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TGT: Life’s a game – Part 2

2010-08-08T16:35:00.000-07:00

What makes a game? Players, strategies, pay-offs and common knowledge are what makes a game. Players have common knowledge of the structure of the game and they make rational decisions about strategies which lead to their best expected pay off. Each player chooses a strategy, these strategies interact and game play off to its conclusion.

Game Theory is the study of strategic interaction among rational players.

Let me simplify the above paragraphs. Your boss (Player 1) has asked you (player 2) to complete a report by the end of the week. But you both know that this is an impossible task (common knowledge). Your boss and you both know that the report is not due until the end of month (common knowledge). But your boss is mitigating risk by advancing the report submission deadline and is adopting a tough line against you (your boss’s strategy). You recognize that any rational suggestion to postpone the deadline for the report will fall on deaf ears and therefore you agree to submit draft by the end of the week. But you produce a report that is a half baked with fudged figures downloaded from google to keep your boss happy (your strategy). You know your boss is an idiot to expect a good quality report this early and your boss knows you are a cheat to produce a report this early to him, but you both do not discuss about it (common knowledge). J

Practical application of The Game Theory (TGT) includes negotiation management, conflict management, threat making, making threats credible, co-opetition, brinkmanship etc. Von Neumann a mathematician par excellence and a poker enthusiast was one of the early pioneers of TGT. He tried to apply TGT to the game of poker and wondered if he could capture something that is quintessentially fundamental to human nature as bluffing in to a mathematical model.

Let me give you some definitions. A player is somebody who is a decision maker in the game usually having a stake in the game and in the outcome of the game. A strategy is a specification of decision for each possible situation in which the player finds him/herself in to. Payoff is the reward or penalty that the players experiences as a result of their strategies interacting with each other. Common Knowledge is multiple-multi layered awareness of the rules of the game.

Most decisions that humans make are ex-post rationality i.e. people look backward to see how earlier situation could have been done better than they are to look forward to look forward to examine the current situation in current light. Awareness of TGT could help avoid the ex-post rationality trap. An excellent example that captures ex-post rationality is Max Bazerman’s ‘Winner’s Curse’ auctions. See: http://ingrimayne.com/econ/Efficiency/NastyAuction.html

What winner’s curse tells us is: at first people start off with the desire to win and win big, then they rationalize their expectations to just winning, then they re-rationalize to loosing small and finally by the time they become aware of their flawed rationality they turn in to big losers. That is, most people unwillingly put themselves in a ‘war of attrition’. In economics we call them depleting return on investment.

But Game Theory is no panacea. It has its own limitation and the first and foremost decision is ‘how we define rationality’. There are many others which I will discuss in my next few articles. Then there are many different types of games – games of incomplete information or pursuit-evasion games. Here signaling and signal jamming are critical i.e. how you make yourself believable. In my upcoming articles I will discuss many interesting ideas including what TGT has to say about threats, promises and commitments.

The Game Theory (TGT): Part 1

2010-08-07T14:50:00.000-07:00

First of all I would like to express my apology for staying away from IIdeaz for so long. As I have mentioned in my previous article X demerged and lot of things changed after that. It all feels like an epoch ago. But my journey through business landscape continues, and I will always be the curious ‘Alice’ in the wonderland of business.

I, from this article onwards, will blog about ideaz that are of general business interest to me. Ofcourse; I will complete my narration about my voyage with X in future articles.

Let’s start with Game Theory. What is Game Theory? Game Theory is a study of strategic interactive decision making among rational individuals. Sounds gibberish? Let’s understand ‘Why Game Theory?’ may be that could help. Why Game Theory, because it is one of many good ideas that have found ready application in many fields such as economics, computer science, biology, etc. But also because it gives you the secret of success!!! Well I might be exaggerating a little here but it probably gives you some fundamental elements that helps build success, no matter what your definition of success is!

Many of us ask the question ‘what does it take to succeed?’ and grapple around in the dark hoping to find an answer. When I say that success is a byproduct of one’s decisions I am not very far from the truth [so I hope]. But decisions are a consequence of choices that are available to us for any given situation. This statement is true, but only half true! For any give situation, decisions made are a consequence of choices available to oneself and also to others. This seemingly inconsistent and counter intuitive idea plays itself off at all times even without conscience recognition of it. Game Theory is a collection of many such absurd ideas but strongly backed by mathematical explanations and logic. As I attempt to understand this marvel of human discovery which has elevated eight game theorists to the honor of Noble Prize, I will think out loud and share my understanding in this blog.

De-merger

2010-04-29T13:44:00.000-07:00

De-merger:

Big News: X demerges. Explores management buyout.

Stage I Article-10: Markets & Segments

2010-03-15T18:07:00.000-07:00

Let’s begin our analysis.

The objective of market analysis is to determine the attractiveness of a particular market for X’s current and future operations. Attractiveness of the market or the profit potential, viz. ability of the market to provide long term ROI will be a key input for the product-market (Service-market in this case) investment strategy. It should be kept in mind that although participating in an attractive market can increases a firm’s chance to profit but a firm’s profit making ability is also a function of its inherent strengths and weaknesses. Market analysis also facilitates in indentifying emerging sub-markets within larger market, trends in the marketplace, dynamics of the market place and key success factors.

Market Size & Growth:

Influence of construction industry on M&E sector is immutable. Most indoor constructions will always involve mechanical & electrical works. Besides the widely held belief in the market that M&E industry is dependent on construction industry, a look at the output from the M&E industry and the correlation of change in output between two industries reveals that it is indeed closely linked to the output from the construction industry. M&E industry derives its demand from construction industry. Any changes that affect construction industry get readily passed on to M&E industry.

Change in output for construction and M&E industry. Source: Office of National Statistics, UK Government

The construction industry chart presented is representative of combination of Commercial, Industrial, Infrastructural & Residential subsectors with in construction industry.

The size of overall construction industry for the year ending 2008 was £ 123.5 billion. The relative market size of Mechanical & Electrical sub-sector within the construction industry has been around 10 – 14% historically. Current market size of M&E sectors is circa £ 14.3 billion that is roughly 11.5%, the total number of VAT registered companies in M&E sector is about 27,091 this is roughly 14% of trade category of construction industry. The entry barrier of for the M&E is quite low, a semi skilled field engineer with little investment in tools and a Van for mobility is in a position do deliver the service with minimal overhead costs. The sheer numbers of firms operating within M&E sector erode any competitive edge that any single firm may try to bring to the market; also given that these firms are of different sizes any differentiation strategy adopted will be hard to sustain.

Also the profitability on the firms in this industry is independent of their size, we have firms in M&E sector spread across a broad spectrum of sales growth; some firms are experiencing high growth while others are experiencing severe negative pressure. The Top 50 companies in terms of sales growth range in their annual sales figure of over £ 500 million through firm with just over a £ million in their annual sales [i](refer appendix). The companies with high turnover and deep pockets can bring economics of scale to the market place and thus put price pressure over its competitors, smaller ‘man-in-van’ operators are agile and quick to respond to customer needs at the bottom of the market value chain and therefore bring speed to market.

