On our day of graduation we had Exe Director of Tata Sons Mr R GopalKrishan as Chief guest , at the last minute of start of his speech he decided to change it a bit and give some direction to students who seems to have programmed themselves to become CEOs. All the student Representative who spoke before him mentioned how they are ready to take on world and how SPJIMR makes them suitable for all C grade job , probably this made Mr Gopalkrishan encourage to give us some really friendly advice.
His speech started with a very unusual quote "Success is a thief" , To us all it was a new mantra which we have never heard nor imagined but as he explained us the reason behind calling success a theif , we had to agree. Stating the status quo of current young executives who sleep with their PDAs , Blackberries, Laptops , Communicators and all such fancy devices which seem to ring at different time resulting keeping these young achievers awake most of the time. These successful people have lost their sleeps , they keep missing their food and hardly have any time for old friends and family . Success had stolen it all from them.
Mr Gopalkrishnan jokingly mentioned how he has realized that the lift man who is taking people up and down in the life always has a silly smile on his face but a top rank executive travelling in the same lift looks so dim and depressed , concerned as hell like burden of entire world is on the shoulder of this poor fellow. The problem is people have started programming themselves to occupy corner cabins in organizations , rather than waiting for success to come to them naturally.
We have become mechanical in current environment and keep worrying about things which are not even in our control . The need is to take a break from regular routine some time , stick a silly smile frequently on your face, talk to some strangers (now that's fun), make some one laugh because at times to build momentum one has to slow down
Saturday, May 9, 2009
Saturday, April 25, 2009
Managing the business processes
Whats the difference between business decades ago and businesses now ? what has changed them ? What has become competitive advantage as Mr C. K. Prahalad
would ask ? Lets pick up companies in any industry and put some basic questions
1) Were these companies able to deliver standard experience on every customer touch point?
2) Did these companies care about their internal processes of inbound, outbound logisitics and operations as mentioned by Porter in value chain
3) What was the core strength considered by these organizations and what was the competitive advantage over which they relied?
Lets start with the first question the most important one in every context . The ultimate aim of every business is to make customer happy and we know gone are the days when customer was happy by just getting what he has asked for , at times he had to be satisfied in much lesser than what he has asked and he was still happy. Considering the example of Bajaj Chetak , once the vehicle which ruled all hearts of all Indian . It worked like a charm across the age
sections. customers have to wait as long as one year to get one for themselves and company was in no hurry to scale up or start a new venture , so much so when Honda approached them to start a producing motor bikes , Bajaj turned it down assuming scooter business will always remain what it was at that time.
Considering this was the case we can very well assume what would have been the customer service and how customers would have been dealt , there was hardly any effort to build customer relationship afterall it was all game of demand supply equation , for huge demand there was a limited supply so no one needed to pay much attentio about customer experience , pre purchase , during purchase or post purchase.
Consider the same bajaj in today's scenario , they are running a campiagn which no one ever heard in India. For Bajaj XCD 135 CC bike they have put a challenge to the customer saying they can come and test drive the bike and if after that they purchase any other bike than Bajaj will reimburse the price for other bike. Where seems to be focus today , entirely on what customer experience , even though this example is talking about experience of the product but
similarly experience of the processes and customer serices have also taken strong ground thats why the new advertisment of Maruti talks about how customer can get a Maruti care service almost at any part of the India from rural to urban area.
In nutshell we have moved from the times where Mr Ford declared I would give model of any colour to the customer as long as it is blcak to the era where youcan customise your car over web and it will be produced for you. It is with the help of streamlined processes that organizations are able to develop highly personalised experience for customers.
Having extablished some gound on the hypothesis that customer experience is important , lets see an obvious extension to it . If customer experience is important than can an organization make sure that it delivers same customer experience gain and again . A product may certainly deliver same customer experience again and again but what about service? Any service where lots of manual intervention is required will be a great challenge for standardization.
For such kind of activities what is required to have a process map and train all the employees on that process map across the locations. Similar kind of efforts were put by outlets like Mc donald and Pizza huts and thats how you get same experience ( of food as well as service) across all the outlets but upto than it was just a vision worked out withwhatever help available around , today we have made an entire methodology which is less science and more art called Business Process Management. There are lots of tools and standards to model organizational processes .
