Manufacturing today entails immediate yet informed decision making. However, with increasing levels of sophistication and production, senior leadership often has limited time to make optimum decisions pertaining to the number of unanticipated issues surfacing from time to time. These issues—if not managed properly and timely—can lead to defects and wastes.
Top global enterprises are utilizing innovation and creative ways to enable prompt decision making. Specifically, they are using Internet of Things (IoT) to effectively handle critical aspects of manufacturing. Successful implementation of a Manufacturing IoT system facilitates in automating key tasks, decisions and processes; curtailing scrap and rework; and enhancing productivity.
People often object to implementing an IoT system by citing other important projects that they are already undertaking and the resource and time constraints as pressing hurdles. To work around these limitations, manufacturers can engage 3rd party consultants having proven expertise in end-to-end successful IoT, Asset Tracking, and manufacturing systems deployment.
Implementing a Manufacturing IoT System leverages immense benefits, including:
- Enhancing the ROI of other programs under way.
- Streamlined and Process Improvement and Robotic Process Automation help prompt informed decisions.
- Managing materials efficiently.
- Adjusting to customer requirements.
- Avoiding costly mistakes and rework.
However, harnessing IoT necessitates careful deliberation and planning. The core requirements to effectively implement a Manufacturing IoT system can be segregated into 2 broad categories:
- Functional Requirements
- System Requirements
Functional Requirements (FR) describe the system or its components. FR provide a description of services that the Manufacturing IoT system must offer. FR for Manufacturing IoT may include:
- Control Assets and Administer Asset Properties
- Track Assets Movement
- Setup Locations
- Maintain Equipment Duty Cycles for Maintenance
- Record Raw Material Shelf Life
- Maintain Asset Family and Digital Thread
- Extend Material Shelf Life
- Enable Cutting and Kitting
- Asset Search and Filter
- Maintain Assets Events
- Record History of Events
- Generate New Assets
- Record Cured Kits
- Document Assets
- Allow Synchronization with Current Systems
- Generate Real-time Production Maps
- Enable Integration with Cut Planning Optimization Systems
- Allow Production of Passive RFID Tags Internally
- Create Customized Alerts
All systems require availability of certain software resources, functionalities, or other hardware components. These prerequisites have to be met in the design of a system. Typical System Requirements for manufacturing IoT may include:
- User Authorization
- Quick installation
- Integration to Next-generation IoT Platforms
- Radio-frequency Identification (RFID) Ability
Let’s delve deeper into some of the Functional Requirements for now.
Control Assets and Administer Asset Properties
The system should be able to manage multiple assets and add new assets. It should be capable of:
- Creating asset properties, e.g., name, ID and shipment date.
- Editing property labels and show / hide asset properties.
- Automatically adding materials’ expiry date, “remaining exposure time,” “tool autoclave cycles left,” and “tool usage time left.”
Trace Assets Movement
The IoT system should be able to:
- Follow assets location from one site to another during the manufacturing process.
- Allow integration of MAT with RFID and other floor sensors to gather real-time assets’ location and condition data.
- Enable asset location reporting manually, through barcode, or hybrid (barcode and RFID).
The system should maintain:
- Asset data from multiple sites (locations).
- Assets movement to and fro various sites, reported using RFID or other sensors.
Maintain Equipment Duty Cycles for Maintenance
The IoT manufacturing system should record all maintenance needs and maintenance activity performed on an asset. Specifically it should:
- Keep data on all tools available at various sites with their duty cycles for preventive maintenance.
- Maintain record and generate reports on maintenance activity preformed on a specific tool.
Record Raw Material Shelf Life
The IoT manufacturing system should:
- Automatically calculate raw material and work in process exposure time and date of expiration.
- Maintain assets’ shelf life and generate automated screen notifications, alerts, emails, or SMS.
Interested in learning more about the details of other Functional and System Requirements of a Manufacturing IoT system? You can download an editable PowerPoint on Manufacturing: Internet of Things Implementation here on the Flevy documents marketplace.
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Changing industry ecosystems and competition today demand from the organizations to undergo strategic shifts. The purpose of a company is undergoing Business Transformation from serving the interest of shareholders to serving all stakeholders that influence the organization.
