Friday, October 29, 2010

Who will stop the buck

Karthikeyan topped the Business School upon graduation this July. He joined the world of business directly from campus with no prior experience. Many of his batch-mates had been assigned to functional departments like production, procurement, finance, marketing and so on. He was singled out to work directly with the CEO as an Executive assistant. Karthikeyan had heard that an assignment with the CEO’s office meant being used up in all ways possible with nothing concrete to show by way of his own achievement; his career growth could be at risk. Karthikeyan aired his concern to the CEO in private at an informal dinner convened for the fresh batch of incoming MBA’s by the CEO at his home.

Much to his surprise, the CEO welcomed Karthikeyan’s candid confession of anxiety and his keenness to prove himself. Expressing great confidence in Karthikeyan’s judgement, the CEO sought his help in establishing top management accountability. Karthikeyan could not believe that the CEO, of all the people, could have difficulty enforcing accountability with the top management. Equally surprising was that the top management, who should themselves be anything but accountable, being otherwise.

Problem: The company had been consistently missing to meet the monthly profit projections to the board. The shortfall had been at 50% of estimates for the last six months. If every department was doing what they had committed to do, as they claimed to, why should there be any gap? Since no one came forward to clarify, the buck eventually stopped at the desk of the CEO. Can karthikeyan investigate and report to the CEO in complete confidence?

Karthikeyan’s confidential note to the CEO:

After due study, Karthikeyan proposed an objective examination of the following six factors that could possibly contribute directly to the shortfall in profits:

Budgeting: The severity of assumptions made in the plans varied with the actuals by a large margin. Likewise the unplanned investments and expense overruns had no way of being flagged off in advance and approved before incurring them. Even though the policies provided for it to be ventilated in advance as a risk, such a practice is non existent. The CEO may like to call for monthly alerts before according approval for spend. How does he propose dealing with the defaulters?

Investments: Several projects seem to have been started but only a third of them had got off the ground. Some were false starts, while many others were either closed prematurely or left hanging midway because of unresolved disputes. Some projects were declared successful although they were still to secure the completion certificate from the clients. Does the CEO get reports on these?

Revenue capture: Poor quality of order intake, unrealistic delivery commitments and acceptance of penalties for non delivery were not made public as potential risks. In addition, delayed and error prone invoicing did not make any provisions for delays in recovery due to the rework and excessive follow up effort required to mobilize collections. Would the CEO like to call for comments?

Cost management: While the budgets where signed off for a specified number of discretely identified heads of expenditure, new heads of expenses had been included without any reason for them to be created in first. Besides a number of surprise entires of out-of-budget items, there was also considerable delays in the booking of expenses. Did the company have norms on revenue recognition and closure of accounts on time?

MIS: While the HRIS was maintained at 99.5% level of up-to-dateness and accuracy, for all the heads of business information it was at a mere 65%. The Information Management policy is silent on the standard of quality of information reported and accepted. The confidence level of decisions arising out of poor quality and out dated data is a deeper question for the top management team to examine..

Culture: Noting the gaps and anomalies between what was happening and what was meant to happen, Karthikeyan was pained by the functioning styles of the each of the individuals. They varied so widely that several questions had not been answered to his satisfaction by many of the seniors. Karthikeyan confessed at mistakenly assuming his seniors to be sympathetic to his lack of industry experience and expecting them to guide him resolve the problem. Instead they not only were unsympathetic towards his challenges at work but were equally dismissive of the importance of his assignment to the company’s future, merely testing his wits in the process.

How could an organization remain young in thinking and become adept at learning if the top management acted so difficult. If people were made to struggle to get to the facts and teased for asking elementary but significant questions, how will the CEO earn the trust of the board and the shareholders.

Young MBA’s will soon lose their enthusiasm and play safe, quite like their bosses?

Who then will have the enthusiasm to question and stop the buck?


Friday, October 22, 2010

Top management on the ‘bench’

Vinod Nagpal had been invited to serve on the board as an independent director of a large corporation. After the incidence of Satyam, where several highly qualified professionals needlessly sacrificed their good will and reputation, he decided not risk it. After considerable pressure and persuasion from one of his friends from the board of another financial institutions, he allowed his name to be referred to the current company. The first few meetings passed off peacefully to make him wonder if such a position of directorship was even essential. Nevertheless, he decided to serve his term and exit peacefully.