Apart from the size and number complexity of the M&E industry that brings in performance pressure on X one more daunting challenge that it confronts is the growth prospect of the market. Owing to sever economic downturn of 2008-9 the prospect of growth in the construction industry and in turn M&E market has dwindled. The future projection for the construction industry looks bleak, this in turn is sure to make its effects felt on M&E sector. A declining market means increased price pressure and higher competition to hold on to your share of diminishing pie. The chart below illustrates the point.

UK Construction Industry output. Source: MBD analysis

Dan porter’s characterization of hostile market in which there is fall in demand for the products or services being offered and in which there is severe competitive expansion can be clearly seen to be the case of this current M&E industry. Therefore the current M&E can be labeled as hostile. There is fall in demand caused by credit crunch leading to overcapacity of supply combined with competitive expansion. The hostile market condition of ‘Margin pressure’ can also be seen to have realized.

However everything is not as gloomy as it appears on the first look. Within this declining market there are specific sub-markets that present X opportunities to hold on to its market share and even grow, this is discussed in next few articles.

Segments & Sub-Market:

As mentioned previously although at national level the overall construction industry is declining, there are specific sub-markets that could offer hope to X. It should be remembered here that a declining market is as hard on competitors as it is on X, this could mean some of the competitors are exiting and disinvesting. X could possibly attempt to encourage its competitor to exit and become a dominant player with in its band of value-chain. Major segments of construction industry are shown below. Some of the sub-markets where X could stake its bets are illustrated after discussion on segments.

Major segments that can be categorized with in construction and M&E market are listed below:

· New work and Repair & Maintenance segment

· Geographical output segment

· Customer type segment

A key input to product-market investment strategy of ‘where to compete’ in the Strategic Market Management (SMM) context is obtained by understanding market segments. The analysis below will suggest X some of the regions it ought to consider for its sales growth and customer types it has to align its services towards are indicated below.

I will not get in to details of each segment in this article but in next few articles I will throw enough light on the dynamics that are shaping M&E sector.

Stage I Article-9: Analysis

2010-02-08T13:29:00.000-08:00

The analysis framework:

Let’s try to look at the analysis framework in more detail:

External Analysis:

The external analysis looks at factors and elements that can influence a firm’s fate and are external to an organisation. There are four key factors that are important for external analysis, they are:

1. Customer Analysis: This involves identifying organisation’s customer segments and each segment’s motivations and unmet needs. Segment identification defines alternative product markets and thus structures the strategic investment decision. Analysis of customer motivations provides information needed to decide which customer value proposition to purse. Understanding unmet needs of customers can be critical in dislodging entrenched competitors

2. Competitor Analysis: Competitors are classified in to two types current and potential. When there are many competitors it is helpful to combine those with similar characteristics like size, resource, and brand equity & distribution depth. Key elements that are worth exploring about competitors are their performance (sales, sales growth and profitability), Image – How is competitor positioned and perceived?, Objectives – commitment to pursue competition and strengths to pursue competition, Cost structure – Does competitor have cost advantage?, Culture – Who runs the show? and finally competitors strengths & Weaknesses

3. Market/Sub-market analysis: The objective of here is to determine the attractiveness of the market and sub-markets. On average, will competitors earn attractive profits or will they lose money? To understand the dynamics of market it is important to analyze following elements: Size – What is the current market and sub-market size and their future potential if new customers are attracted to the market. Growth prospects – Asses growth trend and product-life cycle stage for the industry and its sub-market. Emerging submarkets – Evolution of key submarket is a key market dynamic. Market profitability – Number & vigor of existing competitors along with Porter’s five forces. Cost structure and distribution channel of the market and sub-market.

4. Environment Analysis: Standard PESTLE framework helps in understanding and evaluating the environment. The elements of PESTLE being Political environment, Economic environment, Social environment, Technological relevance, Legal and Environmental effects.

Internal Analysis:

Internal analysis aims to provide a detailed understanding of strategically important aspects of organisation. The major aspects of internal analysis include:

· Performance Analysis: Profitability and sales provide an evaluation of past strategies and indication of the current market viability of a product line. Profitability measure, Return on Asset, is compared to cost of capital to determine if business is adding value to bottom line. Sales figure indicate trends that show shift in customer base that have long term implications. Other financial analysis like NPV provides a base for future investment options. Other non financial analysis includes customer satisfaction, product/service quality, Brand associations, new product activity and product portfolio analysis.

· Determinants of strategic options: Some non quantifiable attributes also play important role in understanding factors that will influence strategic options. Strategy review gives an insight in to where is the organisation currently vis-à-vis its competitors and markets. Strategic problems give an insight in to understanding challenges that the business is currently confronting and helps in prioritizing resource allocation. Organisational capabilities and constrains helps implement a strategy and limits the scope of strategy.

Strategic Analysis output:

The strategic alternatives that’s made available through the process of external and internal analysis is synthesized to churn out certain key outputs. These include identifying external threats for the business, opportunities available, trends in the market, and external uncertainties. It also helps identify internal strength and weakness, problem areas and constrains and internal uncertainties.

Strategy Identification and Selection:

This helps in selecting the product/service market in which the firm will operate and deciding how much investment is allocated to each, determine customer value proposition, identify assets and competencies and develop functional areas strategies.

Criteria for Strategy selection

· Consider possible future scenarios and develop matrix of response

· Ability to generation of attractive ROI

· Ability to pursue sustainable competitive advantage

· Be consistent with organisational vision and objectives

· Be feasible

· Consider interrelationship with other firm strategies

Data Collection:

Data is a source of information and information helps make decisions. Understanding broad market and industry direction was possible by relying on quantitative methods. I had to use qualitative data collection technique of face-to-face interviews to understand the unmet needs of customers which are hard to quantify.

Similarly I have gathered data from variety of sources, spreading the source of data and information is very important to maintain the reliability of data. Even the credibility of data is not compromised since all my qualitative data come from trustworthy sources. Below is the list of sources for my data, I have included the detailed references of my data sources in appendix.

1. Government database: Office of National statistics, UK & UK Dept for Business, Innovation & Skills (BIS)

2. Industry Associations: Electrical Contractors Association, UK & Heating and Ventilating Contractors association

3. Market Intelligence Reports: Keynote Publications, Mintel Reports, Hewes Associates and ONS, Experian

4. University Libraries: Access to journals and magazines.

5. On-line Surveys: Self Designed

6. Face-to-Face interviews

7. Company websites

Secondary Data:

Secondary data is data that a researcher extracts from other data gatherers who have already compiled them. Given the requirement to understand the Industry trends and projections and the limitations imposed by time and resources most of the competitor and Industry data in this report is collected from secondary sources. Sources include: Government database: Office of National statistics, UK & UK Dept for Business, Innovation & Skills (BIS) and Market Intelligence Reports: Keynote Publications, Mintel Reports, Hewes Associates and ONS, Experian.

Advantages of secondary data collection include, apart from saving time and resource, it provides large and high quality data which is often impossible for individual researcher to collect. They also help avoid duplication of efforts. Secondary data can also form the basis for subsequent primary data collection based on insights thrown by secondary data.

Disadvantages of using secondary data include opaqueness of data gathering methods, opaqueness of designing the data gathering methods, obscurity of intent of the data gathered, and relevance of data and time expiry of data.

