still believe that "more data" and "more technology" will actually make them better at what they do. They believe that they can be guided by data in the absence of a theory--a framework by which to understand the data and its interaction with the "system" they intend to manage.

 

As a result, such managers are befuddled as to what "levers" to push or pull to effect changes based on the data the "system" is feeding back to them. It is not a lack of data that trips them up. It is a lack of "theory" as to how the system they are supposed to be managing will respond to varying inputs.

 

What these managers lack is a tool to help them map the informal paths that information takes through their organizational system. They lack a way to come to a sound understanding of the "tribal knowledge" that really makes their operations work hour-by-hour and minute-by-minute.

 

Such tools have been around for decades--tools that will help these managers understand and document how employees interact and where costly undetected bottlenecks lie. The tools are available--such as Goldratt's Thinking Processes--but all too frequently management orthodoxy stands in the way of executives' applying these tools.

 

Don't let management orthodoxy bind your organization on a downward path when there are ways of escape. Investigate them and apply them to improve. In today's challenging economy, businesses need such tool now more than ever.

In today's economy, the only losers will be those who cannot or will not change. Following World War II, W. Edwards Deming did his best to convince U.S. automakers and other old-line manufacturers that their methods of management--from purchasing to inventory control and on through manufacturing--were outdated. The moguls of U.S. industry refused to listen to him.

 

However, when the federal government sent Deming to Japan to aid in reconstruction, the Japanese not only took his concepts to heart, they built on his ideas and the concept he brought to them. More than that, the expanded on them, and they turned them into tools that--within a few short decades--made Japan a rival to America's formerly dominant automotive industry, our formerly leading electronics industry, and more.

 

As it was then, so it is today: the surival of American enterprises will be determined by the willingness of U.S. management to let go of dying yesterday in exchange for a better tomorrow. And, frankly, small business enterprises in the U.S.--and elsewhere--are better positioned to take advantage of these opportunities than are their giant competitors.

 

Only in the short run does economic growth come from rising productivity and demand--the sale of larger quantities of existing products. Growth may not even be primarily the offspring of repair, duplication or expansion of existing plants and equipment. Existing systems become more expensive and less adaptable as time goes by and conditions change. It is increasingly likely that capital investments will become a burden despite their still being listed on the asset side of the ledger.

 

No. In the long run, growth and profits will stem from the replacement of what we have known over the last decade or longer with new and different ways to collaborate and compete--sometimes with the same firms.

 

As Schumpeter wrote, "Creative destruction is the essential fact of capitalism... it is by nature a form or method of economic change, and not only never is, but never can be stationary.... The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumer goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates." (Joseph Schumpeter, Capitalism, Socialism, and Democracy [New York: Harper & Row, 1962])

 

Again I emphasize: It is not large corporations that have the advantage here. In fact, they may have a disadvantage. My bet is on small business.

 

Why?

 

Because, while an given small business or entrepreneur may not be innovative, agile, imaginative; the millions of small businesses and entrepreneurs still filling the Americas will continue to be the prime source of our creative destruction, growth and profits. They are our "Innovators in Chief." Even, Kinaxis is such a firm--I'm sure of it.

The other day I commented on Twitter that supply chain (and other) forecasts are always wrong, and that the solution to the problem is greater supply chain flexibility (or agility). One of the replies that came back was, "Forecasts ARE always wrong, but how best to respond to changing demand? Flexibility is easy to say but for most hard to do."

 

I think this is a common thought. But the need for flexibility is being seen and emphasized everywhere. Just here at the Supply Chain Expert Community we find:

 

Supply Chain Turbulence. Do not fasten your seatbelts.

 

Supply Chain Flexibility

 

How to build a resilient, flexible, robust and agile supply chain

 

Heating Up Supply Chain Analysis


And more than a dozen more related articles and content.

 

 

Clearly, the problem is not that folks don't know that they need greater supply chain flexibility and agility. It is not, in some cases anyway, even that they do not have some tools available to them to improve their supply chain's flexibility.

 

Even this article entitled CFO's 'taking on procurement duties' is enligtening. Here we see that firms are concerned enough about their supply chain to put C-level executives into the middle of the decision-making processes.

 

But there's something wrong with this picture. If everybody knows about the need for flexibility and everybody agrees that forecasting--the old method--is no longer reliable due to increasing market volatility, then is their response simply to say, "Flexibility is... [too] hard to do"?

