Part one of a six-part blog series for CFOs based on 30+ years’ experience collaborating on innovation with complex, discrete machinery manufacturers.
I saw some executives visiting a factory the other day on the news. I’m not certain what was going on, but it was some sort of photo op. The executives stood in front of microphones and made pronouncements, and the workers looked on proudly. It was all so perfect that it had a ring of genuine phoniness (oxymoron intended). I couldn’t help wondering what they were thinking about as they stood there. It was probably more than a little awkward for everyone. It’s like dignitaries visiting indigenous peoples in some foreign land. They feel out of their element, and the locals feel like they’ve been turned into some quaint curiosity.
I’ve been a manufacturing adviser for more than 30 years, and I’ve been on more factory and warehouse visits than I can remember. If there’s one consistent challenge that I’ve seen over the years, it’s the great disconnect between the “top floor” and the “shop floor,” and media events don’t solve the problem. Executives certainly need to stay connected to the plant, but there’s a right way and a wrong way to do it.
Not long ago, I ran across an old article in Harvard Business Review about “Why (and How) to Take a Plant Tour.” It was written by David M. Upton, a professor of operations management at the University of Oxford’s Saïd Business School. (Sometimes I even impress myself with the kind of stuff I read.) Then I realized the article was written in 1997! I was about to dismiss the article altogether when I decided to see how much things have changed.
It turns out that, while technology has certainly altered things, many of the principles that Professor Upton outlined remain relevant. To begin with, Professor Upton noted that, all too often, visiting a plant is more “tourism than tour.” Unless executives are organized and prepared to seriously examine production, the experience is little more than the awkward photo opportunity mentioned above.
However, Professor Upton also believed plant visits were an imperative because reports in 1997 were unreliable:
Traditional reports rarely present an up-to-date, thorough picture of an operation’s performance. Financial information tends to give an outdated picture of operational health: it will often reflect a plant’s performance as it was a year or so ago. If a site has recently begun a comprehensive improvement effort, for example, the effects of the initiative may not yet be visible in any reports.
Wow. Even badly run enterprises in the 21st century aren’t relying on information that’s a year old. In fact, if there are data problems at all, it’s likely there’s too much data. In today’s industry, it’s possible to retrieve data instantaneously and share that data with people in every part of the organization immediately and simultaneously. It may not be standard practice throughout the industry, but it’s certainly standard practice in the best run businesses. If we were still waiting a year for data, we wouldn’t make to 5:00, because the competition would be eating us for lunch.
However, having access to data is only the beginning. You may be getting information instantaneously, but how long does it take to do something with it? To my mind, financials are the lifeblood of the organization. If the money doesn’t move, nothing moves. Planning, accounting, and analysis are vital, and staying liquid while facing a merger or trying to make an acquisition is critical. Then when you consider that you might be dealing with multiple currencies and differing regulations across the globe, it all becomes extremely complex. However, there’s an excellent video demonstration online about how we can simplify it all with the “Digital Boardroom.”
Professor Upton continues:
And numbers rarely reflect a plant’s revenue-generating potential, or the new capabilities it has developed. Finally, because financial and other conventional reports rarely indicate an explicit path for action, it is difficult to use them to learn how to improve performance.
Today, a truly intelligent enterprise demands that financial officers take an active, day-to-day (perhaps even moment-to-moment) role in spotting new savings or revenue-generating potential, including sourcing, equipment leasing, or even pay-per-use models. Naturally, this is completely cloud-based. It’s still a good idea for executives to visit the factory of course, but when they do, it will be less like a disruptive inspection, and more like an opportunity to collaborate on a common goal.
Unfortunately, Professor Upton passed away a few years ago. I would have liked to hear his perspective on how the idea of plant tour has changed since 1997. In his absence, I will have to take up the examination without him. Over the next five blogs, I’ll reflect more on Professor Upton’s ideas, and take a deeper look at how executives today can stay in touch with the plant both physically and virtually.
Data is the new oil. SAP Leonardo Hierarchy Matching serves as a ‘refinery plant’ for your master data by using Machine Learning capabilities to solve various business problems. Find out more in our webinar on June 11th. Register now.