Resilience is Not Enough - Forging New Paths

Forging new paths through difficult territory are journeys easy to avoid and more essential now than in the past 100 years

https://blog.nacdonline.org/posts/enterprise-resilience-permacrisis

A great article from NACD about the need for Enterprise Resilience. Yes, 100%, but not enough.

I think the world will get worse in pockets while, overall, the global economy improves. There are so many places where the conflicting cultural cross currents are reaching explosive levels. I am, however, optimistic about 2H 2023 at a macro economic level. Increasing focus on resilience is essential and not enough.

Supply network risk, flexibility and value optimization (not squeezing cost) are now somewhat obvious objectives given what we saw with COVID and especially ex-China supply.

More and more the labor content and geographic cost arbitrage for intertwined products/services/experiences is not the massive opportunity it once was.

Short-term cost optimization as a strategy is dumb and always was. Smart procurement shops finding distant sourcing for key elements to shave off a few percent is real work and not strategically smart for core elements. Nor is the cost analysis that goes with it. Sure, squeeze the Dickens out of whoever supplies you furniture and carpet but be careful with anything that has revenue and brand impact, you know, like not being able to get key parts/components. Supply chain is about value optimization and risk management.

When I spent a decade in Asia with FedEx we had a huge supply chain business with the likes of Apple, Intel, Nat Semi, GAP, and Nintendo even though moving things via FedEx was comparatively very expensive. The value came from tech, data and doing smart things with it. Having shiny super reliable jet/truck fleets mattered only after the tech/data.

More and more software is a larger part of the bill of materials for 'product'. In many cars it is the single biggest element. Software is very different than aluminum or stainless steel or polypropylene. Software does not behave or cost like any other thing I know of.

The TCO of software is about quality, not the unit cost of a line of code. The quality of software is about the quality of your coding approach but more about the quality of your tech architecture, including the information architecture and your tech leadership. Failure to keep engagement high and have a differentiated environment to get, keep, grow tech talent is literally a giant cost drain. Many tech shops are not welcoming, encouraging or actually even playing fields for diverse candidates. The level of talent you can have and grow if you are good at creating and maintaining diversity positive environment is a competitive advantage, at least while that is a rarity.

Do not confuse rhetoric with reality. Do not listen to what your firm tells itself about diversity. Take a look at your tech shop and measure representation versus the national average at the key professional and management levels and look at your last 100 promotions through the same lens. Even right-thinking companies generally are bad in both those regards. The fact that you don't have those numbers handy should also tell you something. Rhetoric versus reality. Fix it for selfish talent reasons in tech.

The time-tested (ancient) way we do cost accounting has no line item for that negative impact. The impact of having less than leading, less competitive talent. Big news flash, reality doesn't care about how you do cost accounting. I don't care if your accounts payable department or real estate teams are average. That really won't have a huge impact. Over the next few years being average at tech will make you the one at the gun fight with the knife. The same is true of supply chain risk. The two are linked.

One test for CEO's and Boards is who is in charge of tech and information architecture. Not where does it report up to, but who and what level are they and how good are they? Even better, who is the VP in charge of aggressively retiring end-of-life, end-of-value tech, and how are they doing? Those areas are simply critical to your future cost structure, agility, and resilience. I am not saying the board needs to spend any time with these people, but I am saying the board needs to know these are lynchpin positions, and they need to feel comfortable that the management team has that well in hand.

I once asked Jeff Immelt (privately) after an Open Innovation talk I did up at his HQ why they didn't have a real enterprise-wide CIO or did substantial IT innovation. He said they literally had over 300 ERP platforms, and most of them were broken. So IT was in the penalty box until that got fixed. I asked who had those three jobs across the firm, and he confirmed they didn't exist. Think about what that does for cost, competitive agility, and enterprise resiliency.

That's Not The Scary Bit

The 4th Industrial Revolution and Industry 4.0 are upon us. Ten other change waves are landing at the same time. Four key foundational technologies are in the process of going up a hockey stick curve from a utility, unit cost, value, and adoption perspective. They are AI (all four types), IoT, Cloud and XR. Marry those to a super low latency, fat bandwidth, edge compute world (5G / Wifi6e), and that is a tsunami of change. Resilience is important, but in the distant future, like 2024 and beyond, failure to keep up and proactively engage with these change waves will decide which side of the massive Creative Destruction cycle you are on.

The last three Industrial Revolutions were massive Creative Destruction cycles. No one thought they would be on the destruction side. In 1900 there were about 300 automobile companies in the U.S. In 1912, 38% of the cars on the road in the US were electric, yes, electric. In 1913 Henry Ford launched the assembly line. What took 12 hours for them and days for others now took 93 minutes. By 1928 there were 44 car companies, and 80% of the cars came from three companies.

This is about two things:

1. Designing and leading for agility might be your only long-term sustainable competitive advantage. Agility without resiliency is a time bomb.
2. Tech Leadership / Success

Failure to do this will make you the one at the gunfight with the knife. It will leave you on the wrong side of what will be the biggest Creative Destruction cycle in 100 years.

I hope to have this all fleshed out with tips, tools, targets, and a bit of humor in my book this summer.