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2014

Why are some companies so effective at achieving market domination—even if just a segment of the market—while other companies remain only “also-ran’s” or even fail to achieve any significant level of success at all?

 

What are some of the critical differences between market leaders and the other companies—or supply chains—against which they compete?

 

Our experience in working with a variety of small to mid-sized business enterprises and their supply chain participants has led us to the conclusion that the difference may be found in two different areas:

  1. The effectiveness of the organization’s decision-making process and its faithfulness in executing on decisions
  2. How integrated and involved the whole organization is in achieving its goals
  3. While these areas are distinct, they are not wholly independent of one another, as we will try to show.

Effectiveness in decision-making

 

Executives and managers make decisions all the time in all kinds of organizations. Unfortunately, for most businesses, the effectiveness of management’s decision-making is about the same as a good major league batter. They might get a real “hit” about one out of three times at the decision-making “plate.”

 

If they’re lucky, the management team is batting about 300 (300 hits for a thousand at-bats). The other two “at-bats” produced no positive results. Hopefully, the other “at-bats” didn’t result in any negatives—like hitting into a double-play.

 

We don’t believe that leading companies just have “better luck.”

 

More effective decision-making comes from understanding better the cause-and-effect in your customer-to-cash streams.

 

Like a river flowing over and around many rocks and boulders, the stream flows. But even more water could flow with less turbulence if you just knew where the rocks were and how to get them out of the stream.

 

Interestingly, we have discovered that, in a great many cases, the firm’s employees know where the turbulence-creating rocks and boulders are in the customer-to-cash stream. And, in fact, they frequently have a pretty good idea about how these flow-disrupting boulders can be removed from the stream.

 

Unfortunately, managers and executives are all too often unwilling to hear what the first-line workers have to say—or listen to what they have to say with a jaundiced ear, thinking that the workers’ only interest is to make their own tasks easier or less stressful.

 

Managers and executives often do not take time to consider whether the net result of the workers’ suggestions may also mean increased Throughput in the customer-to-cash stream.

 

We help increase the effectiveness of our clients’ decision-making process by bringing them tools to help unlock what their employees already know about what how their customer-to-cash stream (and, supply chain) actually works—or fails to work.

 

In working with clients, we apply the Thinking Processes to help unlock what we call “tribal knowledge.” When we do this, the effectiveness of decision-making automatically increases.

 

Where managers and executives used to “bat” 300, or so, decision-making effectiveness can be increased with little or no effort to 90 percent or higher.

 

Virtually every decision can become effective when the true cause-and-effect is more fully understood.

 

Effectiveness in execution

 

As a side-effect of a decision-making process that stems from clarity of objectives and keen insight into the actual causes and effects at work in the organization and the industry in which it operates, the effectiveness of execution on the decisions also increases dramatically.

 

Part of the increase in effectiveness in execution is the natural outflow of the whole team having “invented the solution” to their problem from scratch. They are confident that the action they are about to take will be effective in achieving its desired end because they were involved from end-to-end in the diagnosis of the cause-and-effect and the creation of the present improvement remedy.

 

No one sabotages or undermines their own invention. No one hates or fears change when they are convinced by their own reasoning that the change is beneficial for them.

 

Management didn’t hand down the latest edict on how things will change, or pass along the latest fad as “the next thing we’re going to try.” Instead, the whole organization was involved in uncovering the reality of their present situation (see: Current Reality Tree) and in planning the best remedies for their situation.

 

This approach has an immediate effect on the enthusiasm and faithfulness with which proposed changes are undertaken. The result: effectiveness in execution.

 

Involvement and integration

 

As you have probably already detected, we have not even gotten to the topic of “involvement and integration” and, yet, it is already covered.

 

If the amazing success of the Toyota Production System has taught us nothing else, it should be abundantly clear that everyone must be involved in creating success. Everyone from the production floor “down to” (as Toyota’s executives would put it) the CEO should be fully involved and integrated into the process of ongoing improvement (POOGI).

 

We are finding more and more as we work with our clients that it is now supply chains that compete with other supply chains. It is no longer company against company at the core of competition and gaining of market share.

 

Therefore, we encourage our clients to extend involvement and integration well beyond the four walls of their own firms. Trading partners—both customers and suppliers—should be integrated and involved in creating solutions. This is part of what we call the New ERP—Extended Readiness for Profit.

 

Summary

 

In summary, our work with hundreds of small to mid-sized business enterprise (SMBs/SMEs) has show us that market dominance comes from effective decision-making and effective execution on those decisions. And, that effective decision-making, in turn, stems from clarity derived from understanding the reality of cause-and-effect relationships in your custom-to-cash streams.