Primary Data:

Data that is collected by the researcher from the source of interest is categorized as primary data. There was a strong need to gather sensitive customer information. The information gathered was critical in understanding the current level of service perception on the part of customer and also it was essential to understand the potential future opportunities for business.

I designed the online surveys and also carried out some face-to-face and telephonic interviews to extract the relevant data. Online surveys were designed to understand the order qualifying criteria for X’s services and Face-to-Face interviews were carried out to understand order winning criteria that will differentiate X’s service offerings from its competitor’s service offerings.

Some of the draw backs in primary data collection include - Flaw in design of data extracting mechanism can result in skewed results. The process of collecting data is laborious and time consuming. Data collected are raw and incorrect interpretation could lead to incorrect conclusions.

Stage I Article-8: Chicken or The Egg

2010-01-31T12:15:00.000-08:00

What came first - Chicken or the Egg? Do you formulate a simple business strategy first or do you carry out market analysis first? Remember you are not standing still when you are making your decisions; conditions are as dynamic and complex as ever.

In my previous article, Business Strategy, I brought out four different options that are available for any business to choose from. In this article I will bring out the analysis framework which helped generate strategic options for X and which helped X choose between four alternate business strategies.

The choices made by individuals and arrived at through available mechanism is a function of environmental conditions they operate in and decision making systems that are in place. At X some tough decisions had to be made in some very tough conditions, conditions that would stare you in the eyes without batting an eye and would say “You shall not survive me”. A thorough analysis was the need of the hour at X, one that will help throw options to mitigate short-term cash-flow issues while deciding on the course of long term strategy.

The analysis framework is shown below:

The above framework has been drawn from Aaker & McLoughlin.

Stage I Article-7: Business Strategy

2010-01-21T17:21:00.000-08:00

Picking up from where I left let’s try to dissect the strategic consideration framework/model that I had developed for X. Let me give you the most optimum business strategy that translates itself in to infinite wealth for your business or for that matter any businesses but of course in a perfect world :-). Peter Drucker suggests that purpose of business is to create customer and I have stretched my imagination by assuming customers will eventually translate in to wealth for the business.

Primary purpose of business strategy is to develop a competitive advantage that provides customers with superior value (benefits relative to costs) compared to competitive offerings.

The four dimensions that define business strategy that will lead to strategic advantage are:

· Product-Market investment strategy (Answers where to compete?)

· Customer Value proposition (Answers how to compete?)

· Assets & competencies (Answers how to compete?)

· Functional strategies & programs (Answers how to compete?)

Product-Market Investment Strategy:

The scope of the business and the dynamics within that scope represent a very basic strategic dimension. The scope of business is defined by the products(used interchangeably with ‘services’) it offers and chooses not to offer, by market it does and does not seek to serve, by the competitors it chooses to compete with or to avoid by its level of vertical integration. While business dynamics consider service or product level tactical entry or exit plan and repositioning of these, financial and non financial resources are allocated based on these product-market investment decisions.

The investment pattern will determine the future direction of the firm. Some broad level choices that are available are:

· invest to grow in existing market

· invest to maintain existing position

· milk the business by minimizing investment

· recover as many assets as possible by liquidating or divesting the business

The Customer Value Proposition:

Customer value proposition is the perceived functional, emotional, social or self expressive benefit that is provided by the organization’s offering/s. Therefore value positioning of a service or product should correlate to one or more customer value proposition listed. And this combination should be sustainable for the offering firm without exerting undue pressure over resources while at the same time should differentiate itself enough from its competition. Customer value proposition (CVP) can involve some or combination elements such as good value, excellence in service, best overall quality, product or service line breath (one stop shop), global branding, etc.

Competencies and Assets:

Strategic competencies are referred to those intangibles that have evolved organically within a firm or have been acquired and are hard to imitate by its competitors. Strategic competencies are based on knowledge that an organisation wields and an organization’s ability to capture knowledge from its talent pool. As such processes are considered as competencies as they are but knowledge product and can be included with in the category of organisation’s ability to manage knowledge.

Strategic assets are those resource elements that can be leveraged to gain competitive advantage while it also contributes in developing a firm’s competencies. Strategic assets include both tangible elements such as financial capabilities, installed customer base, etc and intangible elements such as brand name.

Competencies and assets together give an organisation its competitive advantage, careful planning in developing the two and there effective utilization should lead to synergies which in turn will lead to significant, enduring and sustainable advantage that will result over time.

Here it is important to point to the fact that strong asset or competencies are hard to build and even harder to quantify in absolute terms as sufficient enough; how much is enough will always remain a relative dysphemism. Competitive myopia translates in to yesterday’s hard won competitive advantage that provides customer delight in to today’s order winners and tomorrow order qualifiers. The ability of an organisation’s asset and competencies to support a strategy will in part depend on their power relative to those of its competitors. Competencies and assets provide sustainable competitive advantage (SCA).

Functional strategies:

Set of assets and competencies should mandate some strategy imperatives, in the form of a supportive set of functional strategies. These strategies are implemented through a host of short-term tactics. Some of the functional strategies are list below:

· Distribution strategy

· Brand-building strategy

· Communication strategy

· Segmentation strategy

· IT strategy

· Quality strategy

· Customer relationship strategy

Some introspective questions that drive functional strategies include: What conditions needs to be manufactured internally and externally in order to drive the agreed value proposition to end customer? What changes are required to manufacture these conditions? Are the assets and competencies in place to carry out these changes? Do these assets and competencies need to be created, strengthened, supported or changed? How do we do this?

Strategic Options

Since we do not live in a perfect world we are forced to choose between options available. Strategic options is a point of synthesis and distillation for the four dimensions of business strategy discussed above viz. Product-market investment strategy, the customer value proposition, competencies and assets and functional strategies. The over whelming complexity in the form of alternatives or choices that these four dimensions produced is narrowed down to specific few; a firm’s strengths and weaknesses combined with the opportunities and threats presented to it from the external environment will ultimately decide the business strategy. Therefore a strategic option is a particular value proposition for a specific product/service market with supporting assets and competencies and functional strategies.

Conceptualizing and labeling strategic options help crystallize and describe alternative business strategies. This in turn helps describe the selected business strategy and get the required approval from internal stakeholders (employees) and external stakeholders (partners, financers, customers, etc).

Stage I Article-6: Strategic Considerations

2010-01-11T13:44:00.000-08:00

The following depiction gives you a bird’s eye view of strategic considerations that were made in the process of developing marketing strategy for X.

The short-to-mid term consideration was to put in place business and growth strategy for X’s individual companies to generate cash. The short-to-mid term strategies will un-tie precious resources X so desperately needs and give it a relative comfort of time to decide what its long term objective should be.

The methodology seen above is a simplistic depiction of how marketing strategy recommendations were arrived at for X. In my next few articles I will dwell in to more details on how I prioritized what the short term marketing strategy should be and how I integrated these with long term considerations by combining patterns that I saw emanating from customer data, Industry data, Competitor data etc.

Stage III Article-4: Sourcing and Procurement AS-IS

2010-01-05T17:57:00.000-08:00

After a barrage of concluding questions in my previous article of Stage III you might wonder how will I answer these questions and where will I start?

The start is here and now. In Stage III Article-2 I had discussed about the Rummler and Brache, a great tool to capture Sourcing and Procurement ‘AS-IS”.

