Changing Crisis to Opportunity

Almost every organization I know off has gone through a number of revisions in their forecast for 2009. Unfortunately almost all the revisions are downward. With the loud background noise of doom and gloom, there is still opportunity to keep business strong, and dare I say growing. A friend and colleague - Jareon in his business plan, used the expression changing crisis to opportunity, and this really should be the theme for 2009!

Financial engineering and unsustainable borrowing by enterprises and individuals fuelled growth in the last decade. Along with the credit crisis and moral dilemma of greed and rampant consumerism, the conditions also led to commercialization of technologies that are extremely beneficial.

The spiritual gurus of all religions have added their fair share of criticism to the current world and business affairs. The Archbishop of Canterbury Rowan Williams has said if anything good had come of the economic crisis, it had presented a society driven by unsustainable consumption with a "reality check". Recently Pope Benedict weighed in on the world economic crisis and the ethics of the financial community, branding the global financial system as “self-centred, short-sighted and lacking in concern for the poor.”

As much as we may need to reflect on our moral bearings, I am concentrating on the opportunities in this crisis.

Much derided consumerism that demanded gadgets like new phones with new features at increasingly lower costs has also helped us commercialize wireless technologies that make our every day life better. Semiconductor technology used in consumer electronic devices has improved exponentially and has contributed to advances in health sciences, transport, telecommunication etc. These same technologies however have also contributed to the weapon technologies that take lives. But fear of crisis or misuse should not paralyse us. So what are the opportunities in this crisis? Here are some thoughts.

• From a financial perspective ; add value to your customer. If you are a bank – be a bank, if you are a financial advisor, understand the financial instruments you are selling, if you are involved in synthesizing new financial instruments, then understand the math behind it and be transparent.


• From a technology perspective, there are a number of problems facing humanity that need to be solved, and can create wealth in the process of solving. For example ;

1. Over 2Billion people do not have decent roofs over their heads. Just in urban areas alone there are 500M poorly housed people. Yes low cost housing can be a profitable business!
2. Businesses that help reduce the environmental impact of our lifestyles – unless of course you believe that “climate change” is a hoax. Technologies like Cisco TelePresence On-Stage Holographic Video Conferencing can really make a difference, and be profitable.
3. Robotic or autonomous systems to help the increasing elderly populations. Or sensor based technologies that help monitoring the elderly. A great example is the ishoe that could help the elderly from falling.

The list is long but the point here really is that there is a lot of wealth to be generated in business by concentrating on generating value to the customers in ways that can fundamentally improve ones quality of life. The biggest opportunity in the current crises is to focus your enterprise on value creation.

Unfortunately simple ideas now have complex connotations. I got 11.2 Million links when I googled "value creation". I have most of my experience in technology companies, so I try to define value creation simply as “Does the solution (product or services) that you provide fundamentally improve the circumstance of your customer” If the answer is an emphatic YES, then you pass the first stage of value creation. The next phase clearly is the economics of your solution.

You are smarter than you think and you are greedier than you admit

Bernard Madoff - made off with $50B. Are you fuming at the guile of the man to run a giant pyramid scheme, are you envious that he got away with it for so long, or are you asking “how could this happen”. The reason that Madoff and for that matter many other investment and financial experts got away with multi-billion dollar scams is that they preyed on two essential human characteristics. One is that most of us believe that we are not smart enough (do not have the time, interest, etc….) to understand the modern financial frame work. The second being, we do don’t want to miss the boat. Every body we know is making lots of money in the market, and we don’t want to be left behind.

If any financial instrument can not be explained then it is a scam. If the “expert” uses words that are not substantiated by facts, then he is a fraudster. An example used in the Madoff case. Fairfield a leading investment fund with ties to Madoff had in their literature for Premier Sentry fund billed their “value add” as a way to tap Mr. Madoff's trading expertise using "algorithmic technology" while Fairfield stood close watch, conducting "systematic investment compliance". Words to intimidate but really with no substance behind them, yet they got people to part with billions of their dollars.

Individual investors paid advisors who invested in funds that took lots of money in fees and commissions to invest in other funds that they knew even less about. So if the “business of investing” was not a pyramid scheme then what is? It is amazing to see fund managers who are very well paid, blame other fund managers for the losses they have seen in their funds.

The moral really is that the people you are investing your money with really don’t know that much more than you do, but hope that the people they are investing with know a whole lot more. This is a classic combo intellectual-financial pyramid scheme. The reason that these schemes work so well is because we all want to make our money grow by leaps and bounds. But then this is a problem only for the people who have money. The 3 billion plus people who don’t have any savings worth talking about wonder why $$1.5 trillion is being spent on bail outs and stimulus packages, and yet they don’t have enough to eat!

Enjoy the Journey

One often tends to separate business life and philosophies from ones personal life, leading us to live life in what we believe to be separate silos. But are there really separate silos in the lives we lead? As I was thinking about this I wandered in and out of the personal and the professional realm.

I was with a personal friend DY , who was lamenting the sudden changes in his life caused by the illness of his brother who is suffering from a nervous system disorder. He said that his life was enveloped in sadness to see his brother who was very vibrant and independent reduced to needing assistance for even the simplest of tasks. The thing that really made me think was when he said that his life was paralysed by the pain he felt for his brother, and that he could not visit his brother since it pained him terribly.

Knowing DY for a long time, I also knew that he was a grandfather of a beautiful one year old; he has a son who is rising his way up the world rankings in tennis, has a wonderful family. And, he is a successful entrepreneur. Yet he felt paralysed. And in the bargain, his grand child was not getting to know a really wonderful man, he was increasingly being uninvolved in his sons life, and he was unable to be supportive to his ailing brother. In his quest to find meaning in his life, DY has forgotten to enjoy the journey of life.