Shareholders are often considered the only stakeholders that invest in a business. Senior management needs to be cognizant of the importance of shareholders as well other stakeholders who create value for the organization. They should work on building a collaborative Organizational Culture and paying heed to the welfare of all those groups that play a role in organizational growth.
This warrants a thorough evaluation of all stakeholders, their long-term interests, and Value Creation—or Value Destruction—potential for the organization. But first, this calls for finding answers to the following key questions:
- Who creates the most value for the organization?
- Who among the stakeholders typically secure the best deals from the organization?
- Who is the victim of having the worst deals from the organization?
- Who among the stakeholders is potentially untrustworthy?
- Are there any intermediaries or stakeholders fulfilling their personal agendas?
Answering these questions is critical for the executives, otherwise they may risk falling into Shareholder Value Traps. Recognizing and understanding stakeholder value traps while the managing stakeholders‘ various interests helps executives achieve shared and individual long-term goals. These 5 common traps prevent stakeholders’ interests to get integrated with the interests of the organization and destroy the value of a company if overlooked:
- Ignoring cash-flow driving stakeholders while distributing cash
- Miscalculating reaction from stakeholders
- Supporting under-performing units
- Conceding to willful vulture capitalists
- Misjudging intermediaries role in transactions
Let’s discuss 3 of these stakeholder traps individually.
TRAP 1 – Ignoring cash-flow driving stakeholders while distributing cash
Shareholders are often treated as the critical drivers of long-term cash flows. However, they are often short-term cash flow generators, whereas other stakeholders who provide their input for the organization in the form of their competencies and experience deliver long-term value. These real contributors should be given top priority when distributing cash on earnings. Underestimating or failure to identify the real long-term cash-flow generators can be a fatal value trap for an organization.
TRAP 2 – Miscalculating reaction from stakeholders
Another trap that most executives fall victim to is discounting potential backlash from weak stakeholders upon unfair distribution of cash / incentives. Mining value from these victims to support shareholder disbursements can be equally detrimental, as annoyed stakeholders—with the help of social media and NGOs—, legal battles, and financial penalties can devastate a firm’s reputation and financial health.
TRAP 3 – Supporting under-performing units
Senior executives and boards at some organizations foster free riders—stakeholders that sap more benefits from the enterprise than the business they generate—at the expense of long-term value shareholders. Free riders include an under-performing department close to the board, or a dwindling business unit that is part of a profitable section and whose financials are not categorized separately.
Continued support to these free riders is often at the cost of allocating resources to other potentially more profitable ventures, and this practice has led many companies to losses and even bankruptcies.
Interested in learning more about the Stakeholder Value Traps, types of organizational stakeholders, and strategies to stay clear of the Stakeholder Value Traps? You can download an editable PowerPoint on Shareholder Value Traps here on the Flevy documents marketplace.
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In the wake of global pandemics when meeting face to face is not possible, it’s about facilitating workshops digitally, designing a formal agenda, and utilizing digital tools to ensure a productive virtual meeting. Digital Collaboration Platforms have been pivotal in the current scenario.
As a matter of fact, Digital Collaboration platforms have become a new norm and have forever transformed business work environment. Digital Facilitation tools are extensively used by facilitators, Change Management consultants, Organizational Development practitioners, and learning professionals as a way to collaborate on workshops, events, change initiatives, and learning programs.
Digital Workshop Facilitation can be categorized into the following 3 major types:
- Virtual Facilitation
In this type of Digital Facilitation, a group collaborates remotely in real time but from different locations. Common tools used are Zoom, GoToMeeting etc.
- Asynchronous Facilitation
In this facilitation method, a facilitator leads participants remotely at a different time and place. Common tools include Email, Slack etc.
- Face-to-Face Facilitation
In Face-to-Face facilitation, a facilitator interacts with a group of people in the same workshop space, in person. Digital tools can be used in such a setup instead of flip charts and sticky notes.
The new scenario brings forth new challenges in workshop facilitation that necessitate robust principles, methods, and tools for the future work environment to run smoothly. Understanding and adhering to the following best practices and principles in Digital Workshop Facilitation helps in attaining effective results just like face-to-face workshops:
- Specify well-defined guidelines and expectations.