 

Once this clarity is gained (and maintained):

  • Decisions can be made on well-defined (measurable) objectives
  • Decisions can be proactive, rather than reactive
  • Decisions can drive clearly-defined actions, because there is a clear understanding of the connection between tactical (or strategic) goals and operational actions

Furthermore, we have concluded that involvement and integration of the whole organization viewed as a single operating “system” is essential for market-dominating success. This includes extending involvement and integration across the supply chain—not just keeping it within the four walls of your company. This is the New ERP!

 


 

We would very much like to hear your views on this topic. Please leave your comments here (below) or contact us directly, if you prefer.

 


RDCushing

Supply chain innovation

Posted by RDCushing Jan 16, 2014

“In 1898, [Charles Holland Duell] was appointed as the United States Commissioner of Patents, and held that post until 1901. In that role, he is famous for purportedly saying "Everything that can be invented has been invented."[2] However, this has been debunked as apocryphal by librarian Samuel Sass.[3] In fact, Duell said in 1902:

In my opinion, all previous advances in the various lines of invention will appear totally insignificant when compared with those which the present century will witness. I almost wish that I might live my life over again to see the wonders which are at the threshold.[4]

Another possible origin of this famous statement may actually be found in an earlier Patent Office Commissioner, Henry Ellsworth's 1843 report to Congress. In it Ellsworth states, "The advancement of the arts, from year to year, taxes our credulity and seems to presage the arrival of that period when human improvement must end." This quote was apparently then mispresented [sic] and attributed to Duell, who held the same office in 1899.[5]” *

 

Despite Henry Ellsworth’s 1843 lament of “the arrival of that period when human improvement must end,” I think we are still far, far from that time.

 

Consider the following innovations

 

In October of 2013, Dutch material designer Aagje Hoekstra took the armor of dead darkling beetles, which grow from larvae known as mealworms, to create the Coleoptera bioplastic that she showed at the Klokgebouw building during Dutch Design Week.

 

Meanwhile, The Milk of Human Kindness’s Masami Lavault has figured out a way to turn Europe’s estimated 3.7 billion gallons of annual dairy waste into biodegradable furniture (like milking stools—how appropriate!).

 

And, if that isn’t enough, consider this from ChemistryViews: Scientists around Alcides Leão, Sao Paulo State University, Sao Paulo, Brazil, have developed a more effective way to use fibers from pineapples, bananas, and other plants in a new generation of automotive plastics. These nano-cellulose fibers are almost as stiff as Kevlar, but are completely renewable. They are 30 percent lighter and three-to-four times stronger than plastics now in use.

 

What do all of these innovations have in common?

 

Changing the supply chain

 

While it would seem that each of these innovations is about plastics and materials, consider that these innovations actually dramatically shift the supply chain for the production of products that may use these materials.

 

Items that once may have been heavily reliant upon petroleum bi-products for plastics in the products themselves, or their packaging, might now be in a supply chain originating with mealworm farms or pineapples. Furniture once made from wood or petroleum-based plastics, might now be manufactured in a supply chain stemming from the waste outflow of the dairy industry.

 

My point is that supply chain executives and managers should not restrict their thinking with regard to innovation to what seems obvious—to changing from this supplier to that suppler; or to manage risk by looking simply at a different country of origin for components.

 

Rather, supply chain participants and manager should be as open to ideas about how their supply chain should operate as Aagje Hoekstra and Masami Lavault were about source of materials for the creation of new forms of plastics.

 

One more example 

 

The hammer has to be one of the oldest tools in existence today. After the invention of the iron or steel claw hammer, used commonly in the construction industry, it seems to me that innovation in hammers stagnated for many years.

 

Oh, yes, there were different sized hammers produced (e.g., finishing, framing) and different materials were introduced for the handles (e.g., wood, steel, fiberglass), but the basic design really did not change a lot until recently.

 

Over the last decade or so, real innovation in hammer design was introduced by companies like Estwing and others. These new hammers are not only designed ergonomically, but they include new features like magnetic nail holders for starting nails at arm’s length, and specialized (additional) claws for pulling smaller nails or nails in close quarters.

 

The bottom line is this

 

The bottom line, for me, is this: Supply chain executives and managers need to be every bit as innovative as the research and development department. In fact, in working with our clients, we try to get the whole organization involved in seeing things in new ways and, thus, opening the door to Throughput-increasing innovations (not just tweaks to what already exists).

 


 

We would be delighted to hear your comments. Either leave them below, or feel free to contact us directly.

