A Factory Without General Stores

A Factory Without General Stores

I was introduced to the MD of a multinational Glass Fibre unit in Hyderabad through a common friend in 1999. He had just taken over the job as MD after a year and half working on the project of buying up this unit from an Indian Corporate group on behalf of the MNC and now after the takeover he was given the responsibility of managing the day to day operations and scale up the unit to a higher level.

Soon after he took over he found there were a lot of operational issues which used to bog him down and he had to spend a lot of time resolving these issues which need not have come up to him at all. When I met him I was sharing with him my recent experiences with other businesses in India helping them adopt the concept of Business process re-engineering and how I found some dramatic changes and improvements when the management took it up seriously. He narrated an event that happened the previous day in his unit. He suddenly found on his table along with many other documents a note asking for approval for Rs 28/- towards an emergency medical expenses incurred in the factory along with the medical shop bill. He was furious but could not do anything except call the concerned people and give them a piece of his mind. He was told that since this purchase amount was not in the approved category as per company policy this has to be cleared by MD.

Hence when he met me he was immediately reminded of this and many more instances of a highly broken procurement process when he had to intervene everyday knocking out valuable time. He asked me to work on an assignment to Re-engineer their procurement process first.

When we started the assignment he felt that to make a quick impact on the power of this approach we must look at one of the areas where there would be immediate and dramatic change which will compel every one to adopt BPR in all aspects of their work. As usual we formed a cross functional team and were looking at the various areas where procurement was playing an important role. Suddenly the team members started talking about the complex ways in which they had to deal with the running of the factory canteen and the system of coupons and the amount of work involved in administering the same. And how many times they could get their canteen food even without the coupon when they happened to forget it in their homes. The team felt that if they could re-engineer the canteen process which affects every employee then BPR would become easily adoptable in other areas. 

After analyzing all the aspects involved in the management of the canteen, the team found two important home truths based on the actual working. While there was a lot of administrative work associated with printing, distributing and accounting of coupons, in practice since the work load is huge the accounting of the coupons for making bill payment to the canteen contractor was in fact done in a cursory way only and most of the time whatever the bill the contractor submitted got passed based on an average cost per person estimate per meal. Suddenly the team realised that if the final act of procurement, the bill payment, actually gets done without 100% accounting for the coupons, and the actual payment was getting made based on an estimate of the average cost per person which is not documented, why not do away with the coupons altogether and pay the contractor only based on an agreed rate based on the number of people opting to eat at the factory canteen. Needless to say the first objections came from the finance and administration people. The admin said what if someone eats more dosas than the other or eats more food than others. There will be IR issues. The finance department said what if the contractor charges for people who don't eat. By this time the MD, who was still rankled by the experience of the Rs 28/- medical bill, gave his ruling asking everyone to implement the redesigned process immediately. 

Very soon the management found that 5 people from admin and 2 from accounts apart from a large number of almirahs needed to store the coupons and room space were released from their work associated with managing the canteen coupons system and they could be assigned other work. Most important aspect was that both the workers and the canteen contractors were happy since they had a most cordial relationship since the management said workers can eat however much they want and the contractor now got paid based on the number of  workers registered for canteen food. Very soon the management and the contractor found that workers on their own ate only that much food they needed to sustain and not excessively and the canteen contractor knowing well that his income is fixed based on numbers, found ways to reduce waste in the canteen. Win win for all.

This experiment encouraged everyone to take a relook at the complete procurement process. Like in any such continuous process unit the centerpiece of their operations apart from the glass making furnace which has to run for 24x7, 365 days continuously for 8 to 10 years before it is scrapped and rebuilt, the general store played an important role. This is the back bone for ensuring that the Glass furnace doesn't stop for any reason. Hence a lot of inventory was carried here just in case they will be needed suddenly. When we asked everyone connected with running of the plant how often many of the store items were really used the answer was from daily to once in a year to “not recall when we last used” this kind of story for most of the items.

The team also found that they had more than 3000 items of value about Rs 80-90 Lakhs in the general stores and nearly 600 plus suppliers were in their approved list most of whom were multiple vendors for the same items. Despite all this when an indent was raised it took at least a month and in many cases more than a month to procure any of the standard items in the store. We also found out that many items that the general store carried as inventory also were standard inventory in the supplier's premises, most of whom were dealers for these items of factory supplies. Since there were many suppliers for any item no supplier was sure of the quantum of business they could get from the company and hence they waited for firm orders before taking up actions for supply.

When the team was in the process of setting goals for the procurement process, they said why not we crash the inventory levels by 90%, number of vendors by 90% and the time taken to supply by 90%, the MD suggested why not we think out of the box and do away with the general stores and let the suppliers keep the stock and give us just in time. This was too much for any one to accept but then MD insisted that he wanted the re-engineered process to do away with the general stores and he can use that space for the factory production expansion he has planned.

When the redesign got completed the team found that it is not impossible to do away with General Stores if the number of vendors got reduced from 600 to 30 with literally a single vendor for each category of item like electrical, hardware etc. The vendors now had annual rate contracts with a provision of automatic review of the rate as the market moved with a guarantee of a substantial volume of business provided they dont fail even once in their commitments. The bill payment process also got simplified with the indentors directly dealing with the approved vendors and using IT passing the bills for payments by finance. As the technology improved even direct funds transfer to the vendors bank accounts were arranged.

When I met the team after a year I was surprised to find that the general store had in fact been replaced by a new manufacturing area and now they got calls from the vendor reminding them about when the time for replacement has come for some of the critical store items. The story did not end here. When the annual accounts were presented to the global head they were surprised to find zero inventory in the general store and they sent a special audit team to find what was going on. When they found out the re-engineered process made it possible to run the factory without general stores, they commended the Indian management and recommended that 77 plants located in different parts of their operations world wide should adopt this best practice.

PS: Image Copyright of Glasfeser_Roving.jpg taken from Google images

Principles, Practice and Politics Of Management

 Principles, Practice and Politics Of Management

One of the first lessons in management schools is titled Principles and Practice of Management and they form the core basis of understanding how the modern organizations are supposed to be managed based on these core principles and practices. However as one gets into the real work world every student of management and even those who don't have formal management education background soon come to realize that there is one more "P" that governs the management philosophy of our organizations which is not formally stated anywhere. I decided to call it "Politics" of Management.

