There are many principles that we can learn from Lean way of thinking. This idea is mastered by Toyota. Many other manufacturing firms have been trying hard to replicate these principles to match Toyota's success.
Lean principles build on the philosophy of removing waste from the system by using various simplified processes. From manufacturing perspective, it is comparatively easier to see the waste such as carrying too much inventory.
From service perspective, it is comparatively difficult to see the waste. Hence, organizations struggle to effectively implement Lean principles in a service oriented business. One way to implement Lean principles for a service business is to look at avenues where people wait for other people/processes before they can proceed with their tasks. Hence, wait equals waste for a service business.
Friday, April 17, 2009
VRIO Analysis: Competitive Advantage
Do you have a resource that is of competitive advantage? Meaning something that competitors cannot match.
VRIO Analysis is a good tool that helps us establish whether a resource is of competitive advantage or not.
V stands for valuable. First question to ask if the resource is valuable. If we own something that nobody wants then probability is that resource is not valuable.
R stands for rare. Rarity provides competitive advantage. Aircraft engine technology is example of rarity.
I stands for immitable. Only variability and rarity does not provide competitive advantage. A resource must be difficult to immitate otherwise competitors can easily immitate our resource and we will loose our competitive advantage. For example, in drug industry patents provide protection for few years but after that anyone can copy the drug formula and provide the same drug to the market.
O stands for organization. Suitable organization is needed to support a valuable, rare and difficult to immitate resource to ensure maximum benefit utilization of such resource.
Traditionally, in agriculture/manufacturing economies a piece of land was considered of competitive advantage. It is probably the easiest way to explain VRIO principle (Imagine the advantage of owning land on new york's 5th Avenue or London's Oxford Street).
However, in service oriented economies, organization structure can itself be of competitive advantage. For example, Virgin corporation has a customer centric organization structure that is valuable, rare and difficult to immitate. Hence is of competitive advantage in itself.
VRIO analysis brings us back to the notion of strategy being "Fit". That is having every component of the organization aligned to deliver its value proposition. The closer the organization's components fit to deliver value the higher organization's competitive advantage.
VRIO Analysis is a good tool that helps us establish whether a resource is of competitive advantage or not.
V stands for valuable. First question to ask if the resource is valuable. If we own something that nobody wants then probability is that resource is not valuable.
R stands for rare. Rarity provides competitive advantage. Aircraft engine technology is example of rarity.
I stands for immitable. Only variability and rarity does not provide competitive advantage. A resource must be difficult to immitate otherwise competitors can easily immitate our resource and we will loose our competitive advantage. For example, in drug industry patents provide protection for few years but after that anyone can copy the drug formula and provide the same drug to the market.
O stands for organization. Suitable organization is needed to support a valuable, rare and difficult to immitate resource to ensure maximum benefit utilization of such resource.
Traditionally, in agriculture/manufacturing economies a piece of land was considered of competitive advantage. It is probably the easiest way to explain VRIO principle (Imagine the advantage of owning land on new york's 5th Avenue or London's Oxford Street).
However, in service oriented economies, organization structure can itself be of competitive advantage. For example, Virgin corporation has a customer centric organization structure that is valuable, rare and difficult to immitate. Hence is of competitive advantage in itself.
VRIO analysis brings us back to the notion of strategy being "Fit". That is having every component of the organization aligned to deliver its value proposition. The closer the organization's components fit to deliver value the higher organization's competitive advantage.
Ethical Dilemma? Try Newpaper Test
Ever faced an ethical dilemma or a tough decision ?
One way to manage such tough decisions is to use Newspaper Test. Yes - it means that you should not do anything that you would not like to have printed on the front page of newspaper.
One way to manage such tough decisions is to use Newspaper Test. Yes - it means that you should not do anything that you would not like to have printed on the front page of newspaper.
Monday, April 13, 2009
What is Strategy?
We all have heard about strategy. Every organization has various strategies i.e. operations strategy, management strategy, HR strategy etc.
Recent management literature challenges this notion of having multiple strategies within the organization and suggests that at its core an organization should have only 1 strategy that should be closely aligned to deliver its core objectives.
That leads to the questions of difference between objectives and strategy. Objective defines what an organization wants to achieve. For example, An organization's objective can be defined as "Achieve 10% return on invested capital in next 1 year with 97% certainty".
Strategy defines how organization will achieve those objectives. A well defined strategy answers three questions i.e. "Who is the customer? What does he value? and How organization is delivering that value?". For example, strategy for a local Mexican cuisine is "provide local household (within 10 km radius), family oriented setting to enjoy the pleasure of Mexican meal or beverages in a relaxed environment".
