Srinivas Rao K
While there are some Companies in Indian Manufacturing who have improved the Quality of their Processes to a very good level, still a big portion of the Indian Manufacturing is still in mediocre state. Quality of the Product is something that they have to work hard to attain. I notice following problems in these companies:
01. The Quality Plans are not defined well. Most of the Companies have just one Generic Quality Plan for all products together. This is simply not enough. One needs to go to a Micro level where they see the differences between Products and Processes for them. Broad brushing all the Products with one Plan is not enough.
02. Quality Plans are not implemented well. Quality Plan adherence in most of the Companies is about 30-40% only. Please check the actual situation on your Shop floor with a genuine audit. I am sorry to say ‘Genuine Audit’ as many companies have regular Audits that refuse to acknowledge the actual situation on the ground.
03. Quality Plans are impractical in many cases. The Quality Plans defined are impractical and the number of People checking Quality of Processes is just not enough to actually check the processes.
04. Quality is the job of Quality team only. While lot of word of mouth is happening about Quality being the responsibility of everyone, the actual work in monitoring and improving Quality is being done only by a handful of Junior most Quality Inspectors in most of the Companies.
05. Quantity still occupies most of the mind space. Getting the daily Production still occupies the mind space of most of the Engineers in Production function. The Management focuses on this and this alone in most of the Companies.
06. Quality of Problem Solving is not good. In most of the Companies, the Problem Solving is not recognized as a Skill that can be learnt. There is no training happening on the subject. There is general frustration around that same problems are repeating. But it is taken as a reality that cannot be avoided.
Generally, the medium-term approach is not given for the Quality. It is treated as an essential evil to please the Customers. There are no proactive improvements happening in this field. Only those forced by the Customers happen. This way there is more happening in Automotive Industry where the Customers are generally much more demanding than any other Industry.
In Non-Automotive industry, the status of the Quality is generally not good. There may be a few exceptions. But the Quality Systems in most of the Companies need a lot of improvement.
The Managements treat Quality as a subject that need to be managed somehow.
Set up a Vibrant Quality System
I would recommend two major steps in setting up a Vibrant Quality System in your Company. Maybe you can do lot more. But these two steps can become your Corner stones. You should Disrupt your Quality system with revsiting fundamentals and a good amount of Technology that is available today.
01. Make Quality as the responsibility of everyone
Quality should be the obsession of everyone in your Company. You cannot leave it to the few in the Quality function. Quality Team can co-ordinate the efforts on Quality. But they cannot be the only team who are worried about it.
Quality has to be everyone’s responsibility as everything right from Incoming Material to the Manufacturing Process, the Equipment, Final Inspection everything has to go right to get good Quality.
Rewrite your Quality Plans with the role for everyone in that. All the roles right from the Operator and right up to the Plant Manager should participate in the Quality Checks.
Manufacturing Supervisor’s role has to be rewritten. The Manufacturing Engineer’s role today is filled up with lot of Admin work. This happens as the Plants have not spent enough time in settling down the Manufacturing Lines. There are always problems in the lines on a daily basis. The Problems may be:
- Materials do not come in time. Supervisor chases for this.
- Process is unstable. Supervisor has to work with other functional teams to settle the process too frequently.
- Machines are breaking down frequently. Supervisor has to run around the Maintenance team.
So, you have an unstable Manufacturing and the Supervisor is doing everything other than taking care of the Quality. When Quantity becomes a problem in Manufacturing, everyone will run after only that. Quality takes a back seat. Stabilize the line and make the Quantity as a given. Then, the Supervisor will focus on Quality.
Involve the senior people in checking Quality: The entire Manufacturing team has to be very familiar with the nuances of the Manufacturing Process. When they do not know about the Process, the distance between them and the Operator team will increase.
Normally it is this team who take decisions about the improvements on the Shop floor. They take these decisions without deep knowledge of the Process!!
They will not be able to solve Process related problems; they cannot appreciate the issues on the shop-floor. Make it mandatory for the entire team to get involved in Quality checks, for this they have to study the process closely. When they continuously do this, they become more confident of themselves and they will be able to contribute positively to the Process Control.
Make Quality of Incoming Parts the responsibility of Materials team: Traditionally the Materials team gets the Parts / Raw Material and the Quality Team checks it. There is always a cat and mouse game between the two teams. You need to change this. Give the responsibility of Quality to the Materials Team. Make the Incoming Quality Manager and the team to report to the Materials Head. Let the Materials Head change the culture of his team. Invest into this. It will work.
Connect the dots between Quality and Equipment status: The Quality of the Product has lot to do with the Performance Equipment on which the Product is produced. Yet, the Maintenance team does not do much to control the Quality directly. Whenever the machine totally breaks down, they get involved. This has to change. Identify the Equipment parameters that have impact on the Quality of the Product and give the responsibility of ensuring these parameters to the Maintenance team.
Process Engineering Team has to keep revisiting the Process stability: The Process Engineering team sets the process initially and they prepare the Quality Plan. They will have to take responsibility to keep revisiting it with changes in the Process and maintain the Quality Plan updated. They have to play this role in an active manner.
Many of what I mentioned above are nothing new. But not followed in most of the Manufacturing Companies. Go back to fundamentals!
02. Let your Quality System go Digital and LIVE!!
Traditionally good part of the Quality checks in Companies are off-line. Some of the modern Manufacturing Lines may have controls not to let the bad quality go forward. But most of the Companies do not have an online Quality system.
The Quality Inspectors are checking the process and recording them. The action on the observations is scanty.
You can do the following:
- Go Digital with your Quality System. Develop an App that can capture all the Quality Plans of your Products. This App should be installed on Handhelds and all the Staff should carry the Handhelds that will alert them for all the Quality checks that they should do during the Day. Software are available with companies like Siemens that can cover all this
- Data input should be Digital to the extent feasible. The Input can be taken from the Machine / Gauge, Visual condition to be captured by a Camera and so on. This will ensure the correctness of the data.
- Analyze the Data. When you collect data online, you will collect a huge amount of data. The data will be:
o About the Process
o About the Equipment
o About the People who are collecting the data and so on.
You need to analyze the data and keep making the course corrections online.
- Develop a team of Data analysts: Your Quality team has to learn how to analyze the data and learn from the data. Analyzing the Micro data and making corrections is a skill that they have to learn.
o Example: If they capture the data about various Engineers capturing the Quality data and missing out a few data captures, they should be able to understand the problems in data capture and initiate corrective actions.
o Example: They should be able to look at data of Part dimensions in a machining process and decide when they should change the Cutter so that they can maintain the Process capability.
Just by doing these two Mega changes in your Company, you can build Vibrant Quality Systems in your Company.
Make a change. Do not continue with status quo.
In Indian Manufacturing Companies, lot of follow-up is needed to get things done. You can’t just assume that if you have agreed with your team about certain actions, all of them will just happen. You also may not get information that the actions are not happening. When you eventually check with the team, you may have a surprise!
My experience is that this is prevalent in companies where the Business Systems are not well established, and the Teams are also less trained. In addition to this, in Indian Companies the growth is higher than what happens in Companies in Western world. So, there is something new happening frequently.
I have seen many Indians who worked in Western Countries for a long time, struggle to get adjusted to the Indian environment where they just don’t get a grip on the situation. They suddenly have become less effective!
Business Reviews are a good tool that can help in getting things done in Indian Manufacturing Companies.
What is a Business Review?
The informal meetings that happen in companies to discuss one specific topic cannot be called as Business Reviews.
I would call it a Business Review if a Boss is reviewing the KPIs (Key Performance Indicators) of his team in a formal manner.
The Team should present the KPIs in a systematic manner showing the:
- Status of KPI – typically with the help of a Graph.
- Data to illustrate the details about the KPI.
- Corrective action and Preventive Action if the target is not achieved.
Only if all these are presented, I would call it as a Business Review.
When you present all this, you are reviewing the Status of your KPIs on the basis of Data, understanding the current status and then you are communicating to your Boss about the Status in detail.
This helps your Boss to understand the status of your KPIs and it helps him to understand your position on each of these KPIs. This is a formal Communication. Then, your Boss can add value as needed.
If these reviews are not there, the formal Communication is not there at all.
Managers keep following up with each other on a daily basis on various topics. A Production Manager is constantly talking to Purchase Manager for Materials and with Sales Manager about Dispatches. These are just follow-ups and cannot be considered as a Business Reviews.