No management literature ever overtly recognises the existence of this P even though there are several euphemisms used to describe this. One of the papers I came across used a concept called Informal Networks to describe this phenomena. Here the author described how the real power structure in an organisation is dictated by not the formal hierarchy but some informal relations individuals enjoy with the power that be. I came across this first time when I started my career over 37 years ago when I found that the Personal Assistant to the Managing Director who also used to work as an errand boy for the MD's wife once in a way was wielding unusual power over everyone in the organizations including other directors!!.

The politics of management is inevitable in an organisation since by the very nature of its structure the organizations are based on the importance of exercising power through some form of hierarchical  relations between people and when there is power to be wielded there is bound to be some form of alignment around the power structure leading to jockeying for power and control. In a well managed  organisation this politics is effectively directed and controlled for the benefit of the organisation by good leadership. But the situation gets complicated when the politics overtakes the role of management at the cost of the organisation. 

As a management consultant I had several opportunities to have a ring side view of how this Politics of Management works across the organizations. Before I proceed further I must clarify what I mean by Politics of Management. As the word Politics imply it is all about finding ways to capture power and wield it. One of the ways of capturing power is directly bid for it through the hierarchical process with higher roles and responsibilities. This is available only for a few who are good at rising up the narrowing organizational ladder to the top. But for a large number of people this path is closed for a variety of reasons but still they have personal ambition or opportunity arising out of a role to wield power and exercise control. 

My early years were spent working as management consultant for small and family owned businesses. In every one of these businesses I noticed the business owner had one or two individuals working for them for several years and whom they trusted. While the organisation brought in outsiders to man the various roles and responsibilities created due to the growth of the business, these individuals had the "ear" of the owner and by virtue of that proximity wielded enormous power. In some business families usually this person would also belong to the community to which the owner's family belongs. Well there was nothing wrong with this model so long as the owner got good advice and guidance and also "intelligence". However I found in most of the cases where I had been approached for addressing some serious management problems faced by these small businesses, I found that many of their problems were linked to these informal power centers misleading the owner against other "outsiders” who are usually professionals doing their jobs. Thus it became my responsibility to highlight this distortion to the owner without antagonizing these informal power centers to address these problems effectively.

Subsequently when I started working with large corporates I found that the politics of management are in full flow across many levels. There, in several management board meetings where I was invited to attend, I saw how the different functional heads take stand on issues based on the power equations they wielded with the chief executive. In one case I came across a curious situation where one of the Vice President's father was a director on the board of the firm and he was ambitious to take over as the chief executive. During the period when we were working as consultants this individual systematically sabotaged the initiatives of the CEO to set right some major problems under the direct charge of this VP and one day we found the  CEO removed from his job and he was elevated to the CEO position.

In another case we were working for a multi unit business group and our role was to help one of the business units going through serious problems by adopting the concept of Business process re-engineering. The current CEO had recently taken over as the head of this unit and he came from outside this group with very good credentials. However he had to report to the top management group of the multi business group through a Unit Head who was a power center himself. The unit head was an old hand with the group with the ear of the Chairman. Apart from this there were other few employees who were reporting to the new CEO who also had a direct link to the chairman on account of their long association with the group. In the course of our first six months of work the new CEO started turning around the unit by doggedly implementing the BPR recommendations which exposed some of these old timer's wrong doings and ineptness in the past. All hell broke lose and one fine morning the new CEO got a marching order from the chairman after a year on the job. I was witness to the working of Politics of Management here at very close quarters.

However if the CEO is a very strong and focused person he can easily deal with the negative aspects of the politics. In a MNC company we had recommended a change in the way the sales process is handled which effectively reduced the current power structure of the Regional Managers. During the implementation one of the regional managers told his boys that they have to follow his instructions only and not bother about the new way of work approved by the MD and the top management. When the MD got to know of this he immediately called up the Regional Manager and told him that he either learn to adapt to the new model or he can look for another job. 

With the advent of Information Technology and the democratization of information I had hoped that the politics of management should come down. However I have had occasions to interact with some of the recent rising stars of the IT industry and many others who had adopted IT extensively in automating their business processes. To my astonishment I found that the politics of Management instead of coming down is very much there and in many cases it is on an increase as seen by the recent series crashes of global economic power houses. Many subsequent studies have shown that these setbacks are mostly due to management decisions dictated by political considerations rather than good principles and practice of management.

As I said in the beginning this topic is never publicly discussed but it is an undercurrent prevailing in all organizations. In India we have a saying when there are two people discussing a topic they could be friends. But when there are three people discussing the same then they form political parties. It is in the nature of human beings to be political in their social equations. In any group behavior this is very evident when people align themselves to one or the other group. Moreover human beings in my opinion are not capable of equal relationships. In all relationships you either control the relationship or you get controlled. This is all the more so in organizations. Even Late Jack Welch the famous former CEO of GE  used this dictum "Control your Destiny or someone else will" as a management philosophy very successfully. The issue is how does good management practice ensure that this Politics is directed effectively for the good of the organisation.

PS:Title image is copyright of Organisation-power-politics-management.jpg and used from Google images

Competition and Pricing Responses

 Competition and Pricing Responses

Practically every business faces this problem particularly when you don't have any monopoly situation prevailing for most of the businesses. As a marketing consultant in the early days and later as a management consultant advising on the business process improvements for medium and large businesses, this was a major issue which required to be addressed for most of my clients.

I remember once I was asked to address a team of field sales people by a large consumer marketing company which was nationally distributing high brand value and relatively high priced products. During the sales conference all the salesmen started complaining that since their products are priced high in relation to their competition, they were finding it difficult to meet their sales targets. The sales manager who had asked me to address them had also briefed me on this problem and took my help in making the sales people understand how to position high brand value with high quality in the minds of the customer and use it as a selling proposition to realize high prices demanded. 

The easiest response when faced with competition is to drop the price. That is a lazy mind response from a marketing manager or the management. And like your product it is the easiest response to copy by any competition. And it ends up in bloodying the battlefield for every one. Similarly giving gifts and incentives as sales promotional tools help in the short term but again the schemes can be easily copied and bettered and the net result is another set of bloodied battlefields.

