Monday, March 18, 2013

The Trouble with Being Efficient ONLY!!

The problem with most companies is that they think only about efficiency. Don’t get me wrong, efficiency is great – you take cost out, get things done faster and are more productive – but it gets people only so far … it cannot get the juices flowing the adrenaline pumped up and the passion to come through …. It just cannot ! . There are stories after stories of companies that have driven productivity and then have hit a wall.

The real multiplier value comes when you drive effectiveness. So let me give you an example. Let’s take a standard hiring process of any organization. The real process that one should think about is not the hiring process but the end-to-end process that straddles the whole organization from the time you define who you want to hire for a job to ultimately the person joining and delivering and producing results. Think about what people spend time on in that end to end process. The hiring team is measured on their metrics: how quickly can they hire the right person. The training team is measured on their process: how quickly can they train. In reality, the right metric is end-to-end: How do you get the right person on the job that delivers effectively as fast as possible?

It’s quite likely that it is better to spend double the time on hiring because that allows you to spend one-third of the time on training and the probability of an effective person is higher and total end to end time shorter …. that’s effectiveness !!

But that’s not the way organizations are structured. Enterprises are structured as functions in silos. Processes on the other hand that delivers outcomes straddle from one function to another. There’s leakage of output in this straddle. There’s sub-optimization at the overall process level because each person who owns a function is trying to optimize their piece. It’s very difficult for organizations to get together and say we will optimize the overall process to produce the best outcome. And, by the way, the best outcome is not the total cost that I spend in hiring a person. It’s “I’ve hired a person who was effective on day two and produced fabulous sales on day five. And that, by the way, generated a hundred million dollars of sales “versus the cost benefit that I’d have got if I had done this cheaper and more efficiently maybe a hundred thousand dollars benefit.

Organizations in every case tend to focus on efficiency as functions and therefore sub-optimize the overall outcome that the process could deliver.

If you go and ask a company at the CEO or CFO level and say, “so how good are your processes ? " I’ll tell you the three answers they’ll give you:

1) " They are good or bad” - They won’t say how good or bad.

2) " I think I can improve my processes by x percent a year”

3) " I don’t know”

If you were to measure a number of these processes across large corporations and compare processes that are run really well in some companies vs. being run badly in other companies – the difference could be five to ten times better. For instance, there are companies that close their books in two days and those that take forty-five days. There are companies that pay bills to their suppliers in twenty-four hours and other companies that struggle to do that in ninety days. Some have a 5 % defect rate in goods shipped against orders while others have a 0.5 % defect rate. There has to be a way by which you can take the learning from the twenty-four-hour-payment company and transport it to the ninety-day-payment company and the value that you get there is not the efficiency value and the cost value, but the working capital of a billion dollars being released or the ability to capture 2 % extra discount on all your purchases from suppliers …. Effectiveness or outcomes!!

You can actually go to the granular level with granular metrics for any process in the world and define what "best in class" is. Some of us at Genpact have been on this journey to build this "Science of Process” for the last 15 years. We spent the first ten years collating data from running a number of these processes across companies and industries – we pulled all that together and said, so this particular process, how does this company run it versus that versus third versus fourth.

The interesting thing is sometimes the processes are pretty much the same or should be the same across completely unconnected industries. Why should a pharma company reconcile accounts or close their books dramatically differently than an automotive company? The reality is they actually do. So it’s not saying how I do this entire process better. It’s actually saying how do I do this little step better and the second step better, and the third step better, and for each of them there is a best in class. For each of them there is a connection to if I drive this improvement in this little process then here is the better outcome it produces!

How does one even begin to embark on this journey? It has to be in your DNA, a DNA of Lean, Six Sigma, and process granularity. Every process that we run for our clients, we measure at an extremely granular level. We collect all that data and create benchmarks. When we drive improvements, we know what drove that improvement and how much improvement was driven. We’ve done that for fifteen years. The missing link here was how to build it back into a framework. That’s the "Smart Enterprise Process” SEP framework that we started building about five years back.

We now have built it for twenty-six different processes across the world. And the fascinating thing is when we do a diagnosis of a company’s processes and go back telling them exactly which little step to improve which will result in outcome improvement – it shocks the wits out of them!! In fact, they are completely flabbergasted because they have always believed that they run their process really well. They’ve also believed that the improvements they typically can drive are five percent, ten percent versus five times, ten times which is what we’re able to deliver. Of course you have to measure outcome improvement Vs just efficiency.

That is the whole basis on which we have built “The Science of Process " and the more people learn it, which is learnable like any other science, the more people apply it. The more people use it and deploy it, the more value that they can generate for themselves, for their organization and for enterprises.

And by the way it’s not just about Technology!!

Monday, March 4, 2013

Culture doesn't eat strategy just for breakfast but for breakfast, lunch and dinner!

The phrase coined by Peter Drucker and later publicized by Ford’s Mark Fields had the right intention… but wasn’t quite on the mark. Strategy is important – and 80% of the books on management in any typical bookstore endorse that view. It’s important to know where you’re going, why you’re going there and how you’re going to get there. It’s important to know where your competitors are, where the market’s going and to figure out how you’re going to win in that space. However, the differentiation between companies is often not in the strategic path they took but in fact in the culture they drove in order to be successful with those strategic paths. And it can lend itself both ways – in using those strategic chosen paths to drive change because their culture allows them to be flexible and change … or not change at all because culturally they’re not wired to do so !! And that means that strategic chosen path never delivers results.

And therefore, I would say that while strategy is important, it’s even more important to have a culture that allows you to evaluate strategy openly. And call out a mistake when it’s a mistake and then change direction. If you are going down the wrong path, it’s okay if you have a culture that allows you to change direction. But if you have a culture that doesn’t allow you to do that, you’re doomed. Which is why I would argue that culture doesn’t just eat strategy for breakfast… it’s much bigger than that and therefore eats strategy for breakfast, lunch and dinner!!

If you ever want to pick the one thing that actually differentiates organizations, people, teams… it’s actually culture. Culture is about how you deal with situations, how you behave with each other, how you solve problems together, how you solve a client problem, how you approach opportunities, how you make trade-offs and how you take risks. Every one of those is deeply entrenched in a company’s culture.
Here’s the other thing about strategy versus culture. Strategy can be copied. The problem with copying strategy of course is that you lose the first-mover advantage. You kind of could become a ‘me too’. But it still can be copied. Culture cannot be copied. So if your differentiation is culture, first of all it’s a differentiation that’s built on your history, your legacy, who you are and how you got there. You know all of that and then you teach people all of that. And that proliferates that culture.

In our industry, for example, everyone uses Lean Six Sigma. Everyone talks about process, everyone talks about technology. So that’s not the differentiation. The differentiation is what’s the culture that you created that actually uses it. How does it permeate? How is it rewarded? How is it punished? Copying that is very difficult. It’s deep inside the DNA. It takes years to build and proliferate. And therefore, if your differentiation is built on culture, it’s a long-lasting differentiation. It’s a differentiation that’s not easy to copy and as long as it’s a culture that’s a winning culture, you will continue to win.