The Reinvention Mindset for Supply Chain Leaders with Dr. Nadya Zhexembayeva

[Transcript]

[00:00:00] Jan Griffiths: This is the Auto Supply Chain Prophets podcast, where you'll hear from experts of all facets of supply chain in the auto industry to help you prepare for the future. I'm Jan Griffiths, your co-host and producer.

[00:00:17] Terry Onica: I'm Terry Onica, your podcast co-host. Let's dive in.

[00:00:23] Jan Griffiths: Hello and welcome to another episode of the Auto Supply Chain Prophets podcast. Let's check in with my co-host, Terry Onica. Terry, what you been up to?

[00:00:31] Terry Onica: Well, we had our QAD transform conference, and I did a session on the 24 Essential Supply Chain Processes that we always talk about on this show. It's the intersection of IT, quality, supply chain, and sustainability. And there was three sessions going on at the same time, and half the people came to my session, which is really great. And what I really like, too, is the case study I had was from a life sciences customer. So, they make IV bags, and so she talked about how we brought these 24 Essential Supply Chain Processes in and how it really helped them to change what they were doing and transform what they're doing within their organization. So, it was really exciting. It wasn't an auto customer; it was a life sciences customer. It goes to show what we've always said: they work on all industries.

[00:01:24] Jan Griffiths: Yeah. What I loved about the conference, Terry, was the opening session. Of course, I was thrilled to be part of the opening panel with Carter Lloyds, the one and only Carter Lloyds himself, and the esteemed guests on the panel. And we talked about transformation, one of my favorite subjects. Now, we know it goes across many, many industries, but particularly my passion, as you know, is culture change and transformation in the auto industry. But, you know, Terry, a word that I've been seeing crop up more and more lately. It's more than transformation. We've been talking about digital transformation for a long time now. It is a complete reinvention.

[00:02:11] Terry Onica: It absolutely is.

[00:02:12] Jan Griffiths: That's what a lot of our companies are faced with. And you look at Boeing. In fact, somebody out of Bloomberg wrote an article about Boeing the other day, and they talked about this company needs complete reinvention, which, in my mind, is a step further than transformation.

[00:02:32] Terry Onica: Absolutely.

[00:02:33] Jan Griffiths: So, that's why I am thrilled today to bring on to the show Dr. Nadya. And for those of you in automotive who may not be familiar with Dr. Nadya, she is the Chief Reinvention Officer. She is the founder of the Reinvention Academy, and she has devoted her life to help companies work through this reinvention process. 'Cause you can't just say, "Oh, let's have reinvention on the agenda." Right? I mean, there's a process to it. There's a science to it. And thankfully, she is a recovering academic, but she has also worked in industry. So, she knows what the heck she's talking about. Dr. Nadya, welcome to the show.

[00:03:19] Dr. Nadya Zhexembayeva: So happy to be here. Thank you for having me.

[00:03:21] Jan Griffiths: Tell us more. What do you do? How do you help companies? Nadya, where'd you even begin?

[00:03:29] Dr. Nadya Zhexembayeva: Well, few things. I have to set the stage right and make sure you and the wonderful listeners are aware of my biases and frameworks of reference. So, first and foremost, I think that we have to say today is why reinvention is creeping up on everyone's agenda. Why is it now the number one topic in the PwC Global CEO Survey two years in a row where absolute majority of CEOs say that reinvention is their number one priority? It is because we live in a new normal. Just a few decades ago, the life cycle of a typical company and the life cycle of a typical product was very, very long, meaning that I could develop a product and pretty much milk that cash cow for five, ten, sometimes decades, not just few years, but decades. And that was a wonderful time. This was a time where things such as Lean Six Sigma, and Kaizen, and all the things that automotive sector has been so beautifully contributing to the global knowledge across all industries; this is where it all came from. In a long cycle, when you have 10, 20, or 30 years to produce essentially the same product, you can go with incremental improvements, those transformative steps, and they will produce significant results enough to keep you afloat. Fast forward to 2024, Reinvention Academy does research every two years to know what are the median cycles of business models across many, many industries. This year, the shortest numbers, the shortest cycles on record, if in the 20th century, the average life cycle of a business model was 75 years. This year, the average life cycle of a business model, including monopolies, mining, metals, and all those very long-cycle companies, is five years. Meaning you have to reinvent faster than you ever done before. And 20 percent of companies today are reinventing faster than the budgetary price cycle, faster than every 12 months.

