Monday, July 20, 2009

Transferring Knowledge & Managing the time aspect

Comment : by Anonymous

These are the three challenges I see:
1) transferring knowledge (better teachers, better learners)

2) time (no one has the time to do it, or learn how)

3) disliking teaching/mentoring.

I think the last two might be overcome if people saw great results from their efforts to teach/learn, but I know that in my organization there is no system in place to help senior people become better teachers, and junior people become better learners. Senior people know what they do in each situation, but don't know how to articulate why they do what they do, and how junior people can translate it into any other situation. Thoughts on any resources for this?

Article : Two big challenges of Knowledge Management

I agree with the challenges mentioned the comment and in fact it was the first point 'Transferring knowledge' that I highlighted in my above mentioned article. To transfer knowledge, it must first be available then shared and shared knowledge must be used for an organisation to benefit from it. The difference is, said article deals with the cultural and system angle of an organisation while the above mentioned comment highlights the capacity and ability of people to share and use knowledge. To some extent the work culture of an organisation deals with the learning aspect. In a progressive work culture people would want to listen and learn. Their dislike to teaching and mentoring would be low to nil. But surely making better teachers and learners out of people working in an organisation is a tremendous challenge unless they are natural teachers and learners.

About Better Teachers

We do not need teachers in the traditional mould (class room teachers) to share knowledge. We need people who are willing to share knowledge (their ways, methods, wisdom, ideas etc.). If an organisation succeeds on this front then the next challenge is to help people articulate what they share. This is more of a glass ceiling than a concrete slab to break through. First, help people to share knowledge. Capture and channel appropriately that shared knowledge reaches people who may benefit from it. Let them pick the brains of the one who shared and learn from it. This way the person who shared gets better with his communication, those who need become better learners and the shared knowledge gets further enriched. Remember, learners can help people become better teachers.

About Better Learners

People learn when they are driven. Not everyone is self-driven and an organisation needs to play a big role in driving people to learn and achieve more. Create 'work challenges' that drive people to learn and raise the bar. Do not tolerate sub-optimum performances. Keep raising the bar of optimum performance with improvements in overall work performance. Leadership must set an example in learning. They cannot repeat their mistakes and close their eyes to knowledge available with the organisation when they want their employees to learn and use knowledge. Provide a learning environment where people are encouraged to learn. You cannot expect a person to learn from work when his request for a library is denied or for that matter executive / higher education is denied. Last but the most important incentive for learning is Respect, Recognition and Reward for knowledge shared. Absence of R-R-R will keep people far away from learning as not much is going to happen even if they learn and share their knowledge.

Integrate KM with business applications

The need for time will be felt when knowledge is shared in the traditional way. We can have daily / weekly sessions of knowledge sharing but then less will be learnt at those sessions compared with knowledge provided as the need for it arises. People at work would want to know what to do or how to do at a point of time. If they can be provisioned with the required knowledge at the click of a button or two there will be no need to push for knowledge usage or for that matter learning. But the challenge is in enabling it.

I was implementing my recommendations to improve 'Receivables' performance for one of my clients. We designed and developed a software that would double up as an intelligence system besides providing transactional and MIS support. We provided a field(s) for people to share their knowledge at various stages of the process flow and tagged them as 'Knowledge fields'. People can choose from standard text or type their own. They can share their ideas and views on what transpired and how they handled it. They could also say what they think or feel about a situation or how they expect things to go, especially with collections. These were stored for people to use in similar situations. Anyone who is performing a required activity can access knowledge stored specific to the activity being performed. People can also share general thoughts on how the work is performed and how they can be improved. This system was received with lot of skepticism but eventually turned out to be a beneficial one for the client. It helped people to learn how different customers respond and when they do what it means especially in the light of their subsequent actions. It's not always possible to do it the way I described. There could be work activities that involve no software yet demand involve knowledge acquisition and usage. How do we share knowledge in those cases and how do we use knowledge?

Knowledge management systems integrated with business applications help knowledge usage better than standalone KM systems. This however does not preempt knowledge sharing outside business applications. Corporate Blogs and Forums always provide good platform for people to share and learn especially in the absence of a software to input knowledge acquired. But KM fields in business applications help capture knowledge that is vital and critical for performance improvement.

