Friday, June 08, 2007

The Power of Integrative Thinking

Roger Martin, Dean of University of Toronto's business school, has a wonderful article in the June issue of Harvard Business Review. He argues that successful leaders are integrative thinkers. By that, he means that they attack problems in the following manner:
  • They examine problems as a whole, with careful consideration of how different parts of a situation fit together, rather than analyzing different elements in isolation.
  • They consider multiple avenues of causation for a problem, as well as possible nonlinear relationships between cause and effect, rather than thinking of terms of simple linear relationships between a single cause and effect.
  • They embrace the tension between opposing ideas, and they use that conflict to generate creative new alternatives, rather than making simple either-or decisions.

In short, Martin argues that successful leaders think holistically and embrace the power of conflict. In my work, I have argued that constructive conflict within a management team leads to better decisions. Martin stresses that successful leaders also have to embrace conflict within their own mind. They must "hold two conflict ideas in constructive, amost dialectic tension." Martin points out that many people find this internal tension uncomfortable, and thus they shy away from it.

While I would agree with Martin in general, I am reminded of the challenges associated with this type of integrative thinking, as described by Karl Weick in a famous 1984 article entitled "Small Wins." Weick argued that large, complex problems can sometimes be cognitively overwhelming. Thus, he argued that decision-makers should break complex problems into parts, and seek a series of "small wins" as a means of generating solutions to complicated issues. Martin explicitly argues against breaking problems into pieces. He says that holistic thinkers view problems as a whole. Here, I disagree slightly with Martin. I think one can approach a problem holistically, yet still follow Weick's advice to seek small wins while working through the organizational decision-making process required to solve the problem. Trying to achieve small wins in attacking a problem does not mean that a leader fails to think about how various elements of a problem fit together.

Wednesday, June 06, 2007

Supermarkets vs. Wal-Mart

Today's Wall Street Journal has an interesting article about how many supermarkets have learned to compete more effectively with Wal-Mart. The answer is straightforward: don't try to imitate Wal-Mart's low cost strategy. Instead, supermarkets have tried to create some differentiation by offering unique upscale products and high quality prepared meals along with the usual staples. They also have redesigned their stores to create an enhanced shopping experience for the consumer. Not all supermarkets took this path. Some tried to imitate Wal-Mart's low costs and low prices, and many of them found their way to bankruptcy.

The competitive dynamics in the supermarket industry remind me of what took place in the mass merchandising sector. Many chains went bankrupt trying to match Wal-Mart's low costs and low prices. Target took a different path. It chose a differentiation strategy, with higher quality products, better service, and a bright, clean store with easy-to-navigate aisles in which consumers love to shop. It didn't go head-to-head with the behemoth. Instead, it chose a form of indirect competition, moving slightly upmarket. In so doing, Target has prospered while many chains became extinct.

Firms in all industries would be well-served to consider the fate of those that have competed with Wal-Mart. Imitating the market leader often does not lead to bountiful profits. Finding a different path proves much more economically rewarding.

Monday, June 04, 2007

Supply Chain Risk

CNN reports today on a study by Deloitte Consulting regarding supply chain risk. The title of the Deloitte report is "Supply chain's last straw: A vicious cycle of risk." The consulting firm studied how many firms have prepared (or not prepared) for major supply chain disruptions. They concluded that, "The search for cheaper labor, cheaper raw materials, and cheaper transportation - the quest for efficiency - has forced the focus of companies to switch from revenue growth to cost reduction...Individually, these forces have changed the world in which we live and conduct business. But when combined, these forces can create a perfect storm of risk not seen before in the history of commerce or humankind."

Charles Perrow's theory of complex systems, I believe, can be applied to think about the enhanced risk that firms are assuming with the leaner, more efficient global supply chains of today. According to Perrow, the risk of catastrophic incidents increases when systems are characterized by what he calls "tight coupling." By tight coupling, he means systems that have the following characteristics: time dependent processes, a fairly rigid sequence of activities, one dominant path to achieving the goal, and very little slack. His classic example is that of a nuclear power plant. Its subsystems are tightly coupled (or highly rigid, if you will). One could argue that the efforts to build leaner, more efficient global supply chains have enhanced the level of tight coupling in those systems, and thereby enhanced the risk of a catastrophic failure of some kind.

Take, for example, the issue of slack. Years ago, supply chains tended to have a fair amount of slack - for instance, many firms maintained a fair amount of buffer inventory between various stages of the value chain. Of course, carrying all that inventory proved quite costly. Today, firms have been driving slack out of their supply chains in order to reduce costs. The unfortunate downside of that slack reduction may be an increase in tight coupling - and thus, in systemic risk. Naturally, the solution to the enhanced risk does not lie in adding back tons of waste to the supply chain. Instead, firms must find ways to reduce the rigidity of the system, so that one small error cannot easily cascade into a series of problems that lead to major catastrophe.