Presentation to Council, May 2016 The Dynamics at the Heart of the Value Chain Managing the Tension between Organisational Task and Inter- dependence in Value Chains Mannie Sher, PhD 1 Tavistock Institute
Introduction …. Our work Global industrial and manufacturing enterprises: § construction § vehicle manufacture § banks and financial regulatory services § chemicals manufacture § oil industry § pharmaceuticals § cutting-edge IT manufacture. Tavistock Institute 3
Common Themes Leadership focus: 1. Less command and control; more integrating and incorporating 2. Less specialising and focus; more combining and unifying 3. Less goal-directed and focus; more interdependence 4. Ever-changing customer demand and supplier capability; 5. Respecting and working with the uncertainties of diversity of cultures, roles and tasks, competencies and skills. “Global companies are like huge tankers that need many nautical miles ahead in order to manoeuvre” Tavistock Institute 4
Into our consultancy roles were projected ……. § tell us in advance what the outcome of your work will be § provide a visible timetable of work § behave a little more like us before we became global leaders when …. § we were safely ensconced in our disciplines and professions when we could still enjoy the pleasures of having clear technical goals, of solving technical problems and finding solutions – heroes putting fires out. Tavistock Institute 5
Europe • Europe is central to our work. • Of the organisations referred to above: § 4 are head-quartered in the UK; § 2 of the biggest are head-quartered in Europe § and 2 are head-quartered in Asia and Africa. • Retaining Britain’s membership of European and the freedom to work there • Globalisation and parochialism are the antithesis of each other • Defining and evaluating qualities of global leadership Tavistock Institute 6
Theories of Organisation • Most theories of organisation refer to production activities. • Tavistock open systems framework based on ‘conversion systems’, lying between the ‘import’ and ‘export’ activities of a single enterprise. • Tavistock socio-technical systems seeks joint optimization of the social and technical aspects of the enterprise. • Value Chain - activity systems cross the boundaries of several enterprises, • temporary and transitional systems - development and research; procurement and sales, production and maintenance • teams are brought together for a specific task and when completed they disband and redeploy in new configurations. • Our work concentrates on: • (i) disentangle-ment of task boundaries; • (ii) temporary and transi-tional task systems (design and construction); • (iii) transactions across organisational boundaries in the value chain (production systems). 7 Tavistock Institute
What is a Value Chain? • A complex and dynamic supply and demand network that adds value at each stage of a product’s development. • It is a system of organizations, people, activities, information, and resources involved in the transformation of natural resources, raw materials and components into a finished product or service and moving that product or service from supplier to the end customer. • In sophisticated value chain systems, used products may re-enter the value chain at any point where residual value is recyclable. • The larger interconnected system of value chains is sometimes called the ‘value system’. A value system includes a firm's supplier (and their suppliers all the way back), the firm itself, the firm’s distribution channels, and the firm's buyers (and extends to the buyers of their products, and so on). 10 Tavistock Institute
Challenges in the Value Chain • Few researchers have attempted to produce a dynamic theory of the value chain • Collaboration in an integrated value chain is based on the concept of ‘total systems’ • This leads to better utilisation of information flow and significant reductions in the demand amplification without substantial expenditure. • A good inventory control system is one with revalue options that will have shorter lead-times. • Demand and fixed ordering costs are small relative to holding costs - the primary objective is to achieve steady-state behaviour in the value chain. 13 Tavistock Institute
System Dynamics • The application of system dynamics models to value chains is relatively new. • A global economy and increase in customer expectations in terms of costs and services have put a premium on value chain dynamics and processes (Swaminathan et al, 1998). • Application of systems thinking and design concerns aims to limit demand amplification. • One cause of amplification is the time delay incurred by both ‘value-added’ and ‘idle’ operations throughout the value chain. • The drive to reduce cycle times in individual businesses makes sense from the total systems viewpoint, as is the removal of intermediate layers of decision-making from within the chain. • The use of system dynamics thinking helps provide qualitative forecasts of predicted performance improvement and enables the identification of blocking mechanisms that interfere with achieving this objective. • Demand amplification is influenced by communications and interactions between the businesses in the value chain. • Through integrating decision-making mechanisms and resulting information flows throughout the chain, substantial improvements to both order amplification peaks and stock-level swings can be achieved. 14 Tavistock Institute
Quote • “Our company operates in a very open network where customers and suppliers share information on the market. The quality of the information, however, is very poor. Customers do not give us a true picture of when they need our products. The same goes for us when informing our suppliers. Demand is consistently overrated in the system.” Head, Logistics 16 Tavistock Institute
Inter-company Relations • Inadequate knowledge about customers’ anticipated needs for product make planning and organizing for work a matter of guesswork. (Neumann, Holti and Standing) • Both manufacturer and customer strive to achieve competitive advantage through cost reduction or quality enhancement • Both have much to lose by failed negotiations on cost or persistent difficulties with process and product improvement. • Persistent difficulties with quality and productivity lead to high wastage rates; machines stand idle while technicians attempt to compensate for poor quality inputs. • Customers and suppliers willing to invest in developing a new product, strongly determines whether the value chain will be successful or not. • Improving relationships between suppliers and customers has strategic importance. 18 Tavistock Institute
