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1
Introduction
A rapidly changing business environment, higher expectations of results, and limited resources are impeding businesses from blooming. A business is a complex web of factors that requires systematic understanding to be successful. The factors that determine business success are in a constant state of flux. Varied needs by multiple channels, changing customer buying behaviors, commodity price fluctuations, foreign exchange impact, technology, and globalization are some of the obstacles that corporations have to overcome. Research in Motion (RIM), popularly known as Blackberry, was once a success story and the darling of Wall Street. But the company’s market share fell from 20% to 0.1% in less than 7 years. This drop in sales was primarily due to changing business factors, such as consumer buying behavior, competitor actions, evolution of technology, execution, and so forth. Due to the inability of RIM to transform, the company got into losses, had to lay off thousands of employees, and was sold to a private firm.
Despite the above operating hurdles, the expectations of results from shareholders are ever increasing. Shareholder activism over the last couple of decades is significantly impacting the pressures of running a business. Mergers and acquisitions (M&A) are also fueling higher stress on business leaders to provide higher returns, since the valuation of the deals needs to be justified with limited resources. The justification of acquisitions usually refers to significant synergy benefits on an expedited timeline. Business leaders who are required to lead in roles such as chief executive officer (CEO), chief operating officer (COO), president, vice president, general manager, and director are more challenged than ever. The average tenure of CEOs has been decreasing due to these demanding expectations. Also, the time required to fill these key leadership roles is longer than ever.
Business transformation is not a one-time event. When a company transforms, competitors react and markets adapt. As a result, companies need to constantly keep evolving or transforming to gain an edge in the marketplace. When Dell Computers started offering computers in a direct-to-consumer model, customers could get their computers faster and at a lower cost. That transformation provided Dell a competitive edge in the marketplace. However, in a few years, other companies started doing the same and customer expectations for lead time had been reset. Dell Computers lost the edge and got into financial trouble. Hence, business transformations are a continuous process that need to keep evolving. Companies that can develop the competency of driving transformations consistently can succeed over the long term.
Who should read this book? This book is for business leaders who have responsibility for the success of the profit and loss (P&L) statement of a business. The specific titles of the P&L leader may vary by company or industry. This book provides a roadmap for the business leader to develop a comprehensive business transformation plan. A plan that is simple, fact based, and actionable. This book is also a guide for professionals aspiring to be future P&L leaders. Human resources department leaders can provide this roadmap to budding business leaders and see how they consistently execute to develop the talent pipeline. The holistic cross-functional and general manager view of a business that is taken in this book is useful for all department heads. For example, a sales leader reading this book can understand why running a promotion to drive sales without understanding the capacity of supply chain can actually result in losing customers. The case study methodology used to illustrate the concepts makes the material easy to read and easy to relate to practical application by readers in their companies. Additionally, business leaders responsible for due diligence and integration to create value in M&A can use the approach explained in this book.
One of the challenges that the P&L leader responsible for the transformation faces is experience bias. A business leader with a marketing background tends to look for ways to revive the company’s performance through marketing activities such as strategic planning, product positioning, and advertising. The problem with this approach is that a business is a labyrinth of cross-functional activities; therefore, narrowing in on only one area does not provide the expected results. Sometimes forcing all the efforts in an area of comfort for the business leader hides the real challenges of the business and the problem only gets worse with time. Hence, the cross-functional and holistic approach shown in this book produces a better business transformation plan.
You will notice that the book is written from a very practical point of view. You will not see a lot of theoretical and academic discussions. Extensive data and statistical analysis are not the goal of this book. A huge research or strategy department is not needed to conduct the analysis mentioned in this book. The approach shown in it is a very practical and commonsense roadmap to achieve profitable growth for any business. There are no corporate mantras and consulting jargons that have become commonplace in today’s businesses. A series of questions are asked to arrive at the answers. Overdemanding business leaders and “corporate superheroes” (business firefighters) cannot provide sustainable results to a company. Rather, a simple plan with all key players aligned can provide significant impact to the company’s performance.
This book has been developed from the experience of personally leading several business transformations and inputs from various other business leaders from multiple industries. The concepts and approach discussed can be universally applied in all industries and companies of any scale. Though the case study company used for discussion is a manufacturing company, the approach could easily be applied in business services companies as well. The commonsense approach discussed is applicable for both for-profit and nonprofit organizations. A practical tips section is included in most chapters. These tips are based on the actual implementation experiences of several business leaders.
This book is also a practical alignment tool for a company undergoing transformation. The roadmap shown in this book is a great way to engage the management team of a business unit to understand and drive the business transformation. The management team can read the book, get together for a couple of days (preferably off-site), and discuss by chapter the lessons learned, how the chapter applies to their business, and what improvements they should focus on based on the learnings. Note that all changes may not be necessary for all companies. Based on data analysis and the situation of the business, the management team can determine the areas to focus on for improvement. The greatest outcome you can get from this book is to have an aligned team that is focused on common priorities to execute. By getting the management team to work through this thought process and identifying areas to focus on, you will ensure that they have ownership of the solutions. Having this ownership of actions is critical to keeping the team focused and willing to work harder. The roadmap shown can also be used for successfully integrating acquisitions made by a company to create value.
The business transformation plan that will be developed will be a great way to communicate and keep the whole organization focused. The transformation plan should be action oriented, time-bound, and linked to specific owners. It is very easy for the business to get distracted in doing several things that may amount to nothing. Remember, several changes may not make an impact at the company level. Hence, having a common transformation plan or blueprint becomes necessary to communicate and keep the organization focused. Can you imagine building a house without a blueprint or project plan that is communicated to all contractors? Have you ever seen a cabinet maker show up at the construction site during the foundation phase? No, this is because the blueprint developed along with project plan will let the cabinet maker know when he should be ready with his deliverables for completing the house on time. In the same way, the business transformation plan will keep all functions aligned and help support the achievement of a common goal.