Who all should Review?
In most of the Indian Manufacturing Companies, the only Review that happens is by the Managing Director once in a month.
But this is simply not enough. The Business Reviews should happen at all levels. A Production Manager should review his Team of Engineers in all shifts. The Production Manager, Quality Manager, Purchase Manager etc have to be reviewed by the Operations Head.
A Regional Sales Manager should review his team of Executives. All the Regional Managers should be reviewed by the National Sales Head.
When a Review happens at one level, people at that level are taking responsibility for their KPIs, review them and present them to their Bosses. This ensures that the Team takes responsibility for actions at their level. In the absence of these reviews all the Problems will get pushed to the meeting with the Managing Director. Then unconsciously everything gets pushed to the top.
Absence of these Reviews is one single biggest cause for why everything gets pushed to the top in Indian Companies.
How should a Business Review be conducted?
01. Formal Presentation in Power point or Excel is a must. This ensures that the presenter prepares before the Review meeting. Everyone should present Graph, Data, CAPA (Corrective action and Preventive Action) wherever the targets are not achieved.
02. Deep Data: The Presentation should have lot of Data. Data only should speak about the status of the KPI. Not emotions. Managers should be encouraged to practice Data based Decision making.
03. Communication tool: Business Review is a Communication tool and the Boss should use it as such. The Boss and subordinate should agree on the status of the KPI and what should be done to improve it.
04. Review Team or Review Individual? Is it better to have full team at the Review or should the Review be with individuals? It is preferable to conduct the meeting with the whole team. This is the occasion when everyone in the team listens to everyone else. They need to understand the problems of each other. If used well by the Leader, this is where the Team building can happen.
05. Don’t throw surprises: You should not throw surprises at your colleagues in these Review meetings. If there are any data that will surprise your colleagues or your Boss, it is better to talk to them before the meeting rather than throw a surprise at them in the meeting.
06. Don’t get technical: These Business Reviews are Management reviews. One should avoid getting too deep into the Technical issues. There can be separate Technical reviews for those issues. If performance of Promotional schemes has to be reviewed, there can be separate reviews for this. If you club this with your KPI reviews, then you spend too much time on these topics, and you will lose the Top view of the Company/ Function’s performance.
07. Don’t make it unpleasant: Even if the results are not good, do not make the Business reviews unpleasant. If you make them too critical and unpleasant, then these reviews can produce negative effect. You have to take care that your team goes out with more Motivation than what they have come in with. You need to inspire your team to go beyond their normal potential to produce a wonderful result!
08. No upward Delegation please: The Leaders should be aware of the upward delegation that can happen in these meetings. If there are problems that need to be solved, then the problems have to be with appropriate people. The Problems should not be taken over by the Boss. Boss can help the team to arrive at solutions. But, he need not take responsibility for the Solution.
09. Length of Review: The Business Reviews can get lengthy in the initial stages. But the length of review should not go beyond a point. Then it can become unpleasant. If there are too many problems that need to be solved, one should prioritize and take up the top 2 or 3 problems. One should not attempt solving everything in one Review.
10. Higher Purpose: The higher purpose of the Business Review is to help the team to work out a way in which the Targets for the KPIs can be achieved. The methodology for achieving the KPI Targets will be arrived at over a period of time. When you do that , the Business results can become more consistent.
What should happen between two reviews?
Between two Business Reviews, follow up should happen on points agreed in the Review. The follow up should be done by the Boss and in some situations, you may have a Business Excellence coordinator who will do the follow up. The actions should happen between the reviews. Otherwise you may not have any results from your Reviews.
The Teams and the Boss are required to do thorough preparation before the Review meeting. When a Team member prepares all the data for his/her KPIs and writes his/her CAPA, it means a proper review has already taken place. This is the most important aspect. Every Senior person should review his/her own KPIs formally. Then the Boss can add more value to the Subordinate’s learnings.
Skip Level Reviews
A Boss should normally review the team that reports to him directly. But sometimes the Boss may decide to do Skip Level reviews. This is perfectly alright as long as he has taken his team in to confidence.
Every Quarterly review can be with the entire team including skip level.
How to Kill / Reduce the Business Reviews?
When you start Business Reviews at all levels, the team may feel there are too many reviews. You should introduce Reviews only on the basis of need. If some results are not coming consistently, a Boss would see the need for Reviews. But the frequency of these Business Reviews should reduce over a period of time.
As the Results become more consistent, the Company should put Standard Operating Procedures for the specific Activities and then reduce the Business Review frequency.
Benefits of Business Reviews: Regular and Scientific Business Reviews should help you to ensure Business Results in a consistent manner. The motivation of the Team members can improve with this.
Manufacturing Sector is a very old worldwide with Several Industries having Decades and sometimes more than a Century History. Like any other Sector, Manufacturing Companies deal with several Stereotype practices. Many Companies keep following the age-old practices without challenging them.
Let us examine a few of them and how breaking the Stereotype can perhaps show you new Possibilities. Sometimes huge new possibilities!
We need Employees with experience in our Industry: This is one of the Big Stereotype practices that several Industries follow. In the last 7 years, as a Consultant I have come across Professionals who swear that their industry is ‘Special’ and it requires people with experience only in their Industry. Because people from other Industries ‘just can’t understand the complexities of their industry’. I have heard this from ALL industries.
Let me discuss one actual example. A Progressive Leader from a Foundry decided to challenge this Stereotype practice. He recruited a Professional from Automobile industry as the head of their Plant. This Professional did not know anything about the Foundry Business. He brought with him the knowledge of several Best practices from Automobile industry. He helped the Company to transform the Plant. As he did not have the ‘baggage of experience’, he tried out new practices.
Let me quote another example from same Foundry industry. This time, the Leader tried out ‘Fresh Engineers’ with absolutely no experience at Supervisor level in various functions in the Foundry like New Product Development, Manufacturing, Quality etc. This Leader was a Foundry Industry veteran. He trained the Freshers in the Foundry knowledge himself. The fresher Engineers excelled in each function. They thought about everything in a fresh manner and went where none of their predecessors dared to go. Everything in that Foundry improved.
I remember a Senior Professional from Aerospace industry coming into Automotive Parts company. He introduced some very precision manufacturing to the Automotive parts Company. The Practices that he brought in helped the Auto parts company to shape up better for the entry into Aerospace industry.
I can quote examples from several other Industries. Wherever the Leader took calculated risk of taking people from more mature industries, it worked well. This requires a Leader taking Calculated risk. Once the New Recruit is supported well, there is bound to be much better results.
Our Quality System is excellent: There is hardly any Manufacturing Company that does not believe their Quality System is excellent. Most of the Companies would have a Quality Plan and they swear they are following every bit of it. Yet, they will be having plenty of Customer complaints and Internal Quality rejects. Most of them do not relate the problems to the Quality Plan and its’ adherence.
The belief is almost that some invisible force is creating the Quality Problems!!
My experience is that when you conduct a strict audit of their Quality Plan and its’ adherence, most of these Companies will not score more than 40-50% adherence!! Either the Quality Plan is not adequate, or it is not adhered to. That is the reason for their Quality woes.
But they would say there is nothing wrong with their Quality System!
In Some companies I found that it is simply not possible to do all the Quality checks that they listed in their Quality Plan with the meagre strength of people doing that work.
Challenge the Quality System in your company and recast it totally. Sometimes you need a fresh pair of eyes for this.
Quality is the responsibility of the Quality Inspectors/Engineers: In a Shift, in a Manufacturing Company there may be 12-15 Engineers looking after the Production, Maintenance, Engineering and so on. But the Quality Checks are done only by one or two Junior most Quality Inspectors in the shift. Everyone else do not seem to pay any attention to Quality!!
Quality Problems and Customer Complaints are dealt with only by the Quality Engineers. Production Engineers are busy with Numbers, Other Engineers are dealing with their own priorities.
This is a non-starter. One or two Junior most Engineers can’t be controlling the Quality. Quality has to be the responsibility of everyone in the Factory.
While many of the Readers would say this is a very old issue, you would be surprised to know that still in majority of the Companies the Quality is the business of only Quality Engineers / Inspectors.
Challenge this notion! Implement the ‘Layered audit’ concept where the Employees right up to the Plant Head and right across the functions have to participate in Assuring Quality.