If after all of the initiatives there still are people unwilling to learn or dislike learning then the organisation will be better off without them. You can work on people unwilling to share but not much can be done with people who are unwilling to learn.

Hope it helps. Good luck.

Monday, May 11, 2009

Keeping your customers

On the other day I was having a discussion with my new client when he popped the question, why do customers leave despite same offering from competitors? He was making an assumption that the offering from his competitor is similar to what his company offers. It was difficult for me approve or contradict that without knowing the details however I told him, "tangibles may resemble but intangibles may not" and there could lie the difference. Intangibles that I am talking about are given in the diagram below. There may not be anything new about them but just that one needs to realise that they, the intangibles, are very much part of an offering by a company to its customers.

Intangible aspects of an offer to customers

Pre-sale service
Few years back, in a seminar, one sales manager shot back at me saying 'service starts only after sales' when I drew the attention of audience to 'pre-sale service'. But when I asked him about information support given to customers on order status, delivery time, despatch etc. he said "they are part of the process". Then isn't post-sale service part of that process?

It's important to classify any interaction between a customer and a company, with regard to a sale, as service as it underlines the importance of the activity being performed. Any service before the product is delivered is part of 'pre-sales service'. The reason why I am emphasising on 'pre-sales service' is because people across the company are involved in this and not just sales department. Manufacturing, Accounts, R&D, Transportation are some of the departments that are responsible for some of pre-sales service activities. A well co-ordinated, unified approach is necessary to ensure that the customer gets what he is made to expect from the company. It's very easy for a company slip up here. Customer focus across the company is the only way forward in this regard.

Post-sales service
Ensure high quality standards timeliness in the delivery of your service. Keep improving your service standards through feedback / learning.

Commitments are of two types, one is authorised and the second unauthorised. Many companies face problems with unauthorised commitments made by their sales team to gain a sale. Some of these don't get documented and quite a few may never reach any other person except the concerned sales executive. Every commitment that is violated creates a deep hole in a customer's trust. A company should be mindful of commitments it makes in the form of concessions, additions, terms etc. and honour them without fail. With respect to unauthorised commitments made by salesmen, the customer should not be made to pay, for the mistake is not theirs. Companies must set their house in order and drive home the message that unauthorised commitments will not be tolerated and those who make them will be made to pay for it.

Beyond tangibles, service and commitment what else can a company offer? A relationship, certainly. In mid 1990's, besides poor service standards, many customers jumped over to new private sector banks due to poor treatment meted out to them by staff of Public Sector Banks (PSBs) in India. In fact the tide is now turning and more and more people are leaving for PSB's. Nowadays, customers get much better treatment from the staff of PSBs and their service standards have improved greatly.

Never betray your customer's trust

Customers can get vocal when their expectations on tangibles are not met but may not waste their lung power to get the message across when it comes to intangibles, barring may be post-sales service. They will just move away and the onus will be on you to learn why they did so. One of the basic tenets in business management is "never betray your customers' trust". When a customer decides to buy your product or avail your service he / she starts building trust in your offering and remember both tangibles and intangibles are part of an offer. If this trust is taken for granted or played around with, then those customers who leave you will take away much more business than they brought you in the first place.

Final words

Tangible aspects of a product / service may win you a customer but it is intangible aspects that help you retain customers. Intangibles carry your own mark and are difficult to duplicate unlike tangibles. They even mask some shortfalls in your products and services, albeit for a short period, therefore be mindful of them.

Friday, April 17, 2009

Training and cost reduction

Training plays a central role in shaping up an individual to the requirements of a job and the organisation. As can be observed from the above statement training must have twin focus viz. requirements of job and requirements of organisation. Lack of training for job performance is easily detectable whereas lack of training for orgnisational requirements hardly shows up unless one digs for it. Even then it is hard to establish.

The diagram given alongside captures various issues that are associated and caused by poor or lack of training. In the diagram, ‘Delay’ and ‘Poor Quality’ issues are caused by poor training for the job while ‘Wastage’, ‘Cost’ and ‘Poor Control’ issues are caused by lack of training to integrate people with the organisation. As mentioned before it is difficult to spot, track and remove wastage, cost and poor control issues arising out of ‘poor or lack of training’. Therefore it is important for every company to ensure comprehensive training for all. It should be continuous and reemphasizing. A comprehensive approach to training is given below.