The basic premise of my advice to management is never to compete on price but find ways to add value to customer experience of owning your product or service which creates value perception beyond costs and let everyone focus on communicating this value proposition to sell your desired price. Every marketing research and our own experience shows that no one remembers the price but everyone remembers a bad experience.

Let me explain with some real cases. All of us are familiar with how large companies try to beat competition with price drop. This was a response one of my clients wanted to use to prevent a competitor from getting a toe hold in their respective customer base. At this time we were doing a Business Process Reengineering exercise for their complete supply chain management from procurement to order fulfillment and as part of the exercise we along with their team met many of their customers to see what they were looking for from the client in terms of value. In practically every case we got two major feedback. One, the client should improve their delivery performance and two, there were some product quality issues which they had raised especially during monsoon season and they would like that to be addressed. When our team specifically raised the issue of how important the price dimension is, they said that they value only the two issues more than price. If the client cannot deliver on time and deal with the quality issues then they will look for another vendor based on price.

Recently I had to help a small business unit referred to me with a marketing problem. They wanted to add more customers and found that wherever they approached a prospective customer there prices were higher than what some competition was quoting. They were not sure why their new prospects would even consider them for a trial when they are priced higher. After looking at all the issues connected with their costing it was coming out clear that all competitors who were quoting lower prices could fulfill those orders with such low prices only if they compromised on the specifications.

I advised the client that while all customers won't be concerned with such specification compromise there will be some potential customers who would be bothered about such matters and suggested that they discuss with the end users of their prospect companies to influence the purchase department on the need to maintain specifications of supplies. When the trial order was placed in all such cases my client unit did not have any problem with the approval with such customers and those who had quoted lower prices and delivered had their supplies rejected on non conforming to specs. Caught with this dilemma the purchase managers had no choice but to focus on my clients for regular supplies and did not make a big fuss on their prices. To bolster their case further I suggested that they show their complete costing to the customer to establish the integrity of their prices.

In a matter of six months they were able to add a dozen new customers to their existing customer base. More than that this also gave them the confidence that while trying to get a new business the focus should be on what is of value to their customer. In some cases along with quality just in time supplies become more important. And if you find ways to reduce cost then this lower cost can be used as an advantage to reduce prices if needed without compromising on quality and service.

Recently we have been experiencing severe competition in all major business sectors. Unless you are still in a business where shortages are endemic or it is controlled by a licensing regime, all this competition has an impact on prices. Such competition also forces companies to find ways to cut costs. I have found that such attempts are fraught with danger since costs cutting measures can also lead to reducing the ability of the organisation to serve the customer better. Thus instead of getting more customers by reducing costs the organisation can lose customers arising out of bad service or other aspect of value to customers. Some time back a computer dealer mentioned this dilemma he faced. In order to match competition at the time of selling all dealers were quoting below cost price to get an order. But they started asking customers to pay for all after sales service at additional costs to make up for their sales loss. Moreover many of them stopped giving on site service insisting that you have to send the computer back to bench for any service problems. One can imagine what happened to the poor customers who while gaining at one end lost heavily at the other end. And as a user of a computer we all know how important a good service support is.

While competing on price cannot be avoided if one can find ways to ensure that such prices do not lower the value delivered to the customer then it will be useful. How does one achieve that? Many management gurus advise us that when you run a business the reason for its existence is the customers. Hence what is good for your customers is good for you. At the same time it is the people in the organisation who do work to deliver that value. And if these people follow the right processes which are designed to deliver that value then competing on price can be made very profitable for all concerned. I have found that creatively adopting concepts like Business Process reengineering, Lean Management and Theory of Constraints we have been able to help many organizations compete effectively while improving business performance. The size of the business is not an issue, it is the commitment to creating customer value and a leadership willing to back this commitment which made these organizations compete effectively.

Finally, can we avoid price competition at all? The answer is no. But as is happening in many technology driven businesses if you can find ways to add new values and features which did not exist before then you can find ways to relaunch or reinvent your product or services at much higher prices than prevailing before. The case of mobile phones is a good example which everyone can understand. But in many industries it is possible to to realize higher prices by adding more values to your offering there by reducing the total costs for the customer. In the case of a packaging manufacturer, we advised them that instead of simply supplying the packaging material where the price competition is severe they should handle the last stage of packing and shipping for the customer and charge based on per unit shipped. Thus instead of getting paid for per unit of material now they got paid for shipping per unit of the customers product. The value price realised was an order of magnitude several times the unit price of the material. But one of the un-intended benefits was they ended up completely eliminating any competition for their packaging material business with these customers. Similarly in the transport business we found that many goods transporting companies moved away from a highly price competitive goods transport business to third party logistics management business focusing on inward and outward supply chain management including cash management services to add value to their clients business at higher unit price realization. 

So my mantra is don't compete on price as a cost but compete on price as a value experienced by customers. 

IMPORTANCE OF FOCUS

 IMPORTANCE OF FOCUS

How often we come across a situation when someone starts a discussion on an issue and soon we find that the subject has digressed to so many unrelated topics. It is so amazing that despite such a development most of us don't recognise this digression and get caught up in the discussions on new topics till someone points out we have moved away from the original subject. Today I want to share with you the Importance of Keeping Focus.

Whether an entrepreneur discussing a business problem or a manager discussing a situation it is imperative to keep Focus. The focus should be on the core subject under discussions and any temptation to go around to other related topics should be managed so as not to lose focus.

Let me explain with a few examples. A small business man met me other day with a request to help him grow his business by addressing his marketing problem. When I met him first I asked him to give an idea of what his business is all about and what his present customer profile looked like and what volumes of business he has from each of them and what spare capacity he has. I also needed some idea about his costing, pricing and competitors' information. In the course of discussing these he started narrating his problems with getting reliable labour to work in his factory and other problems relating to managing his business and after about 20 minutes of listening I had to remind him that we are discussing his marketing problem for which we must first focus on the market related information to take some basic decisions and then we can go inside his factory and address his operations related problems.

In another instance, we were working in a large manufacturing company implementing a Business process reengineering concepts in their supply chain management process. While collecting background information the discussions veered round to the need for accuracy of sales forecasting and soon we had a spectacle of the production executive and the marketing executive picking up a big fight over how each of them in their opinion is foolish and don't know how to do their job. Very soon as consultants we had to bring order and get the team to focus on the subject in hand and help defuse a potentially explosive situation.

