Über die Autorin bzw. den Autor

Michael H. Hugos is a thinker, speaker, and practitioner of business agility and agile IT system development methods. He spent six years as chief information officer (CIO) for Network Services Co., a multibillion-dollar national distribution cooperative where he developed a suite of supply chain and e-business systems that transformed the company's business model from old-line distributor to value-added provider of products and supply chain services. He is a two-time winner of the CIO 100 Award, and a recipient of the InformationWeek 500 Award and the Premier 100 Award for career achievement. He is also author of Building the Real-Time Enterprise and Essentials of Supply Chain Management, Second Edition, both published by Wiley.

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Praise for Business Agility: Sustainable Prosperity in a Relentlessly Competitive World

"This is the next evolution of business strategy. This book gives leaders a new model of business agility that balances the need for standardized business processes to drive efficiency with the ability to adapt to marketplace and customer expectations. Hugos makes the business case for adaptability and resiliency just at a time when it is needed most."
—John Babiarz, Group President, ARAMARK Healthcare

"We are a $2 billion commodities manufacturer of foodservice disposables and face many of the challenges described by Mr. Hugos. From our experience in the last several years, I believe business agility and responsiveness is one of the only competitive advantages we can use today to differentiate us from our competitors."
—Tom Pasqualini, EVP Global Supply Chain, Solo Cup Company

"Dynamic! Meaningful! Easy to read and understand! Mike Hugos has captured all the aspects that must be successfully integrated for today's firms (small and large) to grow their bottom line. A special area of interest is how he identifies successful military approaches that can be used by the civilian business sectors."
—William G. Pagonis, Lieutenant General, U.S. Army (Retired) and former president of Sears Logistics Services

"Business Agility transcends well beyond the mere 'must read' to a definitive 'must do.' Michael provides a thought-filled road map to transform any organization into an agile and responsive team capable of winning in today's complex and ever-changing marketplace."
—Steve Poplawski, SVP Logistics & Supply Chain, True Value Company

"Given the global economic crisis, now more than ever, agility is at the top of every company's most wanted list. This book carefully lays out practical approaches to finding the right balance for your organization between efficiency and responsiveness. Current business examples and historical references help describe and define approaches to leaping ahead and reaping the ultimate rewards of not just surviving, but thriving in today's very challenging global business environment."
—John C. Moon, Corporate Vice President & Chief Information Officer, Johnson Outdoors, Inc.

"The concept of agility has been around for some years, but this is where I first saw it in terms of hard and well-defined business benefits. It is a highly accessible book, taking the reader through all these concepts in a manner that puts the topic across in simple terms."
—Alagu Balaraman, Vice President & Process Architect, Britannia Industries Ltd.

Aus dem Klappentext

Business Agility

Business agility determines whether your organi-zation will become a victim of our difficult economic times or if it will learn to reap new profits by continually responding to changing market conditions and evolving customer desires.

Author and business agility practitioner Michael Hugos explains that for everything from blue jeans to fuel oil and hotel rooms to accounting services, customers are willing to pay slightly higher prices for products and services if they are responsive to their needs. This breakthrough guide is your company's how-to manual for putting this profit transformation to work. Part of the Microsoft Executive Leadership Series, Business Agility: Sustainable Prosperity in a Relentlessly Competitive World outlines world-class approaches every "C-level" executive can employ to achieve competitive advantages and greater profitability.

This book discusses:

• Powerful trends shaping business and our lives in this century

• Challenges we must confront and master

• Practical principles, strategies, and technologies available to address these challenges

• Three underlying feedback loops that drive all responsive organizations

• Best ways to use technology to empower your people

• Two central themes for making a responsive organization happen: desire and innovation

• Case study examples from the author's own experience to illustrate concepts of responsiveness and techniques of agility

Business Agility: Sustainable Prosperity in a Relentlessly Competitive World is a succinct guide and road map for becoming more responsive, agile, and better positioned to deal with ongoing and constant change. Mykolas Rambus of Forbes Media observed, "Michael delivers a host of actionable new ideas for organizations who 'get' business agility, and an unflattering view of the future for those who don't. His fresh insights on how to win in today's turbulent marketplace are more relevant than ever."