Training framework

1. Right way of doing things

1.1 Work
1.2 Reporting / communication
1.3 Feedback

2. Responsibilities / Authority

2.1 Outcome of work
2.2 Quality of work / Timeliness
2.3 Team performance
2.4 Decisions / Actions

3. Knowing and relating with the organisation

3.1 Organisation structure / businesses / locations / people
3.2 Organisation mission / vision
3.3 Work process
3.4 Work goals / performance measures
3.5 Work - Interacting departments / functions / roles
3.6 Organisation systems and practices
3.7 Cooperation / coordination
3.8 Overall role in the big picture
3.9 Compensation - Quantum / breakup / methods / criteria / systems
3.10 Rewards - Methods / Criteria / Systems

4. Upgradation of knowledge / skills

4.1 Technical training

4.1.1 New developments
4.1.2 Changes in methods / process
4.1.3 New machinery / tools etc
4.1.4 Improving work performance

4.2 Management training

4.2.1 Methods and topics
4.2.2 Soft skills

4.3 Company / Topical / Industry information newsletter

5. Being a value adding employee

5.1 Delivering on work goals / performance targets
5.2 Owning up responsibility for decisions and actions
5.3 Sharing and using knowledge and ideas
5.4 Complete cooperation and coordination as required
5.5 Questioning and improving work practices / methods and ideas
5.6 Open mindedness to new practices / methods and other changes

Structured approach has to be adapted in order to provide well rounded training to people at work.

1. Initial orientation at the time of joining
  • Right way of doing things
  • Responsibilities / authority
  • Knowing and relating with the organisation
2. On the job training
  • Right way of doing things
3. Periodic training needs assessments
  • Job requirements
  • Organisation requirements
4. Corporate newsletter / blog / KM system
5. Programs to help people align with organisational interests

Hope you find it helpful. Give me your feedback.

Wednesday, April 8, 2009

Supporting ideation in a business environment

"We are ideating"

These are the words uttered in an IBM ad by a person in response to a question raised by another person who walks into a big hall where many people are lying down. Now this itself is an idea of allowing people to take time to ideate. A senior executive in one of my client companies quipped, "if we follow this, then rest assured we will have lot of people volunteering to ideate; only that it will generate more snoring". Not that he is not impressed by the idea but just that he is far from impressed with his people. There are two things here, one you don't need to have a big hall for people to come, lie down and ideate and secondly ideation is not something to be thrown open for people take up voluntarily.

Ideation in business

Ideation is a process of forming and relating ideas while Ideating refers to forming a mental image of something that is not present or that is not the case

Businesses know the value of ideas but often they don't promote conducive environment for ideas to grow and get nurtured. Ideation process helps companies to generate ideas to address and solve business problems and support innovation. Knowledge management system helps a business to generate ideas as long as issues concerning sharing of knowledge are well addressed and people are open to share and use knowledge. In a way a KM system is a prerequisite for ideas to come through and surface.

Supporting ideation

Like many other things in a business, ideation requires necessary infrastructure, facilities and conducive environment for it to work. It may not be a continuous process and certain steps can be skipped if the motivation is greater. The diagram given below capture things those are necessary for ideation to take place in a business environment. It however does not cover the cognitive process that creates the idea. Click on the picture to enlarge it.

Some tips to kick start ideation in your organisation
  • Encourage people to ideate and share their ideas
  • Put in place a comprehensive knowledge management system
  • Set up a full fledged central corporate library (Provide both hard and soft resources)
  • Find ways to encourage people to use the library. Discourage people taking resources home.
  • Encourage people to set up knowledge or say even Idea clubs to meet (online or in person), communicate, share and discuss issues, ideas and knowledge. Integrate it with the KM system.
  • Set up corporate blog or publish periodic internal newsletters. Encourage people to contribute and reward valuable contributions.
  • Add some fun element, wherever possible, bring together people, help them think and act

Tuesday, April 7, 2009

Analysing wastage

Every business model has a value proposition and to create this value cost is incurred. If the cost incurred shoots up disproportionately then the whole picture will change and could affect the profitability of a company. Value should be there for both the company and its customer. If either of them suffers then the value will be distorted. One aspect of poor performance that can alter the value significantly is 'Wastage'.

