image In May 2003, Harvard Business Review printed “IT Doesn’t Matter” by Nicholas G. Carr. It was wrong then and it is wrong now. IT matters. A lot. And will continue to matter for the foreseeable future. Carr’s comparison of IT with infrastructure from the industrial age just does not cut it, it never did.

Of course, the time has provided all the evidence:

  • Carr’s Advice, Spend Less. The reality is different, very different. Between 2003 and 2008, American corporations continued spending on technology. In fact, the US Census Bureau reports that the expenses on technology climbed up from 229 billion dollars to 296 billion dollars in five years – a jump of almost 30%. In the same time, the US GDP grew by around 28%. As a percent, the spend on technology did not go down at all, in fact, it grew albeit a little.
  • Carr’s Advice, Follow, don’t Lead. Think of all the technology innovation and the business value created after this advice was dispensed with the outrageous claim of “IT does not matter”. Think of Amazon – its market cap grew from 10 billion in 2003 to 30 billion in 2008 (Reference: YCharts). Its revenues quadrupled in the meantime from 4 billion to 16 billion (Amazon reported 34 billion dollars in revenues in 2010). Think Amazon was following when it came to technology? Not a chance – part of Amazon’s phenomenal success as a company is that it is a technology  juggernaut – think of Kindle and the whole content model behind it, Amazon’s store fronts, digital publishing & selling models – its technology provides it with the competitive advantages that others are hard pressed to match and its technology if firmly part of the business strategy of growth!
  • Carr’s Advice, Focus on vulnerabilities, not opportunities. Surely, Amazon broke this rule as well – they focused on opportunities and won big time. They are not alone, any company that ignored this advice won big, think of Progressive (advanced risk-calculating methodologies. satellite tracking), Cemex (real-time geo-tracking and advanced scheduling), Wal-Mart (continued investments in supply chain, ex. cross-docking and vendor demand collaboration).

Why does the advice not work? Carr’s underlying argument is not faulty, when he says, “What makes a resource truly strategic – what gives it the capacity to be the basis for a sustained competitive advantage – is not ubiquity but scarcity”. But his interpretation, that because the computing technology is becoming common-place, therefore it must lose its competitive advantage, is wrong. He compares IT with the industrial age infrastructure like electric power and railways – but ignores the infinite flexibility of IT that allows you to do anything with it to create advantage – Cemex used IT to create better schedules (and hence differentiation advantage), Wal-Mart to reduce inventories ( and hence create cost advantage) and Amazon used it to create a whole new set of business-models (store-fronts, digital content publishing & selling). In fact, companies who could not manage technology are gone or are on the brink: Borders is a very real example – inability to leverage technology to adapt to the changed business landscape. Or think of Kmart – the retail behemoth that also failed partly due to its inability to leverage technology when Wal-Mart came along and things got a little competitive.

IT as an infrastructure is different from anything we have seen or experienced till now. And I am willing to bet that we have only scratched the surface of where It will take us in next 10 years, 20 years, 50 years! Think of all the technologies that exist but are not wide-spread as yet and their potential in creating competitive advantage: RFID, geo-location-based services, real-time tracking & visibility, artificial intelligence (that is almost completely absent from business applications’ decision making modules), robotics, nano-technology, advances in genetics, and so on. One day soon, there will be no need to take your groceries out and place them on a belt for a cashier to scan – RFID will take care of that as you pass through the check-out counter. Companies will be able to track their shipments, containers, and trucks in real-time as they move through the water-ways and roadways, sense real-time changes in demand, connect to the shipments-in-transit with an artificial intelligence-based decision making system redirecting and redeploying inventory, devoid of any human alerting or manipulation. Though till now, business either don’t have the ability/inclination to gather data or don’t have the capability to make good decisions with it – but a few more years of advances in computing power, mathematics, and analytics, and the petabytes of data on our shopping habits will tell retailers more about us than we know ourselves!

Think of the impact on the drug discovery and introduction, with FDA’s plans on using simulators rather than trials. Ray Kurzweil says, “It’ll soon be the case that using a simulator of human biology is a better simulation of humans than animals are. Ultimately, you’ll see very dramatic results because these are information processes. And when we really understand how the software of life works, we can really reprogram it away from cancer, away from heart disease.” (See Ray Kurzweil’s full interview at http://www.mckinseyquarterly.com/IT_growth_and_global_change_A_conversation_with_Ray_Kurzweil_2728).

Right now, the potential of IT is limited only by human ingenuity. May be some day, some day in real far future, IT may stop to matter – becoming much like the phone my desk, Carr’s comparison of IT with electricity may come to pass, but that day is not now, not tomorrow, not this decade… Till then, IT remains everyone’s business and businesses whose core strength does not include ability to manage technology can reasonably plan to retire early.

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon .



Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/xq4r3Jcp9gU/it-is-everybodys-business.html

Multi-channel retailing is all the buzz, but familiar problems lurk. There is hardly a retailer who does not operate an online channel, some operate several. To that, the new emerging mobile channels as well as the social media-based sales channels (remember, Delta just enabled their Facebook channel so you can buy Delta tickets without ever leaving Facebook, check out for yourself at: www.facebook.com/delta ) and of course the old mail catalogs. You get the picture.

There is also good reason for it – the online retail sales have grown at a much faster rate than conventional retail (see below the data from US Census Bureau).

image

New research from RSR shows that almost three quarters of retailers now have an online channel, while a full fourth of them operate at least four sales channels in addition to their stores.

image  

While the world of multi-channel retailing is new, their top challenges are not. In fact, the top two challenges quoted by more than half the retailers essentially remain deficient supply chain capabilities followed by merchandising, customer concerns, and inventory optimization:

  • Real-time inventory visibility/ management (#1, more than 58% retailers)
  • Managing fulfillment across channels (#2, more than 56% retailers)
  • Optimizing inventory deployment to speed delivery and minimize holding costs (#5, more than 35% retailers)

image

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon .



Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/rsEifcpBn-4/new-channels-old-problems.html
It is logical: to get the best of your investments in technology, align them with the business processes they are enabling, and align those business processes with the business strategy. Common sense, may be, but it is easier said than done.
A new study from RSR points out the common misalignment between business & technology groups, but also offers some pointers to solve the issue. In a report titled, “ Pandora's Box? The Impact of New Technologies on Retail IT”, RSR identifies the following.

Top 3 business challenges to Consistently Delivering IT Value:

  • Conflicting demands from different business departments stretches IT resources
  • Most packaged software does not suit our unique business needs, we have to customize it or build our own
  • A poor definition of requirements at the outset leads to rework later on
image

Top 3 Opportunities (Your) Company is Considering or Acting Upon to Improve IT Value Delivery:

  • Align IT priorities to corporate strategies via executive steering committee
  • Tighter process & systems integration with suppliers & business partners
  • More business user accountability for IT value delivery
image
Related Articles:
© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon .

Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/QaAuM0AKkWk/compete-to-win-align-your-business-with.html

It is logical: to get the best of your investments in technology, align it with the business process it is enabling, and align those business processes with the business strategy. Common sense, may be, but it is easier said than done.

A new study from RSR points out the common misalignment between business & technology groups, but also offers some pointers to solve the issue. In a report titled, “ Pandora's Box? The Impact of New Technologies on Retail IT”, RSR identifies the following.

Top 3 business challenges to Consistently Delivering IT Value:

  • Conflicting demands from different business departments stretches IT resources
  • Most packaged software does not suit our unique business needs, we have to customize it or build our own
  • A poor definition of requirements at the outset leads to rework later on

image

Top 3 Opportunities (Your) Company is Considering or Acting Upon to Improve IT Value Delivery:

  • Align IT priorities to corporate strategies via executive steering committee
  • Tighter process & systems integration with suppliers & business partners
  • More business user accountability for IT value delivery

image

Related Articles:

© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon .



Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/QaAuM0AKkWk/compete-to-win-align-your-business-with.html

P&G’s ex-CEO, Lafley, believes that “The heart of a company’s business model should be game-changing innovation”. With that belief, Lafley started to build a sustainable culture of innovation at P&G and establish innovation as a process that was superior to its competition. A process that is scalable, repeatable, sustainable, and hence superior to its competitors. The result: P&G’s continuous success as a profitable and growing business. This is the gist of an article on “ P&G’s Innovation Culture” by strategy+business magazine.

Rather than treating innovation as the job for those working in the company's R&D, Lafley treated innovation as a process that can be repeated and scaled. By focusing on the process, P&G increased its success-rate in introducing new brands and products from 15-20% in 2000 to the current rate of success that is almost a three-fold increase to 50-60%! Lafley discusses how P&G had never treated innovation as a “scalable” in the past because they “had not integrated these innovation programs with our business strategy, planning, or budgeting process well enough”. And how he went about creating a culture where everyone became involved in innovation, quoting again, “even when you’re operating, you’re always innovating — you’re making the cycles shorter, or developing new commercial ideas, or working on new business models. And all innovation is connected to the business strategy”.

That is the core concept behind creating advantages through capabilities, designing processes that are superior, because they provide one of the four basic tenets of advantage: time, cost, efficiency, or quality. In case of P&G, the process of innovation provides them more throughput (ability to introduce more number of new products and brands than its competition) and better time-to-market by shrinking the time it takes to introduce new products to the market.

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon .



Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/A33vkCQ7ZME/innovation-at-p-advantage-through.html
Vivek Sehgal

Understanding Advantage?

Posted by Vivek Sehgal Mar 10, 2011

In several of my articles on supply chain strategy, I have emphasized that capabilities are the origin of all competitive advantages. So what must a capability deliver to create such competitive advantage and contribute towards achieving the goals of the business strategy?

