Change or be changed: Examples from the manufacturing and software industries
SAP says its latest business model is unique. The vendor is “evolving” its Enterprise Business Suite to service-oriented architecture (SOA), even as it introduces a new SOA-based “on-demand” system, Business ByDesign, for midsize companies. In the not-too-distant future, the consensus is that companies of all sizes will access their applications using the on-demand parad...
SAP says its latest business model is unique. The vendor is “evolving” its Enterprise Business Suite to service-oriented architecture (SOA), even as it introduces a new SOA-based “on-demand” system, Business ByDesign, for midsize companies. In the not-too-distant future, the consensus is that companies of all sizes will access their applications using the on-demand paradigm. Thus, SAP is embracing a “disruptive” technology, even as it leads the enterprise systems market.
“You have to come to grips with the fact that what makes you great also is what makes you vulnerable,” says Scott D. Anthony, president of Innosight LLC , a Boston-area innovation consulting and executive-training firm, and coauthor of the Harvard Business Press book, Seeing What's Next.
In examining this seeming paradox of a company's greatest strength being also its greatest weakness, Anthony looks at resources, processes, and values—or RPV.
Resources are what are available for use. “Processes are patterns of interaction to turn input into output,” Anthony says. “They're invaluable and powerful, but hard to change.”
If processes are the institutionalized intellectual capital accrued by solving tough problems, Anthony adds, then values “are the prioritization criteria for allocating resources such as time and money. They're also what blind you from recognizing what's coming. Values are the hardest to change.”
IBM in the 1960s was the first company to introduce a commercial line of mainframe computers. Its dominance was threatened in the 1970s when Digital Equipment Corporation (DEC) introduced more affordable midrange computers. At about the same time, upstart Microsoft out-foxed IBM by capturing the personal computer (PC) operating system market. Anthony might say that IBM failed to perceive the “value” of the PC operating system because its “values” were those of a hardware company.
IBM did capture the emerging PC hardware market in the 1980s by creating a de facto standard. The result undercut DEC, forcing it to change its business model—i.e., its values—in an effort to become a services company, which meant completely changing core processes. It failed, and disappeared.
Then Dell Computer introduced a new customer-driven model for the PC industry in the 1990s. IBM eventually sold its PC business to China-based Lenovo . But by then, IBM had evolved its core business model toward reliance on services provision. Where DEC failed, IBM succeeded.
Thus, IBM, despite some missteps, changed both its values and processes to successfully allocate resources toward a new objective.
There was a recession in 2001—the year Cummins Engine Co. changed its name to Cummins—and in that same year, the company lost more than $100 million on falling sales. But by 2007, Cummins was a solid performer among the S&P 500, earning its CEO a Stevie award as “chairman of the year.”
A bright star within Cummins is its Minneapolis-based power-generation division, which makes commercial portable and large industrial power-generation units. As recently as 2003, however, it was the only Cummins division that lost money. That year, new management embarked on major transformational change aimed at improved margins and operating efficiencies. By 2007, the operation had tripled sales to $3 billion and was solidly profitable.
“We're not afraid to look at anything and change the process,” says Tony Satterthwaite, VP of the commercial power set product line. “You need to be willing to change everything, but not everything at once. It's a matter of priority and focus.”
Cummins Power Generation wanted to move from being a collection of independent regional manufacturing operations, says Satterthwaite, “to a connected global organization with integrated planning around supply and demand.”
Managing transformational change requires three key essentials, according to Satterthwaite. “You have to clearly explain that you want vastly different results. You apply effort where you have the most leverage. And you give people new tools and problem-solving methods,” he says.
Clear, consistent communication—and repetition of the message—is a big part of the job. “You have to constantly tell people what success looks like and how what they do is important to achieving it,” says Satterthwaite.
Six Sigma is at the heart of Cummins' process-change efforts. “It's about the best problem-solving tool I've seen,” says Satterthwaite. “Tighter accountability means people know what the boundaries are—which makes a big difference,” says Satterthwaite.
Supply chains and systems
“Most of what we're doing is standardizing supply chain processes,” says Satterthwaite. Cummins is in the midst of an initiative to standardize product engineering on Dassault Systemes ' MatrixOne, a product life-cycle management system.
“We're moving from disparate design systems to standard engineering processes to gain big efficiency improvements on a global basis,” Satterthwaite says. “Companies want to leverage standard processes across the enterprise, but manufacturing is still largely owned at the plant or division level,” says Jane Barrett, a research director with AMR Research. “Attempting enterprise standardization becomes a huge change-management issue.”
However, AMR found that corporate IT investments in operational systems were a top priority in 2007, based on the need for common metrics and best practices across multiple plants, and made increasingly possible by the scale and scope of today's ERP systems.
As a result, “We're seeing a change in the role of the CIO, with more of them coming from business, engineering, or supply chain functions,” says Barrett. According to Peter Fingar, principal of Greystone Group , a Tampa-based business-process management and IT alignment consultancy, “What we're seeing represents a completely different management model, moving away from command-and-control-based vertically integrated organizations to connect-and-collaborate-based horizontal value networks.”
It's all about what Fingar calls process-based competition. “Your product uniqueness is no longer the key to your business. It's your processes. It's being able to build flexible processes to support these new business models,” he says.
SOA is central to flexible business process management (BPM), Fingar asserts. “BPM is the killer app of SOA,” he says.
In 1999, when Invensys plc combined a number of separate operating business units into Invensys Process Systems (IPS), a parallel transformation was simultaneously taking place within IPS' strategic ventures development group.
The company had a vision that brought all the disparate product lines of the previously independent units—i.e., Foxboro, Triconex, SimSci-Essor, and Avantis; plus that of Wonderware, a separate unit—together. The goal was a single platform for industrial applications that would provide clear differentiation from competitors.
“It seems clear today, but selecting Microsoft as the operating system for engineering a plant-floor control system wasn't the obvious choice then,” says Peter Martin, VP of strategic ventures. Rather than make changes directly to its core product, Microsoft agreed to “work with us to design an industrial service-oriented architecture by building a wrapper around the .NET kernel,” Martin adds.
The result, released in 2002, was ArchestrA. It was the foundation for development of Wonderware's System Platform, a new approach to distributed supervisory control. But that was only the beginning.
In June 2006, IPS released InFusion, an enterprise process control system that breaches the restrictive boundaries that have long thwarted plant floor-to-enterprise integration.
“By combining ArchestrA with .NET, we created the world's first industrial SOA,” Martin says. “We needed to build ArchestrA first to be able to build InFusion.”
InFusion integrated the disparate IPS products. Subsequently, working with SAP, IPS has created a Web service xApp linked with SAP's NetWeaver platform for real-time accounting of production results.
Martin's team has expanded and contracted based on the focus and scope of IPS's business strategy.
“We had 18 project teams reporting into us when we were doing InFusion,” says Martin. “With real-time finance, we were down to only four or five people. But that's good change management. You need that kind of flexibility to ensure the right resources are being used at any given time.”
Martin credits IPS' for making significant investments in innovation despite considerable operating pressures to allocate resources elsewhere.
“It's not easy to invest in the future when the core charter of the business is to get product out the door and provide good return to shareholders,” says Martin. But with the accelerated rate of change today, the future arrives a lot faster than before. Companies must gain distinction by creating change, rather than merely responding when it appears.