Companies can move to an adaptive business network in four steps:
TEAM
FLY
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this data. The companies begin to track this information, particularly in- ventory levels, to a specif ic number of days’ worth of supply. The com- panies also begin to share information electronically with partners via a simple portal Web site, and to make simple manual transactions via this Web site. Step One will lead to a slight reduction in inventory levels and closer ties among partner companies.
2. Step Two—Community. Step Two greatly improves the accuracy of inventory tracking methods by ensuring that inventory numbers are now accurate to within a few minutes, essentially making those numbers “real time.” Companies will install bar code scanning or radio frequency iden- tif ication (RFID) technology to accomplish this. Similarly, during Step Two, companies and their partners agree on certain predetermined threshold levels for many transactions and automate transactions that fall within these thresholds. This frees employees from mundane tasks to focus instead on the problems or “exceptions” that arise. Step Two will produce further inventory and working capital charge reductions, while redeploy- ing employees to more strategic tasks.
3. Step Three—Collaboration. Partners begin to work more collabora- tively. They also begin to dynamically shuff le products between facilities and orders, which can allow companies to more easily fulfill orders and fur- ther reduce inventory. In addition, Step Three enables companies to auto- matically replenish supplies and materials by tracking consumption from the portal Web site or directly in their respective systems, which is constantly updated. Later in this step, businesses shift to their vendors the responsi- bility for ordering and shipping necessary supplies. This leads to massive reductions in inventory as well as working capital. Step Three also improves the production cycle for suppliers, essentially cutting out many emergency production runs and leading to cost savings for all members of the adaptive business network. Functions eliminated in Step Three include individual purchase orders and invoicing.
4. Step Four—Adaptability.Partner companies begin to share informa- tion about customer demand, such as orders and sales figures, so they can respond to subtle changes as soon as they occur. Pervasive technology al- lows the companies to plan, execute, sense, and respond to business f luc- tuations with greater ease and at lower cost than before. This technology will enable partners to act in concert with existing systems, greatly reduc- ing the time needed for many processes and eliminating others altogether. Moreover, a new web of partnerships enables the businesses to better dic- tate demand and pool their resources for new market and product oppor- tunities. Most importantly, Step Four lays the foundation for companies to
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remain adaptive in the face of change and adversity, ensuring they will f lourish and remain viable in the long term.
These four steps put companies in a position to collaborate with their partners electronically, forecast more accurately, and generally save more time and money than 125 earlier business excellence initia- tives. By starting with the basics and changing corporate attitudes along the way, these steps prepare companies for the future of business and help them establish the network partnerships that will form its backbone.
Why Not Just Jump Straight to Step Four? This adaptive business network sounds pretty good. But why go through the time and struggle of the early steps when what you really want to do is jump ahead to the more enticing benefits of Step Four?
This same assumption of readiness is a key reason why earlier busi- ness excellence initiatives have failed. Similarly, very few companies are ready to move to the advanced steps of the adaptive business network pro- cess without first going through the basic steps.
Even if you believe your company has already accomplished the first two steps and that you are prepared for Step Three or Four, you need to validate that belief by starting with Step One. If your assumption is valid, you’ll find you can move through the early steps quickly. More often, how- ever, companies that assumed they were ready for the later steps discover, upon completing Steps One and Two, that they didn’t really have the busi- ness processes in place to make the later steps a success.
The four steps chart a path that will take any business from the es- tablishment of rudimentary business processes to adaptability by follow- ing a natural sequence of process improvements. Not only will the four steps help standardize processes between a company and its partners -— increasingly necessary as they collaborate more closely—but they’ll also help the company confront organizational change issues up front. Fol- lowing these steps allows a company to interact with its partner companies at the beginning of this change, so that the organizational shift that com- panies often overlook until the last minute occurs right at the beginning of the process.
In short, it is critical to go through the four steps in sequence. Jump- ing ahead more often than not will lead to failure.
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Are We Ready to Begin Building an Adaptive Business Network?
To answer this question, companies need to once again consider their ob- jectives. If the company is already effectively collaborating with suppliers and customers, or there is no readily apparent benefit in undertaking the four steps, then the answer is no. If, on the other hand, the company’s ob- jectives could be enhanced by the opportunities that result from collab- orating with customers and suppliers, then the answer is yes.
When a company is ready to move to an adaptive business network, its leadership should begin to prepare employees right away through honest and constant communication. Employees need to know there will be changes, and they need to be prepared for the fact that some of these changes will be difficult.
The hardest part of leading projects that involve change is incorpo- rating change in the hearts and minds of people. This is why business proj- ects often fail—it’s not because of the technology, it’s because people don’t want to make the change. The move to an adaptive business network will go much more smoothly with consistent communications that focus on helping employees understand the company’s goals and their role in achieving those goals.
If your company is willing to focus on the four KPIs discussed earlier in this chapter—and establish meaningful measurements for tracking inventory, return on assets, production waste, and working capital charges—then you are ready to begin. Your inventory accuracy may be poor, and your return on assets may be subpar. It’s not necessary that these measures be accurate. What’s important at this stage is that com- panies have established the processes and arrived at a means to make the measurements. In other words, to begin the first step of establish- ing an adaptive business network, companies don’t have to know all the answers. They just have to know what questions to ask.
When Should We Stop and Reevaluate?
Companies should evaluate progress toward realizing their strategy and goals every year at a minimum. Those that are not meeting their estab- lished KPIs may need to evaluate more often. A three-month trend in the wrong direction indicates that the initiative should be stopped because
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an adjustment may be required. Companies should also reevaluate in re- sponse to signif icant political, social, or economic events that may ne- cessitate a shift in strategy—for example, if a competitor suddenly introduces a new technology that affects a company product, or if a new government regulation forces the company to adjust how it does business. Also, a company may need to evaluate its progress more often depending on the volatility of its industry.
How Do We Know if We’re Succeeding?
Just like a road trip, a company knows it is succeeding if the mile markers keep f lying by. Short-term, intermediate, and long-term objectives should be established, and if a company is not meeting these objectives within the agreed-upon time frames, then adjustments should be made. If, how- ever, a company is meeting or exceeding these objectives, then it is on the right track.
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