 

No. I don't think most organizations are stymied, or even daunted, by the challenge of the "doing" or the difficulty of the task. They are stopped in their tracks by two things:

 

  1. They do not know what actions to take because they have no sound tool or method by which to unlock the mysteries of how their supply chain presently works. They know of no means by which to unlock and document the "tribal knowledge" that keeps their supply chain operating today. To some degree, they may even fear disrupting the mystical "mojo" by which it presently operates for fear that things just might get worse instead of better.

  2. They have no way of calculating what the present lack of agility is costing them. Or, if they believe they do, they are miscalculating the cost by undervaluing certain elements that could deliver long-term market advantages to them and help them increase market share while their competitors are weakened by the current worldwide recession.

 

Sadly, far too many firms hear the term "sold-out" as a postive event in their sales history. When, in fact, it is a negative event.

 

Why, because the products for which they "sold-out" were--obviously--the most popular products (e.g., styles, colors, sizes, whatever). What they cannot know is how big their lost sales were, because they cannot be calculated from the sales of other products or styles or colors. For this reason alone, most organizations underestimate the value of supply chain flexibility and agility.  Add to that other incalculable values: how many customers were lost to other sources for the product because of the firm's "sold-out" condition? How many sales of other products--products in-stock--were lost to competitors because of the "sold-out" condition on a popular in-demand item?

 

If organizations are willing to throw C-level executives into the fray, they are beginning to see losses from supply-chain decision-making. Unfortunately, mostly they only count the losses in the cost-world. They are fearful of buying too much (read: bad forecasting) or at the wrong price.

 

Most firms almost never count the cost of the lost throughput surrendered through "sold-out" conditions and lost market share due to these factors. Nor do they properly value or estimate the higher profits and gains in market share made available to them through rapidly implemented, well-considered investments in real supply chain flexibility and agility with its long-term benefits.

We are continuing to revisit the Key Points raised in the Webinar on “Emotional Intelligence.”

Middle managers need to implement change while managing their employees’ emotions – anxiety, resistance and inappropriate behavior

Notice the tone of this statement and the mandate it sets for middle managers: middle managers need to implement change while managing their employees’ emotions. Here are a couple of questions I raised with the presenters during the Webinar:
1.  
          How much time, energy and money should a company spend in “emotion management”?
2.
          At what point should executives stop and re-think their plans when their top-down actions raise anxiety and resistance from middle management and below to such a level that additional resources must be deployed just to “manage emotions”?

This statement amply demonstrates just how out-of-touch executives and managers in some organizations must be with the rest of their enterprise – i.e., middle management and below on the organization chart. Not only so, but it also shows that these same executives have no idea the damage that their distance from the organization’s “heartbeat” is likely to cause. And, I am not talking about damage to the “peons’ egos or sense of self-worth.” I mean sincerely the damage that is done to their enterprise in measurable terms with which CEOs and CFOs should be concerned – namely, lost Throughput and profits.

Interestingly, when I raised the question regarding when executives should stop and re-think their plans, the presenters of the Webinar pretty much told me that in the face of ego-driven ERP, once the enterprise gets far enough down the traditional ERP path to start raising anxiety and resistance from “the masses,” there is no turning back. It is the rare, rare exception that executive management would dare to stop and rethink the project underway.
This is a sad state of affairs and emphasizes just why traditional ERP – Everything Replacement Projects have such a lousy success rate when it comes to delivering return-on-investment.

Middle managers face the challenge of grasping a change they did not design and negotiating the details with others who are equally removed from strategic decision-making

This seems to get more ridiculous the further we drill-down on the details, doesn’t it? This statement reminds me of a combat situation. Here’s the scenario (in metaphor):

The generals (executive management) have come up with a battle plan – apparently with little or no consultation with the boots on the ground. The generals, in their wisdom, have passed this battle plan down from “on high” and told the lieutenants (middle management) in the field just how they are going to “take that hill.” The lieutenants – many of them being 90-day wonders, fresh out of college and with little practical experience – are now tasked with convincing chief master sergeants, master sergeants, gunnery sergeants and ground troops – some of whom have 15, 20 or even 30 years of “boots on the ground” experience that the plan promulgated by the generals is a good plan and ought to be carried out.