Its now when organizations have realized that a successful business not only means a block buster product but also efficient and standard processes. It is also an effort to manage business processes explicitly considering there are very frequent changes in business and related processes and if we don't have a strong hold on our processes it will be difficult to respond to changing business enviornment.
Our second concern was regarding internal processes which include various processes in the value chain of an organization, In old times when organizations had customers flocking on thier door for whatever they create , they had very less time to think about various internal processes and optimize them for maximum benefit. It is after Motorola and GE taught the value of 6 sigma to the world , we realized how much can be gained by exploring in this area. There have been various process improvement techniques and 6 sigma pioneered all of them but what was missing ? To have detailed process maps and micromangement of each of the assocuted processes, To make sure that each complex process is broken into small ones and each modular process can be handled seperately. 6 Sigma was a good tool for improving but not for automating because 6 sigma treated etire process as a whole and concentrated more on the quantative abilities to come to a conclusion.
Third and another differebce between businesses done in past and today is Identifying the core stregnth or competitive advantage of your business. Couple of decades back no one thought that processes could be core strength for an organization and then emerged examples like southwest airlines , which has changed the rules of aviation industry by just redifning thier internal process from the way fleet is scheduled to the way a carier is prepared for the next flight , creating end to end cost effective systems.
Its very simple to understand that highset benefit lieas in controlling each and every critical process of business from selecting a vendor to producing goods/ services and delivering to customer. In todays volatile world it is important not only to develop these processes but also to map them and keep them with you in codified form so that you can always go back to find out whether these processes are being followed , if there is any change needed and how best
they can be automated.
The basic need of dividing complex processes and than modeling , monitoring and managing them has given birth to BPM
would ask ? Lets pick up companies in any industry and put some basic questions
1) Were these companies able to deliver standard experience on every customer touch point?
2) Did these companies care about their internal processes of inbound, outbound logisitics and operations as mentioned by Porter in value chain
3) What was the core strength considered by these organizations and what was the competitive advantage over which they relied?
Lets start with the first question the most important one in every context . The ultimate aim of every business is to make customer happy and we know gone are the days when customer was happy by just getting what he has asked for , at times he had to be satisfied in much lesser than what he has asked and he was still happy. Considering the example of Bajaj Chetak , once the vehicle which ruled all hearts of all Indian . It worked like a charm across the age
sections. customers have to wait as long as one year to get one for themselves and company was in no hurry to scale up or start a new venture , so much so when Honda approached them to start a producing motor bikes , Bajaj turned it down assuming scooter business will always remain what it was at that time.
Considering this was the case we can very well assume what would have been the customer service and how customers would have been dealt , there was hardly any effort to build customer relationship afterall it was all game of demand supply equation , for huge demand there was a limited supply so no one needed to pay much attentio about customer experience , pre purchase , during purchase or post purchase.
Consider the same bajaj in today's scenario , they are running a campiagn which no one ever heard in India. For Bajaj XCD 135 CC bike they have put a challenge to the customer saying they can come and test drive the bike and if after that they purchase any other bike than Bajaj will reimburse the price for other bike. Where seems to be focus today , entirely on what customer experience , even though this example is talking about experience of the product but
similarly experience of the processes and customer serices have also taken strong ground thats why the new advertisment of Maruti talks about how customer can get a Maruti care service almost at any part of the India from rural to urban area.
In nutshell we have moved from the times where Mr Ford declared I would give model of any colour to the customer as long as it is blcak to the era where youcan customise your car over web and it will be produced for you. It is with the help of streamlined processes that organizations are able to develop highly personalised experience for customers.
Having extablished some gound on the hypothesis that customer experience is important , lets see an obvious extension to it . If customer experience is important than can an organization make sure that it delivers same customer experience gain and again . A product may certainly deliver same customer experience again and again but what about service? Any service where lots of manual intervention is required will be a great challenge for standardization.