Why do we lose focus? It is not that everyone wants to lose focus. But in our desire to communicate the issue, sometimes we feel it is important to share other related information which we believe may have bearing on the issue at hand. There is nothing wrong with this except that these related issues should not end up becoming the main issue. That is the main problem in keeping focus.

Another reason I found we lose focus is when someone in the group feels that the related issues are more important than the main subject under discussions and tries to steer the discussions towards them. Here the personality of the team members come into play. A dominant member of the group has a tendency to hijack the discussions in whatever directions he wants and most of the time after the meeting is over other members would privately express their resentment to this but would not dare to intervene during the meeting to bring the focus back.

Some time I found that the problem definition has not been articulated properly hence there is a scope for digression as the discussion goes on. I will illustrate this with an example. In a very large company we were working on a culture transformation exercise and formed cross functional teams around different problems they were addressing. One of the team was working on the condition of the toilet facilities in the factory at various locations. When we started the exercise we asked the team members to define the problem. While it looks ridiculous now to ask what is the problem in the toilet facilities, at that time we found the five team members from various departments who had stake in the upkeep of the factory toilets spent first full day listing out the problems based on their departmental perspective which essentially said that we are doing our job but other departments are not. As a part of the culture transformation process we allow deliberately in the first sitting to let everyone say what they want to say and simply ask them to document everything that is said without any debate. As the session progressed in the first one hour they listed more than 50 problems and by lunch time they had reached nearly 200 problems when some one in the group started observing that each member is presenting the problem from his perspective whereas the problems listed reflects the issues faced by them created due to the way other departments worked. This realization suddenly made the team members come out of their adversarial positions to an accommodative position when every one said that the real problem lies in the combination of the problems listed so that they can define a single problem which is the problem that they need to address. The team got its Focus right and from then on  the exercise became very meaningful and rewarding for all.

The lack of Focus leads to waste of time and also frustration as the real problem does not get addressed. Quite often it is useful to have an outsider in a discussion unrelated to the problem under discussion so that he can act like an umpire, bringing the focus back and reducing waste of time. But it is not possible to have an outsider all the time. Hence it is important to cultivate a habit to get your focus right whether we are involved in a discussion or engaged in an activity to address a problem.

I have presented here a few perspectives so that this topic can form a basis for a good discussion in this forum. I would like to invite readers to present their own perspectives and views on this subject.

IMPORTANCE OF BRAND IMAGE

 IMPORTANCE OF BRAND IMAGE 

As a marketing consultant I have had several occasions to work with companies with established brands and had a ringside view of how some companies systematically work to destroy such great brands without realising that they are doing so.

I will share here a couple of cases which can be quite illuminating as to how not to work against your own brands. While each of these cases had some unique market situations the basic lessons can be extended across all brands for any type of products or services.

Every marketing man swears by the importance of brands and would give his life metaphorically to protect his brand and its image. But quite often this passion for the brand starts and ends with the marketing executive whose role is to build communications around the brand. When the rest of the organisation doesnt think it is their concern to protect the brand that the problems arise.

My first major experience was when I was involved as a marketing consultant to help launch a new 2 wheeler brand using the established brand identity of the famous brand “Vespa” of Piaggio of Italy which had recently relaunched itself in India after a gap of nearly 20 years in the early 1980’s. Shortly after the first wave of liberalisation in the auto industry was announced in 1980's, several international brands in the 2 wheeler market decided to enter India through their local collaborators. Vespa, which was an established name before their brand name had to be removed from the Bajaj scooter brands due to end of their collaboration agreement with Bajaj Scooter, decided to re-enter the Indian market with 2 collaborations: one with Lohia Motors in the north and another with AP Scooters, a public sector undertaking in the south based in Hyderabad. Both the companies knew from the background of the starved Indian market during the permit license Raj and also from the huge wait list for the Bajaj scooters running for more than 7 to 10 years at that time, they had a killer product in their hands. And both the companies aggressively relaunched their respective scooters using the Vespa Brand name as a prefix and got huge advance bookings which should have kept their factories running for the next 10 years. However today both these companies don't exist in the market for scooters and Vespa had to wait for another 20 years to re-enter the Indian market recently with a relatively soft launch to hopefully re-establish their lost image.

What went wrong. One of the lessons in marketing is that Brands represent the value benefit as perceived by consumers. By using the brand companies can effectively communicate the promise of the values embodied in that brand. But customers also would like to experience that benefit when they actually use the brand and if the experience reinforces that value the brand becomes stronger in the marketplace. In both the case of Lohia and AP Scooters while the Vespa name helped them get customers to wait for delivery, once the product started hitting the market the experience of the customers was far different from the Value promised by the brands. For example in the case of Lohia they had introduced the wide body design very similar to the Bajaj scooter but due to a policy of excise duty prevailing at that time to keep the price of the vehicle down they launched the product with 100CC engine. The first impact was that these 100CC engines could not carry the whole family consisting of man, woman and at least 2 children with enough power and the vehicle started failing on the road. In the case of AP scooter they had launched the narrow body version of the same model with 100cc engine but their problem was that power was not an issue but the size of the scooter was too small for this whole family. Apart from this basic flaw they also faced problems of quality hitting the customers hard and over a short period of time all those who had booked having got these reports and negative publicity associated with these models started cancelling their bookings. By the time these companies could address these problems and come back to the market with improvements they had lost their so called Vespa Brand Equity and other players had taken over the enlarged share of the market created by the relaunch of Vespa at that time.

