Concrete Covina

Let the dealer decide

Information Week published this article called "Automakers Refocus on CRM" recounting key themes and issues discussed at Automotive CRM Summit 2005 held in Los Angeles a few weeks back.

While not highlighted outright - in my opinion the solution to fixing the disconnected nature of automakers CRM systems to the systems their dealerships use was pointed out.  Credit to Tony Kontzer the author and Volvo's CRM Manager Elaina Verhoff for sharing it.  The solution:  Let the dealers decide.

Here's the telling quote (I added the emphasis): 

Simply getting leads to the dealers has been a problem for automakers, which have far larger retail networks than Caterpillar. Volvo Cars of North America LLC had standardized on one software tool for all of its dealers to receive and manage leads, but it discovered that many dealers were going their own way, resulting in 38 different lead-management tools in use and undermining the parent company's standardization attempts. Now, Volvo has created a program for certifying dealer tools that will give it more control over how leads are managed at the dealer level, CRM manager Elaina Verhoff said. By the end of June, Volvo will have certified eight lead-management tools from which dealers can choose.

Letting the dealer decide is the key.  By certifying numerous CRM software solutions, Volvo gets CRM tools in use at their dealers that meets their integration and information flow needs.  Volvo dealers get a more competitive CRM tools marketplace - more competition means lower costs and better software. 

The Flat World

Tom Friedman’s latest book, The World is Flat is outstanding.  Awesome.  Great. 

You might already know that Tom is great. He writes one of the best editorials on this flat planet of ours, I always enjoy his guest-spots on the various talk shows (Hardball, CNBC, etc.) and have been a fan of his since reading his book From Beirut to Jerusalem. 

If you’re involved with or around hi-tech software companies, integration software and hardware, RFID, supply-chain rationalization, logistics technology and other related fields – you’ll read this book and say “yep”.  You’ll also say “I told you so” since we’ve been looking at the business end of this shotgun (his thesis for why the world is now flat) for some time now. 

I agree.  It is flat.  And to some extent this book is a scary one – you’ll find it in your bookstore in the non-fiction section but they’d be justified sticking it in “horror” corner of the store, smack in the center of the Stephen King section (next to King’s expanded - much scarier - version of “The Stand”). 

If you’re used to competing in a round world – you better read this book.

If I were Bill Ford, CEO of Ford or Rick Wagoner, CEO of GM – I’d make this book required reading for my c-level and VP-level executives.  If I were Jim Press, President of Toyota Motor Sales of America, it’s likely I already have. 

I bet that Barbara Cooper, Ralph Szygenda and Marv Adams have read it.  If not I hope they do.

Come to think of it - Fin O’Neill, CEO of Reynolds & Reynolds, and Steve Anenen, President of ADP’s Dealer Services Group, better read this book.  Because once GM and Ford and Toyota read it – and get it – and put its call-to-action into action – the implication will be dictates to you both that your companies point-of-sale island-non-integrated way-too-expensive software that you sell to their dealers WILL change. 

I’ll be clear.  One of Freidman’s major themes is the necessity for companies in the US to be get good at what he call’s “supply-chaining” or what I’ve blogged about as the real-time enterprise.  I’ll be even more clear:  I think Friedman makes his point that if you do not get serious about “supply-chaining” – you are as good as bankrupt.  Supply-chaining is the act of having your cash registers linked to your inventory control and order systems – which are further real-time linked with & shared with your suppliers. 

(To be fair to the complexity of what’s involved here, it’s more than just integration or “linking” but also the act of making the business processes more real-time and this is done by automation and capital investment in IT and some good-old role-up-your-sleeves hard work around automating what’s traditionally been manual processes – this is probably another blog…)

Automotive needs to get serious about “supply-chaining”.  And when they do – it will be the Automakers who will dictate to the vendors that make the back-office and front-office software used to sell cars at a Dealership to be rich in integration functionality (something it is NOT now).  In auto-retail – these systems are called Dealer Management Systems or DMSs.  They’re ERP systems tailored to a car dealerships software needs.

The Automakers will do this because it is this software that is the point of sale software. 

