While sipping coffee in the cafeteria of an mid-sized organization I visited some time back, it was interesting to see the number of people out there. I observed the occupancy at different times of the day, excluding the lunch hours of 1200-1500 hrs, when of course most of the employees would be in the cafeteria. Nevertheless, it appeared that in the time period of 0900-1200 hrs and 1500-1800 hrs, at any given point in time, there were roughly around 400 people in the cafeteria and its surrounds. I could not resist the urge to do some back of the envelope calculations and ponder about some productivity issues that would be faced by organizations.
The annual time spent by the employees at the cafeteria would be:
400 persons x 6 hours/day x 250 days = 600000 person hours = 600000 / 8 = 75000 person days
Assuming that around 50% of this time is required for having food and general socializing, it translates into 75000 / 2 = 37500 person days not accounted for.
In other words, 37500 person days / 250 days per year = 150 persons per year were hired in a non-productive fashion. For a company size of about 3000 persons, it means about 5 percent of employees were hired for nothing.
Of course, numbers do not tell the whole story. But then, do they, at least point towards something more meaningful for appropriate management action?
The typical layman’s response could be that employee strength is re-evaluated and adjusted for this non-productive number. However, that would be catering to the symptom and not the cause. The important questions that need to be asked and answered are:
- How best can this free employee time be utilized in areas like training and development, internal projects that address current issues ?
- Why were these persons hired in the first place?
- What assumptions were made earlier that are not relevant now?
- Is it the result of the current organization structure and the processes followed?
- Does it require an assessment of the new business realities and responding to them in a holistic fashion, rather than a simple employee count reduction?
Showing posts with label Business. Show all posts
Showing posts with label Business. Show all posts
Tuesday, July 13, 2010
Tuesday, June 22, 2010
The Challenge of Product Proliferation
The commonly visible symptoms of the problems affecting organizations include, amongst others, increasing customer dissatisfaction, higher customer servicing costs, more manpower requirements, increasing operating complexity, lowered product quality, increasing lead times thus leading to lowered profitability. While the possible causes for these symptoms are many, they are often inter-related and one of the common causes is indiscriminate product proliferation.
Product proliferation simply means too many ‘me-too’ product variants introduced to cater to minor customer preferences for generating additional revenues (and hopefully increase profitability as well). But as with any economic system, the existing organization set up has its set of limitations. The marginal cost of making, selling and supporting a new product variant soon catches up with the marginal revenue generated by that new product variant and enters into a zone adversely impacting profitability and business viability. Obviously, it is a situation that should be avoided.
If this is so simple a management logic, why do companies introduce these ‘me-too’ variants in the first place? And what prevents the management to detect at what point the marginal costs overcome the marginal revenues? And, importantly, what can be done about it?
First let us look at some reasons why these varieties are introduced in the first place. They are:
• Commoditization of offerings due to lack of fundamental product and process innovations
• Very high competition, need to differentiate and fear of losing market share if minor customer preferences are not accommodated
• Pressure to improve top line revenue
• Shortening product life cycles
• Easy use of existing knowledge to create the me-too variants
• Shared use of operation areas like available production capacity, sales & distribution channels, and common raw materials
These are genuine drivers that lead to product proliferation. What is the reason then, that it goes too far and starts becoming detrimental to the organization itself?
Primarily it is because the manager does not clearly know when the marginal cost starts eating into the marginal revenue and surpasses it. When a new variant is introduced, upfront costs of making and selling it need to be incurred. There is some lag that exists between when these costs are incurred and when the customers start adopting these variants, during which there is a difficulty in estimating how far customers have adopted the new variant. When a better picture emerges, three options can emerge i.e. the variant is a huge success, it is an absolute failure or it is moderately accepted by customers. The first two options lead to obvious conclusions, but the third one is where the ambiguity manifests itself. Many a times, this variant is continued in the hope that further efforts can boost its sales. But as new products get introduced in the market, some of these customers soon move away from the moderately successful variant. The result is that the organization is left with fewer customers and one more product variant to maintain both in terms of product availability and post sale support.
Now the third question: what can be done about it? Multiple approaches can be suggested and their usage in combination with each other can help resolve the challenge of product proliferation.
• Establish and implement strict criteria for regular assessment of the uniqueness, success and continuance of a product variant, both at a variant level and organization level.
• Understand the customer order penetration point into the product manufacturing cycle and structure the operations accordingly.
• Sun-set older variants and their support when new ones are introduced.
• Usage of techniques like Activity based Costing can help in identifying potential candidates for investment, maintenance or retirement.
Thus, one can approach the challenge posed by product proliferation and also address the competitive forces effectively.
Product proliferation simply means too many ‘me-too’ product variants introduced to cater to minor customer preferences for generating additional revenues (and hopefully increase profitability as well). But as with any economic system, the existing organization set up has its set of limitations. The marginal cost of making, selling and supporting a new product variant soon catches up with the marginal revenue generated by that new product variant and enters into a zone adversely impacting profitability and business viability. Obviously, it is a situation that should be avoided.
If this is so simple a management logic, why do companies introduce these ‘me-too’ variants in the first place? And what prevents the management to detect at what point the marginal costs overcome the marginal revenues? And, importantly, what can be done about it?
First let us look at some reasons why these varieties are introduced in the first place. They are:
• Commoditization of offerings due to lack of fundamental product and process innovations
• Very high competition, need to differentiate and fear of losing market share if minor customer preferences are not accommodated
• Pressure to improve top line revenue
• Shortening product life cycles
• Easy use of existing knowledge to create the me-too variants
• Shared use of operation areas like available production capacity, sales & distribution channels, and common raw materials
These are genuine drivers that lead to product proliferation. What is the reason then, that it goes too far and starts becoming detrimental to the organization itself?