The martix above captures essence of Rummler and Brache’s frame work. The bi-directional arrow heads that you see should be considered a spectrum, including those that are diagonally aligned. It is important to treat these arrow heads and the areas they cover as spectrum due to lack of clear demarcation in the responsibilities that one sees in real world organisations.

The following are some of the questions that I used in semi-structured interviews to capture the current state of affairs at X’s various purchasing departments.

1A. Org level goals & concerns

1. What is the role of Business Services department within X?

2. Which are the most critical functions with-in BS that will make a difference to X?

3. Why do you think these are critical?

4. What are you seeking to achieve through these functions?

5. What mechanisms or processes do you have in place to deliver these functions?

6. What problems/issues are you currently facing/ you anticipate facing when working on and with these functions?

7. How do you plan to overcome these issues?

8. How do you ensure the process goal/departmental goal is in line with business goal?

1B. Org level design & concerns (Focus on Procurement/P&P/IT) (1B)

1. What processes/mechanisms do we currently have in place that caters to organisation’s procurements/P&P/IT needs?

2. If yes, who are the current owners? Do we have a purchase department or function?

3. If no, it cannot be NO because then the business stops functioning!!! No, could be an answer that could come out of lack of knowledge.

4. How are resources allocated to each of these functions? – Man power, budget, IT, etc

5. Any specific areas of concerns? - Quality, Speed, Dependability, Flexibility, Cost?

6. Why is it an area of concern?

7. Do you see any duplication of efforts in the work flow? Why do you consider it to be so?

8. How do you detect duplication of work?

9. Do you see any miscommunication in the work flow? Why do you consider it to be so?

10. How do you detect miscommunication?

11. Where do you source your information from to make business decision?

12. Decision on demand variation in the market? – Capital goods, Outsourced service & Materials

13. Decision on supplier pricing? Of all above and IT

14. What decision making processes is in place? Who do you involve in the developing decisions?

15. When do you outsource manpower? Why do you outsource man power needs?

16. How do you approach manpower outsourcing?

17. How would you describe EINW’s relationship with your suppliers?

1C. Org level management & concerns (Focus on Procurement/P&P/IT) (1C)

1. How do you ensure accountability in your department?

2. What measures do you have in place to ensure Quality, Quantity & Timeliness? – of procured goods & services

3. How do you ensure the employee has all the information needed to carry on the task assigned?

4. How do you ensure documentation, training and employee needs are being met regularly?

2A. Process level goals & concerns

1. What is the role of your department/process/function within EINW?

2. What procurement strategy/policy do you have in place?

3. Which are the most critical functions with-in your function that you think makes a difference to EINW?

4. Why do you think these are critical?

5. What are you seeking to achieve through these functions?

6. What mechanisms or processes do you have in place to deliver these functions?

7. What problems/issues are you currently facing/ you anticipate facing when working on and with these functions?

8. How do you plan to overcome these issues?

9. How do you ensure the process goal/departmental goal is in line with business goal? Can you spell this goal out for me?

2B. Process level design & concerns [Sourcing]

1. How do you recognize and identify business need for procurement?

2. Do you differentiate between procurements for internal consumption or External Trading?

3. How do you validate need for procurement?

4. How do you budget procurement?

5. Do you carryout risk assessment before procurements? Yes – when? No – Why not?

6. How do you develop specifications for the goods/services being procured?

7. How do you source suppliers? First time purchase, repeat purchase?

8. How do you handle emergency, out of turn needs?

9. How do you ensure Value for Money (VFM) for the procurements that you make?

10. What procedure do you follow in requesting quotations?

11. How do you develop legal framework for the procurement being made?

12. Do you invite tenders? When? Why not?

13. How do you evaluate the quotations and the tenders received?

14. How do you carryout legal and financial check of the selected suppliers?

15. How do you select supplier/s?

16. Do you notify unselected supplier? How do you do it?

17. How do you complete legal formalities? Do you enter in to agreement for every purchase made or is it cash and carry?

18. Do you differentiate procurement based on value of purchase? What other criteria or classifications do you have?

19. Do you differentiate between purchase of goods and services that you make? What other criteria or classifications do you have?

20. Who is authorized to issue purchase orders?

21. How are supplier payments initiated?

22. What IT systems, services or infrastructure do you have in place to support your P&P?

2C. Process level management & concerns

23. What is the average turn-around time between supplier identification and issue of purchase order?

24. What is the average turn-around time between issue of purchase order and receipt of goods/service?

25. Average cost of tendering?

26. How many tenders are issued in a year? Half year? quarter? And in a month? Any seasonality patterns?

27. How many goods and material suppliers used in one year? Half year? Quarter? Month?

28. How many service suppliers used in one year? Half year? Quarter? Month?

29. How many of these suppliers were customer nominated?

30. Do you maintain separate records for capital goods, materials or services purchased?

31. How many rejections per year? – Good/services break up?

32. Average total procurement cost? – Cap good/Material? & Service?

33. Breakdown of total procurement cost? – Cap good/Material? & Service?

34. Average total acquisition cost? - Cap good/Material? & Service? [goods + Transaction]

35. Average total transaction cost?

36. Average cost per transaction?

37. Average cost per supplier?

38. Average total tenders per supplier selected?

39. Average cost per tender?

40. Average creditor period?

41. Average labor cost per tender?

42. Average labor cost per supplier?

43. Average inventory hold period? Trading goods/materials.

44. What value evaluation mechanism do you have in place for the procurements that you make?

2B. Process level design & concerns [ICT]

1. How do you recognize and identify business need for ‘a’ IT solution?

2. What ICT strategy/policy do you have in place? What is the overall objective of IT in EINW?

3. What drives ICT strategy/policy?

4. What IT systems, services & infrastructure do you have in place? Which business function/s do they support?

5. How do you validate need for IT procurement?

6. How do you budget IT procurement?

7. Do you carryout IT risk assessment before procurements? Yes – when? No – Why not?

8. How do you develop specifications for the IT goods/services being procured?

9. How do you source IT suppliers? First time purchase, repeat purchase?

10. How do you ensure Value for Money (VFM) from your ICT?

11. IF IT DEPARTMENT CARRIES OUT ITS OWN PROCUREMENT, THEN GET ANSWERS TO QUESTIONS LISTED IN THE 2B PROCUREMENT SECTION.

12. How has ICT benefited your organisation?

2C. Process level management & concerns [ICT]

1. Do you have a comprehensive and coherent IT architecture for EINW?

2. How do you evaluate/measure the effectiveness of the current IT systems?

3. How do you ensure relevance & currency of IT strategy?

4. Do you have a breakup of Systems, Services & Infra that you use? Yes, -can you provide me those?

5. How do you measure cost effectiveness of the IT system in place? (any bench marks –reuse, -vs-)

6. Current Total cost of ownership of the IT systems? – Systems, services & Infra.

7. Current measure for ROI on IT spending?

8. Any other measures of value evaluation that you have in place for IT spends?

2B. Process level design & concerns [P&P]

1. How do you recognize and identify business need for ‘a’ Project/Program solution?

2. What P&P were carried out in the last 12 months? Break up?

3. Who approves initiation of internal projects?

4. What P&P methodologies do you have in place? Why do you use them?

5. What is the overall objective of P&P function within EINW?

6. What drives P&P strategy/policy?

7. How do you budget P&P initiative?

8. Do you carryout risk assessment before P&P initiatives? Yes – when & How? No – Why not?

9. Where do you source your P&P resources from?

10. How do you ensure Value for Money (VFM) from P&P initiatives?

11. IF P&P DEPARTMENT CARRIES OUT ITS OWN PROCUREMENT, THEN GET ANSWERS TO QUESTIONS LISTED IN THE 2B PROCUREMENT SECTION.

