CEOs of manufacturing companies are again optimistic about their growth prospects. U.S. manufacturing, helped by strong auto sales and overseas equipment demand, has remained an economic bright spot. Goldman economists last week revised up their forecast on the Institute for Supply Management's index on U.S. factory activity in February to 55.0 from a previous 54.0.
Bloomberg announced last week that China's manufacturing expanded at a faster pace in February and a gauge for India showed sustained growth, indicating that Asian economies are maintaining momentum even as Europe's debt crisis caps exports.
As the economy in the U.S. and the emerging regions continue to improve and provide organizations ample growth opportunities, organizations that have the right products and execute well can grow significantly faster than their competition. But how can they ensure that their systems and processes are set up to help them effectively sustain this fast growth in an economical manner?
There are three things that organizations need to do right to sustain their growth:
- Create an organizational and systems structure that insulates fast growing divisions from corporate bureaucracy, so they can continue to grow fast
- Ensure systems and processes in fast growing organizations are flexible and scalable, so they don't become an impediment to growth
- Provide managers an ability to continuously measure performance of all activities, so they know what is working well and what is not and take rapid action.
Let's look at each capability in more detail.
Setup an Organizational and Systems Structure that Supports Growth
When large companies acquire a fast growing small to mid-sized company to get into new markets, they often set it up as a subsidiary, so it can continue to make fast operational decisions without getting burdened by the corporate bureaucracy. Similarly, international operations in fast growing economies are often setup as separate subsidiaries, so they can aggressively pursue local growth. However, these subsidiaries still need to coordinate certain activities closely with the corporate. For example, subsidiaries also have to support an increasing volume of cross-company purchasing and sales, as well as internal invoicing/billing.
Similarly, corporate controllers want to ensure that financial consolidation is accurate and timely. Corporate also wants to ensure that its subsidiaries comply with appropriate regulatory and internal controls, as well as company-wide risk management policies. However, despite the need from corporate for coordination, control and visibility, fast growing subsidiaries often want to use a separate business system, so they can maintain autonomy in decision making and execution at the subsidiary level. Such a deployment model, where corporate and subsidiaries have different ERP systems by design, is called two-tier ERP model. Once a two-tier ERP model is established, then fast growing subsidiaries should select a business system that meets their budget, as well as functional and regulatory requirements, and integrates well with the corporate business system.
A leading manufacturer in adhesive and coating products faced this challenge in managing their international subsidiaries. To better integrate its global operations and provide profit accounting capabilities to all plants, they decided that all international locations would deploy the same manufacturing, finance, and quality management software, but a different system than the corporate system. While selecting a system for subsidiaries, they made sure that the system was not only quicker to deploy and less expensive to manage, but it would also integrate easily with their corporate ERP solution, while supporting the local languages, currencies, and regulations requirements at subsidiaries.
Ensure Systems and Processes are Built for Where you Want to Be
The organizational processes and systems at many fast growing companies may be well suited to today's challenges, but may well buckle under the strain of new demands or make it impossible to meet them. It's important for a fast growing company to determine which processes and systems will come under particular stress when it grows and proactively address them before it gets there. Similarly, the existing systems, processes and methods at many fast growing subsidiaries for tracking internal purchasing break down in light of higher volume/diversity of product flow. In addition, an increase in intra-company transactions also puts additional stress on their financial consolidation processes. Hence growing companies (and subsidiaries) need systems that and processes that can scale very rapidly and do not present an impediment to growth.
A startup cheese manufacturer planned to grow from zero to a US$20 million run rate in one year. The management also knew that they were setting up a tremendously complex operation made up of three businesses -- a manufacturing business, a distribution business, and a sales and marketing business. They knew that they needed an integrated and sophisticated business system in order to exercise the degree of control over their assets that they needed to have in order to be operational efficient and fast. They selected a system that was well ahead of their needs at the start, but would not be a hindrance for planned growth.
An international relief organization found its infrastructure suddenly pushed to its limits after the tsunami in Indian Ocean in 2004. Realizing that they need to build extremely scalable systems and processes for responding quickly to major disasters rather than day-to-day relief work associated with poverty and civil unrest, they decided to streamline and integrate their financial, compliance, and warehouse management systems.
Provide Managers an Ability to Continuously Measure Performance
Fast growing organizations need the flexibility and speed to move faster, so they can respond quickly to changing market dynamics, as well as capitalize on opportunities. However, they cannot afford to move quickly in the wrong direction and lose momentum. Growth also naturally creates new interactions and processes, expected and unexpected, and often at a fast pace. This requires that managers are able to take initiative beyond the confines of their current jobs. Therefore, managers need to have clear visibility into what is working well so it can be quickly capitalized upon, and into what is not working well so it can be rapidly addressed.
A fast growing online grocery delivery company considers its analytics solution a key part of their IT infrastructure to help it improve the quality of its products and shipments. The analytics solution allows them to relationally connect data across various applications, measure an operational metric and continually identify and address process issues associated with that metric to improve it. Their management considered it to be a critical capability for them to continue to make their business more streamlined and efficient, especially as their looked to growing into other geographies.
In conclusion, if organizations setup an organizational and systems structure that insulates fast growing divisions from corporate bureaucracy, ensure systems and processes in fast growing organizations are setup to be flexible and scalable, and provide managers an ability to continuously measure performance of all activities, they will ensure that they are setup to grow fast.
Mindy Fiorentino is vice president of Portfolio Marketing in the Global Ecosystems & Channels Solution Marketing Group at SAP.