This story first appeared in the Quarter 3/2018 edition of CSCMP's Supply Chain Quarterly, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media's DC Velocity. Readers can obtain a subscription by joining the Council of Supply Chain Management Professionals (whose membership dues include The Quarterly's subscription fee). Subscriptions are also available to nonmembers for $34.95 (digital) or $89 a year (print). For more information, visit www.SupplyChainQuarterly.com.
When supply chain consultant and thought leader John Gattorna received the Council of Supply Chain Management Professionals' (CSCMP) 2018 Distinguished Service Award, he was recognized for his work on "dynamic alignment" in the supply chain. Dynamic alignment involves segmenting your customers and matching the supply chain to those customer segments.
While there have been countless supply chain consultants, analysts, and academics who have provided models and frameworks for supply chain segmentation, Gattorna's work differs in one key way: It places the human at the center of all supply chain or value network design efforts. As Gattorna writes, "People and their behaviors inside and outside the enterprise are at the heart of supply chains."
Gattorna's work through his analysis and consulting firm Gattorna Alignment has an almost anthropological or sociological flair to it. He and his colleagues help companies diagnose their customers' behaviors and segment them according to those behaviors. They then analyze whether the culture within the company complements its customers' behaviors and values. Finally, they help the company change the internal culture of its supply chain to better match those customer behaviors.
Gattorna has detailed this work in his books Living Supply Chains and Dynamic Supply Chains. Now, he is set to release a third book on the subject with his colleague Deborah Ellis: Transforming Supply Chains: Reinvent your enterprise from the "outside-in" to be more flexible and market responsive. Gattorna took some time out at the CSCMP Edge annual conference last fall to talk to CSCMP's Supply Chain Quarterly Executive Editor Susan Lacefield about the new book. You can watch the full interview or read an edited version of their conversation below.
Q: You have a new book coming out in May on transforming the supply chain. Can you give us a brief explanation of what the book is about and how supply chains need to transform today?
A: Well, it's interesting. [At Gattorna Alignment,] we have been doing research around the world for the last year, running thought-leadership retreats and talking to companies, and what I can say is, just about every organization that speaks to us is in some stage of transformation. Whether they are at the start of the journey or they are like [the energy management company] Schneider Electric, which is five or six years into it, everyone is thinking about transformation.
The reason they are thinking about it is that the world has changed so much in the last few years. The whole digitization question has just come on so quickly. And now it's no longer talk. Everyone is trying to figure out: How do we digitize our supply chains end to end? And what does that mean? And how are we going to transform our organizations to cope with the sort of volatility that's been coming at us rather rapidly?
And, of course, there's also all the disruptive things around customers' expectations. These are all part of the reason why companies are saying "We've really got to accelerate the way we transform our business." And I think that's the important thing. You can't [transform your business] slowly; you've got to do it quickly. If you do it too slowly, it encourages the forces of darkness inside your business—the cultural drag—to slow down and resist change, whereas if you do it quickly, you take them by surprise.
Q: Can you tell us a little bit more about these "forces of darkness inside the business"?
A: Look, there's been lots written about competitive analysis and what we should do to protect ourselves from our competitors. In my view, competitors are not the real threat to our business. The real threats to our business come from inside because competitors generally don't know a lot about our business. The problem is the people inside our business who sit in meetings, nod their heads, and say "Yeah, yeah, yeah," but deep down they are really saying "No, no, no." This sort of insidious resistance to change is the real threat.
We've found in our research that between 40 and 60 percent of what companies write down in their business plans as intended strategies never gets delivered. And it's not because of competitors' action; it's because people inside the business are forming pockets of resistance. So, what we have to do more and more now as part of a successful transformation is address the sorts of people we need in the business. How are we going to reorganize? How are we going to create pockets of subcultures—for example, a subculture of cost cutting, a subculture of speed, a subculture of innovation? You need to develop these subcultures inside your business to drive these different strategies into the marketplace.
Q: What can companies do to foster these subcultures?
