Therefore Strategic Technology Services

Sunday, 28 April 2013

The need for Flexibility

As stated in a previous article, sometimes a recognized best practice is inappropriate for a particular organization’s needs. The phrase “Contextual Practice” is often used where companies have elected not to follow a best practice and have decided that, given their context, a practice of their own design is considered more appropriate for gaining market advantage.

The most important driver for implementing contextual practice is the need to offer flexibility in the face of varied Customer requirements.

In the early days of the motor vehicle, Henry Ford was famous for saying that when it came to buying cars, his offering extended to “Any colour - so long as it's black.” At the face of it, Henry Ford had embraced a best practice that streamlined the manufacturing process, thereby avoiding the cost and complexity associated with allowing a choice of colour. The cost reduction achieved translated into lower prices for the Customer, which helped establish a broad based market for the motor vehicle. This limited flexibility was highly appropriate at the time.

As the market for motor vehicles matured, it became apparent that Customers required flexibility when it came to vehicle colour. Consequently, a contextual practice was embraced that allowed for a variety of different colours. The contemporary motor vehicle market boasts a great variety of options that Customers can choose when purchasing a motor vehicle.

Strategic Flexibility

Sifting through Customer requests for service or product flexibility and deciding which of them to accommodate is a very tricky task, and perhaps the most difficult aspect of product design. If you decide to be completely inflexible, you will be at a disadvantage relative to competitors that offer a greater degree of flexibility, unless you can derive a compelling price advantage. On the other hand, allowing complete flexibility will work against efficiency and will increase costs. At its most extreme, offering too much flexibility will put you out of business.

The degree of product flexibility that you offer is a strategic decision. Too much flexibility will drive up your costs. Too little flexibility will result in diminished sales. Getting the balance right is a critical success factor.

Strategic flexibility is a process whereby one interacts with the market and determines the aspects of flexibility that are core to meeting market needs. After identifying key flexibility requirements, it is critical that you develop the ability to offer the targeted flexibility without unacceptably driving up costs. Strategic flexibility is not a state of mind or an attitude. To become a strategically flexible business, carefully select the aspects of your product / service offering that needs to be flexible and develop the capability of being able to offer this flexibility in a cost effective manner. 

Choosing where to be flexible

Logically, the best place to start when deciding where to be flexible in your product design is literally by asking your Customers, both current and potential. The importance of taking your product / service design cues from Customers cannot be underestimated. Too frequently, one sees product design performed without reference to Customers on the premise that “I know what my market wants”. Sadly, this is not generally true, and errors made because of misguided assumptions tend to be costly.

The following lines of questioning could be useful when interacting with Customers with a view to determining their flexibility needs:

  1. In what area of our offering do we need to be more flexible?
  2. What options should we be offering?
  3. Do my competitors offer this flexibility?
  4. How big will the impact of the flexibility be on you?
  5. Are there areas of my offering where we are currently flexible which do not add value to you?

Deriving a Flexibility Short List

Pareto analysis is a decision-making technique that allows for the selection of a limited number of tasks that will produce a significant share of the overall result. It uses the Pareto principle, the idea that 20% of your action will result in 80% of the impact.

The process that one would follow when performing a Pareto analysis on identified flexibility areas is detailed below:
  1. For each targeted flexibility area, derive an impact score.
  2. Sort your list of targeted flexibility areas such that the items with the biggest impact scores are at the top and the items with the smallest impact scores are at the bottom of the list i.e. sort in a descending sequence.
  3. Determine the percentage of the total impact that is contributed by each targeted flexibility area.
  4. Select, working from the top of the list, the flexibility areas that cumulatively account for 80% of the impact.
Assuming that you initial list of identified flexibility areas was 100 items deep, after performing a Pareto analysis, you can expect to have approximately 20 short listed flexibility areas.

More detail to follow pertaining to “Pareto Analysis” in a subsequent article.

Testing Viability

Once you have your short list of targeted flexibility areas, review each of them to ensure that they are viable at first glance. A viable flexibility area will return a “Yes” to each of the following questions:

  1. Is it possible to mitigate an acceptable degree of the cost associated with the flexibility area by revising systems / processes?
  2. After I have mitigated cost, will the incremental cost of the flexibility be less than the benefit associated with the improved market alignment?
  3. Will the flexibility area improve my competitive standing?
  4. Can I commit to the flexibility area into the long term?

Flexibility Options

The next logical step in the process is to take the viable short listed flexibility areas back to your Customer base and ask them what options they require for each of the flexibility areas in play.

Deriving flexibility options is something best explained by way of example.

Should your Customers, for example, wish there to be flexibility in relation to the manner in which you invoice them, it is conceivable that they may want to choose their own invoicing format; they may want to have the invoice delivered to them via email or EDI or perhaps the invoice is best shipped with the goods. Some Customers may want you to provide advance notice of the shipment of goods against which they can receive the goods. You will need to interact with your Customers to determine the exact nature of their needs.

Similarly, let us assume that you are a distributor that offers a distribution service on behalf of Customers. Your Customers may have requested flexibility in area of order acquisition. Some of your Customers may wish you to provide an order acquisition service, while others have elected to do their own order acquisition. You may have Customers that wish to do their own order acquisition, but would like to use your systems to do so. Where you do order acquisition on behalf of your Customers, do you need to do EDI, process telephonic orders, fax-based orders or perhaps email based orders? Again, you will need to interact with your Customers to determine the exact nature of their needs.

As can be seen by the above examples, the objective of defining flexibility options is to work with your Customers to derive a contained set of options between which they can choose for each identified targeted short listed area.

Delivery strategies

Once you have derived the flexibility options that your Customers require, all that is left is to draft a plan for their execution in a cost responsible manner and roll them out.

Implementing strategic flexibility will typically require you to implement the appropriate mix of information technology, physical process and mechanisation. All told, time spent in careful planning is time well spent.

Retiring unrequired flexibility areas

Logically, any flexibility areas that are found to not be adding value to the Customer can be retired, with a view to streamlining your business and thereby driving out unnecessary cost.

Bear in mind that your Customer base’s need for flexibility is continually changing. Today’s need for flexibility could well be tomorrow’s irrelevance. It is therefore critical to continually review your offering to ensure that the areas where you offer flexibility continue to remain relevant to your Customers, given the ever shifting sands of business.

The flexibility management life cycle

Given that the needs of your Customers are in a continual state of flux, it stands to reason that a review of the flexibility that you offer your Customers in not a once off activity as much as it is an ongoing process.

Your flexibility offering needs to be under continual review, driven by all of your various avenues of Customer interaction. Failing to continually review your flexibility areas will eventually lead to you offering flexibility that is not relevant to the needs of your Customer and a cost structure that is not associated with adding Customer value.

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