12. How has ICT benefited P&P?

2C. Process level management & concerns [P&P]

1. Do you have a comprehensive and coherent P&P policy for EINW?

2. How do you evaluate/measure the effectiveness of the current P&P methodologies used?

3. How do you ensure relevance & currency of P&P undertaken?

4. Do you have a breakup of Systems, Services & Infra that you use? Yes, -can you provide me those?

5. How do you measure cost effectiveness of any new P&P initiative? (any bench marks –reuse, -vs-)

6. Average life time cost of project undertaken in last 2/3 years?

7. Current measure for ROI on P&P spending?

8. Any other measures of value evaluation that you have in place for P&P spends?

Stage III Article-3: Sourcing and Purchasing in perspective

2009-12-24T16:51:00.000-08:00

My client X has around 500+ customers and it uses 600+ suppliers to serve them. Average value of turnover per customer is £31500 without deductions while average value of purchase per customer £18110 (These figures are exclusive of Salaries and other benefits that employees receive). Add to these the cost of sales, depreciation of capital goods that are indispensible for servicing these customers, etc and you can gauge the value addition happening at X.

Average spend per supplier is £9500, not a big number; combine to this that top 10 suppliers take away 40% of business from X and you see where we are heading. It is really difficult to leverage on the scale and scope of purchases for any individual company within the group.

The group, all companies put together, purchases over 1500+ unique items, purchasing across wide geographies nationally. A supplier with strong presence in Midlands might have no presence in North, and supplier holding bastion in North might have skeletal presence in South-East or East Anglia. Add to these complexities a purchasing officer’s conveniences, necessity to keep suppliers happy for the sake of contingencies, etc then you get the picture of what I am up against. Purchasing officer here could be a field technician, purchase coordinator in office or a project manager. Also a substantial part of revenue, about 33%, is generated from contracting division whose major procurement is sub-contracted manpower.

How do you design an optimal sourcing and purchasing (S&P) strategy for the consolidated group without compromising on Quality, Speed, Dependability, Flexibility & Cost factors? But more importantly how can S&P strategy make a difference to the bottom-line? How can S&P improve cash-flow conditions for my client? How can S&P strategy align itself with the company’s short term and long term objectives? And most importantly what can S&P strategy do to enhance value to my client’s customers?

Stage I Article-5: Hostile Markets

2009-12-19T09:21:00.000-08:00

A hostile market can be defined as ‘one which is associated with over capacity, low margin, intense competition and management in turmoil’ irrespective of industry type these finding have been found to be true.

Hostile Market

Don Potter’s (and not Michael E. Porter of Porter’s Five Forces fame) report suggests that outbreak of hostilities is triggered by two major factors:

· Fall in demand – Caused by external event/s that affects the industry’s customers; consequently there is sudden over capacity of supply

· Competitive expansion – competitive expansion occurs because new opportunities prop up providing high margins and profits or because competitors undercut each other’s competitive advantage due to fall in demand

Below I will discuss the six phases of a hostile market identified in the Windemere study following which I will, in next few paragraphs, show you how this definition fits in the context of X.

The six phases of hostility that an industry experiences is mentioned below and they may or may not necessarily occur in the order mentioned:

1. Margin pressure – Low profit margins resulting from predatory pricing. This situation leads to asymmetric power shift towards customer, giving large customers extra bargaining power. Eventually competitors start looking for niche areas that comes from higher-margin smaller customers.

2. Share shifts – Three factors account for this shift a. Industry leader or leading firms in industry hold on to premium pricing under false assumption that superior offering and customer loyalty will sustain premium pricing only to loose market share and spoil brand reputation over time. b. Flight to quality. c. Acquisition driven by desperation to achieve economies of scale.

3. Product/Service Proliferation – Competitors compete for market share by attempting to generate value for the customer through product/service proliferation. Firms resort to bundling or unbundling of their offerings in an attempt to find niche. Bundling is achieved by adding features or functions to existing service or product while keep the price constant. Unbundling removes some of the features or benefits from the product or service and are then offered at lower price.

4. Self-defeating cost reduction: In an effort to maintain margin firms resort to cost cutting measures that scuttles investment in product/service or quality improvements thereby giving unintended lead to competitors.

5. Consolidation and shakeout: As a consequence of these externalities industry is forced to separate chaff from the grain. Consolidation happens in three waves: first, firms work hard towards reducing overhead by right-sizing the workforce, closing and consolidating facilities and pruning businesses. Second, Strong firms take over weaker firms in the markets thereby reducing the competition. Third, larger firms begin to collaborate to beat the heat.

6. Rescue: This is a long drawn and arduous process which leads to few players controlling large chunks of market share. And typically is based on shift in industries entry and/or exit barrier arising through industry innovation or external intervention reigniting demand.

X in a Hostile Market

A Cursory look at Mechanical & Electrical (M&E) industry in UK will reveal that it is highly fragmented. The following table, table 1, from a well respected market intelligence company Mintel indicates the number of VAT registered companies that operate within the segment of M&E in UK as of early 2009.

Table 1.

Table 1 shows that the sheer number of firms operating within M&E sector erode any competitive edge that any single firm may try to bring to the market; also given that these firms are of different sizes any differentiation strategy adopted will be hard to sustain.

As indicated in market fragmentation definition the tables below, table 2 and table 3, proves the point that profitability is unrelated to size. Table 2 drawn from Plimsoll Portfolio Analysis for M& E contractor shows that the industry has firms spread across a broad spectrum of sales growth; some firms are experiencing high growth while others are experiencing severe negative pressure. Table 3 shows that the Top 50 companies in terms of sales growth range in their annual sales figure of over GBP 500 million through firm with just over a million in their annual sales.

Table 2.

Table 3.

Given the above hard facts combined with ‘not-so-bright’ macro-economic conditions, and the internal situation of the company it is pertinent that X look at multiple dimensions to sustain itself in this hostile market environment; and may be decide to embark upon growth strategy based on market penetration, service market expansion and if possible, based on X’s ability to manage risk and make long term resource commitment, also look at vertical integration and diversification. The final recommendations made to X will be discussed in later articles.

The business strategy presented here is an opportunity for X to bring together its holding companies and device a common marketing strategy accommodating them all. Implementation of this strategy will demand commitment from all stake holders - existing private owners, current management team, employees and sub-contractors, to see it through the end. The greatest pressure on resource will come in the form of pressure on time and motivation to manage this change.

Internal changes triggered by adopting customer centric strategic market management will not and cannot happen in isolation. Similarly any business strategy change cannot be oblivious to its perils of present in the hope that a great plan for the future will somehow make the current problems vanish. This is why managing cash flow is as important for a firm’s survival today as its plan to grow market share or sales turnover or net profit or profit margins in the mid to long term; a marked improvement in a firm’s overall performance. A structured growth strategy will prepare an organisation and give it the confidence it needs to undertake broader reform in its business strategy.