So, when you are in this speed of change, things are moving very fast: new technology, new regulations, new customer demands, new competitors, you have to go faster and faster. And that's why reinvention is becoming such a big, big thing. Is that we recognize that incremental change is no longer sufficient. You still need to do it, but you cannot limit yourself only to incremental change. And second, we realize that at this speed of change, it's more like brushing your teeth than doing it once in a blue moon. It's not like you cannot brush your teeth for seven years and then brush them very well for two weeks and be done. No, by the time you get to it, half of your teeth will be gone. Same with reinvention, this is about a continuous proactive process rather than an occasional, accidental, ad hoc, one-time project.

[00:06:39] Jan Griffiths: If you would, Nadya, please, when you use this term reinvention, every single person listening to this podcast is going to have a different understanding of what that means. My gut tells me that it's a complete blow-up of every system and process that we've been used to and that the age of complacency is dead and gone. But I'd like to hear it from you. If you could start with a definition of what that really means to a CEO and then tell us how you do it. Give us the secret.

[00:07:13] Dr. Nadya Zhexembayeva: Well, the definition will provide some parts of the secret, but the difficult part is the right format of reinvention for your industry or for your company or for your region will be very different than the right format for myself or for my group of companies. So, we have to be at the meta level of principles rather than going into step by step checklist. The actual step-by-step checklist is usually developed by the company itself, which makes it a very wonderfully protected mechanism because if you learn how to do this on a regular basis, you will be very hard to catch or destroy by your competition or by the market reality as a whole.

So, what is reinvention? In our research, we identified nine types of reinvention, that includes everything from radical innovation to incremental change. The true meaning of reinvention is managing a portfolio, a diversified portfolio of initiatives where you are including a mix between the radical and incremental and everything in between.

So, a truly reinventive company is a company that has a nice cadence, reinventing every few months. Some of those reinventions are more on the incremental side. So, talking about the automotive sector, looking just at the transmission system or looking just at the particular process and reengineering, but a lot of it on a regular basis is a more radical, whole system, and very often, ecosystem reinvention that includes suppliers, customers, roads, core technologies. So, I was recently visiting a pilot road that uses wireless charging, so the car drives on the road, and the road provides the charge. This is, you know, we're going into the business of road building now. This is what the automotive sector is connecting to. So, this is ecosystem reinvention, not only my own company or a piece of my product. So, the essence of reinvention, continuous reinvention is building the right heartbeat where you are intersecting the moment of radical and the moment of incremental reinvention and managing a portfolio of initiatives in the process.

[00:09:33] Terry Onica: So, how do you bring that into the culture, in your work, at the C-level, and then throughout the organization because you got to get all the individuals to come along, too, how do you do that?

[00:09:45] Dr. Nadya Zhexembayeva: With a lot of pain. And to clarify that, let me give you statistics, and these statistics truly break my heart, but we are clearly doing something really, really bad with change. And how do I know that? I know that because we are looking at research and I was honored to see how much attention this article I wrote for Harvard Business Review got. I wrote an article on the statistics around change. Gartner published research on willingness to support enterprise change at the employee level. Just in 2016, on average, 74% of employees were willing to support enterprise change, 74%. Five years later, it was only 43% and falling. Most employees today are actually trying to prevent their companies from changing, and statistics from another organization, Gallup, actually show that an average of 15% of employees are actively sabotaging their businesses, their companies, and their bosses in trying to prevent change from happening. So, they're in a state of active sabotage. That's Gallup 2024 research. Those two numbers combined, those two studies combined, tell me that the way we approach change is all wrong and what is happening. In the past, when change was rare, when we lived in a very long cycle, 75 years on average, I could convince my people to do one big jump every, let's say, 10 years. And that big jump had beginning, middle, and the end. And then, between, there was a kind of lull business as usual, things normalize, and we just coast. That was approach to change we all are familiar. We even had branded transformation projects. Remember those Program Arrow or Project Renaissance? We branded those transformations. You're all laughing because we've all been there. Remember all those binders? Remember all those cascading meetings when the CEO did the roadshow and all that? It worked great in a relatively low pace of change, relatively low turbulence, and relatively low volatility. We had a beginning, middle, and end. We had a project approach to change. We branded them, and the promise to the employee was, you change for me this time, and I'll leave you alone for five or plus years. That's the unconscious process. That's an unconscious what you call. Yeah. This is what we call a psychological contract. That was an unconscious psychological contract. I jump for you; you leave me alone for five-plus years. Now, no CEO, no executive in their right mind can promise this to their people today. And you know, my history, I had the luxury, aside from being a professor in executive education, to act, to serve as a Head of Transformation for mining and metals business for many, many years. And when we were closing the budget of 2014, we were so proud that we had predictable manageable year. January 2nd, commodities market open and the prices for almost all metals fall some as far as 70%. Our beautiful manageable plans are out of the window. Who can promise any kind of stability to their people? Nobody. You're out of your mind, but we've never re-contracted. The psychological contract with our people has never happened again. So, we are telling them, time to change. They're hearing us, if I do this for you, you will leave me alone for five years. We, in half a year, come back and say, "Hold on a second. We're changing again." And people feel betrayed. They feel like you, on top, are out of your mind, detached or unprofessional, and out of your depth. They feel annoyed. They are not bad people. They're not unethical people and they're not sabotaging us because they're, you know, just out of their mind. No, for them, this is an issue of fairness. So, what we do in businesses, is we take a low-hanging fruit, we find a place where we can deliver quick wins, and we use that very short-term project to deliver two things: number one, confidence that things can change, and you can show measurable results. And I saw, I'm so happy to hear the story from your conference presentation that you can bring a case and show this can be done and result can be measurable because that immediately increases confidence in people. But, second, we have to do competence work. We have to actually build the toolkit, the step by step methodologies, so that when a bigger, bigger project comes along, they are capable of delivering results. And usually, it's a more messy and nuanced work.