In professional life too, people often get focused on goals, and forget that the journey needs to be cherished, with a lot of lessons to be learnt along the way. As the world faces serious economic crises, the successful organizations are the ones that can enjoy the journey. What I mean by this is that organizations that get paralysed by fear of failure will not succeed. Scare mongering in an organization is typically the tool of the conniving or the stupid.

This is the time to invest in your competencies and core areas of the organization. This is the time to fight the desire for too much control by a few individuals and organize the company into smaller blocks with more leaders who are closer to the core of the business. This approach allows many different experiments and levels of risk to be taken at an atomized level, while ensuring no single block or atom can bring the company down if a wrong approach is taken.

Unfortunately in many companies the effort of tackling a recession gets hijacked by support functions that do not cater directly to customer, product strategy, or technology. As groups in companies directly involved with revenue generation, product development and product and market strategy get busy in tackling the challenge of growth from the front lines of the business, support groups with best intentions start driving what they believe is efficiency. Hence the importance of an effective executive who understands the business and is not preoccupied by any one or two functions of the business is important to ensure that the appropriate balance exists. Some examples of good intentions leading to decisions those are bad for business;

1. A large consumer and health care company decided to cut costs via consolidating IT infrastructure and applications for the more than 12 business units they have in a centralized operation. The great intention that drove this action was to avoid duplication of roles like business analysts and programmers. And to negotiate best prices with service providers to the world wide facilities. Very good intentions, however the results to the business were negative.
The support managers for the infrastructure group optimized on “cost” alone, and were accountable only to "saving cost". This resulted in choosing a service provider that had bad coverage in some of the fastest growing geographies and the business managers had to deal with the lost opportunity cost, with poor connectivity for over 12 weeks. While the support group was successful, the business suffered.

The decision to centralize the applications group resulted in the decision being made by the support managers that all the SAP applications would be standardized uniformly for all the bsuiness units to manage upgrades and SW maintenance more cost effectively. Again great intentions, but the impact on the business was negative. When a lot of the back office order taking and supplier related software was standardized for a business that deals with customers and suppliers from as varied a background as soaps, and sanitary napkins to perishable edible products to pharmaceuticals, the standardized ordering and inventory control application caused more people to be hired in the warehouses and distribution centres than was previously required, but the support team with the centralized software considered the implementation a success. The problem gets accentuatedd when the players and the score keepers are the same people.

2. The CFO of a successful technology company decided that the best strategy to grow was to change the compensation system of the sales team, and convinced the sales leadership that it was a good idea. As an experiment the company started in one of the geographies to give a large additional bonus for every percentage point of revenue inachieved above the 5 year CAGR in that g territory. The initial results were great the sales team in the particular geography was doing well. However, a year later, looking into the details, it was found that 82% of the growth over the CAGR came from contracts negotiated with existing global customers to buy from the said geography. This resulted in broken relationships with customers and internal organizations of the company. The CFO actually announced the success of this experiment, and suggested worldwide change in compensation schemes. Fortunately people closer to the core of the business took the lead in understanding the dynamics and had the final say .

The examples of good intentions with bad results are many. A bad economy is the time to differentiate your organization and your skill sets from the rest. This is the time to enjoy the journey, know that there are no shortcuts and grow personally and in business by providing value to your customers, your organization and to your personal life. Hopefully DY will learn to provide the tremendous value he can deliver to his family.

Incentives to affect lasting change!

I was at a forum discussing “Going green in Asia: How companies are responding to climate change”. Patrick Stahle, the Chairman and CEO Asia Pacific of Aegis Media spoke about “Green” and branding and the issues that companies need to think about when they claim to be “green”. One of the measures his company took to educate themselves about their impact to the environment was to measure the carbon footprint at each of their offices, and then encouraged a 20% reduction to the carbon footprint at each office.
A senior manager from a logistics company asked if Aegis gave cash incentives to their staff to achieve the goal. A lot of people actually nodded as though this was a good idea. I then spoke separately to senior employees of some other companies and many of them had the view that incentivizing employees with cash to set behaviour was a good idea.
Early in my career I used to believe that setting short term cash based incentives to achieve long term behavioural change was a good idea, until I saw that these incentives did not inculcate long term behavioural change. In-fact it did more harm than good because when the incentive was stopped after the goals were achieved, people got demoralized and drifted back to previous behaviour. This does not mean that you do not reward staff with monetary awards. But if you want to change behaviour in an organization, then short term cash rewards do not help.
The only thing that instils organizational behaviour change is education and perseverance with the team to affect change. The individuals in the organization need to understand how the change in behaviour helps them and they must want to change! If you think your employees should be paid more then just increase their salary with out gimmicks. But if you want to truly affect change then you need to put in the time and perseverance to educate the team on the reasons and also show them the results.
Now the topic of setting behaviour is even more important in current circumstances. We have bankers who are incentivized by governments through bailouts (stimulus package, or whatever else you want to call it) to run their companies better than they did in the past? So we suddenly expect these same people involved in the mess, with a few more billion dollars pumped into the system to do a better job?
We expect the same employees at auto giants to get a few billion dollars to suddenly do a better job of running an auto company?
I have strayed over a range of issues to drive the point that often even experienced managers believe that rewards result in lasting changes to ones behaviour. The reality though, is that long termbehavioural changes result only if individuals in organizations can be educated about the need for change and can be convinced that it results in a tangible good. The other way of course is to hand out harsh punishments or large fines continually to make fear set behavioural change – Just kidding!!
Last week I was talking to a politician from a neighbouring country about corruption. He is from a South East Asian country that is known to have rampant corruption. He knew I lived in Singapore and he turns around and tells me "each country has a way of making people pay – in some it is through bribes and in some it is through high wages of the civil servant, but the end result is that we all pay for what we get". there is truth in this but I would rather have the civil servants paid well instead of having than them paid low and normal citizens having to individually compensate them for services.