Another example is from a building materials industry where the company was pioneer in the launch of several brands of building materials in the decorative laminates market and they also had commanded a premium for a long time. Customers were used to long delivery delays from this company due to this premium image and the whole company was managed based on a philosophy that there customers would be willing to wait for their production to deliver. But the situation started changing after 1992 when liberalisation and certain policies of the government favouring small businesses gave them excise duty differential benefit in pricing and soon several small units with simpler technology to make decorative laminates came up with both price advantage and also faster delivery. And many of them were prepared to supply directly to customers even for order sizes of one sheet at a time which was impossible to emulate unless our major players were prepared to reinvent themselves in terms of both manufacturing practices and also manage the supply chain differently to compete with the local small players. This was a tall order for the management of the company who had got used to the comfortable lifestyle of being in the sellers market and suddenly finding themselves competing in the buyers market and unwilling to let go of their old practice. Half hearted attempts were made to change but  I found the lack of committed leadership to bring about change was a major limiting factor and soon the company became a victim of sickness and BIFR case. Even though the brand image of this company was very strong they could not capitalize on it due to their inability to respond to the customer expectations.

I have many more cases on these lines but the principle lesson I wanted to share was that Brand Image is a double edged sword. In the hands of a competent management it becomes a cash cow and in the hands of others it becomes like a knife in the hand of a monkey.

POST REFORM REALITIES

 POST REFORM REALITIES

After 1989 when the political scene in India became very chaotic, unstable coalitions were formed and many political decisions taken at that time had severe economic impact leading to Indian businesses finding themselves going on a downward spiral along with the economy. The worst situation emerged when the VP Singh led government announced the introduction of Mandal reforms leading to country wide agitation further taking the economy down. The ultimate situation was that the foreign currency reserves fell to such a low level that the Congress minority government led by PV Narasimha Rao had no option but to announce major liberalisation and economic reforms. One of the consequences of this was that most of the consumer and industrial goods were freely available for imports and also opened the economy for foreign direct investments.

Suddenly we found what was earlier available in Singapore and Dubai only for Indians to shop were available in many department stores in major cities. Many foreign brands of consumer and Industrial goods found shelf space with local brands. Slowly these moves started having their impact on the Indian manufacturing sector affecting both small and large businesses alike which had thrived under the License Permit Raj.

I remember meeting a classmate of mine from Indian Institute of Technology in Mumbai and the discussions we had on the electronics industry post liberalisation. My friend had established a niche business as a consultant in the electronics industry and had also helped establish a few small units to make specialised electronics products around Mumbai and Pune. One such unit was making power supplies which are needed to power any electronic product. Most of these convert 230V AC supply to 6 to 12V Dc supply with different current ratings in milli and micro amps for use in the electronic devices and products. Due to the earlier policy of indigenisation there were many local manufacturers who were making these power supplies using mostly critical imported components and some locally available parts. My friend narrated the story of the fate of the unit which he had helped set up post liberalisation. They were very successful before supplying to major customers like Siemens India and others and they were charging a price of Rs 1200/- per unit. Post liberalisation, he attended a major electronics exhibition in Mumbai where he found one of the Taiwanese suppliers was displaying an identical power supply unit to one his supported unit makes for US $9/- unit. At the exchange rate prevailing then for US $ to Rupee, even after paying customs duty and other expenses he calculated that the landed cost was coming to less than Rs 200/-. Quickly he advised his client to stop manufacturing and start importing these power supplies and sell in the local market!!!

Post liberalisation one of the major casualties was all those small businesses which were established based on the policy of Indigenisation. All of them had to fold up when they found that what they were making locally at whatever prices they could sell were available at much lower prices from other countries particularly Germany, Japan, Taiwan and Korea. In many other cases they discovered that the technology used by them were outdated and they had no money to upgrade their technology to meet the global competition.

The opening up of the Indian economy had created a new opportunity for global manufacturers to set up large operations in India to tap the huge untapped and hungry market of India. One impact of this was that employment opportunities and the corresponding higher wages offered lead to exodus of many talented professionals to these new industries. Small and medium businesses suddenly found that they could not afford to match the salaries offered by the new industries and that further eroded their ability to survive.

There was a positive impact of liberalisation too. Many new small businesses started coming up in many industrial sectors taking advantage of liberal import policy announced to set up more efficient and technologically advanced operations to compete with the old established businesses. Thus we found in many building materials products and other consumer industries local brands started by small businesses competing with national brands and taking away market shares. Reform also opened opportunities for many small businesses to come up and flourish in the service sector since the economic growth now offered more opportunity and larger market for this sector to thrive. So we saw many consultancies and service providers in IT, Advertising, Marketing Research, logistics   setting up shops. Apart from these due to increased consumer demand post reform retail business also underwent many changes and we started noticing many local Kirana shops run by traditional Marwari families upgrading into Super Markets. 

I remember one such case in Hyderabad where I live. The neighbourhood Kirana store was run by an energetic young man who used to supply regularly to our household needs and to many other families in the upmarket neighbourhood giving them even credit for a month. The store was popular because of the quality and honesty of the shopkeeper and he had a large clientele. But his market was typically local.

I had a habit of chatting up with him when I went to shop and during one such chat I told him the threat he would face from supermarket chains that would come up soon and since he was very energetic advised him that he should explore setting up a supermarket store in his neighbourhood so that he won't lose his upmarket clients who would be the first to ditch him when the other supermarket stores come up there.

I forgot all about it till one day he called up and showed me the neighbourhood place he had rented to start a super market and wanted my advice on how to proceed further!! I gave him ideas and suggested that he go and see how other stores that have come up elsewhere are running and try to replicate their model in his own way. It is now more than 25 years since he started that supermarket and his business is thriving. Recently I noticed that he has taken over the location of another national supermarket chain in a nearby locality which was floundering and set up his second store there. When I met him recently and asked him about his business he proudly informed me that he has also taken over a corrugated carton making unit and running it to use for his own business as also to supply to others. Now he has opened more supermarkets in other parts of the city competing with larger national chains!!!

So I realised that reform was a double edged sword. In the hands of the old businesses it was a tool to cut their throat and in the hands of the new age entrepreneur it was a tool to find cutting edge opportunities.

There are many cases of such failures and resounding successes. But I notice one other major development is the entry of many women entrepreneurs post the millennium 2000 in many areas where one had never imagined any business opportunity existed. I will discuss these cases in later posts to show how for the enterprising small businesses now with the internet revolution global opportunities are awaiting them and for those who would not like to adopt only dark futures!!