Anatomy of wastage

Wastage takes many forms and prime among them are

  • Material Wastage
  • Time wastage
  • Knowledge / Skills wastage
  • Technology wastage

These aspects are in turn caused by various operational issues and problems as given in the diagram below. This diagram (OIP - Wastage) is built keeping manufacturing industries in mind. It can however be easily adapted to other sectors with modifications where necessary. Even for the manufacturing industry, the diagram below can be expanded and enriched further. Click on the picture to expand it.

Deep analysis of each sub aspect will help us unearth deeper and finer reasons why wastage happens. But even at this level (as given in the diagram above) it is clear to us on what is causing different types wastage and where to look at for each of them. For example Rejects, Rework and high material consumption points finger to process and quality management while high inventory, idle stock and storage loss points to materials management. Outmoded systems and bureaucracy points finger at poor management practices while unused or poorly used technology speak about the work culture and people attitude. Like this each sub-element can be localised and further analysed for exact reasons why they happen. It will lead to uncovering the roots of different types of wastage. Once the root cause is identified and understood, solution to set things right would be much easier.

Less tangible wastage

Traditionally material and time wastage attracted much of management attention. Knowledge/skills and technology aspects of wastage rarely attracted time and energy of managements for the simple reason that they are less tangible. Even today some companies do not accord necessary importance to these two types of wastage. It is criminal, in a business sense, to use a comprehensive ERP system for just transactional purposes. But still many companies do that, spending millions on a ERP system but failing to use the analytical and informational power of it. Like wise there could be different technologies that are not fully utilised to their potential. This type of wastage is less tangible and hence escapes attention. The best way to measure technology wastage is to figure out different usages for which a particular technology is intended and how much of it are put to no or sub-optimum usage. By quantifying benefits missed we will get a fair idea on how much a company loses due to technology wastage.

Knowledge/skill wastage is another aspect that was long ignored but gaining importance now. People are more aware of the potential of Knowledge/skill inventory that an organisation in possession of and therefore emphasise on better utilisation of it.

Removing wastage

  • Focus on all aspects of wastage
  • Identify various forms of wastage in vogue, term and specify them
  • Tolerate 'zero' wastage and make it known to everyone, clear and loud
  • Collect data, analyse and interpret
  • Implement necessary changes to systems and processes
  • Link it to performance of units / departments / individuals
  • Make wastage data known to all and invite suggestions to remove it
  • Reward and encourage sharing of best practices, suggestions and actions
  • Penalise inaction and continued poor performance on this front

Try to modify the generic OIP - Wastage diagram given above to reflect your own industry / company. Give me your feedback and inputs.

Sunday, April 5, 2009

KM - Setting direction

Helping people to share and use knowledge is central to the success of a knowledge management system. However it is just not enough to have people who are willing and enthusiastic to share and use knowledge. What will you do when you have everything but clues in a treasure hunt? Not much, I guess. It is important for the top management of a company to set the direction and make people aware of the purpose of the whole effort and the way forward.

State the purpose

Sharing and using Knowledge can be very loosely understood if the purpose is not clear for people. What the system is set out to achieve must be answered in unambiguous terms. There cannot be many different purposes for a KM system but to harness knowledge assets that a company possesses to enhance business performance and achieve greater growth. But how well this message is carried across to people is important. It should clearly spell out that the KM system is in place for the common good and rewarding for all stakeholders. Efforts should be made to make people understand that it is a friendly system that encourages rather than the one that forces people to use it. When a KM system starts from here in unambiguous terms, it will have more passengers with it than is the case otherwise. Start it with a bang and make everyone aware of the KM mission.

Set the focus

Once people see the purpose half the job is done. But then not all that people know are important or needed by a company. There will be a chaos and waste of energy and effort if the focus is not set. A KM system in a company could have multiple focus areas but then not all will be focusing on everything. Depending on the role people / departments play and expectations of the management focus should be set for different groups and individuals. More details within each focus area would further help people to come forward and contribute to greater benefits of the organisation.

