Saturday, 10 February 2018

How SME's transformation are different from large size organization transformation?

SME 's are mainly different from large size organization based on the investment and sales turnover they make. Even within SME's , there are further classication as micro, small and medium size organization.

Recently Govt of India proposed to redefine SME's based on their annual sales turnover, replacing the current definition that relies on self declared investment on plant and machinery

According to the government’s new definition, businesses with revenue of as much as Rs5 crore will be called a micro enterprise, those with sales between Rs5 crore and Rs75 crore will be deemed as small and those with revenue between Rs75 crore and Rs250 crore will be classified as medium-sized enterprises. 

The above classification clealrly differentiates large size organization from SME's from turnover point of view.

However, apart from sales turnover, there are some other charactersitisc distingusihes the SME's from large size organization.

1. Most of the SME's are supplying to large size organization either as Tier 1 or Tier 2 vendor
2. Adding value to product with partial manufacturing content or assembly
3. Mostly scope is limited to manufacturing only
4. No banddwidth to design / development / procuring material at own identified source or reengineering on product design and material selection
5. Not much bargaining power on pricing 
6. Not much affordability to get the right talent and developmental efforts

Given the above context of SME's, the business transformational efforts are mainly on

1. Ensuring profitability or sustaining profitability through business process reengineering

2. Helping to stabilise the organization for sustainable growth by twisting business model and people engagement initiatives

Monday, 11 December 2017

How to maximize profitability in SME organizations?

Most of the SME organizations can be classified as either Tier 2 or Tier 3 level vendors to OEM. Those organizations are adding value to the final product either by way of partial manufacturing or manual content addition in the material. That is mostly the scope of the SME’s restricted to manufacturing or assembly and may not have much leverage on design, procurement aspects on the value chain.In some organizations, value addition is limited only to the manual work.
Unlike large size organizations, SME’s does not have the bandwidth to design and development of the product, RM selection and procurement, process planning and manufacturing, Assembly and Testing on its own.If the scope of SME’s on revenue is relatively smaller than large size organization, how can SME’s maximize the profitability?

Given below some of the proven methods from our experience with SME’s and the critical aspects of each method.

1. Increasing the volume 
2. Increasing the variety and customer’s base
3. Cost optimization from P&L analysis  
4. Rationalizing the product mix or portfolio  
5. Vertical integration  
6. Looking for premium products or market
7. Looking for premium processes

1.Increasing volume:

       One of the typical methods of increasing profitability is doing more volume as it covers up the overheads and there is a possibility of maximizing profitability.The prerequisite for increasing volume of a given customer’s product is the price and quality expectations to be met consistently.Most of the organizations are working internally on quality improvements, delivery plan adherence, and price optimization so that they can approach the customer for 100 % share of the business. Since the demand is a function of external parameters, there is a limited scope to increase the volume beyond a certain level.

2.Increasing the variety and customer’s base:

       One of the favorite ways of increasing the sales turnover, in turn, profitability is by expanding customer’s base and get more orders of the similar product family. For example, if SME’s has modern machining facilities, it looks for different customers and product range to maximize the revenue and profitability.

The advantage is that it helps the organization not to get into the risk of dependence on one customer and also helps the organizations to serve the different product varieties and customers to get more visibility in the market.The downside of this approach, over a period, managing multiple customers with multiple varieties leads to operational inefficiency issues.Most of the organizations fail to plan well and ended with operational issues like more changeovers, higher cycle time, higher WIP's, quality issues, lack of focus on time deliveries low productivity.However, for some organizations with better operational team and practices, this method turns out to be a better method of maximizing the profits

3.Cost Optimization from P&L Analysis:

This is an all-time workable solution, proof from recession or unfavorable external environments. Irrespective of existing customer’s base, volume, product mix and variety, some SME organizations are continuously working on waste elimination, re-engineering the process and identification of opportunities to save the cost of P&L analysis.For example, one of my known organization regularly saves 3-5 % in its conversion cost every year irrespective of volume or external condition only through continuous improvement programmes and finding opportunities to cut down the unnecessary expenses.
Another advantage of this methods, the organization develops the culture of cost consciousness as a way of life.

