Recently Charlie Barnhart & Associates, an outsourcing consulting firm, warned its clients to prepare for a rocky ride in 2012. The firm raised its risk level and stated that it is now "likely" that the average OEM will experience serious disruption in its supply chain in 2012. "Yes, the current situation is that bad," warned the company.
Charlie Barnhart analyzes nine distinct elements of risk when compiling its Composite Business Index. The firm draws from real-world data gathered from OEMs and members of their supply chains in the calculation. The index includes:
- Prices – They are down and costs are up.
- OEM resources – Worldwide, they have fewer compared to the past.
- Demand cycle – It's getting shorter.
- Business velocity – It's going up.
- Supply chain concentration – Most of it is in Asia these days.
- Institutional continuity – It's not what it used to be.
- Capital markets – Globally, they are more unpredictable than ever.
- Geopolitics – There's more unrest and instability today.
- Infrastructure – It's being overtaxed and overutilized in low-cost regions.
While any one of these factors can cause problems and hurt the bottom line, taken together they can create a perfect storm that challenges even the best-run OEMs. That's what Charlie Barnhart believes management teams face in 2012.
One of the nine risk factors that doesn't get much attention in day-to-day business tactics is institutional continuity (No. 6 in the index). Charlie Barnhart defines institutional continuity as the way business is conducted, taking into account the company's history, its purpose, and how and why it exists. In a word, it's an OEM's identity, its soul.
I contend institutional continuity is perhaps the most important risk factor a company faces in maintaining its long-term viability. And it's the only factor that it controls 100 percent. Sure, when an OEM outsources manufacturing it loses part of its identity, but with work it can maintain institutional continuity. But when it outsources more functions -- design, logistics, customer service, marketing, IT, human resources -- then, it's a slippery slope and it risks losing its soul.
Some companies manage to hold on to their identities even as they navigate through periods of extreme change. Take IBM Corp. (NYSE: IBM) as an example. It has transformed itself from a sales-oriented hardware company to a consulting company that sells innovation. "Think" is still the company's motto and defines Big Blue. It's what Thomas Watson, IBM's founder, was all about, and it's at the core of the company's Smarter Planet campaign today.
In fact, IBM's first US trademark application in 1935 was for "THINK." That was 14 years before the company filed for a trademark on the name IBM. That's what I call knowing who you are. "Think" is still present, both literally and figuratively, on the company's home page. Go ahead, check it out and see how many instances of the word you can spot.
Then there's Hewlett-Packard Co. (NYSE: HPQ). A few very public missteps in 2011 revealed a company without a clear sense of what it stood for. It has lost -- perhaps temporarily, perhaps forever -- its sense of institutional continuity. The sad part is that HP was the very embodiment of the word "startup" when Bill Hewlett and David Packard developed their first audio oscillator in a Palo Alto garage in 1947. The company's motto, "Invent," which was front and center a few years ago, was in the same class as IBM's "Think."
But visit HP's home page today, and you see nothing that captures that spirit of innovation. I challenge you to find the word "Invent" or to identify what the company stands for on its home page.
Losing or abandoning a powerful corporate identity is indeed sad. And, as Charlie Barnhart points out, it's also risky.