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Guidepost for Turbulent Times.

When times get tougher, managers can turn to some core principles to help them make it through.

The pages of the financial and popular press are packed with headlines screaming about the freefall of technology stock prices and the abrupt demise of once-mighty dot-com empires. One recent article, in fact, noted that universities were rethinking the wisdom of an e-commerce curriculum.

These developments might cause one to conclude that the "Neo-Luddites" have won the latest battle in their war against technology.

What is all this about? Does it really have anything to do with emerging Internet-enabled business processes? Or the need for connectivity among supply chain partners?

A thoughtful answer is that there is very little connection. Sky-high stock prices for companies with no visible source of revenue are probably due more to the greed, or at least the misplaced optimism, of brokers and investors than to any kind of economic reality. Similarly, the widespread failure of the dot-coms has more to do with flawed business models than with flawed technology. In the long run (or even in the shorter term, depending on the patience of the venture capital backers), a profitable company must by definition make a profit. If it doesn't make a sustainable profit, the venture capitalists lose confidence. And when that happens, funding sources run dry and the house of cards comes tumbling down. (Even casual readers of history know that sometimes even the most promising endeavors can run into funding difficulties, as Christopher Columbus discovered.)

All of this simply reinforces what we knew all along. Economies are volatile. Investor confidence is fleeting. Financial markets are imperfect. Stock investors and those institutions that support their activity often are greedy and manipulative. The market and the marketplace are unforgiving. Scale and instant communications make the current tech stock and dot-com collapse a very visible event in the media. However, contagious excitement and excess in the search for economic riches have a long and colorful history in the United States and throughout the world. It might be argued that the recent dot-com experience is just a modern version of the U.S. gold rush kicked off at Sutter's Mill in 1848.

Gauging the Risk

The bombardment of the tech sector and the demise of many high-flying dot-coms could encourage a more cautious approach to technology-based innovation. Such an approach could be reflected both in the utilization of the technology itself and in the business processes driven by the technology. Implementation of new technology has always invited some level of risk. If the projected life cycle of the technology under consideration is expected to shorten or if the cost is expected to rise, then the potential risk rises to a new level. If effective implementation of the new technology requires complex changes to the company's traditional business processes, then the level of risk ratchets up to an even higher level. And if the revenue stream of the company is softening, then the risk of falling short of the target technology return on investment takes on yet another dimension.

Judging from the pages of the business press, all of these risk-inducing factors abound in our current business environment. At a time when the brightest productivity light at the end of the tunnel might be new technology, the daunting risk factors work against aggressive risk-taking in new or upgraded technology. The issue is made more complex by the perception that any major new-technology decision might quickly escalate into a "bet-your-career" scenario.

The second factor noted above, technology's impact on traditional business processes, builds on the pure technology risk. Many companies have invested in a new set of business processes in order to expand the reach and power of their supply chain. Included in these new processes are alliance-building activities such as Collaborative Planning, Forecasting, and Replenishment (CPFR), electronic data interchange (EDI) and/or Internet based communication, asset pooling or sharing, value-enhancing supply chain strategies, and other initiatives to build trust and mutual goals across the supply chain.

When economic times are good, a company is likely to have the financial and management resources to invest and innovate in the supply chain. If things do not work out according to plan, the supply chain executive can always try something new in the next budget cycle. In any event, the executive will likely still have his or her job.

Three Guideposts for the Future

What if there is no tomorrow in terms of technology fixes, or the prospects for resources turn dismal? Will there be a tendency to consign to the scrap heap most of the effort devoted to building the supply chain? When things get tough, are all bets off and will all of the supply chain partners head for the nearest foxhole? During the longest economic expansion is U.S. history, many companies have never had to address such difficult questions.

Even for companies that have weathered the tough times, the answers to these questions are not easy. Yet a few principles, or guideposts, are worth pondering as we stand on the brink of what might be the first significant economic downturn in a decade. It is a sobering prospect to consider that there might be a whole generation of managers out there who have never faced the challenge of managing in an economic downturn. Many of the IT managers, in particular, were in high school when we last had an economic downturn. Scary!

Here are the guideposts that may help as we wade into what could be an extremely challenging future.

Guidepost 1--Education. Educate the generation of managers who have not had the challenge of managing in turbulent times. They need to understand the organization's core competencies and the internal and external relationships that need to be protected. In times of stress, managers need to know the most appropriate tactics and strategies for steering the business.

Guidepost 2--Partnerships. Over the next few years, managers will have an opportunity to ascertain who their supply chain partners really are. It's relatively easy to be a partner in good times. The real test is making a supply chain partnership work when times are not so good.

Guidepost 3--Decision-making. Companies will be required to learn how to make technology decisions on the basis of "need to have" not "nice to have." Knowing the difference might be the key to survival.

Bernard J. "Bud" LaLonde is professor emeritus of logistics at The Ohio State University.
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Author:LaLonde, Bernard J.
Publication:Supply Chain Management Review
Geographic Code:1USA
Date:Mar 1, 2001
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