Many businesses today are hampered by "good enough" thinking and a focus on barebones operations, writes columnist Dan Morris. But as the economy picks up that will soon be no longer enough. Here’s why.
When I was young the Volkswagen Beetle, an economy car, was seen as a cheap and basic automobile. It would get you from A to B reliably. The Cadillac, on the other hand, was the luxury vehicle that everyone wanted. It would not only get you from A to B reliably but get you there with extra horsepower and in extra style. You had the best if you had a Cadillac.
Since I first started in business, I have heard the battle cry of many managers that they don’t need a Cadillac (or something even better, yep, enter the Ferrari) - all they need is a VW. They just need to get by. That thinking did save money. It also often delivered basic business operations and often inadequate computer application support. Bare bones operations with all the cost possible driven out.
This low cost model has often been equated with optimum business operations.
But this approach did have a couple of downsides. The first was that it created inflexible operations that relied on computer programs that quickly became out of date. The second downside was that for a variety of valid reasons, the applications became complex and brittle – hard to change with a high risk that any change could have catastrophic results in the form or outages and unexpected error. Today most of us live with this reality and the fact that the resulting processes and systems spawned incomplete data that is fraught with errors.
This inability to quickly deliver adequate business and application support has caused unautomated "white space" activity to creep into the business and take over many operations. People found ways to work around deficiencies.
Certainly this tendency to be frugal delivered cost reduction and met goals related to saving money. This approach has thus often proven to deliver sound short term benefit. But there has also been a cost that companies will now need to address. The cost is reduced operational effectiveness and inability to adjust quickly to future competitive pressure and market capabilities.
But, still, how does this relate to the Ferrari premise in the title? The point is that it is now time to consider how important rapid change is to your business. How important is Ferrari like speed when you need to change? It is also time to look at the type of operating strategy you will need in the future and what investment you will be willing to make to deliver ‘world class" operational performance. If you don’t think you can invest now – OK. You will need a different type of survival strategy. But, make no mistake; this consideration will be the foundation for a look at how the company will survive in the coming years.
For those who can invest, the consideration will be more related to a willingness to recognize that winning in the future will be directly related to having the infrastructure and capabilities that go beyond what your competition has and how quickly you can bring them to bear. This, of course, must be based on how you consider your market position and how you define competitive advantage.
Driving Out Cost – Is It Always the Best Place to Focus?
For many in the past, these issues were considered, but cost reduction was a popular move – Wall Street loved it.
Today, there are basically two types of businesses – those that are commoditized and those that represent rapidly changing innovation intensive business markets. Those companies that are in commodity industries must compete based on feature and cost. A few dollars per unit makes all the difference here. Squeezing more pennies out of the already squeezed operation is important. In fact for many it is, and will remain, the only thing that is important. But, what happens in these companies when no more people can be let go and no more cost can be cut?
The fact is that there will always be a lower cost labor pool someplace and there will always be those who believe that you can get quality out of a low cost provider by putting penalties into a contract. The simple fact is that someday each of these companies will hit the cost reduction wall and they will need to either invest and modernize or they will go out of business. So, sooner or later reinvestment in the business will not be avoidable. No one can escape that fact. Your competition will not let you rest for long.
So, while most of these companies can put it off, they will eventually need at least the Cadillac level capabilities and if they want to be truly innovative they will need to build in a support structure that supports this innovation – back to the Ferrari level operation again.
On the other hand, companies whose services and products that are not commodities, cannot afford to move slowly. They cannot afford to over-analyze or to lag behind their competition. They need all the capabilities of their competition and they need them now. Arguably this ability to be as good as your compitition is just table stakes in the business poker game. The fact is that leading companies stay leading by leapfroging one another constantly. Cost is really secondary to speed and flexibility in this market. Competitive positioning and advantage are the differentiation areas in this market. 1960’s VW Beetle like basic level operations cannot be tolerated in this second business market.
So, while it would be heresy to say that cutting cost is not important, the question is when does a need to create an ability to change fast, with low risk trump the need to cut cost? Is it OK to have a negative ROI when the project is really to deliver a strategic capability? Only you can answer that one. But, the answer will have profound implications on your ability to innovate and to promote creativity. It will also have a more than noticeable impact on your ability to compete.
Constant Change – Can Your Business Operation Handle It?
Someone once said that the only constant in business is change. And we have seen that to be true – especially when it comes to Information Technology – now called by many "Business Technology" (new name, same problems).
Let’s consider what is coming in the market – the digital enterprise, driven by dispersed staff using low cost iPad type applications and social media to group source and group work is the latest innovation base. The first shots have already been fired in this move – is your company looking at social media? Are you interested in providing mobile apps to your customers? Ask insurance companies – many of whom are scrambling to catch up and offer customer entry of accident information from hand held iPads, iPhones and other mobile devices. The simple fact is that if you are not considering this technology and the shifts it will cause in your approach to business, your processes and your ways of dealing with both customers and staff, you are already way behind your competition. Is that important? As I said earlier, that is up to you to decide. I know what my answer is!
As I have stated in past columns, competition is about to reach a level that people have not seen in the past. While some economies have stagnated with the recent economic problems, others have not. The result is that in our global marketplace some companies have had the luxury of investing quietly in their business operations and IT infrastructure. As the global economy picks up next year, those who have modernized and built the flexibility of Ferraris are positioned far better than those with low cost, inflexible, slow moving organizations.