ASPIRATIONS AND REALITIES

ASPIRATIONS AND REALITIES

IT was during my early days as a management consultant that I was faced with these issues from many SME owners. In fact one of my classmates TEEVEE who had started his own enterprise before I did and was partially a motivating force for me to take the plunge one day accosted me with a statement: Why should I struggle to work very hard to run a small business to earn very little when with the same amount of effort if I run a large business I can earn more!! Very logical and obvious statement. But he also made another observation in the same breadth. He said he found many old timers from business community backgrounds seem to be making more money with little effort than what he can ever imagine he could do with his expertise as an IIMB product. More valid observation.

It was obvious that in business if you want to make more money then you must definitely have more capital if everything else is equal. So capital is definitely a necessary condition. But is it sufficient? Obviously no. But the answer to what is THE sufficient condition is not a simple one. This I learned over a period of time when I had to interact with many of the small and medium and sometimes even large enterprises on the path of managing growth and many of them floundering and some of them succeeding.

The pattern of issues I did come across varied over time due to a phenomenal changing environment one witnessed from 1992. So I will try to group them into 2 categories. Observations made before 1992 when reforms were announced in India and post 1992 when reforms started to have an impact on many Indian businesses particularly the small and medium ones. The issues faced by the larger businesses were of a different kind compared to the SMEs. 

In this post I will present some interesting observations I made when working with SMEs before 1992.

Before 1992 I noticed there were 2 types of small businesses which were active. One type of businesses were floated by those who came from a family with a tradition of trading and the new generation had moved into manufacturing as an extension of their trading strength. For this group of businessmen the problem of raising capital was never there but they faced other problems of transition from a trading mentality supported by family members to a manufacturing milieu where they had to work with specialists and professionals and also use of technology and machinery and other resources combined with a plethora of governmental regulations.

The other types of businesses were promoted by professionals with a background in the technology or industry where they have worked and leveraging their expertise to start a business without any previous background in running a business. This group of SMEs were also strongly supported by various governmental schemes to raise money and basic infrastructure but their main limitations used to be raising money independent of public financial institutions unlike the traditional family owned businesses which had resources through their community network. This group also had to deal with a large number of governmental regulations. 

In fact in those days most of the businesses were subject to permits and inspections and there was a popular slogan called license permit raj prevailing along with an inspector raj to enforce these rules under license permit. At one point of time any business with a manufacturing operation had to deal with more than 27 government agencies every year to be in business!! And a large number of problems faced by SMEs had some link to these interfaces with government agencies and naturally this had a cost impact on the business which affected the small businesses most.

There were certain statutes and government schemes favouring small businesses below a certain size and this prevented many of them from growing as these incentives would disappear when they crossed certain size limits leading to splitting of a large business into several small businesses to remain below the size desired to benefit from these incentives with hilarious complications affecting their growth. 

Looking back before 1992 the environment was not conducive to growth for small businesses and I realised this quite early and one of my approaches was to get them to focus on making money and optimise within their existing capacity. Moreover most of these businesses had captive clientele and market was not a major problem in a shortage economy and the only way one made money was being very efficient in operations. Most of the cases I came across where the unit was losing money despite a captive customer base was due to not keeping an eye on the small expenses. I remember once Mark McCormic, the founder of the famous The Professional Management Group, observed that it is important to keep an eye on the pennies if you don't want to lose money in your business!! And how true this observation was I noticed working with small businesses in the early days.

One of the reasons small businesses succeed is the passion of the entrepreneurs for their business. For its success they would do anything that needs to be done right and no compromises. This personal passion is their strength when they are small and a weakness when they try to grow. In the initial stages they would have assembled a group of people who were willing to work with them since they had no other option. And most of them turn out to be very good errand boys for the entrepreneur and some of them graduate to be trusted right hand men. Now when they start on the process of growth, I found many of these trusted men would take advantage of their proximity to their master to ensure no newcomer finds a place in the firm firmly. Moreover the entrepreneur instead of establishing good systems and processes would like the newcomers to take instructions from him on all aspects of work and try to convert them to another set of errand boys. Since he also was involved in all aspects of business as a small business, he would like to be involved in all aspects even when the size and complexity of operations required him to delegate. On many occasions I used to notice that the combination of the trusted lieutenants cultivated before and this desire for micromanaging typically would lead to very few new employees of any competence willing to stick with the firm.

Another personality dimension of the entrepreneurs is their feudal attitude towards employees. This was perfectly alright with the older employees who had grown with the entrepreneurs. But this was a big problem when they had to recruit younger generation specialists to manage their growth. Many of these youngsters had the confidence that they could get a job if they left this firm and were not prepared to work based on absolute loyalty which the older generation employees had perfected into an art!! The entrepreneurs used to such abject fawning from his older employees would find it difficult to deal with the younger employees and there would be significant instability in manpower retention.

The salary structure was very restrictive in those days. So in order to compensate for that employees would be given fancy designations in a small business even though the work content was not reflecting such designations. In one organisation I was asked by the owner to conduct a study to reorganise the structure. It was amazing to see for such a small set up they had a very deep hierarchy starting from supervisor at the lowest level to vice president reporting to the owner who called himself Managing Director. In between they had close to 12 different designations. When I asked everyone to write down what work they did, in every function right from the supervisor to VP mentioned the same work content with an additional sentence that they supervised and controlled the lower level!! This was before the days when Business Process Management concepts had become fashionable and every small business wanted to structure itself similar to large organisations around functions when they started growing.

Most of the small units would have started with limited resources committed to providing good office space and other comforts normally taken for granted in a larger enterprise. When a small business starts doing well the first priority of the owner would be to impress everyone with outward signs of success. Hence he would start committing himself to providing a good office space and proper facilities for employees. In many cases these were planned without any proper financial analysis of the impact of such commitments on the cash flows and method of funding. Typically working capital would be diverted for these infrastructure related expenses and very soon they would land up in a mess with cash flows affecting the growth plans. In most of the cases referred to me by banks for diagnostic study this was one of the causes of incipient sickness.

There were many other observations which were specific to the units studied but the ones discussed above were common patterns among many small units I had the opportunity to interact with. In the next post I shall discuss the post 1992 scenarios both in small business context and some of the corporations which were successful during the license permit raj and how they floundered when the liberalisation opened up the Indian economy to global competition.

