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Rebecca Henderson Brings Urgent Outside Voice to Sourcing Journal Summit

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Where are we on the road to fashion transformation? In this year’s disruption of near biblical proportions, what are the chances for redemption in this era of lost growth?

Theories of disruptive innovation and creative destruction give us an understanding of economic loss and gain, but what explains why corporate change is so slow, and so costly, even in a crisis? For insight on the process of change, consider these four very human stages and where we might be as individuals and as companies.

First, in a pandemic, we naturally fear forces that threaten us. Indeed we double down, until forced to acknowledge that what once worked is now broken. Second, when blind-sided, it is now we who are blind, unable to see what is next. Third, when at the limits of our experience and resources, we begin to search beyond previous knowledge. The outside voice is heard. And, last, in renewal, we do not abandon the old. We bridge to the unknown by integrating fresh insight to achieve something new.

Is this a picture of fashion, the famously insular industry, in the storm of reinvention? Where are we right now?

Personally, I think we are at the stage of seeking and hearing the outside voice. We have loosened our grip on convenient explanations for a managed return to security: new calendars, reinventing shopping, automation, near-shoring, see now/buy now, right sizing inventory, store closures and digitizing everything. The glut of stuff and promotion mocks all of these narrow prescriptions to revive the business of fashion.

Rebecca Henderson, John and Natty McArthur University Professor at Harvard, understands this industry stasis. She is a highly influential scholar of innovation across global industries. In particular, given inevitable organizational resistance to change, she is known for harnessing shared purpose as key to creating shared value. I believe fashion is beginning to consider what she has to say.

Rebecca’s new book, “Reimagining Capitalism in a World on Fire,” is now a finalist for the Financial Times & McKinsey Award for best business book of the year. Its title and content could hardly have been better timed. Based on deep case, course and advisory work, it is a book that addresses what business must do to restore itself as an engine for sustainability and profitability.

Fashion now realizes it cannot save itself by itself, as if a fresh wave of new looks, silhouettes and colors could correct a down cycle. If you are a close reader of fashion media, you know the opinions of CEOs, designers, activists and celebrities for an industry fix. United in distress, there is no consensus for a fallen ecosystem that must be reimagined for relevance and prosperity. Fashion, in short, must adapt learnings from other industries and individuals, especially in electronics, autos and entertainment.

While there are endless initiatives to choose, there are few that directly link to market value and capital generation. Process—or what Henderson calls architectural innovation—is how puzzle pieces fit together in a new way. Fashion is highly fragmented globally and is largely organized around its components and tiers of supply. The result is deeply embedded rigidity for lowest cost sourcing that is the main obstacle to achieving greater speed, agility and risk reduction. The benefits of being fast, lean and flexible are a severe cultural challenge, and not yet overcome or demonstrated at any scale.

Fortunately, as the fashion industry confronts its limits, there is inspiration to replace the old arbitrage based on cost. Dependence on low cost labor, factories, subcontracts and countries is now a vulnerability. In Stanford-based research and cases of the last decade, Prof (Emeritus) Warren H. Hausman and I have shown that location does not matter in adoption of postponement strategies. Even at modest levels, supply flexibility projects improvement in market capitalization of 30 to nearly 40 percent. This upstream economic advantage is the new arbitrage, superseding lowest cost, high volumes and long lead times.

Lastly, sustainability deserves a careful definition. Like quality in the auto industry in the 1980’s, the challenge of our times is to achieve it at less cost and risk. Today, it is Tesla that is producing EV’s at a volume that is driving down the cost of batteries and electric power. Fashion must do the same with sustainable products and practices that drive demand at lower costs and prices. Our Stanford experience affirms a process that is also more profitable, deploying less inventory and zero waste. Indeed, to eliminate excess production, new tools of 3D virtual design will link to factories with algorithms to manage inventory risk. As Elon Musk exemplifies, individuals matter, and leaders of these manufacturing and data ventures are lighting the way.

Sustainability is what links fashion to other industries, shared purpose and financial capital. All industries are ultimately competitors for capital, and that standard is changing. Finance, in fact, is a significant force and incentive for change. Henderson’s book describes emerging investor criteria by the world’s largest fund managers to mandate new non-financial measures known as ESG (Environmental, Social & Governance) metrics. Another author, Sir Ronald Cohen in the UK, makes a similar argument in his book, “Impact: Reshaping Capitalism to Drive Real Change.” Cohen, the founder of Apax Partners and once the buyer of Tommy Hilfiger, is influencing pension funds –$30 trillion in total–to shift from risk and return evaluation to equal weight for risk, return and impact. These firm, market and social measures affect every fashion brand and retailer if they wish to have access to capital for sustainability and growth.

Fashion—the very first globalized industry—can mobilize a new generation that is already committed to values to improve our planet. With collective action, brands can evolve from “do no harm” compliance to positive social impact in supplier communities and human lives. The formula for both market and social capital is process innovation + data science. It is, in fact, social technology for both values and value. Textiles, our School for Globalization, can reimagine capitalism once again.

For more on sustainability, please read:

Why a ‘Tesla’ for Fashion May Be the Fix for Sustainability

How Does Fashion Organize for Real Change?

Who’s Influencing Fashion’s Sustainable Future? Apple, Amazon—and Toyota

 

John S. Thorbeck is chairman of Chainge Capital LLC, a firm focused on fashion industry transformation. John is the former CEO of Rockport and G.H. Bass & Co., and a former senior executive for Timberland and Nike. He is a graduate of Harvard Business School.

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The 2020 Virtual Sourcing SummitR/Evolution: Overhauling Fashion’s Outmoded Supply Chain, will unite thought leaders from around the world to reveal how to rebuild everything from sustainability, seasonality and social compliance, to product development, demand planning and purpose. Join us as we outline the opportunities that will come from taking bold steps toward rewriting fashion’s roadmap.

Please visit the Summit website for details on tickets, scheduling and a full lineup of speakers.

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