Everybody loves a good bubble!

We had some great years in the stock markets, real estate, commodities market, and in finance. When the times were good we walked around with $$ signs in our eyes, when times became bad we blame the system, the politicians, the conservatives, the liberals and everybody in between. Of course we ourselves are not to blame; we are innocent bystanders!


Adding to the millions of home grown experts on the situation, I add my top 3 culprits:

1. We the consumer, small investor, the normal person on the street : We enjoyed the highs, always looked for better yield, borrowed more than we could afford, bought gadgets and homes we did not need or could not afford, travelled more than we needed to, and demanded more and more wages than were often justified. We invested in things we did not understand, we cheered when our investments brought us returns that were too good to be true. All these things add to the causing the bubbles we have seen in the recent past. All of us individually contribute to mass hysteria and we have to be cognisant of this.


2. Ideology without pragmatism: Complete belief that markets will correct themselves without any oversight, or the belief that an overly regulated markets will avoid bubbles and speculation are both absurd. There was enough regulation, and laws in all the major economies to avoid the blatant misuse of "financial instruments" but the regulators and politicians were asleep on the wheel. The same politicians, who claim capitalism and free markets to be the bane of society, are the ones who in countries like the US forced banks to loan money to subprime borrowers, or in countries like India regularly force banks to pardon loans to subprime borrowers. The human spirit should be free to innovate and experiment in order to grow, but there should also be an implicit understanding that there should be checks and balances to ensure that the freedom is not misused or criminalized.


3. Business without core values: Insurance companies, regular banks, investment banks, ratings agencies all started drifting from their core purpose and values. They all became companies with no other compelling vision other than "make money at all costs". And we all encouraged this behaviour. The problem with "make money at all costs" is make money for whom, the customer, the investor, or the employees?? Each has a different answer.


Swaminathan S Anklesaria Aiya of the Economic Times has published a well written article titled Who murdered the financial system? This article gives some insight into some of the causes of the muddle we are in, and rightfully suggests that for a few years we will remember the lessons learnt from 2008, and then in a decade or two we will be back to creating new bubbles. The unfortunate fallout are the retirees and the people who were just about to retire. But for the rest - as much as the present scenario is depressing it is good to remember that every bust is followed by periods of growth. So you gotta love the bubbles!

Curing an illness and killing the patient - What cures are you contemplating for your organization?

Being in a business in which no industry segment is more than 10% of our revenue gives me the good fortune to work with many different industries and to build professional and personal relationships with people across different industries.

Recently I was asked to attend a strategy meeting of an FMCG (Fast moving consumer goods) company. The Asia head of this company wanted to get an outsider perspective on the leadership and it's discussions in a time of slowing economy.

Even in this turmoil filled economy I continue to be an unashamedly free market capitalist. But the discussions at the strategy meeting felt hollow and incomplete. The whole conversation had all segments of the business concentrate only on the benefits (short term) to the share holders and ignored all the other stake holders in the company.

Let me explain: Every business has 4 major stake holders; the customer, the employee, the investors and the supplier. About 80% of the discussions at the meeting centred around spinning things for the investor conference. About 10% of the time involved talk about employee morale. The remaining 10% was spent on pressurizing suppliers into providing better terms and repackaging existing products in different ways to add profits. There was 0% discussion on providing tangible value to the ‘CUSTOMER’.

Investors in a business are clearly important. They are also fickle, and many of them care more for short term profits than on long term success. The employees, at least a vast majority of them want to build successful careers, wealth and value for themselves and the companies they work for. They have longer term loyalty towards the company. The customer, wether he buys milk, or she buys instant noodle, or an electronic gadget is the one that will ensure long term success or failure of the company.

I asked the question to the group that I was observing – why their focus was so heavily lopsided towards making the investor happy, at the expense of all the other stake holders. None of the senior execs had a reasonable answer that they themselves could rally behind. After about three hours, the discussion got shepherded towards value creation and profitable growth. In the time of economic turmoil, common sense often takes a back seat. It is important to keep the core values of your business in sight, develop tangible value to all your stake holders, and most importantly not get caught up in financial and tax engineering to make your company look better to Wall Street. In panic people often come up with ideas that could create short term finacial gains but could end up killing the organization.

Ensure that the fundamentals of the business with and the core values do not get diluted by “smart talk” about fake value. “It is too complex to explain or understand” is the most commonly used line by engineers of fake value –whether it be financial engineering or engineering products or services with limited value to the customer.

Value based enterprise

There has been and will continue to be thousands of articles about the current economic situation. The people on the far left will call this failure of free market capitalism, and the far right will blame the Bill Clinton types for forcing banks to lend to anybody with bad credit......
In all this finger pointing a few basic facts and fundamentals are missed out.

Human enterprise is based on value creation. In the last few years this basic fact has been ignored. Business organizations and their leaders resorted to increasingly complex financial instruments that actually obscured all visibility to the fundamental measures for any successful business. Hence wealth creation was not based on any real tangible value to people or the economy in general.
In the past even though the Internet or dot-com bubble left a lot of us with broken wallets, at the very least it also left us with great infrastructure for progress in telecommunications, IT, and worldwide collaborative projects. Unfortunately this time round the financial bubble has left us with no basic tangible value.
Whether we need a bail out package, or what a bail out package should like can be debated for ever, but the only way out in the long term is to engineer truly valuable technology or products. An area of enterprise that has great potential for value creation, both in terms of social and economic value is "green technologies". The organizations that can drive value through true innovation in green technologies have a great chance of sustainable value creation. Having said this there is also the potential of the "green bubble"

The "green bubble" would constitute of organizations and governments painting everything they do with a "green "twist, knowing full well that there is no true value to society. Then again this becomes a game of fake wealth creation and hence a bubble.

