How Do You Choose Your Suppliers?

Suppliers are a key input to the value chain of all organisations, whether it’s simply ensuring that you have an effective and efficient IT system for your needs; or to offer the quality and timely supply of key components and/or services that have an integrated impact on your organisational performance, profitability and customer service. But how do you choose the right supplier for your organisation? And what’s your approach to reviewing your supplier’s performance? 

Organisations that have been in operation for years have often developed special, collaborative relationships with their key suppliers where, although they are separate organisations, they work together as if they were one, since they benefit from each other’s success, or at least should do. The really smart organisations invite their key suppliers to be part of their strategic planning processes, so that the supplier can start identifying with the firms future vision and what they need to prepare/research to help make it happen (and ensure they are part of it). Also the supplier can often offer unique inputs and perspectives on their specific industry environment and what the future might look like, which by default will impact you and your products and/or services. 

Strong supplier relationships have such significant tangible and intangible value for both organisation and supplier that it’s vital the executive teams from both sides never allow complacency to creep into the relationship, as this can turn a solid relationship sour in a very short period of time and once the relationship is ‘lost’ or one party has concerns about the relationship, the strong collaborative partnership is unlikely ever to be the same again and real value will be lost to both sides. 

When starting out, or diversifying or opening a new operation in a new region, finding the right suppliers takes time and is something that an organisation should spend quality time researching, as finding the right ‘fit’ will have a real impact on pricing, quality, logistics, research, customer perceptions, profitability, sustainable growth and even your organisational culture, as having suppliers you can trust and who can ‘add’ to your strategic future are worth their weight in gold. 

So in today’s fast paced global environment suppliers should be an integral part of an organisations vision, strategy and day-to-day business. The fact that you don’t own them doesn’t mean that you should keep them at arm’s length, as they are a key extension of your business. 

So it’s strange that some organisations seem to treat their suppliers like second class citizens, people who should do as they are told, go the extra mile at their own cost and be happy to get paid ‘sometime’, whenever that may be. To be blunt, regardless of your size, this isn’t smart strategic thinking, as no one likes a bully and though the supplier may seem to be whistling your tune, they are only doing it as part of their own business strategy.  

That’s not to say all suppliers are smart either, where some are looking to make a fast buck or worse can’t be trusted with their customers proprietary information, using it to try and increase their sales with other competitors in the same industry.  

Unfortunately many, in fact way too many business leaders have become cynical of words like trust and collaboration, and prefer an arm’s length relationship with suppliers, where they feel that they have the power and it’s clear who’s in charge -  but by not developing collaborative relationships organisations and their suppliers are leaving opportunities off the table, as neither trust each other enough to look at ways of jointly adding real value to the current value chain and to look at new and improved ways to offer real competitive advantage in the future. 

If you don’t have collaborative relationships with your current supplier base, then it’s time to ask why not and spend the time doing a complete supplier review. This is where you spend time looking at identifying, researching and analysing local and international suppliers, finding out what they do, what their business philosophy is, and meeting them to assess how you ‘gel’ together and maybe giving two or three the opportunity to supply you for a period of time, while you assess if these are the people you can build a collaborative partnership with.  

The successful companies of the future will be those with strong collaborative supplier relationships – as it just makes good business sense for all involved.

What’s the Optimum Number of Direct Reports for a CEO?

Gary Neilson and Julie Wulf wrote in the Harvard Business Review (2012) that “if senior executives are feeling ever-increasing pressure on their time - and few would suggest that’s not the case - why would they add more to their plates? It seems counterintuitive, but according to our research into C-level roles over the past two decades, the CEO’s average span of control, measured by the number of direct reports, has doubled, rising from about five in the mid-1980s to almost 10 in the mid-2000s. The leap in the chief executive’s purview is all the more remarkable when you consider that companies today are vastly more complex, globally dispersed, and strictly scrutinized than those of previous generations.” 

Part of the increase is due to functional roles now being considered much more important today than they were twenty to thirty years ago; when some roles which were considered ‘administrative’, like human resources and IT, often reported through to the Finance Director, rather than directly to the CEO. 

Gary Neilson and Julie Wulf highlight how “new CEO’s in particular are taking on a broader array of responsibilities as they seek a comprehensive understanding of the business and as new technologies allow them to reach more people more directly. But over time - once they attain a steady state - they gradually reduce their span of control until the number of reports approaches the old norm.” 

Executive roles have also changed in many organisations from the once ‘myopic’ functional roles, to where some CEO’s today are ‘developing’ key executives, giving them significant responsibilities outside of their official jobs - with projects meant to expand their functional skills and individual development. Ian Read, the chairman and CEO of Pfizer, shifts responsibilities among his leaders to foster individual and team development. “I try to look for ways to help top individuals bond as a team, so if I’ve got somebody running a business unit, I might also charge him with running a cross-functional team looking at sustainable cost-reduction ideas. Or I’ll ask a functional leader, like our general counsel, to take the lead on a business issue such as our strategy in India, working closely with our head of emerging markets and his team. I recently moved oversight for the nutritionals business from one executive, asked that leader to oversee our corporate strategy, and asked a functional head to lead nutritionals.” 

Gary Neilson and Julie Wulf found that “timing wields a significant influence when it comes to designing the structure at the top. The length of your tenure matters. You might think that as you gain experience, you should broaden your purview - that the more experience you have, the more you should directly control. In fact, the opposite is true. For any senior executive, the first year on the job is a time for learning and assessing. New CEOs are likely to expand their span of control as they set their strategic agenda, evaluate existing talent, get up to speed on all aspects of running the business, and, oftentimes, undertake transformational programs. The span of control is typically highest at the start. As they gain experience and enter the steady state of running the organization, CEO’s begin to reduce the number of direct reports and adjust the mix. At this stage they take a relatively hands-off approach to many aspects of the business.” 

