Posted by: qmaxim | January 13, 2013

Indian Rupee headed down- may touch 60 to US$

US$ to Indian Rupee (INR)  conversion rate is critical for the Indian economy,  government, export /  import dependant companies, IT sector, foreign &  local investors. Considering the importance,  there is a constant discussion about this in business newspapers, business  TV channels and internet.

Many experts  (mostly fund manager types ) are asked about their views about this   – some of them are of the view that INR will appreciate in short to medium term but others are of the view that INR will remain where it is now (about 55 INR to US$) or even depreciate. On the other hand,  govt.  figures, bankers &  people from  Reserve bank of India generally  refuse to speculate.

I have always  wondered  how one can come to  diametrically opposite conclusions with more or less the same type/amount of information. Of course, it is not an easy thing to predict & most of the experts have been off the mark in the recent past. Anyway,  I thought let me also weigh in about this with access to only publicly available information.

I think Rupee is headed down. Here  is why I think so.

Conversion rate  is dependant mainly on the following – demand/ supply, inflows/ outflows, speculation/ perception, govt. action/views,  unknowable events/ actions.

Demand for Dollars:

India is highly dependent on imports particularly oil & oil derivatives; imports meet 80% of  the  demand. In fact, India is the  4th largest  importer of oil in the world. India is likely to remain dependant on imports in the coming years as domestic production has not taken off.
Price of the oil is expected to remain firm in the coming years.

Demand for power in India is insatiable & most of it is generated by burning Coal. India is one of the largest producers of Coal  in the world  & has large proven  reserves. Surprisingly, large amounts are imported -many of the large upcoming power projects are dependent on coal  imports. Same is the situation for many upcoming Steel plants. Though India has one of the largest Iron reserves, many of the large upcoming steel plants are scouting for Iron ore abroad. Most of the coal & Iron ore projects are stuck for environmental, political, legal & other bottlenecks.

Technology  imports such as  high capacity  power generation equipment,  communication gear, military hardware, cell phones, computers, tablets   have also gone up   in the recent years.

Meanwhile, imports of  even low technology daily consumption items is also taking off greatly. For example, even school exercise books, food items, electric bulbs  are now routinely imported. This is not just in supermarkets – even street vendors now sell Chinese apples.  I was surprised  to read a  newspaper item  that even  the small  Indian flag which children wave about  during national holidays  is imported in many cases. (This  was discovered purely by chance  as the  Ashoka chakra in centre  of the imported  flag had  wrong number of spokes). Recently announced policy of  FDR (foreign direct investment) in  retail is likely to accelerate this trend as the policy has no restriction on imports.

India is the largest consumer / importer of gold  in the world. Though economy was not doing too well    last year there was record import of gold. Indians’ craze for  gold is well known and it is unlikely that this trend will reverse in the near future. Govt. reacted by doubling  duty on gold imports. Govt. has limited  manoeuvrability here as increasing duty   further will give a fillip to gold smugglers.

Due to huge interest differential between borrowing rates in US and in India, many of the large Indian companies prefer borrowing from abroad.

Preferred currency for imports is Dollars. From being a country  obsessed with self reliance in the past  it has become import dependant even for daily consumption goods. Due to this trend,  demand for dollars is likely to remain robust and is only going to  accelerate. Increasing import dependency is mostly due to  lack of coherent policy & determination in developing indigenous capabilities

Now about major sources of Dollars inflows:

Foreign investors such as hedge funds, HNIs &  institutional investors funnelled record amounts  into Indian stocks last year. This has lead to rally  of the BSE (Bombay stock exchange) share index   which touched 2 year high.  However, most of the funds are speculative type of funds. Investments by PE funds other companies have been subdued in the recent months.

Another large source of funds is from people of Indian origin working abroad.  Inflows  tend to go up as the Rupee depreciates &/or bank  interest rate increases. Flow reverses as Rupee appreciates.

Also, of importance is   illegal  to legal (called converting  black to white) currency conversion. Large amounts of unaccounted money earned  through  illegal means moves abroad though illegal channels. It  is widely believed that this money comes back to India through  legal  channels as legitimate  investment. It is speculated  that as much as   5% of the GDP  goes out of  the country this way every year.