It is this software that contains the vital information that Automotive needs to share ubiquitously across and through its production chain.  (it’s not just the “data points” but the “data analysis” – the rate of change of all of the major customer touch points”)

Right now the Auto industry is a supply driven industry (a condition where inventory issues are solved by – in theory - over-supplying the system).  The bloated inventory issues constantly hammering the automakers quarterly financials quarter-over-quarter prove this supply-driven method doesn’t work.  (there are more anecdotes to back this up… which is another blog)

The industry needs to shift to become a demand driven industry ( a condition where supply is as near as possible real-time adjusted to account for localized demand).  Friedman talks about this is his book – how WalMart ships more beer to regions soon to be hit by a hurricane – since their operations-research demand division proved this is a real phenomana.  Hurricane regions also eat more pop-tarts apparently.  Beer and pop-tarts who would have figured?

To become a demand driven company – an Automaker – must have the information that the dealership management software real-time integrated to the auto makers make-a-car software system – which in turn – needs to be real-time integrated to the tiered suppliers – supply-production software. 

It’s this shift (enabled by “supply-chaining or transforming to become a real-time enterprise) that will solve a host of the problems facing the automakers today – and allow them to avoid the a number of problems getting ready to confront them tomorrow.

Build-to-order

Automotive News, hosted an Auto Manufacturing conference in Birmingham, Alabama last week.  The conference had a panel of experts discussing "Build-to-order".   In the car and truck industry - this is slang for being able to buy a car - precisely configured for how you want it - and it shows up at your local dealership exactly that way 7 days later.

Some interesting points were highlighted:

• Jeffrey Gaudiano, BMW, said their production process enables buyers to "change" an order as little as 4 days before their car starts production...
• Gaudiano says 71% of vehicles produced at the BMW Spartenburg, S.C. plant are for a specific buyer...
• That only luxury car buyers care about "built-to-order" and are willing to pay for it...
• Obstacles in the way before build-to-order hits nonluxury nameplates were 1) the US Supplier make-a-car-system is not structured that way 2) theoretically consumers are more interested in price and firm delivery dates than custom ordering and 3) US Dealerships want inventory on the lot and ready to sell at the point of sale...
• Chuck Ernst, Honda, said Honda's Odyssey minivan takes 14 days from order to delivery...
• Build-to-order customer expectation is the result of the personal computer industry's ability to give the customer exactly what they want, quickly.

Here's my take:  Build-to-order is coming to the auto industry and coming fast.  (as the panel highlighted - in bits and pieces - it's already here).  Automakers will offer build-to-order - not just because their car buyers want it, not just on luxury nameplates - but because build-to-order will also offer a level of cost savings and competitiveness so far unseen in the industry.  In order to get there - the Automakers will increasingly integrate their point of sale systems with their supply systems - just like in the personal computer industry (think Dell). 

Do good products solve all of a car company's problems?

Carlos Ghosn, CEO of Nissan and Renault, likes to say, “There’s no problem in a car company that good products can’t solve.”  True enough, but good cars have missed because too many of the wrong configurations and too few of the right configurations were delivered to dealers.  That’s what happens in supply-driven markets, good products fail because its manufacturer couldn’t adjust their production cycle to meet actual demand.  Demand-driven companies in comparison operate in real-time because they collect a lot of information at the point of sale and very quickly integrate that information into their supply chains.  Demand driven companies like Dell and Wal-Mart “won” because they knew what their customers wanted before their competitors did, and adjusted to demand much faster.  Every car company understands the model, knows what happened to the losers, and that something similar is happening in the auto industry.  With varying degrees of success and for some time, every car company has been working on making the demand-driven transition.   This is proving a long race that not everyone is a lock to finish. 

Being demand-driven means precise real-time knowledge of how your products are selling.  IT people call this real-time point-of-sale integration.  Wal-Mart invested large amounts of capital and resources to become demand-driven and the results were tremendous growth at the expense of competitors.  Wal-Mart drove Kmart into bankruptcy by, among many things, integrating their cash registers with their inventory restocking systems which in turn were integrated information-wise with their suppliers; all parties received this information daily and in some cases “real-time”.   Kmart suppliers had to visit Kmart stores to check inventory, only to find empty shelves and full warehouses.

One company in the Car industry will be the first to become demand-driven or “real-time”.  This company will make a significant dent in their carried inventory.  This company will have real-time information integration with suppliers and point of sale systems at their retailers to help them sell more and sell faster.  This company will take market share from the competition and reap the rewards: higher profits, better debt ratings, higher dividends, and profitable retailers.