Hopefully human enterprise in the long term will mean value creation in socio economic terms. Currently, through the credit crises, the china milk scandal and the hundreds of different "easy money" schemes we come across daily , we are stuck in a mode of wealth creation with no social benefits.

Being an optimist, I believe in the long term good of the human enterprise. But also being a pragmatist, I will review all green initiatives with a microscope to ensure that there is tangible socio economic value to the enterprise.

Just as I finished my draft I saw a great article in the New York times by Thomas L. Friedman titled 'Green' the bailout. He concentrates on primarily an American perspective.

Solving your solution

In a conversation with Kirtimaya Varma the Editor-in-Chief of EDN Asia, he mentioned that he was on his way to publishing his second book , a humorous book on the flourishing IT business. In this context he mentioned "solving your solution"(I believe it is the title of his new book ).

This got me thinking about our lives today. How often are we "solving solutions". i.e trying to solve a problem that either does not exist, or is grossly misunderstood. "help" of this nature most likely worsens the situation of the people/organizations that are the "target" of this help.

In business we see a number of examples of "help" turning into a nightmare. I have seen organizations spend millions of dollars on tools that are supposed to help make the organization more efficient, but instead lead to confusion. The worst case is when the organization changes it's "measures of success" to make the new system look good as opposed to make the organization better.

At a professional level we consciously or subconsciously are always trying to increase our value to an organization. So what happens is that as one builds an organization, often the number one goal changes from a business goal to that of self preservation and then self enhancement.

A great real life example at a local technology company in Singapore:
The company grew to a size of about 80 people in a matter of 3 years and they needed to track leave balance and other HR needs. So what starts out as a small team to help track employee leave balance for a company then in 2 years took the shape of a HR IT infrastructure organization that suddenly needs a budget and people etc. Now the company has 500 employees, of which there are 25 IT professionals in HR who are continuously building and improving a HR application for the company. This same company has another 18 IT engineers supporting the company, has 22 database programmers and 15 analysts, and 14 people on the web team, all providing support to the companies engineering, sales and marketing teams, and is headed by the person who originally was tasked to find an application to track employee leave balance. In December of 2006 the engineering team was told that they would be "helped" to run their team better because now they can track on the web the leave balances, the salaries , and another 10 things that I can't remember.
In January 2007, the engineering VP, and co founder who is a close friend of mine asked for help for some web features that the engineering team needed for testing their new product and for supporting the release of their new platform. The reply he got was that the business decided that his request was not a priority, and that his request would not be attended to until august 2008. He later found that the "business decision" was not made by people that that designed the products or brought revenue to the company but was made by the the team of the person who 3 years earlier set up the HR IT team. He also found that the things on the list above his request were evaluation of web configuration tool to standardize product data sheet representation on the web (the sales and marketing team did not ask for this), tuning the HR database to allow tracking of leave balance to the hour as opposed to half day periods (none of the managers had asked for this) , automating the mail room distribution , etc... To cut a long story short, in May of last year, the CEO dismantled the infrastructure team, out sourced the work to a company that specializes in implementation of business systems and web development.

Now the business decisions are made simple and transparently because only the "core" functions to the company have the ability to prioritize business needs.
There should be no hesitation in a business to tell a group what position they play. On a soccer team if everybody is a striker then the team loses.

In world affairs too there are many examples of "solving Solutions". Many of the recent wars and regime changes have done little to help any of the people that were supposed to benefit. And in the current banking crises let us see what all the government and central bank "help" does. Does it "help" the economy or does it help the people who caused the problem. Time will tell....

Machine autonomy and intelligent robotics systems - tremendous potential and danger

The nature of my job, exposes me to many areas of research and development. Robotic systems, autonomous vehicles, cognitive systems and other similar areas are currently hot topics in many research labs in academia, industry,and of course the military.
There are a number of groups involved with research in this areas. One of the most useful is that of robotic systems that can help assist the elderly. Different aspects are being researched by various groups. Some research groups are looking at individual autonomous systems that help the elderly in specific areas, say bathrooms, or kitchen. Other groups are looking at humanoid robotic systems that integrate a variety of capabilities and help in numerous domestic tasks.

Billions of dollars are being spent by government and private organizations on robotic or autonomous systems. The most funding of course comes from the military. Most of the military projects are aimed at bomb detection and disabling systems, scouting systems, systems to assist soldiers in hazardous areas etc. There is also substantial government funding worldwide on autonomous systems that can assist in civil defence like fire department, and security management.
The developments in many of the research labs are incredible. But as most inventions, some of the uses envisaged are also incredibly lethal. I wonder how much of the motivation for these systems is to take away public pressure on governments that go to war. The more the wars are automated, the less body bags the citizens see. Saving human life is a great endeavour, but these same inventions can allow the government to go to war without accountability, because often those of us coming from, and living in countries where people opinions count, look at body bags on our side and not at the cost of the war or the lives taken in the regions our politicians decide to wage war on. We need to make sure that our money does not give governments a licence to kill.

Why it is difficult to be M's Friend - hold a mirror to your face

I had a wonderful vacation with the family for a few weeks in Kerala often referred to as God's Own Country for the splendid beaches, mountains, back waters and much more. Most of the time I was not connected to the rest of the world (no news, TV, computers, etc...) and it was nice to have a few days of splendid isolation and give a 100% to the family. The photos attached are taken in Poovar about 30 KM from the capital city Trivandrum. Being away from the daily grind also gave me time to reflect and solidify some ideas about business, economics, politics and technology.

I have a friend who when I asked him if I could mention his name in the blog, said no, so I'm going to call him M. I have known M for over 10 years and consider him a friend and a sounding board for ideas. I also discovered that many people find it hard to be be his friend. I think I know why. During any serious discussion or debate, M holds a mirror to your face, i.e. he asks the hard questions, questions your motive, your assumptions, and your agenda. He does this purely from the intellectual need to establish clarity, both for the speaker, and the audience. This approach, however evokes hostility, because it is seen as questioning ones authority, integrity , etc.. Of course like all of us M is not perfect either and some times does antagonize people when he probably can get the same results without antagonizing them. But I deeply appreciate his friendship, candor, and clarity.