Primarily it is because the manager does not clearly know when the marginal cost starts eating into the marginal revenue and surpasses it. When a new variant is introduced, upfront costs of making and selling it need to be incurred. There is some lag that exists between when these costs are incurred and when the customers start adopting these variants, during which there is a difficulty in estimating how far customers have adopted the new variant. When a better picture emerges, three options can emerge i.e. the variant is a huge success, it is an absolute failure or it is moderately accepted by customers. The first two options lead to obvious conclusions, but the third one is where the ambiguity manifests itself. Many a times, this variant is continued in the hope that further efforts can boost its sales. But as new products get introduced in the market, some of these customers soon move away from the moderately successful variant. The result is that the organization is left with fewer customers and one more product variant to maintain both in terms of product availability and post sale support.
Now the third question: what can be done about it? Multiple approaches can be suggested and their usage in combination with each other can help resolve the challenge of product proliferation.
• Establish and implement strict criteria for regular assessment of the uniqueness, success and continuance of a product variant, both at a variant level and organization level.
• Understand the customer order penetration point into the product manufacturing cycle and structure the operations accordingly.
• Sun-set older variants and their support when new ones are introduced.
• Usage of techniques like Activity based Costing can help in identifying potential candidates for investment, maintenance or retirement.
Thus, one can approach the challenge posed by product proliferation and also address the competitive forces effectively.
Tuesday, June 15, 2010
The Balancing Act
While we were discussing the business challenges of a medium sized, $60 million company making specialty polymers, a production planning executive highlighted the age old problem of performing the balancing act between the production/procurement plan with the ever fluctuating sales orders and the regular pains they had to undergo to try to achieve the balance between them. The essential facts of this classic case were as follows.
The company made and sold around 150 polymer grades manufactured out of some hundred odd ingredients. The production runs had to be of specific lot sizes and be planned based on a specific product sequence dependent on the individual polymer grades and their characteristics. The production run had to be scheduled at least three weeks in advance. The raw material procurement lead times could vary from 1 week to 12 weeks. Adding to the complexity, customer orders could come in with lead times of less than a week for out of stock materials and cause disturbance in the existing production schedule. The essential challenge was how to manage the dynamism inherent in the cumulative purchase and production lead times of 4 to 15 weeks versus the 1 week lead time of the unplanned orders.
We decided to further explore the issue by conducting an impact analysis on two fronts.
1. Loss of sales versus better production efficiencies:
A preliminary, but incisive, analysis of the situation brought out that most of the unplanned orders came in from C class customers who accounted for not more than 30% of total sales. The unplanned orders were typically made for some 40 polymer grades and accounted for around 5% of total company sales. The company had an operating profit margin of about 10%, the material cost was around 70% and cost of goods sold typically was 90% of the sale price.
We then asked the question “What if the unplanned orders were not catered to at all? What would be the fallout?” Some quick calculations showed that the real impact on business would be
= $60 million x 5% unplanned order revenue x 10% operating profit margin = $0.3 million.
But on the other side production runs would be smoother with waste reduction of say 1%. This implied a saving of
= $60 million x 70% material cost x 1% saving = $0.42 million
Thus just ignoring the unplanned orders could result in a net business benefit of $0.12 million.
2. Preserved sales versus higher inventory carrying costs:
We decided to push further. What if the safety stock levels of those relevant 40 grades were pushed up to a level that would help satisfy the unplanned orders? Assuming finance costs of 10%, the financial impact of that decision would be
= $60 million x 5% unplanned orders x 70% material cost x 10% finance cost = $0.21 million
Again this has a net savings of $0.09 million
Combine the two impacts, there would be no loss of sales, production efficiencies would be high and the total benefits would be
= $0.3 million (no loss of sale) + $0.42 million (better production efficiency) - $0.21 million (inventory carrying costs) = $0.51 million
Similar impact analysis can be done on the raw material lead times, production plan time fences, warehousing and other relevant aspects to identify potential business improvement opportunities.
Though the situation is much simplified in this example, it can serve as an effective method to further delve into the problem and arrive at relevant business solutions.
The company made and sold around 150 polymer grades manufactured out of some hundred odd ingredients. The production runs had to be of specific lot sizes and be planned based on a specific product sequence dependent on the individual polymer grades and their characteristics. The production run had to be scheduled at least three weeks in advance. The raw material procurement lead times could vary from 1 week to 12 weeks. Adding to the complexity, customer orders could come in with lead times of less than a week for out of stock materials and cause disturbance in the existing production schedule. The essential challenge was how to manage the dynamism inherent in the cumulative purchase and production lead times of 4 to 15 weeks versus the 1 week lead time of the unplanned orders.
We decided to further explore the issue by conducting an impact analysis on two fronts.
1. Loss of sales versus better production efficiencies:
A preliminary, but incisive, analysis of the situation brought out that most of the unplanned orders came in from C class customers who accounted for not more than 30% of total sales. The unplanned orders were typically made for some 40 polymer grades and accounted for around 5% of total company sales. The company had an operating profit margin of about 10%, the material cost was around 70% and cost of goods sold typically was 90% of the sale price.
We then asked the question “What if the unplanned orders were not catered to at all? What would be the fallout?” Some quick calculations showed that the real impact on business would be
= $60 million x 5% unplanned order revenue x 10% operating profit margin = $0.3 million.
But on the other side production runs would be smoother with waste reduction of say 1%. This implied a saving of
= $60 million x 70% material cost x 1% saving = $0.42 million
Thus just ignoring the unplanned orders could result in a net business benefit of $0.12 million.