Of course it’s not simply the number of reports that is the key but the capability of the people in those positions. Through the years there has been a ‘tradition’ to have a certain structure with certain ‘key roles’ covering the functional requirements of the business and then having drawn up the ‘bog standard’ organisation chart – it was just a matter of filling the boxes with people. 

But in reality it goes way beyond this, where the CEO needs to know that his executive team are diversified and talented enough to ensure that the long term strategy is constantly being challenged and the focus is on sustainable growth. Executive ‘clones’ will not challenge the status quo and hence numbers of reports in this instance become meaningless – where the structure can be ego driven rather than operationally driven. 

Further you want an executive team that can work together optimally, where more in numbers will not always mean more ‘in output’ if the ‘team’ isn’t wired together and personalities become more important than operational performance.  

Gary Neilson and Julie Wulf also found that “on average, four out of five positions added to a Fortune 500 CEO’s span of control in the past 20 years have been functional specialists rather than the more traditional pick - the major business-unit head.” 

In the right hands increasing the number of reports makes sense, as human resources and IT should always be an executive role and organisations that still see HR, for example, as nothing more than an admin function are missing out on optimising their growth through their talent management and development. There has also been a move away from the COO and this ‘number two’ role, where more modern organisation structures rotate the deputy role when the CEO is away, giving the whole executive team exposure to sitting in the CEO’s seat – it’s good for development and good for team cohesion. 

In conclusion Gary Neilson and Julie Wulf suggest that CEO’s “take a look at the more mature areas of your business and consider consolidating some of the activities under a few strong leaders. Ask yourself if you are spending sufficient time and attention helping the organization execute a forward-looking strategy. Too many leaders populate their team with the usual suspects - the same roles that have always reported to the position - and include different roles only if there is some room. Our advice is to turn this logic on its head: Start with the capabilities and roles needed to push your strategy forward.” 

References

Neilson. G.L. and Wulf. J. (2012) How Many Direct Reports? Harvard Business Review. April

Austerity: Who’s Being Held to Account?

Many individuals and organisations are still struggling from the effects of the global crisis and the fallout from uncontrolled government borrowing across most Western countries. Where for some this just equates to cutting back on expenditure but for others it equates to losing their homes and visiting food banks for basic provisions.

It’s worth remembering that John Maynard Keynes said way back in 1937 that “the boom, not the slump, is the right time for austerity at the Treasury.” Contemporary Keynesian economists argue that budget deficits are appropriate when an economy is in recession, to reduce unemployment and help spur GDP growth. And where economist Paul Krugman explained that if everyone is trying to reduce their spending, the economy can be trapped in what economists call the paradox of thrift, worsening the recession as GDP falls. If the private sector is unable or unwilling to consume at a level that increases GDP and employment is sufficient, he argued the government should be spending more.

Strategies that involve short-term stimulus with longer-term austerity are not mutually exclusive. Steps can be taken in the present that will reduce future spending, such as ‘bending the curve’ on pensions by reducing cost of living adjustments or raising the retirement age for younger members of the population, while at the same time creating short-term spending or tax cut programs to stimulate the economy to create jobs.

IMF managing director Christine Lagarde wrote in August 2011 that “for the advanced economies, there is an unmistakable need to restore fiscal sustainability through credible consolidation plans. At the same time we know that slamming on the brakes too quickly will hurt the recovery and worsen job prospects. So fiscal adjustment must resolve the conundrum of being neither too fast nor too slow; what is needed is a dual focus on medium-term consolidation and short-term support for growth. That may sound contradictory, but the two are mutually reinforcing. Decisions on future consolidation, tackling the issues that will bring sustained fiscal improvement, create space in the near term for policies that support growth.

While economists, academics and politicians can discuss with gusto different theories and practices that may or may not work in the real world; and our current politicians can, when backed into a corner, blame everything on their predecessors  - what we should want to know, especially when more and more families are suffering and large and small businesses are closing their doors on a regular basis – is why isn’t anyone from government and the financial sector being held accountable for the need for austerity measures in the first place?

Further during these times of austerity why are essential service organisations, for example, in the energy and transport sectors being allowed to increase prices in percentage terms that are way above the CPI or average salary increases the majority of employees are getting. Adding further suffering and financial problems for millions of people

In democratic nations this equates to monopolistic exploitation, especially of the elderly and resembles a mafia racket – where if you want to stay warm then you pay up or freeze.  Where are our trusty politicians in this instance, as this time they can’t blame past governments. Why aren’t they ensuring everyone steps up to the plate to support their country gets out of the recession and that their citizens aren’t taken advantage of especially in times of austerity.  

It’s worth remembering that in October 2012, the International Monetary Fund announced that its forecasts for countries which implemented austerity programs have been consistently overoptimistic, suggesting that tax hikes and spending cuts have been doing more damage than expected, and countries which implemented fiscal stimulus, such as Germany and Austria, have done better than expected.

Without meaning to sound melodramatic, most revolutions through history have started because of economic factors, including the government facing financial difficulties and bankruptcy; citizens facing hunger and unemployment;  and those in power being out of touch and seemingly indifferent to the hardships of segments of their population; and where citizens aspire for social, political and economic equality.

The citizens of most Western countries are entitled to know how their country got into such a financial mess in the first place and ask why the people responsible haven’t been held to account?