You can’t forecast the Market Demand and Manufacturing has to deliver whatever is demanded by Customer: It is not easy to forecast the Customer Demand in any Industry. It is also required to deliver what the Customer demands. No doubt about these two imperatives.
But it is not correct to give up on Market Demand Forecast as it is difficult to forecast. This is too easy a way out for the Company. But a very costly way out. A Company that tries to supply to meet its’ Customers’ needs without some type of Forecasting will do so at a very high cost. This Company will have to keep high Input inventories / WIP and Finished Goods stocks.
Challenge the notion that you can’t forecast. You need to formulate your own Forecasting model and keep improving it over a period of time. You may have low accuracy of the model initially. But as you keep improving it with new information, your accuracy will improve.
Whatever Is the accuracy of your Forecasting model, not having a model is worse.
A Company that does not forecast will lose out big on the Top line and Bottom line. I know many Companies who argue that they are not losing out on the topline and somehow, they are meeting it.
My experience is that a Company that is behind the Market requirement will definitely Lose the topline. When the Company is having a lot of strain in meeting the Market demand, the Sales team of the Company will become typically inward focused. They are worried about the deliveries and do not want to go to the market and face the Customers. Resultantly the Company will start losing out on Sales.
My experience is that if we resolve this issue, a Company’s sales may go up by about 15-25%. As you service the market better, you start selling more. Availability of the Product is a fundamental issue in taking the market.
You need to Ramp up the Production very fast in the new Factory: When a Company sets up a new Factory, it tries to set up the factory very fast and start off the Production in a great hurry! I hear the boasting of the Companies that they started the factory in 6 months and started Billing the Customers!
Typically, these companies would make a dash to building the Factory by putting enormous pressure on the Civil Team. They would start up the Production ‘somehow’.
I recognize the fact that the investment that a Company puts in has to pay back. But a new Factory is a huge opportunity for a Company to:
a) Redefine the Productivity.
b) Redefine the Quality.
c) Re-engineer the Organization structure.
d) Re-engineer just about everything that you do in the new factory.
When you treat the New factory setting up like a 100-meter dash, you hardly have a chance to do this.
I am not saying you should delay the factory setting up. But what is needed is to Plan the wonderful opportunity in great detail and ensure the Company goes to a new level with the new factory.
Let it take optimum time to do this Re-engineering effort. Don’t lose out on the opportunity to redefine your Manufacturing in the hurry to start Production!
Our New Products are excellent, everything is fine: The New Product Development Team most of the time keeps defending its’ Product and the Product development process very closely. When a New Product is being developed, there is a good chance to fail as you are doing it for the first time! If the Team is adapting the mindset of ‘everything is fine’, then there is a good chance that the Company’s Customers will find out most of the Problems with the New Product.
The R&D Engineers usually a proud lot. They would be having very high Self-confidence. You would like them to be that way. But they should encourage the Practices that challenge the assumptions at every stage.
The Engineers should be encouraged to keep looking at DFMEA seriously. The team needs to be encouraged to look at the whole process from a distance and find more and more problems with their design so that they can make it stronger.
Challenge the Status-quo
There can be many more Stereotype Practices in a Company. A Company needs to keep challenging the Status-Quo regularly.
Are you challenging the Stereotype practices in your Company?
As a family we do not use the Ration Card much. So, we did not care to apply for it and take it. But a few months back when we decided to take the Ration card as it can be a good address proof. My memories of taking Ration card earlier many years back are not very good. We had to go through a long procedure for it and deal with many Tables in the Food and Civil Supplies department.
With all these bad memories, I set out to visit the Government Department in Coimbatore (where I live). When I reached the office, I went to the first Babu (or Samy in Coimbatore) and enquired about the procedure for Ration Card application. He looked at me funnily and told me that there was no need for me to come to the office. He said ‘I cannot do much to help you. You have to apply online’. He zipped out his Smart phone and searched for ‘How to apply for Ration card in Tamilnadu’. Then he showed me the following screen.
I felt very archaic and ignorant. He told me to call him if I get stuck with the technology! That is a definite new for me about a Government employee!
I came home and completed the Online application procedure. Within about 4-5 weeks the Ration card (Smart card) came home! Now this was a wonderful experience!! No running around the Government offices, no dealing with the ‘hungry’ Babus/Samys. You just deal everything online. Government seems to be progressing in the Digitalization agenda?
Come to think of it, there are many more facilities all of us have been enjoying. Let us talk about a few.
IRCTC: Indian Railway website which all of us use to book the Railway tickets. I know this had been around for years! But it has taken away a huge burden off our shoulders. I still remember the hours that I used to spend in the Que in the Railway stations as and when we decide to travel somewhere. We would have got used to the online booking comfort. But it saved hours for Millions of Railway travelers.
Now you can not only book tickets online, but order food from important stations on the way to your destination. Food will be delivered from those Restaurants at your Seat!
Railways made some progress. Isn’t it?
Online Tax payments: All the online Tax payments that we are doing now involved a few years back standing in the Bank, filling up challan to pay the Taxes.
You can apply for your Water connection online whether you are individual or a Company.
If you are going on a Holiday, you can book the Government Accommodations online.
Your Children can even read their Textbooks for free online!
There are more than 100 services that are listed on the Tamilnadu Government website. Each of these links actually lead to more than one service.
Government is driving Digitalization aggressively for the past decade. It is only gathering more speed now. I am sure all of you know many more examples of wonderful services that are helping the public at large.
We are also witnessing a big change in our daily lives.
Uber and Ola have revolutionized the way we look at transportation. There are many families that are relooking at the need for a second / third car in the family.
Swiggy, Zomato and others have revolutionized the way we dine. There are many more families that are depending on outside food than ever.
Google maps have revolutionized the way we go around and find places.
As we speak hundreds of Apps are changing the way all of us exercise, how we communicate with others and so on.
We are truly living in a world that is FAST changing.
How is Digitalization in your Company?
Now if we look at the extent of Digitalization in Indian Manufacturing Companies, do we see a similar drastic change happening?
May be a handful of companies have made good progress in terms of using the Technology.
But largely my observation is that Indian Manufacturing Companies seem to be too slow in adapting the Technology. Government (Both Central and State) are way ahead of the Industry. We keep saying that Government is too slow, and Ministers are ignorant of Technology and everything else! But they seem to be doing much better!!
Many companies are still dealing with age old ERPs. Most of them would not be using the features of these old ERPs itself properly. Most of the controls in the ERPs are bypassed.
Some Companies would have tried implementing an SAP in their company. But 90% of these companies have made a mess of implementing the SAP and using it very sub optimally.
Most of the Companies do not have any other software beyond the SAP / ERP. Production planning may be done manually if it is done!
Most of the Information is generated only in Excel sheets and Power points.
The Machines that have PLCs with lot of capabilities are lying unutilized.
Usage of IT
Information Technology can be used by Companies at three levels.
01. Using IT to handle routine: Basic ERP System: Every company needs to use the ERP effectively. As all of us know there are several modules that can be used to improve efficiency in the organization. The implementation of an ERP should not be treated as just a Software implementation. It is much bigger than that. It is a re-engineering of the routine in the Company. It should be treated as such and a Company should have clear number goal about what needs to improve after the Implementation of the ERP.
With the implementation of the ERP system, a Company should have a good process in:
- Budgetary Control
- Annual Budgeting
- Production Planning
- Supplier Portal
- Dealer Portal
- Sales order processing
- Quality System
And so on.
The Routine work in the Company should be controlled by the ERP and this should
Help the Company to improve its’ efficiency of doing this routine.
I would say a company has to aim at improving the White-Collar Productivity by
At least 50% after implementing the ERP. Otherwise you are not using it effectively.
If an ERP implementation is achieving this objective, I would say you are using the
ERP reasonably well. Otherwise, why bother to spend the money?
02. Using IT to improve efficiency: Companies can do very well to use several tools that are available today to improve the efficiency in the work.
They can use CRM (Customer relationship management) software to improve the efficiency of their Sales force. Many companies keep restarting the efforts of Marketing whenever a senior person leaves. There is hardly any continuity.
For identifying the Product / Parts / Raw material they can use Barcodes. Again, a small percentage of companies are using. But the scope for using Barcodes across the industry is huge! The technology has advanced beyond Barcodes and some companies are talking about using RFID technology.
Companies can use E-Learning to train their employees much more effectively and repetitively. They can cut their Costs also in a big way.
