Thursday, 18 July 2013

Corporate India: Prevalent Operational Myths - 1

"According to the Medicines and Healthcare Products Regulatory Agency (MHRA), responsible for regulating medicines in the UK, the deficiencies identified during inspection in March included “a risk of cross-contamination and evidence of data falsification”

My mind again went back to an incident from 7-8 years ago; I was preparing a data-set of my territory related to precise retailer mapping on individual products, using billing data from my channel which quoted specific unique item codes. This would give us a handle on the entire market, and enable payouts as well as monitor sales precisely. Now far too obviously, this is a time-consuming exercise if done properly. My manager at that time was furious, and screamed - yaar, cant you fabricate a few records?

Both the above real-life incidents - one with very serious repercussions, as it entails a potential loss of Millions of Euros to a company; and the other with a potential to disturb retailer payouts leading to dissonance and consequent loss of marketshare - have their origin in the same set of attitudes and myths that are prevalent. Let us examine a few of these in detail

This is one oft-quoted statement across functions: in finance, in customer care, in sales - everywhere. This is ubiquitous, and omnipresent. In sales, it is sales targets every month. In customer care, it is number of closed calls, or percentage of closures. And so on and so forth - till the top levels, where it is the sales volume of the year, share price, etc. In all this incessant talk on numbers, one tends to forget that Business is not primarily about numbers; numbers are only a criterion of judgement of success. Numbers are not an end unto themselves, they are a barometer of measurement - and are only one parameter in several.

Business is, beyond even a shade of doubt, first about survival, then about continued survival - or growth. All the rest follows from the above; all strategies and tactics have to be subordinate to the overall organisation goal of growth. And that is not about numbers per se: it is typically a qualitative idea, and is only supported by numbers. As an example, the size of the targeted segment, the growth percentage of the segment, the potential etc are only numbers that support the original idea: that xyz is the targeted segment for the organisation. The sales volume achieved is only a supportive number that is an aid to judging the overall direction that is being taken; it is not an end in itself. For example, 100% sales growth in a doomed segment, or degrowing segment is not the same as a 10% growth in a new upcoming segment.

And yet manager after manager paces inordinate emphasis on numbers; while numbers are important - it is equally important to see how are the numbers achieved! Let us take another example from the real world; that of an consumer company where I was employed a few years ago. This company (or the managers there) focussed exclusively on numbers. So long as numbers were coming in, all checks and balances were ignored; pressure became the order of the day. Over time, issues with the channel partners cropped up - cheque bouncing, returned material, complaints. It was subsequently found that there was a litany of false commitments to the channel, forced sales, high inventory levels, unsettled channel claims etc. The company had settle several lahs worth of claims... 

The most critical part is that I have seen such scenarios several times in my career; this is not a one-off happening. In a large portion of such cases, the real perpetrator had either been promoted - or had left for greener pastures, leaving the new teams - which have no idea of the oral commitments, the genesis of the problem or indeed their severity - to sort out matters. In all cases, the organisation lost a huge amount of money; marketshare; market reputation and other issues. 

This another little beauty that is oft-quoted in organisations; and this is another myth - a total myth. We are humans; and humans have emotions. You cannot separate emotions from the business process; the implementors are human beings. There is no escape from this simple reality. The key question is not whether business and emotions mix; it is how to harness emotions for the greater good of the organisation. Let us, once again, take a look at 2 real examples of how the 2 can mix

The first case is from the late 1990s; a major company I worked for had a channel partner whose business went through a tough time due to severe personal stress; instead of sacking the channel partner - the Regional Manager of the area, looking to his troubles and past record, supported him, took a business hit, gave full support to this distributor in his time of dire need. Within a space of 2 years, he bounced back. The company retained a performing partner; the partner came out of the bad phase. 

The second case is a classic: an old-time distributor once informed the company of his business plan - to quit the current business in 3 years, and advised them to take a call on the current business. He clearly stated that he is sharing this plan due to all that the company had done for him over the years. 

In each of the cases above, note how business logic has taken a back-seat; and in each case the organisation has gained. Business and Emotions can and do mix. If an organisation acquires a bad reputation of ill-treating employees or partners, the ramifications are felt far into the future as key employees quit; key partners both quit, and stop sharing market intelligence, stop taking additional stocks in times of company need, stop tolerating routine problems that can and do occur in a business relationship. The entire trust is lost, and the employees as well as organisations stand to lose. The attendant atmosphere of fear that is generated destroys employee morale, creates undue stress and hinders performance. A very large percentage of business issues, employee resignation and losses can be traced to ignoring this vital aspect of business

The learning from the above unconnected myths mentioned above both point to one direction: the importance of due process in any business decision and situation. The moment when the process is abandoned, it leads to trouble. The key point is that there should be an established process with proper checks and balances designed to prevent excesses as well as prevent miscarriage of justice. In the first example, a simple process of sufficient weightage to accounts receivables, range selling, number of retailers billed, documents received - like account statement sign-offs etc, channel and reportee complaints, reportee average stay in organisation, exit interviews, proper adherance to guidelines for distributor changeovers, Distributor ROI monitoring and claim settlements etc would have prevented lakhs of rupees worth of loss, as well as enhanced the organisation' reputation.

The first - numbers - is easy to grasp in terms of process. The second - is not. Take a close look at the example: how could the manager in that case take such a decision that leads to a certain loss in the short term? There obviously had to have been a process behind it; approvals were sought, logical and verifiable explanations given, past history of the area documented. The local teams were controlled by the regional and  national teams, with a process - that changing the channel partner requires proper approval. This process provided the guideline for the regional team to put forward their case. Similarly, in the second example stated the business owner had to have a back-up plan in place, as it entailed an immediate loss of revenue in case the company took an immediate call. Again, evidence of a process - and how emotions have been mixed in to enhance reputation.

When the due process is abandoned, we get, at the extreme, cases like the one mentioned in the article enclosed, when all checks are subverted, all emotions are forgotten at the altar of achievement, and the manager becomes but a number crunching machine. The moment you learn to overcome emotions like regret, morals, conscience, empathy for the other person and start to focus only on numbers and achievement - is the moment when the door of disaster opens for the organisation. Organisation after organisation has paid a heavy price because they took to these 2 myths - that emotions and business dont mix and that numbers are sacrosanct. 

Emotions are a vital part of the human identity as well as the business transaction. For example, empathy for -  and regret for the ill-effects of actions on -  those who will take your improperly checked products, or for the nation which will have to pay the price, or your reportee who will lose his income, or your channel partner who will lose his business... is what prevents bad deals and amoral and illegal acts. The challenge for the organisation is to devise a process that will cater to this; you cant measure or adjudge emotions. But you can derive a business process that will have sufficient checks and balances to prevent such happenings. You can measure the entire process, not just the end - result; for it is only safe, sound long term tactics that can ensure long-term stability and business performance. You can shift your focus from numbers to strategies ;strategies win market battles. Numbers dont. 

In the second part of this article, I shall take a look at why due process is abandoned, and determine the factors that lead to unhealthy trade practices...

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