All of the automakers selling cars and trucks in North America have made progress towards this real-time demand-driven systems architecture.  VW, DaimlerChrysler, Ford, GM and Toyota - you name it:  CIOs at these companies are strategists, and their plans and actions at their respective companies are fundamental to how successfully these companies will compete in the future.

Did you catch Barbara Cooper, CIO of Toyota Motor Sales USA holding a wrench over her shoulder on the cover of CIO Magazine?  For several years, Toyota has been quietly investing in IT systems and aligning IT with business operations.  Cooper outlined how she revolutionized IT at Toyota and turned Toyota towards real-time demand-driven decision-making.  The end result of Cooper’s efforts is a car company that thinks fast, acts fast and makes market leading business decisions.  Toyota has also nearly doubled its US market share from about 7% in 1997 to around 13% in 2005…If you compete with Toyota – you better prepare to compete at a level and at a speed that you’ve never had to before.

Steered by Super-CIO Ralph Szygenda, the GM super tanker is turning towards a more competitive IT compass heading.  Yes, they have had headline grabbing problems lately.  But do not count GM out.  They, like IBM before it, will get there: they have market leading cash reserves, excellent people, and still dominate with over twice Toyota’s US market share.  In fact, GM’s US market share is still bigger than Toyota, Honda, and Nissan combined.  The 2006 products coming to market are high quality and exciting.  Szygenda’s IT at GM exists to support the business of making and selling cars and trucks.  Szygenda’s led an IT outsourcing revolution at GM reshaping IT investments at eye popping rates. GM knows what it needs to do to become a demand-driven company, fully connected throughout its supply chain all the way into and through its retailers systems.  When GM gets there, and they will, watch out.

Bob Cosmai has a crack team and Hyundai is on a mission.  They are public with their desire to add 300 dealerships and grow US sales to greater than 1 million vehicles by 2010.  Since they are the upstart and don’t have 50 years of legacy systems holding them back – they can afford to and have the ability to put real-time systems in place day one.   The recent formation of Hyundai Information Services North America (HISNA) consolidating all North American IT operations of Hyundai and Kia suggests that Hyundai is preparing for the next stage where IT is a strategic weapon.  Hyundai is in an enviable position – they can model their information systems after the best car company IT designs (GM and Toyota) in the industry and leap frog forward with less of the legacy transition others will have to make.

So the race is on and the winners will be those who solve their problems by tying good products to a real-time understanding of their customers, suppliers and retail operations.

Why the promotion you say?

Marv Adams, SVP and CIO of Ford was recently promoted.  Why does this matter and why the promotion?

It matters because Marv Adams is 47 and he hasn’t spent the last 35 years in the car and truck industry.  He spent 10 years at IBM (working with Ford during some of those years), then spent 3 years at Xerox, then 6 at Bank One Corporation.  He joined Ford in December 2000 as VP and CIO.  He was promoted to SVP in September 2004.

On May 27 – Ford added the title of Corporate Strategy to Marv’s title.  A copy-paste from the Ford press release says the following:

Effective immediately, Adams, 47, is named Ford Motor Company senior vice president, Corporate Strategy and chief information officer.  In this expanded role, he will report to Bill Ford, the company's chairman and CEO, on corporate strategy matters, and as CIO, he will continue to report to Jim Padilla, president and chief operating officer.

The why-does-this-matter answer is that he is responsible for ALL corporate strategy not just IT strategy.  It matters because Marv Adams isn’t necessarily a “car guy” insider and it says clearly that what Marv has been up to at Ford is working and it matters to them a lot.  Enough so – that Ford expanded his role.

So what’s he been up to? Why the promotion?

He was promoted because Marv Adams sees the power of integrated IT.  He sees the power of the Ford becoming a real time enterprise and has a fundamental understanding of what Wal-Mart did to Kmart and what Dell did to Gateway.

Wal-Mart’s regional inventory supply warehouse knows what DVD you bought as you walk out the store because their cash registers are linked to their inventory control systems.  Want to hear something really scary?  The DVD supply vendor knows real-time too.  Because Wal-Mart shares that data with the supplier to optimize inventory carry.

