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The Art of Supply Change Management: January 2009
The Art of Supply Change Management: January 2009
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By Stanley E. Fawcett, Joseph C. Andraski, ow would you respond to the question, “What are
Amydee M. Fawcett and Gregory M. Magnan the greatest threats to your company’s survival?”
Common answers might include disruptive tech-
Stanley E. Fawcett (sfawcett@grifflink.com) is nologies, rising customer expectations, globaliza-
Professor of Business at the Marriott School, tion, or the emergence of a tough new rival. Few
Brigham Young University. Joseph Andraski supply chain managers would say, “My company’s
(jandraski@vics.org) is President and CEO of success.” The reality, though, is that more often
VICS. Amydee M. Fawcett is with Lateral Line than not, this is a correct answer. How could this be? Sustaining success
Analytics (laterallineanalytics@gmail.com). demands adaptability—the ability to change to meet the demands of a
Gregory M. Magnan is an Associate Professor dynamic world. Blinded by success, managers miss the meaning behind
at the Albers School of Business, Seattle Jack Welch’s warning, “When the rate of external change exceeds the rate
University. He can be reached at gmagnan@ of internal change, the end of your business is in sight.”
seattleu.edu.
The Perils of Success
The one constant in today’s modern world is change. That helps explain why it’s
so difficult to sustain success over time—beyond 20 years or more—even for
the best companies. Do you remember Bethlehem Steel, Compaq Computer,
or Digital Equipment Corporation? Each was
to invest in renewal led to its downfall. companies seem to be stuck on a treadmill, running into
Other once and present corporate titans including the same challenges and obtaining the same results. After
A&P, IBM, PanAm, and Sony have been vulnerable to a performing a rigorous content analysis of all of the inter-
changing marketplace. Among these, only IBM emerged views, what did we learn? Although the vast majority of
from its malaise and regained its position as a strong companies and their workers are averse to meaningful
competitor. IBM’s solution was to induce radical change change, a few leaders are using their ability to embrace
change as a strategic weapon in certain situa-
tions. Put another way, we discovered pockets
Great companies have always of change excellence. Some managers simply
endured a four-stage life cycle: emergence, refuse to settle for the status quo and push
relentlessly for collaborative change. And
growth, maturity, and demise. importantly, they are reaping the benefits of
this collaborative spirit. Looking closely at
and reinvent itself as a technology service provider, effec- their stories, we discerned an emerging pattern that we
tively adopting a whole new business model. Such radi- call the Cycle of Change.
cal repositioning is rare; yet, why would any smart com-
pany not try to promote proactive change and upgrade its The Cycle of Change
business model before demise is imminent? In the mid 1990s, Boston Consulting Group’s Harold
This article articulates the mandate for change—change Sirkin observed, “As the economy changes, as compe-
that is supply chain enabled and based on a collaborative tition becomes more global, it’s no longer company vs.
business model. We draw on the results of a long-term company but supply chain vs. supply chain.” To suc-
study of supply chain professionals who related both their ceed in this supply-chain-vs.-supply-chain world, Sirkin
frustrations and successes with the change management noted, companies must embrace a collaboration-based
process. We then examine the essential stepping stones in business-model. Yet, over a decade later, we see that truly
the Cycle of Change and present the key enablers to make cohesive and collaborative supply chain teams (such as
successful supply chain change happen. that exemplified by Honda, for example) are still very
rare. What is the biggest stumbling block en route to real
Little Progress Made on Change collaboration? Managers do not understand and proac-
Change management’s vital role in business model design tively manage the change process.