Earnings by IT companies, who are large Dollar earners, has  slowed down in the  last couple of years.

Even though  economy slowed down  last year, there was  no deceleration in  imports but exports slowed down significantly. Some of it due to problems in the export markets. However,  domestic issues such as high  interest rates, increasing wages, infrastructural issues, depreciation of  currencies of other countries , high domestic inflation, legal/political issues  have  made the exporters less competitive.  This has lead to record current account deficit.

Due to easy money policy of  US- Federal Reserve ( Fed)  and super low  interest rates huge amount of money is available to US  investors for investment.  Since the  growth of US economy has been sluggish  some of  this money finds  it way into India. Though growth in India has been slowing three years in a row still it is one of the few countries with reasonable prospects for growth.

Other  influencers:

Reserve Bank of India (RBI) has limited ability to interfere to influence   exchange rates. It confines its action to controlling the volatility of exchange rate. However, other events such as action by  US Fed  or  Chinese central bank, re-rating by credit rating agencies &  other unexpected events (of black swan type ) can change exchange rate in  unexpected ways.

Why I think Rupee will depreciate?

There was a  widespread perception of policy paralysis, governance deficit, corruption, crony capitalism in the last couple of years.  There was  little movement in government’s  disinvestment of public sector undertaking also. Most of the share sales  were  made to government owned financial institutions.

The Indian economy has been running high budget deficits and growth has been slowing in the recent years.   Many of the  growth  drivers which have lead to growth boom in the past have faced some problem or another.  Most important perhaps are the  infrastructural  projects  which have slowed down significantly. Ambitious highway building program  is able to meet only one third of the target.  Many projects are stuck due to environmental, administrative, financial, legal tangles. Commissioning of Power plants has slowed down (stopped in some cases) due to environmental clearance, fuel related issues.  Construction of mega Steel / Aluminium plants has gone to a crawl or stopped. Many Iron ore mining / Coal  projects have slowed down / stopped due to the same reasons. Oil/gas  exploration is also at a standstill due policy / administrative issues. Telephony sector is also facing  policy issues. Manufacturing sectors like auto, metal, power generation, construction, have slowed considerably.  These would  have cascading effect on all sectors including service sectors. Employment generation also gets effected a great deal.

On top of this,  govt. has increased spending on so called poverty alleviation  programs. With the national elections due in 2014 funding for  these programs  is likely to increase in the coming months.

Investment flows are  driven as much  by perception and sentiment as by cold analysis of expected returns. In the last few months there has been a flurry of activity by the government which has  lead to change in  sentiment for the better by the investment community. For the reasons mentioned,  next year is  likely to  have even  slower  growth rate, high inflation, record deficits, high interest rates resulting in subdued performance by the corporate sector.

All these are likely to result in  sentiments turning negative  in the coming months.  As the price of shares rise investing in shares become less and less attractive.  As the US economy slowly begins recover next year  it will become more attractive for the international investors to invest in US. All these aspects could  result in slowing down of  Dollar  inflows in the coming months.

As argued by me at the beginning of this post,  demand for foreign currency particularly US$ is likely to remain strong in the coming months and years.

So, while  the  demand for Dollars  is likely to remain strong, US$ inflows are likely to be  subdued. This mismatch is likely to result in  steady depreciation of  Rupee against US$. My thinking is that the  exchange rate could touch 60 INR to a US$ in  the next six months.Of course, this is just  a guess assuming factors mentioned above do not change to a significant degree.

Posted by: qmaxim | November 28, 2012

Customer comes LAST

Recently I read an article on airline industry  in  the TIME magazine. According to the report, airlines which are delighting customers are losing huge amounts of  money year after year. Whereas airlines which are nothing but “bus in the sky” are raking in moola.

Take the case of  5 year old  Virgin America owned by British mogul Richard Branson. This full service airline has been rated the highest by the travelers’ surveys and some publications have called it the top overall  airline in the U.S.. It has also won numerous  awards such as best overall passenger experience, best   cabin staff and so on. Virgin has 3 class seats, leather seats, Wi-Fi, live TV, etc. Now consider no frills airline Spirit Airlines which has been voted the worst airlines for years (rating 2.5/5) and has been receiving numerous customer complaints. In this airline, passengers have to pay extra for checked in luggage. Apart from many semi legal practices, airline is actively considering other creative “fees” such as  for using the toilet.

