Collaboration is widely accepted to add value to a business network. Yet few companies will say they have truly a collaborative culture. The supply chain function and S&OP process can be catalysts to drive a collaborative company culture. For this to happen, the traditional left brain thinking supply chain organization has to start activating and using right brain skills and S&OP needs to start leading as a mature horizontal process.
Why do we need collaboration?
Not many people will argue that today’s world is an uncertain, volatile and complex environment, where customer and consumer demands are higher than ever and the availability and speed of information is growing at a pace not experienced before. In this environment, having correct and complete information available at the right time for decision making is critical to have competitive advantage and for some business even a necessity to survive. Several short shelf life food companies I worked for budget their supply chain waste at roughly 1% of net sales value (NSV). In other words, a $2 billion company I worked for expects every year to write off $20 million in margin and waste. Better information and decisions making can reduce this significantly and directly add to the bottom line.
To make better informed decisions within a company, information is required from multiple functional areas and external sources like customers, suppliers or the market. For decisions making to happen efficiently, information must flow horizontal between functions and external markets in an open manner. Advanced technical infrastructure and tools can help support accurate and timely information availability, even on a global scale if required. Horizontal concepts like S&OP will help facilitate processes, meetings and decision making around this information. On top of all this technical and process support, once decisions need to be made, it is key that different functions share the available information openly to achieve a common goal and the best outcome for the business.
This requires the magic of collaboration. Collaboration can simply be defined by working jointly across boundaries of a function, company or industry to work on a common task or goal. Often, where people coordinate or cooperate together to get a job done, the word collaboration is used. But a lot of meetings, emails, project planning and execution to get a job done between many people from different functional areas, doesn’t necessarily mean we are collaborating and working towards the same goal. Companies understand the value of collaboration. A managing director I worked for in a $500 million company estimated the value of collaboration at 1.5% of NSV. In a short shelf life environment, I think this $7.5 million is even an underestimation, but the example shows that executives understand that mastering collaboration have a cost advantage as they have better information available for decision making, and make decisions quicker. So why doesn’t everybody just collaborate?
Why is collaboration so hard?
Collaborating is hard and a collaborative culture is not easily created; it requires company vision, leadership resilience, clear and common goals and follow through for an extended period to change a company culture to a collaborative one. But above all, for collaboration to happen, employees need to change and start using their right brain to think holistically and cross the silos.
Crossing the silos is hard for humans, as historically we are wired to stay in our silo. That’s just our survival instincts. Staying in our own clan or herd, means risk reduction, certainty, safety and a higher change to survive. Only when our survival is threatened we will go outside our herds, take risks to try and survive. In business we see the same risk avoidance. We feel more comfortable in our own silo and vertical reporting line. Working horizontally across the silo’s doesn’t come naturally and is often avoided. Beside this natural risk avoidance, there is research that indicates that only 50% of people cooperate naturally and 30% behaves selfish. Selfish people are less likely to pro actively cross functional boundaries. On top of this new trends are emerging, where fuelled by social networking, we see evidence of more narcissism and ‘I’ and ‘me’ thinking. If this trend continues, the challenge to stop being self-centred and understand the other person or silo and think holistic only seems to get bigger.
If we want to cross a silo effectively, we have to understand the other silo’s motivations, goals and feelings. We need to have empathy for the other silo. Feelings and empathy are right brain activities. When we start using horizontal process like S&OP to better manage our information flow we have to start thinking horizontally rather than vertically in our own silo. Thinking horizontally means thinking holistic. Thinking holistic is a right brain activity.
Traditionally functional areas like finance & supply chain are dominated by left brainers that think data, logic, analytical and KPI’s. From a cost controlling and optimizing perspective, this is how these functional service providers have improved significantly over the last 30 years. It is now time to change and collaborate if we want to bring things to a whole new level and get more value out of these functions. Cross functional service providers like supply chain and finance are perfectly positioned to cross silo’s and start leading in collaboration. We already see the trend that CFO’s and COO’s and their organizations have to get out of their comfort zone of reports, analysis and numbers and act more as business partners and relationship managers. This change to think about your business partners with a collaborative mind requires a shift in mindset and capability for many traditional left brainers in these functions. This needs to be taken in to account when developing collaboration within an enterprise.
The role of the right brain in developing collaboration
According to Paul Adler and others in the July 2011 Harvard Business Review, there are four key organizational efforts that drive successful collaborating:
- Define and build a shared purpose: make sure people work to an overarching goal.
- Ethic of contribution: look beyond your current role to contribute to the business.
- Horizontal processes: develop processes that enable people to work together in flexible but disciplined projects. This can be an S&OP project or process.
- Value and reward collaborative behaviour: visibly reward the right behaviour.