Clarify 'Knowledge'

Purpose is clear and focus is there, can people still get it wrong. One is tempted to assume that people will know what to contribute. But then it's worth the time and effort to clarify what knowledge is, to people who matter since the term knowledge is often used in a very broad sense. KM literature is full of definitions of 'Knowledge' and how it is different from data and information. It is important that Knowledge as claimed should be actionable and result in benefits for the organisation. The diagram given alongside captures the knowledge gaining process and when the edge can be gained.

If knowledge, as claimed, passed through the above process and passes the 'actionable and benefits' test then it will sharpen the competitive edge of an organisation.

Saturday, March 21, 2009

Long but most profitable road to cost reduction

A while back I was reading an article in the magazine 'outlook business' that touched on the need to be prudent when it comes monetary policy. When an economy surges ahead it gives some scope to tighten interest rates. But rarely central banks do that as that is seen as anti growth by corporates and even politicians. If tightening the belt makes one sit upright, it will only help in sensible and safe driving. However we do see rate cuts to further fuel growth. When the tide turns it leaves central banks gasping for breath with already low rates. Rates can't go below '0'. Similarly businesses get carried away when times are good and don't look around much for cost cutting opportunities.

Cost cutting and cost reduction may have hardly troubled the corporate minds when the picture was rosy. But today everybody wants to cut costs. Nothing wrong with it just that people turn cost conscious only when pushed to a corner. If companies constantly work on reducing / eliminating unwanted costs, they will find it easier to navigate through rough waters. Unwanted costs present greater opportunity to achieve substantial recurring cost savings. However they also pose greater challenge and prove harder to crack.

Operational issues and problems

Unwanted costs happen due to operational problems and issues (OIPs). They are not something that can be easily and immediately done away with. They (OIPs) require a systemic solution. For a systemic solution we need better understanding and clarity of what they are and where to look at. In this post I am presenting a broader picture of operational issues and problems. It is an attempt to understand various factors that contribute to operational issues and problems and what causes each of these factors to thrive at work. The diagram given below captures two different sides of OIPs. On one side it has 'causes' and on the other side 'outcome' of operational issues and problems. By no means causes listed in the diagram are exclusive. There could also be some that may not find a place on the left side of this diagram but can impact one of the outcomes listed on the right side, directly. Click on the diagram to expand it and give me your feedback and suggestions.

I have broken it down to the next level, for example, expanding 'myopic view of the organisaiton' under 'Cooperation'. Currently going through them to filter and identify high impact causes. It's too huge a picture currently and there are some 128 causes with 39 duplications. In any case we are looking at not less than 89 different causes that when unattended infects and negatively impacts a business with the business virus called OIPs.

I will take up major causes of OIPs and discuss them one by one in future posts.

Link to earlier post on cost reduction

Saturday, March 14, 2009

When people will share and use knowledge?

In sports, we often say 'he/she is an enigma' when performance falls flat despite high promise. It applies to businesses also. Many businesses under perform due to the gap between knowledge acquired and knowledge used. Nowadays companies understand the importance of knowledge and how it can help them gain or sharpen the competitive edge. They are trying with KM systems, and software play a huge role in that. Software help companies to capture, store and channel knowledge. But knowledge sharing (converting the tacit form into explicit one) and using the knowledge in store are outside of the software systems. These two aspects of knowledge management require people to have faith and trust besides other facilitating systems.

Conducive environment for knowledge sharing

I have had numerous interactions with people on this issue and what motivates or demotivates people to share knowledge. The diagram given alongside captures those responses and my own observations. It tells us when knowledge sharing will take place or in other words the diagram captures the environment that facilitates knowledge sharing.

Listening ears - This is paramount for knowledge sharing. When one learns about an issue or has a idea to share he needs a listening ear. It is men at the front who knows more than the men in corner rooms. Irrespective of where someone is and what he does, he must be listened to when he comes up with an idea, solution or even a problem. Each piece of information thus received should be assessed for its worth and treated accordingly. When one knows his words found a good ear, he will be motivated to share more.

Formal record - It is important that each piece of knowledge shared and found useful must be recorded and due credits given. This further improves a person's faith in the system.

Feedback / Action - Was the knowedge acted upon? What is the status? Into the dustbin or to the penthouse? Feedback is important as it acknowledges and is also a way of respecting the person who shared the knowledge.