was strikingly evident in a longitudinal study on supply The managers we spoke with in our research say that
chain collaboration in which two of the authors partici- they want to collaborate. In fact, collaboration is widely
pated. The original research began almost a decade ago viewed as a star on the strategic supply chain stage and a
(Period 1) with interviews of managers at 51 companies high corporate priority. But as our research shows, orga-
across four supply chain positions—retailers, finished nizational structures that propagate turf protection are
goods assemblers, suppliers, and service providers. At firmly entrenched, impeding collaboration. The business-
most companies, multiple managers responsible for supply as-usual mindset is so ingrained in the corporate psyche
chain initiatives participated in the interviews. For exam- that it seems impervious to penetration. Managers that
ple, logisticians, purchasers, IT managers, manufacturers, have endured pain on those occasions when they stepped
and marketers all shared their experiences
EXHIBIT 2
with collaborative supply chain decision-mak-
ing. In 2007, six years after the initial study Top Five Barriers to Collaborative Business Model
(Period 2), we returned to the field to replicate
Turf-Promoting 75%
the study and determine how much progress Organization Structure 73%
companies had made in adopting truly collab-
58%
orative practices. This time we interviewed 61 Resistance to Change
53%
companies from across the same four supply
55%
chain positions. Fifteen companies participat- Conflicting Measures
73%
ed in both of the time periods.
Lack of Trust 42%
The surprise finding: despite the rhetoric, (Power Assembly) 47%
collaborative business models were no more Period 2
42%
a reality today than they were at the turn of Lack Managerial Support Period 1
29%
this century. Perhaps most dispiriting, most
walls to secure their own influence and power were almost everyone.
invited to leave the company. If properly leveraged, the competitive environ-
Authentic passion, enthusiastically displayed, sends ment can represent a SEE. At one interview company,
an irresistible invitation to join in. Leaders who are pas- the industry leader for over 25 years, a serious threat
sionate about collaboration, create and communicate emerged in the form of an aggressive foreign rival. The
the vision by example. They take advantage of every interview company was consistently losing market share.
opportunity to teach collaboration, drawing on the But no matter how dire its competitive situation became,
power and persuasion of specific examples (more will be managers found a new measure that painted a rosier pic-
said about this in our discussion of credibility drivers). ture. They rationalized that the threat was only tempo-
This approach enables everyone to see and understand rary and that changes were really not needed. The day
the power of collaboration. Leaders then hold people finally came that the metrics could no longer be manipu-
lated—no matter how they were presented. It
was clear to all that the company had lost its
Only a company’s senior leadership position. Everyone realized that fol-
leadership can commit the lowing the same course would lead to ruin. Eyes
now shot wide open, and the needed changes
resources and provide the emotional started to happen. Collaboration increased. A
safe harbor needed to unleash collaborative new business model emerged that invited sup-
pliers to participate in design and assembly at
change. unprecedented levels. The result: the company
halted the market share slide and stepped out
accountable for making collaboration happen. of its rivals shadows to become the industry leader once
As they weave personal responsibility into the fabric more.
of the culture, astute leaders take steps to banish fears. At one European interview company, the entrance of
If people are punished for trying something new (like a new global rival in the company’s home market was the
accepting cost increases in their particular functional area significant trigger event capturing managements’ atten-
that would lower total costs), they become gun shy about tion. This particular company, which had long been a pro-
any future collaborations. Wherever we found a pocket tected national champion—a company promoted by the
of change excellence, there was a leader who promoted a government policy to create jobs and achieve economic
culture that “encourages” failure while demanding excel- prestige—had pretty much set the rules of the competi-
lence. In the words of one manager we spoke with, “If my tive game. But, the rival came in with aggressive pricing.
best people are not failing from time to time, they are not The new entrant’s full parking lots gave visible evidence
trying enough new things!” Ultimately, by aligning mea- that the rules had changed. Consumers could not ignore
sures with expectations, discipline and follow-through prices that were 20 percent lower—nor could the inter-
become companions to passion in the quest to build a view company. The company decided that it was better
collaborative culture. At companies where collabora- to sacrifice margins than to give away market share.
tive business models are emerging, the So it successfully launched a new line
enthusiasm is contagious. of products at a “value” price. This
aggressive pricing response slowed
Change Events the pace of the rival’s market expan-
Non-collaborative mindsets often sion. Sometimes the fear of loss truly
are so tightly closed that even the is a more profound motivator than the
most capable leaders struggle to open hope for gain.