- Form an assured environment to enable discourse.
- Ensure effective interaction before, during, and after a workshop.
- Ensure all voices are heard.
- Document the conversations.
- Alter the moderation approach based on the participants’ level of understanding.
- Seek comments and iterate.
Let us delve a little deeper into some of the principles:
1. Specify well-defined guidelines and expectations.
The remote nature of digital workshops limits the element of reacting to audience’s lack of attention. This warrants clear instructions regarding ground rules, both in writing and orally to compensate for this disadvantage. Participants need to use precise language in asking questions and answering them.
Instructions on technology and tools usage should be reiterated from time to time.
2. Form an assured environment to enable discourse.
Trusting participants in a virtual setting is difficult if you do not know them. It is the digital facilitator’s job to create conversation security in different ways. Spending time on icebreakers or other pre-engagement activities may ease the discomfort. Providing quick and positive feedback to those who actively contribute encourages shy participants and creates a positive environment. Informing the participants on how meetings are being documented and information on who has access to this documentation can reassure participants.
3. Ensure effective interaction before, during, and after a workshop.
Digital Facilitation platform can be used ahead of a meeting to help participants familiarize with each other, disseminate the agenda, initiate discussions, or obtain helpful information from the participants, such as questions, skill levels, ideas, etc. Digital Collaboration Platform should be the center of post-workshop activities, e.g., sharing documents, closing agendas, answering additional queries, and extended discussions.
4. Ensure all voices are heard.
Digital Workshop tools can facilitate participation of people who in a traditional workshop setup will not be able to participate due to dominance by a few individuals.
Interested in learning more about the Digital Workshop Facilitation principles, methods, and tools? You can download an editable PowerPoint on Virtual Work Digital Facilitation (Primer) here on the Flevy documents marketplace.
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Large manufacturers are often reluctant to share knowledge with suppliers. However, supplier networks are considered a great source of gaining competitive edge by Learning Organizations.
A Learning Organization is founded on innovation, free flow of ideas, and a consistent focus on transforming the ways of doing business in order to achieve the desired results. For instance, Toyota out-performed its competitors in the 2000s era by incorporating the principles of Learning Organization in its culture and sharing technology and knowledge with its suppliers. This resulted in less defects, lower inventory levels, and improved labor productivity for its suppliers and higher profits for Toyota.
Specifically, Toyota became a Learning Organization by developing the infrastructure and inter-organizational processes that enabled quick and free flow of explicit and tacit knowledge to its supplier network. The Learning Organization at Toyota features 3 inter-organizational processes, which became foundational to its approach to Supply Chain Management:
- Supplier Associations
- Consulting Groups
- Learning Teams
Supplier Associations were setup by Toyota, initially, to share information, valuable experience, and to extract feedback. The knowledge-sharing mechanisms that Toyota’s Supplier Associations employ include high-level sharing of explicit knowledge within the supply network regarding production plans, policies, and market trends. The Supplier Associations hold bimonthly/monthly meetings to discuss key topics that include cost, quality, safety, best practices, and social activities.
These Supplier Associations enable suppliers to build relationships in Toyota at higher levels which was not a common practice in the industry. This resulted in tremendous improvements in supplier performance due to explicit information and experience-sharing, which ultimately benefited Toyota to achieve excellence.
By establishing Consulting Groups in the 1960s, Toyota started the practice of providing free consultation regarding valuable production knowledge to its suppliers through experts. This was accomplished through the creation of Operations Management Consulting Department (OMCD) in Japan in the 1960s and Toyota Supplier Support Center (TSSC) in the U.S. in 1992.
By developing the Consulting Groups infrastructure, Toyota’ consultants spent significant time at their supplier sites free of charge, helping them resolve problems in the Toyota Production System (TPS) implementation. Suppliers, in turn, were encouraged to share their project results and open their operations to one another. This explicit sharing of results and knowledge enabled other suppliers to replicate best practices and benefited Toyota by negotiating Target Pricing with its suppliers.