Holding a mirror to your face:
In previous blog entry titled agenda coloured glasses I had talked about agenda based decisions. Holding a mirror to the face of a speaker ensures understanding of people's agenda. In working closely with many senior managers across many industries, one of the questions that make many people agitated is when they are asked what is the "value" of their group to the core of the company or organization. Does the competence of your group need to be the competence of the organization or should it be out-sourced?

Another "holding a mirror" question is that on performance. I have seen so many managers wanting numerous metrics in place to "manage" their teams, but get very defensive when they are asked the motivation of those metrics. Is it an issue of trust, integrity, productivity etc. Also often managers do not want the same metric of trust or integrity to measure them because they feel that they are obviously above that - but then does it mean that they are hiring less trustworthy , or less productive people?
Metrics are useful when they are simple, in limited numbers and the value can be easily communicated both to your employees and to the managers above you.
In most organizations there are different constituencies that need to be represented and whose interests need to be balanced. The Customer, the employee, the share holders and of-course the vendors or suppliers. Any decision that skews too much in the favour of any of these constituencies will effect the other constituencies and can ruin a company.
On a parting note I will give you an example of skewed decisions causing organizational failure.
An automotive company that I have worked closely with has a great engineering team that makes innovative products that are used by many major car makers in the world. They also have a great purchasing and finance team ensuring strict compliance with their corporate financial and governance policy. The purchasing department was so effective in cutting down prices and sourcing lowest cost providers that at some point cutting cost became the sole purpose, while supplier sustainability was forgotten. What ended up happening is that the engineering team could then not get any good vendor to work with them on a long term basis because all the engineering system companies that worked with this company either became bankrupt, or stopped servicing them to ensure sustainability. So the good purchasing department got great prices. The good financial team ensured payments were stretched out as much as possible, and the good engineering team spent a lot of time on re training new vendors and hence loosing out on time to market. Effectively this company has great individual constituents but is a failing company that is in bankruptcy. So hold a mirror to your face when you make a decision or go into a debate. Thank you M for your clarity of thought.

People versus Process

Early in my career as a general manager I realized that business is about embracing chaos and driving process. My research as a mathematician in theory of chaos helped me with internalizing this embrace of chaos, and working on flexible processes that can be easily tuned with small perturbations so that the organization can adapt well to different market scenarios. This approach of embracing chaos, while driving process is often misunderstood. The root of the misunderstanding is that managers put too much emphasis on trying to create highly optimized efficient processes and the organization then becomes a victim of inflexible mechanization, thereby stifling entrepreneurship.
I do not subscribe to the school of thought that all problems are fixed by good processes. Intelligent, continuously evolving organizations with a bare minimum of processes are sustainable and successful. I encourage good people to achieve excellence by driving process where it makes sense or breaking processes when they do not make sense. We need to ensure that companies do not fall prey to their own processes.
I am a frequent traveler on Singapore Airlines, and have amassed more frequent flier miles than is probably good for me. Once when I was travelling with my wife and our twins to San Francisco we had an issue with a process. The twins were barely 9 months old. We had a one hour layover in Seoul. The airline staff refused to allow the unloading of the twin stroller in Seoul stating the process did not allow unloading of strollers for transit passengers. I finally spoke to a customer service person and asked her if the process that forces young parents to carry their children during a one hour layover where passengers are forced to leave the plane with their belongings makes any sense. She immediately understood the situation and instructed the ground staff that the process had to be ignored, and to allow the stroller to be brought out in Seoul for all passengers who needed it. No wonder why SIA is a favorite airline for many travelers, and one of the few consistently profitable airline companies.
In each of our organizations we should empower and encourage our employees to break processes that do not make sense. Having been in startup phases of launching products and of running start up phases of regional business within a larger company, and managing the growth of the teams, I have seen that even enterprising young teams tend to start overly relying on process as they grow bigger. The key challenge is growing leaders in the organization who can strike a balance between encouraging some minimum processes and avoiding the over reliance on process to drive growth.
I had a long discussion with Jim an employee of a company whose prime philosophy is that good process drives good business. The problem that Jim and his colleagues faced were that process soon became rules, and the rules became unquestionable. And his organization is trapped in a cycle of sharply declining innovation. The private equity firm that bought out the company likes the situation because in the short term, the perceived increase in efficiency makes it easier to make a quick profit from selling the company or parts of the company. But as a chief technologist for his organization Jim knows that in 2 years they will be overtaken by competition.
As I have mentioned in an earlier blog, many of the ideas that hit a lot of us as obvious has been well articulated before. Ross Mayfield in his blog entry “the end of process” does a good job of talking about this and a favorite quote that he states is from Clay Shirky “ process is an embedded reaction to prior stupidity”.

The point of this musing is to encourage PEOPLE in organizations to invest in the empowerment and encouragement of PEOPLE and not be ruled by PROCESS.

Hub It ? Decentralize It? -- Atomize it!!

Last month, I was invited by the Economist Intelligence Unit to present in Hong Kong on business hub strategies. Waltraut Ritter a managing partner at Knowledge Enterprises  also presented at this conference. One of the statements she made "hubs remind me of delays at airports....hubs are great for the airline but terrible for the customer" was extremely impactful, especially living in Singapore where "hub" is an overly used word. Singapore is positioning itself to be the bio-tech hub, education hub, logistics hub, Asian aerospace hub, etc..

I spoke more from an organizational point of view. The talk generated quite a bit of dialog. In this article I will summarize some of my talk and the feedback that it generated.

