Stirring the mind
I don’t know how many of you have seen a kaleidoscope. Those who are on the wrong side of 50 would have played with it as children. It is a simple cheap toy, consisting of a
tube containing mirrors and pieces of coloured glass, whose reflections produce a complex changing pattern every time the tube is rotated.
What has a kaleidoscope got to do with management?
All knowledge is right there, like the bits and pieces of glass in the kaleidoscope, just waiting for that little mental effort, that change in viewing angle, that little bit of turn, which will enable us to view ourselves or our businesses in totally new configurations and patterns.
Uncommon things about common sense
As business people, our efforts are always to improve our businesses, in whatever way we can, just as individuals we are all trying to improve ourselves. We will focus primarily on businesses here, though business success and individual success may be correlated.
While we try various things, we use what we have read, heard from close friends, experts (!), videos, Google and knowledge gathered from various other sources. We also use our own thinking, our own logic and plain common sense to do some original thinking, as well as, apply it to the information received. What appeals to our rational brain we accept and what doesn’t we drop. All of us depend on our intuition and current understanding even when we are confronted with a new situation. It is, therefore, very important to understand and internalise that what appears counter-intuitive may not always be wrong. Remember, for a very long time, the thought that the earth is round did not appeal to logic. Any fool with common sense could understand that to be able
to stand, the earth had to be flat!
Similarly, the earth loomed so large in the vision of our ancestors that they simply were unable to accept that it was not the centre of the universe for a very long time. The people who came up with this new and dangerous idea were actually persecuted. If a hundred years ago you had told someone that one day people would be carrying a small gadget in which they could actually see and talk to people anywhere on earth, you would probably end up in a lunatic asylum. Many people gave absolutely valid (then)scientific sounding reasons why human beings could not fly.
How wrong they were is for all of us to see.
The point often is, what appeals to common sense may not all be right, and what does not appeal to logic may not all be wrong. Science has been built by observing things first and then building a theory around it, and not the other way around. Further, if we are simply not open to new ideas, new thoughts, new experiments and cling to tried and tested methods and what we think are common sense answers, it will be difficult to get different results, survive, innovate or overtake competition.
Taking the leap -Overcoming our risk-averse nature
The purpose of this article and hopefully a series to follow, is to introduce many concepts, tools, techniques etc that may sound counter-intuitive to some. Others who are mentally receptive may find them perfectly logical. Some of them may be known to some and may have been forgotten or not tried for a long time. Often, we may hesitate to try them, as we do not want to end up in a worse situation due to an experiment gone wrong. All of us instinctively try to avoid even a small downside risk, compared to
going for a large probable gain. For example, if there is a 90% risk of losing Rs. 1000 and 10% chance of gaining Rs. 10,000; we tend to avoid playing the odds, though statistically the pay-off in this game is in your favour. It is called being risk averse and we all are! Making businesses more competent My job in life and one that I am passionately attached to, is to help our businesses be more competent. It helps to know the meaning of competent. It is” having the necessary ability, knowledge or skill to do something successfully.”
To begin with, I would like to introduce Lean Management to the readers in this august group. After lean, I would like to talk about areas in strategy, quality, leadership and people management. Many may be familiar with these topics and may not find what I have to say counter-intuitive. The truth remains that much of the knowledge and the tools are not still not commonly used by many companies even though the benefits can be immense. I am starting with these topics because in my Lean consulting work, I found many people resisting many ideas in Lean because they did not find it logical.
After experimenting with these ideas and tools and seeing the visible results they obtain, they finally accept it; sadly, many shy away from even experimenting with such ideas and tools.
A counter-intuitive example in public life
One example in public life is running buses and trains in cities. The trend had been, and still is in many places, to run big buses and trains to reduce the cost per seat. As a cost accountant, I may even tend to agree with that logic, seen in isolation. There is, however, another side of the story. To start with, a bigger bus is likely to have less occupancy percentage, particularly during off-peak hours. Further, big buses on small and already congested city roads may be terribly slow and also hold up traffic behind them. Smaller buses can run at a higher average speed and can do more trips. Metro trains in Mumbai and elsewhere are already smaller, can make more trips and can have
shorter separation between two trains compared to the bigger local trains. One therefore needs to experiment on what may work and what may not; and settle with what works. This calls for experimentation and learning from them. Also, sometimes what works in one business situation may not work in another. So blind copying is
not a good idea. When experimenting it is a good idea to carry out a small pilot project, establish that the basic principle works and then after sufficient improvisation implement it in the larger business or new project.