Learning Teams—the 3rd pillar of a Learning Organization—were pioneered by Toyota in 1977 by organizing its suppliers into Voluntary Study Groups in Japan or Plant Development Activity (PDA) groups in the U.S. The Learning Team collaborated voluntarily on production and quality management.
The Learning Teams were—and still are—responsible for determining a theme and spending time addressing each member’s problems related to that theme, making the members learn significantly by having outside pair of eyes look at their problems. This helped Toyota’s suppliers’ network achieve effective tacit knowledge transfer, explore new ideas and applications of Toyota Production System (TPS), transfer valuable lessons learnt to all stakeholders, and enhance production quality.
Toyota follows a deliberate step-wise path to create Knowledge-Sharing Networks. These Knowledge-Sharing Networks are an invaluable resource for enhancing both overt and implicit information and experiences for the organization.
Key dynamics of Toyota’s Knowledge-Sharing Networks involve creating a non-threatening one-on-one relationship with suppliers through the Suppliers Association in the form of financial as well as valuable knowledge-sharing assistance.
Interested in learning more about the dynamics of Toyota’s Knowledge-Sharing Networks, the fundamental barriers to learning, and their implications on the suppliers and the manufacturer? You can download an editable PowerPoint on Learning Organization: Supplier Networks here on the Flevy documents marketplace.
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In the modern age, organizations are striving to form a sustainable Supply Chain system to cope with the challenges that are arising. Such issues include the emission of hazardous substances, excessive resource consumption, Supply Chain risks, and complex procedures.
Through Strategic Planning, organizations around the globe are adopting strategies to become a sustainable organization. In fact, there is an increasing trend towards organizations adopting sustainable Supply Chain Management practices.
Gaining a Foothold on Supply Chain Management
Supply Chain Management is the design, planning, execution, control, and monitoring of Supply Chain activities. It addresses the fundamental business problem of supplying products to meet demand in a complex and uncertain world.
Looking at Supply Chain Management, we can see that it draws on the value chain concept of business strategist, Michael Porter. It looks at supply issues at the multi-company level. It creates net value, builds a competitive infrastructure, leverages worldwide logistics, synchronizes supply with demand, and measures performance globally.
The need for Supply Chain Management came about when shorter product life cycles and greater product variety has increased Supply Chain costs and complexity. And as outsourcing, globalization, and business fragmentation became a common practice, there was now the need for Supply Chain integration. This was further emphasized with the advances in emergent technologies. which created more opportunities for Digital Transformation within Supply Chains.
The 4 Levels of Supply Chain Management Strategies
There are 4 Levels of Supply Chain Management Strategies. The first 3 strategies are foundational Supply Chain Strategies.
Before any Supply Chain can be considered sustainable, there are 3 foundational Supply Chain Strategies that need to be undertaken.
- Legal Supply Chain Strategy. There are a number of legal rules and regulations that need to be followed by organizations. The Supply Chain Strategy must cater to all legal rules. An example is a ruling according to the Restrictions of Hazardous Substances Directive (RoHS) wherein an organization must not rely on the mercury, cadmium, and chromium as they result in huge emission of hazardous substances.
- Ethical Supply Chain Strategy. To become an ethically strong organization, it is required that the organization operates with integrity and focus on what is right. The organization could develop a policy that governs the organization’s operations. It is also essential that the Supply Chain quality assurance team that is built complies with ethical sustainability.
- Responsible Supply Chain Strategy. To become responsible, the organization could spend resources in compliance with sustainable rules. The organization could set up training and development programs to drive sustainability within the organization. It can also focus on environment-friendly activities to boost its social responsibility.
Before an organization can become sustainable, significant efforts must be exerted to put the 3 foundational Supply Chain Strategies in place within the organization.
Reaching the Level of Sustainability
Sustainable Supply Chain Strategy has become increasingly important as more and more organizations are focusing on putting it in place. According to the MIT Slogan Review, over 75% of organizations listed in the S&P 500 reported sustainability reports where it shows that catering up to the responsibility is becoming highly challenging and important. There has been a significant increase and inclination towards sustainability and this depicts the importance of becoming sustainable.
With the passage of time, it has become evident that organizations around the globe are becoming fond of sustainable considerations.