Dell drove Gateway’s stock price from a high of $80 per share in 2001 to less than $4 at last count.  How?  Dell did it by having a relentless focus on driving cost out of their system and connecting its operations to all of its suppliers.  Dell has a reported inventory carry of 11 days while its competition has averages 80 days worth.  This means Dell can bring new product to market 69 days faster than its competition.  Dell turns a sales transaction into cash in less than 24 hours, Gateway takes 2 weeks to perform the same maneuver.

Wal-Mart and Dell are real-time enterprises.  Simply defined, a real-time enterprise is able to share information with employees, customers and partners in real-time, anytime.  This allows a company to instantly alert appropriate individuals to changes in customer demand, inventory, product problems, competitive actions and profitability.  CEOs watch dash-board monitors showing real time reports on financial results and product movement.  Sales Associates can locate a customer’s requested product immediately and almost always offer detailed delivery times and options.   The benefits of becoming a real-time enterprise are significant and numerous.  The benefit of becoming the first company in an industry to achieve real-time enterprise status is market share – market share that is almost always at the expense of your slower moving, slower decision making competitors.

But back to Marv and his promotion (did I say congratulations Mr. Adams?)...

He was promoted because Marv Adams sees the fundamental role that IT will play in transforming Ford back into the powerhouse it can be.  (I’m not a believer that the domestic car company’s are going to bankrupt-tank in the face of the imports – I’ll blog on this shortly).  Marv Adams believes that Ford can become a real time enterprise and link their cash registers (their Dealership's Dealer Management Systems) with their production systems - which in turn can be - and will be - linked into their suppliers systems.  He's right.  It can be done, it will be done and I believe that Marv Adams would like to see Ford get there first.

I google'd and found an interesting interview that Marv Adams did in January 2003 with CIOInsight – a ZD magazine.  To me these quotes tell the tale of the tape as to why Marv now reports to both Jim Padilla – Ford’s COO and Bill Ford – Ford’s CEO:

On why he took the job with Ford:
“There was recognition by Ford CEO Bill Ford … that IT was one of several key competencies that Ford Motor Co. must be best at…to build the best cars and trucks...”

On his “Back to Basics” mantra at Ford:
“Our Back to Basics discipline is all about how we manage the core information of the business. That's fundamental and it flows through product development, manufacturing, sales and marketing”

On Collaboration and why it matters to a car and truck company:
“What’s occurring today is … concurrent engineering. Simultaneous engineering is becoming a reality as collaboration tools enable development to occur simultaneously in multiple locations, not only within Ford but with key Ford suppliers and partners, enabled by technology”

On real time systems:
“Our view of real-time systems is that you can sense rapidly what's happening, and you can respond in the appropriate amount of time. And that enables you to be as flexible as you need to be in the different segments of your business. …  you … build a common language across your data infrastructure and company. You decouple the data from your legacy applications so that you can build a Web services-like technology infrastructure. And almost like Legos, build the kind of business solutions that support the different parts of the company”

On the timing of becoming a real time company (remember this interview was done ~ 30 months ago) :
“real-time systems is certainly an aspiration that we are targeting for over the next five to seven years”

On the emphasis to someday sense “demand” at the dealership real-time:
“Yes, we're doing that today. And over time it gets a lot more automated, it's a lot more real time”

On the emphasis to be information competent:
“What we have to do and what we are doing is gradually transforming the competencies of our business to become experts at dealing with information. So people who understand how to mine information, see patterns and then respond to those patterns, and people who can do that who aren't in the IT organization are using the information that we've designed into our business system”

Marv Adams believes in the real time enterprise.  He understands the power of a service oriented architecture.  He’s sees how IT is about to deliver another fundamental order-of-magnitude gain in productivity to companies that adopt aggressively and correctly (similar to the gains the PC gave the worker - correctly architected IT will do the same for the company).

He wants to help lead Ford toward the same places that Wal-Mart and Dell enjoy in their respective industries.  He sees how that can happen and he was promoted for it.

More on the Real Time Enterprise

The real time enterprise or RTE is a profound phenomena.  It’s THE critical thing in business today.  Ignore this at your own risk.

What is it exactly?  There’s a host of material out there to educate you.

Go here, and here, and here, and here.  Read up – the RTE is coming and it will hit your industry and your company will go down one of two paths – become an RTE or go bankrupt.  It’s that simple.

This is critical – there are only two choices:  Become an RTE or file for bankruptcy. 