One of the most important aspects is to understand what is driving the Hub or decentralization strategy? I referred to some ideas I had talked about in an earlier blog entry “Agenda coloured glasses”.
Each functional unit such as finance, R&D, sales, marketing, etc has their own agenda for wanting to drive a decision to centralize or decentralize. The agenda could be based on anything from tax rebates for the organization, to a leader wanting complete control over all aspects of an organization. However, from an organizational point of view it is imperative to align the drivers of the different agenda, with the overall organizational goal.

A key take away from this view of understanding the agenda was that the “players should not be the score keeper”. This idea resonated with almost all the business leaders in the room. It was agreed that often decisions are made or forced through, promising great returns for the business. But as time passes, the metrics, expectations or goals are changed, thereby rendering the changes either unecessary in the best case or destructive in the worst case.

The discussion then moved to a centralized company structure. The concept of centralization could broadly be categorized in terms of hubs and decision or control centers.

From a centralized hub point of view there was broad agreement that having a hub made sense for
▪ Low margin , often high volume products
▪ Undifferentiated products
▪ Low value add to customer interfacing roles
▪ Franchise model requiring consistency

From a centralized control perspective there was agreement that it often lead to
▪ Policed innovation
▪ Limited growth of leadership except at the centre
▪ Organizational distance from the customer and finally
▪ Increased risk of “critical exposure” because the controls for a organization in very few hands can lead to bad decisions that impact the whole organization (like at Enron)

From a decentralized point of view there was broad agreement that it made sense for
▪ Higher margin products
▪ Value added customer interfacing roles,
▪ Differentiated products/systems/business models

From a decentralized control perspective it leads to
▪ Increased customer centric innovation
▪ Closer understanding of customer needs
▪ Decreased risk of “critical exposure” since the organization is “atomized” into a multitude of P&Ls hence a bad decision could capsize a atom but have small impact on the whole organization.

I also presented a couple of case studies where it was clear that with a decentralized business approach, companies had tremendous improvement in performance like at Sony TV division (Sony's Newest Display Is a Culture Shift ) where the America business Unit started showing tremendous results when the product definition for TVs in America was delegated to Sony’s America team instead of the earlier centralized approach of all decisions being made in Japan.
Finally a highly simplified conclusion on the impact of these complex issues was as follows:

Impact of Centralization
- Increase control of operations (at least a perception of increased control)
-Increase efficiency of certain functions in an organization
-Less investments on sharing best practices
-Open loop decision making
**Impact of decision may not be seen immediately
**Build bureaucracy – often forgetting their job is to service the business
**Skill of negotiating the company labyrinth gets rewarded


Impact of Atomizing
- High customer contact and market understanding
-The cell/atom can be replaced with minimum pain!
-Higher investment in sharing best practices
-Closed loop decision making and control
**Immediate effect, high accountability
**Cannot hide behind the bureaucracy
**Skills of understanding the market and customer expectation gets rewarded
One of the things that this session highlighted to me is that each person has a different understanding of centralization or decentralization. The biggest misconception is that centralization equals location when in fact the essence of centralization or decentralization should be defined based on where the final decision is made, and not necessarily where resources are located.

Leading from the middle

I was in the process of writing up some training/discussion material for the managers on my team when I realized that what I really wanted to communicate is that I wanted a team that was configured to lead from the middle, where a steep narrow pyramid of hierarchy was not needed. So I googled the term "leading from the middle" and got more than 15 million results. In a nutshell my idea was not "new" and tremendous amounts of research has been done on "leading from the middle". Nevertheless I will write my ideas down, knowing full well that most "good ideas" were already thought of.
In Organizations the three aspects of leading from the middle involve

• Commitment, where one needs to be committed, understand the vision and purpose, and most importantly be competent to lead.
• Managing your bosses and the people who report to you. This is an essential part of leading from the middle, and comes from confidence of knowledge of the market, the customers, the technologies, the processes, and very importantly your own organization
• Leading from the middle of an ecosystem of businesses/organisations that compliment your own business/organization.

Commitment is a choice, a choice of ownership of the organization that you choose to lead from the middle. In leading a team, it is important to distinguish commitment from competence. There are a lot of competent people with out commitment or passion. And one of the things I have learnt over the years of managing people, is that passion is the more difficult aspect to inculcate.

In an age where most information is a google search away, the confidence of knowledge, is often mistaken to be an abstract concept, and the confidence of knowing is mistaken to be the confidence of having accomplished the things you know about. Achieving the goals of your organization, working through the details and having it done yourself gives you the ultimate knowledge. Case studies etc. can not substitute experience , they can only offer some insight.

Leading from the middle of an ecosystem really means partnership. It means to truly build internal and external partners who compliment your organization. Conceptually building partnerships is easy, but in practise it is very difficult. From a business perspective, partnerships have different shades, like technology partners, commercial partners, Industry focused partners etc. One of the most natural tendencies in many partnerships that I have seen, are for the partners to look for exit strategies even before the partnership really matures. Thought of exit strategies come up because one believes that their organization could get better margins without the partner, because the partners get "scared" of dependency, and a score of other reason. Ultimately, looking for exit strategies is an excuse , often the main reason is because you do not want the partner to be extremely successful.

On a final note, not all people can lead from the middle. The challenge for senior management is to identify and encourage the right people to lead from the middle. This requires the courage at an organizational level to encourage friction!!

Creative Destruction is Essential for long Term Success

The Economist Joseph Schumpeter (http://en.wikipedia.org/wiki/Joseph_Schumpeter) in his book Capitalism, Socialism, and Democracy, published in 1942, popularized the concept of creative destruction (http://en.wikipedia.org/wiki/Creative_destruction).
Creative destruction simply is the process or practice of reinventing oneself constantly often at the expense of the past. What this means is that after the process of reinvention, the final product or idea or paradigm may be vastly different from the past.

