Tag Archives: China

Why 2012 is Not the Year to Fear – The Other Half

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I have compiled the rest of my trends below. How am I doing?

INDIA TAKES CENTER STAGE:  Under headings like “Is India the new Dubai” and “Is Mumbai the new Cambridge”, the researchers are clearly very high on India.  While India continues to have fairly strong economic growth, rising costs of labor, growing income disparity and slow progress on infrastructure etc. this will continue to pose challenges.  The geo-political confluence that India represents as a foil against China and the unrest in Pakistan will continue to influence the critical role that India plays.  Indian service/goods providers are already migrating delivery/production to smaller cities and other regional countries.

Value Opportunity:  Develop an “arbitrage” model that allows you to identify the entry and exit criteria (either supply or market domains) in countries like India and provide that type of intelligence inside your company.  Look for talent in India as schools like Harvard are setting up shop there!

RED SCARE 2.0 – CHINA:  Interestingly enough, the authors mention China in a number of different trends but the one that caught my eye was the fact that this type of thinking about China as an adversary similar to the Red scare is becoming more and more of a reality in people’s mind.  It is already driving the political discourse during the current election cycle.  US foreign and defense policy is also now influenced by this.  This is somewhat of a reaction to needing to find a “culprit” for our current malaise.

Value Opportunity:  Help your company see through this “cloud” and exploit opportunities being created by illogical reaction by others.

MEN ARE IN TRANSITION:  The headline is a composite of many different points raised by the research which all point to the fact that ”men” are in decline, and apparently they don’t make men like they used to, “men are the new women” and “where are the men” – you get the point!  I think there is clearly truth in the fact that the gender defined roles are changing and changing pretty rapidly.  This will continue to drive how consumer decisions are made but more importantly, it will also have an impact on other decisions as well (social, political etc.).  The most critical area where this will have an impact is in the war for talent.

Value Opportunity:  You must incorporate this trend in your Talent Management strategy.

GDP DEAD! – LONG LIVE GROSS NATIONAL HAPPINESS (GNH)!: While this may sound like a funny headline, researchers point to fundamental flaw in using GDP as a metric but seriously suggest that a better metric might be Gross National Happiness (GNH).  The argument being that material possessions don’t always bring the greatest happiness to people. A renewed focus on health and family life could change the way people see work and alter ideas on prosperity. After all, the founding fathers made a point of “pursuit of happiness”

Value Opportunity:  All kidding aside, this dependency on old metrics (GDP) that are easily quantifiable is a very dangerous dependency.  We should be identifying new metrics like Value Drivers (GNH) that may not be easily measurable but are far greater in their impact.

GOING LOCAL:  This again is a hybrid trend from various parts of the research but the essence is that people are tired of living their lives “globally” and more and more are looking for intimate exchanges that are more “local” in nature and will actually go online to facilitate that.  Marketers will be responding to this phenomenon in creative ways.  Look for this to start impacting our clothes, food, travel, social interactions etc.  “Local will be the new Global” as the researcher suggests.

Value Opportunity:  Supply Chains may also have to become more “local” in response to consumers and you should start assessing if this impacts you.  People will also make career choices based on this so consider impact on Talent Management.

Which trends do you think are most likely to come true?

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Now let’s see which come true!

Regards,

Dalip

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Who is the Keeper of the Black Swan?

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BLACK SWANS And Supply Chains

What happens if your key supplier goes out of business?  What happens if your logistics channel suddenly breaks?  What happens if you can’t ship to your top customer?  What happens if the recovery stalls? Within the last several weeks, we have all seen the news about the impact of serious events impacting enterprises’ supply chains:

-          Tsunami in Japan and subsequent events

-          Civil unrest in Egypt, Syria, Libya, etc.

-          Significant escalation of the price of oil

-          Sony’s PlayStation network outage

-          Oil disaster in the Caribbean (one-year anniversary)

While many have documented the importance of having contingency plans and identifying risk along the end-to-end value chain (from suppliers’ suppliers to customers’ customers), I cannot help thinking about who within an enterprise is ultimately responsible for managing risk? Is there a different answer depending on the nature of the risk? Are there thresholds below which identified risks should be managed by decentralized functional or business unit management?