2. Preserved sales versus higher inventory carrying costs:
We decided to push further. What if the safety stock levels of those relevant 40 grades were pushed up to a level that would help satisfy the unplanned orders? Assuming finance costs of 10%, the financial impact of that decision would be
= $60 million x 5% unplanned orders x 70% material cost x 10% finance cost = $0.21 million
Again this has a net savings of $0.09 million
Combine the two impacts, there would be no loss of sales, production efficiencies would be high and the total benefits would be
= $0.3 million (no loss of sale) + $0.42 million (better production efficiency) - $0.21 million (inventory carrying costs) = $0.51 million
Similar impact analysis can be done on the raw material lead times, production plan time fences, warehousing and other relevant aspects to identify potential business improvement opportunities.
Though the situation is much simplified in this example, it can serve as an effective method to further delve into the problem and arrive at relevant business solutions.
Monday, May 17, 2010
Tackling the Complexity Creep
Initial success leads most organizations to strive and repeat the success on a larger scale, in more complex situations. It implies higher turnover of existing assets plus addition of new assets. These assets could be in the primary areas of physical infrastructure, monetary resources, technology, systems, information and most importantly people. The route taken most often by organizations is to use a similar, if not the same success formula of combining the old and new resources to achieve further success.
Such actions imply that the earlier framework is now stretched to include new resources, tackle new operating situations and deliver expected results. This initial stretch though more complex, with some push delivers the results, albeit in a less efficient manner. As with any system, such stretches would be effective till a point; after which the operating framework would start to fail and result in a tangled mess. It is not too uncommon to see successful, high growth organizations having people across all levels working in ambiguity, isolation and exhaustion, simply because they are unable to comprehend the new complexity of working towards the expected results. Clarity is difficult to come by as it is in short supply. Confusion prevails as this complexity slowly increases over a period of time and past successes. Lets call this process as Complexity Creep.
How to tackle such a Complexity Creep?
A process centric, back to basics approach initiated by the top management can serve well to reduce the complexity creep. It involves asking a few simple questions, collectively answering those and following these with action. The primary aim is to change the existing way of working and simplify operations for higher effectiveness and efficiency.
The first and foremost thing to do is to build a clear understanding of the new organization objectives and the available resources, with their strengths and limitations. It would need to be supplemented by gaining better insight and acceptance of current operating problems. A multi team participation from all stakeholders is recommended to foster ownership and enhance teamwork.
At this stage, it is very helpful to rely on BPM methodologies and build various operating models like Strategy, Business Interactions, Communication, Process, Workflow, SIPOC, Roles, Metrics etc. to consolidate a common understanding of the mentioned activities. Such models necessitate the participants to have a common understanding and acceptance of the new operating framework. There are change management techniques available which help such teams to collectively arrive an accepted way if working.
Once this part is agreed upon, then the time comes to define the manner in which the new approach would be carried out. It can imply decisions regarding the scope of change i.e. product lines, projects, business units etc. and the manner in which such change would be effected. Once the scope is in place, timeframes need to be associated to the plan along with required resources. Metrics also need to be decided to measure organizational performance and arrive at benefits achieved. Finally, establish a clear methodology of implementing the plan and have change management chamions to drive the change.
To ensure the success of such initiatives, some thumb-rules seem to work very well. They are:
• Regular involvement of the organizational leaders and their proven commitment to change
• Ensuring high participation from the scarce pool of top performers
• Professional involvement to provide change management expertise and a third party view
Such actions imply that the earlier framework is now stretched to include new resources, tackle new operating situations and deliver expected results. This initial stretch though more complex, with some push delivers the results, albeit in a less efficient manner. As with any system, such stretches would be effective till a point; after which the operating framework would start to fail and result in a tangled mess. It is not too uncommon to see successful, high growth organizations having people across all levels working in ambiguity, isolation and exhaustion, simply because they are unable to comprehend the new complexity of working towards the expected results. Clarity is difficult to come by as it is in short supply. Confusion prevails as this complexity slowly increases over a period of time and past successes. Lets call this process as Complexity Creep.
How to tackle such a Complexity Creep?
A process centric, back to basics approach initiated by the top management can serve well to reduce the complexity creep. It involves asking a few simple questions, collectively answering those and following these with action. The primary aim is to change the existing way of working and simplify operations for higher effectiveness and efficiency.
The first and foremost thing to do is to build a clear understanding of the new organization objectives and the available resources, with their strengths and limitations. It would need to be supplemented by gaining better insight and acceptance of current operating problems. A multi team participation from all stakeholders is recommended to foster ownership and enhance teamwork.
At this stage, it is very helpful to rely on BPM methodologies and build various operating models like Strategy, Business Interactions, Communication, Process, Workflow, SIPOC, Roles, Metrics etc. to consolidate a common understanding of the mentioned activities. Such models necessitate the participants to have a common understanding and acceptance of the new operating framework. There are change management techniques available which help such teams to collectively arrive an accepted way if working.
Once this part is agreed upon, then the time comes to define the manner in which the new approach would be carried out. It can imply decisions regarding the scope of change i.e. product lines, projects, business units etc. and the manner in which such change would be effected. Once the scope is in place, timeframes need to be associated to the plan along with required resources. Metrics also need to be decided to measure organizational performance and arrive at benefits achieved. Finally, establish a clear methodology of implementing the plan and have change management chamions to drive the change.
To ensure the success of such initiatives, some thumb-rules seem to work very well. They are:
• Regular involvement of the organizational leaders and their proven commitment to change
• Ensuring high participation from the scarce pool of top performers
• Professional involvement to provide change management expertise and a third party view
Thursday, February 11, 2010
The Puzzle of the Three-Legged Race
During school, most have seen and enjoyed the three-legged race...some of us would have actually experienced the fun as well. While for some, its a nightmare to even take a few steps, there are a few others who are running as fast as they would have run individually! Arms over shoulders, steps in synchronization and off they go towards the 'Finish' line to win the prize!
A complex puzzle for those who can't...and nothing so simple for those who can!