Virgin has been losing money year after year and is in the red to the tune of  US$ 671 million  so far. Many analysts are wondering why it has not  shut down yet.  Spirit on the other hand has been the most profitable airline in the U.S.

Customer centricity has  been the first principle of quality standards, TQM, business excellence models and numerous business publications. For example, business excellence model EFQM gives a lot of importance to  customer perception   for deciding how good a company is. Many of  best practices recommend  doing  customer satisfaction surveys &  changing behavior for  pleasing customers based on these surveys. Is this principle no longer valid?

Probably, this principle needs refinement.  Companies should spend money on features for which customers are prepared to pay. Figuring out which part of the offering is most important and delivering it well   is a must for long term survival of companies. Customer surveys (C-Sat) should be designed keeping  this aspect in mind.

Of course, consideration must be given to the fact that price  counts a lot for most people if they are paying from their pocket.

Posted by: qmaxim | September 27, 2012

How to Stop Hospitals From Killing Us

Recently, I read an article titled “How to Stop Hospitals From Killing Us”. It is about alarmingly high rate of medical errors in the USA and how it can be reduced. According to this article, medical mistakes kill enough people each week to fill four jumbo jets. 25% of the hospitalized patients are harmed by medical errors.

Why this article caught my eye?
Not because of the alarming figures which indeed these are. Generally, health care quality related articles are written by Quality experts, but this one is by Dr. Makary, a practising surgeon of a highly reputed hospital. Most such articles are  about use of Lean Six Sigma & / or Malcolm Baldridge Quality model for making things better. Many conferences are held on such topics yearly. In fact, American society for quality (ASQ) has separate subgroups dedicated to quality in health care field. Medical errors can affect everyone, hence it is important to know.

He suggests 5 relatively simple reforms to bring the rates down dramatically.

1. Online Dashboards- publish hospital’s performance online. Dashboards should cover things such as surgical procedures’ rates for infection, readmission, surgical complications and errors which should never occur. Publishing results have lead to considerable improvements in performance of hospitals. For the patients checking up the performance results  before getting admitted will be highly beneficial too.

2. Team culture- there is a direct correlation between teamwork (between doctors, nurses and support staff) and infection rates and patient outcomes. Improving team culture can help a great deal.

3. Cameras: videotaping the work of surgeons can lead significant improvement in quality of work. Sharing it with patients can be  even more beneficial.

4. Open notes: Quite often there is a mismatch between what the patient tells the doctor and what he hears and records. Verifying the accuracy of notes taken by the doctor with the patient can lead to improvement in accuracy of medical records.

5. No gagging: Increasingly, patients are required to sign a gag order not to talk ill of the doctor or the hospital to anyone or online. Stopping this practice can lead to regaining public’s trust about doctors which has been falling over the years.

All these steps are nothing but application of basic principles of quality and improving communication. None of them involve usage of high technology, sophisticated data analysis or methodologies such as Lean Six Sigma. Getting the basics right to begin with can lead to remarkable improvement in the results.

Posted by: qmaxim | September 4, 2012

Innovation and India – long way to go

Last week, Indian industry association (CII)  organised 2 day India innovation summit  in Bangalore. This is  the 8th yearly conference  organised so far and was co-sponsored by govt. of Karnataka of which Bangalore is the state capital. Considering the  importance of  innovation in rapidly globalising world wherein today’s leader can become nobody in no time, there was great deal of interest and hall was filled to capacity. Infosys’s executive chairman Mr Kris Gopalakrisnan took leadership role of the summit. Well known banker  and Infosys chairman Mr K V Kamat delivered keynote address.

Considering that Bangalore is the hub of technology sector in India,  the event was dominated to a large extent by IT, communication and internet.  Many Indian and multinational companies made presentations about their  innovation approaches and  some of them showcased their  offerings.Content was of high quality.

Some examples of significance:

Private sector banks (like ICICI bank of which Mr Kamat was CEO ) developed and  implemented completely new banking technology model  for rapid expansion at fraction of the cost of the existing  technology.

