A change is underway across many industry sectors, one that was profound implications for businesses and their associated supply chains. Investors are now realizing the threat of new digital based business models, and CEO’s are some of the recent casualties for businesses deemed to be laggard.  Supply Chain Matters submits that the added question is whether the supply chain is prepared. Supply Chain Matters Blog

Over the past several days, The Wall Street Journal has published two opinion commentaries that reinforce a message that CEO’s must grasp the implications of technology on their businesses and on their industries like never before. The casualty list is growing.

The first profiles J. Crew CEO Mickey Drexler, (Paid subscription required) a fashion genius noted for building brands such as Banana Republic, Old Navy and Madewell. Drexler, who is further recognized for:” … redefining Gap in the 1990’s and transforming J. Crew into a household name, is now scrambling to keep the company he took private in a leveraged buyout from ending up in bankruptcy.” In this report, Mr. Drexler readily admits that he missed the biggest trend of all- “how quickly technology would change the retail industry.” The commentary goes on to observe that today, retail competitors with high-tech, data-driven supply chains can copy styles faster and move them into retail channels in a matter of weeks. Posed is the question: “Who would have predicted that in 2017 the No. 1 online retailer of clothing to millennials would be Amazon?”

A second WSJ commentary, CEO’s Must Grasp Tech Like Never Before, (Paid subscription also required) opens with the statement: “Investors and boards long obsessed with quarterly profits are now hunting for leaders to make big, fast bets to fend off upstarts shooting for the moon.” Observed is the recent sudden replacement of the CEO at Ford Motor, as well as other CEO’s whose companies have faced tech-heavy competitive disruptors within their industry. This commentary observes how some manufacturers and retailers are making big bets on disruptive, tech-driven businesses, protecting them as they develop and willing to absorb losses in the short-term.  The prime takeaway seems to be that today’s new business leaders are caught between the proverbial rock and hard place. While activist investors continually call for more short-term profitability and dividends, other investors are becoming more consumed with industry disruptors who are becoming more prevalent and visible. The theme is that CEO’s must possess the rare skills of being able to nurture new disruptive businesses while maintaining an existing business. One example provided is General Electric and its nurturing of its Digital Business unit. The commentary concludes with the observation that the advantage of bigger companies in this transition, is the manufacturing and supply chain infrastructure sufficient to deliver newer businesses and products globally.

Given the themes that regardless, the supply chain plays a critical enabling role, Supply Chain Matters feels compelled to add some other thoughts.

Industry supply chains are once again caught in the web of the need to continue to reduce overall value-chain costs, while at the same time, having the ability to nurture the required capabilities for digital transformation. From our specific lens, one of the most destructive forces underway in some industry settings is the zeal of zero-based budgeting techniques.

The same messages related to CEO’s and their ability to grasp tech trends and move toward new digital-based business models more quickly equally applies to senior supply chain leaders. That requires added investments in supply-chain wide process innovation, along with needed skills and augmented talent. To do this, supply chain leaders must be able to effectively communicate a dual-mission, one that can support ongoing needs for added productivity and costs-savings for existing traditional businesses, while investing in the new capabilities that will make digital based models more successful. In some cases, supply chain leaders will serve as a communicator and change agent for the broader senior management team.

Leaders can make such tradeoffs if they are willing to communicate and contract with the CFO and CEO on a parallel cost savings and investment plan.  As an example, for every dollar of cost savings achieved, a certain amount of such savings can be put aside for re-investment in required new capabilities in people, process, and technology. Likewise, senior management incentives and bonus plans must reflect parallel capabilities, that of building a new business while managing the needs of existing business.

Another equally important risk is one of complacency in timing.  One criticism that this independent analyst has of certain top-tier analyst firms is their tendency to context certain technology changes in rather long timing windows.

As an example, by 2025, eight years from today, a certain technology will become more mainstream in utilization. From my lens, such generalizations are a dis-service to industry leaders. Such predictions are much to generalist, serving to protect the brand or aura of the industry analyst firm in terms of prediction accuracy than to depict more boldness and detail related to a technology’s impact. A current example relates to Internet of Things (IoT) focused technologies and its impacts to traditional businesses. By our research lens, for some industries, the disruption brought about by new IoT driven business models will come sooner, rather than later, and despite current challenges in data security and standards.

Technology’s impact on businesses is indeed accelerating, and potentially more CEO’s will pay the price for not recognizing the timing, and for not moving the business fast enough to stay ahead of the challenge.  The same risks apply to supply chain leaders who opt for the conservative path of driving added cost savings regardless of external threats.

Bob Ferrari

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