This concept resonates with ancient ideas in many philosophies where it has been understood that a paradigm that works, or a civilization that works very well needs to "destroy" it self and reinvent itself, otherwise it will be destroyed and replaced by another paradigm, civilization etc. over which you will have no control or ownership. This thought can be extrapolated to nations, governments and businesses as well.

In the late 19th and most of the 20th century, large, inflexible forms of organizations would come to dominate governments and industry in the name of stability. Companies would respond to these organizations of stability and implement hierarchies and strategies that would in effect render them complacent, leaving no room for what Schumpeter and others called creative destruction.

So the question is are you an agent of creative destruction or are you scared of change? From a business perspective this means that are you willing to have your organization change in fundamental ways that render it vastly different from what it is now, or would you rather have a competitor destroy your organization.

Over the years many organizations like Nokia and others have changed themselves as the markets and society has changed, but many more have bitten the dust or become secondary players because they failed to reinvent themselves.

The need for creative destruction within organizations is normally understood as a concept, but rarely practised because it threatens the status quo. Often leaders in organizations themselves protect status quo because the alternative would mean apparent loss of control or position at a personal level. Sometimes organizations in order to show their willingness to change practise ideas like that of TQM (http://en.wikipedia.org/wiki/Total_Quality_Management)or other such methods that bring short term gains but do not address the fundamental issues.

In the business and technology world the days of a stable visions of the future can debilitate you. To run a successful business you need to embrace and thrive on chaos and drive process. Some of the interesting events that will unfold in the next decade will be Microsoft's attempts at creative destruction. Microsoft is clearly aware of the issues, the next decade will tell us if they can act on this awareness and continue to remain the primary player or be relegated to a secondary role. On the political front most major powers of the past like Great Britain have failed at their efforts of creative destruction and have been relegated to secondary roles. The most obvious question now is whether the United States has the ability to embrace creative destruction and remain a primary player, say in 50 or 100 years.

Frugal Engineering - Ghosn has it wrong?

The announcement of the TATA Nano (commonly called the 1 lakh or $2500 car - http://tatanano.inservices.tatamotors.com/tatamotors/) has brought the concept of frugal engineering to the forefront. Business leaders like Ghosn the CEO of Renault and Nissan have adopted with good intention the theme of frugal engineering and evangelized India as a frugal engineering hub. Ghosn seems to focus on engineering with less. Ghosn says "Frugal engineering is achieving more with fewer resources. The cost of developing a product in the West is high since engineers there use more expensive tools. In India, they achieve a lot more with fewer resources," (http://www.dnaindia.com/report.asp?newsid=1130636)

The sentiment that frugal engineering is about engineering with less is wrong. Successful products including frugally engineered products always start with the customer. The customers in the developing world are demanding useful features that benefit them in improving their quality of life. If the Nano succeeds as many people expect, then it is because the Nano meets the needs of the customer within their budgetary constraints.

The danger from Ghosn’s interpretation is that companies will only look to designing or engineering products cheaper. This will lead to short term gains but will not address the challenges they will face in business from emerging markets.

Engineering teams in the developing world, working for local companies are addressing local needs. Often simple low cost solutions like the Nano will make a huge difference to the quality of life to a large number of people. There are a number of companies in developing countries that are successful, but not on the radar screens of large corporations who are perceived market leaders in their fields. Look at the Indian http://www.icsa-india.com/ in the infrastructure electronics space , the Chinese http://www.suntech-power.com/ in the solar energy space, the Malaysian http://www.agni-inc.com/ in the fuel cell space. These companies and many more initially cater to the developing world, which in effect forces them to frugally engineer products, they build tremendous mass – all under the radar of the established players, and then are in a position to be truly global companies. Ghosn and the like should be spending energy on understanding the customer needs in the developing world as opposed to just reducing the cost of engineering. On a parting note, I think the next phase of business success will entail the globalization of frugally engineered products. These products will initially be tremendously successful in the local developing markets, and then there will be enhancements to meet the needs of the customers in the developed world.

Agenda coloured glasses

I was recently invited by the Economist http://www.economist.com/ to talk to a group of senior managers in Hong Kong on May 20th. As I am preparing for this presentation, I am repeatedly being drawn into the mechanism of decision making. I am concentrating on decision making at a business level, but this probably extends to the realm of the personal life too.
Are important decisions always based on objective assessment of facts or are they heavily coloured by the glasses of ones agenda. As much as I would like to believe that we make purely objective decisions, I am getting overwhelming evidence that business decisions are heavily dependent on the agenda of the decision makers. Of course the wikipedia has a wealth of information on decision making http://en.wikipedia.org/wiki/Decision_making : but in the realm of business (which is NOT a science) I think the experts call Agenda based decision making as the "Naturalistic method"
In your organization have you come across Agenda based decisions. For example have you seen the decision to build a manufacturing plant in a particular location, not based on a comprehensive analysis on the core competence of the people or the infrastructure in the location, but instead on say heavily weighed by the the Agenda of "tax savings". Do you see finance professionals report an expense in a particular manner so that it best fits their Agenda?

In the business world Agenda based decisions are widely prevalent. However when the agenda based decision of a particular functional group is misaligned with the overall Agenda of the company - then we can have disastrous consequences like that of Enron, the failure of a number of banks in recent times - with the credit crises, etc.

As a parting note - do you understand the agenda behind the decisions that your organization makes. Do you agree with the Agenda, and most importantly if the agenda is against the overall good of the business, do you put your job at stake and openly question the Agenda?