Google labs in India developed Google maps  in which  users can make changes to the map himeself/herself. Developing map is  particularly challenging in developing countries like India as accurate maps are not available in many places. After perfecting the technology in India it was implemented worldwide.

Tata motors’ development of 1 lac (USD$ 2500) car Nano  is well documented.  Most car parts for this vehicle had to be developed  from scratch as existing technologies were simply not cost efficient . Similarly, in another  case of frugal engineering truck maker Ashok Leyland developed a small truck at  one fifth  the cost of  international equivalent.  The product called Dost is a runaway hit.
Toyota motors
company TKM built  a  competitively priced car from scratch called  Etios and is selling well. It started with high level of local content. Many foreign car companies have been  struggling to get configuration of  the low end models  right and have only managed to meet with limited success.

Electric car maker Mahindra Reva  which has been making all electric cars for many years. They have  built new factory with many cutting edge  technologies. Their recent models have  many world class technologies some of them built on wireless technology.

Govt. of Karnataka has  implemented the largest e-tendering site comparable to the best and which has won many accolades. All the govt. purchases and contracts take place only through this website. Challenge of  implementing something of this nature in the govt. sector  cannot be underestimated.

IT outsourcing company  Wipro presented case studies on the technologies related to medical diagnostic field. These technologies  cost much less than the  existing technologies and give equivalent if not better performance. GE’s  Jack Welch technology centre has developed world class healthcare technologies at amazingly low price. Similarly  IBM has developed many  innovative technologies such as for example, for locating power theft which is common in many areas in India.

Cafe Coffee day which is India’s largest Coffee chain explained how they managed stay on top of the pack despite intense competition. Bangalore International airport (BIAL) made a presentation on how they manage to remain the best airport in India & their strategy to become the gateway to south India.

Finally, a young college dropout (in the mould of  Bill Gates or Mark Zukerberg)  told his  story about setting up a mobile internet company  called Innoz technologies.  If user  SMSes his query about any topic  to  the company designated number he receives the answer by SMS.   This is something like internet search query. This is particularly relevant in India as most of the phones are not Internet enabled and  not many people have access to internet enabled computer. The company has answered  millions of queries and has  achieved a  turnover of USD$ 20 million.

The number of patents filed from India has skyrocketed in the last few years and the  support system for innovation has become  readily available. Ready examples of high level of  innovation are IT, telephony.  Is  India the innovation leader in the field?   The answer is No.   There is a long way to go.

Where should India focus its innovation efforts?  India  has many big problems to be solved,  these are obvious areas to focus on. These are in the areas of agriculture, manufacturing, transportation, energy, mining, metals, infrastructure, water management, governance ……
One such example of an  aligned innovation project  is from Tata Steel.  Though India is one of the largest producers of coal in the world, most of the coal has high ash content and has to be blended  with imported coal before being used.  They have developed a technology for using high ash content coal without blending with imported coal.

India can look at other counties for inspiration. For example, South Korea  began by buying technology  in electronics, ship building, Steel, cars  from  technology leaders.  They started by making cheap and good quality imitations  &  have  now progressed being the world  leaders in many of these technologies.

Israel  is another high  technology  innovation leader India can learn from.  With only 7.1 million population and no local market it incubates   2nd largest number of start-up companies in the world. It has developed and implemented  many innovative technologies.  Some of  them have become very big and are ubiquitous in our daily life. Even in  the agricultural field  they are leaders in many technologies even though most of  Israel  has poor quality soil and very little water.

Posted by: qmaxim | July 5, 2012

Indian auto industry at takeoff stage?

It has been a while since I wrote about Indian auto industry. Lot has happened since then. Auto industry is facing some headwinds. Scorching growth of the past has slowed down, reasons are many- slowing economy, high inflation, high loan payment rates, high petrol costs, policy paralysis in the government, etc.

However, industry seems to be optimistic about the long term prospects of the auto industry which is expected to be one of the largest auto markets in the world in the next few years. This is borne out by some of the recent developments.

