#12 Fat, Lazy and Blind

The quest for competitiveness for Businesses usually starts with the three questions. Consider a simple example, ABC Ltd is to compete in the market and one of their main performance indicators is the Return on Asset (Return/Total Asset). The question the manager first asked is how they can improve on this performance indicator in order to be ahead of competition.

The manager first looked at how the business can remove excess idle resources which are not utilized. They asked the question “are we fat?”. He first will go into the quest to remove the excess unutilized fats lying around. He starts disposing idle assets and sometimes even firing redundant staff. The first step is called “restructuring”. This step is the easiest for them to do in order to compete as it is easily within their control. In terms of performance indicator, it shows an improvement as total asset reduces. However, few months later, the competitor comes biting. The manager then feels the need to improve furthermore.

He then looked into the second area to improve and asked the question of “are we lazy?”. Is the people not working hard enough or is the machine not as productive as before. The manager then squeezed every single employee to work their ass off. The manager even replaced old machine with new machine in order to improve the productivity. This step is called “reengineering”. When we look back at the performance indicator, it increases the numerator which now generates more output thus translating to higher returns (assuming production is equals sales). Overall, performance indicator improves and the manager feels good about it.

Few months later, one of the closest competitor went through a fully reinvention of their processes which is relatively new to the industry. As the competitor has been working on it for years, they are able to be the first one to roll out this new process. The manager of ABC Ltd then looks into their business and notice that there is something which they are not seeing. They asked the question “are we blind?”. Are we measuring what is not supposed to be measured? Is there any flaw in our measurement system? Are we not seeing what we are supposed to look out for? They now lacks behind their competition that is constantly looking for new ideas and innovation.

In this phase of competition, companies fail because they fail to recognize these three questions concurrently. They only start to look when everything fails and this can be very costly to businesses. It is as if a fish on a hook before discovering land. They make the mistake of making the move which is the easiest to achieve. This may be drawn from poor reward system where companies give rewards on performance based indicator and not idea based indicator. Of course, this does not mean that performance based indicator is flaw (able to motivate people to perform, however it is not in the context of this article). The lesson to take home is to recognize the three questions concurrently. Professor Govindarajan proposed to have a separate unit to address the question of “are we blind” as it is through external unit that is able to diagnose industry weaknesses. This involves develop an own benchmark as opposed to industry comparison, creating own map and unlearning the past. As for the internal unit, the question of “are we fat?” and “are we blind” should be recognized concurrently as time is of essence especially in this phase of competition. It is foreseen that competition will become more intense in the future.

“Business competing in the future should have a holistic view of where their business is going. This will come from addressing the three questions of “are we fat?”,”are we lazy?”, and “are we blind?”. The first two questions cover the organization transformation while the last question covers both industry transformation and organization transformation. By having concurrent action, the business is in the proper quest for competitiveness”

 Inspired from: Competing for the Future by Gary Hamel & C.K. Prahalad

Photo taken from: http://www.buzzom.com/2011/02/nokia-on-the-lookout-for-os/

Organizational Disconnection

“…top management and employees are disconnected. That is still true-in fact, if you look at all the scandals, it’s because the disconnect became even larger in the last ten years…there’s a huge disconnect between all managers in multinational companies-not just senior managers-and 5 billion potential consumers. Because we don’t see poor people, we don’t know how they live.” -Gary Hamel & C.K. Prahalad-