Free Market and Social Responsibility

This note was prompted by an article that my dad sent me that was written by Ulrich Beck titled "The Free market farce - shows how badly we need the state" http://www.guardian.co.uk/business/2008/apr/10/creditcrunch.economics In the title he seems to make a case for the "State" but the in the article itself he does not clearly articulate this. I continue to believe that globalization, free market economics, and education will lead to overall reduction in poverty, good governance, justice, etc. However a major caveat is social responsibility and education of the free marketers. The financial industry with the current credit crises, the accounting industry in the early part of this decade with Enron etc., have already shown that the lure of short term profits and individual wealth accumulation take precedence over honesty, ethics, and true long-term success. But if you look at the performance of states - really, the scenario is no better. We have had states for thousands of years and they have not helped eradicate poverty, war, injustice, corruption etc. So the answer is not that the "State" can do the job better than the free market. Today, the traditional notion of power is very different. In the past the political figures were primarily the influencers. However, today the influencers in the world are not necessarily the statesman. Business leaders, Media personalities, sports professionals and a slew of others influence the world in addition to politicians. This changing mix of personalities makes it possible to recognize problems easily, but solve problems more difficult. However this mix of what I call free market influencers makes it more probable that people who society wrong will be more likely held accountable. I am still of the view that good educated citizens of the world in conjunction with the free market will lead to a better world. For instance the current credit crises was due to the fact that complex financial instruments that were unsound were bought and sold. But the fact that there was a market for these instruments is a affirmation of the general greed of our society, and the fact that the bankers fed on the greed to grow wealth exponentially in a short time. Old fashioned concepts of financial prudence and common sense still rule the roost, however old fashioned ideas that our politicians can run things better is a fallacy. Let the market correct itself with some rational intervention. People will suffer in the short term, but we will be forced to invest in instruments that they understand. If we leave it to the state, we will have a slew of legislation that will require a number of finance professionals to police the implementation and again lead to a large opportunity for wealth creation to the professionals that got us in this mess in the first place - remember Sarbanes Oxley!!!!

Tax, Pensions, Social Security and Security

Is it the responsibility of the government or the organization you work for to look after your needs when you retire?
In the thousands of years of human history, it is only in the last hundred and fifty years or so that our society has expected a third party (government, company etc. ) to help us ease our financial burden as we retire.

In the US the Social Security system is dysfunctional and I could write a long thesis on the subject. Basically, the system is bankrupt and is viewed more as an additional tax to the working class by a majority of the productive people in the economy. In Singapore there is no social security but there are mechanisms that are fairly successful in ensuring that people save for their retirement via the central provident fund. But this begs the question - Is it the duty of the government to ensure that people save?

From a a purely theoretical point of view it should not be the government's duty or mandate to influence private decisions of it's citizens. However one of the major responsibilities of government is to maintain social order - hopefully a just social order.

In this respect - taxes and mechanisms to save for a rainy day become important. The biggest threat to a large number of developed countries and fast developing countries is the increasingly divergent earning capabilities of people. Even in countries like the US, the middle class is in effect becoming poorer and smaller as a percentage of the population. In India and China, the earning gap for different sections of it's population is increasing at a rapid rate. So as much as most people do not like to pay taxes, the necessity for taxes and parts of the tax system that subsidizes the poorer sections of population is becoming more evident. In effect you are paying taxes to maintain you earnings capabilities by buying security. i.e. in the future taxes in many countries will increase so that the populations can be "controlled " against rebelling about the disparity in wealth. In developed countries the taxes will be used to "control " the sections of the middle class that are slipping into poverty. In countries like India and China, tax money will be used to control the large sections of the poorer classes that are not realizing the "middle class or wealthy class" dream.
So in effect are we all paying taxes to maintain status quo? - Once again feel free to comment on your thoughts!

Are manufacturing jobs moving east or were US wages inflated for four decades

There is a continuous stream of noise in the media about jobs moving east, and about the negative impact of globalization. In my discussions with an old friend Dave Wilson we came up with a contrarian view.
After World War II, the infrastructure in Europe and Japan were in shambles, the population losses sustained in Europe and Japan were orders of magnitude more than those sustained in the US, and the Asian and African economies were still primarily underdeveloped. This automatically led to the US being the only country ready to be the "factory" of the world. And since the other economies had not developed/redeveloped their infrastructure fully, the competition to the US was negligible. Hence the semi-skilled and unskilled labour could negotiate high wages, since the products could sell at artificially high prices.

By the 70s and 80s, many other regions in the world had infrastructure to support manufacturing economies, and the natural forces of market economy took over. Hence the current 20 -30 year trend of rationalisation of wages and cost looks like a job migration. But in reality it is just that it took 30-40 years for the rest of the world to play catch up.

I know this is an over simplification, but is this a plausible explanation?

Negotiating on Principle vs Position

We are constantly negotiating with our friends, spouses, colleagues, suppliers, customers etc. The old school - hard nosed way of negotiating where people take their position on issues and then wear the other side down is increasingly counterproductive. Negotiating based on principle is far more effective than Position based negotiation. i.e. if you really want to negotiate. If you are not interested in a fair or equitable result then of course negotiating on principle is useless.

Negotiating on principles is difficult because it makes you reflect on your motivations, ethics, morals, and facts-on-hand. Based on this you decide on a position in a negotiation. Laying out the principles before taking a position is essential, otherwise our egos make it difficult to make comprises. Taking a position in the beginning does not put the framework of compromise in place. But talking about principles allows the different sides in an argument to understand the motivations behind a request/claim.

What do you want to be when you grow up?

A few weeks ago I was invited to talk at the National University of Singapore, to about 300 young students who were about to enter the university. Of course the theme was on careers and choices that people have. True to style, I changed my presentation completely minutes before I was to speak.
Some of the things that I focused on were
- you really do not need to know what you want to be when you grow up!!
What is much more important is that you know who you are.
- what drives you, what you excel at, what you are passionate about, and what success means to you?
Another aspect that surprised a few of the young attendees at the session was that each of us change with time.
The discussion then went towards what success meant to different people. We had a few answers from the audience, but the truth is that success means different things to different people. For those of you who come across this entry in my blog , do let me know what success means to you