Tata motor’s iconic Nano car seems to have recovered from the slump – sales per month has improved to 7500 cars from low of 500. Launch of new model, improvements in design, fixing the quality issues, better marketing and distribution seem to have helped. Exports have started , which should help the company reach breakeven point. Largest auto producer Maruti-Suzuki Motors is also planning to expand capacity and has finalised factory location in the Gujarat state. Company recently launched a 7 seater MPV called Ertiga (predominantly designed in India) which met with good success – bookings so far was respectable 40,000.

India is world’s second largest 2 wheeler market after China. Honda Motorcycle & Scooter India (HMSI) which makes Honda scooters and motorcycles is in aggressive expansion mode after separating from partner Hero Mototcorp (HMC). It has aggressively expanded distribution to rural areas and is in the process of ramping up production to reach 4 million / year from 2.4 million at present. It is setting up a green field factory in the southern Karnataka state. It is aiming to reach number two slot behind HMC which is the world’s largest 2 wheeler manufacturer. HMC is also scouting for locations to expand capacity. It also plans to increase exports significantly from current low percentage.

Perhaps the most important event was the building of a truck company from scratch by Germany’s Daimler. It will launch trucks of 6-49 ton capacity during qtr 3 from a brand new factory built at a location near Chennai. Trucks will have 85% local content and though build on Daimler platform will cost 40% less than in Europe. Trucks are expected to give 5-10 % better fuel efficiency at 10% additional cost as compared to competition. More importantly the trucks won’t carry Mercedes Benz name plate and would be called BharatBenz. The company spent years studying the market before launching so that it does not meet the same fate as the other foreign companies which tried to compete with market leaders Tata Motors and Ashok Leyland. According to Marc Llistosella CEO of the BharatBenz  Indian truck market will become one of the largest in the world in the next few years.

Some other trends are also becoming apparent. Both in 2 wheeler and car buyers are shifting to lower priced and fuel efficient vehicles. This is due to skyrocketing cost of Petrol and higher loan rates. To improve fuel efficiency of car companies are doing light weighting by material substitution for example Steel by Aluminium or Magnesium and sometimes even plastic. Other innovation are use of fuel injection in petrol cars instead of more expensive option like hybrid. One local company is working on an inexpensive hybrid and has working prototype. Large increase in amount of brain power in the form of software for most aspects of car control also helps in reducing fuel consumption. Number of lines of computer code even in a entry level car is likely jump from 10 million now to 40 million lines according to local companies involved in writing software for cars.

Due to falling Rupee, particularly higher end car makers are scrambling to build locally rather than simply assembling cars from imported subassemblies. Urgency to localise parts has increased a great deal. Some companies like Toyota (TKM) are planning to export cars to offset appreciating Yen. Huge price differential between Diesel and Petrol is making buyers shift towards Diesel cars.

Even some experts like for example an European  management consultancy focussed on auto space thinks that India will be the  third largest auto market in the world in the next 8-10 years. Will it be a reality?