In simple terms, a firm will have a competitive advantage, if its products are superior or if it provides superior customer service and so on. If the advantage comes from superiority, then what makes something superior to another? What creates superiority in a product or service or process? Let us review the question from the point of view of supply chain processes,  assuming that superior supply chain processes will create competitive advantage for a company. Between two business processes enabling an identical function, when is one business process superior? I contend that a business process is superior to another when it has at least one of the following advantages over the other:

image Time Advantage

Time advantage is created when one of the business processes is faster than the other in achieving the same result. Time advantage is best exemplified with the time to market examples. Time advantage is typically created through careful analysis of all the activities supporting a process and elimination of those that don’t add any value to the process, but only add lead time.

Time advantage can create product premiums, increased revenues, longer product life cycles, and intangible differentiator levers (such as brand value or an image of being innovative or agile). It becomes a competitive advantage when the firm develops processes that will enable it to quickly introduce new products in the market and portray the company as a pioneer and when the firm’s business strategy leverages such differentiation through a premium brand image to grow market share and increase revenues.

Cost Advantage

Cost advantage is created when the superior business process is cheaper to operate than the inferior other. Cost advantage can be created through elimination of waste from the process, but also by optimizing the process within the process constraints. A lot of supply chain processes fall in this category and can provide finite cost advantages when implemented correctly. Inventory planning processes within the supply chain function is a good example in this category.

Or, in a manufacturing industry, cost advantages may arise from better manufacturing process, cheaper inputs, or higher levels of automation that increase efficiency. Reducing set-up change time, reducing the frequency of such changes, and increasing batch sizes are several commonly used methods to reduce per unit manufacturing costs. However, a superior manufacturing process will potentially have a comparable cost structure, but allow for short batch sizes to enable flexible factory schedules.

Every revised iteration of the original business process can potentially improve the existing cost structure and provide a continued superiority afforded by the process. These improvements are necessary to sustain the advantage over time. Cost advantage allows the company to become more profitable or expand its market share.

Efficiency Advantage

Efficiency advantage is created when the superior business processes provide higher throughput. Throughput measures the output of a process per unit time. Sometimes, efficiency may mean asset utilization, such as the utilization of the assembly line in a manufacturing context, blast furnace utilization in steel production, or a jockey’s utilization in the warehouse of a retailer. Assets in the context of efficiency can be people, machinery, or technology, anything that it costs to maintain and provides a useful function in the business process. The efficiency advantage can be created by automating, simplifying, or expediting a process. Efficiency advantage normally results in more favorable cost structure and supports a cost-based business strategy.

Think of the flexibility as part of the efficiency advantage. After all, there is no point in efficiently building widgets that no one wants. Therefore, flexibility of a process to change and adapt in response to the changes in the business environment is an advantage that should be built into the process. This flexibility in manufacturing environments typically shows up as set-up change time, while in nonmanufacturing industries, it may be the time required to respond to changing demand.

Quality Advantage

Quality advantage is created when the superior business process creates fewer defects than the inferior one. Quality advantage is generally a result of standardizing, automating, or simplifying a process. In the manufacturing context, a statistical process control (SPC) that allows companies to monitor the health of the process to reduce defects is a good example of this advantage. When compared to the conventional quality control processes that detect the defects after the product has been manufactured, the SPC-based approach prevents production of defective products by monitoring key process parameters. Quality advantage in the nonmanufacturing context relates to the ability of a process to consistently produce the same result (dependability and repeatability), and this definition can be applied to any business function, such as processing customer orders, fulfilling orders from a warehouse, creating replenishment demand, customer service, and so on. Quality advantage can reduce costs by preventing defects or introduce produce differentiators through better quality, such as increased customer satisfaction, customer retention, brand value, product durability, and so on. In all these cases, the quality advantage can support a business strategy by creating a differentiator with a potential value for which the buyer is ready to pay a premium.

Finally, for any process or capability to be able to create a real competitive advantage, the following two conditions must be fulfilled:

1. The value created through the superior process must be valuable enough to the buyer that she is ready to pay a premium for the differentiator created by this process or move her business to the firm to take advantage of this differentiator.

2. The cost of creating the process superiority must be less than the premium generated through the differentiator advantage created by the process.

Unless these two conditions are met, no advantage can be realized. If the cost of creating the differentiation is more than the premium it generates, then the system as a whole becomes less cost competitive, which is not desirable. If the differentiation, whether cost- or feature-based, is not valuable to buyers, then buyers will not pay any premium for the differentiator, which makes for a wasted investment. Therefore, when firms decide to invest in creating business capabilities, they must spend time to analyze the cost-benefit equation and clearly understand the differentiator created and the value generated through this differentiator from the point of view of the buyer. This is easier said than done. However, good analysis and logical inferences always help.

The article has been selectively reproduced from my book titled “ Supply Chain as Strategic Asset: The Key to Reaching Business Goals”.

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon .

Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/I0CYKjYxFjk/understanding-advantage.html

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