00:00:07 Introduction and Luc Baetens’ background.
00:01:40 Challenges of maintaining excellence as a company grows.
00:03:24 Achieving sustainable high performance in supply chains.
00:05:01 Influence of finance and software industries on supply chain excellence.
00:07:19 The ideal supply chain: invisible and running smoothly.
00:09:49 The shift towards automated and software-driven supply chains.
00:11:09 Encouraging excellence and positive behaviors in organizations.
00:12:17 End-to-end thinking as a key element in an excellent supply chain.
00:15:10 The challenge of smart people gaming the system and its impact on positive behavior.
00:16:45 Importance of focusing on clients and diving into problems.
00:19:28 Recognizing and rewarding top performers, avoiding easy-to-fake signals.
00:21:13 Ensuring company purpose and coherence for operational excellence.
00:23:09 Conclusion.
Summary
In the interview, Kieran Chandler discusses supply chain excellence with Joannes Vermorel and Luc Baetens. They explore the challenges of achieving and maintaining excellence, considering factors like company scale, organization, and workforce composition. The conversation emphasizes the importance of individual contributions, IT dependence, and behavior in supply chain optimization. They also discuss the need to balance innovation with system reliability and the role of end-to-end thinking. Vermorel highlights the risk of employees gaming systems and suggests using written reports as reliable performance indicators. Baetens concludes by emphasizing the importance of coherence between a company’s purpose, desired employee behavior, and organizational design.
Extended Summary
In this interview, Kieran Chandler, the host, discusses the idea of supply chain excellence with Joannes Vermorel, founder of Lokad, and Luc Baetens, Partner and Managing Director at Möbius Business Redesign. The conversation begins with an introduction to Luc Baetens, who has spent his career working in consulting for industrial companies and has been increasingly involved in operational excellence. He explains that Möbius focuses on strategy implementation and change management in various sectors, including industry, public organizations, health institutions, and service organizations.
When asked about his thoughts on supply chain excellence, Joannes Vermorel emphasizes that excellence is skill-dependent and can differ significantly between small and large companies. He believes there is an “anti-economy of scale,” where the larger a company grows, the more it regresses toward the mean, primarily due to difficulties in maintaining a workforce that is significantly different from the market average. He shares his experience in growing Lokad from a single person to a 50-person team and notes that achieving excellence at different stages of growth can be counterintuitive.
Luc Baetens agrees with Vermorel and highlights that maintaining excellence is challenging even for companies that have achieved a high level of performance. According to Baetens, good performance at a specific moment in time is not necessarily a sign of excellence, as it could be the result of coincidences or other factors coming together. He refers to the Shingo model, which defines excellence as having a high level of performance in a sustainable and resilient way. Baetens believes that achieving excellence is less about individuals and more about organizing a company so that it guarantees a certain level of excellence.
Vermorel observes a significant change that began in the finance industry, followed by the software industry, and is now reaching supply chains. He mentions the phenomenon of young professionals being paid exceptionally high salaries in these industries, which was unusual in the past. This trend started with finance and software companies valuing and rewarding individuals with no proven track record, simply based on their potential.
The discussion emphasizes that achieving and maintaining supply chain excellence is a complex and multifaceted challenge. Factors such as the scale of the company, organization, skill set, and workforce composition can all impact a company’s ability to achieve sustainable, high performance. Additionally, the evolving nature of the supply chain industry, influenced by trends in finance and software, has the potential to reshape the way companies approach excellence and the value they place on their employees.
The conversation touches upon the role of individual excellence, the aspiration for supply chains to be invisible, the importance of behavior, and the systems and processes needed for an efficient supply chain.
Vermorel points out that a few individuals in large companies can create a massive amount of value, and that supply chain optimization is becoming increasingly driven by software, automation, and IT dependence. This has led to patterns similar to those in the software industry, where individual contributions can have significant impact. He also mentions the counterintuitive aspect of excellence, which is more about what you don’t do than what you do. In this context, he refers to the importance of not hindering individual excellence or “strokes of genius.”
Baetens agrees with Vermorel about the importance of individual contributions but emphasizes the need for a balance between individual excellence and system reliability. He believes that the ideal supply chain is invisible and runs smoothly, with core business processes taking precedence over supply chain concerns. In this context, he highlights the challenge of giving individuals the opportunity to innovate while maintaining a predictable and reliable system.
The conversation moves to the topic of behavior and its importance in supply chain excellence. Baetens emphasizes the need to start from behavior and determine what actions are needed for an excellent supply chain. He believes that end-to-end thinking is a crucial element, and that individuals should consider the impact of their actions on predecessors and successors in the process. This approach involves examining the systems, processes, and rewards in place to promote ideal behavior and discourage unneeded behavior.
