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A Great Opportunity?

Richard King - Friday, October 30, 2015
Iain Graham of Birmingham-based strategy implementation consultants PDS examines the current and future state of the automotive industry and what that means for Jaguar and Land Rover and the UK supply chain.


Here in the UK, the automotive industry eagerly awaits the announcement of Jaguar's and Land Rover's (JLR's) new owners. Hundreds of businesses and tens of thousands of jobs depend on the sustainability of these brands.


Everyone has an opinion on which of the prospective candidates would be the best new owner with the attention focused on the short term. It is accepted the new owners have to somehow generate the cash to fund desirable new models, technologies to meet increasingly demanding consumer and legislative requirements and the manufacturing, marketing and distribution to maximize global sales. The concern is over how this cash will be generated, over what period and at what cost to the UK economy. How long will Ford's dowry last? How quickly must the new owners turn it around?


Hot favourite to win the prize is Tata whose friendly, unhurried approach to the acquisition and integration of the Korean Daewoo Truck company in 2004 and more recently the relatively painless takeover of Corus Steels is contrasted by the aggressive reputation of the feared private equity bidders. The UK has bitter memories of Phoenix Venture Holdings' failure to revive MG-Rover whilst appearing to profit from the proceeds of its restructuring. But does Tata have deep enough pockets to take a characteristically relaxed approach on this particular deal?

As seen in the case of MG-Rover; the severity of the short term pain, or the lack of it during restructuring does not predict long term success or survival. Regardless of which bidder is successful and their approach to stem losses and generate cash; it is inconceivable that JLR's engineering, manufacturing and supply chain will not remain substantially in the UK in the short term. In the long-run the winning strategy will be based on collaboration, consolidation and excellence in producing and selling new models in profitable volumes. That seems quite logical and straight forward, but it has been an enigma for most of the world's largest car manufacturers over the last 10 years or so, except of course the extra-ordinary Toyota. But it is a strategy JLR's new owners must implement successfully.


All car manufacturers chase increased market share through differentiation, believing increased total volume is the best strategy for success. New product niches are continually identified or imagined and the proliferation of new brands, models and variants and the rate at which these are replaced has become an epidemic. But because sales in the largest, established markets are more or less static and new models are produced specifically for developing markets, volumes per variant and economies of scale are decreasing whilst complexity is increasing.


Meanwhile the market and legislation places ever-increasing demands on quality, safety, economy, emissions, specification and value. So price pressure is cascaded throughout the entire supply chain and we have seen extensive use of Chapter 11 and restructuring in the first tier suppliers. Common powertrain, platform and architecture strategies have not yet produced the savings necessary to offset the cost of new model proliferation and car manufacturers' profits have been weakened.


More collaboration and consolidation (parts and plant sharing) will be necessary and manufacturers and first tier suppliers must co-operate to produce cars profitably in lower volumes at various global locations to access developing markets, reduce costs and the impact of currency exchange rates fluctuation.


Continued Ford support and revenues from the existing product range and the promising Jaguar XF should provide JLR's new owners with a reasonably sustainable business in the short term. Cash generation for investment in new lightweight, lower emissions models will be the first priority. Avoidance of short term pain and consequences of restructuring will remain in the headlines but critically it will be the implementation of a long term winning strategy based on collaboration, consolidation and excellence in producing and selling new models in profitable volumes that will determine JLR's long term success.


Tata (already collaborating with Fiat), Mahindra and Mahindra and Cerberus (private equity owners of Chrysler) are all established car manufacturers reported to be JLR bidders offering synergies of collaboration and consolidation that other private equity bidders would need to establish. Alternatively new private equity owners could focus JLR on fewer, higher value models with long life-cycles (like Porsche) but this would mean the subsequent sale or deletion of models, putting jobs at risk and damaging Ford's position with the labour unions whose support it so badly needs right now, so this is unlikely. Perhaps Ford would also consider a potential turnaround of JLR by Cerberus assisting a strengthening of Chrysler in North America and Europe to be an intolerable and avoidable humiliation. Mahindra and Mahindra are reported to be only interested in Land Rover and are working with private equity firm Apollo Management which would take on the Jaguar brand post deal. Again Ford would choose to avoid immediate separation of the JLR brands leaving Tata as favourites at this time.


So what does this mean for JLR's UK supply chain in the long-run? Well, it depends on whether one sees opportunities or threats. Is your organization ambitious or passive? Collaboration could mean more competition from JLR's new owner's or partners' suppliers and consolidation could mean more parts and plant sharing so there will be fewer unique parts and plants to be supplied. Does that paint a bleak picture for the future? Or will you use these external forces in your organization to inform your strategy and internal actions. The opportunity is to be a collaborator and consolidator, to be a key part of JLR's future and to expand your horizons and penetration into JLR's new owners' and partners' organizations. You have limited time to work-out your winning strategy, but it can be done.

The real question is: Do you have the ambition?

'Best Practice' Tools Consistently Fail To Consider The People Within The Process

Richard King - Thursday, October 01, 2015

David Bovis argues that ‘best practice’ tools consistently fail to consider the people within the process.


“The map is not the territory” is a famous quote from a paper written by Alfred Korzybski, which encapsulates his view that an idea derived from something, or in reaction to it, is not the thing itself. Korzybski held that many people confuse maps with territories; the models of reality with the reality itself.