Organizational projects are no less of a three-legged race themselves, where:
Leg 1 = Customer
Leg 2 = Solution Provider
Leg 3 = The actual solution and the project itself where the Customer and the Solution Provider are tied together
Some of these project engagements struggle to identify the Leg 3 itself, while some others run off to finish the race in record time and reap immense business benefits. A clear understanding of dependencies of Leg 1, Leg 2 and Leg 3 followed with precise, continuous coordination between the three legs is perhaps all that's needed to solve the puzzle of the three-legged race!
A complex puzzle for those who can't...and nothing so simple for those who can!
Organizational projects are no less of a three-legged race themselves, where:
Leg 1 = Customer
Leg 2 = Solution Provider
Leg 3 = The actual solution and the project itself where the Customer and the Solution Provider are tied together
Some of these project engagements struggle to identify the Leg 3 itself, while some others run off to finish the race in record time and reap immense business benefits. A clear understanding of dependencies of Leg 1, Leg 2 and Leg 3 followed with precise, continuous coordination between the three legs is perhaps all that's needed to solve the puzzle of the three-legged race!
Monday, February 1, 2010
When It's Not OK...
In an organization, multiple stakeholder teams contribute to the many facets of organizational activity. Modern management principles require that each stakeholder group be responsible for the area it contributes to and controls this contribution through well laid out Key Result Areas (KRAs) and Key Performance Indicators (KPIs).
The key assumption made in this type of framework is that each stakeholder is aware of not only its own, but also the roles, responsibilities and dependencies across other stakeholders. The decision makers have their task cut out to orchestrate the activities of individual stakeholders towards realization of organizational goals, both short term and long term. Implicit here is that along with the activities of each stakeholder, the benefits to each stakeholder also have to be balanced by the decision makers.
Invariably, however, balancing individual activities with organizational goals and stakeholder benefits is seldom a simple task. Rather than walking a straight-line tightrope, we usually find decisions and activities oscillating across the ideal balanced state of operations. The end result is that the organization's operations are rarely on the ideal, optimized path. Lack of appropriate and complete information, and uncontrollable external factors could be driving such situations. But sometimes differing importance assigned to each type stakeholders could be playing a sustained role in influencing the direction of these oscillations.
If we look at principle task of balancing the basic short term organizational survival with the long term stakeholder enrichment and growth, we do observe certain decisions that are sometimes taken to ensure short term continuity, and a long term strategic interest of some stakeholder is either sacrificed or foregone. Situations having short term focus would typically drive such decisions. In situations with longer term visibility, decisions can tend to forego overall short term benefits to ensure long term sustainability.
But in today's world of shortening business process lifecycles and dynamic situations, we do see an increased tendency towards short term rather than long term, with the result that some stakeholder interests are sacrificed over others. The impacted stakeholders need to bring this to the notice of the decision makers and good practices of management require that such imbalance be set right. Most of the times, even the stakeholders are fairly agreeable to such short term variations and its OK with them.
But there are times when there could be a deliberate, sustained sacrifice of some stakeholder benefits over some other stakeholder group benefits. Such situations, not only can strike at the very root of long term sustainability, but also at the immediate survival of the organization...then things are definitely not OK!
Though there is no definite solution to such problems, a willingness to take the raging bull by its horns is very often the best way out.
The key assumption made in this type of framework is that each stakeholder is aware of not only its own, but also the roles, responsibilities and dependencies across other stakeholders. The decision makers have their task cut out to orchestrate the activities of individual stakeholders towards realization of organizational goals, both short term and long term. Implicit here is that along with the activities of each stakeholder, the benefits to each stakeholder also have to be balanced by the decision makers.
Invariably, however, balancing individual activities with organizational goals and stakeholder benefits is seldom a simple task. Rather than walking a straight-line tightrope, we usually find decisions and activities oscillating across the ideal balanced state of operations. The end result is that the organization's operations are rarely on the ideal, optimized path. Lack of appropriate and complete information, and uncontrollable external factors could be driving such situations. But sometimes differing importance assigned to each type stakeholders could be playing a sustained role in influencing the direction of these oscillations.
If we look at principle task of balancing the basic short term organizational survival with the long term stakeholder enrichment and growth, we do observe certain decisions that are sometimes taken to ensure short term continuity, and a long term strategic interest of some stakeholder is either sacrificed or foregone. Situations having short term focus would typically drive such decisions. In situations with longer term visibility, decisions can tend to forego overall short term benefits to ensure long term sustainability.
But in today's world of shortening business process lifecycles and dynamic situations, we do see an increased tendency towards short term rather than long term, with the result that some stakeholder interests are sacrificed over others. The impacted stakeholders need to bring this to the notice of the decision makers and good practices of management require that such imbalance be set right. Most of the times, even the stakeholders are fairly agreeable to such short term variations and its OK with them.
But there are times when there could be a deliberate, sustained sacrifice of some stakeholder benefits over some other stakeholder group benefits. Such situations, not only can strike at the very root of long term sustainability, but also at the immediate survival of the organization...then things are definitely not OK!
Though there is no definite solution to such problems, a willingness to take the raging bull by its horns is very often the best way out.
Wednesday, December 16, 2009
Abstract Business Problems and BPM
The principles of Business Process Management (BPM) can lend themselves beautifully to solve abstract business problems. The methodical rigor it propounds can help in providing good objectivity and quantification to an abstract and subjective problem, provided. As an example, let us consider a case of a company having very low employee motivation resulting in high employee turnover and poor performance issues without having much clarity on the reasons for the low motivation. The essential method of applying BPM principles is briefly outlined here.
Step 1: Define the problem statement: Objectively address the problem of low employee motivation using the principles of BPM
Step 2: Identify the business processes impacting employee motivation. e.g.
