Supply Chain Recommendations for New Year – Wrap-up and Tip Sheet

Posted on February 11, 2014 by Jeff Shaw

My last 3 blogs have gone into elaborate detail about New Year recommendations for supply chains – I’d like to summarize and give a final ‘tip sheet’ on my take for supply chain recommendations for all 3 categories I reviewed. The categories are profitable proximity, risk management, and customer focus. As presented before, my launching point was the supply chain trend predictions as offered by 4 groups: Gartner Analysts, IDC, Ferrari Group, and SupplyChainBrain. I looked at our client and other industry experiences as relating to all the trend predictions, and created a ‘best of’ list of supply chain recommendations to get you off to a competitive start that is measurable and offers a critical return on your investment. As I alluded to, I believe that if you are going to prioritize only one of the three areas, I would choose customer focus.

Listed below are my recommendations.

Profitable Proximity: “The World is Flat”

1. Using the newest profitable proximity guidelines, design a network that makes the most sense for your organization.
2. Consider costs of sourcing, distribution, transportation, and warehousing to come up with the best total costs.
3. Factor in the risks associated with network as part of the cost, such as delayed lead times. Business planning counts as a cost!

Risk Management: “Trust but Verify”

1. Identify all risks, including disasters, economic, human resources, customer demand, and never overlook: your competitors!
2. Build, evaluate, or enhance your supply chain foundations of visibility, problem response flexibility, close collaboration with suppliers, control processes, and first-rate customer demand planning to ensure effective resilience measures.
3. Mix resilience planning and business planning functions. Communication between stakeholders is a cornerstone, and is the glue that keeps the wheels turning during a crisis.
4. Large or small, do what you can on the spectrum from identifying your risks to planning responses to practicing scenarios of those risks occurring. Choose a director to lead and track the progress metrics.

Customer Focus: “The Age of the Customer has Arrived”

1. Build a talented supply chain team that will innovate for the customer’s needs and collaborate internally to build brand loyalty, and design your supply chain with demand volatility and customer satisfaction in mind. See if supply chain segmentation can turn your customer focus into supply chain success.
2. Keep your finger on the pulse of the customer, and your competitors, and listen for cues to market demands, delivery competition, and customer satisfaction ratings. Using a demand-driven strategy in your supply chain helps you focus simultaneously on profitability and the customer.
3. Forecast demand to achieve optimal inventory in existing and new products, with priority toward maintaining and growing customer satisfaction. Use all methods available to increase your forecast accuracy, including external indicators.

Supply Chain Recommendations – My Takeaway

Always bear in mind that your own resolution to succeed is more important than any other.
– Abraham Lincoln

Will these supply chain recommendations be evergreen, or be surpassed by different ones next year due to shifting environments and priorities? Only time and experience will tell. For now, differentiate yourself from your competitors by being proactive and addressing the top supply chain problems.

I am always looking for tools from experts to make my job easier, especially in our fast-moving technology space. Here are 3 excellent resources that have helped others, and could help you, to get started on these supply chain improvements right away.

Primer on profitable proximity: (Manufacturing Insights)
http://www.idc.com/downloads/proximity.pdf

Supply Chain Risk Self-Assessment: (Supply Chain Risk Leadership Council)
http://www.scrlc.com/articles/Supply_Chain_Risk_Management_A_Compilation_of_Best_Practices_final%5B1%5D.pdf

Online Customer Survey: (Marketing Profs)
http://m.marketingprofs.com/articles/2014/24219/six-tips-for-creating-an-effective-online-customer-survey?adref=nlt012314

What do you think about these overall recommendations? Have you used any of these techniques, or do you have suggestions of what is working better for your organization?