Once the organization answers those big questions then such questions further percolate down within organization levels where individual departments are aligned to deliver strategically defined value proposition. In essence, strategy has multiple levels where each lower level's organizational strategy is tightly aligned to deliver the value proposition of higher level strategy. For example, extending the strategy of Mexican cuisine - we can say that beverage department can have a strategy to sell freshly made frozen margaritas. In this case, beverage department's strategy builds on top organizational strategy i.e. selling frozen margarita which is a Mexican beverage.
Recent management literature challenges this notion of having multiple strategies within the organization and suggests that at its core an organization should have only 1 strategy that should be closely aligned to deliver its core objectives.
That leads to the questions of difference between objectives and strategy. Objective defines what an organization wants to achieve. For example, An organization's objective can be defined as "Achieve 10% return on invested capital in next 1 year with 97% certainty".
Strategy defines how organization will achieve those objectives. A well defined strategy answers three questions i.e. "Who is the customer? What does he value? and How organization is delivering that value?". For example, strategy for a local Mexican cuisine is "provide local household (within 10 km radius), family oriented setting to enjoy the pleasure of Mexican meal or beverages in a relaxed environment".
Once the organization answers those big questions then such questions further percolate down within organization levels where individual departments are aligned to deliver strategically defined value proposition. In essence, strategy has multiple levels where each lower level's organizational strategy is tightly aligned to deliver the value proposition of higher level strategy. For example, extending the strategy of Mexican cuisine - we can say that beverage department can have a strategy to sell freshly made frozen margaritas. In this case, beverage department's strategy builds on top organizational strategy i.e. selling frozen margarita which is a Mexican beverage.
Saturday, April 11, 2009
Book Review : "The art of Happiness at work."
This book provides Dalai Lama's perspective on happiness at work. According to the book, workers can be divided into 3 categories based upon how they view their work i.e. job, career and calling.
People who view their work as a job. For such people, work brings financial benefits. These people do not worry much about job title or type of work as long as work brings sufficient income.
People who view their work as a career. For such people work means advancement. Their identity is tightly linked to their job title and they seek a higher job title at all times.
People who view their work as a calling. For such people, work and personal life is interlinked. If they could then they would work without any reward. These people see their work in bigger context and understand the impact of their work on society.
This book encourages people to find the type of work where one sees the work as calling and is intrinsically motivated to do such work. Working in such area will provide tremendous happiness.
Further, the book suggests that people can be happy even if they view their work as a job or career. But in such case one must realize that happiness is temporary.
People who view their work as a job. For such people, work brings financial benefits. These people do not worry much about job title or type of work as long as work brings sufficient income.
People who view their work as a career. For such people work means advancement. Their identity is tightly linked to their job title and they seek a higher job title at all times.
People who view their work as a calling. For such people, work and personal life is interlinked. If they could then they would work without any reward. These people see their work in bigger context and understand the impact of their work on society.
This book encourages people to find the type of work where one sees the work as calling and is intrinsically motivated to do such work. Working in such area will provide tremendous happiness.
Further, the book suggests that people can be happy even if they view their work as a job or career. But in such case one must realize that happiness is temporary.
Wednesday, April 8, 2009
Book Review: "The Polyester Prince: The Rise of Dhirubhai Ambani"
This book is an unauthorized biography of Indian business tycoon Dhirubhai Ambani (DB Ambani).Dhirubhai Ambani founded Reliance industries limited, one of India’s largest organization by market capitalization. Ambani started his business in 1969 with a capital of $500 and his fortune, at the time of his death, in 2002 was worth $6 billion. This book offers some insight into how he achieved this phenomenal growth.
There are 3 key messages in this book one for individual entrepreneurs and two for organizations in general.
From individual perspective – Apart from having the vision and hard work – it is the ability to energize masses to have a shared vision that drives individual and organizational growth. Ambani successfully convinced common man i.e. mum and dad investors to put their life savings in reliance shares in return for expected high rate of return. His company had the largest number of shareholders for any company in the world during the 70’s before the privatization of British Telecom. Hence, Ambani is often credited with starting the equity cult in India.
For organizations – this books highlights reliance as a test case for backward integration as a growth strategy. Reliance started off as a company trading in polyester yarn, then it started manufacturing polyester, then it went into petroleum to manufacture DMT (a key ingredient in polyester manufacturing). Backward integration strategy provided almost monopolist control to reliance in polyester market.