Interested in gaining more understanding of Supply Chain Sustainability? You can learn more and download an editable PowerPoint about Supply Chain Sustainability here on the Flevy documents marketplace.
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Financial crisis, adverse supply shock, technological disruption, or natural hazards and disasters significantly affect global businesses. Recessions caused by these global incidents and problems have serious outcomes on commodity prices, stock markets, economies, and even countries.
A Downturn can be described as a contracted business cycle with a significant decline in economic activity across markets with subsequent drop in spending, GDP, real income, employment, and manufacturing. Downturns cause inflation, decline in sales revenues and profits, and cutbacks on R&D and other crucial expenditures. The scenario challenges businesses because of tightening credit conditions, slower demand, layoffs, and general insecurity.
The organizational readiness to manage and curtail the adverse effects of downturns is the top agenda for the senior executives. However, the uncertain nature of an economic crisis often triggers rash responses or even inaction.
Any haphazard responses or inaction can make recovery of an organization from a downturn costly later on. Downturn management necessitate a calculated approach to confront the uncertainties, anxiety among the employees, and to unlock opportunities out of such crisis. An effective approach to deal with the downturn crisis encompasses 2 key phases:
- Determine Exposure
- Minimize Exposure
- Invest for the Future
- Pursue M&A Opportunities
- Redesign Business Models
Let’s dive deeper into the 2 phases.
This phase entails a series of actions to safeguard the organization from downturns and maintain the liquidity required to sustain the period of uncertainty. Leading organizations take downturns as an opportunity to deploy planned yet urgent, high-priority interventions to maintain standard functioning of the enterprise. They carry out careful analysis to appraise and curtail the risks of exposure. Key steps required to stabilize the organization during a downturn include:
- Determine Exposure
- Minimize Exposure
This step demands a methodical assessment of risks associated with exposure. This necessitates evaluating various scenarios and their impact on the organization as well as on the industry. The step helps in ascertaining the units that are more susceptible to downturn risks and warrants prompt action. The analysis of various scenario assists in highlighting and communicating the rationale—for interventions required to manage the downturn—to the people across the organization.
Specifically, the step involves initiating 3 fundamental actions:
- Conduct Scenario Analysis
- Quantify Impact
- Analyze Competition
Once the executives have determined the impact of downturn exposure on their business, it’s time to work on reducing the exposure from crisis risks. An understanding of the effects of a downturn exposure on the business helps the senior executives discern the most appropriate method to subsist and make the most of their organizational performance during the downturn.
In order to subsist and minimize downturn exposure risks senior leadership needs to maintain enough liquidity and access to capital to make sound investments in future, keeping a check on cash flows by generating weekly / monthly cash reports, cutting down or delaying discretionary spending, carrying out interventions to improve fundamental business, improve business processes, and maintain the organization’s market value and positive outlook for the investors.
Specifically, the executives have to work on achieving these 3 objectives:
- Protect Financials
- Protect Existing Business
- Maximize Valuation.
The Capitalize phase focuses on growing the business and making the most of the economic situation. Leading organizations prudently manage downturns with greater diligence and immediate, well-thought-out response. Downturns do not preclude executives from investing in critical interventions. Most investments take time to fruition and postponing crucial investments may put an organization on the back foot when economic conditions normalize.
To capitalize on these hard times, senior executives need to carefully think about and prioritize the various investment options and endeavors critical for improving productivity and revenue, consolidate the business through mergers or acquisitions, hold back spending on projects with unclear results, shelve the endeavors that do not have a key role in future success, and invest in developing their people.
Specifically, they should chart out 3 key actions to take advantage of the crises and emerge rejuvenated after these tough times:
Interested in learning more about the phases and key actions required to manage Downturns? You can download an editable PowerPoint on Downturn Management and Transformation here on the Flevy documents marketplace.
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As the business and operating environment changes, there has been a greater demand for transparency and accountability as to the integrity of internal control. This has become very critical today as businesses drive to enhance the likelihood of them achieving their objectives and be able to adapt to changes in the global business environment.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) released in 1992 the Integrated Internal Control Framework that will enable organizations to effectively and efficiently develop and maintain systems of internal control. It also includes enhancements and clarifications that will provide organizations the ease of using and applying the Framework.