As an example, if we consider the training and development process, its evaluation factors and their current state findings could be on the lines of something like:
Step 6: Study and synthesize the findings from each process area and take corrective action. Corrective action may also include designing improved / new processes.
The data collection can be easily done by asking the target employees to respond anonymously to a comprehensive questionaire and obtaining objective feedback on how well were the process and its activities followed for each of the evaluation factor. Modern IT tools are readily available to do the analytical number crunching part.
Thus, the focus on and use of business processes and activities helps to build objectivity in an otherwise subective area. The method may seem to be tedious, but can work very effectively in generating objective data. What remains upto the business manager is the initiative to conduct such an analysis and take appropriate corrective actions. :)
Step 1: Define the problem statement: Objectively address the problem of low employee motivation using the principles of BPM
Step 2: Identify the business processes impacting employee motivation. e.g.
- Training and development (adequate, timely, regular)
- Remuneration (as per industry standards, performance based)
- Career roadmap (clarity)
- Performance appraisal (transparent, interactive, fair)
As an example, if we consider the training and development process, its evaluation factors and their current state findings could be on the lines of something like:
- Regularity (irregular, no clarity in training program schedule)
- Appropriateness (lack of appropriate training that is relevant to job)
- Adequacy (Inadequate in both volume and expertise levels)
- Timeliness (Not conducted when required for the job)
- Formal / Informal (Informal trainings that lack professional expertise)
- Mentoring (lack of mentoring and guidance)
- Is there a formal updated process laid down for appropriate training and development of employees for each component?
- If no, it implies a high amount of arbitrary decisions being taken in that area. There is a starightforward need to define the organization wide processes
- If yes, then further investigate to what extent the process has been followed at an individual activity level.
- Identify each occurence of deviation versus adherence to the process, its individual activities and the roles and then aggregate the results. This would help in isolating that activity - role combination which is not performing as per the process standards.
- Collate the resulting data for further cause - effect analysis. Graphs, charts may be used for visual analysis as well.
- Applying proper weightages to each area can also help rate a process using a numerical score.
Step 6: Study and synthesize the findings from each process area and take corrective action. Corrective action may also include designing improved / new processes.
The data collection can be easily done by asking the target employees to respond anonymously to a comprehensive questionaire and obtaining objective feedback on how well were the process and its activities followed for each of the evaluation factor. Modern IT tools are readily available to do the analytical number crunching part.
Thus, the focus on and use of business processes and activities helps to build objectivity in an otherwise subective area. The method may seem to be tedious, but can work very effectively in generating objective data. What remains upto the business manager is the initiative to conduct such an analysis and take appropriate corrective actions. :)
Monday, November 23, 2009
Invention, Innovation and Entrepreneurship
Recently, I saw Pranav Mistry's talk and demo on the Sixth Sense technology on TED Talks. Absolutely mind blowing stuff! It set a lot of mental gears in motion, especially with what he has done so far and his intent to make his knowhow available to others to further develop products for the masses at large. Those 10 minutes triggered a small thought process on who would be an Inventor, Innovator and an Entrepreneur with respect to the technology he has developed. Using a working outline of each role, a highly probable scenario would be as follows.
Inventor: An inventor typically uses available technlogy components and creates a new technology that can be further adopted in creating technologically advanced products and services. Pranav Mistry, no doubt, is a genius inventor. What he has done is so simply beautiful! I am sure many would have thought "Why did I not think of it before?". But does Pranav Mistry go beyond being an Inventor?
Inventor: An inventor typically uses available technlogy components and creates a new technology that can be further adopted in creating technologically advanced products and services. Pranav Mistry, no doubt, is a genius inventor. What he has done is so simply beautiful! I am sure many would have thought "Why did I not think of it before?". But does Pranav Mistry go beyond being an Inventor?
Innovator: An innovator would use available technology and inventions and create a product or service that does not exist before and those that can be used by regular people in their day to day lives. The technoogy outlined by Pranav Mistry would now need to be accessible to products and services designers to incorporate into usable products and services. E.g. Mobile phone or laptop designers may be one such group that may use the technology in designing innovative products. In all probability, the role of the innovator could very well be taken up by the product development teams in product designing companies. A person like Pranav Mistri could very well be a part of such innovating teams. The key factor in Innovation would be to apply the invented technology to usable products.
The Entrepreneur: But just designing an innovative product or service is not the end of the story. The entrepreneur would be the next entity in line to carry the story ahead. The entrepreneur would need to look at making appropriate business decisions regarding the business of making and selling the innovative products. These business decisions need to be made in the face of uncertainty and rewards for risks taken. These decisions need to be in areas like:
- Markets to enter
- Target customers
- Production capacity and volume
- Input factors
- Product costing
- And other business management areas.
The flag of entrepreneurship in this case could very well be taken ahead by the operations teams of the companies selling such products. So, the entrrepreneur entity would be the one who can take up the innovative products and build a successfull business out of it by undertaking the risk in making business decisions in the face of uncertainty.
To summarize, I believe the story started by Pranav Mistry has an exciting life ahead and should be full of twists and turns as the innovators and entrepreneurs adopt it and add their bits to it to cater to the masses at large, the dream shared by Pranav Mistry.
Thursday, November 19, 2009
Recession, Cost Cutting and Employee Motivation
, mThe recession prevalent for the last almost two years has reportedly been the prime reason where companies across all sectors have resorted to a slew of cost-cutting measures which include sales of assets, travel freeze, employee layoffs, freeze on salary increments, and many others.
No doubt most of these measures are crucial to the well being and indeed the survival of some companies. Companies have gone ahead and updated their corporate policies and implemented the same to safeguard the interests of the shareholders. Unfortunately, the employee as a principal stakeholder is sometimes ignored. There are some peculiar instances where employee related austerity measures fail to withstand the the test of common sense and logic.
