You have got it all wrong, Corporate India !

You have got it all wrong, Corporate India !
Time to sharpen knives, not twiddle thumbs.



The economists tell us we are in a recession --- by looking at the macro economic factors. The stockbrokers tell us we are in a recession --- by looking at the share price index. The banks tell us there is a recession -- by looking at their declining credit off-take. The industrialists tell us we are facing a recession -- by looking at their order books.

Indeed we must, therefore, be in the throes of a recession. Fine. So what do we do ? How do we combat this situation or manage ourselves during this period ? This article is restricted to the response of the industry.

As a consultant, I have been meeting various people in different industries in the course of seeking business or completing our on-going activities. I must confess to an eerie feeling of despondency that has engulfed me at the response that the senior managers of the industries have crafted for themselves, to face this situation.

The standard response has been : do nothing. Cut costs, which translated into action has meant, stop all recruitment, introduce VRS, stop all non-essential, unproductive activities (Unproductive has been literally interpreted to mean everything not connected to “direct production”. So all training, maintenance, essential repair, improvements, experimentation has been postponed / cancelled). Delay payments, avoid payments, deny payments. Do not initiate any new activities --- this is not the time for it. Factories have started working every alternate day or even just two days in the week ; those who do come to work, spend time idly, somehow passing the mandatory 8 hours before returning home.

This seems to be an odd way of tackling recession.

What we are doing is a sure prescription for “rusting”, not merely plant & machinery but our own managerial faculties and competencies. By not doing anything we may be saving some “money” today. However, at the same time we are also losing all preparedness for tomorrow. How shall we face the market when the boom time arrives, as it surely will -- if not tomorrow, then after 6 months or even after a year.

It will be tragic indeed that after a long lull when the market demands our product, we are caught with our socks down, unable to meet the demand because our plants, that have been idle for so long, are not able to produce well or enough. We are unable to respond because some of our most talented and key people have left us (many of them encouraged to do so by us, only in order to reflect savings in the wage-bill), because our suppliers have abandoned us since we stopped all dealings or drastically cut their business or inordinately delayed their payments.

How can industry, therefore choose this route as the way to face recession ?

Indeed this is the best time to do all that we always wanted to do, all that we always planned to do but never found the time for it. This is the time to attend to all those small, irritating pin-pricks and problems that hinder smooth work but which we always kept postponing since we were very “busy” during boom time. What are these things ?

The things that we can do today, could, broadly, be classified as under :

1. Catching up.
2. Repair, Maintenance, Rectification
3. Housekeeping, Cleaning, Beautification
4. Sorting out
5. Improvements / Experimentation
6. Getting ready



CATCHING UP

In every organisation there are always, at any given time, a number of things in backlog --- be it filing a report / return, carrying out some data collection, analysing some previously collected data, reading some technical articles, fulfilling some small but old orders etc. Some of these may actually be revenue yielding activities like (a) submitting some odd detailed information to get a refund or duty drawback, (b) fulfilling the last part of an order for a small item which will help obtain the payment on the full order. It may involve complying with some silly or innocuous but mandatory data provision to statutory authorities that has gone on being put off and may even result in some imposition of fine or “stop work” advice from the authorities. This is the time to tackle such matters and bring oneself up-to-date.

Another area to look into is implementing the “minutes of meetings”, which get dutifully recorded and as dutifully forgotten. Let a special task force be set up to systematically examine the minutes of all meetings held in the last 12 months and either implement what has not been done so far or determine and declare that some decisions have either become non-essential or irrelevant under the changed circumstances.


REPAIR, MAINTENANCE, RECTIFICATION

During the best of times it is difficult to carry out Repairs or Maintenance activities. Machinery will not be spared since there is (always) an urgent order to execute.

Today, when there is a “recession”, another heaven-sent opportunity is there for postponing repairs ---- need to cut costs ! Nothing could be more short-sighted. In fact, this recession is the best time to carry out all repairs / maintenance that one has been putting off for so long. The machinery can be spared much more easily ; engineers and technicians are more freely available since demand on them to “urgently” service some breakdown is far less. More people and time are available to chase and get municipal approvals. As for funds, it makes more sense that instead of investing in raw material and non-moving finished goods inventory, the same are diverted to such repairs & maintenance work which will make the machines fighting fit for tomorrow.