Almost by accident, he was approached by one of his friends for help. This friend in particular wanted Vinod’s help in stopping the transfer of his middle aged son in law employed with the company whose board he was a member of. Reluctantly, Vinod spoke to the Chairman and sure enough he was promised it would be looked into.

A few days later, the HR Head sought a personal meeting with Vinod. As they began talking, Vinod discovered a unique challenge the HR head was facing. Almost the top 200 senior people in the company rarely ever went through any performance appraisal. They merely lingered on year after year without any pressure on them to deliver any results. most of them were in their mid forties and the retirement age was 58. So they had a 10 to 15 years ahead of them before retirement that had to be spent meaningfully.

At this age, they felt they were beyond training and rarely needed any need to stay professionally in shape. They were all socially well connected that moving them out of their current roles was too disturbing a thought to consider. Insecurity from exposure of non performance and complacency with whatever they were habituated to delivering was the accepted norm. In this context, appraisal of performance was either a total farce or an unnecessary ritual. Vinod recognized that the move to block the transfer of his friends’ son in law qualified itself along similar lines of reasoning.

Vinod was visibly disturbed. He would not like to be a party to such an unprofessional practice. Asking the HR head to drop the request would have been the easiest to do. His conscience was ill at ease. He felt compelled to get the organization to face up to the need to address the real issue of declining levels of performance, contributed largely by an inactive top management layer. If there is one irrepressible problem with Vinod, it is this: he cannot sit still. He tends to look around and has this uncanny gift for picking up something that sticks out oddly enough that no one would dare to question. The more elusive the subject, the more determined Vinod would get to dig deeper. Since the performance of the company has been a persistent worry lately, he persisted in getting to know more. The HR head, unaware of the implications ahead, was only too eager to supply the information needed.

He discovered that there was a sophisticated equivalent of the ‘bench’ that is often created as a temporary berthing space for people at junior levels. Bench is where they wait for assignments between short term projects. While they have no assignments to work on, they may attend to anything that catches their fancy. They will however continue to receive all their entitlements; if is not their fault if there is no work found for them by their employer.

The practice of ‘bench’ for senior management, he noticed, carries a fancier description. For example, Seventeen people were on leave preparatory to transfer. Twenty one were awaiting order for deputation elsewhere. Four awaited a promotion, although these positions were to be approved by the board. Seven cases were termed OSD, Officer on special Duty. Fourteen were on ‘sabbatical’ and eleven were sent on an indefinite study mission abroad. One served as an alternate to Ombudsman while three more headed some sub committees and enquiry commissions. A three member team scrutinized the affairs of the Charity fund they managed. Vinod shook his head in disbelief. They totaled up to Eighty one positions!

If anyone wanted evidence for choking the future of bright young minds, this was enough! ‘Bottleneck at the top’ suppressed the opportunities for the youthfully intelligent workforce; no wonder they were disengaged and were attritting at the first opportunity. Experience measured in years was being mistaken for expertise.

Vinod looked up at the HR Head and wondered what he should do with this insight he had just now picked up.

He asked the HR Head to make a note at his request to the CEO asking for the need for all these positions to be examined, justified and put up to the board for approval. These eighty one positions added no value but cost the company Rupees forty Crores that would go to the profit line every year. Not a bad start for his first experience as an independent director on the board he felt!


Friday, October 15, 2010

Overstaffed and underutilized

Ramarao Patil is feared and respected most for his very deliberate approach to cracking any business problem. Unlike many of his other Vice Presidents in the company, he is neither flamboyant nor speaks an extra word. He is cautious about what he has to say. When he speaks, there is a note of finality that, eliminates a request for anything to be to be repeated twice or ignored.

The business was growing no doubt, but not exactly booming enough to merit a celebration. The issue in question was: the HR manager had put up a budget for 15% increase in wage bill towards promotion and increment. Many of his peers also wanted the HR manager to push it through so that they can ‘please’ their subordinates. There was a popular perception that people stayed back for money; if increments are substantially higher than earlier times, it will contain the levels of attrition as well.

Ramarao was simply shocked to learn about the proposal to increase the wage bill by 15%. The business had not grown so substantially to merit such a raise, he reasoned to himself. He unilaterally endorsed the principle of recognizing and rewarding the deserving people; but such people were a minority and did not account for more than a mere 10%. The balance 90% of the workforce, regardless of the levels of inflation or market pressure, definitely did not make a strong case for a 15% raise. Anyway, he decided to keep his reservations to himself. He expected a better sense of judgement to prevail upon the minds of the HR head, the CEO and the Board of directors. Should an occasion arise, he decided to table some facts that should help them reconsider the budget.