Supply Chain Customer Focus – New Year Recommendation – Part Three

Posted on January 31, 2014 by Jeff Shaw

“Do what you do so well that your friends will want to see it again and bring their friends.” -Walt Disney

This is the last in a three-part series on supply chain recommendations for the new year. To recap, I started this series by reviewing the ‘best of the best’ trend predictions from the last 5 years, and then making recommendations for supply chain modifications to match those trends. I looked at output from 4 different groups: Gartner Analysts, IDC, Ferrari Group, and SupplyChainBrain. I saw prediction patterns emerging that led to my own recommendations for the year ahead.

The first two blogs in the series presented profitable proximity and risk management, both trending supply chain topic predictions for the coming year. As promised in the last blog, though, I feel that this third and final topic for the supply chain is the ‘best’, or what I feel offers the most promise for your investment: customer focus.

Prediction #3: Supply chain customer focus will continue as a strategic priority.

Customers have been in the forefront of supply chain predictions for the last 4 or more years:

2009 IDC Prediction #6: Customer Relationship Management (CRM) and consumer-centricity efforts continue to grow across the modern supply chain as manufacturers attempt to improve innovation efforts. The sale is just the start as services become an increasingly important part of the ‘product experience’.
2013 IDC Prediction #3 – On the demand side of the supply chain, recognizing the need for better service levels and mass customization, manufacturers look again to postponement techniques and data analytics to drive more effective customer insights and ‘smarter’ fulfillment.
2013 IDC Prediction #5 – Service excellence becomes a strategic priority.

Leading consultants like Forrester have defined the “Age of the Customer” as a 20-year cycle wherein CIOs and CMOs will reinvent themselves to win in this age. Forrester points to a transition from focus on manufacturing, to distribution, to information management, to lead up to today’s more towering power of the customer. They say that the leaders in use of technology within this customer obsession hold the key to winning that customer race.

This seems obvious, doesn’t it? But the technology push to deliver a smarter, more innovative product, at a quicker pace, for less cost, and with more satisfaction, is accelerating. Customers expect it, and pay back with their loyalty, and the company stock prices reflect it time and time again. Think about companies like Starbucks, Amazon, and Apple: all at the top of their game, with soaring customer ratings. Amazon has mastered the customer relationship model with customized suggestions based on your purchases. Starbucks is well-loved because of the customer experience as much as the product. Apple, with innovations and scheduled announcements of new products to meet continual customer demand for a product more powerful than the last, came in at the top of the PC ratings for the 10th year running, and in 2012 took over as the world’s most valuable company, with a 4% piece of the S&P 500 pie.

Supply Chain Customer Focus

So with those companies on the pinnacle, they stay ahead if they prioritize supply chain customer focus. Mostly, it’s about competition: besides being more cost-effective, those companies know that they simply have to have the best customer satisfaction.

Customers increasingly want their orders faster. This allows the companies who offer rapid delivery to force out those who don’t keep finished goods inventories. In this environment, good demand forecasting is a must for companies to level out production quantities, build the most competitive transportation and warehousing structures, compete the best supplier contracts, and maintain the most efficient operations.

Internal organization can improve customer experience. Collaboration is being encouraged within companies to give the customer the experience from purchase through customer service. Our best relationship with one of our most recent vendors underwent seamless transitions from sales to implementation to customer advocates: we’re hooked!

External factors give breadth beyond historical and seasonal forecasts. Traditional forecasting methods were based on historical and seasonal data, and do not reflect the impact of the economic market’s volatility and resulting customer shifts. For example, consumer attitude, even after financial situations are taken into account, is a leading indicator to durable goods spending every year. Tracking of indices like fuel costs, unemployment rates, and weather patterns are more examples of leading indicators to consumer demand. One of our customers, a manufacturer of snow-clearing products, faced a winter drought that severely decreased demand for their product. That year they admitted that this volatility wreaked havoc on their profits! Their reliance on external indicators of weather patterns, as fed into our forecasting platform, is now allowing them to predict and adjust their manufacturing and inventory levels to those conditions in real-time, drastically reducing required inventory, and leveling out production and logistics costs.

