Welcome to the fourth edition of ITW – ‘Interesting Things this Week’ ??
In this newsletter, I share content from across the web that I found interesting. It’s loosely focussed on business transformation, and I try to avoid duplication with mainstream media.
This weeks post is around 1,000 words and a 4 minute read.
1) Nissan refocuses on its core business
The Economist wrote an interesting piece on Nissan CEO Uchido Makato’s plans for the brand. The situation Nissan finds itself in is a common trap for large corporations. A long period of growth leads to a drop in standards, a dilution of focus, and poor performance. In the case of Nissan, it seems that poor sales tactics in key markets and mismanagement of the product line were contributing factors. In this situation Uchida-san feels like the right leader, his approach to scale down and re-focus Nissan on a revitalised line of core products is sensible. To me, this was reminiscent of working under AG Lafley’s organisation at P&G back in 2000 when the company faced a similar situation. This is an important scenario to take into account when making strategic plans. Always check that the correct focus is placed on core products. Make sure that in-market sales strategies don’t risk long-term performance, to make short-term sales.
2) McKinsey wrote about centralising business operations
Last week I wrote about cost reduction. One of the biggest opportunities for cost reduction is centralisation. By this, I mean co-locating functions such as finance, human resources, purchasing and legal. Essentially all functions that don’t need to be in the field (e.g. sales) or at a specific facility (e.g. production). Centralisation brings a long list of potential benefits:
- Moving to a low-cost location can provide significant labour cost savings;
- Moving to a different location can provide a better talent pool;
- Co-location reduces the overall number of managers required;
- Scale drives more efficient ways of working;
- Scale increases skills and knowledge;
- It’s easier to implement and manage controls;
- It’s easier to manage consistency of service levels;
- It’s easier to manage information technology.
Centralisation is closely connected to process and systems improvements. This brings up a key question, whether to improve things before or after centralizing. McKinsey wrote a good article on the merits of shift then fix versus fix then shift. I think they reach the right conclusion; the best approach depends on the situation.
However, the article does miss a few factors; perhaps for brevity. The cited two options can be further expanded to four:
- Centralise work w/out any improvement;
- Centralise work and then improve it after it’s centralised;
- Improve the work first and then centralise;
- Both centralise and improve the work at the same time (by a project team).
The first is often overlooked. It is possible to centralise with no or a minimal amount of change and still gain labour cost and management consolidation savings.
Shift, then fix is often not an option due to a lack of capacity and capability to do the fixing. Companies in this situation can take advantage of centralising with an outsourcer on a shift, then fix basis. If a deal is well structured, an outsourcer can do the fixing for the company. The contract can be structured in such a way to incentivise this and deliver savings back to the company. I like this approach as it hands over topics such as robotic process automation or lean process improvement to the outsourcer and lets the company focus on its core business. A good outsourcer should, in theory at least, be an expert in process and systems improvement.
3. Bain wrote about assessing Change Power
Over the last decade, I’ve been both impressed and depressed by change management. Impressed by how a few simple adjustments to strategy or a program can make a massive difference in success rate. Depressed by the number of job postings and professionals that claim to want or be change managers, but have little substance other than being good at communications.
This leads to an important question. What exactly is change management and how do we measure it. Bain has developed a model composed of 9 elements that can be used to measure change.
I would propose these 9 elements are a good starting point, but this can be further customised the individual situation of a company. Considering the 9:
- The ability of leadership to set direction is clearly important, I would also add the ability to ‘communicate or deploy’ that direction;
- The capacity and choreography under ‘teaming for change’ is often overlooked, during strategic planning companies often create a long wish-list of change, but rarely appropriately consider the resources required to execute;
- Development is a noteworthy focus on the skills needed to be able to identify and execute the right change. A solid example is digital, many companies lack the knowledge and risk being misled into the wrong programs by software companies.
Having a model for change management at the strategic and individual program level is something I would recommend as a top priority. I’d suggest using this as a basis for capability development and running regular self-assessments.
4. Analytics teams within Finance
CFO.com wrote about analytics within Finance. As expected their survey shows that most analytics work is done centrally. They also cite a low rate of outsourcing.
The potential benefits of outsourcing are often overlooked for analytics. Outsourcing is still seen as most suitable for low-skill, commodity work. However, outsourcing can also be a way to access large teams of highly skilled people.
Building an internal analytics team will face a number of challenges; building a high degree of expertise in what may be a small team, attracting top talent for some industries. With scale, an outsourcer can overcome many of these challenges and have both variety and depth of expertise in analytics e.g. employing statisticians, mathematicians, functional experts (e.g. finance) as well as experts covering a range of software products and programming languages.
I would consider an 80% outsourced and 20% internal model for analytics, assuming an outsourcer with the right capability can be identified. The 20% internal act as business partners and focus on understanding the business context and questions that analytics should be investigating.
What I’ve been up to this week?
This week I took a break from writing. Last week I finished a fairly long article on the chart of accounts. This article does mention SAP in the title, but the majority of the article is systems agnostic; this should work as a guide to the CoA in any environment.
And finally, something fun…
Have you played Pokemon Go? Have you heard of the mega-popular board game ‘Settlers of Catan’? Well, Niantic; the Pokemon Go developer is currently developing an augmented reality game based on Catan. A/R has been slow to evolve, but the gigantic success of Pokemon Go makes me wonder if Catan will be successful and what else the future will bring.
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