So, what can those companies that are not able to change quickly do? The game changer is BPMS supported BPM. See I did get around to BPM. This is the only way to enable change that is designed considering emerging social trends, buying patterns and emerging technology. The reason is that once a company has moved to this type of operating environment it can move quickly to adjust to opportunity, legislative requirement, improvement opportunity and more. It can most importantly move faster than its competition and it can react faster than has ever been possible.
But, now for the real problem. A recognition that it is time to invest in creating a business that can come up with innovative ideas and then act on them quickly is only the start. If the this ability cannot be effectively implemented in a short time with limited risk, the company will still have a problem. Right now, the biggest anchor holding a great many companies back is their legacy operating environment and the inability to change its zillions of lines of computer code either quickly or with any real confidence in the outcome of the change.
For a lot of years, that didn’t matter. Everyone was in the same boat and everyone dragged the same anchor. Then came Y2K and the move to monolithic ERP systems. They did solve some of the quality problems and they did provide a much more reliable base for the bread and butter applications that all companies need. But, I would submit that they were and are a mixed blessing. They don’t change fast and they don’t provide a competitive advantage – if you implement the best ERP the right way you are only on an equal footing with all the other people who are using the vendor’s package. But, in defense of ERPs, they work and they do a great job of taking care of the tasks that everyone must do the same – such as accounting and keeping track of orders and inventory, etc..
Competitive Advantage
So, let’s put them aside as a separate category of basic capabilities and focus on the applications and business operations that really make a difference. These are the parts of the business that are involved in customer facing interaction that can and should provide competitive advantage. These are the things that you do not want to do the same as everyone else. There is absolutely no advantage is being as good as your competition.
I believe that competitive advantage requires two basic capabilities. The first is an ability to predict the future and move to be the first and best so you can capture market share. The second is the ability to move quickly to orchestrate the interaction of all the parts of the business that need to be involved in the change and then deliver the capabilities needed to effectively hit the market. This is a critical dual set of capabilities. If either one fails you have a problem. But, even worse, is the fact that to have an advantage you must be able to recover faster than the competition. If you cannot adjust your strategy and execution fast, you just keep going into oblivion. That is like the Titanic. If it could have been more nimble, it could have adjusted. I have heard that it takes 2.5 miles to turn an aircraft carrier. Just think if it took that great a distance and time to change your business.
But, unfortunately, few businesses have the ability to protect themselves while they are changing course like an aircraft carrier does. Who do you think wins in this situation. I don’t think the guy who brings a VW Beetle’s capabilities to this battle will do very well. I personally want to be on the fast nimble ship that can zig and zag so fast that they can avoid hitting the icebergs.
Fortunately, a great many companies have recognized that they need to build a flexible operation that can adjust quickly. This recognition is really nothing new. People have been writing about it for years. The problem has been the cost of making a change to this type of operating model and the impact it would have on the corporate culture in many companies – not to mention that it would take a long term commitment by senior management to a new strategic operating vision.
BPM and BPMS
At this point most of my readers will expect me to tell them how BPM and BPMS will save the day. Well here is the curve ball. It won’t. What will save the day is investment in a vision of the future and the infrastructure to build it. And, yes, Business Architecture with a foundation of a BPMS supported BPM approach and environment is critical. But, so is the recognition that a new operating environment must be built and a willingness to adjust to the changes that are happening as you are reading this column – changes in mobility computing, social media and ideas on distributing a workforce enabled with mobile devices. And, we cannot forget the changes our governments require.
The fact is that Business Architecture will provide the framework; the foundation for designing business evolution and a BPMS supported BPM environment will provided the ability to change quickly, effectively and with low cost and low risk. Together, these two disciplines allow a company to move into a management approach some are calling Evolutive Management. This approach defines the potential business operation in terms of a series of vision models that anticipate probable business needs relative to strategy over time. It is based on predictive modeling and market analysis that is supported by IT technology tracking and prediction and production capability prediction.
Through this type of modeling, costs can be anticipated, technology support and infrastructure can be anticipated, markets will be clearly defined, customer value will be identified and almost most importantly competitive positioning can be anticipated and built. No more will anyone need to shoot from the hip or a company respond in an uncoordinated manner with unpredictable internal ripple effect results. The biggest benefit of moving to this type of approach is that it ties innovation to strategy and helps focus on success and what it requires.
But, building the capability to change and gain operational flexibility while doing it, will require a move away from the "VW is good enough" mentality. An analogy is from drag racing – a popular American style of racing where two cars, run full speed from a standing start for a quarter mile. The first down the track is the winner. The goal is to win. If you play in this game you must be the fastest and have the best driver and pit crew. Then you need to be willing to do what it takes to win. So, if everyone brings 500 to 700 horse power cars to the race, the guy who knows the competition and can adjust quickly by adding extra racing parts to get up to speed faster will be the winner.
So, the question, is do you want to be the one who can look at the competition, assess it, figure out what it will take to win and then move faster than everyone else or do you want to be in the good enough pack?
I’d also like to point out that the market has totally changed in the last ten years. It has been coming for the past twenty years, but the past ten years of uncertainty has given the good enough people a breather. As the economy picks up, the Asia Pacific companies will come and they will bring flexibility with them. Their flexibility is based on an ability to adapt and a drive to win. They are also not hampered by "good enough" thinking.
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