Companies can use Problem Solving software to control the Problem solving and record the Knowledge that is generated.
Companies can use Software in New Product Development to design the Product and improve the consistency and speed of Design.
IT solutions can be used in many areas and generate more efficiency. Each application should have a Target of improving the efficiency and it should deliver a measurable result to the Company.
03. Using IT to build a Competitive edge: IT is being used to build Competitive edge to the Company. Today there are many online trade apps. IT is playing a huge role in these companies. It is not just an enabler of Business. IT is the Business!
You can look for using IoT, Ind 4.0 elements to give higher value to the Customer.
Today many Capital equipment Companies are looking to use GPS tracking to give a higher value to the Customer in terms of knowing about the usage of the Capital equipment, knowing about the maintenance schedule of the Equipment and so on.
Logistics companies are getting hugely benefitted with the Online tracking of their vehicles. They are able to keep track of the ‘Most economic route’, ‘Speed of the vehicle’ , ‘Mileage of the vehicle’ and so on using the online Apps that are available.
Every company has to find their own mix of solutions that will give them a Competitive edge over their Competitor.
Companies have to start using Information Technology, Ind 4.0 etc and start re-engineering their Businesses!
Governments are doing a decent job in promoting this agenda!
Indian Manufacturing has a lot to catch up!!
Many of these companies can stop calling the Government inefficient and start improving!
Every Manufacturing Company is required to deliver good results every Quarter. Without this, the Bankers will not have confidence in the Company’s performance. In today’s Economic situation as everyone would have experienced, the Bankers are very careful in lending money. While Big Scams may happen, the Ordinary company is struggling to get their Discounting Limits expanded when there is genuinely a Turnover increase! The Ordinary Banking employee seem to have become very cautious! The Pressure is not only from the Bankers, the Investors also are watching the Companies much more carefully. No one wants to put their money in a Company that may not be looking strong.
Companies need to manage their Operations very closely to ensure they get maximum out of the Resources that they are investing.
While this is the situation of rising expectation and rising Caution on the part of Bankers, Investors regarding money and Investment, the Companies do not seem to be still managing their Profits closely.
There is always a big gap between the Seriousness with which the Board looks at the P&L Statement and how the rest of the Company looks at the Quarterly / Monthly P&L Statements. Many Companies may not be still having the Monthly P&L. Even in Companies where the Monthly P&L is prepared, Employees in these companies may not have any idea about the Profit of the Company or how the Financial situation of the Company is. Traditionally a good proportion of Indian Companies do not share the P&L with employees.
This gap between the Board of Directors and the rest of the Company is not good in following ways:
- Employees, including Senior Employees simply do not know the Financial situation of the Company.
- Operations Head may not know the effect of the Operational inefficiency on the P&L.
- Sales team may not know the effect of their Receivables Collection on the Working Capital.
- Engineering Team may not know the effect of their Capital Investments on the Debt situation of the Company and how it is affecting the Profit.
- Due to this ignorance, the Operational team may want more investment, not putting in efforts to improve the efficiency fast enough.
- While the Board of Directors are worried about the Financial situation of the Company, there is no guarantee that the actions are happening on the ground to address this situation.
- Actually, the Operational team may be pulling in the opposite direction. An Operations Head may be arguing for higher investment, he may not be focusing on the reduction of Raw Material Cost as he may see some other priority.
- A Sales head may be arguing for giving higher Credit days to the Customers.
- A Purchase head may not see the need to go for serious Cost reduction as he is busy in implementing an ERP or busy with some other priority.
This can turn the situation in to a quite serious one as the Company is in trouble. But not able to respond with agility! This is where the Companies will start going deeper into inefficiency and Losses.
Let us look at a few Best Practices with which a Company can set a System for Agile Financial Performance Management in the Company.
01. Educate the Team starting with Senior Team: My experience is that even Senior People at Functional Head level too may not be knowing how to read a P&L, Balance Sheet. They may not know how to link the Activities that they are involved into the P&L. A Sales Head may not be able to link the delay in getting Price increase from Customers (Post Raw material Price increases) to the Profit of the Company.
The Education should not be just on the General Concepts of Finance, P&L and Balance Sheet.
Every Company should identify the Critical Activities that are driving the Cost In the Company and highlight it to the Team.
Eg. A New Product Process may be ending up in higher Raw Material Cost for the New Products. This may be okay for the initial period when the volumes are low. But in many Companies, this higher price for low volumes will continue even when the Prices go up. This process may be flagged.
02. Create Focus on the Critical Processes: Every Company needs to create focus on a few major Processes in the Company that are important in determining the Profit of the Company. Some examples are as follows:
a. Sales and Production: I have seen many Companies who simply keep losing a lot of opportunities in terms of boosting their Top line. The Production team should always be at least 20% ahead of the Sales team in terms of Capacity to produce (Not just Production capacity, the ability of the Production team to hit higher Production after tackling all their Losses). If they are not ahead of the Sales team, then the Company would be losing Growth opportunities. I know quite a few companies who are losing the Top line as they are living with some problems for a long time.
b. Cost of Poor Quality: Production / Quality Teams do not realise that the Cost of Poor Quality straight away hit the P&L. The Customers returns may be high, the Export Customers may be debiting Penal charges for bad Quality, the Dispatches may be going by Premium freight as the Lot was rejected. The focus on these costs has to be sharp.
c. Premium Freight: Many Companies incur a lot of wastage in this area. If the Production is not efficient, then the Company may be spending a lot on Premium freight for dispatches. If the Sales forecasting Is not okay, the Company may spend a lot on Premium freight for getting Raw material and Parts into the Company.
d. Manpower Cost and Productivity: The recruitment of Staff has come under a lot of focus and the Indian Companies have definitely reduced the recruitment in the past few years. But still the recruitment of Blue-collar Workforce is happening without good control in many Companies. There are huge opportunities in improving Blue Collar and White-collar Productivity in Indian Manufacturing Companies. We are sitting on huge opportunity in this area.
e. Investment: The Operations teams and Engineering Teams still do not have full understanding of how the investment that they recommend is affecting the Company’s financial situation. We are again sitting on huge opportunities in improving Capital Investment Productivity.
f. Receivables: Indian Customers generally do not pay unless rigorous follow up is there from the Supplier. Of course, there are a few companies that may have good discipline in taking care of the Suppliers. But they are few. A company needs to have rigorous Receivables follow up system.
These are few areas. Companies may have more focus areas relevant to them.
03. Plant Wise/ Division wise Profitability: The Plant / Division Heads have to be made responsible for P&L. Some Companies already have it while many do not have it. The Plant Head and his team have to be held responsible for the P&L. The Plant should have a System of holding different HODs responsible for the P&L Line items.
The Annual Budgeting Process is an important one. The Teams should be involved in Planning the Expenses of the Plant. Each HOD should be clear about what expenses he is responsible for. When he does the Budgeting for the Expense, he will understand how the Expense is building up. A Good Annual Budgeting Process will ensure that the HODs and their teams understand the Expense very well.
Managing these Expenses should become a KPI for the relevant HODs.
04. Setting up a good Budgetary Control System: A Good Budgetary control system should be set up in the Company that will help the Employees to exercise the tools to control the Expenses. A Production head should have a Control for Raw Material and Parts issue at Quantity level on a daily basis. This will ensure a practical control on the Consumption. He should know how much quantity of Consumables he is consuming and what quantity is okay. A Good Budgetary Control System will take a few years to develop. But it has to start. Company has to create focus on this. The Finance team has to play a big role in making this happen.
05. Regular Reviews: Regular P&L Reviews have to take place with the teams. The Finance team should initiate them and the Leaders have to conduct them. The HODs should be asked to present the data and a Corrective Action and Preventive Action if the expense goes out of Budget. These regular reviews create a focus on the Budgetary Control.
06. Cost reduction: An Active Cost Reduction exercise should be happening in the Company and any Cost overruns have to be compensated by the Cost reduction Projects. A good Cost reduction system should be there in the Company.
This way the P&L focus can be taken deep into the Organization.
One concern that some people may have is that if there is too much of P&L focus in the Manufacturing Plants, the Plant teams may not focus on the Customer Service and they may become too money oriented.
We are doing Business with Customers to make money. To make money the Customers have to be definitely kept happy. But if we are not able to make money from the Business, then there is something seriously wrong with our approach. We have to make our Businesses profitable while making the Customers happy.