Baetens and Vermorel agree on the need for innovation in supply chain management. Baetens suggests that leaders should encourage their employees to spend time working on innovative ideas that can bring significant positive changes. This involves identifying the systems and processes that need to be changed or introduced to allow ideal behavior to flourish and to avoid unnecessary actions.
The discussion highlights the importance of individual excellence, IT dependence, and behavior in supply chain optimization. It underscores the need for striking a balance between individual innovation and maintaining a reliable, predictable system, and emphasizes the role of end-to-end thinking and considering the impact of actions on the entire supply chain.
The conversation revolves around encouraging positive behavior in organizations, with Vermorel emphasizing the importance of focusing on what not to do. He warns that smart employees can game any system and that companies must be cautious of this when implementing rules or rewards. Vermorel also mentions the risk of creating distractions and perverse incentives for employees to spend time gaming the system rather than addressing their work.
Luc Baetens highlights the importance of executives being involved at the grassroots level, following the example of Jeff Bezos and Elon Musk, who are known for their hands-on approach to solving problems. Baetens emphasizes the importance of the “Gemba” principle, which entails going to the site of a problem to solve it effectively, and avoiding “management by PowerPoint.”
The guests agrees that it’s crucial for companies to have a clear purpose and for employees to understand what the organization is trying to achieve. Vermorel suggests being wary of easily faked signals of excellence, and cites Jeff Bezos’ preference for written, four-page reports as a more reliable way to gauge performance.
Baetens concludes by stressing the importance of coherence between a company’s purpose, the desired employee behavior, and the systems in place to reward or penalize that behavior. He believes that companies should focus on aligning their purpose with their organizational design to achieve operational excellence.
Full Transcript
Kieran Chandler: Today on Lokad TV, we’re delighted to be joined by Luc Baetens, who’s going to discuss with us this idea of excellence and what companies can do to instill those values and behaviors in their companies. So Luc, thanks very much for joining us today. And perhaps as a start, you could just tell us a little bit about your background.
Luc Baetens: Okay, well thank you first of all for inviting me. It’s interesting to discuss this topic. Well, for myself, I started my career at Möbius almost 20 years ago now, and since then, I have always worked in consulting for industrial companies, mainly in supply chain. But since a few years, I’ve become more and more involved in operational excellence, and I try to find the link between the two. Möbius today is a company that’s mainly doing strategy implementation, so we are an implementation company or change agent in different sectors. My activity is industrial activity, but we have similar activities in public companies, public organizations, health institutions, or service organizations.
Kieran Chandler: Okay, and Joannes, our topic today is all about achieving supply chain excellence. What are your initial thoughts on this idea?
Joannes Vermorel: Well, excellence first is something that is very scale-dependent. I mean, it’s very different how you can achieve excellence if you’re very small from very large. And I believe that it’s one of those things where you have an economy of scale, where the bigger you are, the more you regress toward the mean, and mostly because it’s very hard to maintain, people-wise, something that is very different from the average of the market. So, at Lokad, I’m experienced in driving what I believe to be some kind of an excellent team from just one person who is trying to be relatively good, to 50 people, which is where we stand now. And I’ve seen some companies that were very fast-growing e-commerce that were ranging from, let’s say, 200 people to 5,000, and some of them would be classified as excellent in their own respective fields. The interesting thing is that, again, excellence is very scale-dependent. It doesn’t take the same things at various stages of your growth to achieve that, and the whole thing is quite counterintuitive, I would say.
Kieran Chandler: Okay, is that something you’d agree with, Luc? Would you say that to be very excellent, it sometimes ends up that as you grow, it becomes more and more difficult to keep those high standards?
Luc Baetens: Well, I think that’s definitely true. To go even further, what we see is that excellence in general is something that is very difficult to maintain. Even if you reach a high level of excellence at some points, staying in fact having good performance at a specific moment in time is not necessarily a sign of excellence. It can also be related to a coincidence or the fact that certain factors come together so that you reach a good performance. What is excellence, when we talk about the Shingo model, in the way that the Shingo Institute defines excellence, is exactly having very good performance in a sustainable way, so being capable of keeping that high level of performance, whatever happens, in a resilient way. Sometimes things might go back, but then being able to come back to that good level in a good way. In
Kieran Chandler: So, the challenge becomes less about individuals and more about how you organize your company, right? So that the company itself guarantees a certain level of excellence. Let’s take that point about organizing a company then. I also mentioned in the introduction the largest supply chains in the world and many of them have been around for over a century. What have you observed from how the industry is approaching challenges and how those actual supply chains are functioning?