There is another major and important aspect to this effort ---- Safety and Pollution Control. Experienced managers will know that the Generator Set area is always surrounded with spilled diesel. The production discharge does not get effectively treated because of the inevitable problems in the effluent treatment plant. The compressed air and hot water / steam pipes inevitably have leakages resulting in heavy losses and high energy consumption. This is the ideal time to attend to these problems free from the daily pressures of fire-fighting and short-term, quick-fix solutions.

What about repairing damaged, unsafe civil structures ? Such measures can also prevent many tragedies of the likes of Poonam Chambers when a number of floors of an existing office in the posh downtown area of Mumbai collapsed like a pack of cards.

Yet another area that can be tackled is the strengthening and upgradation of other direct safety measures like Fire fighting facilities, alternative escape routes, particularly in multi - storeyed commercial buildings.


HOUSEKEEPING, CLEANING, BEAUTIFICATION

First and foremost, housekeeping. Let every factory take up a literal STF (sweep the floor) operation to make the factory shop floor spick and span. Let all oily floor be scraped clean and areas around the generator set room properly cleaned out. This is not merely for “good looks” but also from safety and accident prevention point of view. Another important fall-out of such a intensive housekeeping drive is that it will salvage a large amount of “lost / misplaced” materials which can be used for production and , of course, mean money.

Similar housekeeping / cleaning work needs to be carried out at Head Offices and other non-factory Offices (repair of Toilets, leaking taps, painting touch-up) and Branches. The upkeep of our physical assets have never received any proper attention in the Indian milieu except for the MD’s floor or sometimes, the MD’s route. For all other cases, it is simply a case of sweeping under the carpet and carrying on as long s possible. Today, customers, suppliers and even prospective employees give marks for and take into account this physical factor in their overall judgement of whether or not to join /deal with the organisation.


SORTING OUT

Tackle the “high mix-up areas” of Stores, Finished Goods Warehouse and the Scrap Yard. It is not uncommon that in these areas the BIN CARD Stock and the Physical Stock, often do n tally. This happens for all kinds of reasons. A common reason, very often, is the poor and haphazard arrangement of materials due to the perennial shortage of space that these sections face. (It is, of course, an unacknowledged truism that the shortage of space is not the cause but the effect of haphazard storage of materials !) What better time to do stores clean-up and sorting than today when the issues and receipts are perhaps at an all-time low and the stores and production personnel have a lot of time on their hands.

The Stores work need not remain confined to sorting and re- arrangement. There are a whole host of other measures that can now be taken up , precisely because the regular work load is low. These are,

1. Segregation & Classification of Slow-moving, Non-moving Obsolete Items
2. Perpetual Inventory Stock Taking and Reconciliation
3. Oiling / Greasing of Items prone to rusting
4. Re-inspection of existing “shelf-life” items to check how many need to be discarded e.g. items like rubber parts, paint, oils/greases, fibreglass items etc.


Similarly, a proper and thorough segregation at the scrap yard will not only give a cleaner and safer look to the scrap yard, it will also give a much better realisation from sale of scrap as prices can now be realised as per the “segregated” category. In a mixed category, one tend s to get only an average price or the price of the lowest category constituent.

What has been mentioned above for Factory Stores / Warehouses applies equally to Branch Godowns & Warehouses which get the least attention from top management during “normal” working. This is the only time and opportunity that companies have to clean up the huge mess that all Branch godowns invariably are in.

A proper cleaning-up exercise can help salvage saleable goods and prevent further damage to them through leaking drums or wrong stacking. At the same time, one can segregate the damaged stock which is falsely showing in the records as “available inventory” but in reality cannot be delivered to the customer. these can then be disposed off at the best price possible before they turn into completely worthless junk and fetch no realisation.

So much for sorting out physical goods and products. What about sorting out paper, records and files ? How many times have senior managers wished that they could get a full day or sometimes a full week to sort out all the confusion that has crept into their files where no paper can be located, bettered only by the file itself not being traceable !

