When I hear leaders say they want their project teams to "produce the iPod of.....[their industry] I wonder if it they would actually be better off exhorting us to become "the Li & Fung of our sector"
I read in the Daily Telegraph that "Marks & Spencer's biggest shoe supplier is being taken over by the Hong Kong-based group Li & Fung in a deal that will pave the way for it to act as a consolidator of Europe's supply chain management industry."
The name Li & Fung took me back to around the turn of the millenium; when I was a structural packaging Design Technology and Process Manager, creating effective ways of delivering world-class plastic packaging on a global scale. We (the team) had realised that the packaging value creation process encompassed the suppliers of enabling technologies, the packaging convertors and their toolmakers, etc,, design houses as well as all the internal functions of the company. The scary thing about the packaging activity in an organisation operating on a global scale is nobody in the organisation questions why you are knocking on their door. Truly world-class packaging activities affect, and are affected by, everyone associated with brand-delivery. We had a pragmatic way of handling this situation but lacked a robust business miodel to explain to other people... fortunatley enough of them took it on trust that we knew what we were doing for us to 'stay in business'.
It was about this time I went to New York to "sit-at-the-feet" of Gary Hamel in one of his workshops. Part of the workshop involved understanding the interaction of musicians and the conductor; including the opportunity to attempt to conduct a piece of music played by a guest pianist. This enabled us to explore what happens as you orchestrated in different ways.
I realised that this helped us understand what we were upto at work: orchestrating a large number of diverse skills to deliver an experience for the consumer. John Hagel had begun to write on the effect that web based services would have on business processes that were pulled together in an article Leveraged Growth: expanding sales without sacrificing profits in the Oct, 2002 Harvard Business Review. The summary stated:
The traditional growth strategies of organic expansion and acquisition require up-front investments in additional assets, with an uncertain payoff. So the pursuit of growth almost always narrows margins, for a time or, in the worst case, forever. But another kind of strategy--leveraged growth--doesn't require companies to trade profitability for growth. That's because instead of owning assets, a company leverages the assets of other businesses operating at many levels of the value chain, capturing value for itself as a knowledge broker. The Hong Kong-based trading company Li & Fung, for instance, owns none of the facilities involved in processing raw material into the finished goods it supplies to European garment retailers and designers. It does, however, have privileged access to some 7,500 companies around the world that possess specialized production and distribution capabilities. Li & Fung uses its knowledge of the apparel market to leverage those companies' assets, using whichever companies are most suited to making whatever goods its customers demand. Orchestrating such a process network is one way to leverage other companies' assets. Another involves aggregating their resources, as Charles Schwab does when it makes the services of many related companies available through its web site or IBM does when it sponsors user groups. And Microsoft and Intel engage in possibly the subtlest of the leveraged growth strategies--shaping an economic web--by placing themselves at the center of a vast, ever-shifting group of companies that build on the Wintel computing platform. In a world of leveraged growth, the key question becomes: Which of your assets would give you the greatest power over other organizations? The company with the most powerful assets will have the greatest growth potential.
Returning to today's DT the article continues
In addition to M&S, the deal will see Li & Fung become a supplier to some of Britain's biggest high-street names, including Next, Boots and The Body Shop. It intends to use the acquisition as the basis for a string of deals that will enable it to construct a $1bn-turnover business in the UK and Europe.
The takeover of PBI illustrates the growing scale of Asia-based sourcing and supply chain-focused enterprises and the opportunity for acquisition-hungry players in a fragmented industry.
"The proposed acquisition will provide a unique platform and infrastructure for the future development of our European onshore business," said Bruce Rockowitz, president of Li & Fung (Trading).
Mr Rockowitz was speaking as Li & Fung unveiled a 41pc rise in operating profit to about £76m and predicted it would meet its target of recording $10bn in sales this year.
[In 2002 Li & Fung had a turnover of $3bn]
In one of his Working Paper series Orchestrating Business Processes : Harnessing the Value of Web services Technology, John Hagel sets out the benefits enabled by exploiting the value of web services technology that comes from adopting different ways of doing things. Many of the benefits come from having a loosely coupled business process, orchestrated by a "process-owner" who takes responsibility for delivering a world-class performance. In another working paper he outlines how Li & Hung can rapidly reconfigure the "orchestra" to reflect the work they are performing for various clients.
These papers gave me retrospective underpinnings to the exploration and exploitation that became part of our everyday jobs. Especially the paragraph on p.7 in the harnessing web services paper:
"Loosely-coupled business processes, because of their flexibility, create the potential for much more frequent and significant performance improvements. By focusing on milestones, orchestrators of loosely coupled business processes can provide continuous benchmarking capability rather than infrequent benchmarking more typical of hard-wired business processes."
But we have to beware the pitfalls of managing these loosely coupled processes as we once managed "ordinary" ones or even conventional outsourcing. As Hagel puts it
"This loosely coupled design for collaborative business processes calls for a very different management approach. The primary differences can be summarised across three dimensions: roles, rules and renewal."
See p.3 here for more details. And I will write a note on how we absorbed all this knowledge to help our packaging creation processes to take us on a Design Journey across the Design Space.