Value is what a customer gets
We will introduce many concepts in this series, ideas and examples. To start with, it is important to understand what is meant by Value. The word is used in many contexts, including something like honesty is a value. The context in which it is used here is different. Here, value means the value that the product or service delivers to the customer, what the customer finally gets. Value is what the customer gets, or is looking for; or more important, the customer is paying for. We may offer various features, uses, applications, variety etc. Out of these, the customer may be paying for only a few features. If we remember the VCR and VCP, because of competition in this market, producers went on adding many features to their products. They ended up having something like 45 features, most of which the customers had no clue about, but for which they ended up paying. Much the same story is repeating itself in the case of mobile phones. Most of us hardly know all the features available on our phones, have never used them but had to pay for them, simply because they were bundled with
the product. How do you like paying for features you never wanted or asked for, or are never going to use? Well, at least I don’t. Look at the features in a mobile camera. Most users cannot distinguish between a picture taken by a 15 Mega Pixel camera and 20 MP camera. Still there is a race to provide more and more MPs to the mobile phone camera and claim that my camera is better than other supplier’s camera. The higher MP obviously has a cost and the customer ends up paying for it, without getting any tangible from it.
While one can get away with this in B2C situations, in B2B situation, we have to be more careful in spending our money.
Cost and Value
Value, therefore is defined by the customer and what the customer is willing to pay for. Apply this strict rule and see what value your products or services offer to your
customers.
In a related concept, we can and should try to estimate cost incurred in offering each element of value and see if each feature we are offering is making profit. If there are
any unwanted features, drop them. If, for any features we are not making money, see if the cost of adding that feature can be reduced. If you are selling wristwatches, for instance, identify features and what people may be willing to pay for it. The features may be accuracy of time (may not be critical for many), uniqueness of design, colours, flexibility in colours, aesthetic appeal (can be measured, though some of them may be
difficult). Compare your cost of offering that feature and what the customer is willing to pay for and you have an obvious action plan.
Understanding what the customer doesn’t want
It goes without saying that what the customer is not willing to pay for, may be dropped. This has very strong implication on our operations. While producing a product or service, whatever operation we carry out directly or indirectly, will have to be seen from the perspective of the customer. We then classify our activities into “value
adding” and “non-value adding”. More about this, later. The best way to identify what the customers are willing to pay for is to ask them. It is dangerous for us to imagine what the customer will like. What we most often do is to try and put ourselves in the
shoes of the customers. If you actually ask the customer you may be completely surprised by what they think.
Who is the customer?
This brings us to the big question. Who is our customer?
The obvious answer is the one who pays for it. This concept works in many cases, though there will be many shades to it. If you are in pharma business, the one who pays for it, is not the decision maker. If you are selling paint, the one paying for it is not the decision maker. Many times, therefore, the decision maker will have to be included in this definition. In service businesses, many nuances to this question are possible.
I should emphasise that people or organisations who are looking for free things cannot be called customers. Similarly, organisations or people who are looking for a Mercedes at the price of a Suzuki (as an example) cannot be called customers. Customers are those who are willing to pay for the value that they are getting from your products or
services at a point in time. All customers, it is clear do not want to pay for what
they are not looking for in a product or service. Real Customers are also those looking at the long term and not just one transaction and disappearing with it. If we take a broad perspective, society and Government are also our customers.
Another broad definition, which is more relevant in operations, is that the next stage in operations is the customer for the earlier operation. They are not paying you for it at each stage but we know value is getting added.
With this definition, the assembly department is a customer of the design department. Even outside vendors may be customers (though they are your suppliers as you pay them) of the design department, as they have to make some products based on the design you supply to them.
This definition is immensely useful in improving our operations, and we will see the how part later.
(to be continued)
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