How good and deep is the system to manage Profits in your Company?
The Indian Economy is undergoing a tough phase. Top line growth and Bottom line existence are coming under threat. Companies need to raise their game in using their teams to the next level. Traditionally Indian companies have not been focusing on developing the People. It is time to realize that without developing the team, we will keep having BIG teams of lowly skilled team members contributing sub-optimally. Let me discuss a few examples that I observed in Companies to stress the importance of focusing on Competencies of Team members.
Shyam is the Materials Manager of Exwhy Limited an Autoparts company. The Company’s Raw Materials Inventories hover around 55 Days most of the year. Shyam is simply clueless about how he can control the Inventories. There are no methodologies in the Company for controlling Inventories. Shyam is simply unaware of practices like Kanban, Supermarkets and other Inventory Control Methods. Every month the blame for high inventories is put on lack of Forecasting of Demand and Inventories continue to be very high eating away the Profits of the Company. In addition, the Company keeps losing out on Top line due to Material shortages.
Ram is the Machine shop head. There are 55 Machines in the Machine shop. The Production Scheduling in the Machine shop is very inefficient, and Machines keep idling for significant amount of time. The Company has high Variety and low volume. There is absolutely no focus on the SMED. Ram is not aware of any of these Techniques. He had been in the Company for 12 years and wields a lot of clout with the Senior people in the Company. Company keeps losing out on the Utilization of Machine shop which is around 52% in good months!
Som is the Materials head of the Company. The Company’s Manufacturing involves a lot of Assembly activity. The Assembly just does not work as per the Production plan released by the PPC. Everyday there are many Schedule changes due to Material shortages. The Company is not able to supply on time to its’ Customers. Their Ontime delivery is around 40%. Company is losing out on Market opportunities in a big way. Som is simply not aware of how to eliminate these Material shortages. To give a good solution for this Som needs to have knowledge of Kitting, Kanban, Production Planning concepts, Supplier Development, Some Leadership Qualities to bring the teams across the functions together for solution.
Peter is the Sales and Marketing Head of the Company. Due to the tough Economic situation, the Demand for Company’s Products is low. But there are opportunities in the market for New Product introductions. The Company is very inefficient at New Product Development and launching the Product into the Market. They keep taking very long time to do this and inevitably they keep losing 2-3 years of Sales in the process. Peter needs a combination of Competencies to drive this better in the Company. He needs to learn how to collect VOC (Voice of Customer) properly, coordinating a faster Product Development, Managing the Launch Process, learning how to select the Segment where he wants to operate in the market and so on. Peter lacks most of these Competencies. Company keeps suffering due to this.
I can quote a number of Examples like this where the Companies are having huge inefficiencies as their teams are not having the Competencies required to resolve the situations on the ground. Many a times these situations require a combination of Functional and Leadership Capabilities. Normally there is no help available to the teams. Management keeps sending the teams to some General training programs and keep struggling to measure the Training effectiveness!
What is the Solution?
When we look at the Solutions that Companies have to attend to this, not many companies have any solution at all! They keep suffering continuously! Companies keep losing top line and bottom-line opportunities.
Time has come when many companies cannot afford to ignore this any longer. If these inefficiencies are not addressed, now the Companies will start to fail in the market. They may even close down in next few years. Some Companies are recognizing the need to change and starting to address while many more are simply clueless what the problem is.
What needs to be done?
I recommend that Companies start focusing on the Competencies of its’ Team and recognize the importance of Processes in their Companies. They need to develop a methodology for People Development that becomes a continuous process in their Company.
I am not talking about a one-time training. I am talking about developing a Process in the company that will help you maintain the Competencies of your team and keep improving it as the Business situation demands.
Developing people cannot be done on a standalone basis.
Following is the Process that I recommend:
01. Define the Competencies required: As a onetime activity it is required to work out the Competencies that are required for your Team. Be ruthless in linking these Competencies to your Business needs. If you say your Team requires ‘Planning’ Capability you should be able to define a ‘Business Context envelope’ around this Competency. What problem will it solve if your Production Manager learns about ‘Planning’? What improvement in Business Result can you see by teaching him about ‘Planning’? You need to define the Functional and Leadership Competencies required.
02. Select the Annual Agenda: When you work out the Competencies required you may work out a longer list of Competencies. Any team can develop in 2-3 Competencies in a year. Nothing more. Do not attempt to make your Team competent in just about every Competency in one year. It won’t happen. Go step by step. Select the Annual agenda in line with the Business Agenda.
A Company that is trying to improve Sales will have to focus on developing the Competencies of teams towards this. If New Product Development is inefficient, then prioritize the Competencies related to this area in every Function. Let the focus be clear.
If you train the Team in these Competencies, you should be able to see improvement in Business Results.
At the end of the year, you should be able to improve the New Product Development Process in your Company and get the Products out in shorter lead time and with better Quality. Your Customers should be able to feel the difference.
By keeping it close to your Business Agenda, you just eliminate the problem of measuring ‘Training effectiveness’. It is a silly discussion. Why do we train our Teams in such a way that we can’t measure the effectiveness of Training?
03. Define Micro Skills: Do not end with defining Competencies alone. Define Micro Skills that your Team needs to deliver better Results.
Eg. In the above example of improving New Product Development process in your company, the Team needs to learn about ‘Quality Function Deployment’. Team needs to learn about ‘Collecting Voice of Customer’ or ‘Working out a Validation plan’ that can capture most of the problems. These are Micro Skills that will give you better Business Results!
04. Appoint a Business Coach: It would be very helpful if you can get a Business Coach for your Team. This Business Coach should be someone who worked in the industry and who can talk your Business language. Engaging just Trainers who do not have deep Business perspective simply will not help.
This Business Coach should be able to understand the Business side and Leadership Side of developing your Team.
You should engage this Coach for longer periods to get best Benefits.
05. Methodology of Training: You need to have a strong methodology for the Training. One needs to recognize the fact that teaching the Concepts is only very small part of Training and Development of your Team.
a) Defining Micro Skills as explained above.
b) Prepare the Team by giving them feedback about the current status on these Micro Skills. Create a ‘need to learn’.
c) Develop E-Learning Modules for the Micro Skills. These will remain with you for training / Re-training of your team.
The E-Learning modules will address the Concepts as well as Practical application stories in the company.
Eg. While addressing the Micro Skill of ‘Taking Voice of Customer’ from the Customers in the market, you may address the different types of Customers that your Company has and Problems in taking VOC from them. Here, already there will be experience in the Company about types of problems. The E-Learning module will capture these examples and advice about how to handle it.
d) Apply the Micro learning on a weekly basis. Encourage the team to learn for 2 hours every week. You can declare Weekly Learning hours in each Function when the team would learn the E-Learning modules.
e) Define the Certification Criteria for each Micro Skill and implement it. Eg. For the New Product Development skills discussed above, the Certification criteria may be as follows:
i) Learning the Concepts – Level 1 Certification.
ii) Level 1 and doing the activity under guidance (Eg. Actually, collecting the VOC) – Level 2 certification.
iii) Level 2 + Improving the VOC for a specific Project – Level 3 Certification.
This way you would certify the Team members on the basis of actual results.
Implement the Certification Criteria. The Business Coach should certify so that the focus Is clearly on meeting the criteria.
f) Continuous feedback: The feedback to the team can be given from at least two sources. 360 Degree Feedback from a group of people with whom the Team member interacts regularly. Feedback can also come from the Micro Results that are expected. Eg. When the Team member learns about ‘Time and Motion study’, we can see if he is able to do a study on his own without guidance.
g) Business Reviews: The Business Coach should accompany the Company’s Leaders in the Business Reviews. He will be the observer who would look at the application of the Micro Skills for improvement in the Business results. The Supervisors of the Team can interact with the Business Coach to give him feedback about the Business Coaching. This will ensure the Business Coach is in the right direction.
h) Link to results: The whole process should be measured with Business Results in a close manner. It will keep improving the process itself. The results expected should be defined at a Micro Level. Results can be Process results and Business results.
This way the Business Coach can help you establish a methodology for People development in your Company and bring the focus on to Competencies of the Team.
How focused are you on the Competencies of your Team?