Posted by: qmaxim | June 27, 2012

Infosys’s predicament

All these years Infosys has been known as the bellwether of India’s 100 billion US$ out sourcing industry. Reason being consistently high level of revenue  growth, industry leading profitability, ethical behaviour, high quality levels, transparency, open communication, investor returns and friendliness, employee wealth sharing, consistently meeting revenue guidance, etc.  It was also one of the first companies in the sector to list on the  NASDAQ stock exchange in USA. Performance reported by Infosys was considered to be indicator of the overall health of the outsourcing sector.
In the 2011 annual general body meeting (AGM) company’s legendary chairman and co-founder Mr Narayana Murthy  retired. COO – Mr Shibulal took over the  CEO function ,  well known banker Mr  Kamat took over as  non-Exec Chairman and former CEO Mr Kris Gopalakrishnan moved into  the role of  executive Chairman.
In the recent past many people have started questioning whether it deserves bellwether label or not.  Reasons are many. In the last one year many  things have not been going well for the company. Along  with Mr Murthy some other high profile senior executives quit / retired. For the first time Infosys missed self declared revenue guidance. Next year’s revenue  projection has  also been tepid;  company blamed tough economic conditions as one of the reasons. But other large companies in the sector  (such as Cognizant ,TCS, Wipro, HCL)  reported relatively good  performance though not matching  with previous years’ performances. (Not all of them have the same profitability levels). Though company has large cash stockpile did not manage to deploy it  in productive way such as buying smaller companies. In the span of last one year, company’s share price declined by about  15%  whereas  share price of  larger competitor TCS went up by about  7%  during the same period. Also, there has been a barrage of criticism from institutional investors, press, and  even  common share holders of the company.
Last year company launched new strategy called Infosys 3.0 with a slogan ‘accelerating growth’. Extensive reorganisation was also carried out along with this launch.  As explained by the CEO (during the 2012 AGM) strategy essentially involves moving away from plain vanilla offerings to  consultancy and  products.
As I see it the company faces several predicaments. At this juncture there are  no easy solutions. Some of them are:
Plain vanilla offerings (albeit of high quality ) constitute over 60%  of revenue at present. It is becoming increasingly difficult to maintain higher  margins than competitors due to prevailing business environment ; many of  the leading players in the field also have similar operational excellence levels (i.e. Quality) does not help either. Persisting with higher margins could lead to loss of big orders which also has implications on labour productivity, hiring, overall cost, etc. Trade off between these revenue streams  is the first predicament.
Consultancy work done by the company is  unlike  that of  by pure consultancy firms like McKinsey. It is a mixture of  management consultancy and  technology consultancy + system  integration. Revenue per employee tends to be much higher in management consultancies as compared to  system integration type of work. In the case of the company both types of employees  coexist and  probably there is a vast  salary differential between two types of consultants. If there is too much emphasis on management consultancy  volume growth  is likely to suffer. This is the second inherent contradiction.
Company has been putting increasing emphasis on generating revenue from European region to de-risk  overdependence on north American market and has succeeded to a large extent.  Due to prevailing  challenging economic environment (some countries are in the danger of going bust and future of Euro in question, etc)  it has become more risky. But, at the same time, this  might just be  the right time to push for orders as many European companies  are  under  pressure to reduce cost and improve efficiencies and thus might be more amenable to change.  This is the  third contradiction.
Infosys has relatively small  presence in Indian market. Increasingly new technologies and business models are being  developed / implemented in India. It is said that Indian market order inflows tend to be volatile and margins are  lower. Increasing revenue from India could have  adverse effect on margins but not having a substantial presence could result in missing out on  experience of new ways of doing business.  According to innovation thought leader Prof.  Vijay Govindarajan innovations developed in emerging markets will increasingly move to developed countries. He calls  this  trend reverse innovation and says   that such innovations could lead to   huge business opportunities in future. This is fourth predicament.
Deploying huge cash mountain to  get decent returns  and  for buying up  companies has been a big challenge. Some of the competitors have made several buys during past  year. As  present valuations of  many companies  are  attractive  this might be the  right time to move aggressively  on this front.  Of course, this has inherent risks as compared to parking the money in safe seurities. This is the fifth predicament.
If the company is able solve these predicaments in creative ways then it  is likely to  meet with  great success. It says it is gaining  traction in implementing new strategy.  Factors such as recent crash of  Indian Rupee and falling employee attrition will no doubt help. Of course, these are not the only challenges and opportunities in the horizon.
Posted by: qmaxim | May 23, 2012

End of the road for continuous improvement?

Continuous improvement has been one of  the fundamental  pillars of  Quality  for over 5 decades. Almost  no  ISO standard is complete without a  picture of  cont. improvement helix . Continuous improvement once powered Japan’s economy. Japanese manufacturers built their formidable Quality reputation by using Continuous improvement and dominated many sectors of the economy for decades. However, in the recent past, they have been losing market routinely  to competitors from Korea, China and other countries.

So, is the continuous improvement no longer winning strategy?  A recent  HBR blog  post (http://tinyurl.com/6vvffnt)  discusses this issue.

My comments on this post  are copied below. What are your views?

Thought  provoking post , thanks.

Having spent many years  in process management and continuous improvement, in my view,  continuous improvement and breakthrough improvements  should coexist, as it does  in most successful companies.

Innovations (or breakthrough improvements) follow the so called ‘S’ curve. When the technology  is new and just implemented, rate of  cont. improvement tends to be high. But, as the technology matures, benefits from process and product improvement begins to taper off until   it is no longer  worthwhile continuing with the  improvement effort.  Quite often, by studying the information such as number of patent application filed one can get an idea about  position of particular technology  in the ‘S’ curve.