For such kind of activities what is required to have a process map and train all the employees on that process map across the locations. Similar kind of efforts were put by outlets like Mc donald and Pizza huts and thats how you get same experience ( of food as well as service) across all the outlets but upto than it was just a vision worked out withwhatever help available around , today we have made an entire methodology which is less science and more art called Business Process Management. There are lots of tools and standards to model organizational processes .
Its now when organizations have realized that a successful business not only means a block buster product but also efficient and standard processes. It is also an effort to manage business processes explicitly considering there are very frequent changes in business and related processes and if we don't have a strong hold on our processes it will be difficult to respond to changing business enviornment.
Our second concern was regarding internal processes which include various processes in the value chain of an organization, In old times when organizations had customers flocking on thier door for whatever they create , they had very less time to think about various internal processes and optimize them for maximum benefit. It is after Motorola and GE taught the value of 6 sigma to the world , we realized how much can be gained by exploring in this area. There have been various process improvement techniques and 6 sigma pioneered all of them but what was missing ? To have detailed process maps and micromangement of each of the assocuted processes, To make sure that each complex process is broken into small ones and each modular process can be handled seperately. 6 Sigma was a good tool for improving but not for automating because 6 sigma treated etire process as a whole and concentrated more on the quantative abilities to come to a conclusion.
Third and another differebce between businesses done in past and today is Identifying the core stregnth or competitive advantage of your business. Couple of decades back no one thought that processes could be core strength for an organization and then emerged examples like southwest airlines , which has changed the rules of aviation industry by just redifning thier internal process from the way fleet is scheduled to the way a carier is prepared for the next flight , creating end to end cost effective systems.
Its very simple to understand that highset benefit lieas in controlling each and every critical process of business from selecting a vendor to producing goods/ services and delivering to customer. In todays volatile world it is important not only to develop these processes but also to map them and keep them with you in codified form so that you can always go back to find out whether these processes are being followed , if there is any change needed and how best
they can be automated.
The basic need of dividing complex processes and than modeling , monitoring and managing them has given birth to BPM
Friday, April 10, 2009
If you are a leader , you should be able to follow well:
What could be one of the most turning point of the fight in great Mahabhart story . The Leader of the era Krishna who had been continouslt in the fore front of all the incidents suddenly takes the role of a Charriot driver for his best friend Arjun. It did not take him a split second to decide whether in coming ages it would hurt his image , whether it would immediately demote him from a heavenly deity to just another earthling and even more inferiors in the community , just a charriot driver.
I feel odds have turned other way round because it is this phase of Krishna's life he has delivered the most respected wisdom of Hindu Mythology - Gita . It is in this role he has influenced the entire saga in such a way that no one else could have done so including elmination of Karna or Jaydrath like warriors .
I am trying to think something else as well , Krishna was the leader of entire story , un disputed decision maker for pandavas bu he also comes across as the best follower giving command in the hand of Arjun.
Some one who has already proven leadership skills must also be able to follow well , there will be many hurdles in his way to the follower topmost being his ego self , already been in a position where he has only given orders now putting him in the shoes of order taker will be dificult, what can add salt to injury is if this time some one who has followed you is going to lead you or some one who is not of the same status.
Even though there are all kind of risks associated when a leader steos down to be follower but if he successfully does it with a humble heart than he may emerge a greater leader , almost a legend
I feel odds have turned other way round because it is this phase of Krishna's life he has delivered the most respected wisdom of Hindu Mythology - Gita . It is in this role he has influenced the entire saga in such a way that no one else could have done so including elmination of Karna or Jaydrath like warriors .
I am trying to think something else as well , Krishna was the leader of entire story , un disputed decision maker for pandavas bu he also comes across as the best follower giving command in the hand of Arjun.
Some one who has already proven leadership skills must also be able to follow well , there will be many hurdles in his way to the follower topmost being his ego self , already been in a position where he has only given orders now putting him in the shoes of order taker will be dificult, what can add salt to injury is if this time some one who has followed you is going to lead you or some one who is not of the same status.
Even though there are all kind of risks associated when a leader steos down to be follower but if he successfully does it with a humble heart than he may emerge a greater leader , almost a legend
Thursday, March 12, 2009
Cook the book ?