This is the time to make a special drive to (a) segregate and destroy all outdated papers and (b) re-arrange and properly file and required papers so that they can retrieved quickly and easily. Mundane as this suggestion may appear, managers know only too well that almost 60 % of a “typical decision-making time is spent in hunting for the right file and the right set of papers !

IMPROVEMENTS / EXPERIMENTATION

Consider the factory first. Every Production, Process Planning, Engineering Manager has a number of “improvement” ideas in his mind which he is unable to try out, during normal working, due to lack of time or non-availability of facilities. Now is the time to try out all these ideas and adopt the successful ones for use when the full load working resumes. Otherwise these ideas will forever remain just that --- only ideas.

Once again, this is not confined to physical improvements in the production/testing process. How many time have you found that your procedures for “doing things”, be it a drawing release by R & D, or Sales Order confirmation or Purchase Order Release or Sales / Production Co-ordination Meetings, are rather long and complicated ? Why not utilise this low activity period to sit down and thrash out these issues without the pressure of time-shortage which inevitably makes discussions on these perfunctory and shallow and defensive ? A straightened-out procedure can give just as much improvement in output (by speeding up the decision-making bottleneck) as an improvement in the production process can.

There might be new practices, procedures, lay-out, even a new menu for the canteen, that you wanted to try -out but never found the time. Well, this is the time to do it. When the work load is low the consequences of failure are also low and hence there will be a greater degree of acceptance and co-operation from others who otherwise do not want to risk upsetting the apple-cart when things are going fine.

One major area of improvement that is the first victim in today’s so called “recession” is training. Once again a major area of improvement has been sacrificed at the altar of false economy. It is good to remember that if training your people is costly, not training them is even more costly. HRD chiefs know only too well how difficult it is to get the right people to attend training programmes because they re not released by their bosses or are too busy in some thing “important”. Well now is the time to really rev up your training activity when people are relatively free and in a better frame of mind to absorb new learning.



On the one hand we have all organisations shouting from the rooftops (certainly from their Annual reports and Chairman’s speeches) that people are their biggest assets and the organisation takes good care to provide an atmosphere where the individual can develop and grow. Indeed, people are talking of learning organisations where employees are constantly learning something new.

However, when it comes to putting this into practice then it is a different story. first of all they are not spared because they are busy. Now that people are free, we cannot do training as we cannot spend money because of recession. There cannot be a more myopic viewpoint than this. First of all, all training does not have to be expensive. Why not start with In-house training conducted by in-house faculty. Secondly have in-house training conducted by outside faculty which will be less expensive than a fully external programme. And, finally, where required, selectively nominate people even for outside programmes.

Nonetheless, any training will definitely have some expense ; but no investment in training can ever go waste. Organisations must shrug off this foolish notion that cutting down on training can save costs and boost profits ; the result may be quite the opposite. From people availability point of view there is no better time than now to train as many people as possible. What is being proposed, therefore, is actually, more training, not less, during the present “recessionary times”, blasphemous as it may sound in these “difficult times”.


GETTING READY

At any given time, if an organisation looks ahead at the next 3 months for the short-term and say 12 months for the medium-term, it will find that it has to get a number of things done to face the future when it comes. During normal times, this “getting prepared” activity only gets done as and when one finds time to for it ; in most case only the previous night e.g. preparing for the Corporate Plan Meeting tomorrow !

Today, when there is relatively more time available, some of the things for which the organisation can gear itself by getting ready are :

Preparing for

1. the forthcoming New wage agreement

2. the Corporate Plan / Annual Budget exercises,

3. proposed draft of new agreement to be signed on expiry of current agreement (collaboration, long-term loan, marketing tie-up etc.).

4. Y2K corrections

5. Euro - money conversions, particularly those companies which have a significant export / import activity

6. getting ISO 9000 certification

7. renewal of ISO 9000 certification

and suchlike.

The central thrust of all the above suggestions of utilising this recessionary period is to make oneself better prepared to face the market when it “picks up”. To do that , one will have to do whatever is necessary, in other words be prepared to incur costs, to keep oneself agile, fit and ready-to -jump at a moment’s notice.