[00:14:47] Terry Onica: Can you give us any examples from your work? It'd be fascinating just to hear some examples of companies that were successful at reinvention.

[00:14:55] Dr. Nadya Zhexembayeva: Oh, there are tons of companies. In both companies I study and companies I work with. Some of them that we study that, you know, very well, for example, Philips, I always talk about the story of Philips, the company that in the late nineties, early 2000s had some of the best TVs on the market. If you strip away the brand and just show the quality of the image to any image professional, they will tell you Philips is one of the best on the market, but they had zero consumer marketing skills, and the consumers had a different opinion. When you ask consumers, what is the best TV on the market? In 2000, an absolute majority of them would tell you Sony. So, here's Philips, stuck with the reality where the technology is really extraordinary, but their consumer marketing is crap. What do you do? And the guiding question is always, what do we do well and who else might need it? What do we do well and who else might need it? And what is their next reinvention? Their biggest winning reinvention was medical. Why medical? Because who needs a quality of image with zero consumer marketing? People who need to find cancer at the level of 0.1 millimeter, that's who need high-quality images. And you will never advertise that MRI machine in the subway station. So, how do you match your best competence and your best assets with the opportunity that is available and let go of your preconditioned notions of who you are and what's your product about. You are a product of a high-quality image. You are not producing TVs. And when we talk about the automotive sector, you are in the business of mobility. You do not produce cars. Mobility can be achieved through many, many, many means. And that's the starting point, that would be a great example.

From my own sector, if we come close to automotive, one of my dearest friends, clients, and people I love is Hidria, which is a tiny company in Slovenia. In 2004, they produced heating and cooling equipment. They are out of their wits trying to figure out the future for their company because they're squeezed in the West by more known brands, such as Danfoss, and in the East, by low-cost producers, such as China. They're out of opportunity, and they produce massive heating and cooling systems. Let's say, take an entire Las Vegas hotel, and that would be the system they would install. So, they asked themselves the same question. What do we really know very well, and who else might need it? And they looked around, they looked at all of the assets, all of their knowledge, all of their competence, all of their know-how, and they looked at the market. And there was a market that truly needed one thing they did well, which is electric motors, because inside the strong heating and cooling system is electric motors. And in 2004, there was one industry that was in desperate need of knowledge of electric motors, and that was the automotive sector. They introduced their first automotive part in 2005. By 2015, during the economic crisis, they became the predevelopment supplier to everyone from BMW to Renault and everything in between. And today, every six cars in the world has Hidria parts. That is a typical story of heating and cooling to automotive. It's not that far of a jump as you might think.

[00:18:20] Jan Griffiths: That's really fascinating. Now, you have authored a book, and it is called The Titanic Syndrome, and it's got a lot of positive press. It was featured in the European Financial Review and many other places. Tell us about the book.

[00:18:37] Dr. Nadya Zhexembayeva: Well, I was trying to understand what is happening at the time where I was working with quite a lot of companies that were in crisis, and I couldn't understand why are they there. So my consulting business was an accident. I was a professor of strategy, leadership, and sustainability at an executive education-only business school.