The problem is, the lieutenants do not necessarily understand all of the implications of the plan for those who must carry the weapons and bring the plan to success. They do not comprehend what it takes in day-in, day-out hand-to-hand combat to actually “take the hill.”

Nevertheless, it is the lieutenants’ job to “sell” the plan and “negotiate the details” with the seasoned front-line personnel who actually know the risks that they will be taking.

I think you get the picture. Is it any wonder that a firm operating in this way might experience some problems with their traditional ERP – Everything Replacement Project? Is it any wonder that fewer than half the firms undertaking efforts like this achieve any measurable net benefit from their traditional ERP effort?

No, of course there is no wonder.

Complexity rises for middle managers of change as work demands are modified and multiply, thus creating conflicts

This is a traditional ERP – Everything Replacement Project – after all. Executives have decided to tear the guts out of the entire organization and transplant new technological “guts” in the name of “improvement” that the executives themselves have likely not quantified. To say that “Hope is not a strategy” is an understatement at this point.

Executives have, more likely than not, promulgated a technology “strategy” based on little more than “hope” and the so-called “promises” of the vendors or resellers. Then, these same executives have largely left execution in the hands of lieutenants (see above) and third-parties (e.g., the vendors, resellers and consultants). Then, by some inexplicable stroke of magic executive management expects improved profits to be the result at the other end of this journey. Why else would you spend millions of dollars to disrupt virtually every operation in your enterprise virtually simultaneously and continuously for upwards of 18 months?

Of course “work demands are modified.” A “strategy” (falsely so-called) has been set forward and most of middle management have no idea what that strategy will actually mean for the “boots on the ground.” (See metaphor in previous section.) In this case, it is not “the enemy” forcing a change in plans. As Pogo once said, “We have met the enemy, and it is us.”

Lack of clarity renders new demands uncertain and frequently misunderstood; without clear understanding, managers can be seen as taking wrong actions or no action at all

Given our discussions up to this point, does anyone have an difficulty in understanding just why there might be “lack of clarity” in the traditional ERP – Everything Replacement Project?

Maybe it is because, while it is necessary to understand the operation of your organization as a whole – that is, as an integrated “system” – it is not possible to “focus” on the whole organization all at once.

If executives ask themselves the question, “What needs to change in order for our company to start making more money tomorrow than we are making today?” How likely is it that the answer that would come to mind would be, “Everything!”?

My guess is that the answer would never be everything! Typically, the number of things that need to change to begin making more money tomorrow is very small – say, fewer than a half-dozen. And, even if there are a half-dozen, they need not all be undertaken at once. Then, add to that, the fact that among those half-dozen things that need to change, it may probably be found that half or fewer of those things actually require a change in technologies to support the change.

Yet, purveyors of traditional ERP- Everything Replacement Projects will try to convince executives that what needs to change is everything – and then the company will make more money. Unfortunately, many executives are all too willing to believe this is actually “the solution” of which they have always dreamed. “Just pour it in and everything will run smoother, faster, longer and we’ll get better mileage, too.”

Summary

As W. Edwards Deming said, “You do not install knowledge,” and “Knowledge comes from theory.” These executives go far afield from actually helping their organizations improve because they lack a valid “theory” about how their “system” – their enterprise – actually functions in carrying out the customer-to-cash chain of inter-dependent functions and events.

Virtually all of what they need to know lies resident within their own organization in what I call “tribal knowledge.” But such executives as would seek to manage their employees’ emotions through “Emotional Intelligence” – read: manipulation – will never reap the benefit of unlocking the treasure of “tribal knowledge,” because, it seems, this knowledge comes from “the working class” and it is beneath their dignity to learn from “the man that runs the machine.”

It is the executives with such a mind that are the losers as a result. But their employees lose, too. Firms under such management will never be as profitable or durable as they otherwise might be. Employees cannot be paid as much, because profits are too low. Some employees will lose their jobs because the company cannot compete.

This is all too senseless.

©2010, 2011 Richard D. Cushing

 

If, as we have shown, people do not willy-nilly resist change, let us take a look at just what might be happening in traditional ERP – Everything Replacement Projects – where management feels the need to bring in emotional management specialists to help smooth the way. We will step through the list provided in the Web presentation.