Stage I Article-4: X the client

2009-12-11T05:52:00.000-08:00

If you have been following my articles for a while now then you would have encountered X many times by now and would be wondering ‘Who the heck is this X?’

X – An Introduction:

Imagine cold winters without a room heater to keep you warm or hot summers without air-conditions to keep you cool and to keep your cool. Hard to imagine isn’t it? Simple necessities of life like heat and light that many take for granted in today’s world. But have you ever wondered who creates that comfortable, welcoming environment in your homes or offices or shopping malls and all other places that are an integral part of human habitation? The answer is linked to Mechanical & Electrical (M&E) industry always. Although this could mean an electrician operating out of his van or an AC technician working out of his one man office or it could even mean a multinational company with multi-billion £ turnover and thousands of employees offering you its world class state-of-the-art services.

X is part of UK’s mechanical & electrical industry. The company offers many services within the mechanical & electrical industry sector including designing, building and project managing HVAC & Mechanical services, AC & Mechanical CAD services, AC & Mechanical installations, AC sub contracting, HVAC servicing & maintenance, Electrical installations, Electrical testing & inspection, fire alarm testing, Portable appliance testing and other specialist services of electrical, air-conditioning, heating, ventilation and allied areas.

Mechanical & Electrical companies typically compete in broad markets with differing customer size and needs that may be geographically dispersed and that may seek differing service benefits. Market intelligence publisher Mintel puts the number of firms operating within M&E sector in the year 2008 at over 27,000 of varying sizes operating within UK.

As limited resources restricts organisations from serving the wide variety in customer demand effectively it is imperative for them to target specific segment/s of customer base that provides greatest opportunity for success. Current economic climate and the future forecasts make this ever more relevant for X’s survival.

Strategic questions such as: Which criteria should be used to define the market segment? Which segments provide X with greatest opportunity? What combination of benefits & costs provide the target segment the greatest value add relative to X’s competitors? In addition to operational decision pertaining to pricing, promotion, service delivery design and distribution can be addressed by understanding the market structure that X currently operates in and ultimately chooses to compete in. In the Business Process Change Initiatives (BPCI) that I am working on (follow stage III articles) I am trying to align X’s internal process with its market demand. I am mainly concentrating on Purchase, Procurement and Supply-chain elements of operations in Stage III articles.

X’s History

The history of X goes back to 19^th century. The company started as electrical contractors, installing telephones, electric bells and generators. During the past century the company has also sold and serviced automobile (electric & petrol), radios, TV’s, record players, refrigerators, Kitchen and many other appliances.

X today is a holding company based out of Leicester, UK. It has three major functioning companies with in - A, B and C.

The Organisation structure of X before the change initiative is illustrated below:

The top level flow of control within X is illustrated below:

The Organisation structure illustrated above has undergone a Brobdingnagian metamorphosis as a result of Change management that was undertaken. Refer to Stage III Article 1 of a quick view of new structure. The objective of Stage I is to gradually walk you through key elements of transformation leading to a change in X’s organisation structure, culture and ultimately its standing in market.

Stage I Article-3: Project Plan

2009-12-04T19:08:00.000-08:00

With ‘foundation’ in place the next step was to put up a skeletal framework, a Project plan.

A project plan breaks down the project scope in to series of actionable tasks leading in to the set final project objective. In doing so a project plan sets a baseline for time and cost measures and facilitates communication between stakeholders.

Prince2 defines project plan as "...a statement of how and when a project's objectives are to be achieved, by showing the major products, milestones, activities and resources required on the project."

Risk Management plan and Project plan are Siamese twins. A project plan is incomplete without factoring the risks that could possibly confront a project.

The following shows Project plan and Risk Management plan that I drew up for this stage. Some data have been withheld to protect their confidentiality.

Project Plan

Risk Plan

StageIII Article-2: ACEing it

2009-11-28T07:54:00.000-08:00

With road-map in place it’s time to crank up the engines and race ahead and crash - Kabooom! Well, a more prudent approach could be to rev up the engine gradually until you are familiar with the landscape of scope of work ahead of you and gather speed as you get comfortable.

As indicated in Stage III Article-1 the area that I am concentrating the most is on procurement strategy and its support elements IT and project management.

ACE Model:

I designed the Assess-Consolidate-Expand model to act as a compass and a odometer to guide my journey of BPCI.

The Assess phase sets the coordinates and reference point; it tells you where you stand today and how the scene around looks likes. The audits & AS-IS (refer: Stage III Article-1) captures the current procurement & purchase (P&P) procedures and practices along with its IT systems that are in place at the three companies operating within the group. The P&P itself is driven by customers’ M&E service or install needs. By knowing where you are now and the amount of fuel (resources – hard and soft) that you carry and are willing & capable of expending, you set yourself the objective of traveling to where you want to be.

The Consolidate phase will then endeavor to pull together those parts of the car that have utility & life left in them so as to get cannibalized in to the ‘yet-to-be-designed’ sparkling new process. Process workflows will give the pictorial representation of the AS-IS of the procurement process today. These will then be valued and ranked against the benefits they are offering or have the potential to offer. The MD and the executive team at X will take the final call on what will be retained. Based on the management decision the design of the new procurement process will begin.

The Expand phase will finally deliver the value stream giving X an optimized inventory & demand management solution, centralized coordinated program management with integrated information flow across the value stream and therefore across the company using ICT.

A quick note here, the company’s culture and mind-set is ingrained in divide and rule and I am not exaggerating here. The HO of the three companies operate out of same building and has been doing so for last 10 years, but they do not work with each other although they have complementary skills to offer each other. And on the contrary these companies use each other’s competitors to undermine their sister companies most of the times.

Data to Information:

To give you a picture of scope and complexity of task ahead, I will give you an example. The company has around 500+ customers and it uses 600+ suppliers to serve them. Average value of turnover per customer is £ 21500. Average value of purchase per customer is £ 11110, add to these the cost of sales, depreciation of capital goods that are indispensible for servicing these customers, overheads etc and you can gauge the value addition happing at X. Average spend per supplier is £ 9500, not a big number; combine to this that top 10 suppliers take away 40% of business from X and you see where we are heading. It is really difficult to leverage on the scale and scope of purchases for any individual company within the group.

The group, all companies put together, purchases over 1500+ unique items, purchasing across the wide geographies nationally. A supplier with strong presence in Midlands might have no presence in North, and supplier holding bastion in North might have skeletal presence in South-East or East Anglia. A purchasing officers’ (a whole lot of them) convenience freely contributes to the complexity. One of the companies within the group that contributes to nearly 20% of turnover sources just one item - subcontractors.

How do you design an optimal supply-chain solution for the consolidated group without compromising on Quality, speed, dependability, flexibility & Cost factors?

Do you now, get the picture of what I am up against?

Between all these confusion it is important here that we don’t forget the real purpose of the current Business Process Change Initiative (BPCI) viz developing sustainable competitive advantage. Michael Porter, god of modern management, comes to rescue again.

The above figure is the Omni present generic value chain model from Michael Porter. This is a simplistic view of flow of value addition in an organisation. The blocks having ‘S’ within parenthesis are indicative of support function that enable value addition to primary activities indicated with an arrow-head flowing through them.