What’s my quick definition of an RTE?  It’s a maniacal commitment on the part of a company to become real time in all business processes.  It’s a passionate drive to remove all low value human touch points from a business and improve the high value human touch points in place (intelligent workflow does this).  It’s a rigorous commitment to invest in technology’s to make all computer systems interconnected – real time – to enable the flow of information seamlessly across an organization (think service oriented architectures and XML standards and concepts like an enterprise information bus). 

It’s a commitment to business intelligence and business analytics – not for the hell of it but for enabling real time monitoring of a business distinctly for the purpose of improving materially the business operation.

If you become one – you’re either leading your industry (good for you) or becoming the first RTE in your space or you’re reacting to a company that has become an RTE in your space (this isn’t good – you’re reacting but it’s better than not reacting or reacting too late and then filing your bankruptcy).  If you’re first in your industry to do this – prepare for more market share.  If you decide not to become one – prepare to say goodbye permanently to your market share.

Dell put Gateway into bankruptcy and will do it to HP unless HP rigorously and quickly becomes an RTE.  Trust me – HP screwed it up by not reacting or reacting too late.

Wal-Mart put K-mart into bankruptcy and will do it to Sears unless Sears passionately and immediately becomes an RTE.  This isn’t likely.  I think it’s all over for the Sears boys.

Wal-Mart – in deciding to become at RTE years ago did something else in their industry.  They forced similar behavior in Target.  This is an interesting relatively unnoticed impact of one company in an industry becoming an RTE:  they force others to invest in similar technologies and processes and skill sets.  Target had a choice – do what Wal-Mart did or do what K-Mart did – become an RTE or file their bankruptcy.  Target also carves space in their market that makes them brand-wise different than Wal-Mart.  Ultimately though – the big blue box will make life harder for Target.  But at least Target has their RTE investments on their side.

If one of your competitors becomes an RTE – I suggest you act with a level of urgency and focused commitment that is equal to a one armed bartender working the St. Patricks’ Day no-cash bar at family reunion weekend at the Kennedy compound (thank you -Dennis Miller).

If one of your competitors becomes an RTE before you do – then they are arming to take market share like no one else has since your market started.  And you better prepare or your movie is over. 

If none of your competitors are an RTE and you’re not – why not lead the pack?  Why not take what is potentially yours for the taking?

This beginnings of this battle is currently happening in the Auto industry and GM’s CIO – Ralph Szygenda is systematically shaping and chiseling and scraping and dragging GM into becoming an RTE.  When Ralph is done – he’ll have gotten GM there first.  The result will be that GM will be a transformed company. 

They’ll know what’s in their production line faster then their competitors. 

They’ll know what’s selling on their Dealer’s lots faster then their competitors. 

They will be able to accelerate and decelerate production better and more efficiently then their competitors. 

They will be able to decide faster and move faster and sell faster and fix faster than anyone else they compete with.

They will be able to grow in the BRIC nations sooner then their competitors and do so more profitably and efficiently.

GM’s quality in their vehicle will rise because intelligence in the system will materially improve decision making.

GM’s partners – their dealers will benefit – because their franchise will operate more efficiently and more profitably and overall – just better.

Finally, as a result – other Automakers will be given the choice – become one too or prepare for the worst. 

It's the BAM - Stupid

Bill Snyder has an interesting article published on TheStreet.com today. The title is BEA Battles the 'Vision Thing'. In it he quotes a Gartner Analyst, Yefim Natis saying that basically BEA has 6 to 9 months to do something dramatic - and that doing nothing will lose you market share and lose you money. I want James Carville to call BEA up and say "It's the BAM - Stupid".

I agree. It's my opinion that when you straddle a fence - the primary outcome is your groin is in a lot of pain. The best course of action is to make a decision about a path on one side of the fence or the other and take it. Inaction will kiil you (along with crimping your jewels).

BEA has to recognize that the days of selling Application Infrastructure product the size and cost of an aircraft carrier are over and they better move down market fast. And they better do it faster than IBM plans to.

There are 10x more Medium-Sized enterprises (employees 500 to 5000) than Large-Sized Enterprises (> 5000) and this is the market that BEA needs to target. By recognizing the need to go down market - decisions will ripple quickly: become more streamlined to sell and service this market (this has a corresponding impact on the company's operations and income statement), focus more on application to application integration and lead with an emphasis on what I call the "touch end" of their product: the business intelligence and BAM functionality that hooks most decision makers/buyers.