Accountancy is not only science but a very sophisticated art as well , Purpose of this article is just to look at different methods which companies use from time to time to present a different picture of thier books , none of these methods can provide any long term benefit , all they can assure is trouble. Real profit is some thing which is earned by a direct increase of top and bottom line and not just be shifting numbers here and there.
depreciation : Depreciation is an highly effective tool of cooking books , specially for manufacturing and logistics companies which have huge capital investments in machineries and vehicles. Suppose the average industry practice is to depreciate a lath machine for 10 years but some smart company thinks it can depreciate similar machine for 15 years , this kind of tweaking will be effective enough to bring the books from red zone to green as the
earning will be increased because lesser depreciation is being subtracted .
COGS : If Cost of goods sold is subtracted from the revenue that gives gross profit , Further subtractions of operational expenses, interests payments and taxes will take us to the net profit. If one wants to increase gross profit artificially the easy way is to move the cost of goods sold towards operational expense. There will be some smart accountants who found arguments for the same.
Showing earnings in advance : In service industry there are contracts which can be as long as 5 to 7 years , if 40% of the money comes from software development than 60% is from maintainace and support. If an organization is getting into a contract with its client which is about delivering a software as well as supporting it for next 5 years , then it can show any fraction ( as liked by its accountants) of this revenue at any time in the books
and guess what its perfectly legal.
Goodwill : one of the best ways to create an impressive asset base is to increase the goodwill, whenever an organization aquires another there is lot more than just physical property. Mainly a huge client list , good work force , a well established brand etc. all can be put under goodwill. In addition to this if some of the value from plant , property can also be shifted to goodwill , that will mean no depreciation charging for such assets in turn direct impact on the bottom line.
Bill and hold : This has been a very popular accounting technique in many of the organizations which asked their corporate customers to purchase much earlier then the business cycle and pay only after sale has taken place. The purchase made was billed and showed as a revenue in current cycle, very clearly this can work only one odd time.
depreciation : Depreciation is an highly effective tool of cooking books , specially for manufacturing and logistics companies which have huge capital investments in machineries and vehicles. Suppose the average industry practice is to depreciate a lath machine for 10 years but some smart company thinks it can depreciate similar machine for 15 years , this kind of tweaking will be effective enough to bring the books from red zone to green as the
earning will be increased because lesser depreciation is being subtracted .
COGS : If Cost of goods sold is subtracted from the revenue that gives gross profit , Further subtractions of operational expenses, interests payments and taxes will take us to the net profit. If one wants to increase gross profit artificially the easy way is to move the cost of goods sold towards operational expense. There will be some smart accountants who found arguments for the same.
Showing earnings in advance : In service industry there are contracts which can be as long as 5 to 7 years , if 40% of the money comes from software development than 60% is from maintainace and support. If an organization is getting into a contract with its client which is about delivering a software as well as supporting it for next 5 years , then it can show any fraction ( as liked by its accountants) of this revenue at any time in the books
and guess what its perfectly legal.
Goodwill : one of the best ways to create an impressive asset base is to increase the goodwill, whenever an organization aquires another there is lot more than just physical property. Mainly a huge client list , good work force , a well established brand etc. all can be put under goodwill. In addition to this if some of the value from plant , property can also be shifted to goodwill , that will mean no depreciation charging for such assets in turn direct impact on the bottom line.
Bill and hold : This has been a very popular accounting technique in many of the organizations which asked their corporate customers to purchase much earlier then the business cycle and pay only after sale has taken place. The purchase made was billed and showed as a revenue in current cycle, very clearly this can work only one odd time.
Saturday, March 7, 2009
Ideation:
As an organization which need to survive on highly innovative ideas how do you make sure that you create an environment suited for idea generation from your employees. In all the organizations an employee is absorbed in routine day to day activity , there are very few like google who have a special 20% of office time is left for the employee to work on the ideas which appeal to them. If we look back , historically organizations have given almost no chance to its employees to generate ideas and implement the same. Most of them had very few key decision makers at the top who were the only people responsible for various ideas and their implementation. There is hardly any effort to manage ideas and innovations. One of the most impressive innovation management I have seen is in John Deers, the global agri equipment organization really knows how to select the best idea and implement it. It has a structured way to do it , it encourages its employees to come with new ideas and some of the best are chosen to be presented in a 3 day long event in the organization , after which the most impressive one is selected for implementation.