Ideally a business process cuts across traditional departments to combine activities in to a single process flow. Any value streams that will be designed will at all costs align with this value chain. More on value streams in future articles.

Capturing the AS-IS:

The above model helps identify levels of view from within an organisation that’s required to capture the goals and concerns of a process flow.

And how do I capture the goals and concerns? - Rummler and Barache’s Performance framework.

I love Rummler and Brache’s framework. You can see for yourself how it accommodates the concerns at different level with in an organisation with three unique dimensions of goals, design and management of processes. The performance matrix identifies nine different concerns that anyone trying to change processes in an organisation must consider and not just focus only on process or process measures or process management. I have used the performance matrix to come up with sets of questionnaire that I will be using in my company wide semi-structured interviews. Each of these questionnaire set fits in to each individual block thus helping me capture the AS-IS as comprehensively as possible.

Stage I Article-2: The Foundation

2009-11-21T07:39:00.000-08:00

Expectation setting is a very critical part of any deal making. It is important that stakeholders clearly understand what to expect out of each other during and at the end of an ongoing engagement. I have seen time and again people fumbling during expectations setting exercise. In our initial discussion we (The client X, Third party Consulting Company and Me) agreed to use project management approch towards the change management tasks ahead of us. The project scoping activity which captures and formalizes expectations thus became the most critical part of project initiation. I believe so should it be.

The UK market development strategy that I agreed to develop for X still had a few finer details that needed some attention before I could dive in to the sea of market research for them. One major point that I insisted and ensured was included in the scope document was that we, all stakeholders, revisit and review the project scope at the time of delivery of first milestone. This was to ensure that we were on track and to check we are carrying enough fuel to reach our set goal/s. The fine print that I had to phrase read “There will be a revisit to the scope of the project on 31 July 2009 as gathering primary data from suppliers & customer will present some challenges due to limited time frame, this in turn will shape the course of research.”

As you can see I had some serious concerns about the way my data gathering activity would carry forward. In anticipation of issues mentioned and given that only limited resources were available at my disposal and also at client’s disposal the above clause would have been the all important SOS button. However I would like to add here that the need to revoke the above clause never occurred as I was able to gather enough relevant data to carry out the required analysis.

Failing to articulate concisely what one expects from the other party in a well structured agreement is a sure road to disaster. Each party must ensure that they articulate issues and challenges that they anticipate during the course of project delivery. It is important all stakeholders carry out due diligence and chalk out risk mitigation plan before they start to work with each other. A poorly written and loosely held agreement apart from pushing up the transaction costs and lowering ROI for the client will also result in undermining working relationship between the parties involved. Clear objective setting will act as a guard against any whims that may tempt the party/ies involved from shifting the goal post midway during the course of project execution.

Stage I Article-1: In the beginning

2009-11-15T16:07:00.000-08:00

February 09 through March 09 was a very exciting time for me. I was interviewing with P&G for the role of Business Transformation Associate with its IDS department. The interview process itself took about a month-and-a-half with 5 rounds of screening, with couple of visits to P&G’s Head office in Weybridge, UK. In the end I was happy with my performance and my efforts.

The results that came in an email on 28th March 09 from a member of P&G’s Financial Solutions BA, Procter & Gamble Technical Centres Ltd, Newcastle brought with it a welcome delight. The email read “We can confirm that you have now completed our interview process and have met our hiring criteria…. We expect to make job offer decision at end of April.”

Between end of March 09 to end of April 09 I was a happy lark, but then came the twist in the epic saga on 30th April. I received an email from P&G’s Corporate Recruitment Team and it read “Unfortunately we are no longer looking to recruit candidates into this particular role, and as such will not be able to forward your application further in our recruitment process……Please do refer back to our website at www.pgcareers.com in order to search for another role that you feel is suited to your strengths. The website is updated frequently, so checking it regularly will ensure you are kept informed of the latest developments. Depending on your selection, we may be able to move you to the stage you had reached during your initial application. ”.

Being who I am I pursued P&G to understand the root cause of this new decision. The first impression in my mind, however was that it was due to sever economic downturn that UK was experiencing at the time. I reached out to the SVP IT of P&G UK at the time, with whom I had my final discussions, and the response from her read “The competition for our summer internship programme was very tough this year as we had a large number of very strong candidates… I’m very sorry we’ve not been able to offer you something at this time, and hope you’ll keep a look out for other opportunities in the future..”

Clearly, I saw two different versions being played out here. I suspect somewhere between SVP and the recruitment team a decision to sideline my application was made. For all the vindictive feelings that were simmering in me at the time, I decided to channel my energy in to positive affirmation. And finally in mid June 09 came the opportunity that was carved for me and it read:

“UK Market Development Strategy……….. This is an opportunity to undertake and present new information for this large and important market sector. Most current market information, even relatively recent market research reports, has suddenly become invalid due to the unexpected and sudden nature of the economic crisis.
Key tasks:
Key areas for research and analysis include:
- regional output across the UK construction sector
- economic forecasts and drivers of business activity in each region
- changing customer needs and expectations within the supply chain
- innovation requirements to meet emerging customer demands
- key competitor activity and responses to market changes
The output from this research activity will feed directly into the development of a region by region sales and marketing strategy for the X group of companies. This will be designed to re-position the company to exploit opportunities emerging from the changes within the market. In turn, the new sales & marketing strategy will drive group operating strategy across the UK. Significant change management activity will result from the overall business strategy that is developed.

Key outputs/deliverables:
A report covering market summary analysis and scenario forecasts for the relevant UK Construction sectors over the next five years.
Opportunities for presenting the output within and across the industry will result for the successful candidate, supported by the sponsor. This could create a high profile for the applicant within this sector."

And thus my journey with my current client X began; a lot has changed between July 09, when I started working with X, and now. As I bring this journey to you, I promise it will get as interesting as it can.

StageIII Article-1:Business Process Change & Management

2009-11-06T14:50:00.000-08:00

About 5 months ago, in June 2009, I decided to work on a project, in partnership with a Birmingham based business consulting company, to drive a major multi-million pound enterprise change for a client based in Leicester. The change was envisaged to unfold over a period of 12 months and in a series of excogitated stages.

In the first stage of this massive change management exercise I developed marketing strategy for the client. The MS analyzed and gave scenario forecasts for the relevant UK Construction sectors over the next five years to the client. Other outcome of the MS included:

• Macro-economic review of the construction industry and M&E subsector

• Analysis of regional output across the UK construction sector

• Buyer behaviour analysis & Competition analysis

• Service-Pricing strategy and Regional sales projections

• Market development recommendations that will feed national sales strategy.

Findings from the marketing strategy are currently being used to put in place a region-by-region sales strategy. My colleague is currently undertaking an account management workshop with key sales personnel and account managers to gain the required buy-in and set the ball rolling for the sales force. MS has set off the domino of change at X. I will, in my next few articles, try to give you a glimpse of the path that I traveled through in developing this marketing strategy.

I have, in the mean while, embarked on yet another new journey called Business Process Change and Management. And the focus of this article is on Business Process Change.

What is business process and why do you need to change them?