Recognition of contribution - When knowledge shared is useful and to be acted upon the same should be recognised and the person concerned be given public credit. Depending upon the importance and criticality of knowledge shared, the concerned person be made responsible for action or be rewarded in other ways.

Career growth - Count knowledge sharing for promotions and other recognitions. Rewards are fine but almost everyone would love to move up the ladder.

Direction - Last but not the least, direction. Lack of direction can kill a KM initiative. It's just not enough for a CEO to know the direction, everyone must know. Otherwise databases will be full with less or none to act upon. What? Why? How? Where? must be clarified to help people contribute better. Direction alone is a subject for many more posts. I will do it at later.

Making people use knowledge

The other challenge of KM, as we already discussed, is making people use knowledge. Primary reason for people to not use knowledge in public domain could be the credibility of knowledge shared. To make people use knowledge shared and feel comfortable and confident in doing so, one may ensure that following are taken care of.

Certify knowledge - Once a knowledge shared is accepted as useful then the same should be certified by an appropriate authority. This is more vital for a knowledge that is yet to be used or tested.

Proof / Evidence - Show evidence of work or benefits of a knowledge acted upon. This helps people to adapt it faster with confidence. More such evidence; more confidence in using new knowledge.

Do not penalise - When a knowledge acted upon fails to yield positive results, do not penalise the one who used it nor the one who shared it. Learn from the failure as that's an opportunity to improve things. But never forget to reassess the status of 'knowledge' in question and inform concerned people.

Reward / recognise - Reward and recognise people who show enthusiasm to test uncharted territory and use new knowledge shared. Publicise successes and learn from mistakes

When you develop a knowledge management system, remember to keep above points in mind. KM system is not just software but much more than that. People must be prepared, nudged, helped and cared to share and use knowledge. If two big challenges of KM are tackled well then other challenges, if any, can be handled with much more ease.

All the best.

See the earlier post on KM 'Two big challenges of Knowledge management'

Thursday, March 5, 2009

Two big challenges of knowledge management

"when a person joins an organisation he/she is obligated by the terms of employment to use and share the knowledge in his possession for the benefit of the organisation"

Knowledge is central to the success of a business. But then knowledge acquired (recruiting people) does not automatically translate into knowledge shared or in use. People, the carriers of knowledge, rarely volunteer to share their knowledge to the greater good of the organisation. Some people (viz., owners) treat this as a betrayal. This kind of thinking hardly helps the situation and knowledge further retreats into the shell.

Knowledge acquired is not knowledge shared and used

Knowledge gained from schools pares in comparison to knowledge gained out of experience. It takes quantum leaps with exposure to work environment, people, situations, challenging positions, problem solving, failures etc. A person starts at say K0 and travels upwards to Kn. This gain in knowledge helps people to establish themselves firmly in an organisation and determine their career advancements, emoluments etc. Asking an employee to share his knowledge for the common good, without proper systems to facilitate it, is tantamount to asking him to lower his guards. Just like a company that wants to grow, every individual wants to grow. How many companies are willing and volunteering to share their knowledge for the greater good of the industry or economy and run the risk of blunting their competitive edge? There may not be an agreement to that effect, one may argue, but the case is similar when the context shifts to employees and an organisation. A worker cannot machine a component if the lathe is not there. Likewise an employee cannot be expected to share knowledge voluntarily if knowledge assisting and supporting systems are not in place.

Knowledge captured is not knowledge used

"We have a KM system in place and recently bought a KM Software to take care of it"

You may have heard those words from many CEOs and managers. The truth is you cannot buy a knowledge management system. A KM software is not the be all and end all of a KM system. It just is a part of a KM system. It serves a business as a means of storage and retrieval. To store, something has to be entered. Even in the case of 'explicit knowledge', if completely captured in the software, it has to be used by people.

If making one share knowledge is challenging enough, making another to use that knowledge is equally difficult. Quite a few things like ego (I can do better than him), lack of trust (What if he is wrong?) and lack of training & sophistication (How to use that software? Looks too cluttered. Where is what?) can come in the way of using knowledge in the public domain of an organisation.