Over the last 40 years, we’ve used models to consider business but failed to address the complexities and realities of organisational change. We’ve considered every detail of policy, process and procedure but ignored the people behind the process. We’ve used the map to exercise control over people but ignored the impact of control on people.


However, to perform well in respect to quality, cost and delivery, people need to be considered. Above all, they must be committed, engaged and motivated and not made to comply under duress.


Best practice methods and tools are just tools, which, by their very design and purpose (to control), become a judgement mechanism that systematically undermines performance at a psychological and neurological level. The majority of leading implementation projects fail to function at this deeper level.


In looking only at the map, we look at only half of the complexities that exist in a socio-technical system, and instead focus on the technical – the logical, mathematical and deterministic. The map cannot look at the neuro-psychological and cultural impact it has on the people using it, yet we have made this ‘logical’ map the be-all and end-all of business best practice. In order to consider the other 50% of complexities – the ‘people’ half of organisational performance – we need to take a step back and look at the map, the territory and the people and the relationships between them.


Deming detailed statistical process control (SPC) and systems in his System of Profound Knowledge. He also added two additional and very important headlines: Psychology and Theory of Knowledge (ToK). Following advances in technology, we might now consider ToK as neuroscience. Deming got as far as including ‘drive out fear’ in his 14 points to reflect an awareness of psychology. Unfortunately, he left us with no further details about this or neuroscience. Had today’s technology been available to him, he may, I suspect, have made the connection between fear and control and learned about helplessness and stressor hormones and the negative impact they have on the neurogenesis process when reducing brain-derived neurotropic factors.


Deming may have seen how there is conflict in any organisation between the process of controlling variation and improving quality, cost and delivery via control systems and psychology and neuroscience.

Conflict between these issues can be understood and resolved when we pay attention to the detail, just as Deming did with SPC in respect to controlling variation. But Deming is no longer with us and science provides us with the detail he could only allude to with point eight: ‘drive out fear’. It’s time that we use the knowledge we have available to us and look to the future. It’s time to stand on the shoulders of giants like Deming, Ackoff and Beer and continuously improve on what they did.


Sir Clive Woodward showed an awareness of the human element when he took England to victory in the Rugby World Cup in 2003. The fastest, highest performing teams are those that pay attention to every minute detail, both logical and psychological. Sir Clive trained his rugby players to increase their peripheral vision in order to improve fractional percentage ‘catch’ ratios. He reinforced positive thinking and challenged the Rugby Football Union, changing its policies and procedures and the leadership mindset that led to their creation in the first place. At every level he tackled the detail of mindset. In doing so, he managed, upwards and downwards, to remove the barriers that undermined his team’s performance. He led by example.


In Formula One and any other high performance environment, the same principles apply. Whether it’s rugby, F1 or business, it is the synergy, the relationship between people and process, that gets results.

The devil is indeed, in the detail. So is it ironic or just plain ridiculous that we’ve introduced

so-called ‘best practice’ tools over recent decades that have consistently failed to consider mindset in their design and implementation?

Management dictates success

Richard King - Friday, September 18, 2015

The strength of the dollar, high manufacturing costs and skills shortages are just three of today's macro trends affecting aerospace businesses. Unfortunately, one answer is to source outside the UK.

Primes are dedicating huge resources in an attempt to understand and reduce the impact of these and other macro trends on their business. Enlightened companies though understand the challenges of the macro trends in their market and have mutated their strategy to achieve extraordinary performance levels.


This mutated strategy is driven by people who are rewarded or punished by whether the strategy succeeds. They are intolerant of performance levels or improvement rates that will not deliver the strategy. They energise their people to become effective and then replicate this to lock in competitive advantage. They develop new business processes and methods, and lead the sector.


It is the management that dictates success, not so much the macro environment, the industry nor the current times. If you see the possibilities in your business, your success is largely in your direct control.

Hidden Gems with Extraordinary Performance

Richard King - Friday, August 28, 2015

Life is getting tougher in many industries driven by increasing customer and consumer demands along with the pressures of increased competition and low cost sourcing.

However PDS, a Birmingham based strategy implementation consultancy, has found hidden gems amongst its client base. These companies buck the trends and increase profit and shareholder value by outperforming the majority of companies in their industries. They have figured out how to increase customer value and capture some of it for themselves.

Paul Sheedy, Director of PDS, explained "our research indicates that most companies only need to have two to three world class processes to become extraordinary performers" and continues "the remainder of the processes used are necessary for the business to function but do not require the resource and expense that many organisations expend trying to improve performance. They have good faith that working on all processes will deliver superior performance".


PDS found this approach is often misguided because resource is diluted, costs are increased and strategic focus is lost. Companies can become introspective and ultimately reduce the value creation essential for their customers. Organisations in this situation can capture value for a while from their current processes but ultimately have falling or low profits as their value creation processes fail.


In order to have a continuing cycle of value creation, PDS learnt that companies must be able to mutate their business processes to cope with changes in customer and consumer demands. And, if this value is to be captured, the organisation needs to be able to replicate the two to three key processes mentioned earlier. It is this link between value creation and capture and mutation and replication which drives extraordinary performance.


According to PDS the key to developing extraordinary performance is to understand which processes are key and then to focus at becoming excellent at them.

In industries where profits of zero to 6% are the norm, extraordinary performers have profits of 12% to 16%.


Startlingly, PDS found that around 25% of companies included in the research only needed to improve one of their processes to become performers of this magnitude.

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