A: First of all, you've got to figure out what sort of [subculture] situation you've got. Ten years ago, you couldn't do it, but now you can. You can actually X-ray an organization. There are techniques to "map" the cultures inside the business—because there's not one culture, there's normally pockets of culture. So, you can do an "as is" [map] and then the "to be" [map] of where you want to go. The "to be" should be based on the subculture that you see in the marketplace for a particular customer segment because you are dealing with human beings on both sides of the fence.
Our contributions are that we've found a common metric and methodologies to describe customer behavior or customer subcultures. And once you understand point A [what the company's subculture is right now] and point B [what you want the subculture to be], you can work out a path to change.
There are all sorts of levers that you pull to create change. A big one is clearly organizational design. I think we've got to move away from this vertical structure that we've got. We've got to think more about putting together teams or clusters focused on different [customer] segments and populate those teams with people who have the subcultures we need so that the cost-driven people can look after the lean supply chains, the agile ones can look after the high-speed supply chains, and so on.
And then, you need different processes for the different types of supply chains. You need different combinations of technology. It's the same with training and development. The sort of training and development you'd do for a lean supply chain team, where you're looking at analytics and things like that, are different from the training and development you might do for a project-based supply chain.
All of these things are well known; it's more about developing recipes. How do you mix and match these variables? It's about really looking at the marketplace and trying to use it as the frame of reference to come back inside the business and start more precisely orientating our fixed and limited resources in a much more clever way.
Q: This seems to tie into the subtitle of your upcoming book, "Reinvent your enterprise from the outside-in"?
A: Yes, I just began to touch upon that—99.9 percent of supply chains that exist today grew up out of the 1940s, '50s, and '60s. Their major thrust was to just keep up with growth because there was a lot of growth around. Then in the '70s and '80s, we started to run into volatility, whether it was the oil crisis in '73, terrorism, or technological change. What's become clear is that we can no longer design our supply chains from the "inside out," where we just take a bit of a guess at what we think customers are saying and thinking, and then develop a particular configuration around that. Instead, you've got to get on the outside and look back at yourself. It's almost like levitating outside the body. Look at the world and yourself through the eyes of the customer and try to understand what their expectations are. Not guessing but actually having a direct link and really getting inside the customer's head.
There are very few companies that have been able to do this well. [The computer company] Dell did it very early on when it sold computers directly to consumers. Those companies that have had more or less direct contact with consumers automatically get it. But many, many industrial companies don't. They deal with distributors, agents, subsidiaries, and intermediaries, and very often they don't understand as well as they should what the end user wants.
Once you've designed from the outside in, it allows you to retrofit or re-engineer backward in your business and make precise decisions about where to put your resources. You take the guesswork out, and you get rid of the over- and under-servicing that's been going on for about half a century. We don't want to be giving too much service to customers who don't appreciate it. On the other hand, we've got loyal customers out there who don't make much noise. We don't want to underservice them either. It's a matter of switching those resources around but having a frame of reference to guide that—that's where the "outside in" comes from. It's about clever segmentation of the marketplace using methodologies different from what most companies have used for years.
[One of those methodologies involves] getting away from just looking at companies as what they are institutionally—for example, being a traditional retailer. What we're saying is within an institution, say retailing, you can have six different companies that have come from different backgrounds and histories, and different leadership styles that will have slightly different expectations of their supplier. The fact that they are all retailers and they are all institutionally the same doesn't mean they have the same expectation, and that's the sort of nuance you've got to work with.
Q: Do you have any concrete tips or advice for companies on how they can start this process?
A: I think the starting process has to be, go out and do some conjoint analysis [a survey-based technique used in market research that helps determine how people value different attributes]. Get your marketing people to help you do a trade-off analysis. Try to segment your customers using behavioral techniques, and then work your way back inside the business.
It's important to do that [analysis] because otherwise it will just be a matter of your opinion versus someone else's. And you might lose that battle. Whereas if you can get in and document and map the structure of your market, and then take it back inside, people cannot argue with that. You can say "Well that's what it is, whether you like it or not. That's the structure of our market. Now, are you going to work with me to start the whole process of transforming our business?"
If you don't do something like that, you can argue interminably inside the business. It can turn into my opinion versus your opinion, and you go around in circles. And that's the worst possible thing because the name of the game today is you've got to make faster decisions. If you can do that and get that sort of momentum, you can pretty much out-decide and out-market any of your competition.