How semicon firms can achieve high performance by simplifying business!

Engineers in the global semiconductor industry have typically have had considerable control of their work. Processes are pretty straightforward, sequential, and logical -- and satisfying for an honest day's work.

However, due to the ongoing global economic downturn, many of these engineers are rapidly losing control of more of their professional lives. Caught like the rest of the world in a recession, they are losing more control of what work they are assigned to do, how they do it, in what sequence, by when and with whom.

Given these inter-related problems, many semiconductor companies need to make rapid and fundamental changes in their business operations, strategies and workforce management practices to emerge from this downturn, and for year beyond, as high performers.

Once this recession ends, these people will be entering a market with a different landscape than the market that existed when the downturn began. They need to figure out how to restart their businesses, regain their footing and connect to a new purpose.

They need to address the so-called 'soft' aspects of business, such as the engineers who design chips and how they feel. It's time for them to pay more attention to the little things that may seem innocuous but are actually central to achieving high performance.

Thanks to Charlie Hartley, Accenture, US, I was able to get hold of Accenture's recent study: Managing Through Challenging Times!! Quite an interesting read!

Naturally, it led to a conversation with Scott Grant, Executive Global Lead of Accenture's Semiconductor Operating Unit (see image here), who led the research and analysis of this new Accenture report released now about these issues and recommended solutions.

Accenture's report has seven suggestions or recommendations.

1. Divesting the business of unproductive assets.
2. Infusing a higher degree of operational excellence into the business.
3. Maintaining morale and energy in the workforce, especially in the key area of innovation.
4. Reducing the time to cash for new products.
5. Sharpening customer focus through more in-depth and accurate customer insight.
6. Pursuing alliances to share the cost burden of new product development.
7. Acquiring key assets.

Let's take a look at those, one by one!

1. Divesting the business of unproductive assets.
From Accenture's perspective, it has become evident during the past few years that among the top 20 semiconductor a growing number are fabless. That trend will continue in the future mainly because fabless companies have more competitive cost structures than semiconductor manufacturing companies that incur such high fixed-asset costs for their operations. Accenture's clients (customers) are seeking to understand the business operating model that best fits their desired position in the market. Our assessment leads to having a leaner product portfolio.

The first thing we look at is true cost at length. Traditionally, industry looks at cost per wafer metrics. Accenture studies what the hidden costs are. We look at Total Cost to Land including NPI re-spin costs, complete organization costs, advanced manufacturing process costs, plus the traditional material and labor costs. The goal is to find a fair comparison with an external manufacturing model that presents key improvement opportunities.

We also look for an integrated roadmap for manufacturing, design technology and intellectual property (IP). There are opportunities to better use IP investments across both leading products and derivatives, resulting in reduced cost in product ramp/readiness. To divest of unproductive assets, high performing firms build an accurate and balanced cost baseline for comparison.

In addition, we also look at strategic sourcing. Semiconductor companies often ask how they can lower costs. Sometimes this has the adverse affect within material quality. Strategic sourcing is an important factor to balance both sides of this equation. We suggest that our clients compare costs objectively against their peer groups and external suppliers. Many times we see lower direct material costs through use of external manufacturing models, because of the manufacturing supplier's economies of scale.

2. Infusing a higher degree of operational excellence into the business.
Traditionally, semiconductor companies were all about operational excellence. In the late 90s and early 2000s, the industry was about R&D excellence. Now, we see operational excellence in terms of sales and marketing -- with the amount of feet on the ground, the amount of time invested per design wins. Accenture strives to understand how companies better integrate sales operations into the manufacturing and production operation process.

Given the focus on external manufacturing, operational excellence is now being applied to the IP Ecosystem. IP management is critical for the current industry landscape. Semiconductor companies need to have a compelling argument to differentiate their IP. IP management and external management have been the crux of the strategy. Companies see the design importance growing. They see the change in their clients' requests towards a focus on sales operation and the IP ecosystem.

We see a few shifts in sales opeations. Many of Accenture's clients are challenged when they take emerging products into certain regional and local markets. One key challenge is the ability to maintain consistency in quoting, contracting and ordering. The other challenge is training and investing in sales. Sales is being asked to do more. They seem to spend 45 percent of their time in non-sales activities such as administrative tasks. However, they need to spend much more of their total time than that on sales activities and have others do more of the administration.

When Accenture examines the sales cycles of semiconductor companies, we tend to see limited performance metrics that follow. These companies tend to adhere to regional sales models -- and the complexity arises regarding how to be consistent with quoting, contracting and ordering.

3. Maintaining morale and energy in the workforce, especially in the key area of innovation.
One of the key decisions during a downturn is workforce reduction. For those employees remaining with the companies after reductions, it's key for these companies to re-enforce their connection to the new strategy, and how can they re-adjust from a training perspective to prepare such employees for innovation.

Investing in innovation is a huge priority. The transition Accenture sees in workforce reduction includes engineers feeling a loss of control. To maintain moral and energy, semiconductor executives need to continue to communicate strategic objectives to all employees.

Sometimes amid the change, a semiconductor company needs to ask whether it has thought beyond the change event (portfolio, workforce or facility reductions) and also focused on the complete organizational transition. This is a process of communication -- to help employees reconnect with their companies. Getting employees to understand, adapt and connect to the new direction takes a lot longer, and it also impacts productivity. Yet it must be emphasized.

Part II continues tomorrow. Stay tuned, folks!