An Overview of the COSO Framework
The COSO Framework is the globally recognized framework for designing, implementing, conducting, and assessing internal control. It is recognized as the definitive standard against which organizations measure the effectiveness of internal control systems.
If we look at the internal control, this is not a serial process but a dynamic and integrated process. It is a process effected by an organization’s Board of Directors, Management, and other personnel designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. It can be considered an enabler when it comes to achieving Operational Excellence.
The COSO Framework provides for 3 categories of objectives. These categories allow organizations to focus on different aspects of internal control. It ensures that the internal control system is operationally efficient and effective, reporting reliable data, and remain compliant to laws and regulations.
The 5 Components of the COSO Framework
In an effective internal control system, 5 Components of the COSO Framework must be present to support the achievement of an organization’s mission, strategies, and related business objectives.
Component 1: Control Environment. This is a set of standards, processes, and structures that provide the basis for carrying out internal control across the organization.
Component 2: Risk Assessment. This forms the basis for determining how risks will be managed. It involves a dynamic and iterative process for identifying and assessing risks to the achievement of objectives. It determines the possibility that an event will occur and adversely affect the achievement of objectives.
Component 3: Control Activities. The 3rd component ensures that Management’s directives to mitigate risks to the achievement of objectives are carried out. These are actions that are established through policies and procedures. It may be preventive or detective in nature.
Component 4: Information and Communication. This component focuses on the generation of relevant and quality information to support the functioning of other components. It is a continuous iterative process of providing, sharing, ad obtaining the necessary information. This is necessary to enable businesses to carry out internal control responsibilities to support the achievement of its objectives.
Component 5: Monitoring Activities. Monitoring activities, as a component, ascertains whether each of the 5 components of internal control is present and functioning. It includes the conduct of ongoing evaluations, separate evaluations, or a combination of both.
The 5 Components of the COSO Framework are essentially important as they represent what is required to achieve the objectives and the organizational structure of the organization. Each component has its underlying principles and key elements to better guide organizations in putting the components in place.
Additional Key Considerations
The COSO Framework sets the requirements for an effective system of internal control. An effective system reduces, to an acceptable level, the risk of not achieving the organization’s objectives.
There are additional key considerations that organizations must take note of. One consideration is that each of the 5 components and relevant principles is present and functioning. Present refers to the determination that the components and relevant principles exist in the design and implementation of the system of internal control to achieve specified objectives. Functions refer to the determination that the components and relevant principles continue to exist in the operations and conduct of the system of internal control to achieve specified objectives.
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Cost-based Pricing is fast becoming a relic of the past and being substituted by the concept of Target Costing. Target Costing is referred to as an organized process to determine the cost at which a proposed product must be developed so as to generate profits at the product’s anticipated selling price in future.
In highly competitive markets such as FMCG, construction, healthcare, and energy, prices are determined by market forces. Producers cannot effectively control selling prices. The only control, to some extent, is over costs, so management’s focus has to be on influencing every component of product, service, or operational costs.
Target Costing is a proactive Cost Planning, Cost Management, and Cost Reduction practice. Costs are planned and managed out of a product and business early in product life-cycle, rather than during the later stages. The fundamental objective of Target Costing is to make the business profitable in any competitive marketplace. Target Costing is widely used in several industries e.g. manufacturing, energy, healthcare, construction, and a host of others.
Some key features of Target Costing are:
- Seller is a price taker rather than a price maker.
- The target selling price incorporates desired profit margin.
- Product design, specifications, and customer expectations are built-in while formulating the total selling price.
- Cost reduction and effective cost management is the corner stone of management strategy.
- Target Cost has to be achieved through team collaboration during activities such as designing, purchasing, manufacturing, marketing, and other activities.
Target Costing presents the following advantages over other product pricing techniques:
- More value delivered to customer since the product is created keeping in mind the expectation of the customer.
- Approach to designing and manufacturing products is market driven.
- Competitive Advantage gained through process improvement and product innovation.
- Drastic Process Improvement, which creates economies of scale.
- New market opportunities converted into real savings to achieve the best value for money rather than to simply realize the lowest cost.