Any business organisation that wants to harness its knowledge assets must successfully jump over two challenging hurdles and thereby
  • help people to share knowledge
  • make people to use the knowledge shared by others
To prepare to overcome these hurdles read the post 'When people will share and use knowledge? linked below.

I will be happy to have your feedback and know whether my posts are helpful.

Thank you.

Sunday, March 1, 2009

Cost cutting - The way forward

Cost is something that a business must incur to create and deliver value for its customers. However it is far from the reality. Businesses do incur costs that do not create value or costs that add little value to its customers. 'So what's the big fuss? Just remove costs that add no value and your job is over'. well it's not as simple and easy as that. Each cost, rather each expense item that figures in the financial statements of a company conceals both 'wanted' and 'unwanted' costs. Chaff should be carefully separated from wheat as otherwise wheat could be mistakenly thrown out.

Operational issues and problems (OIPs), a business virus, cause unwanted costs and to ward off against this virus a company needs to take a systematic approach that may require changes at various levels and things, in-depth training and a change in attitude. OIPs and guarding against them is a big topic that could fill many blog posts. But for the moment we will focus on a n approach to cost reduction.

If you are on a cost cutting mission then I would recommend you to consider the following approach to cost reduction.

Reducing cost

We can classify costs (not in the cost accounting way) into four different categories viz., essential, necessary, optional and unwanted costs.

Essential costs are those that are incurred to create and deliver value for customers. If by any chance these costs are reduced then a company will be compromising on the value it offers. To distinguish essential cost from the rest, ask the question what if this cost is removed or reduced? If the answer casts a shadow on quality, customer satisfaction, or sales capability then stay clear of it.

Necessary costs are those incurred to keep the business running. Certain employee related expenses, statutory costs and the like do not add much value to the customer but are necessary. It's hard to reduce these costs but they can at best be monitored and kept as tight as possible with some rules and tinkering.

When a company can afford luxury it incurs optional costs. They also help boost the image of the company among employees, customers, industry, analysts and the lot. It may not be possible for a company to entirely root out optional costs as some of it, when reduced, can damage the image of the company. But with effective PR and communication most of the negative impact of reducing optional costs can be avoided. For each expenditure falling under optional cost ask, what would happen if this is removed? If the answer is not damaging and the company can afford to remove it go ahead.

click the picture to enlarge
If there is one cost that requires most attention and effort to deal with then it's got to be unwanted costs. Generally six sigma and lean management interventions help companies achieve significant cost reductions as they attack unwanted costs head-on. There are case studies that claim 40 - 60% cost savings. But one thing can be said with confidence that operational issues and problems (OIPs) present huge opportunity for companies to achieve greater and recurring cost savings.

The picture given alongside captures some of the factors that contribute to unwanted cost. They reside in every process and activity right from the top to bottom. Many a times they may not be obvious and would require lot of questioning to identify. To identify and attack unwanted cost, scan each process, raise questions, scrutinise decisions and actions. A picture will emerge out of this exercise and that act as the basis for eliminating unwanted cost.

Final words

Form a team to handle the whole cost reduction exercise. Start from understanding what is essential, necessary and optional from companies' point of view. It would also be a good idea to explore people's mind on what these could be. Once this picture emerges and is clear then straight away attack optional costs by questioning each item under that. Form a separate team with a clear mandate to attack unwanted cost.

Good luck.

Tuesday, February 24, 2009

Competitive performance - Beat the odds

In the last post, I stressed upon the need to get rid of the word 'recession' from our minds in order to beat the slowdown blues. The best way to do that is to focus on remaining competitive and keep improving on that front. By being competitive a business can beat the odds and garner more of the available market. 'If I am doing better than the next best that would suffice me to make the most of the market', is the thinking that generally trips corporates. It is important for a business / company to keep increasing the distance between itself and the next best. Falling markets often present brilliant opportunities to increase one's market share and gain entry into new markets.

A company can become competitive in the short run but attaining long term competitiveness requires it to remain focused at all times and keep bettering its own performance.

Comparisons help a person to reach a certain level but only benchmarking against the self on a continuous basis will take the person to greater heights.

It is applicable to businesses also. Competitive edge can get blunted if the focus is just to beat the competitor. It is important for companies to keep sharpening the competitive edge once they beat the competitors.