Additionally, the book highlights the importance of external factors for an organization growth. In its early years, Reliance realized that the Govt of India was number 1 external factor affecting business growth in India. It employed the strategy of effectively lobbying the government to get favorable support. This govt support coupled with backward integration strategy was the key driver of Reliance growth over the years.
Disclaimer: I do not have any personal opinion against or for Ambani. I read the book to gain management insights into Ambani's growth and have shared the same above.
There are 3 key messages in this book one for individual entrepreneurs and two for organizations in general.
From individual perspective – Apart from having the vision and hard work – it is the ability to energize masses to have a shared vision that drives individual and organizational growth. Ambani successfully convinced common man i.e. mum and dad investors to put their life savings in reliance shares in return for expected high rate of return. His company had the largest number of shareholders for any company in the world during the 70’s before the privatization of British Telecom. Hence, Ambani is often credited with starting the equity cult in India.
For organizations – this books highlights reliance as a test case for backward integration as a growth strategy. Reliance started off as a company trading in polyester yarn, then it started manufacturing polyester, then it went into petroleum to manufacture DMT (a key ingredient in polyester manufacturing). Backward integration strategy provided almost monopolist control to reliance in polyester market.
Additionally, the book highlights the importance of external factors for an organization growth. In its early years, Reliance realized that the Govt of India was number 1 external factor affecting business growth in India. It employed the strategy of effectively lobbying the government to get favorable support. This govt support coupled with backward integration strategy was the key driver of Reliance growth over the years.
Disclaimer: I do not have any personal opinion against or for Ambani. I read the book to gain management insights into Ambani's growth and have shared the same above.
Monday, April 6, 2009
Does Marketing add value ?
We all have perceptions about marketing. Unless you are a cave man, chances are you come across marketing routinely. So the question is - does marketing add value ?
My early professional career was spent thinking that Marketing meant a department full of well dressed good looking people who knew only 1 thing i.e. talk that only other people in marketing could understand.
As with many other things, my perception about marketing has changed. Now I understand the broader context of marketing and that everyone does marketing. Sending resume to prospective employers is an example of marketing.
From an organization perspective, Marketing helps achieve various objectives such as brand identity, potential market identification etc.
I think Marketing adds most value by identifying potential growth avenues that are mainly achieved through Market Research. Exactly what Apple Computers did with iPod. They identified potential gap in the market i.e. PC users who listens to songs on computer and have a large collection of songs that could not fit easily in available formats at the time. Hence the iPod.
Apple did that by answering a simple questions i.e. Is there a Gap in the market ? And is there a market in the Gap ?
Hence, marketing can add value by helping organization answer this question to promote growth.
My early professional career was spent thinking that Marketing meant a department full of well dressed good looking people who knew only 1 thing i.e. talk that only other people in marketing could understand.
As with many other things, my perception about marketing has changed. Now I understand the broader context of marketing and that everyone does marketing. Sending resume to prospective employers is an example of marketing.
From an organization perspective, Marketing helps achieve various objectives such as brand identity, potential market identification etc.
I think Marketing adds most value by identifying potential growth avenues that are mainly achieved through Market Research. Exactly what Apple Computers did with iPod. They identified potential gap in the market i.e. PC users who listens to songs on computer and have a large collection of songs that could not fit easily in available formats at the time. Hence the iPod.
Apple did that by answering a simple questions i.e. Is there a Gap in the market ? And is there a market in the Gap ?
Hence, marketing can add value by helping organization answer this question to promote growth.
Friday, April 3, 2009
Career Advice from Warren Buffett
Question: How do I choose the line of work ?
Buffett's response: Imagine you have enough money that you have everything that you ever wanted and you can buy whatever you want. Then what will you do ?
Management Lesson: Buffett's response echoes intrinsic motivation theory. Intrinsic motivation occurs when people are willing to work without any tangible incentive. It is closely linked to the notion of hobby.
Reference: MBA students from Florida university interviewed Warren Buffett (late 2006). Video available on You Tube.
Buffett's response: Imagine you have enough money that you have everything that you ever wanted and you can buy whatever you want. Then what will you do ?
Management Lesson: Buffett's response echoes intrinsic motivation theory. Intrinsic motivation occurs when people are willing to work without any tangible incentive. It is closely linked to the notion of hobby.
Reference: MBA students from Florida university interviewed Warren Buffett (late 2006). Video available on You Tube.
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