As a suitable backdrop for this discussion, let's look at an imaginary representative software services company that has say a annual revenue base of around Rs. 1000 cr with an employee strength of 6500 persons. Lets assume, the salary expense come to about Rs. 550 cr and the PBDIT is about Rs. 250 cr. Lets further assume that this company does not reduce some of its manpower (500 persons) due to performance issues and a reduction in business opportunities. It also announces a freeze on any increments for the two years and a sizable cut in the variable pay of the employees as well.
Now that the economy is looking up, and the stock markets have risen consistently for about 7-8 months, the company is upbeat about the future. The company also maintains and thanks the employees for standing by it in trying times. It also announces employee oriented qualitative measures. But, at the same time, the company maintains the need for continual of the austerity measures in view of a possible economic downturn. The employees are, however, not so upbeat due to rising inflation, the continued freeze in salary increments and cuts in the variable pay. And obviously the employee motivation levels turn dangerously negative due to a seeming lack of congruence in the words spoken and the deeds performed.
Assuming the company's reading about the uncertain future is valid, is there anything that can be done at all to boost employee motivation and confidence? Let's evaluate one possible measure and its impacts, both financial and motivational.
Let's assume the company announces a one time cash reward of say an average Rs 15000 per employee. What is the impact?
1. Financial Impact:
Increase in salary cost = Rs. 15000 x 6000 employees = Rs. 9 cr
Therefore, percentage increase in salary cost = (Rs. 9 cr / Rs. 550 cr) x 100 = 1.6%
Percentage decrease in PBDIT = (Rs. 9 cr / Rs 250 cr) x 100 = 3.6 %
Considering the hardships faced by the employees in terms of rising inflation and other factors, this one time extra cost is quite manageable and even negligible to some extent.
2. Motivational Impact:
The motivational impact obviously is difficult to gauge in numbers, but such a step would build up a substantial positivity in the employee. First and foremost, it bridges the credibility gap between what is said and done. It also sends a correct message regarding the future uncertainty, business austerity and the concern it has for its employees. A cash reward of Rs. 15000 though not comparable to the expected salary increment, is substantial enough to gain the lost employee confidence and morale. With the potential increase in employee positivity and motivation, the corresponding impact on overall business operations and objectives would definitely be far reaching.
To put it concisely, it is well upto the company management to think of such bold innovative steps that augur well both for the organization and for the employees as well.
No doubt most of these measures are crucial to the well being and indeed the survival of some companies. Companies have gone ahead and updated their corporate policies and implemented the same to safeguard the interests of the shareholders. Unfortunately, the employee as a principal stakeholder is sometimes ignored. There are some peculiar instances where employee related austerity measures fail to withstand the the test of common sense and logic.
As a suitable backdrop for this discussion, let's look at an imaginary representative software services company that has say a annual revenue base of around Rs. 1000 cr with an employee strength of 6500 persons. Lets assume, the salary expense come to about Rs. 550 cr and the PBDIT is about Rs. 250 cr. Lets further assume that this company does not reduce some of its manpower (500 persons) due to performance issues and a reduction in business opportunities. It also announces a freeze on any increments for the two years and a sizable cut in the variable pay of the employees as well.
Now that the economy is looking up, and the stock markets have risen consistently for about 7-8 months, the company is upbeat about the future. The company also maintains and thanks the employees for standing by it in trying times. It also announces employee oriented qualitative measures. But, at the same time, the company maintains the need for continual of the austerity measures in view of a possible economic downturn. The employees are, however, not so upbeat due to rising inflation, the continued freeze in salary increments and cuts in the variable pay. And obviously the employee motivation levels turn dangerously negative due to a seeming lack of congruence in the words spoken and the deeds performed.
Assuming the company's reading about the uncertain future is valid, is there anything that can be done at all to boost employee motivation and confidence? Let's evaluate one possible measure and its impacts, both financial and motivational.
Let's assume the company announces a one time cash reward of say an average Rs 15000 per employee. What is the impact?
1. Financial Impact:
Increase in salary cost = Rs. 15000 x 6000 employees = Rs. 9 cr
Therefore, percentage increase in salary cost = (Rs. 9 cr / Rs. 550 cr) x 100 = 1.6%
Percentage decrease in PBDIT = (Rs. 9 cr / Rs 250 cr) x 100 = 3.6 %
Considering the hardships faced by the employees in terms of rising inflation and other factors, this one time extra cost is quite manageable and even negligible to some extent.
2. Motivational Impact:
The motivational impact obviously is difficult to gauge in numbers, but such a step would build up a substantial positivity in the employee. First and foremost, it bridges the credibility gap between what is said and done. It also sends a correct message regarding the future uncertainty, business austerity and the concern it has for its employees. A cash reward of Rs. 15000 though not comparable to the expected salary increment, is substantial enough to gain the lost employee confidence and morale. With the potential increase in employee positivity and motivation, the corresponding impact on overall business operations and objectives would definitely be far reaching.
To put it concisely, it is well upto the company management to think of such bold innovative steps that augur well both for the organization and for the employees as well.
Tuesday, November 17, 2009
Providing Business Solutions - Learning From A Doctor
Providing customer centric solutions is a tricky business requiring the solution provider to juggle multiple factors in a unique fashion. Though there are many such factors, a few of the important ones are discussed here, using a a doctor as a very good analogy to explain the good practices of solution providing business.
1. Customer Uniqueness: Each customer is unique, has a unique set or combination of problems, and expects a unique solution from the solution provider. Say, a patient with an ailment of Diabetes fractures his limb and needs to be operated upon. A second patient may walk in with Diabetes and a viral infection. All the three individual ailments and their cures are known. However, in each patient's case, the treatment has to be a combination of the individual treatments in such a way that the patient's ailment is cured. It is difficult to imagine the treatment being meted out for the fracture and the infection without considering the prevalent Diabetes. Hence it is necessary for the business solutions providers to provide a solution not limited to one or a few problems and but consider the overall health status of the customer organization and provide a holistic solution.
