What do General Motors’ Mary Barra, Apples’s Tim Cook and Intel Corp’s Brian Krzanich have in common? All are high profile examples of a current trend to elevate leaders with substantial supply chain experience to the CEO’s office. Boards are beginning to realize that successful supply chain leaders have a critical competency that CEOs need: the proven ability to navigate the complexities of diverse but interdependent functions with competing priorities. In an era of increasing organizational velocity and complexity, it’s worth reflecting on lessons to be learned from these pioneers of integration.
The term “supply chain” as an end-to-end, silo-busting concept was first introduced in 1982. By the 1990s, emerging supply chain leaders were earnestly building the art and science of managing trade-offs and optimizing value for the enterprise. Although not explicit at the time, these early designers were using many elements and principles of smart organization design. Using the levers of the Star Model, structures were changed; power was reallocated to integrated process owners; cross-functional management processes such as Sales & Operations Planning (S&OP) and eventually Integrated Business Planning (IBP) were installed; balanced enterprise scorecards replaced functional rewards and metrics; and leadership behaviors and technical skill requirements were reshaped for a drastically new way of working.
Thirty two years after its birth, what can global organizations and their designers still learn from the evolution of the supply chain? Three themes separate top performers from the bottom.
CEOs ask for high factory throughputs, low inventory, fast delivery, high service levels, low cost of goods, and high quality. High performers know they can’t have it all. They articulate where they are going to play and win, then design the best organization to deliver against the strategic priorities.
Alignment is required, but it’s not enough. Peak performance requires objective tension, or internal competition for constrained resources. When there is no tension among businesses, functions and geographies, there’s a good chance value is being left on the table somewhere.
There are some caveats though. As resource allocation decisions are made, the senior decision makers do not advocate for their areas, they arbitrate as a group. This ensures that the right decisions are made for the enterprise as a whole. Also, the system is designed with only as much friction as is needed to get the job done. In organization design terms, we call this “rewarded complexity.” In supply chain, this concept is addressed through Lean principles.
It is no wonder that strong supply chain leaders are being tapped to run complex, global organizations today. Arguably, the supply chain was the earliest test case for cross-functional, highly matrixed management. So why is it that many organizations still struggle to build robust supply chains capable of delivering their strategies? In part, they may not have an accurate understanding of the problem to be solved. Beyond the operational and financial exercises, supply chain design is a sophisticated organization design task. We can learn a lot from leaders who understand and apply this insight.
Kates Kesler Senior Consultant