The organization’s CFO or Treasurer is traditionally responsible for managing “financial” risks but many of the recent Black Swan events are operational in nature, significantly impacting not only supply chains but financial results as well. If the CFO/Treasurer is responsible, does that individual have the competencies necessary to assess and mitigate operating risks? Does the CFO/Treasurer have visibility to the information needed to make the right calls and create adequate contingency plans?  If not, what then?

Is the Chief Operating Officer (COO) or supply chain leader responsible for these kinds of risks? If so, do those individuals have the requisite competencies and or authority to manage the potential financial impact? Does the COO/Supply Chain leader have the appropriate information and tools required to plan for risks that are well outside of the normal variability of supply / demand events? Who communicates and coordinates with the Suppliers? Customers? Employees? Public? Is it and should it be the same person, a group acting in consort or several individuals acting independently? If capacity becomes constrained, who decides which customers get the “limited supply of product”?

At a higher level, are there DECISION PRINCIPLES and GOVERNANCE STRUCTURES in place to help an organization clarify roles and responsibilities? If not, the speed with which an organization can react to Black Swan events may be significantly longer than necessary. A set of pre-determined decisions or rules with set tolerances/thresholds would eliminate confusion and accelerate decision-making during undoubtedly difficult situations.

Should there be a “committee” of the supply chain organization and the CFO/Treasurer groups to identify potential operational risks, assess the likelihood of occurrence, estimate potential impacts to each stakeholder group, set guidelines or rules, establish ultimate accountability, and periodically review contingency plans for adequacy? Or, should “risk” be parceled out with various functional leaders

As the events referred to above continue to unfold and are resolved, there will certainly be a case study of how well each enterprise handled the events and the speed with which they were able to react.

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China and Change Management, The Burning Platform for U.S. Schools and Your Supply Chain

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I was struck by an article this week from the BBC announcing that China is predicted ‘to overtake the U.S. in scientific output in two years.’ We have been hearing that our school system is broken for years, but we as a nation have been unable to mount an effective campaign to address this problem to-date.  Hopefully this revelation serves as a wakeup call.

One of the key concepts in change management is the importance of having a “burning platform” that can drive the change process.  I can’t help but hope that the silver lining from this depressing article is that it will serve as the burning platform that education reform so desperately needs.

As a teacher, parent, observer from afar, etc., I have seen schools undertake constant efforts to “reinvent” themselves and become more successful.  To-date, none of those efforts has achieved more than a marginal impact on the way the typical student experiences the schooling process.  Over the years, I believe that there are three key factors that impel schools to those results.

First, the “Burning Platform” concept implies that the crisis has to be real and immediate.  There should be no question that something has to be done; disaster must be imminent and everyone “on board” must recognize that fact.  The story of the “Titanic” would not have resulted in such significant loss of life if, in the first 20 minutes after striking an iceberg, the entire ship’s crew and all the passengers realized that the ship was going down.

In the schools, one of the major barriers to effective change is that, even if the platform is burning, the impact is not immediate.  When will we be “burned”?  Arguably, low literacy rates, poor math skills, lack of science knowledge, etc. only affect the individuals, not the larger society.  At the very least, the impact in lost competitiveness, reduced productivity, declining GDP, etc. will show up long after the current crop of teachers and school administrators have retired to Florida, Arizona, or some other equally attractive destination.  For them, there is no ‘burning platform” regardless what the test scores and journalists might say.

Compare that to your supply chain.  While there are daily crises (just as there are daily failures in the schools) the system moves on without major disruptions.  Indeed, overcoming many of those daily crises in the supply chain are what allow supply chain professionals to go home feeling they’ve done a good job.  “If I hadn’t sat on that supplier, we’d have run out of parts”, can be much more satisfying than, “I struck a good deal 18 months ago and there are no problems to deal with”.  And, the problems that do exist are unlikely to have a major impact on the company as a whole anytime in the near future.  No wonder some supply chain professionals look forward to joining the teachers in Del Webb communities where both can lament the demise of their former employers while playing bridge.