 


* "Charles Holland Duell." Wikipedia. Wikimedia Foundation, 19 Nov. 2013. Web. 11 Jan. 2014.


In part one, we discussed how entrepreneurial executives and managers, who started out with a strong focus on innovation and meeting a specific (segmented) market’s need in a unique way, frequently lose focus as the demands of their growing enterprise appear to diversify.

 

 

Generally, entrepreneurs are successful because their vision is so very clear: in their minds they have worked out a very simple equation that links their day-to-day operational actions to the production of profits. When the organization grows—when more and more functions and departments become involved—these once well-focused managers lose their simplicity.

 

It is complexity, and the assumption that complex problems require complex solutions, that tend to keep successful entrepreneurial firms from readily leaping the chasm to become successful enterprise operations.

 

The simple entrepreneurial equations for profit and ROI

 

Although a great many entrepreneurs could not succinctly articulate the simple equation that underlies their decision-making, it can generally be reduced to this:

 

 

Where:

  • delta-P = change in Profit
  • delta-T = change in Throughput
  • delta-OE = change in Operating Expenses
    and, we further define Throughput as Revenue less TVC (Truly Variable Costs)

 

When an entrepreneur first thinks about starting a business, he (or, she) thinks:

“How much revenue can I produce this this product or service, and what will my truly variable expenses (usually just raw materials and outside services) to produce this revenue? That will be my profit—after subtracting any overhead I rack-up (i.e., operating expenses).”

 

This clear, simple thinking drives every action (e.g., operational decision).

 

The clarity of this thinking is predicated on such utter simplicity that it is most frequently innate—that is to say, the entrepreneurial executive can sometimes not even articulate, as a calculation, the strategy driving operational decision.

 

The loss of inherent simplicity leads to loss of focus

 

Unfortunately, when the entrepreneur’s organization starts to increase in complexity—that is, when departments and functions begin to proliferate—the executives too frequently fall into the trap of believing (as stated above) that complex situations require complex solutions.

THE LIE: COMPLEX PROBLEMS REQUIRE COMPLEX SOLUTIONS

 

Two developments over the last several decades have clearly demonstrated that this assumption is a lie.

 

First, the evolution of the Toyota Production System (TPS) demonstrated that complex problems—in general, much more complex than those faced by American automobile manufacturers—are best solved using simple methods. Under TPS management, finance and accounting steer clear of managing production. For Toyota’s finance office, the production floor is a “black box.” There are inputs and outputs from the black box, but they never look inside at “efficiencies” or “utilization.” Nevertheless, Toyota’s financial performance generally excels the performance of other firms in the world of automotive manufacturing.

 

Second, the development of the Theory of Constraints (ToC) by Eliyahu Goldratt has shown repeatedly across a vast array of organizations—from mom-and-pop donut shops to Fortune 500 companies—that inherent simplicity is a primary key to restoring focus and creating not only a sound strategy, but also the tactics necessary for execution.

 

Restoring focus restores sound strategy (and tactics)

 

When we get involved in helping small to mid-sized businesses become more profitable and successful, we never tell them what to do.

 

We help them unlock what they already know—what we call “tribal knowledge.” This helps them come to a comprehensive, yet very simple, understanding of how their company and their markets work (or fail to work).

 

This proven process works for creating a process of ongoing improvement (POOGI) for both internal improvements and can help these firms drive improvement all up and down their supply chains, as well.

 

In the end, we help them begin to once again link operational actions related to production, inventory (or other investment) and operating expenses to the kinds of outcomes they are really seeking. This, in turn, helps them increase profits, liberate cash and dramatically improve ROI (return on investment).

 

Frequently, these improvements do not even rely on more or better technologies. In fact, sometime we actual suggest that they reduce their reliance on technologies in order to make things simpler—managing with visual tools rather than computers.

 

Summary

 

In short, our experience in working with clients has shown us that the real enemy of ongoing improvement in most firm’s performance is complexity. And, while complexity in the organization, its processes, and its supply chain may be inevitable, complex solutions are not inevitable.

 

We believe that by moving your organization back toward inherent simplicity, you can help recover focus. And when you have recovered focus, your managers and executives can once again clarify both your strategies and tactics for ongoing improvement.

 


 

Let us hear your thoughts on this topic. You may leave your comments below, or feel free to contact us directly, if you prefer.

 


In our work with many small to mid-sized businesses (SMBs), we find they are frequently struggling to leap the chasm from entrepreneurial to enterprise. Their stories are frequently very similar: once a thriving, rapidly-growing, and highly-profitable entrepreneurial firm, they seem to have stagnated somewhere along the way.

