The CEO, innovation and cash gaps
Updated: Mar 18, 2022
Dear reader, not too long ago I spoke with the CEO of a global operating company about his major business challenges. For now I call him Joe. His company develops, manufactures and sells discrete consumer products. The sales is via a huge international network of retailers, and via some direct sales. He has more than 30.000 employees, in more than 100 countries, and over 10 plants. Joe’s company is listed and he reports on a regular basis about the progress of the company to both the financial markets and his non-executive Board.
“Well, there are many challenges, where do you want me to start?” I answered: “Talk about those challenges that keep you awake at night”. “OK, here you go”.
“The major challenge I have is to predict in a trustworthy way the future of the business, how the business will develop. For shareholders the expectation of the future business is key for the confidence and longer term financial loyalty. Of course I also have to report results of the current business, revenue numbers, market share, etc. and of course they want to see a positive trend here, but above all they want to know how we as a company want to respond to major trends in the market, how we want to compete, where we want to invest new capital. Concretely, how we want to compete with the cheap and intense competition from Chinese competitors and from South Korea, in the long run. So my challenge is to present a trustworthy pipeline of new products and new market segments with realistic financial estimations, and concrete timelines”.
I asked: “You mentioned trustworthiness a couple of times already. Why?”. Joe continued: “Let me tell you, if my promises are not trustworthy, the shareholders will replace me immediately. And the fact is, the company is not that good at launching products that we agreed to launch in time, we are too often too late, and we have many recalls, because we have to cut corners. I was a mechanical engineer myself, so I know what it means to deal with the pressure on the shop floor in R&D and in the plants. For me the timing is very key, because it influences our cash position directly. If a product is 2 months late in say 3 regions, you have a gap in your expected cash position, revenues”.
Then I asked: “Why is it so difficult to release the agreed products to the market in time ? Any idea?”. Joe answered: “Huub, we need hours to discuss this. But high level the challenge we have is to design and produce products that meet the latest demands of the market. Not easy. In the first place we have to offer green products, products that are ready for the circular economy. This demands not only new technologies, but also rethinking and reorganizing our complete ecosystem. For example which partners will collect and reuse the waste of our products once with the consumer, in all these countries. It is a major challenge. And on top of that we have to deal with the demands of digitization. The market expects “smart” products, and even for a cheaper price. My company struggles to combine these 2 major KPIs. Ideally the digitization is a means to greener products, but many of the digital people put themselves in the center, it is a cultural thing. They believe software is the center of the universe, but of course this is not the case. My challenge is to get them work together towards one and the same KPI: green products that are smart. I cannot sell smart products that are not green in my markets.”
I said: “So how can we help?”. Joe: “Help us to have a predictable business, predictable future cashflows with green, and smart product lines. Help us to have smooth collaboration companywide, and help us to implement a decision making framework to support the collaboration. Whether we develop a technology ourselves or buy it from a supplier, in all cases the decision making has to be smooth, clear and transparent. Also traceable for the future. I always need to be able to trace back the root cause of a recall or a product safety issue”.
We then had discussion about management methodologies, also management software. In fact he was not so much interested in methodologies, he said “in my company you will find many methodologies and systems, if a methodology or system exists, we will have it; as long as people are happy with them and think they operate better, I am OK with it”. Joe has to present economic results and a trustworthy future.
The discussion with Joe opened my eyes. Whatever method you believe is the best one for your job, think about methods like BPI, QA, Knowledge Management, Lean, Six Sigma, Stage-Gate®, Iterative Waterfall, Agile, SAFe, also Modularization of Production, the company as a whole needs an overarching governance framework that allows the company to collaborate, align, agree how to meet the KPIs of the CEO, in the end. Despite different beliefs, cultures, methods. Nobody should see his function as the center of the universe. The plumber should not think that he should design and build your house. He is just one of the players in a wider game.
In my next Blogs I will discuss many aspects of Innovation Governance that in my view are critical to having success.
Joe explained what business success means.