Tech's Importance in Communication
Moving from people to systems; The IT factor; M&A success
“Technology gives us power, but it does not and cannot tell us how to use that power. Thanks to technology, we can instantly communicate across the world, but it still doesn't help us know what to say.” - Jonathan Sacks
As discussed in the last (lengthy) blog, Communication Breakdown, a lack of communication leads to death. Poor quality communication or miscommunication leads to illness and disease. To thrive, you need active and high-quality communication looping back and forth throughout the whole system - whether it’s throughout the body or throughout a company. We spoke there mostly about effective interpersonal communication and how to ensure high-quality messaging, especially as you grow from one-on-one to small teams to large organizations. Communicating effectively is harder than you think with small teams and gets increasingly difficult as you scale. To have a healthy, well-functioning organization, not only do the lines of communication and messaging across and through the team need to be well-defined, open, and flowing in both directions, but the IT systems that “talk to each other” behind the scenes need to be structured to align with the mission, in a flexible, clear, and effective manner.
People, Process, and IT
Specifically, with regards to logistics and 3PLs (third-party logistics companies), we’ve always said the quality of a 3PL comes down to three main things - people, process, and IT. I’ve seen companies most commonly overemphasize the importance of IT and underemphasize the importance of process and people. Communication runs through all three, as the people need to “execute the mission”, using efficient/effective processes on top of and supported by efficient/effective IT. You need all three. And all three need to be in sync.
One of my favorite quotes to use when discussing companies and their tech has been, “Technology doesn’t make stupid people smart, but it can make smart people more efficient.” I’ve seen BILLIONS of dollars wasted on tech - just in the logistics space - as leaders regularly ignore broken processes, or they’re simply poor, ineffective leaders who hope & pray a change in tech is the answer. It’s NEVER the answer (by itself). One example - several years ago, DHL in its Global Forwarding division wrote off EUR345mm (and we heard from some that the actual “wasted” financial cost was closer to EUR800mm) on SAP-TM, a system they touted for years would be a game-changer, but rather it just cost them significant cash and years of pain. Ultimately, they “threw in the towel” and switched to a much less expensive and much more effective CargoWise forwarding operating system.
What I believe is important to understand in this world drowning in new software applications with big promises is, “it’s not about the tech, it’s about the business.” Understand your business needs first - what’s the goal? And then search for technology solutions that a) meet this need, b) are easy to integrate (with your existing technology and with potential future systems down the road). Once you understand the business case (the job), you can make it about the tech (the tool). Not the other way around.
Effective communication and ultimate success starts at the top with the mission of the organization, which then informs the process, which then informs the technology choices to best operate in service of the customer. If it’s not clear (the CEO message/the company purpose/the culture) from the start, it will not flow through to the process nor to the IT structure and systems decisions. And if there’s a disconnect, the feedback loop will be ineffective, and the company will be (unintentionally) drifting off course. This can be prevented and remedied via effective communication.
As a reminder…top-3 keys to good communication.
Clarity
Consistency
Trust
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He Gets IT. Our CIO/CTO delivered a presentation to other executives and board members last week, where he spoke of both strategy and execution. In listening, a few areas where he’s focused stood out related the importance of communications to an effective operating system and effective business applications. Below we tie his thoughts to the three keys of good comms.
Clarity —> data/information must be a) real-time and b) accurate. Real-time data leaves no doubt as to what’s actually going on and allows for the best decisions to be made quickly. Of course, you also want to have the correct information. One way to do this is to limit manual entries (especially double-data entry, as we’ve seen at freight forwarders for decades) whenever possible to avoid “fat fingering”. Not only does manual entry risk improper entry, double-data entry means you may have two different numbers in two different places. Get systems to talk to each other as much as possible. And the fewer number of systems involved, the easier this is to achieve.
Consistency —> the feedback loop; do the answers match? Consistent feedback ensures proper function and early diagnosis of any issues. The IT team should be in a constant dialogue with the operating side of the house to see what’s working well and what needs to be improved. There should be a roadmap that ties to company strategy, and it should be fairly consistent in terms of priorities, so the team is not pulled in one direction one week and another the next in a series of “fire drills” (that really don’t have to be fire drills). Another marker of quality IT communication should be seeing the same “answer” to a query across multiple systems, no matter where you go to pull the information. It should be clear (accurate), consistent (every time), so the team can trust in its use to execute day-to-day operations.