Only 30% of “change initiatives” succeed

Of course, in the context of the presentation, the presenters made it clear that a major contributor to the failure of “change initiatives” is the changing organization’s failure to properly apply emotional intelligence (EI) management to the reactions to change coming from “middle management” and below in the organization’s hierarchy.
One of the things that surprised me about the attitudes expressed in the whole presentation was the us-against-them sense, where it was executives and top managers pitted against the unruly emotions of the lower classes (e.g., middle management and below). With the help of EI, the ruling elite could, in fact, learn to foist things upon the “lower classes” and make them like it – or least squelch outright rebellion in the ranks.
Sadly, in my limited contact with folks from “Big ERP,” their attitudes frequently have reflected this same elitism. Their snobbery seems to be rooted in a sense that “the ruling class has chosen us, so you – the masses – must listen up and fall in line.” I am certain that they are not all this way, but I have no doubt that some are.
I soundly reject this kind of management. I am confident that no one knows more about running the machine than the one who runs the machine day-in and day-out. The people who know best what needs to change in each part of “the system” – the entire organization – are those in the trenches. Most people really want to do a good job and really want the company they work for to succeed. These people frequently fight an uphill battle against poorly thought-out policies, procedures and assumptions promulgated by executives and managers trying to make things “work.”
Apparently, EI dumps on these people, suggesting that what is needed is for the elite to learn how to “manage” the emotions of the working class rather than learn from the wealth of “tribal knowledge” carried about in the hearts and minds of those who “run the machine.”
Is it any wonder, then, that only 30 percent of change initiatives succeed? It is quite likely, if what we are seeing and hearing is, in fact, the attitude of executive management, that only 30 percent of what they promulgate as change is worthy of success. Perhaps only 30 percent of “change” handed down from on-high will really have any positive effect on the ability of the organization to achieve more of its goal, and “the masses” know it better than the executives do.

It takes about five years to see ROI from a typical ERP implementation

No wonder!
The organization we have just seen depicted in the us-versus-them, the executive elite versus the common man, cannot possible be working as an integrated “system.” Not only it is very likely that there are departmental and functional silos within such an organization, having high and nearly impenetrable walls between them; it seems apparent that there is an even higher and more impenetrable wall between “management” and “the workers.”
In such a situation, there cannot be “integration” and the organization cannot possibly be managed as “a system.” When a business enterprise is not managed as a system, the symptoms are consistent:
·         Lower than expected overall performance
·         Sometimes overwhelming challenges in securing or maintaining a sustainable competitive advantage in their markets
·         Financial difficulties
·         Nearly constant fire-fighting by management
·         Rarely meeting customer service expectations
·         Chronic internal conflicts
Not managing the organization as “a system” is a management and cultural issue that cannot be remedied by installing “integrated” software. Technical integration does neither mandates nor assures functional and interpersonal integration across organizational silos. And it certainly does not create integration vertically in the chart of accounts.
With only 30 percent of change initiatives succeeding and the organization continuing to experience all of the symptoms associated with the failure to manage the organization as “a system,” it remains no mystery that it takes five years or longer to see return-on-investment from a traditional ERP – Everything Replacement Project.

Change fosters significant confusion for middle managers, which can spur anxiety and stress, thus impeding or paralyzing decision-making

The change that “confuses” middle management (and below) is the change for which they are not yet convinced of the true benefit to the organization. Intuitively, most managers understand that “good” decisions in a for-profit organization are those leading to actions that will tend to help the organization make more money tomorrow than it is making today. Such actions, naturally, lead to stability and increasing job security.
If executives and managers have really thought through their traditional ERP – Everything Replacement Project – and are well aware of just how (in measurable terms) ripping the guts out of the organization’s infrastructure and replacing it with something that is promoted as being “newer,” “faster,” or “better” will really help the firm make more money tomorrow than it is making today, then let them come forward and explain those details to “middle management” (and below), and the confusion, anxiety and stress will largely be assuaged.
The fact that executives and managers are not forthright with middle management (and below) when a traditional ERP project is undertaken is, for the most part, the executives and managers do not, themselves, know (in measurable terms) just how ripping the guts out of their organization and replacing it with “newer,” “faster,” or “better” will – in reality – help the firm make more money in the future than they are making today. Instead, their decision is likely predicated largely on hope and generalizations supplied by promises from the vendor or reseller of the new technology.
It is, then, no wonder that middle management remains confused, anxious, and full of stress.
[To be continued]
Stay tuned.
©2010, 2011 Richard D. Cushing