I have been dealing with several Mid-Sized / Small Sized Companies (Not Micro) as part of my work earlier as a fulltime employee and now as a Business Coach for the past 7 years. I have been dealing with the Head of the Company in all the cases. I have seen the Head of the Company dealing with his Company / his top team in different ways. Some had been very effective some not so effective and some more have very confused way of dealing.
These are the Companies who would have crossed about Rs 50-75 Crores when the Owner is feeling the need for Professionals to come into his Company and help him grow the Company. The type of companies that I am talking about have a Topline from Rs 50 Crores right up to about Rs 2,000 Crores. The Companies that I have seen have similar issues in all these sizes. This had been my experience.
Let us look at the role that the Managing Director can play in these companies. How can he/she lead the company firmly while not becoming the one and only Power in the Company.
I see that the Managing Directors are playing some of the following roles in these companies:
01. The Do All: In many Companies the MD is firmly in charge and is controlling / trying to control just about everything in the Company. He would know how many visitors reported at Security yesterday! The Top team look to the MD for Direction in everything. You would hear the MD say that his Top team is absolutely ineffective! Some of these companies would have put together the Organization structure that is needed for a nice Delegation. But Delegation just does not happen due to various reasons.
02. Semi-organized chaos: There are some companies where the control is given to the layer next to the Managing Director. But the Company is not directed firmly by anyone. The responsibilities seem to be slipping into the cracks between various people in the senior team. Critical slip ups are avoided as the Senior team is attentive but not taking full control. These companies do grow. But they do not achieve their potential and if Business conditions get tougher, we don’t know whether they can face up the situation.
03. Family team in control: In some of these companies the Family is omni present. They occupy all the critical roles. A Family works in very different way compared to the Professional team. There can be lot of shooting from hip as they all have a lot of authority without the capability(sometimes). The Managing Director is loosely controlling the Family members. There is no structure for this control. This Type of Company would typically take sudden turns and changes in direction in the way Business is run!
04. Delegated but not able to scale: There are some companies where the MD recruited a good senior team, is able to delegate well to them. The Professionals are more or less running the Company. The MD is busy in several other things and the Company is not achieving its’ potential for top line and Bottom line.
As you can see in the above description, the Companies have different Organization structures.
Managing Director and CEO
In some companies the MD recruited a CEO who is supposed to take care of the Business. The CEO would have a team of Functional Leaders reporting to him/her. But several of the Functional Leaders may also be in touch with the MD directly. I can see the MD struggling to give up his control and strengthen the CEO. This is not very easy. In this structure, the MD showing his intention to give up control. It depends on the CEO and the MD whether this can become a success.
Managing Director and Top Team
Some Companies who have an active Managing Director who is controlling on a daily basis and he has a top team of Functional Leaders. The MD may want his team to take control. It is more difficult for this to happen in a structure like this. The Managing Director is wired to control everything in this type of structure. He is too close to action to give up control. Someone is needed to coordinate with all the Functions. If there is no administrative head, the MD becomes the default head.
Managing Director and Family members as Functional Heads
There are some companies where one Family member is the Head of each function. These companies would be having more structural problems. A Family member as a Functional head may not be very ideal as he/she would have lot of power and they would keep taking decisions that would have far reaching consequences. When this happens without much control at the center, an organization can suffer.
What is an ideal role for a Managing Director in these Companies?
An MD should put a good Organization structure in place where there is a team of Professionals for each Function. It would be best for the MD to appoint a CEO who would control the Business. This gives the MD an Investor’s perspective. If he manages the Business himself, there is no one who can look at the Investor’s perspective.
From my experience I identify 5 things that a Managing Director should do and One thing that he/she should not do.
Let us talk about what he/she should not do.
Don’t get involved in the Routine
It is ideal for the MD to leave the Routine to the Professional Team. The regular Sales / Operational Targets should be left to the Professional Team. Achieving the Annual Business Plan should be the domain of the Professional Team. MD should learn to be away from this Routine. Sometimes the Team may fail. But that is part of the game. The Performance Management System in the Company should ensure that the success / failure is squarely placed with the Professional team. I have seen some very structured way of doing this and some unstructured ways that still achieve this result as the MD simply keeps away from this temptation.
If an MD is hands on and controlling the Routine, then he/she can become the Obstacle for the Company’s growth. He would be acting couple of levels below his level and no one would play his role in the Company.
What the MD should Do?
01. Strategic Business Plan focus: The MD should definitely be in control of where the Company heading to. He should coordinate the work for getting the Vision, Mission and the Medium-term goals done. He should play a big role in working out the Strategy of the Company and the Strategic Initiatives to put the Strategy in place. This does not mean he should not take the role of top team into this activity. He should encourage the forming of the Strategic Business Plan by the top team. But he is responsible to get this done. He should ensure that the Top team is not lost on the routine and they keep focus on the Strategic initiatives.
02. Set up Business Systems: The MD should play a good role in setting up the Business Systems in the Company. Business Systems is the process with which a Company would achieve its’ Medium term / Annual Goals. The MD should not get swayed with everything that he/she comes across in the Industry. I have seen MDs who get interested in all the latest buzz words and want to implement in their Companies without an overall understanding. They have to take up the role of setting Business Systems more seriously. They need to learn the systems that are running well in other Companies across the world. They need to develop a larger vision for the Business systems in their companies.
They should not look at this responsibility as a one time one. They need to set up the Business Systems and keep improving them forever. It is not a one-time responsibility.
An MD should get into the small details in the Company to set up a good System in the Company. This is an opportunity for him/her to know how routine is happening in the Company.
03. Product and Process Technology: MD has to be in control of the Product of the Company and how it would keep developing ahead of Customer requirements and Competition. He should ensure that the Company’s Products are at the top end. He also has to pay attention to the Process with which the Products are being manufactured. If you are doing it in the same way as every other Competitor is doing, then your Competitive edge may soon disappear. He may look for Technology and Technical associations towards this end as required.
04. Using Industry 4.0: In Manufacturing some phenomenal changes are happening world over with the usage of Industry 4.0 elements. It is quite possible to redefine your Business using this technology. A Managing Director should help his Company to rediscover itself with the help of this technology over a period of time. A Company should do it before its’ competitors do it. An MD has to learn towards this.
05. People Development: An MD should focus on developing a good Team and ensuring this team is continuously learning towards the Business Goals. Most of the Indian Companies are not focused on the Skills of the employees. For continuous progress of a Company it is very essential for a Company to have a good Team and a system for developing the Skills of the team. It is possible to develop a good Learning System in the Company using Micro Learning Concepts and E-Learning. An MD should enable this system in the company. The day to day execution may be taken up by the HR function.
It is very important for an MD to play his/her role well. Operating either at a very high level where he/she can’t see anything on the ground or operating in the small daily detail will make this crucial role in the Company ineffective!
How are you operating in your Company?
In the last few Quarters the Economy has become tougher and every Company is struggling to find Growth of Top line and Bottom lines are disappearing or thinning out for many companies. In this situation, the Companies need to operate with good efficiency. Without this they would waste the resources and perform sub-optimally. No Company can tolerate Sub-optimal performance. The Current condition of the Economy adds to this need. Going forward the Competitive situation will become tougher and tougher for companies. World over the Manufacturing Companies are going to go forward aggressively in terms of improving their productivities with the use of Industry 4.0 elements. Indian Companies will have to rise their performance levels. For this there is a need to install a good Performance Management System in a Company.
I am always surprised to see the absence of this in many Companies. The focus on Performance is missing and therefore the Employees keep getting rewarded for Sub-optimal performance. If a Company does not attend to this, this can become the biggest drain on the energy of the Company.
From my experience, I would suggest certain elements in a good Performance Management System.
01. Performance Planning: The Performance of a Company and its’ employees has to be Planned well. Normally this is done with a System of KPIs for all the Employees. A concept of Deploying Goals from Senior level to Junior level has to be used. This will ensure the alignment of Goals from top to Bottom in the Organization. The Company has to ensure:
a. Diagnosing the Performance of the Last year to learn from mistakes.
b. Appropriate KPIs to all employees.
c. Targets for all KPIs in line with the Company Goals.
d. Deploying the Targets and means to achieve the Goals to the team members.
e. Detailed Action Plans to achieve the Targets in the year. This will ensure that the Employees pays attention to the Resources needed and also the ways and means to achieve the Targets.
