Redefining Organizational Performance

Expanding the reach of ideation and innovation to the entire eco-system grows exponentially the density and diversity of the intelligence gathered from the field and the industry. Multiple levels of engagement can cater to providers and partners who might have varying or competing interests. Aggregating all of this data might create the most valuable source of market insights, with a 360 degree view of the products, their users and their buyers. 

Selectively picking the members of the eco-system that can provide key, useful competencies that complement and help the central organization focus on its core DNA and competencies with the highest strategic value.

A New Sourcing Strategy

Defining a sourcing strategy in successive layers of relevance to the core business can unleash a whole new dimension of performance and expectations. From an Operations standpoint, a meta-capabilities organization can help tighten the fixed and variable cost structures through investing in competencies that have a high, sustained strategic value and minimizing or outsourcing others. Functions which are seasonally or partially used in the common enterprise processes may be better serviced with a specialized co-provider that can offer both full employment for the specialists and a continuous capacity to innovate and improve.

 Looking at the eco-system with the same lens used to analyze strategic partnerships expands the analysis to the entire business scope and can be layered by product, region or another structural criterion. Mapping core functions and capabilities using a two dimensional model of critical value to the business can be a simple exercise, actually.

The two strategic dimensions

The two strategic dimensions to map an eco-system are:

• Criticality of the competencies and
• Alignment with the “core DNA”, or strategic value.

Criticality is a matter of being able to operate and sustain the activities.

Criticality is often confused with strategic value because the default of critical supplies could cause irreparable harm to the business. The supply however might very well be a commodity supply or skills, providers or distributors that could be sourced elsewhere in the market place. Electricity, facilities management, accounting, payroll might be critical to the organization to operate properly, but they do not generate a differentiating value and could be shifted to another source without impacting the current or future value of the business or its competitive position.

Strategic value defines what will create or maintain the current and future economic value of the business. The focus is more than just the total equity and include the part of the shareholder value that forecast the revenue and performance of the business in the future; the capacity to respond to competitive pressure; the agility to adapt to market changes and absorb market dynamics; the ability to maintain and strengthen workforce, competencies and IP.  Low strategic value is often characterized by elements that are on the fringe of the main activities, and could potentially be spun off or recast without altering the profile of the business.

Critical Versus Strategic

The criticality of supplies and skills are often mistakenly perceived as strategic issues as well. The pain of missing a critical skill can be extreme and in some cases, make business operations stop cold. It must therefore be tended with care and caution. But the lack of a strategic value competency does not only hurt the operations: it can cause a business to be terminated. Just like electric power can be critical but is not of strategic value, competencies such as billing and invoicing, some of HR and Technology are critical but carry low strategic value. The core competencies in chemical engineering, mathematics or design can be seen as less critical to the operations, but their absence could prevent the business from fixing, upgrading or evolving the products and maintain market appeal or quality.

The fundamental question is how much the skills and competencies attached to a function or role are differentiating a product, a service or a brand in a unique way? The unique know-how of Dell Computers, offering computers built with ad’ hoc parts from various manufacturers, was not how to build a DRAM disk or a computer chip. It was the capacity to source the right parts for a specific design and purpose, to assemble the components with an industrial standard of quality and to market the products and services with a retail mindset.

The end-to-end view

The importance of looking at the full supply chain, beyond the employees on payroll is linked to the performances. Manufacturing, packaging and shipping a product or service does not make a business; the entire process from raw material to customer support makes up the end-to-end performance. A delay, price change of a supply or quality exception at any stage will impact the next stage of the process, positively or negatively. Much of these performance drivers are linked to know how, skills and competencies, making virtually impossible to disconnect the knowledge and individual contribution from the overall performance. This is the case both with the main company and with suppliers or partners.

Would a supplier’s provision be based on a specific set of skills, the sudden default of the skills would impact more than the supplier’s revenue stream. The entire business process could be at risk. The flip side is that an improvement of performance, quality or know-how would benefit more than just the supplier or partner originating it. Supply default risks can be mitigated through the access to alternate suppliers and redundant supply lines; but how value and business performance can be enhanced (or decreased) through changes to the business performance of the suppliers.

It works with Innovation too

A company can have a vested interest in encouraging, supporting and possibly co-funding innovation within their supply and partner’s network, just like it would do with its own organization if it was vertically aggregated. The reasons that made a business pick a provider or partner are likely the same that should suggest relying on the skills or competencies of this provider to innovate, optimize or customize their provision. If they are better suited than the purchasing organization to handle the supply, they have know-how and capabilities that would be easy and cheaper to leverage with a collaborative effort.

Process optimization experts stated long ago that performance improvement increases with the broadening of the scope. End to end process reengineering can achieve up to twice the benefits than a local, peace-meal scopes can possibly gain. The same goes for overall performance and skills map: revisiting the end-to-end suite of skills and competencies could help shift some tasks from a supply source to another, generate integrated innovation and lock down differentiation into the end-to-end DNA of the business.

Organic and integrated performance

In the new definition of organizational boundaries, the performance model should be multi-dimensional: the “organic” (internal) performance of the core business is always related to the aggregated performance of the eco-system. If parts can be produced with a potential variance of one micron, but the assembly has a tolerance of 2 millimeters, improving the variance threshold of the part would make no difference to the final product; hence its business value would be negligible. Unless the final product can achieve higher value from a lower variability threshold, the manufacturing of the part might generate extra costs which are not supported by the final assembly standards. On the other hand, ? day of cycle time gain in warehouse management, coupled with a ? day in transportation and ? day in replenishment would create a net improvement of 1 full day in the order-to-cash process, and this is hard money being saved and earned.

Almost any business can benefit from understanding and monitoring the end-to-end process performance, as well as the eco-system performance, even if the collaborative and co-dependent network is not formulated as such – yet.

A new view of performance

This global view should generate at least a number of targets for performance improvement. The next step of a collaboration with the select partners and providers who can generate the highest value will   eventually generate cost savings, business growth potential and a higher strategic value for all.

If the business mandate is truly to maximize the equity or shareholders value, leveraging the eco-system can increase this value more than internal efforts might do. This requires however to consider the value beyond the fixed assets, and the performance beyond organic.

Although it is not a one-size fits all, leveraging the eco-system brings a strong potential for improving the performance, increasing innovation and fostering greater agility against market dynamics.

The price to pay is a more complex organizational structure, the sharing of decisions and a fresh look at the definition of the business assets and IP, beyond traditional boundaries. Well worth it, isn’t it?