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Business Agility

John Wiley & Sons

Chapter One

Today's global economy squeezes profit margins more efficiently than ever before. Electronically connected global markets are doing what markets do so well; the commodities traders and stockbrokers call it "efficient price discovery." That phrase means global markets are constantly finding the lowest price for all basic commodities and services based on current supply and demand-everything from blue jeans to fuel oil, and hotel rooms to accounting services-and constantly resetting those prices as conditions change.

This market driven efficient price discovery tends to relentlessly reduce profits and drives the prices people can charge for products and services closer and closer to their cost of production (sometimes even below their cost of production). Companies are always moving their production to low-cost labor markets and outsourcing activities in a scramble to lower the cost of production so that they can still make a profit at price points set by the market.

For this reason, the best profits for most companies no longer come from standard or commodity products; the best profits are now to be found in new and creative products and services. If these new products catch on, for a while they have no competition and there is lots of demand so prices stay high. But products and services are new and innovative for only a short time. Then they become commodities because they get copied and offered at lower prices. And when that happens, profit margins drop again.

Most profitable opportunities in the global economy are, by definition, short-term opportunities. Companies need to respond and act quickly in order to capitalize on opportunities that arise. This has always been true, but now it is critical if a company is going to maintain its long-term profitability.

THE WORLD BEHAVES LIKE A STOCK MARKET

The Internet and the search engines and the trading and procurement systems that make global markets possible also do something else. They provide massive and continuous flows of data the likes of which we used to see only in connection with financial markets, such as stock and futures markets. Now our economy everywhere is generating similar flows of data. Companies generate data flows from their internal systems; e-commerce and supply chain networks generate more data flows that go between companies; and the Internet moves all this data from anywhere to anywhere 24 hours a day, seven days a week.

These real-time data flows cause the whole world to behave like a giant stock market with all the volatility and uncertainty that goes along with such markets. And because real-time data is available, we are all doing business in real time now whether we know it or not. Just as stockbrokers use real time stock market data to constantly monitor and react to their markets, so too can people in business use available real-time data to monitor their own markets and react quickly as situations change.

The very fact that more and more companies are connecting up with e-commerce and electronic trading networks means that the markets they work in are becoming more volatile. Because information is available in real time, people are learning to react more quickly. Change ripples through markets much faster than ever was possible in the industrial economy. Supply and demand data for products and services are communicated quickly so the prices of those products change quickly (just like stock prices). Gone are the days when people could confidently predict the price of any commodity for more than a month or two.

Companies that succeed are learning to make continuous small adjustments in their operations to respond as conditions change, and they are learning to continuously enhance their products and services with new features as their customers' desires evolve. They learn to make money from many small adjustments and from some occasional big wins-just as stock traders do.

Companies must attain and maintain a level of "good-enough" efficiency, but unless a company is the low-cost leader in its market, it cannot use efficiency alone to generate profits. For the most part, it is now customer responsiveness that generates profits in the form of customers paying slightly higher prices for products and services that they find more responsive to their needs. Since these products deliver more value, people are willing to pay more.

Opportunities to make money by being responsive have exploded. There are far more ways to use responsiveness to attract customers than there are ways to use efficiency and low prices. This is because there are so many different kinds of customers, and each is looking for slightly different mixes of products and services. Constantly changing environments and customer needs enable responsive companies to offer continuously evolving mixes of new products and services.

Companies respond to evolving needs and desires of specific groups of customers by wrapping their products and services in tailored blankets of value-added services. Occasionally they find opportunities to introduce entirely new products and services. As profits on old products decline, profits are always to be found by creating new products that respond to new needs.

Responsiveness enables a company to consistently earn an additional gross margin of 2 to 4 percent (and sometimes more) than what it would otherwise earn for its commodity product or service alone. This responsive focus on customer and market specialization is now the most promising and the most sustainable source of profits in our fluid, real-time economy. These ideas are summarized in Figure 1.1.

In this high-change global economy, responsiveness trumps efficiency.

EFFICIENCY IS ONLY HALF OF THE EQUATION

For the last few hundred years, the most important consideration in business was efficiency: producing products at the lowest possible cost. But now we are all part of a global labor force, and there are countries in Europe and North America that can no longer compete on efficiency alone because their labor costs (also known as people's salaries) are so high compared to labor costs in countries in Asia, Africa, and South America.

