An integrative management framework is essential for the success of a digital business transformation. To fully embrace this framework, a company needs to put aside (at least temporarily) most of its traditional ideas about organizational structure. The traditional line-and-command, functionally focused organizational chart is replaced by an integrated supply chain structure built on these three shared values, or dimensions, each of which is discussed below:
- Enterprise core processes that focus on maximizing customer value.
- A shared real-time information and operational connectivity that creates a “response-based” or demand-driven network of supply chain relationships among the participating companies.
- Commitment to operational excellence, expressed as customer centricity.
The framework is characterized by a supply chain consisting of multiple enterprises that are integrated and focused on one objective: Achieving and maintaining customer centricity. Key resources (information, products, services, etc.) are shared from the supply base to the distribution partners. Similarly, assets and constraints are integrated and shared across that same spectrum. The resulting cross-enterprise collaboration produces value both for the supply chain partners and, most importantly, for the customers (1).
Enterprise Core Processes
In the digital business context, departments and operating entities that have traditionally dominated organizations are subordinated and replaced by five core enterprise processes: human resource development, financial stewardship, integrated operations, customer accommodation, and measurement and metrics. These core processes represent the fundamental competencies that all organizations must incorporate to avoid stagnation and achieve sustainable profitable growth. Stagnation in this context is defined as performing at or near a given industry average. A firm’s supply chain structure and logistics are intrinsic to achieving excellence in each of the five enterprise core processes. All five core processes must combine to facilitate cross-enterprise supply chain competencies and capabilities (2).
Real-Time Connectivity and Responsiveness
A second important dimension of digital transformation is real-time connectivity and decision making. Web-based information connectivity is driving a major shift in the “anticipatory” model of operations that has guided businesses for the past century. The holy grail of that anticipatory structure was the forecast. Participants in the distribution channel believed that if you got the forecast right, good things would follow. In reality, the forecast seldom presented a correct assessment of what customers actually purchased, thereby introducing variability and the resulting bullwhip effect.
Real-time information connectivity is moving us away from this traditional forecast-guided business structure to an agile, response-based structure that reacts rapidly to demand requirements. This response-based structure is geared toward quickly and accurately identifying actual customer demand and then rapidly fulfilling that demand. Response-based supply chains exploit the full capabilities of all channel partners through the sharing of synchronized information to jointly develop complete solutions that satisfy customers. The transformation from an anticipatory system to a response-based structure won’t happen overnight—nor should it necessarily. The managerial challenge is to move the transition forward at a rate enabling the firm and its supply chain partners to fully realize the benefits of DBT without overlooking any of the potential opportunities.
The third dimension of the digital business transformation is a commitment to achieve and sustain operational excellence. Senior leadership must drive this commitment, which must extend throughout the organization. This commitment is based on a candid acknowledgment of what constitutes sustained superior service performance from the customer’s perspective. This is generally referred to as “customer centricity” because it clearly focuses channel-wide behavior on creating customer value. The essence of operational excellence is to effectively and efficiently keep promises to customers. This requires that operations continuously adjust to changing customer needs. Perhaps the best and most comprehensive measurement of operational excellence is the perfect order. This metric means that every order is delivered complete, on time, damage free and invoiced correctly. Because the perfect order represents the result of all operations, it also serves as an excellent measurement for supply chain analysis and enterprise success.
When it comes to serving customers, very few firms come close to operational excellence. The reality is that most senior managers do not have an accurate idea of their existing operational performance in terms of a specific customer or product. The yardsticks used to measure performance are typically presented as averages. Yet while averages provide a general view of operational competency, they fail to identify specific service breakdowns. More importantly, they mask the root causes of service failures. This failure to view operations in terms of compliance to specific expectations and promises made to individual customers may be the greatest of all shortcomings in modern business leadership. Customer centricity demands that a firm commit to perfect-order execution. Equally important is a commitment to identify the root cause of any service breakdown that occurs, followed by corrective action each and every time an order fails to meet customer expectations.
Operational excellence yields huge dividends when it is extended externally to supply chain partners. In particular, leading-edge firms are beginning to use information technology to achieve new levels of effectiveness and efficiency by collaborating with their supply chain partners. This creates a new form of enterprise extension referred to as cross-enterprise collaboration (3). Such collaboration enables firms to establish long-term arrangements with customers as well as material and service suppliers in an effort to realize the benefits of integrated operations.
The final dimension of DBT is sustaining the competitive advantage once it has been achieved. The information age allows no time for resting on one’s laurels. The most successful companies understand this and continually strive to improve upon previous accomplishments. In a very real sense, sustained success is a process of continuous renewal. It’s just as important to businesses as it is to living organisms. Part 3 will address the challenges of sustaining the transformation over time and provide some practical examples of best practices, so far.
(1) The Digital Transformation: Technology and Beyond, Donald J. Bowersox, David J. Closs, and Ralph W. Drayer, Supply Chain Management ReviewJanuary 1, 2005
(2) How Supply Chain Competency Leads to Business Success, ,Donald J. Bowersox, David J. Closs, and Theodore P. Stank, Supply Chain Management Review, September/October 2001
(3) How to Master Cross-Enterprise Collaboration, Donald J. Bowersox, David J. Closs, and Theodore P. Stank, Supply Chain Management Review, July-August 2003