As you correctly pointed out, innovation process and continuous improvement  process should  have different  set of metrics.

Recent  setbacks of the Japanese tech. giants cannot be attributed to failure of their cont. improvement strategy alone.  These are also due to external environment (e.g. sky high value of Yen and artificially low value of Chinese currency, Tsunami in Japan), internal problems ( e.g. Sony’s management paralysis for many years) , etc. For example, in India, Koreans had the high end TV  market to themselves for many years until Sony got its act together. Now India is one of Sony’s largest markets for these products. Toyota’s recent  setbacks were in fact due  to  paying less attention to  Quality  in their  scramble to become the biggest car company in the world. This is well  documented.

Innovation leader Samsung has hundreds of Six Sigma black-belts  working on cont. improvement as well as TRIZ masters working on improving innovation success rate. So, it is a bit  too early to write-off continuous improvement.

 

 

Recently, I completed reading a fascinating book – Steve Jobs: The Exclusive Biography by Walter Isaacson. This book is a frank profile of  Steve Jobs – as a person, his relationships,  how he built Apple, his shortcomings, failures and strengths. This is no fawning autobiography about how great he was and so on.

  Five things standout about Steve Jobs:

 1. From reading copious amounts   written about him one gets impression that Apple’s innovation engine has been effortlessly releasing one hit product after another. In fact,  innovation happened not by inspiration  alone but hard work, wrong turns, trial and error and failures.

  2. He had the guts to take big bets on only handful (7-9)  of  products rather than hedging his bets on many options & letting  the market decide. The  strategy was completely different from that of companies in the field such as   Nokia. Nokia became the largest cell phone company in the world by introducing hundreds of  models during the same period.

  3. He was not prepared to accept the second best even in areas which customers are unlikely to see, like for instance, cosmetic things like appearance of lines on circuit boards.

  4. He was prepared to wait for the right strategic environment to launch a product rather than being first in the market. iCloud is one such example. Many other companies began offering Cloud computing services much before Apple.

  5. Unlike other companies, he stuck to tightly integrated hardware and software business model. This is in spite of  stupendous   success of  software licensing model pioneered by  Microsoft.

 Is Apple the most innovative company really?

  Surprisingly, in most cases, Apple was (is) not technology leader or a major inventor. Most of the products were in fact  developed  using the existing technologies. Parts were made by  companies such as South Korea’s Samsung and manufacturing was outsourced to FoxConn in China. Innovation was really  in anticipating what customers were likely to buy, developing  outstanding products. Until the very end he managed to maintain aura about himself & about  Apple which made customers camp outside the Apple stores  overnight on the day before product release. Of course, product quality was outstanding. Tight integration with the suppliers and high operational excellence was the major contributor to  the success.  Success was also due to alliances he was  able to cobble together with other industry players (e.g. with  Music industry)  which competitors  failed to do.

In spite of his failing health and being near death, his  single minded focus on work was indeed  remarkable. Ultimate  testimony to  his success is the  $507 billion market cap and enviable profitability Apple enjoys. This market cap is bigger than GDP of many countries.

 Alas, he is not there to enjoy the continued success of Apple.

Posted by: qmaxim | March 9, 2012

Is It Pull?

Cooking Gas connections in India are heavily subsidised and are in great demand. The subsidy per cylinder is very high.  Each authorised connection is entitled  to  2 gas cylinders.  Because of big difference (about IRs 600 per cylinder)  between market price and subsidised price big black market  exists for illegally  procuring  subsidised gas cylinders.  Recently, govt. in the state of   Karnataka  took the initiative  of  unearthing  illegal connections  so that  legal gas connections could be regularised. Each house holder having gas connection was asked to produce legal identification, those not producing the same  were  threatened with disconnection. This exercise lead to discovery of over 2 million illegal  gas connections in the state of  Karnataka  alone. Assuming each house holder requires  7 cylinders per year, one can only  imagine the extent of loss on  all India basis. 

 Is this post a rant about high level of corruption in India?  Not really.

 One of the Oil companies which also distributes cooking Gas cylinders has implemented a new innovative way to tackle this issue.