Providing the latest and greatest products can draw customer loyalty. Customers depend on innovation, and will offer their loyalty to those with the newest, biggest ideas. But studies show that more R&D spending does not equate to more revenue. Only a small percentage of product ideas make it to launch. Less money is lost on a ‘kill’ of a product release pre-launch than a ‘fail’ post-launch! Demand forecasting plays a large part in segmenting what products are worthy of adding to the supply chain. Also, even improvements to old products can alter demand, so demand needs to be analyzed BEFORE any resulting disruptions in production, finance, and logistics are made.
The closer you are to the customer, the better your service. Sales and marketing research keeps a hand on the customer behavior dynamics through reward-based questionnaires, online forums, blogs, and interviews, and retargeting. Direct feed of information through technology by way of Point-of-Sale or Point-of-Use gives priceless real-time feedback. Evolving from this is the cycle of sensing consumer behavior, measuring marketing effectiveness, adjusting the marketing for optimal impact, all leading to demand-driven forecasting.

Design your supply chain to meet customer predictability. A key to supply chain optimization is to know your customer and your products in terms of predictability, and adjust accordingly. Employ more lean supply chain tactics in more predictable markets, and more agile supply chain tactics in less predictable markets. Toyota, for example, evolved its lean philosophies under periods of predictably high demand. Agility, though born out of necessity to disruptors to the supply chain such as demand volatility and new product introductions, leads to high customer satisfaction: items always on the shelf, no back-orders, no waiting for special orders.

Given the above, find the best and broadest talent possible to optimize your supply chain for the Age of the Customer.

If you compare the list above to my recommendations in the prior blogs about profitable proximity and risk management, it is clear that the supply chain customer focus goals are more numerous, and more impactful to business survival. Demand forecasting is the common thread above, and the window to the customer’s behavior. Speaking of forecasting, Gartner expects 10.6 percent growth in 2014 investment in these B2B analytics, particularly in the SCM space. (5) Best-of-breed providers know that providing differentiators like personalization, ease-of-use, learning engines are a few of the ways to help their clients stay focused on the customer at all times.

Recommendations for Supply Chain Customer Focus

There are many roads to great customer focus. Based on my research and experience with our clients, here are my top recommendations for supply chain customer focus:

Build a talented supply chain team that will innovate for the customer’s needs and collaborate internally to build brand loyalty, and design your supply chain with demand volatility and customer satisfaction in mind. See if supply chain segmentation can turn your customer focus into supply chain success.
Keep your finger on the pulse of the customer, and your competitors, and listen for cues to market demands, delivery competition, and customer satisfaction ratings. Using a demand-driven strategy in your supply chain helps you focus simultaneously on profitability and the customer.
Forecast demand to achieve optimal inventory in existing and new products, with priority toward maintaining and growing customer satisfaction. Use all methods available to increase your forecast accuracy, including external indicators.

I recently read an article on sales with the message that if we could just maintain our current customers, and limit expenses to that revenue, that all new customer revenue would be just ‘gravy’. How easy that would be with great customer focus! After all my recommendations, I believe that if you can only do one of the recommendations above, choosing one from the Customer Focus category should come first. Both B2B and B2C customers will remember your successes and especially failures. Years ago, after a full day on Colorado mountain trails, energized but hungry, my group went to a popular eating spot best-known for their chicken dishes. That day, they were out of … chicken. It was a long time until we returned there for a meal!

Next time, I will compile the full list of my supply chain recommendations from all three categories predicted by experts, under the categories of profitable proximity, risk management, and customer focus.

How did customer focus play a part in your supply chain up until now? Did it make a negative, neutral, or positive impact to your business?