The barrier to this kind of thinking has been the Indian management’s inverted and lopsided approach to effort --- they let the current actual earnings determine permissible effort costs. Actually it should be the desired revenues that should determine the required effort (revenue is used here in a generic sense to denote any desired measure of performance --- be it gross revenue, net earnings, market share etc.).


This logic of “effort as a % age of revenue” is like putting the cart before the horse. When costs that can be incurred are linked to the revenue volume then, in times of falling revenue, one invariably ends up making less effort rather than more ; and it is more, not less, effort that is required to retrieve the situation. If advertising is budgeted as 8 % of Sales and the revenue drops from Rs. 200 crores to Rs. 150 crores, then advertising costs are slashed to Rs. 12 crores or less, by an “alert and myopic” Financial Controller, as a response to the falling revenues, and dutifully approved by the “short-term, profit -centred” CEO.

Experienced Marketers know and aver that, actually, this is the time when advertising (i.e. effort to sell) should be increased rather than decreased to protect the current market share or even to increase it.

Indian industry has to shift from this logic of effort volume being linked as “ a % age of revenue” . Rather, the whole thing has to be turned on its head and desired Revenue should be defined and determined and then work out the effort required for achieving that revenue. In other words, the thinking should be --- what is it that I must do (effort) to achieve the desired revenue result.

This is a more action - oriented (what is it that I must do) approach, than the former which reasons, what is it that I must, now, not do to keep my cost within limits. Secondly, because I determine that this cost incurred must get me these results, it forces me to be more efficient in my efforts. Otherwise, I simply take the approach of cutting down my efforts, in an effort to reduce costs, (as most organisations are, unfortunately, doing today) and believe that I have done the right thing, whereas in practice, I am only perpetuating my declining revenue volumes.

There are two other important and deeper issues involved in the approach that is being advocated. When the industry response to the so-called recession is to shrink its own activities (in an effort to cut costs), it is only prolonging the recession and postponing revival. When faced with a fall in demand, instead of trying to find new avenues of achieving higher sales I start cutting down my production, selling effort, advertising etc. I bring about reductions in the activities of people who supply to me -- be it goods and services. If, in turn, they do the same thing with their own suppliers then this slowly sets up a self-supporting recessionary spiral which like a self-fulfilling prophecy indeed brings recession upon us.

On the other hand, when I take concrete and determined steps to combat recession, not only do I keep my activity pot boiling, I also generate work / activity for those connected with my business. When this approach is taken across the economy, it can have a significant multiplier effect. Most important, it can greatly improve sentiment. Most experienced commentators hold the view that there has been an over-reaction in the industrial circles to the drop in demand ; by behaving in this over-cautious and regressive manner, they’re not only affecting market sentiment but also affecting consumer sentiment, who is being silently pushed into being cautious about his purchases, simply because everybody is talking of “bad times”.

Finally, the decision to try harder instead of cutting down on one’s activities, will greatly boost employee morale. Today, when employees see cuts everyday in so called unproductive activities (training, maintenance, new experiments ---- which is funny considering that otherwise CEO’s do not tire of boasting how much they stress on these activities in their organisations), in addition to the reduction in the regular business activities, they too start acting and behaving as a demoralised lot. Their efficiency level goes down which only makes the situation worse.

To sum up, it is not the economy which is going to rescue our industries. It is our industries which have to rescue our economy. It is not the economy which has to be rejuvenated to revive the industries. It is the industries which have to rejuvenate themselves to revive our economy.

This can only be done by pursuing vigorously, in the present “dull” period, all activities aimed at improving one’s competencies ----- be it improvement or maintenance of physical assets, skill / knowledge upgradation of employees or process / procedure simplification in the corporate bureaucracy. All these must be done without slipping under the shelter of a blind-folding umbrella of cost reduction. These activities are recommended to be pursued distinct from, and in addition to, the need for making greater effort in the direct business-related functions of producing better, selling wider, delivering faster and servicing sharper.

This is the time to sharpen knives to get ready for the kill, not twiddle thumbs to get destined for the morgue.


Hemendra K. Varma
Mumbai
December 15, 1998