|
||
 |
||
|
With the economy now in its third year of weakness, most executives have taken several hard looks at their organizations in the search for cost cuts and efficiency. The pressure is still on—but how much cost is left to cut? Quite a lot, if you look in the right places. Up to now, most executives have been looking for waste inside their walls. Few realize how much inefficiency exists at those walls, where businesses touch each other—inefficiencies in the form of errors, duplicated work, and slow, clunky processes. But computer and communications standards have advanced to the point where companies can link information systems with suppliers and partners in ways that will make everyone more efficient. Think of this as using information as a substitute for time and money. Wal-Mart Stores Inc. (www.walmart.com) shows how much can be gained by linking tightly with suppliers. When it gave Warner-Lambert Co., now owned by Pfizer Inc. (www.pfizer.com), direct access to Wal-Mart’s information systems, Warner-Lambert could see what was selling well, store by store. Warner-Lambert could adjust the mix of products at each location and replenish supplies precisely when needed. Wal-Mart no longer needed to worry about ordering and restocking because it pushed the job of managing the shelf space to the supplier. The pilot led to a big increase in sales. A similar pilot boosted Wal-Mart’s sales of Sara Lee Corp. (www.saralee.com) products, while also cutting inventory. Lockheed Martin Corp. (www.lockheedmartin.com), which recently won the biggest contract in military history, is another great example. Lockheed became the lead contractor for the $200 billion Joint Strike Fighter program in part by promising to cut aircraft design and manufacturing time and by slashing the cost of building the planes. One way that Lockheed plans to hit its production and budget goals is by collaborating electronically—in real time, across several time zones—with JSF partners Northrop Grumman Corp. (www.northropgrumman.com), BAE Systems (www.baesystems.com), and a host of far-flung subcontractors. If a supplier in one part of the world alters a component, other participants will be informed instantly and can adjust their plans accordingly. Collaboration is tricky, though. To get the full benefits, you need to be especially careful in three areas: OBJECTIVES AND DESIGN. It’s extremely important to be clear about what the goals are, what each company will do, and how any joint organization will be set up. As the adage says, “If you don’t know where you’re going, you will surely get there.” Covisint (www.covisint.com), the online auto-parts exchange, had a disappointing launch because it wasn’t clear enough about its objectives. Led by the Big Three auto makers, the online marketplace got carried away with the potential revenue it could draw from holding auctions and collecting transaction fees. That potential never materialized, and Covisint’s organizers were distracted from their original mission, which was to establish communications standards that would let suppliers and manufacturers cooperate more effectively. General Electric Co. (www.ge.com), by contrast, was very clear about the objectives for its Global eXchange Services unit. It wanted to create an online exchange to slash the costs of dealing with its tens of thousands of suppliers. GE was also thoughtful about the exchange’s design. It made sure suppliers would benefit, by reducing transaction costs, and ensured that even small suppliers could participate. The unit has been such a success that GE recently agreed to sell it for $800 million. GOVERNANCE AND MEASUREMENT. Collaboration agreements are often unwieldy. It’s crucial to fight that tendency and have a clear, simple control structure. Covisint learned this the hard way: It began life with five co-chief executives, a governance debacle that led to a recent reorganization. Similarly, if partners don’t agree on precise measurements for what constitutes success, they will be free to have their own visions and may work at cross-purposes. The need for good measurements is even more acute now than it was when the economy was more robust. As David Pottruck, co-CEO of Charles Schwab & Co. (www.schwab.com), says, the company used to tell employees and partners that “directionally correct” was good enough. In other words, speed was so key that a generally right decision was fine as long as it was made quickly. For the past two years, though, Schwab has had to focus so much on cutting costs that it began holding decisions to a higher standard—they now have to be measured so carefully that they can be precisely right. [For more of Pottruck’s thoughts, see “What I Learned During the Economic Slump....”] OPERATIONS AND TECHNOLOGY. Often, companies need to get their act together internally before branching out and collaborating with partners. Fidelity Investments (www.fidelity.com), for instance, had all kinds of information about its clients but, until it did a detailed study, didn’t know how profitable each was. It found that some customers were using Fidelity services to such excess that they were costing the company millions of dollars a year. Once Fidelity figured out who these unprofitable customers were, it began to steer them to the Internet, where customer interaction can be handled at little cost. At the same time, Fidelity could start mapping out partnerships that would let it fill in gaps in its array of services and take better care of its most profitable clients. Only when companies have their operations in order can they use technology to forge tight links that will save money. Bank of America Corp. (www.bankofamerica.com) recently outsourced its human-resources department to Exult Inc. (www.exult.net). Procter & Gamble (www.pg.com) has said it intends to outsource its finance and accounting, I/T, and a number of other departments. Both Bank of America and P&G expect to save a bundle—but neither could have contemplated a deal without having such tight communication links that the outsourced operations can function as though they were still in-house. Home Depot Inc. (www.homedepot.com) is finding that it can extend its reach while still cutting costs. Investing very little retail space and taking minimal risk, Home Depot has General Electric operate kiosks in Home Depot stores. Customers can apply for home-improvement loans and get a response in just 10 minutes. GE’s kiosks also allow customers to schedule home-appliance deliveries. That not only makes customers happy but also reduces the inventory that Home Depot needs to carry and cuts the number of employees that Home Depot has to have stocking inventory. As Home Depot is discovering, there is almost always money stashed between a company and its numerous partners. But none of us will find that money until we start looking for it.
|