What is to be done? Will the economic boom for some countries be economic doom for others? That might be the case if the only economic force we considered is efficiency. But we are missing something important when we do this; in addition to efficiency, there is another economic force called responsiveness. Efficiency provides us with basic products and services at the lowest price. Responsiveness wraps those products and services in a blanket of value-added services that customize them to our particular needs and, in doing so, makes them more valuable to each of us.

Everybody has needs that go beyond efficiency. As soon as people are able to acquire the basics, they want something more (see Maslow's Hierarchy of Needs as presented in his classic article "A Theory of Human Motivation"). A basic pair of sneakers costs about $20, but there are a whole lot of people willing to pay $100 or more for sneakers that respond to their other needs. A basic new car costs about $16,000 (or less), but there are many millions of people willing to pay much more to get cars that respond to their other needs.

People want what they want. They want a good price, but that doesn't mean they want the lowest price. People usually also want a tailored bundle of additional services and features wrapped around the basic product. They will pay extra for these other features as long as they meet expectations. Maslow's Hierarchy of Needs in Figure 1.2 shows that once a lower-level, basic need is filled, people aspire to filling higher-level needs.

Even the most basic commodity product can be wrapped in a blanket of value-added services that increases its value to particular customers because those value-added services provide features customers want. For instance, we have all seen how a commodity product like the coffee bean can be wrapped with a blanket of value-added services and so give rise to a whole industry. People will pay more for a good cup of coffee made just so and served in a cozy setting. And if the quality of the coffee and the coziness of the setting start to decline at one company, customers simply go elsewhere. People will pay more for a good product but they do not pay extra if they are not getting what they want.

Good customers (and most customers are good customers when you figure out what they really want) will pay a few percentage points more in order to get a carefully tailored bundle of goods and services from you that either solves an important problem of theirs or enables them to enjoy a major benefit. Who are the good customers in your business? How will you get more of them? What are the tailored solutions you offer them? How will you evolve these solutions over time to keep up with good customers' changing needs?

And here is another thing to think about: If you don't have many good customers, how will you keep your bad customers from destroying your profits and your business? Is efficiency alone a sufficient answer to this question?

TRADITIONAL BUSINESS MODELS ARE COMING UP SHORT

Many large, established companies are demonstrating that their traditional focus on efficiency no longer shields them from market fluctuations, nor does it deliver the profits it once did. Their business models need to be redesigned. They follow business strategies based on twentieth-century industrial concepts of efficiency, such as spreading fixed costs across huge numbers of units sold, scheduling long production runs, and assuming there is a steady, predictable demand for their products.

In reality, things such as stability and predictability are conspicuously absent from our global economy. Yet companies continue their old industrial strategies and continue to struggle with rigid multiyear plans and projects as they drift farther and farther away from alignment with constantly changing market conditions.

Then, when the alignment between company operations and actual customer demand becomes seriously out of balance, when finances drift deep into the red zone, companies have no other options for responding except to make sudden and drastic cuts in their operating expenses. They sell off businesses, close down factories, and disband whole groups. They lay off thousands of employees at a time.

These bouts of corporate cutting and restructuring happen with regularity now; they happen in good economies and bad economies. And individual companies go through these restructurings not just once but repeatedly. Why is this necessary? It would seem that something about the business models these companies follow, something about the way they are managed, must be seriously out of line with current realities.

The relentless focus on efficiency is the legacy of a frame of mind inherent in the culture of the industrial economy and its great invention: the assembly line. That mind-set attempts to organize every activity down to the lowest levels of detail. It makes rules and regulations for everything and then tries to run each activity over and over, faster and faster without changing anything. This is how you get economies of scale: greater and greater productivity at lower and lower costs. This is what we call efficiency. But this model is breaking down.

The assembly line requires things to stay the same long enough to churn out large quantities of predefined products and services. It is the best way to deliver masses of standard products and services at the lowest cost. But what happens when people no longer want standard products and services? What happens when product life cycles are measured in months instead of years? That lack of predictability throws a major wrench into the gears of the industrial efficiency model.

Business strategies that emphasize efficiency and economies of scale no longer yield the profits we seek because they are so vulnerable to unexpected and sudden changes. The efficiency model does not allow for much responsiveness since it concentrates on removing all extra capacity and reducing operating expenses to the absolute minimum.