The Target Costing process comprises 3 main phases.
- Market-Driven Target Costing
- Product-Level Target Costing
- Component-Level Target Costing
Let’s discuss the 3 phases briefly.
1. Market-Driven Target Costing
In this phase, Selling Price is determined by analyzing the entire industry value chain and all functions of the firm. The focus of this costing phase is on analyzing market conditions and determining the company’s Profit Margin in order to identify the “Allowable Cost” of a product.
In this phase, the desired profit level is set on the basis of firm’s strategy and financial goals, and is deducted from Selling Price to obtain Allowable costs. Intensity of competition, nature of customers, similar product introduction by competitors, and level of customer sophistication are the key factors influencing Market-driven Target Costing.
2. Product-Level Target Costing
In this phase, Allowable Cost only gives a ball-park figure of cost saving to be achieved. It has to be translated into Achievable Target Cost. This type of costing concentrates on designing products that satisfy the company’s customers at the Allowable Cost. The cardinal rule of Product-level Target Costing is to never exceed the Target Cost.
The objective of this Target Costing phase is to create intense but realistic pressure on the product designers to reduce costs. Product Strategy (number of products in the line, frequency of redesign, degree of innovation) and product characteristics (complexity, magnitude of up-front investments, and duration of product development) are the key factors affecting Product-level Target Costing.
3. Component- Level Target Costing
The Component-level Target Costing settles the price at which a firm is willing to purchase the externally-acquired components being used in its product. This phase involves a cross-functional team that is tasked to reduce costs across all functions such as designing, purchasing, manufacturing, marketing, and other activities.
The components cost history serves as the starting point for estimating the new component-level target costs alongside optimal selection of suppliers. A supplier-focused strategy is the key factor that influences Component-level Target Costing.
Interested in learning more about how the Target Costing process works and its key steps? You can download an editable PowerPoint on Target Costing here on the Flevy documents marketplace.
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The most resilient and consistently successful companies have discovered that the devil is in the details of the organization. No company may ever totally master the enigma of execution. But for them organizing to execute has truly become a competitive edge.
Execution only becomes effective when the company’s DNA is holistically integrated. This means weaving intelligence, decision-making capabilities, and a collective focus on common goals widely and deeply into the fabric of the organization so that each person and unit is working smartly and together.
The best Organizational Designs are adaptive, self-correcting, and robust. But creating such an organization does not happen quickly. It can take several years to get the basic right.
In understanding Organizational DNA, one needs to have a full grasp of the 4 bases of Organizational DNA, as well as the 8 core elements of the Organizational DNA. While the 4 Bases are the building blocks, the 8 core elements are the blueprint for Organizational Design.
The 4 Building Blocks of Organizational DNA
Organizations must have a good operational understanding of the 4 Building Blocks of Organizational DNA to better perform effectively and efficiently. The 4 Building Blocks are Structure, Decision Rights, Motivator, and Information.
Structure is the organization of business units around customers, products, or geography. In principle, structural choices are made to support a strategy. However, in practice, often a company’s organizational structure and strategic intent do not match.
Decision Rights specify who has the authority to make which decisions. Often, these put the flex o the organization chart and define where responsibility lies.
Motivators are incentives, rewards, and systems that enable employees to perform their functions well. It shows how people respond rationally to what they see, understand, and rewarded.
Information is one critical base in the company’s DNA that underly the company’s ability to ensure clear decision rights and motivate people. Information is among the most underappreciated contributors to Operational Excellence and competitive advantage. Often, better information flows did more than keep costs down. It helps allocate scarce resources far more efficiently than before.
Discovering the 8 Elements of Organizational Design
It is best to understand the 8 Elements of Organizational Design as it is the blueprint for Organizational Design.
Let us take a look at the first 2 rungs. The first 2 rungs focus on Authority, governance of behavior, and how a company governs behavior.
Rung 1: Authority and governance of behavior
In terms of formality, in the formal part, how decisions are made are elements that a company can precisely articulate. This can be expressed through governance forums, decision rights, decision processes, and decision analytics.
In the informal part, how people instinctively act or take action is the informal part. This can refer to values and standards, expectations, and unwritten rules, and behaviors.