Time As A Resource

 

TIME - AN IRREVERSIBLE RESOURCE

Most of us are never conscious of time until one is faced with some deadline. By the time we reach it we find the deadline has passed and some start regretting the passing of the deadline with out any tangible outcome. This is because we are not conscious of the fact that TIME is an Irreversible Resource unlike all the other resource and once it is spent you cannot recover it back.

Most of the early days management thinking was focused on the concept of Time from the point of view of use of resources directly contributing to goods or services and there was the development of Time and Motion studies involving labour and machines. The subject of Industrial Engineering was an early recognition of this issue of Time as an important dimension when productivity was measured in terms of output per unit of time.

However as the business organisations grew bigger and bigger this importance of time was replaced by other esoteric subjects which were fashionable from time to time most of which concerned the use of behavioural sciences concepts to improve productivity and some where along the way the notion of Time as an important resource was lost sight of till Information Technology and the onslaught of Japanese Management concepts and Goldratts Theory of Constraints brought back this focus on time when the globalisation of economies after 1990s started affecting all businesses.

My own experience working with organisations on change and growth management gave me a ring side of view of how this focus on TIME can lead to dramatic performance improvements. I will share this with some examples of mine over the years which bring out different dimensions of TIME as an Irreversible Resource.

The earliest case was when we were working with a corporate hospital to implement Business Process reengineering in 1993. The management of the hospital was keen to adopt this concept in 1993 when Hammer and Champy's book on Reengineering the corporation hit the stands and it was fashionable for every one to climb on board. Since the first engagement was supposed to be a proof of concept of adaptability of the idea by the hospital they asked us to help implement the same in an offsite diagnostic centre. 

When we started working with a cross functional team they all came to the conclusion that while the value adding time for most of the routine diagnostic tests was anywhere between 3 minutes to 20 minutes, due to other procedures as currently followed, they cannot deliever the report in less than 8 hours. So we challenged the team to come up with a re-engineered process using the concepts we taught them to deliver the report in 30 minutes for these routine tests. Surprisingly when they did a rethink they could simplify and re-engineer a 20 steps current process to 4 steps rengineered process and deliver the report in less than 30 minutes. Ofcourse the implementation took some time in making suitable IT modifications and setting up a little bit of mechanisation in sample handling and a re-layout of the centre. But the outcome of this project was it put pressure on all the competing labs in the neighbourhood to match this center for faster report. And a new standard for delivering diagnostic report was set.

The next example is an engineering company in power electronics which used to get orders for supplying custom built equipment for supply to large engineering projects. Over the previous 7 years of its existence the company had found that though on paper they had a gross margin of 60% they used to lose money on every order they executed. The management had asked me to take a relook at that business and recommend changes so that they can make that business unit profitable. The idea of adopting BPR was one of the approach they were open to.

When we sat with the cross functional team we analysed a sample of 100 orders over the last 7 years and looked at the time taken for each milestone from getting en enquiry to final payment collection. Two interesting observations were made by the team. Since the enquiry handling group in marketing was dealing with close to 1500 enquiries a year and they had to get inputs from all the departments concerned before making a final offer for each enquiry they were pressed for time for meeting the due date and made assumptions about the specs and made the offer knowing well that not more than 10% of these quotations would lead to an order. But when these orders landed up in the hands of the execution group they found errors in the tech and commercial specs as accepted by the marketing group and they went back to customer for amendments. Thus they lost time before they could take up these orders for execution waiting for amendments. Thus even after quoting a delivery time of 16- 20 weeks they could never deliver any order in less than 32 weeks and thus they ended up losing money in terms of liquidated damages etc.

When we sat with the team for redesigning the process we challenged them to come up with a process where we can deliver every order in 4 weeks time. Looked impossible till Wilfredo Pareto helped them to see that 80% of the enquiries were similar and required 20% of the 15 standard designs to be used and thus they could save on time to quote and also the accuracy of the quotations which was the root cause of all delays and losses. Needless to say they did come up with a redesigned process which helped them to execute orders in less than 4 weeks. But the most interesting revelation was that they now found they had excess capapcity than what they imagined before with out adding additional physical resources and they also had capability to take on export enquiries which they thought earlier was impossible to handle due to long delivery they quoted earlier. After about a year later I met the Marketing head at an airport and he told me that the manufacturing guys have put a lot of pressure on him to get more orders since the BPR helped them deliver faster than the rate at which marketing could fill the plant with new orders.

I have many more examples of focusing on time across different industries and services where the focus on TIME as a measurable goal to deliver value to customer had dramatic performance improvements. I shall give some of those cases in other contexts too since each case had a learning experience unique to that business and they are also very interesting lessons. But in every case we found that the focus on TIME as an irreversible resource was a powerful approach to make dramatic changes and get equally dramatic performance improvement.

Our favourite quote on TIME was god created only day and night but man created the concept of week and month and year. So if you want to focus on time focus on this day and night and what you do with it rather than week and month and year. The leading indicators of how time is used on a daily basis would give you lagging indicator financial performance you aspire for.

My Journey As A Consultant - 25

 The End Of The Journey

I was so busy working on multiple assignments, travelling to different cities, that I was not keeping much track of the status of my health. After my daughter’s wedding in April 2005, I was diagnosed with Diabetes and I started following strict health care protocols while also taking medications. But the work continued and I didn't bother about minor signals showing something was seriously going wrong inside my body.

While I was working with Zuari Industries and Crompton Greaves, I got a call from Mr Madhok who had retired from Zuari, telling me that he would shortly become Chairman of the Board of a German multinational called GEAP based out of Baroda, specialising in EPC contracts for milk, food and chemical industries all over the world. GEAP had taken over the Milk Products EPC division of L & T in India since they had taken over the parent company of this division in Denmark, and since Mr Madhok had worked in the Denmark company for 19 years before joining Zuari, he was invited to become the Chairman of their Indian arm.

Mr Madhok had indicated that he would call me after taking up this new assignment soon and, true to his word, he did. Because of his conviction about our ability to guide and implement Reengineering concepts, the top management team agreed to hire us. The main focus of this company was EPC contracts and they were working on project mode and, as is quite normal in many Indian companies, they never finished any of their projects on time, suffering delays and financial losses in many cases. This case was very similar to the first BPR assignment we did with Hyderabad Batteries group except that GEAP did not have any manufacturing facilities of their own. They were dependent on third party vendors for supply and their own team would do the design, erection and commissioning work. Since a small team of engineering specialists had to simultaneously handle multiple projects and the company had organised to work in a functional mode, no single individual was responsible for ultimate  delivery even though they had a project manager in place. For the first time, we used the TOC Critical Chain concepts along with BPR to guide the CFT to come up with a reengineered process to deliver in time or ahead of time.