Process is a series of activities that translate in to an outcome. It’s another matter that these activities are designed to be, but usually evolve, related and structured to produce the desired outcome. In this case the outcome of the processes should be in line with the objectives a business sets for itself. Why change? To stay competitive! The business process change at X has been initiated as a result of organisational restructuring that came due to sustained inconsistent performance. X’s retained profit was just above the zero line in the year 2005, and then in 2006 it went down, I mean they went all the way down, and then bounced back in 2007, recovering not just the lost ground but shot way above any previous record, and back in red in 2008. Wooh, X is consistently inconsistent.

So here we are today, letting the bygones be bygones the only thing that can be done now is to look at the path that’s ahead of us and start adopting change. Had this change been guided by past experiences then it would have made a world of difference to X but then again, how many companies actually claim to be a true ‘learning organisation’ in the market?

The Organisation structure of X before and after restructuring is shown below:

The Road Map:

The business process change initiative at X is being driven by the Business Services (BS) division. A quick meeting with the Managing Director of Business Services division kick started the business process change initiative. I presented a broad road map to get his buy-in and also to cross check if I am thinking exactly the same thing that the Managing Director is thinking. The first slide was about the boundary demarcation of the BS division.

• Nerve center for all non-finance related support activity within X

• Plays key role in shaping processes and re-engineering work-flow for X

• Contributes to cost reduction & restructuring, thereby increasing margin

on and profit potential of services delivered

• Source of competitive advantage in market place

He agreed to all of the above and had nothing to add. That’s because he is as sure (read unsure) of his role and functions as a managing director of this newly setup division BS within X or I have got them the way he wants me to get them. I presume the later given that he was part of efforts that went in to the over-all organisational restructuring.

Next, I put forth the anticipated challenges for BS.

1. New and unchartered territory within X, there by rising the risk of failure

2. Perceived as cost center, this could expose the Business services as non-value adding function within X

3. Processes developed should remain current and retain its validity

4. Lack of in-house skills

No disagreements here either. He just makes a self assertion that he cannot be bullied; this was in response to doubts raised in point # 2.

The next slide then brings out the opportunities that these changes bring with them.

1. Current situation an opportunity to streamline process to derive better cost benefits

2. Procurement strategy will be the biggest money saver, contributing to cash-flow

3. Program & Project management to be streamlined to avoid duplication of efforts

4. Information & Communication Technology capabilities to match the scale of processes and scale of operations.

Although the BS, as mentioned earlier, is responsible for most non-financial support within X including but not limited to HR, business continuity, risk planning, IIP, property management, transport logistics, stores etc, I am working to refine and redefine procurement strategy & policies, program & project management methodologies and ICT strategy. The ‘Heavy hitters’ as he (the MD) calls it.

As has been pointed out in the white paper published by Datamonitor and commissioned by Oracle Corporation (my alma mater) “10 steps strategy for SME success – July 2004” it is really difficult to put your finger on problem when it comes to fluid, ever changing business landscape and say this is where I will start my repair work. I have tried to adopt some broad guidelines specified in this paper to put my roadmap in place, but of course I have adapted them to suit my environment. The next slide of my presentation brought out the roadmap.

1. Assess – Benchmark, important to treat the underlying causes of ailment rather than just the symptoms

– Carry out audits to capture the as-is snap shot

– Define a realistic and achievable objective for process shape and cost savings

2. Consolidate – Get a grip on situation

– Map processes and communication pathways

– Valuing and rating value components

– Process Improvement planning – Internal and External (advancing this step leads to the danger of developing business critical processes based just on assumptions)

3. Expand – Implement, put plans to action

– Real Time solution to Inventory and Demand management

– Integrated Information flow across the business network using effective ICT

– Centralised and coordinated Program management

Benefits? Its all about benefits, isn’t it?!? The chart below shows some of the dimensions against which the value-adds will be measured.

Benefits: Quantified, Tangible and Sustainable results.

And when will I see results?

When the business process change initiatives are completed and the processes are integrated with in the X’s organisation. That would mean X has to wait for at least 6-9 months (most optimistic view) after the adopting the proposed changes to see tangible benefits. And I hope the economy will not go insane again.

Any questions??? -- Not many from the MD at least!

StageII Article-Last: When the going gets tough, the tough get going

2009-10-28T03:05:00.000-07:00

Not many deny the argument (can I say fact?) that the economic downturn of 2008-9 is the worst to hit global markets since the great depression of 1930’s. There are many theories that experts put forward as the reason for this economic crash, but I believe that the trigger came with the bursting of housing bobble. The unsustainable ‘investment’ that most housing consumers so colossally indulged in turned in to liability overnight. Surplus credit cash chased limited investment options and most of it ended up as mortgage loans, pushing the demand for assets and their prices north that came crashing down by mid 2008 exposing the pre-recession macro-economic imbalance. The ‘Buy-to-Let’ fad came to a screeching halt.

What started as financial crisis soon turned in to global meltdown. The GDP began to shrink by third quarter of 2008 and early 2009, capital investments began to decline, trade and industrial production dropped, unemployment rose, financial markets collapsed, business travels bottomed out and finally many households were ruined. But all was not lost; this recession has created a band of ‘Recession Entrepreneurs’ who are exploiting the opportunity to innovate and differentiate. Make no mistake, these recession entrepreneurs can be seen not just starting up new enterprises but are also found within many firms that are currently surviving the economic onslaught. And then there are a few who are thriving despite economic slowdown.

X is one organisation that has decided to take the current economic challenge, which has affected so many across all sectors, head on and has decided to change itself for better. X has adopted the spirit of ‘Recession Enterprise’ or ‘Phoenix Enterprise’. A classic example of a phoenix enterprise is the online web portal e-Bay that was born out of 2001 recession; not only have many suppliers who market their products through e-bay have now tapped in to previously unexplored market, but so have many customers found a market place where they can buy what they want and when they want, all at a price of their choice. Benefits to stakeholders, be it customers, suppliers, partners or employees are many. Stakeholders stand to gain from the ripple effects of the changes that a phoenix enterprise like X adopts.

Phoenix enterprises don’t just do well during market downturn but are also well positioned to take off during the post recession upswing in macro economy. As can be seen from the UK-GDP chart, UK economy is expected to move in to growth phase by mid-2010, most organisations would have lost great deal of stamina fighting the recession battle and will be ill prepared to take advantage of upcoming opportunities. Post-recession upswing in the economy is also the ideal time for firms to get that all elusive first mover advantage. Another interesting phenomenon is that many phoenix enterprises collaborate to develop unique value position in the market leading to a ‘win-win’ situation for them.

X’s decision to expand its service-line and its geographical presence has many benefits to its stakeholders. Customers currently choosing to engage multiple vendors on different projects will now have an option for a one-stop-shop for their Electrical, Mechanical and Building contracting new works and repair & maintenance, thereby reducing their transaction cost in the short term and bringing down their total cost of ownership in the long term. For suppliers this would mean steady demand and capacity management thereby enhancing their cash-flow predictability. Partners and employees benefit with increase in opportunities that come their way by being part of a market leading organisation. Based on economic predictions from different sources happy times are still at least a year away. The challenge is in now and opportunity to change is today. This very appropriately reminds me of Billy Ocean’s evergreen song ‘When the going gets tough, the tough get going’!

PS:Some identities have been concealed due to non-disclosure agreement.