And then in 2007, I was standing in front of an executive MBA class, and the CEO of a retail agriculture mix, so it's a kind of grocery chain with their own private label agriculture, was sitting in front of me. And he said, "You speak so well, I almost believe you, and you have zero business experience. So, I think you need to go work first before standing in front of us and telling us what to do." And I thought that was a divine intervention. I love that comment. So, he was my first client. At that point, I was a full-time professor and part-time consultant. And by 2014, with over 100 subcontracting consulting businesses in our network. We couldn't accept any more clients. We had a wait room, waiting list over one year. That meant, by 2014, the number of companies that were in desperate need of reinvention and were facing bankruptcy was through the roof. And I couldn't figure out what it is, because most of them think it's a technical or technological problem. If we only figured out the right technology, we would solve it. That's a very typical mistake. When I stand in front of a group of people and ask them, "What killed Kodak?" They say, "Digital photography." Great answer; the problem is Kodak invented digital photography; it was their own R&D. And that is the case for most companies; they think if we gather winning technology, this would be solving all our problems. No, it's a mindset problem. It's a management system problem. And the management system of the Titanic is very, very illustrative. And just around that time, another fellow professor of mine, teaching in the next room, Juan Serrano, who I love and adore, was using the case of Titanic, the ship, and he would show the video from the movie that is done so historically accurate and draw parallels between the movie and the business. And I stood there listening to him, and I'm like, that's very similar to what I'm seeing in my client organizations. All of these markers are almost identical. This refusal to believe that we can be sunk. This idea is that we are unsinkable by default. We are too big to fail. We will be bailed out. We're too good to fail. We are untouchable. We are the institution of the society. We are too meaningful for this region or for this state. Excuse me, look at every company that was untouchable and disappeared. So, one is a mindset, part of it is a systems issue. The famous story of binoculars that at the moment of collision the person who was responsible for noticing the incoming risks and trends, the two lookouts had a lot of things in their disposals, but binoculars were not them. Why? Because there was this idea that, you know, we don't need to worry about it. They were locked up. The key left the ship at Belfast together with the fired first officer. How often do you hear this in business when we fire some senior people and they were the holders of tacit knowledge, and now we have no clue how we did that process in the past or why that contract was set up this way, or who in the supply chain relations is the one I need to pay attention to and who is full of fluff. All of that tacit knowledge usually lifts the ship. We are too confident. We are too sure we are adaptive enough to move around the iceberg so that by the time we hit, we are all disoriented and company on to the company. Look at the recent years, that was Silicon Valley bank, for example, a company that had massive amount of cash and was bailed out and restructured and saved in name only. It's amazing to me that we are seeing, again and again, most companies not surviving, and to give you a statistic, 52% of Fortune 500 companies have left the list since 2000. 52% of companies.

[00:23:04] Terry Onica: I have a question for you. We have a lot of supply chain professionals that are listeners and as you know, there's just disruption after disruption. And one of the things I see a lot in my work is just what you mentioned, we just keep applying the same thinking and we're not thinking out of the box. So, if I'm a supply chain professional out there listening to this, how do I get started to start looking at my problems differently and to reinvent what I'm doing, maybe, how could you break it down for them?

[00:23:35] Dr. Nadya Zhexembayeva: I would suggest to do an exercise. It's a very simple, but very powerful exercise, and you would need to repeat it maybe every couple of months. But I would take a team of like-minded people and say, hey, Pizza night or a Friday morning reinvention breakfast. And here's the exercise: you look at the statistics, you can look at our website, you can look at Google, and the TEDx talks we've done. There are tons of free resources. We will provide the download for you as well, where you can get some of the statistics from the recent book, The Chief Reinvention Officer Handbook. So, you get those statistics, you put them on a screen and say, "Hey, Here's the statistic." The average life cycle when we developed the profession of supply chain management was 75 years, and that meant a particular set of rules. So, how about we write those rules down? What does it mean to compete and win and manage the supply chain well in the long cycled world? I'll give you one example, Just in time management. Excellent idea in the long cycled world, when things are predictable, when things work like a clock, when we don't have 200 wars starting in a matter of two years, that now have to make us fly over and add hours, days, risk insurance, and tons of other things to our cost of goods that we're transporting as a part of our supply chain management. When we had different worlds, just in time management was an excellent, excellent idea. What is the idea that fits today's world where the median life cycle is five? So, we call it 75-five exercise, where you write all the rules for the long cycle world. Who won? How did we hire people? How do we evaluate success? What were the rules of success? And then, we'll write the rules for the short-cycle world. And a few rounds of this conversation and coming back to them again will give you a lot of ground to say, "Are we stuck in the 75 years thinking, or are we being honest with ourselves and realizing that this new world is not temporary." Most companies still to this day are behaving in a way that this will quiet down any second now. It just a little bit more and we will come back to business as usual. Just hold on a little bit more. We've been waiting since 2008. That's 16 years ago. We were waiting for the economic crisis to close down, then post-crisis restructuring of the industry because clearly the automotive sector really suffered in the 2008-2011 crisis. Then we entered into political turmoil, and the worst was China. Then we started with COVID, that's by the way five years ago. Hello. We still think it's recent. Five years ago, was COVID. Then, we went into post-COVID recovery. Then, we went into inflation. Then we are where we are right now, with EV vehicles and China taking over the world. I was just calculating statistics for Europe. In Europe today, number one is petrol. Petrol-based vehicles are a minority in Europe today. Only 35, this is 2023 data, a year ago, only 35% of cars are petrol.