Competitive performance

A business may do well on operational parameters and yet struggle to grow because its competitors can easily emulate them on the operational front. It has to achieve ‘operational excellence’ (competitive performance level) to stay on top of competition and to keep improving. Any company that successfully taps its knowledge assets and embed innovation in its business processes will be in a position to transcend competitive performance level. Giving support to these two elements of competitive performance level is 'progressive work culture'. It may sound obvious yet many companies fail to blend these three core elements of competitive performance to achieve operational excellence.


For long knowledge was/is treated as a supply side issue where acquisition of knowledge is taken as knowledge used in the business. But rarely this holds good. The thing that differentiates an individual from other at work place is the possession of knowledge. Exposure to work, challenges faced, problems attended and solved, specific incidents etc. enriches the knowledge of an individual. By sharing the knowledge with others the individual is running the risk of blunting his own edge in the organisation. But then no company that is aspiring to grow, can afford to let the knowledge assets go untapped. It is where a comprehensive knowledge management system helps a company to tap its knowledge assets and keep sharpening its competitive edge.


Innovation is an act of starting something for the first time; introducing something new. By innovating we bring something new to the environment. In business, innovation is often associated with new products and services. However it can also be associated with new processes, practices, methods etc. that improve core operational parameters viz., cost, quality and time. To innovate one needs to think and think differently. It’s a combination of attitude & knowledge that breeds innovation. Innovation happens when the environment is conducive.

Progressive work culture

Management systems and business processes will be of little help if the work culture is not conducive for performance and growth. For a work culture to be progressive, performance oriented and adaptable there must be a strong trust between the employer and employees and a there should be a shared vision. The promise of performance and the promise of recognition must match and people must be able to see the larger picture, how they are connected and how they impact it. The role of management is paramount in ensuring progressive work culture. Management must take the lead and set examples. If there is commitment and clear vision from the management it won't take long to set the work culture on the right path with the help of management systems.

Monday, February 23, 2009

Recession - Get rid of it from your mind

The times we live in are more challenging for the simple reason, globalisation has set its roots firmly in India and its effects are clearly felt. Last year, around this time, we were ebullient with the economy predicted to touch 9% growth for the second consecutive year. It however fell short of that mark, but pessimism was not in the air. People were still talking about expansions and capital investments. In plain words demand was not expected to recede. But today recession is the word that tops the list of words we Indians utter. Be it for lack of business or for joblessness, "it's recession, you know".

Surely India is hit by the recession in US, UK and the lot. Our exports are nearly 25% of our GDP and the sector employ(ed) nearly 150 million people. Only agriculture employs more people than export sector. Foreign Investments, both the hot (FII) and hard (FDI) varieties, are not forthcoming and external borrowings have become costlier. Despite all these we still are growing and expected to grow at 5 to 7% for the current fiscal. There is no negative growth, not even for a quarter, to justify claims of recession in Indian economy. It has definitely slowed down compared to 9% growth we achieved for fiscal 2006-07 but nowhere near negative growth.

I came across Nobel Laureate Amartya Sen's comments on recession in yesterday's edition of The Hindu. He is on the dot when he said,

"No amount of financial stimulus into the global economy is going to rid the world of recession. We have to get rid of this mindset...the mindset of recession. It's a matter of psychology than economics."

In India we haven't yet felt the real effects of a recession but already think we are in one. It may be true of export sector but then if that sentiment is allowed to be carried over to the rest of the economy then we would surely experience recession.

Indian banking system is awash with money as very little of it moved out as loans and advances during the last few quarters. All the money released by monetary interventions by RBI are lying with RBI itself in various forms. The 'Recession' disease killed the risk appetite of our bankers. As one bank manager put it, even new proposals have trickled down. Whom to blame? The banks? The Government? or The businessmen? Surely the hit to the export sector will have its effect on ancillary units that depend on them and those failures would rankle the bankers and the businessmen. But then there is still room to move around, not that one is trapped in a 2x2 warp.

Businesses may have made the mistake of reckless investments when the picture was rosy. Businesses would be wrong to avoid prudent investments when the picture is not rosy. Every time presents an opportunity. Never is the time apt to innovate and improve than these tough times. The slowdown will not last if we keep the word 'recession' away from our minds and make business decisions based purely on the merits of each case.


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