While we were working on this, GEAP told us that they had already contracted to implement SAP with the help of L&T Infotech Ltd. We advised them to keep that project on hold till our redesign was completed. We also told them that they may have to renegotiate the SAP project based on the redesign. They agreed, and when the redesign was presented to L&T Infotech, they  were told that the SAP implementation had to conform to the BPR needs. L&T Infotech agreed to modify their standard implementation accordingly. 

During the course of implementation, the MD changed and the new MD was recruited based on a larger mandate to diversify the company into other areas of chemical projects apart from food and milk, and the scope of our implementation got widened, In the meanwhile, the parent company sent an expert to train the Indian team on their global approach to Project Management and when he and his team were presented our BPR redesign by the CFT, they appreciated that we were on the same page with them and completed their training easily without much difficulty. We  were associated with GEAP for nearly 2 years, after which we signed off.

While working with GEAP, I got a call from my previous client, Mr Natarajan, who had joined Sanmar Engineering in Chennai as MD. He had once told me before that he saw the need for my kind of work at Sanmar and he would call me when the time came. A year later, around early 2007, I got his call and I visited Chennai to meet up with his team. He felt that the Unit Team should take a call on hiring me and suggested that I meet one of their Unit chiefs at their factory located outside of Chennai. This meeting was interesting in the way it proceeded. During my meeting, I told the CEO of the unit that I was not an expert to advise them but I would be working with their team to make changes happen. He was quite kicked with this and immediately called all his other senior managers to meet me to discuss our approach. Originally he had scheduled for a one hour meeting but finally we spent close to 3 hours. At the end of the meeting, he said he would report their views to Mr  Natarajan. Natarajan had asked me  to meet him after my meeting at the factory in their city office. In my presence, he called up the  CEO and put the speaker phone on. He had asked me to just listen while he spoke. Immediately as the call was put through, the CEO was all gung-ho about my meeting with him and his team. He said he was quite impressed with me since I did not claim any expertise like other consultants he had met and I was down to earth about how we could help them implement change and he and his team were keen on hiring us. Thus we landed this assignment with Sanmar.

Though we got the contract easily and finished the redesign presentation in the 3 months period envisaged, due to some internal dynamics being played out between the corporate office and the unit heads, the implementation did not happen. I was very disappointed and Mr Natarajan also felt that under the circumstances it was better to leave the project without implementation now. This was the only assignment where we left without implementing the redesign.

During the course of my journey, I had  also worked with a few other smaller clients who would start the project, get their redesign ideas and sign off  saying they would come back later for implementation but would never come back. I realised that, for most of them, the IT investments required both for hardware and software were beyond their capacity at that time. So I started advising some small IT vendors offering ERP solutions to small businesses to work on a new business model of offering IT services on a pay-per-use basis which later came to be known as SAAS, viz. Software As A Service. This way they could have many clients easily coming on board with low revenue budgets compared with going for capital expenditure on IT infrastructure. This also helped them expand their market quickly.

Apart from these assignments, some old clients like Saket Engineers called us again in 2007 asking  for help in dealing with their current problems after a gap of 4 years. I was also associated with a poultry industry company called Singh Poultry which had promoted  a downstream company called Starchik Limited as a marketing consultant and later as a Director on the board of this company. It was very odd that I, being a pure vegetarian who had never tasted chicken in my life, was associated  in this capacity with this company !!!!

Around 2006, Herald Logic was merged with an Australian Company called Value Chain, promoted by some ex-Infosys managers from Australia. When the new owners heard from Herald Logic that I,  along with Rajan, had helped them get all their assignments so far, they appointed us as their advisers for their global operations. However, Value Chain could not bring in the money required as per their agreement with Herald Logic in the stipulated time and the whole merger fell through and, along with that, our association.

Around mid 2008, a nagging problem with my digestive system suddenly gave way to an emergency. One night I could not sleep due to serious pain in the right side of my stomach and, early the next morning, I called a gastroenterologist who was my neighbour to come immediately to check me out. He had one look at the symptoms and said it was an emergency as something was seriously wrong with my gall bladder and I was rushed to hospital. After a series of tests, the doctors told me my abdomen was filled with fluid and I needed to have surgery the very next day to address the problem. After 4 hours of   surgery, when I regained consciousness the next day, I was told that my gallbladder had burst and 90% of it had gangrene and they had to remove the gallbladder to save my life. Well, the Almighty decided that I still needed to be alive when I knocked on his doors, and He sent me back!!

It took me two weeks to come out of the hospital and another 3 to 6 months to become normal. But I still had restrictions on my diet which forced me to take a hard decision to hang up my boots as a Management Consultant. With the help of my colleagues, I completed the assignments in hand and finally closed my consultancy operation under the name of Shika Management Services from April 1, 2009. I never imagined before that I would ever have to do this but then “man proposes and god disposes” is an old saying!!

When I look back at my journey, I feel it was very full of new learnings and new experiences and not a single dull moment. And I felt  that I was doing path-breaking work at a most crucial time in the history of Indian businesses and industry when the country transformed from a command-and-control economy to a liberalised economy. At the same time, Information Technology was exploding and new ideas in management were floated like BPR, LEAN and TOC and I was able to help the Indian industry adopt these ideas and technology to survive and grow. It was a very satisfying journey indeed. 

After several years, I had met up with some of these clients and they used to remember with a lot of nostalgia about our work. Mr Harbans Singh of Singh Poultry said in one of those meetings that we were the best professionals he had ever met in his life. And Ms.Sangeetha Reddy of Apollo Hospitals  said she was very impressed with our passion for our work. Mr Natarajan of Saint Gobain Vetrotex said he had continued using the learnings from this experience with us in his subsequent engagements as MD in other companies where he worked till retirement. To all of them, and to all my other clients, I must say a big Thank You for giving me the opportunity to work in their organisation and make my life worth living.