Rung 2: The way a company governs behavior.
The formal part is the Motivators on how people are compelled to perform. These can be represented by monetary rewards, career models, and talent processes.
The informal part is commitment. It is how people are inspired to contribute. It is represented by shared visions and objectives, individual goals and aspirations, and sources of pride.
The first 2 rungs are essential in ensuring that the Organizational Design has a balance of both authority and behavior.
The 3rd and 4th rungs focus on flows of knowledge and insight, as well as structure and networking. These 2 rungs are essentially important in ensuring that appropriate structure and network is in place to support flows of information and insights.
Interested in gaining more understanding of the 4 building blocks to Organizational DNA? You can learn more and download an editable PowerPoint about Organizational DNA: 4 Building Blocks here on the Flevy documents marketplace.
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Transformation from a product-based model to a platform model is a dream for many executives. More and more product companies are now shifting into a platform model. The drive behind such a shift is the huge success of platform companies—e.g., Amazon, Google, and Apple. These organizations started out as a retailer, search engine, and iPod manufacturer respectively, but later transformed into platform models.
However, bringing this transformative vision into reality is anything but straightforward. Research into successful platform businesses reveals that this necessitates a robust approach comprising the following 4 critical phases:
- Attractive Product and Customer Base
- Hybrid Business Model
- Rapid Conversion
- Identify and Seize Opportunities
Let’s dive deeper into the first two phases of the approach, for now.
Attractive Product and Customer Base
A platform model is not a remedy to resuscitate products that are on a downward slide. It necessitates an attractive product that offers a significant customer base and value to help improve customer loyalty and resist rival offerings. The critical mass of customers also allows the platform company to create value for—and attract—third parties that are crucial for the platform to flourish.
Qihoo 360 Technology, a large internet firm in China, commenced its operations in 2006 by selling an antivirus software, 360 Safe Guard. To build a broad user base and to gather customers’ feedback on improving the product, the company started giving away the product free. The company maintained a list of malware as well as a “whitelist” of programs that were safe for the users. The critical mass of customers allowed Qihoo to:
- Quickly identify viruses on scanning computers
- Improve the antivirus
- Introduce new products
- Attract new customers
- Create new platforms
- Attract 3rd-party software companies to make Qihoo a channel for reaching customers.
Hybrid Business Model
The notion that an organization has to embrace either a product-based or a platform-based business model is far from reality. Although, both the product-based and platform-based business models need a framework to assign dedicated resources and manage operations, however, Business Transformation from a product-based model to a platform-based model gets simplified utilizing a hybrid approach. A product-based business model calls for organizations to have differentiated products catering to customers’ needs, to create value. Whereas, a platform-based business model creates value by linking users to 3rd parties and charging fees for using the platform. The focus of Platform models is on:
- Inspiring mass-market acceptance
- Increasing the number of interactions rather than meeting specific customer needs
- Connecting users and 3rd parties to create competitive edge instead of relying solely on product differentiation (product model).
For example, Apple converted itself from a product model to a platform model within a year after the launch of the first iPhone. Initially, Apple reacted defensively to any hacking attempts and precluded 3rd party apps on the iPhone, but then decided to create an open platform, and launched the App Store. The hybrid model and platform mindset created additional income streams and significant revenue for Apple.
To make a product and business model profitable, the conversion of product users into platform users is of utmost importance. To enable this, an organization needs to develop its platform in such a way that it should present enough additional value for the customers to adopt it and become its users. Three key elements are critical to accomplish this:
- Deliver adequate value
- Launch connected products consistent with the brand
- Allow 3rd parties to perform upgrades
If the platform does not offer adequate value for the customers they are not going to embrace it the way they do to a great product. Similarly, addition of new offerings that are coherent with the brand has a strong correlation with new platform adoption. New offerings gain traction from a firm’s image and strengthen the brand further. Likewise, allowing 3rd parties to make upgrades, improve product offerings, and develop the platform further helps in rapid conversion, additional revenue, and growth.
Interested in learning more about the phases of the approach to Products-to-Platforms Transformation? You can download an editable PowerPoint on Products to Platforms Transformation here on the Flevy documents marketplace.