02. On Going feedback: There should be a System of Regular Formal Business Reviews at all levels in a Company. I have seen that in many Companies the Senior Level reviews regularly and they are involved in all types of Reviews. There is no ownership of middle level for their teams. This is not acceptable. The Review meetings at all levels are one way to push the responsibility to appropriate levels. When they review the performance of their Teams and take responsibility to their performance, the feedback will happen regularly and at all levels.
03. Employee input: The Formal Business Reviews should give a chance for the Employees to put in their point of view in a formal manner. A good process has to be put for this. The Employees should work out their performance with respect to their KPIs. They should bring in their Point of view in the form of structured ‘Corrective Action and Preventive Action’ (CAPA). When an Employee writes the CAPA and presents to the Boss, he/she is putting in their point of view. The Boss can encourage this and help them to improve it from time to time. Many companies take the input from more junior employees with the help of a Town Hall type of meeting once every few months. Having good avenues to take the input from Employees is critical to the effectiveness of a Performance Management System.
04. Performance Appraisal. While throughout the year the Employees voice will be heard and they will be given feedback, formal Performance appraisal is needed. Employees have to be appraised on the basis of the various criteria that are agreed with them. A Good Performance appraisal system will have following elements:
a) What has to be achieved: The Employees will have KPIs and Targets to each of the KPIs. They will have to show the results for these KPIs.
b) How it has to be achieved: Usually a Company would define the process using which the employees have to achieve these targets. This will comprise of:
i) Preparing Detailed action plans,
ii) Monitoring the Performance in a visual manner.
iii) Regular Formal Business Reviews.
iv) Writing effective Corrective action and Preventive Action.
v) Using a Proper Problem-Solving methodology for Problem solving.
And so on.
c) What is required to achieve it: What Skills and Competencies are required for Employees to achieve these Targets. Functional and Behavioral Competencies are identified that the Employees need to learn. There should be a good system of developing these Competencies in the Company.
Usually the Performance appraisal system would give weightage to all the above. Normally the weightage for the section (a) may be 50% and other two sections together will have balance 50% weightage.
Some Companies may introduce more elements in the PAS as follows:
- Cross functional Team working to solve some big problems for the Company.
- Developing their team.
Rating: The Employees are classified into different categories like a) Excellent b) Good c) Satisfactory d) Below Satisfactory. The number of ratings may be 3-5 depending on preference of the Company.
05. Performance Appraisal Interview: Companies should promote a formal Performance appraisal interview that will have some of the following Best practices:
a. A formal Meeting is needed between the Boss and Subordinate.
b. HR representative must join.
c. Prepare elaborately for the meeting.
d. How to handle a defensive subordinate
e. Recognize that defensive behavior is normal.
f. Never attack a person’s defenses.
g. Postpone action.
h. Recognize your own limitations.
i. Maintain notes throughout the year.
j. How to give tough feedback to a subordinate
i. Do it in a manner that lets the person maintain his or her dignity and sense of worth.
ii. Criticize in private and do it constructively.
iii. Avoid once-a-year “Yearend lectures” by giving feedback on a daily basis, so that the formal review contains no surprises.
iv. Give Plus first and then give Development areas.
v. Criticism should be objective and free of any personal biases on your part.
06. Training and Development: The T&D agenda is worked out right at the beginning of the year. This may happen after the review of the last year’s performance of the employee. Using Technology, you can now totally re-engineer the Training & Development. You can work out the Training agenda for employees on the basis of their agenda in terms of KPIs and Targets. This Training agenda is worked out in terms of Micro Skills that the employees need to achieve the KPI Targets for that year. These Micro Skills are addressed with Micro Training modules using E-Learning technology. The training happens thru out the year and it is done at a Micro level that the employee can use to straight away perform better. Typically, every Employee would spend 2 hours per week for Learning. This makes it 12 Working days per employee which is even better than the World class standard.
07. Rewards: The reward system can address the following:
a. Recognition of employees’ performance. Employees would get increments / incentives based on the rating that they receive.
b. Employees would be recognized as ‘Best Employees’ based on certain transparent criteria.
c. Recognizing every drop. Some companies recognize the small contributions of the employees
d. Kaizen / Suggestion schemes: Many companies encourage the employee participation.
It is important to have different ways of recognizing the performance of an employee. If there is only one way and that is given at the end of the year in terms of increment, then the Employees would build too much expectations from the Appraisal and all of them will never be happy with whatever rewards that you may give.
This way the Performance Management System should be a well-Engineered system in a Company. This System has to be continuously improved to suit the changing Business scenario!
How do you manage Performance of your Team?
In many Companies, there is a Corporate structure at the Head Office and then there are different Manufacturing Plants and/or Regional Sales Offices. Sometimes there may not be physical offices in the regions. But there may be Sales Team members all around the Country/World. Sometimes the Company may be spread around several Countries and then there may be more complications involved such as Cultural differences.
The relationship between Corporate and Regional structures is very often tense, ambiguous to say the least. Many a times Companies may be wasting lot of energy trying to manage the relationship between the Corporate and Regional Teams. If there are no issues between the Corporate and Regional teams, that does not mean the relationship is working the way it should. One of the teams would have given up and surrendered to the other. Most of the times it is the Regional teams who give up trying to get their views recognized and start ‘Managing those H.O Guys’!
I can almost hear these Regional Plant / Sales Teams telling their Teams to just grit their teeth and bear the ‘nonsense’ for two days when ‘those H.O guys’ would visit their Region/Plant!
A Company should be cognizant to this issue and ensure they nurture the relationship in such a way that the Company would get maximum benefit from the Synergy of these two structures. Having worked in both areas in my career, I can understand if a Plant Head talks about the ‘Spies from H.O’ who encourage the employees to ‘tell something’ about their Bosses so that the ‘masala’ can be carried to the Corporate Gods at the H.O!! I can also understand the viewpoint of Corporate HR Head who complain about the wide differences in the way Employee relationships are managed in different Plants or the way different Sales Teams adhere to / not adhere to the Work Timings / Expense statement rules.
A small percentage of the readers of this article may be saying to yourselves ‘Nothing of this sort happens in our Company!’. It may be either of two cases. One – You may be dominating the other part of the Structure in such a way that everyone has given up on you OR Your company may be part of the very small percentage of the Companies who are really managing the Corporate / Regional structure to the benefit of the Company. I know you would like to believe that you are the latter one. Just confirm with your other partner to know the reality!
Unless a Company deliberately puts in practices to manage the relationship between Corporate and Regional, it will go the wrong way and wrong way only.
Corporate clubbed with one Region/Plant: This is the Worst type of combination! Some of the Corporate structures are clubbed with the Mother Plant or Regional Sales office of the one nearest to the H.O. If your Senior Management is in Delhi, your Regional Sales of Office of Delhi may be clubbed with the H.O / Corporate.
Here, the roles of Regional and Corporate are mushed up. The Corporate guys start behaving like the Plant guys. The whole Corporate team would be straddling the poor Plant / Plant Head / Regional Head. They will not let this Plant / Region work independently. The Company Head would become the Plant head for that plant. The Corporate Heads for various functions would be stifling the Plant / Regional Teams.
This does not happen because the Corporate guys really want to do it. It happens over a period of time. The Company Head and the Senior Team are available in the location. So, the Plant / Regional Office start ‘leaning’ on them. Trying to take quick approvals and so on. As they are available on the location the Senior Team will start getting ‘involved’ a bit more. Very soon you will find the Conveyance statement of the Commercial Clerk being approved by the Finance Head of the Company! After some time, the Finance Head will be very unhappy if that does not come to him for approval!! The Plant Accounts Head would only be happy to send it up!
There are several serious disadvantages of this type of Structure. You would find that the Plants that are clubbed with the Corporate structure / Regional offices clubbed with Corporate Structures are the worst performing ones. In the odd case of a Regional Sales Office clubbed with the Corporate structure performing well, the Regional guys would have nicely delegated everything upwards and enjoying the quick decisions coming their way! It is doubtful if the real output is coming from both structures!
I dealt with Plants that are near the Corporate office in another article.
Let us look at a few Best Practices in ensuring that the Company gets the full benefit of both the Corporate and Regional structures.
01. Company View Vs Regional View: The Corporate team always has this advantage of having a Company View. Usually the Regional Leaders do not enjoy this unless they adapt it specifically. Regional Leaders should be encouraged and given opportunity to participate in some Corporate Projects to give them this view. They should be involved in some Company level Projects to adapt this view. Similarly, the Corporate Leaders should be involved in some ‘Hands on’ Projects in a Plant / Regional Office. This will help them retain the ‘Local view’.