Recently I came across another very innovative ways to select ideas in GE, the Global technology group started Idea trading in its department, here employees have registered their ideas in a virtual exchange, each employee has been given virtual currency of 3000 rupees and a trading account for this exchange , once he logs in he can start trading ideas and the price of an idea goes up and down depending on the volume of its trade.
It really make sense to set a structure for generating ideas in organization and giving some of the best once a chance of implementation. Just imagine if one idea can create organization of worth billion dollars than how many brilliant ideas can come from thousands of people in that organization. This is the reason processes like six sigma specially focus on methodologies of idea generation.
One of the oldest method of idea generation is war , most of the revolutionary ideas including Internet were generated during war. Now a war can not be started inside an organization to generate ideas but definitely an environment can be created where every employee feels the heat of competition from outside world, I guess that is what ad agencies best at and that's how they keep generating ground breaking ideas.
Recently I came across another very innovative ways to select ideas in GE, the Global technology group started Idea trading in its department, here employees have registered their ideas in a virtual exchange, each employee has been given virtual currency of 3000 rupees and a trading account for this exchange , once he logs in he can start trading ideas and the price of an idea goes up and down depending on the volume of its trade.
It really make sense to set a structure for generating ideas in organization and giving some of the best once a chance of implementation. Just imagine if one idea can create organization of worth billion dollars than how many brilliant ideas can come from thousands of people in that organization. This is the reason processes like six sigma specially focus on methodologies of idea generation.
One of the oldest method of idea generation is war , most of the revolutionary ideas including Internet were generated during war. Now a war can not be started inside an organization to generate ideas but definitely an environment can be created where every employee feels the heat of competition from outside world, I guess that is what ad agencies best at and that's how they keep generating ground breaking ideas.
Sunday, March 1, 2009
Small but strong
The normal notion also says that bigger is stronger and certainly we will have many examples whre size determines strength. Nature has its ways to create exceptions and examples, The strongest material on the earth is diamond , no doubt about it. In fact phsycis will agree that the smaller is the size of particle , more energy it will require to break it. This year global recession has hit business school placements like never before , MBA graduates who considered themselves employable in any circumstances are having tough time to find a job so colleges started looking for small firms and start ups .
In last few days I have got a chance to interact with several such organizations from head count to 4 people to 100 , from revenue of 60 lacs to 100 crores. I am really amazed that even in such bad times many of these smaller firms who have been in existence for around 3-4 years are doing extremely well . There are many reasons to it and one of them is to target a focussed area and provide end to end executable solution in that area at very competitive price.
In discussions it also came out that where many of the larger firms could not predict about their future projects and cash flows , these smaller firms have project lined up for next couple of years so much so that they are turning down clients because they don't have enough resources to execute many such projects at the same time.
What is keeping small strong ?
Low Operational expense : Most of them are still running from small rented spaces and have not opted for purchasing and maintaining their own facilities. This is keeping the operational expense low. These organizations are running from premises with less than satsificing facilities where they may not even have a cafeteria for their staff. Where other larger ones have now a big task at hand to cut down highly on operational expense , for smaller ones its life as usual on this front.
Every one does everything : For start ups it is not acceptable at any time to handle an attrition rate of 25-20% , even if it happens than the key to remain strong is a flatter hierarchy where every one knows and does pretty much every thing, one is responsible from opening the office doors in the morning to making an international sales pitch, collecting receivables , recruiting projects and managing existing projects in hand.
Closeness to customer : Large organizations today have client list running in hundreds , one of the KPI of quarterly results is number of clients added and specially from fortune five hundred, post which it is about deal size but in case of start ups and new organizations in block , they have almost all of their projects are coming from very few clients which means complete attention and close association with these clients. There may not be deal sizes of millions of dollars but there are definitely continuos flow of projects and great trust on these small but flexible partners.
