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By Ellen Pearlman
Strategic Thinker:
Michael Hugos
Credentials:
Hugos is a practitioner of business agility and agile IT system development. He spent six years as CIO for Network Services Co., a multibillion-dollar national distribution cooperative, where he developed supply chain and e-business systems that changed the company's business model from an old-line distributor to a value-added provider of products and services. Hugos 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.
Big Idea:
In our high-change global economy, responsiveness trumps efficiency.
Book:
Business Agility: Sustainable Prosperity in a Relentlessly Competitive World, published by John Wiley & Sons, March 2009. Blog:
Doing Business in Real Time
Website:
http://www.michaelhugos.com
Quote:
"Agility is not about working fast but about finding elegantly simple solutions to business problems."
In the industrial age concentrating on operational efficiency made perfect sense: Squeeze inefficiencies out of the assembly line, increase productivity, lower costs and profits will rise. But today a laser focus on efficiency doesn't deliver the same results. That's because it doesn't enable companies to be flexible and responsive to the rapid changes that our global economy requires.
In his latest book, Business Agility: Sustainable Prosperity in a Relentlessly Competitive World, former CIO Michael Hugos explores what it means to be a responsive organization. His model is based on the assumption that a company's primary assets are the relationships that exist between its employees, its customers and suppliers. Hugo says a real-time enterprise "evolves as its customers evolve. It is enabled by the technology it uses but is not controlled or dominated by the technology." And he predicts that just as the assembly line produced wealth in the industrial economy, responsiveness will be "the great wealth producer of the information economy."
Continuing to do business in the old ways will not deliver the profits needed to thrive and perhaps survive. Companies need to pursue alpha profits, Hugos says, that generate higher returns than normal. He says it is possible for companies to get profit margins that are 2% to 4% (or more) above the market average for their product or service if they have a responsive, agile business model that delivers value for the customer.
Central to the ability to be responsive and deliver customer value is information technology. But just as business models need to evolve, IT strategy has to evolve to be more flexible and consistent in delivering what the business requires. Current project success rates are abysmal. The 2009 Standish Group CHAOS report found "a marked decrease" in project success rates, with only 32% of all projects succeeding, 44% challenged (late, over budget, and/or with less than the required features and functions) and 24% failed (cancelled prior to completion or delivered and never used). "These numbers represent a downtick in the success rates from the previous study, as well as a significant increase in the number of failures," says Jim Crear, Standish Group CIO. "They are a low point in the last five study periods. This year's results represent the highest failure rate in over a decade."
To illustrate how responsive IT works, Hugos tells the story of what happened to him in 2004 when he was CIO of Network Services Co. One of the company's biggest customers wanted to reduce excess holiday inventory by 50% or more and the solution had to be delivered in 90 days. The situation was further complicated by a tight budget and the fact that all the parties in the supply chain used different ERP systems. Hugos dealt with the challenge by asking himself what Sun Tzu, author of the ancient text The Art of War would do. He learned from Master Sun that "apparent complexity is really composed of simple underlying patterns." He felt that if he could figure out those patterns then he could devise simple and appropriate responses.
He found there was a need to track daily product usage, constantly update demand forecasts, move inventory to cover demands and distribute all of the product by the end of the season. This meant he had to provide an IT solution that enabled collaboration between all the contact points in the supply chain. Given the time and money constraints, he turned to basic IT components that all parties in the supply chain had access to. [For details on the IT solution and how it was knitted together, you can contact Hugos at his website, www.michaelhugos.com.] As you may have guessed, the project was a success: excess inventory was reduced from 4% to 1.3%, saving the client more than $400,000 in excess inventory costs.
Next: The Define-Design-Build Process
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