The model for creating business value has changed. Companies today participate in extended supply chains, where real operational efficiency and revenue enhancement come from greater visibility, integration, and synchronization among connected partners. In short, collaboration among the partners in the extended supply chain is the new arena for value creation. Collaboration occurs when companies work together for mutual benefit. It happens when supply chain partners leverage each other’s operational capabilities so that in combination they perform better than they could possibly do alone. Collaboration can occur at all points along the supply chain—from design through procurement to final distribution. When done effectively, it enables companies to share information that can dramatically shorten processing time, eliminate value-depleting activities, and improve quality, accuracy, and asset productivity, all of which are fundamental to long-term success (1).
Supply chain collaboration can produce dramatic improvements in operational and financial performance. But there is no silver bullet to achieving real collaboration and the associated benefits. It requires hard work and some radical changes in thinking and behavior. It demands business-process integration and customer focus as well as a mindset that views supply chain relationships as strategic differentiators. It short, for a firm to achieve true collaboration, it must go through what we call a digital business transformation (DBT). DBT is the journey of reinventing how daily business is conducted to fully exploit information technology and to facilitate supply chain collaboration to achieve unprecedented levels of operational excellence. It’s the process of reinventing a business to digitize operations and formulate extended supply chain relationships. The DBT leadership challenge is about re-energizing businesses that may already be successful to capture the full potential of information technology across the total supply chain (2). In essence, DBT is the conversion of business operations from Industrial-Age to Information-Age technology. It’s about reinventing and positioning business operations, processes, and relationships to fully exploit information technology.
The greatest barriers to such a transformation are not technical or legal. Rather, they relate to prevailing managerial and employee attitudes, practices, and traditions around what constitutes best practice. Most acknowledged best practices were established decades ago using the technology then available to address problems or challenges that for the most part no longer exist. Actions that once were considered best practice are increasingly becoming unnecessary or obsolete. Yet it’s the perpetuation of these traditional practices that thwart significant breakthroughs toward new and more meaningful ways to work.
Reinventing business operations to exploit information technology and facilitate supply chain collaboration means examining every facet of every job. The digital transformation depends on fully understanding how to use the power of emerging generations of Internet-based network applications such as those being developed by Internet2 (3). These applications will provide a communication backbone for integrated operations and event management competency. Importantly, use of this technology must be accompanied by a willingness to change traditional organizational practices. Expanding Internet capabilities provide an information framework that potentially can replace traditional one-to-one, one-to-many, or many-to-one communication with Web- based, simultaneous, many-to-many connectivity. Within that framework, all participants in a supply chain simultaneously have access to the same strategic and operational information. At the same time, they have the ability to communicate plans and actions. Traditional command-and-control practices can be replaced with open and shared information access. This facilitates the synchronized distribution of information and knowledge across the supply chain, which serves to motivate and accelerate the pace of value creation. Quite frankly, even the best of firms today have much to learn when it comes to exploiting this emerging information infrastructure.
It’s important to emphasize that DBT is about much more than process redesign to exploit information technology. It is also about structuring business operations to facilitate and fully leverage supply chain collaboration. Already, we see such business models emerging. Companies like IBM and Cisco, for example, are repositioning themselves as extended and comprehensive networks of service providers, giving even the smallest companies they serve access to maximum information technology. IBM also has developed networks of contract manufacturers, such as Celestica and Solectron, to outsource the traditional tasks of assembling modules and subsystems. By orchestrating the activities of their tier-one suppliers, automakers like General Motors, Honda, and DaimlerChrysler present a similar example of supply chain innovation. This multifirm collaborative process is explored later in this article in the discussion of enterprise extension.
Finally, digital business transformation is about leadership. It is the ultimate challenge in change management because it impacts all organizational levels of an enterprise and its extended supply chain. The transformation starts with redefining the firm’s strategic vision—that is, the shared composite of goals, competencies, and capabilities a firm deploys to create and sustain competitive advantage.
At this early stage of the digital transformation, it’s clear that some organizations are having a tougher time getting started on the journey than others. For example it’s evident that A&P, Corning, Kodak, Motorola, Sears, and Xerox, to name a few, waited far too long to adapt to the digital imperative in both products and processes. Others, such as GM, Procter & Gamble, and IBM seem to be well on their way. In any case, one thing is clear: The digital business transformation is best initiated from a position of strength rather than weakness (1).
Additional considerations in a seamless execution of DBT involve transitioning from 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:
- 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.
Part 2 will look at the dynamics associated with these shared values.
(1) The Digital Transformation: Technology and Beyond, Donald J. Bowersox, David J. Closs, and Ralph W. Drayer, Supply Chain Management ReviewJanuary 1, 2005
(2) Michael Hammer, ‘The Agenda’, (New York: Crown Business, 2001).
(3) Internet2 is a research and development consortium led by more than 200 universities in partnership with industry and government to develop and deploy advanced network applications and technologies. These applications and technologies will enable collaboration among people and provide interactive access to information and resources in ways not possible on today’s commercial Internet. (www.internet2.edu)