 It works like this.  When a customer requires a new refilled cylinder  he has to call single company assigned  number (common for the state) instead of calling the  dealer in his locality.  When he finishes the call, he receives SMS informing him about the approximate date  (in  +/- 48 hrs window) of delivery and his  local agency gets   informed as well. When the gas cylinder is ready for delivery, local agency calls up the customer and cylinder is delivered at a mutually convenient time. This system enables the gas company to make plan based on actual (legally sanctioned) demand rather than   estimate of likely demand  based on the information provided by its dealers. Local  dealers are  required to   hold just few days’  of inventory. Direction of  Information flow is  reversed  and it flows only in one direction i.e. from company to dealers. This is expected to curtail roaring black market for  subsidised Gas cylinders to a great extent.

 

The new system appears to be adoption of   ‘pull’ principle of famed Toyota Production system (TPS) which is also known as Lean production in many countries .  Though TPS has its origins in Toyota manufacturing, it has found  widespread application in many industries – both manufacturing and service. One example of service  application is in  Agile software development. Most  businesses are  run  by so called ‘push’ system. In ‘push’ system production of goods is based upon a plan (schedule) that’s made in advance, which means production and purchases are made based on projected customer demand. Company tries  to ‘push’ its  inventory to its customers.  Obviously, in such a system  large inventory has to be maintained to prevent a ‘stock out’.

 

On the other hand,   ‘pull’ system of production  plan is based on the  actual customer demand  – in other words customer demand ‘pulls’ the product. Pull is not about managing inventory but on minimising it. Pull principle also means ideal state of just-in-time manufacturing : giving the customer what he wants, when he wants it, & in the amount he wants. This is precisely what is being attempted  in this case.  Production is decided by the actual customer demand and there is no need to maintain excess inventory.

 

This has several benefits both for customers and the company. For the company, reducing the inventory of finished products as well as raw materials  leads to significant cost  saving   in inventory holding cost. Considering the long supply chain (probably  gas comes all the way from Qatar) savings could be quite big.  In this case, lower level of supply also means reduction in loss in supplying each gas cylinder and  big  reduction in subsidy. This is likely to give knockout blow to  thriving black market as well. For the customer, supply occurs when he wants it  and without any hassle.

 

 So, it is a win-win for both. Of course, it is  a challenge   making all components work together as a system and  this   is by no means an easy thing to do. Companies take years to perfect it.

Posted by: qmaxim | January 13, 2012

Anna Hazare and Quality Management

Recent agitation in India lead by anti corruption crusader  Anna Hazare unexpectedly  met with phenomenal response. Major demand by the crusader was the enactment  of  the legislation for the formation of a powerful corruption fighting agency called LokPal. Less well known demand was the implementation of so called  citizen charter in every government office.

The idea is simplicity itself. Implementation of  citizen charter calls for displaying a board in a prominent place in every government office. The board  is expected to contain the following : list of all the services offered in that office, maximum time allowed for delivering each service and who has the responsibility for delivery of service plus other information such as  contact details of  important officials and working hours. Let us say a person is interested in obtaining a certificate of his  land holding – by listing the service on the board   government is guaranteeing delivery  of that service within the stipulated time period as listed on the board. If it is not delivered within the stipulated time then  the person responsible for delivering the service is  fined. 

Let us try to understand what has got to be done to make this  work. First of all the office has to determine all the services for which it has responsibility, what are the inputs/ outputs/ resources , sequence of steps to be followed for each service, who is responsible for each step, time required for executing each step and implement the process as  defined. In most cases implementation involves computerisation. Many government services are (or being) already computerised. In my view corruption and inefficiency thrives on vaguely defined processes and not allocating responsibility and time limit.

This is nothing but what  is  called  process management in Quality profession. In process management also inputs / outputs /  resources / time taken have to be defined for each process, so called process owners have to be named, sequence of steps have to be determined for each process, and metrics have to be put in place to monitor the state of the process. Process improvement starts when  the process is stable.

As I said,  though the concept is simple on paper, it  a powerful way to force the government  to work in an efficient way and  be accountable. No wonder it is facing enormous opposition from many quarters. In spite of enormity of task,  many state governments are implementing this wonderful process management initiative.

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