Just as predicted, the HR head convened a special meeting, chaired by the CEO and the CFO seeking an approval for the request for the increment budget to be approved. Everybody around the table stayed silent, hoping that the meeting will pass off peacefully without any protest so that they can return to their departments and pass on the cheerful news. Predictably, Ramarao broke the silence and challenged the HR head to justify his request.

“ The mood around the table suggests that I too join everyone round the table and let the proposal go ahead. I wish I could. I am not a HR professional. Yet, I am troubled by a few aspects that this committee should consider before according it the final approval.” Turning his attention to the HR head, “Sir, can you help me understand a few realities we have”?

  1. The salary bill for the company rides at 70% of the revenue, while for Infosys it is only 48%. These are the published figures from their balance sheet. It is therefore a fact that we are paying 22% more wages than the Industry leader. To raise the wage by another 15% on top of that would mean growing the gap with the industry leader to 25.3%. Should our endeavor be to reduce the gap or widen it?
  2. We have 400 managers and supervisors managing 2000 employees. That means we have one manger for every 5 workmen; the corresponding number for competition is 15. If we were to apply the ratio of one of supervisor for every 15 employees, we should have only 135 managers on our rolls; we have 265 managers in excess. What does it mean? Our supervisors are only 33% as productive as their counterparts in the best companies. Alternatively, the quality of our workforce is so poor that it needs three times more supervision. I am not asking for retrenchment; I want our team to address the pressing need for us to increase not the number of supervisors but the managerial productivity of the supervisory personnel.
  3. The 400 supervisors and mangers are stacked one upon the other in 11 layers of titles and subtitles. The competition has only 5 layers from the Chairman downwards to the level of trainees. Do these inflated titles and twice many layers give people the empowerment necessary to generate four times the productivity levels of our industry leader? We earn a mere US$ 3000 as profit per employee against their US$ 12,000 annually.
  4. Finally, we must dispense with this illusion that seniority should reflect the quantum increase in salary levels. Is each level made out to be distinctive enough to differentiate itself by competency levels and justify the wage bracket it is assigned?

I wish I could support everybody but I cannot. If all the profits earned are paid away as wages to employees, I am sure the CEO and the CFO will have to find additional ways of funding for depreciation, dividends to shareholders, money for launching new products, opening up markets and undertaking research & development. Kindly rethink this proposal from the standpoint of shareholders; after all, as senior managers, we also need to earn a dividend on the stock options we hold. Is a wage increase is really affordable and necessary? Please reconsider. Thank you.”


Friday, October 8, 2010

Communication gap

Rohit Pasricha, the CEO was surprised at the question posed by a fellow traveller sitting next to him on the flight from Seattle to New York. “When was the last time you asked a customer how easy it was to get through to your company?”

“ It never crossed my mind to do so. Why would you ask, I am curious to know,” replied Rohit almost defensively.

“Hi, I am Prasanth Jajodia, and I do angel investing. I was recently approached to finance a company that aims to enhance productivity in organizations in a highly innovative way. I was challenged by this team of youngsters who told me that most CEO’s don’t know how their people come across to their customers. If only the CEO’s focused upon improving the quality of interaction their staff have with their customers, they can gain substantially. Looks like they are right!”.

Rohit was very curious to know more. He waited till the cabin services were over when he asked Prasanth if he could know some more about what the youngsters had found.

“ I am not canvassing for their business. I can get them to talk to you provided you see value in what they have to say. I do not want to waste their time and yours. Not everyone likes to hear what they do not want to hear. Yet, in this case, I believe it may benefit you to hear what they have to say.

Unable to contain his curiosity, Rohit persisted, “ Just give me a hint of what they are talking about”.

“ I do not recall the full details”, continued Prasanth,” but here is a flavor of the communication gaps afflicting large corporations that their CEO’s haven't got the faintest clues about ”.

