An opportunity lost: A case for active business systems
By GEAC | 18 January 1999
Imagine this scenario: A great deal of timeand money was spent on market research to develop the perfect tasting, adult soft drink.It was vanilla flavor and as clear as spring water. The customer base was extremelyexcited about the new line given the correct pricing levels and margin percentages. Thelaunch was just in time for a long hot summer when soft drink sales would increasesix-fold. For the manufacturer, it would mean grasping a major chunk of the market place.While there was some spare production capacity, the uplift in sales and subsequent profitwould more than justify capital expenditure on the latest manufacturing technologies.
The product launch date was set and initialorders 'pledged' from the major-retailers. With a concurrent TV advertising campaignplanned, the business was due to achieve market share and show significant profits beforecompetitors jumped up on the bandwagon. The first production run was planned for one monthlater. However, this was changed because the production manager had not approved theproduction process. The manager knew that the product needed to be approved in time forthe production run but did not have the relevant details from the Research andDevelopment, and Quality Assurance departments to outline the production process andrecipe make up. This was because the quality assurance manager, who had to sign off allnew products before they could be forwarded, had been on vacation for two weeks. On herreturn, her in box was so full that she had been unable to approve or assess theproduction process of the new product in time.
One month later, the TV campaign wasunderway and orders started flooding in from the major retailers for the new product.Unfortunately, stock levels were very low, and immediately demand outstripped supply. Thiswas due to a number of reasons. Once the product did get approved (two weeks after theoriginal production date), the production process that was originally imagined was unableto make the volumes anticipated. Therefore, two scheduled runs resulted in less than 20percent of expected volumes. In addition, once a more efficient method was drawn up, thelabor and overall skill set required was under resourced. Two subsequent runs took placeand the output was less than 50 percent of the expected.
In turn, the finance team stoppedproduction of the product, because the margin with the new labor levels would be runningat a loss if they went with the agreed upon launch selling price. It was later discoveredthat a higher selling price needed to make a healthy margin would have been fine with theconsumer. The price the salesperson actually agreed with the retailer proved to be toolow.
When customers did not receive their ordersand consumers faced empty shelves, demand soon waned. The TV advertising was pulledbecause demand could not be met. The retailers took the new product off their listings andbegan to look elsewhere for competitive offerings (which were beginning to surface due tothe huge interest in the line). Eventually the manufacturer corrected its productionprocesses and rectified the costing so a new launch could take place two months later.Unfortunately, they had lost their competitive advantage and customer credibility andbecame a loser instead of a leader. An opportunity lost.
Although this scenario is a somewhatexaggerated picture of the product development/launch process within a Fast MovingConsumer Goods/Consumer Packaged Goods (FMCG/CPG) environment, aspects will strike apainful cord with numerous sales people and product managers. When you analyze thissituation, problems can be easily spotted:
Usually, businesses are geared up to respond to customer needs. However,sometimes the focus can become blurred when faced with the day-to-day pressures of runninga business. From the example above, one can see that if the research and developmentmanager had been aware of the priority of approving the new product, then she might havegiven it her highest attention.
Complete business view
This is an understanding across the whole business of the potential and timescales behind such a launch. In the example, everybody would have monitored the product'sprogress through its development life cycle. Then all interested parties (productmanagers, salespeople, production managers and so on) would be able to pick up the slackif a problem occurred.
Timely communication of the relevant information across the business in thescenario was woefully inadequate in areas of thumbnail costing, product launch dates andproduction processes. These were seen as very much a departmental issue and notcommunicated to the rest of the business. In addition, the paper based approval system, sooften adopted by FMCG/CPG companies, is extremely slow and debilitating.
A major bottleneck in many FMCG/CPG organizations is the area ofauthorization and senior management sign off. This is often due to the lack of anautomated system to delegate to a deputy or escalate some tasks to a senior individual. Inthe example, the Research and Development manager should have assigned a deputy to addressrelevant issues while she was away. Even if the relevant action was not actually taken,the system could have alerted the whole business when the process started to fall behind.
Could these issues be avoided oralleviated?
The issues identified; prioritization, progression, communication, escalation anddelegation are common in all companies, causing varying degrees of problems. A level ofbusiness awareness and an understanding of the consequences of an individual's actions,through well-defined job outlines and training, forms a major part of any solution to suchproblems.
However, training is not the whole solutionbecause staff turnover occurs. Training gets lost and other 'human factors' can sometimesperpetuate bottlenecks. The way to solve this is a combination of communication andensuring that the right functions are performed at the right time as part of the company'sbusiness procedures. What is also required is a supporting system that will helpindividuals to take the right course of action, not merely collect the results of theirwork.
How can this occur?
We are now seeing a new generation of IT-based solutions entering themarketplace. An 'active' business system provides direct support for the process orprocesses that it handles, not simply giving menu options to record data. Based on a bestpractice model, it monitors events, routes information, and prompts action according tothe status or circumstance of each transaction. It is also an agile and changing system,configurable to each individual business' procedures, and communicating with eachindividual in the business according to the activity or problem in hand. By focusing oncritical actions or activities within a process and not on simple functional areas, anactive system can break down narrow departmental focus and help to enable business andcustomer-oriented teamwork.
How would such an active systemaddress the problems from our example above?
A customer focused development cycle would be supported by an active system.For example, the initial launch dates would be ascertained. Critical dates throughout thelife cycle would then be calculated. Once these were agreed upon, the system would policethe progress of tasks throughout the development process. In the example above, alarmbells would have sounded in advance of the process dropping so far behind. In this way,the system not only polices the milestones but also ensures that everyone is aware ofwhere the bottlenecks are likely to occur.
The active business system is a business wide system and would enableaccess, prompting and an overview of the entire enterprise. In the example, the activitiescould be sychronized across the entire organization.
An active business system forces communication with relevant departmentsproviding all the essential information. This could be in the form of exception reporting,regular reviews or one off alerts. As such, any failings that are created by traditionalpaper based communication systems (such as ensuring all parties receive the information,and relevant action is taken on receiving the communication) are avoided.
Fig.1 Synchronizing activities
Fig.2 Ensuring relevant action istaken
In the above example, a major problem was the delegation of tasks and anautomatic escalation when tasks were not carried out. In conjunction with some culturalchange, an active system provides control for the whole process and drives thedelegation/escalation process. In the example, the Research and Development manager wouldhave assigned a deputy. The system would automatically direct tasks to that temporaryrole. If the deputy had not been assigned or too much time was taken on carrying out thetask, then the system would escalate it to a superior (perhaps an operations director).This goes hand in hand with priority settings around the system. As such, people are givensystem prioritized tasks and time scales to address them.
Fig.3 Escalating to a superior
This article highlights the huge businessbenefits the choice and implementation of an integrated active business system can bringto a company. Such a system changes the way people work and interact. Since the system canbe configured to reflect real business processes and sequences, it captures and preservesthis 'knowledge' independent of the people using the system. When the business changes itsprocesses in response to its changing market environment, then the system, possessing thenecessary agility, is quickly and easily changed to reflect and support 'the new way'.
View next/previous articles
24 Jan 1999 -
24 Jan 1999 -
Currently reading -
An opportunity lost: A case for active business systems
13 Jan 1999 -