Its not money but passion and vision : I thought these it is very bookish and theoretical concept that small firms are driven by sheer passion which does not care much about cash flow , specially in short term. Recent interaction with some of the CEOs opened my eyes to a world which is full of energy , vision and un quantifiable passion. They are so intoxicated in it that every second sentence they speak gives a confirmation of their passion and commitment. Small size helps making such feelings contagious to the entire team. Offcourse money follows , many entrepreneur commented that earned much more in their small entrepreneurial stint of 3 year than their corporate career of 30 years.
Developing a perfect ecology : Larger organizations have too much pride and arrogance which hinders development of a cooperating ecology with their peers but this is just opposite in case of smaller ones, they are constantly looking out for friends who can help them in various phases , be it complementing them to provide end to end solution to customers or helping them in expansion to new locations. This kind of ecology gives them more strength.
I am certain that many such small organizations will not only sail through the current crisis but also will establish themselves as strong players in respective fields . Lets hope when they become bigger , they don't forget how they have drawn strength to do so.
In last few days I have got a chance to interact with several such organizations from head count to 4 people to 100 , from revenue of 60 lacs to 100 crores. I am really amazed that even in such bad times many of these smaller firms who have been in existence for around 3-4 years are doing extremely well . There are many reasons to it and one of them is to target a focussed area and provide end to end executable solution in that area at very competitive price.
In discussions it also came out that where many of the larger firms could not predict about their future projects and cash flows , these smaller firms have project lined up for next couple of years so much so that they are turning down clients because they don't have enough resources to execute many such projects at the same time.
What is keeping small strong ?
Low Operational expense : Most of them are still running from small rented spaces and have not opted for purchasing and maintaining their own facilities. This is keeping the operational expense low. These organizations are running from premises with less than satsificing facilities where they may not even have a cafeteria for their staff. Where other larger ones have now a big task at hand to cut down highly on operational expense , for smaller ones its life as usual on this front.
Every one does everything : For start ups it is not acceptable at any time to handle an attrition rate of 25-20% , even if it happens than the key to remain strong is a flatter hierarchy where every one knows and does pretty much every thing, one is responsible from opening the office doors in the morning to making an international sales pitch, collecting receivables , recruiting projects and managing existing projects in hand.
Closeness to customer : Large organizations today have client list running in hundreds , one of the KPI of quarterly results is number of clients added and specially from fortune five hundred, post which it is about deal size but in case of start ups and new organizations in block , they have almost all of their projects are coming from very few clients which means complete attention and close association with these clients. There may not be deal sizes of millions of dollars but there are definitely continuos flow of projects and great trust on these small but flexible partners.
Its not money but passion and vision : I thought these it is very bookish and theoretical concept that small firms are driven by sheer passion which does not care much about cash flow , specially in short term. Recent interaction with some of the CEOs opened my eyes to a world which is full of energy , vision and un quantifiable passion. They are so intoxicated in it that every second sentence they speak gives a confirmation of their passion and commitment. Small size helps making such feelings contagious to the entire team. Offcourse money follows , many entrepreneur commented that earned much more in their small entrepreneurial stint of 3 year than their corporate career of 30 years.
Developing a perfect ecology : Larger organizations have too much pride and arrogance which hinders development of a cooperating ecology with their peers but this is just opposite in case of smaller ones, they are constantly looking out for friends who can help them in various phases , be it complementing them to provide end to end solution to customers or helping them in expansion to new locations. This kind of ecology gives them more strength.
I am certain that many such small organizations will not only sail through the current crisis but also will establish themselves as strong players in respective fields . Lets hope when they become bigger , they don't forget how they have drawn strength to do so.
Sunday, February 8, 2009
From spending dollars to saving paise : Back to basics of cost cutting
When I came to Mumbai in early 2007 , there was a barber down the street Near my hostel . Unlike many others in the main road it was slightly on the off road and no frill barber shop where other jazzy shopes charged 75 to 90 per hair cut this guy charged only 25. Initially he had equipment only enough to support his operations plus a music system. After some visits I started noticing the change in the shop , old music system was a gone and a new one with surround sound was purchased , entire front wall was replaced with glass walls and than came the AC. He now even has a TV inside the small shop. Talking about charges it has gone up slightly from 25 to 30 which I feel was acceptable given the kind of facilities he has added, specially the AC ( and yes give some credit to inflation as well).