[00:26:53] Jan Griffiths: Petrol as in gas.

[00:26:56] Dr. Nadya Zhexembayeva: Yes, gas. And diesel would be 13%. So, all together between gas and diesel, that would be 48%. The different types of electric, plug in hybrid, battery electric, and hybrid electric is 48%. So, the absolute majority of cars that wake up and smell the roses in Europe today are not oil-based. Number two, only one in 15 battery-operated electrics is now produced in Europe. The absolute majority of them are produced in China. That's 29%. So, we pretend this is all temporary. We are now in the middle of China's electric rethink of the whole play game around what it means to be an automotive sector today. So, stop thinking this is temporary. If it's not electric China, it will be COVID. If it's not COVID, it will be elections. If it's not an election, it will be a recession. If it's not a recession, it will be God knows what. But something is going to shake you up in the next six months. So, now the question is that you should be asking yourself, what are the rules of the game in a permanent shit storm? And I tell you, statistics are on your side when we look at statistics of a typical crisis all the way down to eighties. In a typical crisis, about 17% of companies disappear, and 17% go bankrupt, It is not horrible; I think it's kind of actually cleansing, but 10% of companies become stronger by sales, profits, employee engagement, and customer satisfaction. You can use every shitstorm to grow and develop. You just need to think of it, as your strategy, not be in a defensive position, but be on the fence. So, 75-five, start doing that exercise every few months. You will be amazed how your people themselves will develop rules that are fit for your company.

[00:28:57] Jan Griffiths: I love that. And I'm going to assume, Nadya, that that would be your one piece of advice that supply chain leaders could actually start and implement right now. And to be clear, that is look at your rules and your way of thinking for the long cycle view, which is what we've been in for the last several decades, or the short cycle view.

[00:29:20] Dr. Nadya Zhexembayeva: Absolutely.

[00:29:21] Jan Griffiths: And I love your idea of make it a pizza night or make it a breakfast and call it a reinvention breakfast. That is great advice.

[00:29:29] Dr. Nadya Zhexembayeva: One company that we worked with was Studio Moderna and this is a company very similar to HSN or QVC. Remember the glory years of TV sales before internet took over? Imagine the crush and burn of their industry that completely got destroyed. So, this is a company that was integrated with stores, but mainly selling through TV. Just reinvention breakfast on a monthly basis saves the company on all parameters. So, in terms of efficiencies, quick sales, quick fixes, and so on. Just getting your team to tell you what the rules should be, not the other way around. Thinking differently about the new normal. The problem is we're stuck believing this is temporary. And once we give that up and realize this is the new normal, you will come up with your own rules. I'll give you a very visual example: a couple of weeks ago, I was in Slovenia hosting a session for the automotive sector for the owners and CEOs of the entire sector, which is about 10 percent of the country's GDP.

I love demonstrating agility and reinvention right in the room so usually, I spread out the flip charts throughout the whole room. So, I'm standing in front of the room with my slides, and I say something, and then I move around the room, and I stand in the back next to the flip chart and start facilitating discussion. All the CEOs and owners turn around and kind of bend their necks and start looking at me. And I'm there for five minutes, 10 minutes, 30 minutes, and at that moment, I asked them how's their neck doing? And they're like, "It hurts. It's very uncomfortable." And then my next question is, "Why haven't you moved the chair so far?" Because that's the biggest metaphor in business. Most businesses are right now operating, thinking that this is temporary for the last 10 years; they're stuck with their necks, losing their mind, their necks hurting, and their people screaming because they made short-term adjustments thinking this is temporary instead of making full, meaningful reinvention, understanding this is permanent. Adjust your freaking chair! Your neck will stop hurting.

[00:31:48] Jan Griffiths: Adjust your chair. I love that. You know what? That is a great way to close us out today. Dr. Nadya, thank you so much for joining us today.

[00:31:57] Dr. Nadya Zhexembayeva: My pleasure. Thank you so much for having me. Jan Terry, always happy to support your podcast.

[00:32:07] Jan Griffiths: Are you ready to find the money in your supply chain? Visit www.autosupplychainprophets.com to learn how or click the link in the show notes below.