"It's not what you preach, it's what you tolerate." - Leif Babin
This is communication effectiveness 101 related to consistency and clarity. After setting expectations, if something is substandard and not addressed and nobody held accountable, that poor performance becomes the new standard. It’s similar to your body being inflexible after sitting all day and not stretching, or eating too late and not getting good sleep. After a while, your body’s “new norm” is worse, but you’ve adapted to this “feeling” of how it “should be.” However, if you stretch every day, you maintain (or even improve) your flexibility, and if you make sure you eat well and eat early, your sleep should be more restorative and beneficial, and not degrade. So, if the expectation is clear, consistent execution of the standard is required, and regular communication to hold people accountable is necessary for high performance. Same with systems. Plus, IT can be even easier in this regard, because code and software don’t have to deal with procrastination, fear, and other emotions that people often have to overcome to execute consistently as expected.
Trust —> a by-product of the above two; alignment and attention. One of my former professors always used to say, “Trust, but verify.” Along these lines, the CTO has installed data monitoring reports to regularly cross-check various outputs (like active trailers in the fleet), and to give the team confidence/trust in the accuracy of the data. If one system says you have 1,431 active trailers in your fleet, and another system says you have 1,405, there’s an issue. When there are data discrepancies, the goal is to get to the root cause and correct asap. Is it a faulty code? Do we need a process change? Whatever it is, just like with our own physical health, we don’t want to treat the “symptoms” - we want to get to the root cause and fix to ensure the system works properly going forward without constant “treatment.” It’s imperative not to just show someone data and say “trust me” - everyone needs to be able to trust the data for efficient communication and operations, so it’s absolutely critical to be able to dig down (transparency) and check to see exactly where it came from. What’s the data lineage (i.e., how is it connected, who changed it, etc)? Again, there should be a strong feedback loop between the business and IT/engineering to make sure the systems are doing what intended and supporting the mission of the company.
“If there’s a lack of trust in each other or in the process, it will be reflected in the technology.”
Said another way, a high-functioning company will never have a disconnected tech stack. The IT reflects the organization. A clear IT roadmap is indicative of a clear mission statement and unified culture.
CEO/COO and CTO should be on same page, as they’re leading two parts of the same system. The CEO’s messaging to the people should be enabled and enhanced by the CTO’s IT roadmap. It’s not simply a game of pitch and catch. Decisions need to be made together. While the tech should not dictate the business decisions, the business decisions should not be made without understanding the “behind the scenes” technology implications. A common problem is the “business” side - whether it be finance or sales or ops - falling in love with a new IT solution and then telling the IT team to “make it work.” Instead, it’s better to communicate what needs to be done and have a discussion with IT about potential solutions, to make sure any new tech fits well with the existing systems. Someone in ops, for example, might hear of a new visibility software that claims it can “solve their problems,” but it will do no good, if it doesn’t interface with the core operating system. In this case, the goal is to improve visibility of shipments from origin to destination, and IT can either help build the solution internally or help screen off-the-shelf solutions that fit best with existing systems/software.
Start where you are, with what you have. Whenever a problem arises or the business wants to improve in an area (as we just said, this is often driven by a flashy sales pitch on a new software solution) - for simplicity’s sake, the first IT approach to solving the problem is to start with what you have - maximize the utility of existing systems first. Can you do more/better? Is it easy to integrate with other systems? Does it “do the job”? Weigh the risk of doing it a little better vs the risk of a whole systems change and change management that goes along with it. This could absolutely be the right move, especially for a company looking to grow longer-term, but you want to do the analysis first, because it is usually a large, costly, resource-intensive, and time-consuming project.
For example, if an LTL or small package carrier is looking to improve pickup and delivery (PUD) routing, there are several quality optimization solutions in the market - Optym's RouteMax, DispatchTrack, Motive, among many others. The questions a carrier should ask when determining how to take advantage of technology to improve their routing decisions include, "what works/integrates best with my core operating system? what will be easiest to change/update? does it solve the specific problems we have with routing decisions? does it capture or include all desired data to make the best decisions? how much manual intervention is required on a regular basis? how does the cost compare to the cost of us developing this internally? how much time would it take us to develop something similar internally?”