2. Expertise: It comes in essentially as two sides of the same coin viz. what has been learnt till now based on past work and what is the capability to apply that knowledge to unique customer problems and solve them. We go to a doctor because we have heard that he or she has been able to cure similar ailments in other patients. But we choose to stay and get treated by that doctor because the doctor treats our ailment in unique fashion.
3. Diagnosis - Separating the Cause from the Effect: A good doctor always listens to the patient's ailment, asks the right questions and conducts the required medical examination to arrive at the root cause of the ailment The good doctor does not treat every patient with a headache the same way. Since the headache could be due to deprivation of sleep, work related stress, unaccustomed exposure to afternoon sun, and so on, each merits a different treatment. In business too, there would be a common symptom like demand - supply mismatch with varying causes like lack of proper IT tools, friction between the sales and production teams, employee morale, high capacity with low demand or low capacity with high demand and so on. Each requires a different treatment.
4. Follow Through: During and after the treatment is provided, the good doctor follows through and checks the health of the patient to confirm the success of the treatment. He or she does not hesitate to change the treatment if necessary.Similarly, a good solution provider should ideally follow through and seek regular feedback regarding the success of the solution provided, and change course if required.
These points do tell us what the good solution provider would do. But it comes with a caveat. The customer needs to be a good patient as well. As a good patient selects the good doctor and entrusts his or her health to the doctor, the customer organization would perhaps do well to do its groudwork in selecting the right solution provider and then trust it to deliver the solution agreed upon!
1. Customer Uniqueness: Each customer is unique, has a unique set or combination of problems, and expects a unique solution from the solution provider. Say, a patient with an ailment of Diabetes fractures his limb and needs to be operated upon. A second patient may walk in with Diabetes and a viral infection. All the three individual ailments and their cures are known. However, in each patient's case, the treatment has to be a combination of the individual treatments in such a way that the patient's ailment is cured. It is difficult to imagine the treatment being meted out for the fracture and the infection without considering the prevalent Diabetes. Hence it is necessary for the business solutions providers to provide a solution not limited to one or a few problems and but consider the overall health status of the customer organization and provide a holistic solution.
2. Expertise: It comes in essentially as two sides of the same coin viz. what has been learnt till now based on past work and what is the capability to apply that knowledge to unique customer problems and solve them. We go to a doctor because we have heard that he or she has been able to cure similar ailments in other patients. But we choose to stay and get treated by that doctor because the doctor treats our ailment in unique fashion.
3. Diagnosis - Separating the Cause from the Effect: A good doctor always listens to the patient's ailment, asks the right questions and conducts the required medical examination to arrive at the root cause of the ailment The good doctor does not treat every patient with a headache the same way. Since the headache could be due to deprivation of sleep, work related stress, unaccustomed exposure to afternoon sun, and so on, each merits a different treatment. In business too, there would be a common symptom like demand - supply mismatch with varying causes like lack of proper IT tools, friction between the sales and production teams, employee morale, high capacity with low demand or low capacity with high demand and so on. Each requires a different treatment.
4. Follow Through: During and after the treatment is provided, the good doctor follows through and checks the health of the patient to confirm the success of the treatment. He or she does not hesitate to change the treatment if necessary.Similarly, a good solution provider should ideally follow through and seek regular feedback regarding the success of the solution provided, and change course if required.
These points do tell us what the good solution provider would do. But it comes with a caveat. The customer needs to be a good patient as well. As a good patient selects the good doctor and entrusts his or her health to the doctor, the customer organization would perhaps do well to do its groudwork in selecting the right solution provider and then trust it to deliver the solution agreed upon!
Monday, November 9, 2009
ERP Implementation and Business Processes
There was a company where we were implementing an ERP solution. Streamlining of business processes across the organization was one of the primary objectives of the ERP implementation. During the initial business analysis, the typical sales versus production problem came up.
We were in the midst of deciding what the planning cycle should be for the company, based on which the Master Production Schedule (MPS) and Material Requirements Planning (MRP) engines were to be set up. The production department explained its operations for various product lines and and upon asking, mentioned that the ideal lead time for planning and scheduling production batches was about a week. The sales team, subsequently explained their processes and mentioned that there were many high volume customers who gave them orders with a lead time of only about a day or two. In case the orders were not fulfilled, they usually were lost. The imminent loss of sales prompted frequent changes in production schedules resulting in production inefficiency.
The management of the company asked us "How does your ERP solution take care of this unique business situation where both the departments stand justified?"
Though the question was targetted to us primarily as ERP consultants. It was evident that within the ERP system, it would be foolish to try and play with the parameters where both the departments' objectives would be fulfilled. Hence, we decided to take a holistic general management view to the problem.
We had detailed discussions with the Sales and Production teams to understand the dynamics of their operations and try identify room for business process improvement in line with the ERP solution implementation. We analyzed the production processes and concluded that a week's fixed time fence was indeed jsutified, considering the economics of the production processes. We next turned to the sales processes. Knowing the 80:20 rule, we asked the sales team to do a preliminary ABC analysis of their customers and the volume of business they gave as against the short order fulfillment lead times expected. This analysis gave interesting results.
There were essentially 3 categories of customers. The A class which constituted the bulk of regluar orders to the tune of 70-80 %; the B class which gave one off orders giving about 15 % volume and the C class which was made of opportunistic buyers giving 5 %. We decided to probe further. We asked the sales team to focus on the A class customers. We asked the team to approach the A class customers and explain to them the ERP implementation that was underway at the company and the need to have streamlined operations between sales and production. the customers were further requested "Will it be possible for your procurement team to place majority of the orders at least a week before expected delivery?" This approach worked wonders. Most of the A class customers agreed as a week's notice was fair to all concerned in return of good production efficiency and product quality. The company went ahead to report higher sales volumes and better production costs.