Second, research into school reform has shown that the vast majority of school reform efforts survive only as long as their champion is in the local school.  In other words, change is largely dependent on there being a passionate voice for the change, someone who has a deeply held emotional belief in its importance and is willing to do “whatever it takes” to make the change happen.  When that person leaves, the change is overwhelmed by the system and quickly fades into the background.

As one case in point, I once consulted in a school district that, for a short time, embraced the “Open Classroom” concept.  The district even went so far as to build a school with virtually no interior walls so that students could experience a truly open learning environment.  That occurred several years before I came on the scene.  By then, the advocate for open learning had left and, significantly, the teachers in the school without walls had purchased movable dividers and had divided the open space into “classrooms” to “enhance” the learning environment.

Think about this the next time your organization reassigns a key stakeholder in the Supply Chain after an 18 month tenure in a position.  Two things happen.  Any credibility your supply organization gained with the departing incumbent will go with him or her.  And, the new individual is most likely to be looking for a way to “make a name” in the 12 to 18 months that have been allotted before the next round of musical chairs.  The net result is that the passion for changing from a transactional to a strategic focus in the supply chain gets sucked out of the organization.  If the schools are any indicator, once the passion leaves, the changemobile quickly comes to a screeching halt.

Third, continued poor performance can quickly become an acceptable norm.  At the very least, this year is not that much different from last year or from five years ago.  If things didn’t fall apart then, and we are doing the same now, what’s the worry?  I remember my cousin, who at the time was a relatively new teacher, describing his experiences as the head of a committee to select a new History text book for his district’s Junior High Schools.  The text book committee was formed in secret at the end of the school year.  Before it had even begun its work, the district “raided” all the Junior High Schools and removed the old books because experience had shown them that the vast majority of the teachers would not feel any “heat” to change their lesson plans to the new book unless they had no choice.

For a corollary in supply chains, look to the plant managers who refuse to honor a global contract because “their” plant is “doing okay”.  Then there are the engineers who resist any efforts to modify specifications because “we’ve always had these specs”.  Or, you might consider the sourcing professionals who say, “We’ve always sourced this way and we’re still in business.  Why change?”  The point is that even if the platform is ablaze for all to see, people who are not immediately threatened can narrow their focus and delude themselves that they are not affected.  When that happens, the case for change is lost.

What’s the point?  Just because there’s a problem, doesn’t mean that you have a burning platform.  When pulling together your “burning platform” issues for a change effort, be sure that you remember three things:

  1. The impact of the fire has to be immediate and real
  2. The cause of the fire should be a new spark, not an old ember
  3. The firefighting equipment has to transcend individuals

I would love to hear your thoughts on this issue.  What are some of the best examples of a sustainable burning platform that you have seen?

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Battle Hymn of the Tiger

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A new book Battle Hymn of the Tiger Mother by Amy Chua is generating buzz and debate both on-line, in print, and on TV.  Chua’s goal in writing this book is to answer how Chinese parents raise such stereotypically successful children.  As counterpoint, Chua decries American parents as wimps who coddle their kids and accept mediocrity.

Used interchangeably in the book are the words “Chinese” and “Tiger” to describe Chua’s maternal ferocity and passion.  Chua’s parenting techniques are strikingly similar to “Tiger” companies found in today’s global supply chain.

The Quest for Perfection

Chua’s relentless parenting style demands no less than perfection.  On her balanced scorecard, Chua tracks only two domains: Individual achievements (such as winning a piano concert, or achieving straight A’s) and disciplined respectful behavior.   By those performance metrics, her children are superstars:  musical virtuosos, “A” students, masters of foreign languages, etc.

It is good for a customer and suppliers to have demanding metrics in place that encourage the right behavior. Certain “Tiger” companies (Wal-Mart, Home Depot, McDonald’s, etc.) stipulate high execution (on-time, fill, compliance, etc.) from their suppliers.  These companies know running low cost, high service supply chains demand perfection from all partners and that supplier unpredictability throws sand into their engine of efficiency.