 

Often, while the firms’ revenues are still growing, profits are flat—or, sometimes, even declining. Once the high profits garnered from innovation flowed into the firm’s coffers with ease. Now, squeezed between a flat economy, hungry competition and steadily growing overhead, they seem unable to break out of the doldrums and return to the steady growth and profits of years gone by.

 

 

The entrepreneur’s vision and strategy

 

What makes an entrepreneur successful? What makes the entrepreneurial business leap to life and thrive?

 

The answer to this question is almost always the same, even though the actual products or services offered by the myriad of entrepreneurial startups may vary dramatically.

 

The answer is: the entrepreneur begins with meeting the needs of a distinct market (i.e., group of buyers or customers) in a way that is of particularly high value in the eye of the consumers in that market.

 

In the beginning, typically, there is not much competition—there are not many other firms offering a similar product or service, or meeting the same need in some other way. If the market is quite profitable and large enough that it is not easily saturated, however, competition will arise.

 

Nevertheless, the early success and profitability of the entrepreneurial firm is generally driven by three factors:

  1. A clear vision of the particular market’s need and how to meet it
  2. Clarity in strategy and tactics, imparted by the entrepreneur, for delivery of the products/services
  3. Lower operating expenses than competitors

In the early days of the firm’s growth, it is pretty easy for the entrepreneurial leadership to communicate the vision and strategy that has created success up to that point.

 

However, there generally comes a time in the growth and evolution of such a firm when other factors start to create pressures that must be dealt with including (but not limited to):

  • Competition
  • Changes in the market
  • Changes in the economy at-large
  • Growing demands of overhead to support the growth

 

As these pressures mount, it is often difficult for the entrepreneurial executives to stay true to those critical elements that led to their early success and profits.

 

Focus lost

 

The entrepreneurial executive, once acutely focused on a vision and strategy that was bringing success day-after-day, begins to have other cares pressing in on him or her. She is no longer focused on a singular strategy with support tactics. Instead, she finds she is constantly distracted by the need to beating her competition, acceding to changes in the marketplace, dealing with economic recession, and managing the demand of more and more employees now required to keep the firm delivering products and services.

 

It almost seems to the entrepreneurial executive that these other matters have taken on a life of their own. Demands from human resources, payroll, accounts payable, collections, research and development and, perhaps, a dozen other departments all seem to be very loosely connected, if they are connected at all.

 

Pushing one lever or pulling another no longer seem to have the same affect on revenues or profits as they used to have. It becomes virtually impossible to tell if changing factor X in marketing is going to provide the desired effect on the bottom line; or if changing factor Y in production is going to actually improve the rate at which shipments get out the door complete and on-time.

 

At this point, the SMB trying to make the transition from entrepreneurial to enterprise frequently falls into what we call oscillation. A company caught in oscillation might find that managers and executives are focused on cost-cutting and product pricing for one period of time; then, when they see potentially negative affects from this policy focus, they switch to policies that are focused on higher quality and improving levels of customer service. However, after a while, when cost rise too high and profits become unsatisfactory, the management team swings back to cost-cutting and fighting the competition by lowering prices.

 

Companies—and there are lots of them—caught in oscillation between two or three different approaches to management generally are suffering in other ways, as well. For example, their employee turnover rates will tend to be higher due to the level of frustration the employees have over the constant changes in policies, procedures and metrics.

 

Constancy of purpose

 

W. Edwards Deming promoted what he called “constancy of purpose” as being, perhaps, the critical factor in the long-term  success of an enterprise.

 

Toyota executives speak frequently of the “foundation” of the Toyota “house” as being a philosophy that takes the long view—basing management decisions on long-term thinking, even at the expense of short-term financial goals. They refer to this as the “Toyota Way Philosophy” and adherence to it has led this firm to become a world-class manufacturer with profits generally excelling its competitors.

 

Focus regained

 

When we work with companies and their management team, we help them regain their focus on what matters. Interestingly, this newly restored focus is on the same things, generally speaking, which the founder(s) of the firm were focus some years earlier: innovation in finding ways to meet the unique needs of a specific market (market segmentation) through offers that are too good to refuse and offers unlikely to be matched by their competition (because the competition hasn’t discovered the secret that makes the offer profitable).

 

We help the management team apply the Thinking Processes so that they actually invent their own solution.

 

This is the first step toward getting such struggling companies back on track with clarity of vision, support strategies and tactics, and (believe it or not) control over the growth of operating expenses.

 


 

Stay tuned for Part 2 on “Rediscovering Strategy.”

 

In the meantime, feel free to leave your comments here or contact us directly, if you prefer.