Thus, a simple change in the assumptions made in existing business processes resulted into highly streamlined operations between sales and production. ERP really had no role in it; apart from perhaps being a change catalyst, something which prompted that a change in the business process was warranted.
This incident taught me that a holistic approach always helps and many times the answer lies not in technology, but the way in which we communicate and execute things.
We were in the midst of deciding what the planning cycle should be for the company, based on which the Master Production Schedule (MPS) and Material Requirements Planning (MRP) engines were to be set up. The production department explained its operations for various product lines and and upon asking, mentioned that the ideal lead time for planning and scheduling production batches was about a week. The sales team, subsequently explained their processes and mentioned that there were many high volume customers who gave them orders with a lead time of only about a day or two. In case the orders were not fulfilled, they usually were lost. The imminent loss of sales prompted frequent changes in production schedules resulting in production inefficiency.
The management of the company asked us "How does your ERP solution take care of this unique business situation where both the departments stand justified?"
Though the question was targetted to us primarily as ERP consultants. It was evident that within the ERP system, it would be foolish to try and play with the parameters where both the departments' objectives would be fulfilled. Hence, we decided to take a holistic general management view to the problem.
We had detailed discussions with the Sales and Production teams to understand the dynamics of their operations and try identify room for business process improvement in line with the ERP solution implementation. We analyzed the production processes and concluded that a week's fixed time fence was indeed jsutified, considering the economics of the production processes. We next turned to the sales processes. Knowing the 80:20 rule, we asked the sales team to do a preliminary ABC analysis of their customers and the volume of business they gave as against the short order fulfillment lead times expected. This analysis gave interesting results.
There were essentially 3 categories of customers. The A class which constituted the bulk of regluar orders to the tune of 70-80 %; the B class which gave one off orders giving about 15 % volume and the C class which was made of opportunistic buyers giving 5 %. We decided to probe further. We asked the sales team to focus on the A class customers. We asked the team to approach the A class customers and explain to them the ERP implementation that was underway at the company and the need to have streamlined operations between sales and production. the customers were further requested "Will it be possible for your procurement team to place majority of the orders at least a week before expected delivery?" This approach worked wonders. Most of the A class customers agreed as a week's notice was fair to all concerned in return of good production efficiency and product quality. The company went ahead to report higher sales volumes and better production costs.
Thus, a simple change in the assumptions made in existing business processes resulted into highly streamlined operations between sales and production. ERP really had no role in it; apart from perhaps being a change catalyst, something which prompted that a change in the business process was warranted.
This incident taught me that a holistic approach always helps and many times the answer lies not in technology, but the way in which we communicate and execute things.
Wednesday, November 4, 2009
Disorganization...fine...but how to implement it?
As a consultant for about a decade and a half, I have been an avid reader of business management and have seen numerous references to how companies have restructured their businesses successfully. Its always a big question for me as to how did they actually go about implementing the change.
Take this example:
In his book ‘Crazy Times Call for Crazy Organizations’, Tom Peters talks “Beyond Decentralization … Disorganizing to Unleash Imagination”. He introduces us to the case of Oticon, a company manufacturing hearing aids. To regain its sagging market share, its president, Lars Kolind, dramatically did away with the existing organization structure (and everything related to it) and created a 100% project directed entity where the employees were expected to decide the tasks that needed to be done and physically organize themselves as they think fit to get those tasks done.
Interestingly, this radical move helped Oticon make record profits, regain lost market share and shorten its new product introduction lead-time by half. Kolind attributed this astounding turnaround to the new configuration of his organization.
As a consultant, this particular case raised several practical questions from an implementation perspective, the most important one being: "How would one manage such a disorganization and explain the source of its success?"
As major components to a possible comprehensive answer, I would like to evaluate these:
• People expertise remains irrespective of the organization structure
• Project driven matrix structure draws upon the necessary expertise from the profit centers (ensuring customer needs are met) and competency centers (ensuring delivery of expected customer needs) for achieving business results.
• Use of projects as the organizational building block.
• Realignment of HR framework to motivate people, enhance ownership, promote innovation and suitably reward the performers
• And most importantly, redefining the business process framework using a black box approach: move back from workflows to guiding principles
To summarize, I must say there is more to it than meets the eye!
Take this example:
In his book ‘Crazy Times Call for Crazy Organizations’, Tom Peters talks “Beyond Decentralization … Disorganizing to Unleash Imagination”. He introduces us to the case of Oticon, a company manufacturing hearing aids. To regain its sagging market share, its president, Lars Kolind, dramatically did away with the existing organization structure (and everything related to it) and created a 100% project directed entity where the employees were expected to decide the tasks that needed to be done and physically organize themselves as they think fit to get those tasks done.
Interestingly, this radical move helped Oticon make record profits, regain lost market share and shorten its new product introduction lead-time by half. Kolind attributed this astounding turnaround to the new configuration of his organization.
As a consultant, this particular case raised several practical questions from an implementation perspective, the most important one being: "How would one manage such a disorganization and explain the source of its success?"
As major components to a possible comprehensive answer, I would like to evaluate these:
• People expertise remains irrespective of the organization structure
• Project driven matrix structure draws upon the necessary expertise from the profit centers (ensuring customer needs are met) and competency centers (ensuring delivery of expected customer needs) for achieving business results.
• Use of projects as the organizational building block.
• Realignment of HR framework to motivate people, enhance ownership, promote innovation and suitably reward the performers
• And most importantly, redefining the business process framework using a black box approach: move back from workflows to guiding principles
To summarize, I must say there is more to it than meets the eye!
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