Again, it's important to have IT directed for the business, not by the business. This means a collaborative approach between the tech developers/IT team and the operators to determine how to best accomplish the mission (e.g., make invoicing easier, improve routing, better manage labor hours). The companies who simply throw a bunch of software "solutions" for various things at the engineers and tell them to "make it work" without any feedback on connectivity or difficulty or effectiveness are going to run into significant problems down the road and wonder "how'd we get here?" Lack of communication. That's how.
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Strategy changes a bit with M&A. Must choose. Must eliminate. Must focus.
It is hard work to keep it simple and effective internally with your IT roadmap and systems design. And if you have the business running smoothly and well connected with your IT strategy, M&A risks messing that up considerably. So, there's a right way and an "I love pulling my hair out" way of doing it. Buying or merging with another company is hard for multiple reasons, but here we'll talk about two main areas that relate to the overall health of the new, larger combined entity.
Culture and IT.
Communication is important to the success of both. The integration plan and execution will determine how good the company is "on the other side". Fundamentally, will you end up with a mix of cultures and a mix of tech, or will you have a unified culture and simple tech stack?
DSV is a company I've admired for a long time, especially as it relates to their M&A effectiveness. Of course, it hasn't always been easy for them, and they've learned lessons over the last 15 years through their many deals. These learnings, though, have allowed them to integrate massive companies, like UTi Worldwide and Panalpina, without a hitch in margins or growth. Impressive. The simplest way I can explain how they've done this is in their approach - everything is done the DSV way.
For example, UTi was a “roll-up” with many, many different systems that didn't talk to each other, and no unified culture. It was a mess. When DSV acquired them in January 2016, we (at Stifel, in my former analyst life) thought a) it will likely be a good deal longer-term, but also b) it will cause some pain for a bit before we see the real benefit. On b), we were proven wrong. Instead of trying to "merge" UTi's culture and systems with DSV's in a duct tape or patch-work approach, management essentially viewed the $1.35bn acquisition as a massive on-boarding of new employees and new customers. They threw UTi's IT systems in the trash, and moved everything over into DSV's CargoWise-based operating platform, allowing for consistency and uniformity of systems. And then with the people, they were all interviewed as potential new DSV employees and had to fit into the culture (Jens Lund’s FIFO strategy). Or they had to find a new job. And when hired, they were trained on DSV process and culture. Communication was clear from the start from the top down. This allowed DSV to a) retain almost all of the UTi business, b) show no real hiccups or slow-down in its freight forwarding margin expansion story, and c) quickly position itself as larger, unified forwarder higher up in the air & ocean league tables, ready for another acquisition. And shareholders have been rewarded for management's effective strategy, communication, and execution.
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People, Process, IT - each is either an enabler of effective communication or a block.
The theme here is communication and alignment - specifically the IT piece and how systems interplay with organizational strategy and operations. So, check your IT strategy and systems blueprint. Match it up vs your overall organizational mission statement. Make sure your processes are efficient and effective, so the IT can do its job best. And this goes for C-level execs at any company - no matter if you’re a global airfreight forwarder, dry van truckload carrier, sparkling beverage retailer, or auto parts manufacturer.
Ask, “is our IT roadmap and tech blueprint clear, is the signal consistent, and can my team and I trust the inputs and outputs?” This is foundational for your organization’s internal and external communication, as the people in your company first need timely and accurate data/information they can trust to be most effective in their jobs and in their communications. The IT reflects the organization. A clear IT roadmap is indicative of a clear mission statement and unified culture. IT must be aligned with business objectives and strategy, so if the business changes, IT also must change to maintain overall system integrity and accomplish the company’s goals. And you need people to make sure it does.
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In Case You Missed It
Beyond Logistics post #1 re: Trucking 101 —> here
Beyond Logistics post #2 re: Life —> here
Beyond Logistics post #3 re: Pricing —> here
Beyond Logistics post #4 re: Communication —> here
About the author: Dave Ross currently serves as Chief Strategy Officer at Ascent Global Logistics and EVP at Roadrunner. He is also a Director of Global Crossing Airlines. Prior to his current roles, he was Managing Director and Group Head of Stifel’s Transportation & Logistics Equity Research practice. Based in Miami, FL, he’s also an artist, investor, proud dog dad, and serves on a few select non-profit boards (related to Africa, Animals, and Art).
** All opinions in this piece are solely those of the author and not intended to represent those of Ascent Global Logistics or Roadrunner or other affiliated entities.
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