ARC Advisory Group: Adaption and Agility - Valentijn de Leeuw
Valentijn de Leeuw, director of consulting, ARC Advisory Group, discusses adaptation, which he describes as the key to business performance from manufacturing IT.
In ‘The Living Company’ (Harvard Business Review, March-April 1997, p. 51), Arie de Geus reports about companies that live 100-700 years and concludes that most companies have a much shorter life span than they could potentially have. Naturally, we associate this with Darwin’s ‘survival of the fittest’. In fact, when companies strive to be leaders, they consciously or unconsciously believe that market leadership is an indicator of survival.
The economy is seen as a battle field and we see the ‘fittest’ as the best armed for the struggle. We have ‘strategies’ and ‘tactics’. We ‘compete’ and are aware of the ‘war for talent’. If we look at the analogy more closely we realise that sometimes living species need to fight for life or take flight. But, most of the time they are in harmony with their environment through cooperation.
WHAT DARWIN REALLY MEANT
Darwin’s phrase ‘the survival of the fittest’ referred to his theory that the species best adapted to its environment had the highest chances to survive.
Arie de Geus found that long living companies are good at adaptation. It is the quality and the speed of adaptation that determines its effectiveness. Speed of adaptation is agility. The quality of adaptation is the capacity to learn, to challenge beliefs and being creative, for example, by creating markets rather than reacting to them.
Fight is only one option for adaptation. Harmonisation is another one. Harmonisation does not imply losing one’s capacity to fight – the way EU countries collaborate is an example.
Adaptation by harmonisation may mean creating a performing organisation in which employees blossom, having privileged customer relationships, participating in the elaboration of open standards, adopting transparent governance practices or adhering to sustainable development. The individuality and authenticity of your company’s way of being will be your value proposition. Fight has become unnecessary.
BUSINESS PERFORMANCE FROM MANUFACTURING IT
Many recent studies show that IT and manufacturing IT have a great potential productivity and added value. For manufacturing IT, operations management or MES, the potential for ROI is ten percent or more, and payback usually estimated to be less than a year. In reality, payback is sometimes much longer and returns are not always at the levels expected. Operations do not always adhere, and resist new implementations.
AN ADAPTIVE FRAMEWORK TO IMPLEMENT STRATEGY
Operational excellence has shown to improve business performance. It is executed as a programme, supported by a framework which starts with a strategy, and has a set of overall goals, a management system and few operational domains each with target subjects and goals. Targets are prioritised, actions defined and results measured. The management system includes performance management, managing change and managing people.
Performance management facilitates knowledge-sharing and coaching when results are good. It challenges beliefs, and adapts goals and tactics when results are less good. Performance management ensures the goals are reached with a high degree of probability. Each framework component is necessary and all of them need to work in concert. The insufficiency of a component can cancel the effect of the other components.
Manufacturing IT as any other enterprise or plant initiative should have a similar structure to be successful in achieving operational and business performance.
Manufacturing IT fits very well in operational excellence programs to support the operational domains.
In a dynamic environment, enterprises need to adapt their strategies. Strategy changes must be reflected in the frameworks to execute them. When it comes to business or manufacturing systems, they need to adapt quickly to company changes, by having the ability to plug-and-play while retaining overall performance. When sites are sold off, their manufacturing systems must be unplugged from the corporate ERP or when entities are bought or sold, ERP modules must adapt accordingly.
Standardisation of interfaces and SOA enable the agility of business and manufacturing systems.
ADAPTING THE ORGANISATION TO SYSTEMS AND VICE VERSA
When implementing systems for manufacturing or other domains, they need to be adapted to their environment, and vice versa. Operations excellence distills best practices. They should be reflected in a solution template that can be rolled out throughout the corporation.
The template creates a lot of synergy but will never meet all requirements. The system must create comfort and direct benefits for the end user, and needs to meet their specific, local functional requirements, to ensure usage. The sites or functions must therefore be able to adapt the templates easily and quickly to their specific environment. This is the only way to transform business potential into operational and business performance. Best practices will evolve and should be reflected in new versions of the template that should be downward compatible and have the ability to absorb the existing customisation. Separate rollout, upgrades and retirement of modules should be possible.
The organisation must be prepared for the change, adopt the principles of performance reporting, sharing experiences and learning. Change management can ensure this. It is of particular importance that local and global subject matter experts as well as corporate and operational management deliver messages consistent with the initiative, listen to feedback and take it into account.
They should be capable of motivating their people, obtaining their commitment and coaching them through the changes. To provide credibility and accountability, corporate and upper management sponsor the initiative and have personal roles in strategic and management system activities.
ADAPTING PRODUCTS AND SERVICES TO THE MARKET AND VICE VERSA
The performance management of manufacturing both at plant and corporate levels requires visibility on production quantities and qualities to compare it with production orders, customer quality, and self-regulatory requirements. Manufacturing needs to adapt to requirements and manufacturing intelligence needs to adapt to its different users in the plant or at corporate levels.
Customers now also require a subset of that information, to inform themselves on the process, the ingredients and the quality of the product. Information transparency has become part of the ‘whole product’. For efficiency and effectiveness, products and processes must be adapted to manufacturing.
Close collaboration between research, product and process development and manufacturing is required. The integration of manufacturing and research and development systems can greatly enhance this process. It should be easy to compare products as produced with the intended design and make design modifications to improve efficiency and quality in production. It should be a low effort to update and maintain product definition information consistently and at the granularity required in systems for innovation, manufacturing and the enterprise.
For a given product portfolio, manufacturing capability and demand, production schedules should be optimised for profitability. The adherence to schedule determines the actual profitability. Manufacturing intelligence ensures the feedback for improving schedule adherence.
Production schedules become outdated quickly when the market is dynamic. It should be possible to reschedule regularly and quickly, re-optimise and make trade-offs to adapt to this dynamic and seize market opportunities. The instant visibility on the manufacturing capability is of the greatest importance to ensure this agility.
Research and development plays a major role in learning and innovation by adapting products to the market needs, and creating new products for existing and new markets. Visibility on market feedback is needed regarding current products, and products produced at pilot scale need to be tested on consumers and clients.
To do so, the requirements for manufacturing systems at pilot scale are the same as described above for large scale production and need to integrate transparently with functional and corporate systems.
There are several software players in the market, that have a sufficiently broad vision on customer requirements and that are coming close to offering products and services compatible with both the functional and strategic requirements described above.
The long-living enterprise is adaptive at all levels. It redefines itself and their markets by keeping a close eye on their performance. It adapts strategies to business performance and enterprise capabilities, and vice versa. Its manufacturing adapts to the enterprise and client requirements and market dynamics. Its product definitions are adapted to manufacturing and market demands.
They also adapt the market by creating new demands. Business, manufacturing and other systems fulfil business goals and adapt to strategic and operational requirements. They are deployed within a framework for strategy implementation.