While meeting these demands is initially challenging, successful suppliers should welcome these hurdles as both a way to improve internal operations and create barriers to entry versus other competing suppliers.  As a side benefit, operational changes made to satisfy more demanding customers often carry over to less demanding customers.

For a new supplier, the transition to this new performance is rocky-demanding an extensive toolkit, robust processes, and new ways of thinking about and doing work.  During this time suppliers should consider some of our Strategic Transformation tactics to achieve these desired results.

Tough Love

One area Chua is attacked by critics is her use of tough love with her children.  If a child doesn’t meet expectations, the “Tiger” parent assumes it’s because the child didn’t work hard enough.  Chua’s solution to substandard performance is to excoriate, punish and shame the child into higher performance.  As examples:

  • Chua rejecting poorly made birthday cards from her daughters and demanding new cards be made
  • Chua threatening to burn all of one of her daughter’s stuffed animals unless she played a piece of music perfectly
  • Chua calling her daughter “garbage” when she acted disrespectful

Widespread adoption of tough love sourcing tactics was one reason we proclaimed earlier that strategic sourcing is dead.   It is difficult for suppliers to constructively invest in a relationship when “Tiger” companies:

  • Threaten annual rebids despite stellar supplier performance and/or cost containment
  • Demand year over year price concessions regardless of underlying commodity movements
  • Refuse to do 360° business reviews where both parties are thoroughly evaluated
  • Refuse to concede that some fault may lie internally as opposed to externally
  • Constantly look to find supplier poor performance to build negotiation leverage
  • Challenge paying a fair price for a high level of supply chain execution

An old proverb states “It is easier to lure with candy than with a sticks…”  Tough love with suppliers is a dated approach that fosters a “fear-based” accommodation.  It is at odds with developing a sustainable value-based partnership.

Individual vs. Group Performance

Critics also point out that Chua’s focus is on her child’s individual performance and she misses encouraging the “team” approach essential to success in business and in life.  While individual achievements are commendable, our experience with High Performance Work Teams shows that team members with strong individual performance traits consistently make decisions that do not align with the best interests of the team.

Most people work in groups because groups are much more efficient at solving complex problems.  During our training we typically have highly structured breakouts designed to amplify group and team dynamics.  Inevitably we will have individuals who subscribe to “There is no “i” in team but there is in win” school of thought.  These students will challenge our initial statement that the only solution lies with the group and ask to be placed on a team of one.  They deliberately choose a path where they cannot win but believe they can perform better than the group.

Even worse, when placed in groups they will often withhold information to generate “the answer.” gained from other shared information.  Obviously putting two or more of these individuals together leads to an information impasse in which the team fails.

Supply Chains need information and partner participation to work.  These demand strong “team” competencies not individual excellence.

Summary

Chua is not a bad parent.  She cares deeply about her children.  She is willing to devote extraordinary amounts of time to ensure her children reach the high expectations demanded of them.  Where there is a breakdown is Chua’s tough love tactics and her narrow focus on a set of performance metrics that don’t prepare her children for some of the real world challenges they will eventually face.

Today’s supply chains conditions are some of the toughest ever.  But do tough conditions demand tough “tiger” tactics?  Here are some questions for our readers

1)      Culturally, is America slipping in terms of national expectations and achievements versus other more hungry “tiger” nations such as India and China?

2)      Does customer tough love and high expectations generate better long term results?

3)      Is Chua’s approach sustainable for a supply chain?

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Revolution of Expectations in China (and everywhere else)

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In an earlier blog (What do Google, Coke, China and Katrina Have in Common? 3/25/10), I emphasized that the typical Supply Chain risks are the tip of the iceberg when looking to do business in “low cost” countries.  A recent AP article (Companies brace for end of cheap made-in-China era, 6/7/10) re-emphasized the point.  AP reported on the number of companies that are finding it increasingly advantageous to shift production of everything from Frisbees to books to iPads from their traditional Chinese bases to lower cost locales.  One of the major reasons cited is that workers in China are growing more aware of their power and, as a result, strikes and other actions are forcing companies to increase wages dramatically.  The impact of China’s “revolution of rising expectations” is particularly strong when combined with the growing cost of shipping and fuel.