them. The interviews showed that Collaboration leaders in our study
when leaders encounter such immov- showed that it was not always neces-
able mindsets they look for “signifi- sary to wait for an imminent external
cant emotional events” (SEE) to use threat before taking action. In effect,
as a lever. A significant emotional event they created their own SEE. At one
is one that makes it obvious that the cost company, a financial stumble that was far
of not changing is greater than the cost of from a crisis led the CEO to physically reor-
changing. SEEs catch people’s attention, ganize the organization for greater integration
bringing out the rational economist in and efficiency. More than 180 managers moved
the plan with their own creativity and energy. changes in behavior have yet to be solidified. People
Perhaps the most effective tool for creating credibil- still worry that the “new” program will prove to be a fad
ity and developing a widely accepted plan is the strategic and the old way of doing business will return. One man-
use of pilot projects, according to the interview compa- ager warned, “To expect a change in behavior without a
nies. Carefully selected, meticulously executed pilot proj- change in structure is the definition of insanity.”
ects prove the viability of collaborative initiatives. Just as The real question (in another manager’s words) is,
important, they provide the numbers that can be “market- “What is the best structure for tomorrow’s competitive envi-
ed” through well-crafted success stories. Effective SCM ronment?” Our interviews suggest that no single answer
champions (another credibility driver) do everything they exists. We saw a variety of structural enablers that yielded
can to identify good pilot projects and assure their suc- effective long-term changes in collaborative behavior. For
cess. By carefully documenting baseline performance and example, a manager at one European company described
the implementation process itself, leaders transform pilot an earlier meeting designed to help formulate their collabo-
programs into valuable learning laboratories. ration strategy: “We brought all of the key players together,
An instructive example of this comes from one inter- decided on core objectives, wrote out the strategy and the
view company that was evaluating adoption of a CPFR plan and then literally got them to sign off on what we were
(collaborative planning, forecasting and replenishment) going to do. Everyone has a copy of the strategy and plan
program. The project champion felt that CPFR held with all of the signatures on it. We also made up a very
great potential, but had no evidence that it would work large—wall-sized—version of the strategy and displayed it
at his company. Therefore, he turned to a customer with in the cafeteria for everyone to see.”
whom he had previously tested innovative ideas success- The initiative was then undertaken with full buy-in
fully. The close working relationship built up over the from all involved. Periodic meetings followed in which
years had laid a solid foundation of trust and reduced progress-to-milestones could be evaluated and adjust-
the number of variables that might have derailed the ments made as necessary.
project. The pilot test was successful, yielding outstand- Exhibit 4 highlights some of the other structural
ing results. Notably, sales increased by 50 percent with enablers we observed. Two success ingredients are
a 30-percent reduction of inventory. These outstanding implicit in these enablers. First, structural changes must
results were used to promote CPFR both internally as be made to bring people together—and not just once. It
well as to other customers. takes time to build the trust needed to commit to col-
Pilot projects show “how” to make collaboration real laboration. Second, measures must be modified to make
while identifying likely pitfalls that should be avoided in collaboration safe. No matter how often senior manage-
the future. In effect, they can turn the stepping-stones ment talks about change or collaboration, regardless of
of the cycle of change into a well-paved pathway. how many meetings you have on the subject, if the mea-
sures continue to support the old business model, the
Structural Enablers old behaviors will persist. Measures create and define
Structural enablers are needed to transform early the emotional safe harbor. Change managers must rec-
collaboration successes into an enduring col- ognize this reality.
laborative business model. One
manager provided a useful Learning Loops
guideline for knowing when With structural enablers in place, the
to proceed from pilot proj- goal of the journey changes from learning
ect to structural investment. how to collaborate effectively to effective
“When something goes well,” collaborative learning. Learning loops—
he said wryly, “there are always activities that drive learning, document its
a lot of people in line ready to benefits, and can be replicated in multiple
take credit.” When the line forms, parts of the organization—fill this role. Sadly,
the building of enablers can safely companies have made little progress here.
begin. But some models of learning loops exist. For
The importance of structural instance, pilot projects promote inquisitive
enablers should not be underesti- thinking and build learning skills. Best-practice
mated. Up to this point in the change benchmarking and process mapping identify new
journey, momentum for change has ideas and the path to their implementation. In addi-
been building steadily. Yet long-term tion, teaching Deming’s Plan-Do-Check-Act cycle