Joannes Vermorel: The biggest change that I’m observing, and I think it’s a multi-decade process, is that I believe a change that started in the finance industry, followed by the software industry, is now coming to supply chain. There was even a term in the 80s, “yuppie,” which was basically the idea that you could have someone who is very young and paid very well. It’s something that has almost disappeared. Nowadays, nobody’s surprised anymore if you’re 23 years old, you’ve done Stanford computer science, and you’re paid an enormous salary of $300,000. It’s still an outlier, but it’s not unheard of, it happens. In the 80s, it didn’t happen, it didn’t exist. You were starting at the bottom and you would never reach that at the start. Those industries, finance and software, started to pay enormously well to people that had no proof of what they were doing. And why were they doing that? It’s just because out of companies that might be 10,000 people, you realize that maybe a handful of them are driving the profitability of the company as a whole. It was maddening in a way; it was the idea that you can have a few people in a large company that just create a massive amount of value, while the rest just tag along. It takes those few people that turn things into gold. They say that certain people are individually, even in massively large companies, creating a massive amount of value by just individual contribution.
Kieran Chandler: Luc, do you agree with that from what you’ve observed in the industry? Would you say that the supply chain industry as a whole is following those finance and software industries, and it’s very much these individuals that are bringing the value?
Luc Baetens: I think individuals can definitely bring something, but if you go back and ask what an excellent supply chain is, it’s probably different for Amazon and Zalando than it is for a regular industrial company. I sometimes use the quote that the perfect supply chain in an industrial company is invisible; it’s a supply chain you don’t see or hear anybody talking about, just because it runs perfectly smoothly. That’s the ideal supply chain. Because in the end, if you’re Zalando, the supply chain is your core business. If you’re Amazon, the supply chain is your core business, because that’s what you’re doing; you’re a distributor. But if your core business is producing smartphones, you don’t want to hear anybody talking about supply chain. You have a group of people, processes, and systems in place that make sure that when you launch a new product, it’s there when you need it in a very reliable way. I think in those invisible supply chains, personal individual excellence can be subordinate to the excellence of the system itself. It doesn’t mean that you have to block individual excellence. So, the challenge would then be how do you give people the opportunity to have their stroke of genius from time to time, but still have a system in place that allows for predictable, reliable, invisible results?
Joannes Vermorel: I think we can definitely agree that the aspiration is for supply chains to be completely invisible and
Kieran Chandler: So, Joannes, you were talking about viability earlier. What are your thoughts on that?
Joannes Vermorel: I completely agree that viability is a stroke of genius most of the time because what you effectively do is that you kind of get rid of the outliers. You prevent them, and you end up with a slightly raised average. But the fat tail, the thing that could make a massive amount of change, gets cut out, and that’s never implemented. It’s a multi-decade process, and it very much depends on the vertical and the specifics. But what I see is that imperial supply is now getting more and more programmatic, driven by machines and software. Nowadays, most of it is very frequently automated, and there are plenty of areas where we are gradually replacing people with machines.
Luc Baetens: And even when it comes to delivery, the last mile is all about having super tight information about your target, the person you want to deliver to, to make sure that they can receive the packet and whatnot. So it’s increasingly IT dependence, and when you look at that, suddenly you end up with those patterns that come from this software industry.
Joannes Vermorel: And that was first in this time since we were. It’s really about who can tweak the system in a direction that makes it better. And what the software industry has learned the hard way is that when you have like a thousand software engineers, probably 800 have actually a negative productivity. So they work on the system, but they make it worse over time. That’s very bad, but that’s literally what it is.
Kieran Chandler: Okay, let’s look a little bit more about your experiences and what are the methods that you would implement if you were going to go into an organization to encourage that excellence and encourage those kinds of behaviors and values.
Luc Baetens: Yeah, I think an essential point in the method would be to really start from behavior. I see a lot of work that is done either by working on processes or working on tools, but not actually making the link with behavior. I think the essential thing about starting from behavior is to say, what do I want people to do? And behavior is something very simple once you know what it is. But it’s not so simple to explain. Behavior is what I see you doing. It’s not what you think, it’s not what you feel, it’s not what you’re convinced of. It is what you do. When you start from those behaviors, saying, if I want an excellent supply chain, what do I want people to do? And you start from that, and then you could say, for example, end-to-end thinking is a crucial element in an excellent supply chain. If you have a value chain and everybody just thinks for their own part, the supply chain will not be excellent.