The article cited three responses to the challenges companies are facing:

  • Move to less developed areas of China
  • Move to other low cost countries
  • Bring operations back to the States

One of the key factors that any company reevaluating its “China strategy” should consider is that the issues being raised in China are predictable and inevitable.  One of the most frequently overlooked risks in low-cost country sourcing is the risk that wages will rise with the expectations of workers.  As the AP article detailed, workers in the most developed areas of China no longer share the same values as their parents.  Their goal is not to create a nest egg that will allow them to return to a rural village and live in comfort when they reach retirement.  Today’s workers want more now and they want to continue their more varied and expensive life style when they retire.

Guess what?  The only way for that to happen is for wages to go up and for such “Western” benefits as company-provided retirement, health insurance, shorter hours, and longer vacations to become available.  How does that impact the three potential responses listed above?

Moving to other, less developed areas of China seems attractive in the short run but is likely to provide no more than temporary relief.  It doesn’t take a crystal ball to see that the window of opportunity there will not remain open long.  The workers in Western China are no more likely to retain their current level of expectations than workers in the current hot beds for foreign manufacturing.  Expectations always rise and companies always find that they have to meet those expectations in order to avoid major disruptions in their operations.

What about moving to other low cost countries that currently have a better (lower) wage structure?  While there is, again, the opportunity for short term cost reductions, the revolution of rising expectations is, as mentioned, inevitable and predictable.  It can only be delayed and then not for long.  In the past, the length of time from tapping a low-cost labor force until the workers sought a bigger piece of the pie was measured in generations. (Think of America’s Industrial Revolution and how long it was fueled by low cost immigrant labor before unionization took hold and changed the balance of power.)  Today, the combination of global information flow and the numerous examples of what can constitute the “good life” for wage earners have significantly reduced the time lag between industrialization and the emergence of a new level of expectations.  It doesn’t much matter which low-cost area you go to because the revolution will hit sooner rather than later. Does that mean that bringing operations back to the U.S. is the best option?  Maybe, “Yes”; maybe, “No”.

The revolution of rising expectations is not the only issue eroding margins in China.  As I detailed in another blog, (Does it matter if a 600 lb. Gorilla is Chinese or American? 4/15/10) one of the most often overlooked risks is that of shifting government policy.  In China, the end of tax incentives is combining with rising expectations and emerging monetary policy to create a “perfect storm” that may swamp many companies’ profits in a sea of unanticipated cost.  What happens to the cost analyses if, for example, the U.S. undertakes significant immigration reform and actually puts teeth into the rules that prohibit hiring undocumented aliens?  In that scenario, minimum wages could well become an anachronism as the power of workers in the market-place supplants the power of the government to establish the least a company can pay in order to fill its less desirable positions.  Similar impacts to the cost equation could result from implementation of  Cap and Trade, Pay as You Go spending, or any of a number of other proposals that rise and fall in favor in response to the ever-shifting political landscape.

The bottom line?  Companies need to take much more proactive, critical and detailed looks at their options.  They also need to continuously monitor and attempt to anticipate changes in social, political, and cultural variables that impact cost directly or indirectly.  As I have suggested before, Scenario Planning, Value Analysis, and other such tools are critical.  Most importantly, leaders have to realize that they can no longer make decisions based on traditional cost analyses.  Indeed, the items that typically show up in an analysis of Cost of Goods Sold may be the least important factors to consider because they are often reflections of decisions made in areas that are far beyond those that impact COGS.  The challenge is that most of the decision factors that will make the difference in the future are neither well-understood by businesses nor are they easily quantifiable.  The winning companies in the coming decade will be those that come closest to developing that understanding and learning how to deal with ambiguity without turning decision-making over to a roulette wheel.

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