References

http://www.gartner.com/newsroom/id/2643919
http://www.scdigest.com/assets/newsViews/09-02-12-1.php?cid=2256&ctype=content
http://www.idc.com/getdoc.jsp?containerId=prUS23876412
http://www.theferrarigroup.com/supply-chain-matters/2013/12/17/supply-chain-matters-2014-predictions-for-global-supply-chains-part-seven/
http://solutions.forrester.com/age-of-the-customer-hp/landing-324FC-2795CK.html
Dilbert, United Feature Syndicate, February 2, 2001.
Journal of the American Statistical Association, Volume 58, Issue 304, 1963,pp. 899-917, Ten Years of Consumer Attitude Surveys: Their Forecasting Record
Industrial Marketing Management, Vol 29., No. 1., 2000, “The Agile Supply Chain : Competing in Volatile Markets”, Martin Christopher
http://www.ers.usda.gov/topics/food-markets-prices/processing-marketing/new-products.aspx#.UurtNyqWHU8
http://dspace.mit.edu/bitstream/handle/1721.1/39816/ESD-260JFall2003/NR/rdonlyres/Engineering-Systems-Division/ESD-260JFall2003/08F26A35-E698-4FC6-8AC6-1B7445F1CE04/0/l2_3demfcastpmas.pdf

Supply Chain Risk Management – New Year Recommendation – Part Two

Posted on January 21, 2014 by Jeff Shaw

My last blog introduced a 3-part series on predictions and my resulting supply chain recommendations for a fresh start for the year ahead. I started with number one, profitable proximity, a relatively new wave seeing growing popularity amidst the evolving global marketplace. The growth in the global marketplace also often precedes initiatives addressing the second prediction, the growth of supply chain risk management.

Prediction #2: Supply chain risk management will grow.

Supply chain risk management continues as a common goal for at least the last five years:

2009 IDC Prediction #9: As global economic pressures mount, outsourcing opportunities proliferate and global supply networks become more complex, risk management becomes both an increasingly significant capability and a key differentiator for the Modern Supply Chain.
2013 Prediction 1 – Resiliency Becomes a Priority for End Users Looking to Master ‘Massive Multidimensionality’
2014 Ferrari Group Prediction 7: Increased Dimensions and Occurrence of Supply Chain Risk or Major Disruption Further Impact Global Sourcing Strategies

Why is supply chain risk management so important year after year? Let’s look at a few risk mitigation statistics to get a sense of the drivers.

85% of global organizations reported supply chain disruptions in 2012 alone.
The prevalence of natural disasters is growing, up 200% from 1992 to 2012.
The cost of the disruptions increased tenfold from the 1960s to the mid-2000’s.
80% of companies worldwide see supply chain protection as a priority.

These numbers are hard to ignore, and are indicative of why management of risk has been a top supply chain recommendation for consecutive years: consequences! In addition to a disruption’s immediate consequences of productivity and revenues, long-term consequences include decreased stock value, loss of customer loyalty, and threats to company survival. Though supply chain risk management is not new, it is a growing priority with the growing number of global supply chains.

Examples of supply chain disruptions come in many forms, all equally threatening:

Real-world natural disaster disruptions stick with us. Think of the images conjured up by just two-word phrases: Thailand floods, Japan quake, Horsemeat scandal.
Vulnerabilities to non-disaster, external impacts such as cyber fraud, political unrest, and supplier failures can also be devastating, and bad press in the age of information exacerbates the problems.
Internal impacts such as supply chain bottlenecks, inadequate demand forecasting, and production failures can cause bullwhip effects across an organization, and get worse the longer they are not corrected.

An example of a client of ours shows the positive impact that demand forecasting software can make to address a major disruption. Responses enabled by technology can be lifesavers, as one of our clients, Imperial Sugar, found out when a fire destroyed 60% of their plant capacity. Our ‘availability to promise’ was key functionality that allowed leadership to use their heads in addition to their hearts in the wake of the disaster. With no stockpile of inventory, the software allowed everyone from sales to production to see what was on order, and what could be delivered.

What’s the Solution?