EFFICIENCY WITHOUT RESPONSIVENESS WILL KILL YOUR COMPANY

Responsiveness calls for flexibility, and flexibility calls for maintaining some extra capacity and for budgeting additional money to be available when needs and opportunities arise. A single-minded focus on efficiency views this extra capacity and funding as wasteful and strives to remove it. So in the name of efficiency, companies give up the flexibility and responsiveness they need to handle unexpected situations.

The fast pace of events now overwhelms the assembly-line operating model and the efficiency mind-set that goes along with it. Companies spend years organizing work, writing out rules and procedures, and putting systems and facilities in place. Then the world changes in unpredictable and uncontrollable ways, and their plans don't work out because they become irrelevant so quickly.

I once worked for a chief executive officer (CEO) who was forever attempting to screw down operations as tight as a drum-cut staff and squeeze out the last ounce of cost in the name of ultimate efficiency. He would look at me with a maniacal gleam in his eyes and laugh as he chopped away at headcounts and budgets. His plan was always the same: In every situation, it was to cut costs and run operations hard and fast, day and night, and thus reap the profits of ultimate efficiency. That is the assembly-line mind-set.

The problem was that in spite of his best-laid plans, the world would change in unforeseen ways, and then he had no reserve and no flex in his operations with which to respond. So instead, he would pound the boardroom table at our monthly management meetings and insist there was no change; and if there was, well then everyone should just work harder (but we were already working at full capacity; he had seen to that).

The more he cut budgets and focused on efficiency, the less able we were to respond to customers' changing needs. We missed profitable opportunities to grow the business, and some of our biggest customers came to believe we were no longer capable of keeping up with their evolving business needs. They became dissatisfied with our service and began looking elsewhere for more responsive business partners.

CUSTOMER RELATIONSHIPS ARE THE MOST VALUABLE ASSET

That CEO forgot that the customer is the ultimate asset these days, not buildings or equipment or products. Those things can readily be acquired from many different sources, but by far the hardest thing to acquire is customers. The opportunity in business now is to apply what you know about your customers and what you know about your products to create a tailored bundle of products and value-added services that constantly evolves to best fit their needs.

As you combine your knowledge of your customers and your knowledge of the products you sell, you become, in effect, your customers' purchasing agent. You're someone constantly seeking the best mix of your products and services to fit your customers' changing situations. You are no longer just a clever gadfly trying to sell them something they don't really need. Your fate is now much more tied up with that of your customers. If they don't grow and prosper, you won't either.

Think of your customers as your capital and think of responsiveness as the way to earn interest on that capital. The bigger your base of customers, the more the opportunities there are to be responsive to their changing needs (and earn a higher rate of interest). Opportunities these days quickly evolve into other opportunities; one opportunity usually leads to another. Learn to ride the waves of change. Develop a reputation for responsiveness; your customers will seek you out for that very reason.

THE VALUE-ADDED PAPER CUP

Let me provide an example of tailoring products and services to respond to customer needs. For six years I was the chief information officer of a national distributor of food-service disposables and janitorial supplies for restaurant chains, healthcare facilities, and grocery stores (network services) company. We're talking paper cups, plastic forks, paper towels, and floor wax. These are humble products, and a paper cup is a commodity product if there ever was one. What do you suppose is the profit margin on a paper cup? The answer is "not much," and it gets lower all the time.

So our challenge was to make our products more valuable and earn a higher profit. I led a project team from the company's sales, customer service, information technology, and finance organizations, and we devised a menu of about 50 different value-added services that salespeople could then mix and match to meet specific customer needs.

We made it very easy and convenient for customers to find and order our cups by providing an online product catalog that let them search on many different product parameters (size, strength, color, materials used, etc.). We also set up the product catalog to remind them to order other items that normally go along with cups, such as lids and sleeves.

We let customers place and track their orders online so they could know when their supplies would be delivered. We also created customized labels and packing boxes so that when cups were delivered, customers could quickly receive, store, and retrieve them.

We enhanced our billing system to streamline the processing of invoices by customers and reduce their costs of doing business with us. We sent invoices in whatever format customers wanted so they could automatically import them into their accounts payable systems. We even preprocessed invoices, inserting customers' general ledger codes into every line item on invoices so those costs could be automatically disbursed to their general ledger systems.

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Excerpted from Business Agilityby Michael H. Hugos Copyright © 2009 by Michael H. Hugos. Excerpted by permission.
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