Joannes Vermorel: Right, end-to-end thinking is crucial. How can you see that? I can see if I go on an operational level, somebody who’s doing operations, be a salesperson or production person or anybody, is discussing or thinking about what the impact of his actions is on his predecessors and successors in the process. If I look at a leader, I hope that they will discuss with their peers for introducing important changes. That’s the behavior I want to see.
Luc Baetens: And then you can think of, and there I join what Joannes was saying, what you do and what you don’t do is which systems does your organization have to promote that behavior, and which systems might you have that make that.
Kieran Chandler: How can a company encourage positive behaviors and avoid punishing the wrong ones, especially when rewarding systems are related to individual performance?
Luc Baetens: The key is to figure out what systems and processes a company needs to change to allow the ideal behavior to flourish and to avoid unnecessary behaviors. This involves encouraging people to spend part of their time working on innovative ideas and experimenting with them. It’s essential to create a system that allows people to experiment and build an organization around that.
Kieran Chandler: What do you think companies should do to encourage these positive behaviors?
Joannes Vermorel: It’s more about what you don’t do, and I’ll explain why. When dealing with humans, especially smart people, they can game any rules or systems you put in place. As you start framing the behaviors you want to reward and punish, people will become excellent at gaming the system. This creates massive incentives and distractions for people to spend time and energy gaming the system, rather than focusing on what truly matters. The most successful companies I’ve seen have an absolute focus on the client and their needs.
Kieran Chandler: We have examples of CEOs like Jeff Bezos and Elon Musk getting involved at the grassroots level. Do you think a CEO should be involved at this level at some point?
Luc Baetens: Yes, probably. The Gambler principle, a lean management principle, states that if you want to solve a problem, you have to go and watch it. You can’t solve a problem from a meeting room thousands of kilometers away. To solve a problem, you have to be where the problem is. So, in that sense, anyone in the company, including the CEO, should be willing to get close to the problem to solve it. One risk in corporate organizations is that people become disconnected from real problems, only seeing reports or PowerPoint slides. It’s crucial to be present and see the problem firsthand.
Joannes Vermorel: Explain a problem right, and then even if you have a bigger slide, you would never see the real context in the real environment. So at some point, I think anybody in the company should be able to go down and look at the nitty-gritty detail of something because that is the problem at hand. Of course, there is a difference between sometimes diving into a problem because you have added value there and that is a real problem and getting involved in any detail in the company just because your attention falls on it. Once you have a team, you expect people to take their responsibility, and you want to give them that responsibility to express themselves in their own scope. But at some point, it can make sense, of course, to dig in and then really do that. It’s one of the things that we sometimes push leaders into saying when was the last time that you were on the floor.
Kieran Chandler: And we’re going to start wrapping things up a little bit. Joannes, you spoke about those top performers and how can you recognize those top performers, and what should you be really doing to reward them?
Joannes Vermorel: First, I would say be very worried about all the signals that can be easily faked. When we start dealing with excellence, you know, what you will mostly face is people that are good but not actually excellent. They’re already quite good, so you have to assume that they are going to be smart, and whatever message you put in place, those people are just going to game whatever you put in place. One of the key ideas, and I’m stealing this idea from Jeff Bezos, actually, is that one of the hardest signals to fake is a four-page report in writing, in prose, no slides, just plain text. In my experience, I have seen that it’s way easier to fake things with PowerPoints than to fake it with a four-page memo. To have a four-page memo that really demonstrates that you went out of your way to face a problem, to figure out something, and to kind of crack it, to fake it, at some point, I think it becomes nearly impossible to differentiate from the real thing.
Kieran Chandler: Luc, what advice would you have for a company that’s trying to improve their operational excellence?
Luc Baetens: I have to come back to the point of gaming the system, which is logically true. If the wind blows a certain direction, the trees follow the direction; that’s logical. I think the first thing to be clear about is the purpose your company stands for and to inform very clearly about what you, as a company, as an organization, try to achieve. The second thing is to be extremely coherent in that purpose and in the things you put in place. If you want to be an extremely innovative company, make sure that innovative behavior gets rewarded, and that the systems give innovative behavior the place that it needs, which can be very different if you want to be an extremely reliable company. Organize your systems and behavior around reliability and accept that because you aim for reliability, you will lose a big part of your innovation. If there is one thing to retain, it’s the coherence of the system, the coherence between having an objective, a purpose that is clearly translated into what you want, how you want your people to behave, and then how you allow them to behave like that, and probably which people you select. The people you select should be those who are naturally inclined to behave that way.
Kieran Chandler: We’re going to have to leave it there, but thanks for your time. Thanks very much for tuning in, and we’ll see you again in the next episode.
