In the Business Architecture (2): IT-industrialization of the industries I described the “typical” IT industrialization process”. Typical is meant in the sense of the historical development within manufacturing, construction, chemical, pharmaceutical, and other industries. These industries were the first adopters of ERP applications in financials, logistics, and HCM. During the implementation of one or some application(s) the business process wasn’t changed that much. The applications supported “only” the process as it was.
1st step: replace human workforce one to one by IT applications.
With those implementations, the companies and/or their organizational departments discovered typical process information. In today’s terms, we would say, “sources of underperformance and inefficiency were disclosed”. In those days interfacing was managed in paper folder format and there was this typical believe “the hand-over (nowadays called interface) was well described”. Sender and receiver signed the documents such that the organization department was able to state, “Instruction done, people educated, and all employees know the “new configured” production process”. However, in reality one could say, “senders sent, but receivers didn’t receive the message”. Multiple reasons could be listed, but effectively there was waste, which itself was “financially covered” by the inverse resource calculation. From statistics, retrieved out of previous production series, the “bill of material” included a “actual” waste-factor. Depending on lot size and industry, this factor varied from a few percent to 30%.
Following this first step of IT industrialization the next step was focused on the reduction of waste. Please note: waste reduction not efficiency increase. This step included clear descriptions about the interfaces of the “handover” from the previous to the next step of the production or servicing process. The major advantage was the inclusion of quality management. It was recognized that quality checks at the overall end of production became too expensive. Any misfit of one of the components during the final assembly led to a risk regarding the delivery commitment. This delay, finally implied reputation, brand and also financial impacts. Now TQM (total quality management) became the next buzz word. Any step in production was quality checked: at begin and at the end of each step. This additional effort, and by that also expense, led to a decrease in waste, especially in the last assembly steps of production. Delivery commitments (time, quantity, functionality, etc.) led itself to a reduction of the logistic elapsed time. A reduction of material on stock affected positively the balance sheet. This all was only possible with clear descriptions and functional scope of all parts (bill of materials, routings, paintings, blue prints, etc.).
With these scenario compositions and functional descriptions, one was able to “delegate” sub-tasks outside of the company (in the sense of responsibility). In the beginning, these suppliers were part of the overall organization, but fiscally independent. A couple of years later the organizations were able to outsource these productions steps:
2nd step: the supply chain was born.
There was still a hurdle of trust, and confidentiality. It was still challenging to open bill of materials, routings, paintings, and research to companies, which did yesterday business with competitors or can do this tomorrow as well. This was typical a mental process not a legal procedure. Trust is not defined in legal terms. (This is known nowadays, but still today, we don’t behave according to this knowledge)
In parallel to this change, the specialism entered into production and servicing processes as well. People (meant in psychological sense) got convinced, that the “whole” could not be controlled. “The whole” is meant in the sense of research, design, construction, production, warranty, and customer services. Independent of the effect whether people got convinced or the convincement was forced, the depth of assembly got decreased. Business partners changed from former suplliers to actual trusted advisors with extreme niche competence.
In the first instance of this phase transition, there was not a better quality, but overhead costs got reduced. The need to keep any knowledge (over the whole production processes) up-to-date was revised, and after all, the focus of industry research was affected as well.
From an overall (retrospective) perspective, the industries discussed about the increase of competency and ability to deliver on assumed commitment. From a that view, the interfaces were not determined out of the (final) assembly considerations but from the complementary provisioning by niche expertise. Interfaces became part of a dual discussion, which led, later in the course of that evolution, to joint research and development.
Once this major advantage became an acknowledgement for the main production lines and facilities, it became evident, that any (company inside) specialism, including different varieties, forces only overhead and is therefore a main reason for underperformance. The lean organizations were born. A nice example in this context is the European Aerospace (development since mid 80’s leading to current market position).
3rd step: To delegate niche competencies with the inclusion of suppliers (behaving as trusted advisors) can be formulated as a focus on core competencies.
This progress isn’t restricted to tangible products.
The claim, which is still heart from some of the service industries, is “we are complex, more than others“. This might be true from a more personal perception, but not from a logical intellectual viewpoint.
The statement regarding the complexity of the legacy systems (IT, organizational, as well as psychological) was true for construction, engineering, and defense industries in the 80’s as well. Complexity isn’t an excuse. it’s more an indication on the level of control of delegation.
Anyway, getting back to likeness. we may ask ourselves about the “lessons learned from other industries“.
- First: we cannot stop evolution (as Darwin knew already),
- second, protection isn’t an offensive strategy.
- Third: complexity is not an excuse. It is more a challenge to be mastered by the champions, otherwise it makes a clear distinction among core competencies (across different industries).
The change regarding BPM and lean organizations didn’t affected only the tangible products. Compare for instance telco, utilities, and some offerings (especially leasing) in financial services. The markets aren’t fixed and protected against new entrants. Opposite to that: new entrants will pick niche (i.e. performing) market segments, leaving the rest of the market to the traditional players.
What are the lessons of the phase transition towards BPM? Can this achievement be transmitted or migrated? If migration works, who will take leadership? Can one leapfrog such an ERP/BPM phase transition? The answer (as most cases): in the future.
In the next contribution, I like to focus on the mental part of such a change.