Management Insights

Rethinking The Rules

It's said that the definition of madness is doing the same thing over and over again and expecting a different outcome. Time and again I see managers who mistakenly believe that if they just push a little harder, a losing strategy will somehow become a winning one. They fail to understand that sometimes they need to tear up the playbook and try something different.

Malcolm Gladwell describes in this New Yorker article how underdogs can win when they challenge convention and rethink the rules. David's victory over Goliath, in the Biblical account, is held out to be an anomaly. It was not. Political scientist Ivan Arreguin-Toft recently analyzed every war fought in the past two hundred years between strong and weak combatants. Even though the Goliaths were at least ten times as powerful as the underdogs - in terms of armed might and population - the underdog won almost a third of the time. In the biblical story of David and Goliath, David initially prepares to fight a conventional battle with Goliath but quickly realizes he will lose if he plays by his opponents rules. Instead he picks up five smooth stones ... and the rest is history. When underdogs choose not to play by Goliath's rules, the odds of them winning doubles to over 60 per cent. David beat Goliath by substituting effort for ability. This turns out to be a winning strategy in all walks of life. Gladwell provides other examples of underdogs who challenged convention and though sheer effort went on to win despite huge disadvantages. He describes how Lawrence of Arabia led a small band of untrained Bedouin fighters through the desert to capture twelve hundred Turks, losing only two men. He also describes how a scrappy underdog basketball team beat stronger rivals using an unconventional strategy of playing a non-stop full-court press. It is generally believed that skill is the the precious resource and effort is the commodity. It's actually the other way round and effort can trump ability.

Many organizations are constrained by strategic dogma and a lack of creative thinking. They become inflexible and view strategy as something that must be followed exactly, rather than a framework to help understand their situation and guide their thinking. Business schools reinforce the notion that managers will be successful if they can just learn all of the predetermined plays in the strategy playbook. And when a strategy proves to be unsuccessful, managers frequently double-down rather than rethinking their approach.

The best approach is to ignore conventional wisdom and return to first principles, considering each situation on its own merits. Remember, the rules are usually defined by Goliath and when the world plays on Goliath's terms, Goliath wins. When underdogs choose not to play on Goliath's rules, they can win. 

Out of Sight, Out of Mind?

I recently broke my ankle skiing. At first I thought it was just a minor sprain. But when I realized that I couldn't turn on my bad ankle, I had to be helped down the mountain by the ski patrol. I walked into the medical center telling everyone that it was only a sprain. When the doctor insisted on doing an X-ray, I confidently told him that he wouldn't find anything. So, it came as a surprise to discover that I had fractured my ankle. The doctor told me that I had been lucky since I had snapped part of a bone in a non-weight bearing part my ankle, but that I would need a splint and to take it easy for the next 4-6 weeks while it healed. For the past few days, I've been hobbling around in some pain, suddenly aware of how many steps I have to climb just to get around. The broken bone in my ankle may not be a major one, but without it I can't easily walk or drive.

One of the big trends of the past decade has been to outsource, or offshore, non critical functions. Businesses have reflected on what their true core competencies are, and have shed everything else in an effort to reduce cost, increase efficiency, and focus management effort on those activities that add greatest value. In some cases they have outsourced major business functions such as manufacturing, sales, or distribution. More typically, they have outsourced less critical administrative and support functions such as payroll or customer service. However, out of sight is often out of mind, and with management no longer involved in the day to day detail of these outsourced activities, problems can arise. A bad customer experience with a poorly trained call center representative is no less damaging to your firm's reputation, just because the representative is not your employee. A payroll mistake is no less annoying or distracting to your employees, just because it was made by a third-party provider.

I am not suggesting that firms should in-source everything and avoid outsourcing at all costs. What I am suggesting is that management should not lose sight of the detail of those activities that they do outsource. Without this management attention, much like my ankle, a small break in a non-critical part of their operation may hobble the rest of their business.

Supply Chain Management Best Practices

Recent research indicates that companies with high-performing supply chains differentiate themselves through the superior application of six management practices:

1. Link supply chain strategy to company strategy and set clear aspirations
   - Supply chain group is a key stakeholder in business-planning decisions
   - Corporate strategy is translated into tangible supply chain targets and initiatives
2. Segment the supply chain to master the product and service complexity that matters most
   - Organization manages the portfolio to eliminate complexity that does not add value
   - Discrete material and information flows are used to manage different products and customers most efficiently
3. Tailor supply network to optimize service, cost, and risk goals
   - Company selectively invests in flexibility over efficiency where required
   - Customer service requirements considered in supply network decisions
4. Use lean tools to optimize supply chain from end to end
   - Supply chain managers own end-to-end costs to prevent localized sub-optimization
5. Create integrated sales and operations planning (S&OP) processes
   - Sales, finance, and supply chain teams collaborate in planning activities
6. Find top talent and hold people accountable
   - Supply chain experts have deep functional expertise and general business skills
   - A strong culture of accountability is cultivated

Organizations displaying strengths across these practices outperform competitors in service (timeliness and completeness of customer deliveries), inventory (ratio of inventory levels to the cost goods sold), and distribution and logistics costs. That finding belies the notion that trade-offs are inevitable in these areas.

To manage complexity, 50% of top service performers use segmentation to create distinct supply chains (in their broader supply networks) to serve different customer groups with unique products, while on 29% of average companies do. Organizations that use segmentation are 2.5 times as likely to be leaders in inventory performance and twice as likely to be leaders in service than companies that do not.

Two-thirds of top companies consider supply chain design processes and product- and portfolio-development processes concurrently, versus half of average companies. Leading companies also regularly examine product portfolios to eliminate complexity that doesn't add value.

Top companies excel in optimizing end-to-end efficiency. Ordinary companies apply cost reduction techniques within individual functions but top ones apply lean-management tools throughout the supply chain.

Investments in formal IT systems (beyond basic enterprise resource planning) don't improve supply chain performance as much as expected. Companies relying more on spreadsheets and other informal solutions were nearly twice as likely to be cost leaders - and nearly three times as likely to be inventory leaders - as companies using formal IT systems, suggesting that IT cannot replace strong processes, capabilities and decision making.