Quote “In our build process, we build a system in our factory, test it, disassemble it, ship it, re-assemble it, and test it again. There is waste in the disassembly step and the test step. There are waiting times after each build step, build milestone and after build. The last step alone is as long as the build step itself, so it is likely that half the time is planned waiting. We have studied the synchronization of these waiting times which show inefficiency in the setting of these waiting times. There is greater efficiency in the upgrades where there is more time-to- market pressure which we accommodate by planning no waiting time between process steps.” Head, Logistics 19 Tavistock Institute
Hypothesis • Our hypothesis: to achieve improvements in the value chain, information flow, decision-making and behaviour, the players need to have a good understanding of the ‘anxieties’ that move up and down the value chain together with the products (Armstrong & Rustin, 2015). • Organisational anxieties generate organisational defenses and these may impede efficiencies by virtue of negative perceptions that influence inter-organisational behaviour in the value chain. • Long cycle times, poor quality products, high cost and organisational pressures to stay ahead by developing more and more complex models, lead organisations in the value chain into push-me-pull-you dynamics that generates suspicion and mistrust and reduces the desire for increased inter-dependent collaboration, and increases anxiety that leads to increased instability in the value chain. 20 Tavistock Institute
Maintaining A Sense of Organisational Affiliation in the Value Chain • Individuals need membership of at least two work-oriented systems - one is a ‘task’ system and the other a ‘sentient’ system. • Sentient needs may be provided by the individual’s scientific or professional base, from which they are assigned to temporary project teams. (Miller and Rice, 1967) • Conceptually and practically, it is necessary to: (i) control task performance; (ii) ensure people's commitment to organisational objectives; (iii) regulate relations between task and sentient sys-tems (iv) regulate relations between the organisation and both sides of the value chain – supplier and customer. 21 Tavistock Institute
Task and Sentient Systems • If a task system, (and a task group), spans an enterprise boundary, it cannot be contained within the organisational boundaries of the enterprise; tension between task and sentient systems is therefore inevitable. • If managing systems and their accompanying control and service functions are modelled on factory production systems, they tend to produce hierarchies that are too simple and too inflexible to fit the complexities of multi-faceted and multi-project task performance in the value chain. • Procurement specialists, engineers, physicists, logistic experts, chemists and sales force personnel illustrate our thesis of managing the tension between sentience and task. 22 Tavistock Institute
Inter-organisational Relations in the Value Chain • The activity systems through which the product moves have boundaries that encompass professionals, work activities and supplier/customer organisations. • Organisations and companies in the value chain have to rely on the skill, experience and integrity of their professionals to do what is necessary; • Profes-sionals have to loosen their commitment to their employing companies as they work together in cross-company teams to strengthen each other’s companies in the value chain. • These inter-dependencies give rise to fears of loss of loyalty, dilution of resource availability as employees identify with the organisations to which they are seconded or with which they work closely. • Implicit in the manufacturer-supplier and in the manufacturer-customer relationship is the possibility of failure, with corresponding anxieties, conscious or unconscious, that the supplier’s and the customer’s problems may be disruptive or the manufacturer’s skills may be inadequate. • The more there is at stake, the more intense the confused and ambivalent feelings associated with the inter-dependence in the value chain are likely to be. Tavistock Institute 23
Organisations and Professions • Organisations are designed around hierarchies of task systems • People’s identity is sometimes more strongly derived from their professions than from their employers. Tavistock Institute 24
Problems in Task and Sentient Systems • In the value chain, task- and sentient-group boundaries increasingly fail to coincide. • New technologies cause frequent job breakdown and the threat of loss of confidence in suppliers and customers. • The outcome is the formation of internally led, semi-autonomous work groups that often are in conflict with traditional hierarchical forms in their employing organisation. • In contrast to the conflicts within hierarchical organisations, semi- autonomous work groups with freedom to relate to other semi-autonomous work groups up and down the value chain, show greatly increased production, higher quality, reduced costs, and much greater satisfaction for the integrated teams of diverse working professionals in the value chain. Tavistock Institute 25
Semi-autonomous Work Groups Semi-autonomous work groups in single enterprises and in the value chain are likely to be effective when …. • They experience completion of the whole task. • There are well-defined internal boundaries and boundaries between companies with measurable intake/output ratios that can serve as criteria of performance. • They regulate their own activities, and provide satisfactory personal and inter- personal relationships, range of different statuses does not prevent internal mobility. • Group members can move to other similar groups. Tavistock Institute 26
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