What was the necessity of adding so many facilities which are none essential to his operational activities , he can give many logic1) To attract more customers from higher end who would like to have thier hair cut in AC saloon2) To make waiting time of customers more comfortable 3) May be it is for the owners own comfort , he had positive cash in flow , he thought why not make life more fun at work for myself and employees.
Once all the facilities are set up now he does not have any way to track which facility is adding how much to his income , customer retention or operational efficiency , he has not even made any effort to do so. Each of these facilities have definitely increased his expenses to a significant level. So much so that now he may be working on a very thin margin and any change in market will make his operation unsustainable , what if tomorrow a no frill shops start in neighbourhood ( just like he was two year back) , it will surely take away atleast 25-30% of his customers who are not bothered much about AC and music in the saloon.
Recently in a discussion with one of the professior at SPJIMR , he mentioned that IT firms had a tendency to spend lavishly when cash flow was good and margins were high , this is what has put them in all kind of troubles today however small firms are always conservative in thier spending . I will have a slight difference of opinion here , It is normally characterstics of any individual or organization to climb up the spending ladder as his income grows. He is always attracted by some thing which seems just a little better and little expensinve than what he already has.
The Barber down the street is just an example , even a vegetable hawker would try to add facilities for his comfort as and when income grows ( not necessarily this will add to his revenue). So it is common tendency , and this is the entire focus of cost cutting in bad days. To some extent IT companies did over spent in building those glossy structures and than they needed to hype up salaries of their employees because thier global counterparts were ready to poach trained and groomed talent at almost double and triple the cost. Once upon a time the indian BPO employee used to get around 2200 $ a year which was 1/15th of what thier US counterpart would get but now this difference has narrowed down to 1/8 and very soon it could have been to 1/4 eliminating the very basis of competitive edge which was delivered by Indian vendors , probably a good cost control in bad times will again take organizations to some basics.
What was the necessity of adding so many facilities which are none essential to his operational activities , he can give many logic1) To attract more customers from higher end who would like to have thier hair cut in AC saloon2) To make waiting time of customers more comfortable 3) May be it is for the owners own comfort , he had positive cash in flow , he thought why not make life more fun at work for myself and employees.
Once all the facilities are set up now he does not have any way to track which facility is adding how much to his income , customer retention or operational efficiency , he has not even made any effort to do so. Each of these facilities have definitely increased his expenses to a significant level. So much so that now he may be working on a very thin margin and any change in market will make his operation unsustainable , what if tomorrow a no frill shops start in neighbourhood ( just like he was two year back) , it will surely take away atleast 25-30% of his customers who are not bothered much about AC and music in the saloon.
Recently in a discussion with one of the professior at SPJIMR , he mentioned that IT firms had a tendency to spend lavishly when cash flow was good and margins were high , this is what has put them in all kind of troubles today however small firms are always conservative in thier spending . I will have a slight difference of opinion here , It is normally characterstics of any individual or organization to climb up the spending ladder as his income grows. He is always attracted by some thing which seems just a little better and little expensinve than what he already has.
The Barber down the street is just an example , even a vegetable hawker would try to add facilities for his comfort as and when income grows ( not necessarily this will add to his revenue). So it is common tendency , and this is the entire focus of cost cutting in bad days. To some extent IT companies did over spent in building those glossy structures and than they needed to hype up salaries of their employees because thier global counterparts were ready to poach trained and groomed talent at almost double and triple the cost. Once upon a time the indian BPO employee used to get around 2200 $ a year which was 1/15th of what thier US counterpart would get but now this difference has narrowed down to 1/8 and very soon it could have been to 1/4 eliminating the very basis of competitive edge which was delivered by Indian vendors , probably a good cost control in bad times will again take organizations to some basics.
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