Problems cannot be sidestepped altogether, but recovery difficulties, even those with ripple effects throughout organizations, can be lessened with resilience programs. Deloitte defines the foundations of a resilient supply chain as visibility to the supply chain, flexibility to respond to problems, close collaboration with suppliers and customers, and control processes in place to ensure procedures are followed to monitor and improve resilience measures. Easier said than done!

Beyond the building of this foundation is the fact that risk management does not live in a bubble, but rather, alongside opposing forces that can also be important organization initiatives. For example, global economic conditions have spurred corporate initiatives which, while saving costs, can counteract resilience efforts. These include supplier consolidation, outsourcing of functions, and globalization of supply chains. But with the integration of the risk management function and strategic business planning function, a good balance can be struck to realize both efforts. Blind focus on cost-cutting measures can mean that an organization misses out on keeping the competitive edge provided with risk management.

In the end, resilience measures are imperative, either smaller measures like identifying and quantifying the risks, or larger measures like modeling of scenarios of events, making detailed responses of plans, and carrying out exercises to ensure that risks are controlled. Even more importantly, as for any high priority task, effective leaders should tap a responsible individual, assign measureable metrics, and evaluate those regularly for continual improvement. In this case, the company’s survival depends on it!

Recommendations for Supply Chain Risk Management

Based on what we saw with our clients and the industry trends and events this year, here are my recommendations for mitigating supply chain risk:

Identify all risks, including disasters, economic, human resources, customer demand, and never overlook: your competitors!
Build, evaluate, or enhance your supply chain foundations of visibility, problem response flexibility, close collaboration with suppliers, control processes, and first-rate customer demand planning to ensure effective resilience measures.
Mix resilience planning and business planning functions. Communication between stakeholders is a cornerstone, and is the glue that keeps the wheels turning during a crisis.
Large or small, do what you can on the spectrum from identifying your risks to planning responses to practicing scenarios of those risks occurring. Choose a director to lead and track the progress metrics.

Going back to the example of Imperial Sugar’s production facility fires and the ensuing recovery, demand forecasting was the risk management key in the wake of a disaster that allowed them to preserve customer loyalty. This leads to my third and final supply chain recommendation blog: to make the supply chain revolve around a customer focus, which in Imperial’s case, was central to their recovery. I’ve saved the best recommendation for last, so don’t miss my advice next time!

What were the risks you experienced last year? Were they the ones you expected?

References
http://www.scdigest.com/assets/newsViews/09-02-12-1.php?cid=2256&ctype=content
http://www.idc.com/getdoc.jsp?containerId=prUS23876412
http://www.theferrarigroup.com/supply-chain-matters/2013/12/17/supply-chain-matters-2014-predictions-for-global-supply-chains-part-seven/
http://www.supplychainquarterly.com/topics/Strategy/20131104-how-to-recognize-and-reduce-risk/
http://www.deloitte.com/view/en_US/us/Services/consulting/Strategy-Operations/1224ad675f067310VgnVCM2000001b56f00aRCRD.htm#
“Supply Chain Resilience 2011,” November 2011, Business Continuity Institute.
https://www.cips.org/Documents/Membership/Branch%20minutes/DSP01954-0%20CIPS_Risk_Mant_Storyboard_V7_FINAL.pdf

Supply Chain Profitable Proximity – New Year Recommendations – Part One

Posted on January 10, 2014 by Jeff Shaw

Supply chain recommendations, like lots of best practice advice, arrive as we welcome another new year. For all new years, I usually focus on new beginnings. What about this year? A new royal baby, a new pope, new glances into the solar system, and new heroes. Sure, I think about my gratitude for my own high points, and try to acknowledge at least the lessons learned from the low points. But mostly I look ahead. I think I’m not alone. There are good starting points for new beginnings, rung in with the New Year reminders and traditions. These range from fireworks to pork and sauerkraut dishes to polar plunges in the closest lakes. Even the S&OP business landscape is filled with predictions of trends to come – and report cards on last year’s predictions – that industry analysts provide as best guesses to help firms remain competitive in the year ahead.