How is the business transformation planning shown in this book different from other business improvement or continuous improvement approaches? The first difference is the process of developing the transformation plan. As you will see in the following chapters, this book provides insight on how to engage the entire company in developing this transformation plan so that the net impact of any changes can be understood across the company. Most companies have a quality improvement plan that may be developed by quality and operations functions, a business development plan that is created by the sales team, and so forth. However, there is no alignment, expectations of assistance needed from other functions, or clear understanding of the impact of their plans and actions across the company. Hence, expected results are either never achieved or delayed. Second, as you will see in this book, the shareholder expectations drive the growth strategy of the business, which is supported by the right cost optimization actions with the required capital investment to support the growth. Achieving this type of clearly aligned activities requires strategic thinking and a good roadmap, as shown in this book. Many companies start from a bottom-up grassroots improvement effort in a function and hope that everything they are doing meets the expectations of the top executives and shareholders. When the top executives and shareholders do not see these grassroots actions as top priority, the employees driving these actions get frustrated. This book shows how to start from the top and then ensure that the improvements derived across the company support the expectations from the top. The third difference is that the book shows how to “sell” your ideas and recommendations to senior executives. Many ideas in businesses do not get supported or implemented because the ideas are not presented in a simple and visual format that is easy for executives to absorb. When too much time is wasted on explaining the actions and results, senior executives tend to lose attention. However, if the data analysis is presented in a simple visual format, then it is easier to focus on the next steps. The charts presented in this book are very articulate in making the obvious conclusions. Finally, this book is different in its breadth and depth of addressing business improvement. There are several books available that present a lot of information about a particular subject or subjects. For example, there are books on pricing, marketing, working capital improvement, and so forth. But these books are not broad enough to address a holistic business transformation. They have depth of subject but lack breadth across the various functions. Also, unless you want to become an expert in pricing, why would you read a 400-page book on pricing and try to implement its strategies and yet not make any improvements in other parts of your business? So in order to get a broad understanding of business transformation, this is a great book.
For the sake of illustration, we will discuss a company called Case Study Company (CSC). This company is based in the United States and manufactures custom hardwood doors primarily for the North American market. As you explore through this journey at your organization, you will find your own variations to improve your business performance. The key is to get started by engaging a cross-functional team and exploring all the questions methodically; that will automatically lead toward a solid business transformation plan. Every company tends to think, “We are different.” Yes, that may be true in terms of having a unique mix of value to the customer, geographic presence, team talent, business evolution, financial situation, and so forth. However, all businesses have common core elements, such as customers, value to customers, products or services portfolio, processes, and infrastructure, to execute value to customers. The transformation roadmap or thought process shown in this book is focused on understanding and improving the core elements of the business to provide sustainable business results. As you will see, the roadmap shown can be easily adapted to any business.
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2
Case Study Company Overview
Business concepts are easier to understand when we can apply them to a company or problem that we are familiar with. For the purpose of illustration, we will select a company that produces a fairly simple product in North America. But as you will see from reading this book, the product or service could be more complex and the scope of the business could be global as well. For our case, we will discuss a hypothetical company that manufactures hardwood doors for residential use. The Case Study Company (CSC) is based in the United States. The customers are spread across North America. The company sells its products through distributors, wholesalers, builders, and big-box building supply stores. The company does not sell directly to homeowners.
The sales team for CSC engages in customer contact through regular visits, cold calling, trade shows, and referrals. Each salesman has a region based on the potential market size. For example, there is one salesman who covers Florida, Georgia, and South Carolina. And all of the Northwest is covered by one salesman. The customer service team in the office receives requests for quote (RFQs), processes them, and submits them back to the customers. The customer service team is also responsible for providing order status, ensuring that customer delivery performance is managed, and resolving any customer concerns.
The company has about 300 employees in its manufacturing facility and corporate office. The main factory has two computer numerical control (CNC) routers, four door machines, workstations for assembly work, two door-sizing machines, four sanding booths, and a paint booth for finishing the doors. The operations team in the factory consists of warehouse pickers, door machine operators, CNC operators, assemblers, sanders, painters, and logistics operators that manage shipping, receiving, and freight. The company also has a new warehouse on the West Coast, to support demand of West Coast builders, which employs about 20 employees.
CSC imports door blanks into the country. A door blank is a door without the top panel, hardware, weather strip, or any other work performed to it. A door blank is shown in Figure 2.1. The company only sells hardwood exterior doors. CSC primarily sells mahogany and oak doors since they are typically not commodity doors and demand premium pricing. The doors could be 6 feet 8 inches or 8 feet tall. The doors can also be 36 or 42 inches wide. These doors can have either a glass-top panel or a wood panel. There are five different glasses available for each size of doors. The wood panels can be plain, grooved, with one of three carved designs, plain with a speakeasy window, plain with nailheads, or grooved with nailheads. Finally, all the doors can be shipped unfinished or in one of three colors. This leads to more than a million different combinations that could be sold.
FIGURE 2.1
Door blank as received from suppliers.
CSC buys the doors as blanks from Asia, South America, and Africa. Thirty-six different companies supply products to CSC. Most of the suppliers also provide the same products to other door manufacturers in the United States. These suppliers have long-term contracts and prices are typically changed every 3 years. Due to the weight and size of the products, they are shipped through ocean containers and freight paid by suppliers. Sometimes products can be expedited by air freight, but CSC wi...