As a cross functional service and value provider, the supply chain function is perfectly positioned to create a collaborative environment. Therefore supply chain leaders have to address all these four characteristics and – maybe more important – train their people on collaborative characteristics, or get the right people on board. Leaders need to communicate the company visions and common goals in a structured way and reward collaboration to promote an ethic of contribution, but most of all business leaders have to create a critical mass of people who can activate and use collaborative characteristics.
Some of these characteristics are:
- Read non-verbal communication whilst listen actively. Non-verbal communication contains most information and reading it is a right brain activity.
- Show empathy to deeply understand the other silo feelings and motivation to either resist or collaborate. Showing empathy is a right brain activity.
- Use creativity and imagination to solve issues and find common ground. A brainstorming session with a collaboration partner creates an open and save environment to think outside the box together. Creativity and imagination are right brain activities.
- Think holistic and big picture. Think ‘we’ and ‘us’, rather than in ‘I’ and ‘me’. Thinking holistic is key to include the collaboration partner in your thought process. Thinking holistic is also key to understand S&OP and is a right brain activity.
In the last 30 years of supply chain development, process improvement and optimization, we’ve proven that we’re able to use our left brain to perfection. We now understand how to optimize our vertical functions up to a point that there is minimal value to be found in the siloed function. Creating critical mass in the workforce with additional right brain characteristics is now where the real value is for businesses. This is the real challenge is for business leaders that want to develop a collaborative culture and take things to a whole new level. Once this critical mass is established and leaders provide employees with a common vision and continuously follow through with rewarding collaborative behaviour, the foundation for a collaborative environment is made. To leverage these organizational efforts and be a catalyst for a collaborative environment, S&OP can be used as a horizontal process and therefore needs to be successfully implemented. This requires having S&OP as a common goal or strategic capability in a business.
The state of collaboration in Supply Chain and S&OP
A horizontal process like S&OP can leverage the other three collaborative organization efforts to drive a collaborative culture. Once implemented the recurring cross-functional meetings in the S&OP process provide the opportunity for the right and capable people to understand and compromise with other functional areas to achieve common goals.
In the book ‘Bricks Matter’, Lora Cecere talks about the evolution of the supply chain in the last 30 years and how companies need to think outside-in rather then inside-out to create a market driven supply chain. She explains that ‘each supply chain leader learned that strong horizontal supply chain processes are a pre requisite to drive success in building market driven value networks’. She furthermore argues that strong horizontal process can’t be built with the limitation of traditional functional metrics and that fewer of 5 percent of companies surveyed in the book have sufficient alignment to build strong horizontal processes. I think that a critical mass of right brain thinkers, which show understanding for the other silo, think holistically and are driven by a higher purpose rather than their own functional powers, can overcome this. This can easily be further incentivised by giving most senior employee’s metrics on holistic level, like EBIT (Earnings Before Interest & Tax) or ROCE (Return on Capital Employed). These metrics are in the end the ultimate goals of most companies and will promote holistic and not functional decision making.
But S&OP itself seems to struggle to lead in step one of collaboration; setting a common goal. Participants in my S&OP pulse check 2012 suggest that 63% of companies have not clearly defined what S&OP maturity level or goal they want to achieve. Only 42% of participants agree that all company functions have a common goal in improving S&OP. In Bricks Matter we can read that ‘more than 75 percent of companies lack goal clarity, which undermines S&OP success’. Without this common S&OP goal across the company, a collaborative environment to implement S&OP is less likely to occur. It is therefore not a surprise that ‘the organizational silos’ have been chosen as a top 3 roadblock in implementing S&OP for 3 consecutive years in my S&OP pulse check. ‘Senior leadership support’ was the number one roadblock in all three years.
Figure 1: S&OP agreement on S&OP maturity statements according to survey participants
Progress is slow and S&OP maturity suffers. In Bricks Matter, we can read that ‘36% of companies’ S&OP processes are stalled or are moving slowly’. According to an ebook from Kinaxis, most companies are stuck in step 1 and 2 in Larry Lapide’s four step model from 2005. Gartner found in 2010 that only 67% of companies can’t get further then step two from their four step maturity model. An Oliver Wight white paper on the transition from S&OP to IBP tells us that most companies ‘get stuck in between Stage 2 and Stage 3’ from a four stage model. A 2013 Supply Chain Insight report tells us that 57% companies don’t get further then stage 2 of a 5 stage maturity model. However we define S&OP maturity, it seems to be stuck in early stages.
To implement S&OP successfully a business needs to have S&OP as a clearly defined common capability. Only then, as a horizontal communication platform, S&OP can be a leading contributor in creating a collaborative company culture. Only when successful internally, horizontal processes like S&OP can extend to the end to end value chain and drive effective collaboration with suppliers and customers. Unfortunately it seems that the state of S&OP is not ready to internally lead companies to a collaborative culture. It is time for business and thought leaders to understand that more process, systems or KPI’s will not solve this riddle. It is time to acknowledge that building organizations with critical mass in right brain, holistic, purposeful and more empathetic thinkers only can change this.