Reviewing the ‘best of the best’ predictions from the last 5 years, I came up with some supply chain recommendations for organizations to become more competitive in the year to come. I looked at output from 4 different groups: Gartner Analysts, International Data Corporation (IDC), Ferrari Group, and SupplyChainBrain. I saw prediction patterns emerging that led to my own supply chain recommendations for the year ahead.

First, some of the most recent predictions were ones that I didn’t see on prior lists. One of these that I saw, not surprisingly, concerned newer technologies than available 5 years ago:

2013 IDC Prediction #8: Supply chains will invest in technologies that enable visibility, visualization and virtualization.

Next, there were older predictions that were no longer mentioned. One of these I saw concerned sustainability. Not that sustainability isn’t still on the radar, it just may not be seen as a priority:

2009 IDC Prediction #10: Sustainability discovers metrics. No longer a feel-good public relations proposition or even a regulatory compliance mandate. Emerging standard measures and a desire to benchmark will impact sustainability initiatives and the associated investment in technology and services.

Finally, some of the predictions seemed to be recurring from one year to the next. Ultimately, I decided to focus on the recurring themes, and dig deeper into the associated predictions as a basis of my ‘best of the best’ list. I selected the 3 recurring themes that I thought were the biggest differentiators, and hope that the recommendations that I made for them will give you some starting points or reinforcement for supply chain objectives.
For now, let’s take a look at the first of those three, and one that is gaining momentum as more organizations exist in global networks of both their suppliers and consumers. More and more, the world is flat.

Prediction #1: The “right sizing” of supply chains via profitable proximity will evolve.

This prediction has been around for over 4 years:

2009 IDC Prediction #3: Companies will “right size” their supply chains for proximity and take a total-landed-cost approach to product sourcing. Standard corporate platforms will seek to configure, calibrate, and control increasingly complex scenarios.
2013 IDC Prediction #2: On the supply side of the supply chain, recognizing the inherent cost of long lead-times, manufacturers continue to look at global networks through the lens of both regional and country-level sourcing.The pendulum is swinging away from outsourcing based only on minimizing manufacturing costs.

Past pressures for low-cost manufacturing and sourcing outside of the country are now offset by pressures for low-cost transportation and shorter lead times available with regional proximity. Add to that the higher risks associated with remote proximity introduced with global uncertainties and quality control limitations, and the advantages to regional manufacturing are even higher. But wait! Emerging nations as a consumer base mean the definition of ‘regional’ manufacturing depend on just where the manufacturing and consumer are for specific products. One more piece of the puzzle is demand predictability, with its impact on the lead time. In an interview with Supply Chain Quarterly, Simon Ellis of IDC gave the following example of the need for flexibility in the face of forecasting:

“Established, consistent products, such as men’s jeans, are sourced from low-cost regions, and although lead times are long, the predictable nature of demand keeps supply risk low and costs down. Seasonal or fashion products, such as women’s summer dresses, are sourced locally, and although costs are higher, lead times are short, allowing the supply network to react more quickly to unpredictable demand.”

In the end, the cost of manufacturing, inventory, and transportation, and the risks of lead time need to be analyzed holistically to make decisions for right-sizing the supply chain, or creating what is called ‘supply chain profitable proximity’. Relatively new, I think the science of supply chain profitable proximity, especially in our flat world, is here to stay.

Recommendations for Supply Chain Profitable Proximity

Based on what we saw with our clients and the industry trends and events this year, here are my recommendations for supply chain profitable proximity:

Using the newest profitable proximity guidelines, design a network that makes the most sense for your organization.
Consider costs of sourcing, distribution, transportation, and warehousing to come up with the best total costs.
Factor in the risks associated with network as part of the cost, such as delayed lead times. Business planning counts as a cost!

What initiatives have you made or are you planning for right sizing your supply chain? If you’ve already started, how would you rate your success so far?