02. Functional Expertise: Usually Corporate Functional Heads are senior to the Regional HODs. These Corporate Functional Heads should aim at contributing to the Functional practices in the Company. They should be really having the expertise and should be able to command respect due to their superior knowledge. If they are just relying on their ‘Corporate Designation’, then they will lose their respect very fast. A Corporate Quality Head should show a value to the Regional Quality Heads with the Common practices that he may introducing. He should be able to get the respect of the Regional Quality Heads from his wide experience in handling Customers and the Best practices he is bringing in. They should not be just ‘Bossing around’. Head of the Company should keep a watch on this.
03. Companywide Initiatives: Companywide initiatives like a ‘Business Excellence’ Initiative is best initiated by the Corporate Teams. But it would be best to create a ‘Steering Committee’ having participation from Plants / Regional Offices even to create the Companywide Initiative.
04. Enablers and not Doers: The Corporate Teams should act as ‘enablers’ not initiators alone. They should be trained to exhibit the ‘enabling’ Quality as against ‘doing’. Their KPIs should be to ‘Enable the Regional Teams’ and not to do it themselves. This is more mature point of view. All the Corporate Team members may not get it from beginning. I have seen a few Corporate Functional Heads behaving like Regional Heads of Department and thereby holding on to ‘their way of doing’ too strongly. They should elevate themselves to a higher point of view in a Corporate role.
05. Leave Results related work to Regions: One simple way of bifurcating the work between the Corporate and Regional teams is to leave everything Directly about getting Results to the Regions / Plants. Here, the Corporate teams can at best advice. If a Regional Leader is consistently not delivering on Results, you may deal with the non-performance. But while sitting in Corporate Structure, you cannot be doing a Regional Role! Not good for the Company! The structure will be weakened.
06. Train them to be better Leaders: The Corporate Leaders should be trained to ‘Work on the system’ as compared to working in the System. They should also be encouraged to manage the Regional Structures loosely and not tie them to a rope and take them for a walk! I have seen many Corporate Leaders who are not comfortable unless they get a call from their Regional / Plant Colleague at Breakfast / Lunch / Dinner – Three times a day!! Leaders like this have to be trained to become better Leaders. At the same time, we do not need Regional Leaders who delegate everything upwards!
07. Motivating the Regional Teams: Every Functional Leader should be a good cheer leader for the Regional Teams. He/She should set the Functional expertise benchmarks to the Regional teams and encourage them to elevate the Functional practices in the Regions. They should encourage the Regions that are creating Best Practices in the Company. This would get some respect for them from the Regions.
08. Role rotations: After the practices in Regions and Corporate comes to some maturity, the Rotation of people between Regions / Corporate can be encouraged. This will prevent the people becoming ‘Corporate’ / ‘Regional’ for life! Don’t attempt this if you do not have good amount of Standardization of practices in both Corporate and Regions. That would make the work worse. Everyone will do it in their own way.
Leadership of Company: The health of Corporate and Regional structures is normally defined by the Type of Leadership the Company has. There are many Leaders of the Company who are weak in their knees and encourage lot of ‘reporting’ by the Corporate teams on the Plants / Regional offices regularly. Usually the Regions / Plants do not work well in these cases.
You get what your actions deserve! If you can encourage the Regions to become strong and you want your Corporate Teams to help them become Strong, that can happen!
I know many Corporate Leaders who take the excuse of their Boss expecting them to report in a particular way!
If you are a Leader who is worth your salt, you would know how to stand on your feet at Corporate level and define the Culture of the Company!
Every Company has to manage their Cost in a systematic manner. Ideally there should be no need to cut Costs. But almost every company has this need to drive Cost reduction. The Profits are under pressure continuously and the Competition & Customers always gives you a reason for Cost reduction.
Many a times when the Cost reduction is taken up the Teams take up an approach of ‘Somehow’ reducing the Costs. If you are approaching serious Cost reduction after a few years in your company, then very good chance is that you would do well and achieve a good amount of Cost reduction. Usually the Top Management are happy with that and Serious Cost Reduction is set aside for next few years.
But I feel there is a need for Continuous Cost Reduction in a Company. The Cost should always be looked at and we should continuously find more economical way of doing things. This has to become a continuous focus of every organisation.
To ensure this happens, we need to put a Cost Reduction System in place. The system would have following components.
01. Cost Data: The first step in ensuring a good Cost Focus is to ensure the Cost data is available in the Organisation. I have seen many instances where the data is not available on the Costs and the Management does not get awakened to the need for Cost reduction. The Cost data should have at least two sides. The Internal data giving the various components of the data and second aspect is Benchmarks with external data. It is ideal if we can get Cost Data Benchmarks with the Competition. But we may not get it every time. We can also look at the Cost on Zero basis.
The Cost data should be available in every area. It is worthwhile to have a small team to analyse the data and bring out the important components.
I have seen several companies that do not know the Cost data for their Products. So much so that they do not know whether they are making money on all their products or not. This is not a good situation to be in.
02. Cost Reduction Target: There should be a Target for reducing Cost just in every Function / Department. The Target should be a reasonably tough. The CEO should have a target at the Company level. This is very important as there are some Cost escalations that happen despite our best efforts. Most of the time, we do not have any control on the escalations. We need to have something to fight back with. Only this will ensure that we achieve our Profitability target for each year.
Cost Reduction target has to be taken to every Function / Department.
03. KPIs: Every employee should have a KPI that is about Cost Reduction. This KPI should have a reasonable weightage. This will ensure that the employee gives a good priority for the Cost reduction.
04. Process for Cost Reduction: Every Company needs to have a good Process for Cost Reduction.
a. War room: There should be a War room for Cost reduction in every company. The war room will have the Cut samples of Products, the Products that are broken down to parts, Competition product Samples and so on. It will also have the Target Vs Actual displays of various teams that are working on Cost reduction.
b. Daily Meeting of Teams: If you want your teams to deliver on Cost reduction, they should spend time EVERY DAY on Cost reduction. Every team should meet for at least 45 minutes in this room The War room should have the schedule for the meetings of various teams.
c. Brain Storming Sessions: Cross functional Teams should meet in the War Room for Brain Storming Sessions. There should be a schedule for Brain Storming sessions. The number of Brain Storming sessions will depend on how much progress you have to make in that particular area. If there is a big target and you are very much behind, then you should meet more often.
Every Brain Storming session should be held with a good Procedure. The team should prepare for the Session. The target for the session in terms of a Value for which you should find ideas should be given ahead of the meeting. The specific topics for the Brain storming session should be announced in advance.
d. Invite SMEs: Subject Matter Experts (SMEs) should be invited for the Brain Storming sessions. These SMEs may be in the Company or they may be Suppliers, or they may be Professors at IIT and so on. You can get different thinking into the Company by inviting the SMEs from outside.
e. Full Time team: Every company needs to have a full time team as needed for implementation of the Cost Reduction ideas. Sometimes it would be very beneficial to have a Task force (Full time team) for implementation of the Cost reduction ideas.
I have seen this Process give wonderful results in Companies. Every Company would require some home-grown processes to ensure effectiveness. But the above standard practices work everywhere.
05. Techniques: Every team needs to learn some formal Cost reduction Techniques like VA / VE, Total Cost of Operation and so on. The teams need to be taught the techniques that work best for the Company. Every company should define these Techniques specifically for each Team and teach them these techniques with the help of E-Learning Courses.
06. Learning from the past: Finally, the Company needs to learn from the Cost reduction Projects / ideas to improve their Products / Processes. A Company need to become better and better at Cost Management and their experience in Cost Reduction can help in a big way towards this objective.
07. Cost Council: It would be good to formulate a Cost Council headed by the Finance Head to monitor the Cost reduction efforts. This Council would be responsible to manage the Cost reduction efforts across the Company. The Council should work out ways and means of encouraging the Employees and motivating them towards the Cost reduction Goals.
08. Total Employee participation: Company should encourage participation from Employees as well as Vendor Community. For this it would be useful to have standard Schemes that will help the Company to encourage the employees and Vendors to participate in the Cost reduction actively. The Employees and Vendors would be rewarded suitably for the Cost Reduction efforts.
A continuous focus on Cost Reduction would definitely help the Company in managing their Profitability much better.