One of my clients, a modest sized business inhabiting a narrowing but quite deep niche of manufacturing, has over a period of time put considerable resources into training their essenial technical people to be expert in the fields vital to their success.
A topic of discussion and concern has always been, “how do I get my investment back when I train them, and they leave?”
Perhaps the better question to ask is “what happens if we do not train them, and they stay?”
People routinely forecast optimistically, they under-forecast costs, and over-forecast outcomes. We have all seen it happen repeatedly in businesses and the public sector, most of us have seen it on personal level.
Demand planning is the core of effective operational optimisation, and differs from simply sales forecasting, in that it looks at the drivers of demand, rather than drivers of sales, often a big difference, and it is free of the bogy of just assuming the past will be repeated, even if massaged by some fancy algorithm.
Demand planning has been enhanced by the developments in what are in effect benchmarking of similar situations, collectively called Reference Class Forecasting by its Nobel prize winning proponents, Daniel Kahneman and Amos Tversky.
Demand planning is hard to do well, but most useful things are.
The mulitnational Heinz has been in the news a bit recently.
First, they announce a restructure, which means closing plants, and consolidating production, in this case to NZ, and to a remaining Australian plant that will get a bit of a kick-along. Wonder how long that will last?
Then the worldwide CFO Art Winkleblack took aim at the retail duopoly in Australia, citing it as a reason for the difficulties Heinz has had, and as a basis of the restructuring decisions. I bet the local sales management loved him for it, the next time they had to front Coles and Woolies!
In a short period, the challenges of the industry are laid bare, the $A making imports cheaper, the power exercised by the retail duopoly, and the necessity of manufacturing and marketing scale to counter it.
If Heinz, a global business turning over close to a billion dollars in Australia, and many more globally has these problems, put yourself in the position of the SME, with little marketing leverage, a plant that needs capital, banks that are so risk averse, and so stripped of people who understand small business they simply choose not to engage, how can the little guy hope to sustain his business?. Pure bloody mindedness and determination is about the only answer you will come up with, mixed in with a spirit of being prepared to really have a go, and screw the buggars!.
We wonder why we have more imports of packaged food products into this country than we produce, the position Heinz finds itself in demonstrates why.
Googles purchase of Motorola poses an interesting management challenge.
To date, Google has been a producer of software, an intellectually intensive activity that can be accomplished anywhere the brain is located.
Manufacturing is a different beast.
Suddenly you have factories, supply chains, unions, fragmented regulatory regimes covering OH&S, environment, waste, and a myriad of other stuff that sometimes seems designed to ensure you drown in red tape. What a difference!
This will stretch Google’s leadership and culture, as any manufacturing executive will tell you, it is not as easy as it looks.
Global sourcing, whilst offering benefits to customers in the county doing the outsourcing, has the long term effect of reducing the relative innovative capacity of the “outsourcer.”
As innovators seek the lowest cost for the product of their innovative output, the location of that resulting manufacturing acquires the capability to improve on the original from the proximity of daily interaction with the production, so are in a better position than the original innovator to build on the knowledge emerging from operational implementation.
What do you think the chances are that the next iteration of mobile technology will come from Chinese subcontractors to Apple? Following the example of chip manufacturing, formerly located in the US where the development was located, and now concentrated in Taiwan, I would think pretty good!
In the Australian food industry, manufacturing has been gutted, significantly driven by the twin impacts of the power of the retailers, and high Australian dollar making packaged goods imports cheaper.
We all understand sustainable innovation is the lifeblood of industry, and are increasingly understanding that sustainable innovation also requires the proximity of the manufacturing operations to the R&D and commercialisation activities that feed the process. That virtuous circle has been broken in the Australian food industry, amongst others, and I despair that it is so far gone that there will be no coming back, no matter how much the SME sector points out the obvious to the wallies who make the short term decisions with such dire long term impacts.
Completing an AAR, (After Action Review) is now widely practiced, effectively a commercial post mortem after any major commercial activity. Completing an AAR has been standard practice for a long time after a capital expenditure, generally called something else, but it embodies the notion of learning from the mistakes, and successes to build capability the next time.
How much better it would be to conduct a formal pre mortem?
Project yourself into the future, a year, 2 years, whatever is appropriate, and assume the project you are considering has gone pear shaped, then conceive of all the ways in which this may have happened, and what the better option may have been. In other words, conduct a “Pre Mortem”
It seems to me that a rigorous pre mortem may be a pretty useful way of avoiding mistakes in the first place, better than having to learn from them.