  1. Punctuality: How many of your staff are ready at the appointed time in their seats ready to go live on time with their customers? Do you know how annoying it can be to be kept waiting? How long do you think customers are put on hold before they hang up frustrated?
  2. Homework: How many of your people, in spite of knowing who they are talking to, are clueless about the status of relationship the customer enjoys with company and what unfulfilled needs she may have?
  3. Market orientation: Most customers who seek to be informed about the future, feel disappointed when the ‘experts’ on phone are so poorly prepared and ill informed about the future. Is the company being run by amateurs, they wonder!
  4. Handling questions: When customers ask a question, they expect a straightforward, ‘black or white’ answer. When the answers are evasive or vague, customers lose trust.
  5. Empowerment: To how many questions from customers will your staff say “I will have to check with my superiors and revert”. And how many of them will revert, if at all, without the customers having to remind them?
  6. Attention to detail: It is so annoying for the customers when the staff at the other end of the phone state the obvious and refuse to get to the bottom of the issue and resolve them
  7. Commitment to revert on queries, complaints and suggestions rarely follows a standard turnaround time commitment. The customers feel tired enforcing a deadline on the staff unilaterally.
  8. Ability to say ‘NO please’ politely and firmly. Most customer refuse to get pleased when your staff try to please them. When, they wonder, will people openly say what they will be unable to do, so that the customers can stop asking and go elsewhere.

Rohit wondered what he should do with this insight he had just now picked up. Guess what he did upon landing?


Saturday, October 2, 2010

Gardener & the guardian

It was time for getting away from the B School for summer internship. Students got busy with getting their bio-data readied and prepare themselves for Group discussion and personal interviews. If they did a good job during their internship, they may look forward to getting placed in the organization.

Raju Dayani was however not worried because he had his family business to get back to. Still he was asked to find out the nature of his summer project and notify his professor about his area of focus. At first Raju thought he will fabricate something and pass it on to the Professor. On second thoughts, he thought of calling up his Grandfather and asking him to assign a project. He was surprised to hear what his grandfather came up with. He was assigned a project code named ‘Project Green’ that required him to supervise the staff employed by the company to maintain the garden estate surrounding the office premises. Raju was disappointed that while his friends were doing advanced work of market research, business simulation and financial modeling, his genius should be spurned away attending to farm labor.

Raju has always been deferential towards his grandfather and trusted his judgment. Although his grandfather had started his family business of assembling home made Air conditioners just after he passing out of school. He never had the money or the time to attend college. Singlehandedly, he had built up the business from scratch that his father managed now. So why would the Grandfather think of this project for him? Raju chose to talk to him after dinner; being an early riser, his grandfather would retire to bed early, saving him the time. Else, the old man may take the whole morning to explain his rationale for the chosen project.

Me: “ Dadaji, I was wondering if we could talk about the summer job you wanted me to take up,” I asked.

GF: “ Ok, we can talk. What do you want to do “

Me: “ I wanted to do something more substantive involving thinking and financials. Supervising the staff assigned for upkeep of the greenery around me was not going to help me any way. how will I use anything of what I learnt at MBA?”

GF:“Why, what is wrong with it?”

ME: “ My work has to be evaluated and graded for creativity and distinctiveness. This project will give me no scope for that. Honestly, I do not know how my contribution will make any difference to the balance sheet.”

GF: “ There is a lot you can learn from the project work if you are open minded. Let me share with you what they do not teach you in your MBA. did they ever tell you why every organization is like a tree? The very word ‘organization’ comes from the word ‘Organism.’ An organism is anything that has life, grows and bears fruits. You sow seeds, it blooms, flowers and bears the fruits for us to eat. To have good fruits, you need strong roots. Strengthening the roots is the job of the gardener. You will have to provide timely nourishment and ensure that you do not allow the weeds eating away the food supplements.

Do they teach you in MBA where the roots of the organization are? Do they tell you how to distinguish between the seeds and the weeds? Do you get trained on the contents of the nourishment needed to strengthen the organizational roots?

Upon your return from your college with an MBA degree in hand, you will have to work with people only, not the balance sheet. I am not expecting you to keep my books or advise me on how to make more profits. I have enough people already hired to do that. What I need is a HR manager who will be the gardener and the guardian for the people we employ. They are the lifeline of the company. It is the most important function and that is why I want you to earn their respect this summer.

Once you earn their good will, automatically, I can turn the more operational side of the business over to you. Do you think this is not important enough?”

Me: “ Dadaji, you have really thought through this assignment of mine. I will convey this perspective of yours with my guide and ask him to decide upon the criteria for evaluation. Good night.”

Raju returned back to his college to surprise his classmates with the interesting analogy drawn by his grandfather between the organization and the tree.