Three Things

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THREE things 11 3 21

Thought I would touch on three topics that are in front of us these days, and provide my perspective on what is happening, so this lack of structure will be a departure from my normal focus.

1) Supply Chain

Big 4 (accounting firms), as well as strategy consulting firms McKinsey & Co., Boston Consulting Group, and Bain & Co., have spent years and millions of dollars helping large companies extract value (e.g. reduce investment) from their supply chains. How? By implementing automated control systems, minimizing inventories on hand, outsourcing logistics, and making inventory levels “just in time,” for example. The good news, they did pull a lot of investment out of their supply chains. The bad news, those supply chains are now brittle and susceptible to disruption at multiple points. There’s a good book on materials flow and constraints, “The Goal”, written by a fellow named Eli Goldratt. Long story short, his book illustrates that at any point in time, one particular constraint can limit total system output. There are several constraints in our supply chains now, and the scarcity of supply means prices are going up. How long will it last? Perhaps longer than we think.

2) Resource Turnover

Where are the workers? We are all experiencing turnover, and when well-liked employees leave it can cause others to consider leaving (“turnover contagion”). As with the supply chain, there are a number of complex issues here, many of them unique to the companies impacted. My thoughts: once the contagion hits, many of us feel we need to raise the pay of people we want to keep when in reality the people that left did not do so because of pay, and those that stay are not staying because of pay. That money may not be well spent.

3) Developing Innovation

Is innovation inspired, or can you define and manage a process to create it? Many of us likely feel that innovation is an epiphany resulting from the inspiration of a brilliant person, like the apple inspiring Newton. I’m not so sure – I think it depends on where you need to innovate, and who in your organization knows where opportunities exist.

In relation to this model, think of an idea that has two dimensions of value: (1) it’s creating cash flow for me now (current value), and (2) I expect it to create cash flow in the future (strategic value). Now think of a key process, say service delivery. Define what value means to you, and task your junior people (who are often the most familiar with the process) with developing ideas to improve that process (quadrant 1). Now review those ideas and decide which of them have merit but need management attention and some investment in order to create cash flow (quadrant 2). Now implement that idea and start to realize the strategic value over time (quadrant 3). Finally, once it’s no longer considered strategic and you consider it a “cash cow” (quadrant 4), pull cash out of it and invest back into quadrant 2. I’ve seen companies do this, and reward staff financially for the ideas that make it to quadrant 2. It’s a different way to think about innovation being a core capability of your company