Supply chain profitable proximity is tightly coupled with our second recommendation and prediction, regarding supply chain risk. Stay tuned for my last prediction on supply chain customer focus, and a summary of my top supply chain recommendations for the new year!

References

http://www.supplychainquarterly.com/topics/Global/scq200803nearshore/

http://www.scdigest.com/assets/newsViews/09-02-12-1.php?cid=2256&ctype=content

http://www.idc.com/getdoc.jsp?containerId=prUS23876412

http://www.theferrarigroup.com/supply-chain-matters/2013/12/17/supply-chain-matters-2014-predictions-for-global-supply-chains-part-seven/

Put up or shut up: The corporate guarantee

Posted on November 9, 2010 by Gene Tanski

By Gene Tanski, CEO, Demand Foresight

Things were getting heated at the sales meeting. The cause of my anger was an old theme: Industry-wide, client expectations for business software were so low that stories about the failure of big enterprise projects had practically become wallpaper.

Where were the repercussions for the business performance that never materialized? The big systems failed to deliver what they were supposed to over 70 percent of the time and the big checks just kept getting cut with no accountability. The whole dynamic needed to be nuked.

In the heat of our discussion about the institutionalized negligence of our gigantic competitors and how we could exploit it, a 25-year-old, Xbox-playing member of our team, said: “Dude, if we’re that bitchin’, why don’t we guarantee it?”

“What?” I asked him. “Are you nuts? Do you have any idea how software works?”

“No, not really. But I hear you guys constantly complaining about how everyone else over-promises and under-delivers. Why not do something about it?”

That simple dare became our biggest differentiator – and, more surprisingly, revolutionized the way we run our company.

During the dot-com boom, new businesses were founded on completely new thinking by young professionals, unencumbered by any notion of what was or wasn’t possible. Most of that potential was never realized, though – at least not in the first wave, since the young visionaries had no grounding in the disciplines that would sustain their visions over time.

However, we wondered, could our team fuse the experience of the old hands with the “anything is possible” optimism of our young teammate?

Once we got our minds around the concept, the experienced guys on the team were able to adjust some long-held assumptions and work through how to handle the risk, build the pricing and generally operationalize the concept.

It was a little bit like learning how to fly, as characterized by Douglas Adams in his “Hitchhiker’s Guide to the Galaxy” books: the key to flying was to throw yourself at the ground really hard, and miss.

It was exhilarating. I felt like we had just missed the ground by a huge margin, and instead were flying straight to a business model that embodied the exact opposite of everything we hated about the IT and consulting world.

The guarantee was an explicit one – with no wiggle room. Clients would measurably improve their business performance — in our instance, a 25 percent minimum reduction in absolute forecast error — or we wouldn’t get paid. Not a dime.

It could have been a disaster, but taking this leap of faith actually did incredible things for our organizational focus – and ultimately helped cement our culture and internally align all divisions of the company.

The developers know that the software has to work and be relevant to specific job responsibilities or they don’t get paid. Implementation and technical support? They better get it right or they don’t get paid. Sales people? They had better understand the client problem and know exactly how to solve it, or … well, you know…

Another benefit of this ‘put up or shut up’ philosophy was the elimination of the need to micromanage. Once everybody understood that the promise would not bend, I found I could trust everyone to solve problems the way they thought best.

Vacation policy? Didn’t need it. Our team was entrusted to take the time off that they knew they could afford to take. Office? Wherever they could open a laptop and do their best work. This culture tells us a lot about the kind of people we should hire — can they stay motivated and productive in our unique environment?

So an energetic, passionate clash of skilled professionals turned out to be lightning in a bottle. It let us fuse the brashness of youth with organizational know-how.

We still argue in meetings, of course. But these days I enjoy it. You never know what sorts of benefits it can produce.

This post first appeared on Venture Beat: Entrepreneur Corner on October 26, 2010