4.Rationalizing the product mix or portfolio:

This method is mostly last options or impossible options by SME organization as they are vendors to OEM customers and they can not influence on changing the product mix or portfolio.However, wherever the organization supplies directly to end customers influence to choose the right product mix as it maximizes the profitability significantly.
It requires active accounting and cost deployment practices, wherein the organization can precisely know the cost of goods sold for each product mix.Accordingly, the management decides the product mix be continued or dropped.
In one of my client, when we did products costing and selling price analysis, we came to know the some of the product ranges, the organization is making losses as the cost of manufacturing outweigh the selling price. The management took timely decision to drop some of the low-end products, thereby could able to release the capacity for the higher end as well as to increase the profitability.

5.Vertical integration:

One of the common practice prevailing in most of the SME’s over a period, after stabilizing the basic process and get the customer’s confidence, they get into vertical integration as a natural growth.This expansion gives growth and profitability advantages to the organization.
For example, an organization specialized in forging or casting is expanding the horizon to machining and assembly.
This method is workable once the organization establish themselves with the basic process and have a financial and technical bandwidth to expand vertically.However, this method requires continuous reevaluation of product cost and sales realization.

6.Looking for the premium product or new market:

One of the possible option for SME organization to look for premium product lines or new market whereby it enjoys the premium.It calls for expanding the marketing effort to find to find the niche or premium product lines and customers.

7.Looking for the special process:  

Rare and ultimate option for SME organization to get into the special process to enjoy the premium as this must be the entry barrier to others.

In today’s competition and free market environment, the organization can be healthy only by generating sufficient cash reserve through profitability.It is the business head or CEO's prime responsibility to revisit the model continuously!!

Friday, 10 November 2017

Why is business (head) transformation equal to business transformation, especially in SME’s?

There are several factors contribute to the success of the business regarding profitability and growth. Those factors could be type of products or services, talented employees, competition, positioning, market, economic environment and so on.Those are all common factors prevailing for any business in which some organizations are doing successfully, and others are struggling.The crucial differentiating factor between a progressive organization and stagnant or struggling organization is a business head especially in small, emerging medium size (SME’s) organizations.The business head could be the founder or the director of the firm.The business head's beliefs, quality of thinking, business practices and leadership style determines the organizational success amidst the common factors as listed.

As I had a privilege to work with more than 100 small and medium-size business heads on different occasions, one profound truth that I have realized.That is, irrespective of industry, business nature, product, manufacturing process, marketing environment and competition, the growth of the organization primarily depends on the business head ‘s thinking process or mindset, leadership style, his business practices or daily management processes and how he is directing or guiding his team.

Predominately his belief or how he looks at the business determines his leadership style, enables him to choose the right business practices or processes and ultimately reflects on the profitability and growth.

Most of the business heads as I observed, look at their business with either one of the two beliefs like survival orientation or growth orientation.

In survival orientation, he looks at his business and customers as a mean to make profits; he tends to make a profit somehow, with little or no emphasis on adhering to process, ethics, considering the interest of all stakeholders, future growth aspects and long-term sustainability of the business.Those organizations struggle with profitability issues, low employee engagements, frequent customer's turnout.

In growth orientation, he looks at his business and customers as a purpose to enhance the value of all stakeholders, including his motivation. This mindset will improve his thought process towards long-term sustainable business decisions. When he has the purpose of the business, his approach and thought process would be on building a solid foundation for the process, systems, technology and talent management, in turn, his visionary approach would be long-term oriented even though sometimes he loses in the short term. His growth mindset enables him to choose a set of business processes or practices on a day-to-day basis, which promotes positive organizational culture, business results, and long-term growth.His enhanced mindset enables him for creating sustainable wealth creation from his business to meet all stakeholder's expectation.

In our business transformation engagements, we have witnessed that whenever the CEO or business head understands the desirable behavior gap or the business process gap and then works full heartedly along with us, the business results used to be extraordinary. 

In my opinion, business success factors like technology, effective asset utilization, expanding into new markets, managing the competition, talent management and fulfilling the customers’ requirements are relatively easy tasks if the CEO or business head tune up his mindset and thought process towards growth orientation.

The real transformation has to happen at a business head level from mere survival mindset to a growth mindset.Business transformation starts from an individual and that too from the head of the organization. If that change happens at a business head level, I firmly believe that business is also equally transformed.

Friday, 20 October 2017

What must every SME business head know about his business?

As we are working with more SME organizations, we are observing two kinds of business heads or owners.One type of business owners involves themselves almost full time on managing all aspects of operational activities on a daily basis and not giving much focus on the business aspects of profitability and growth.The other type of business owners or heads delegate entire activities to second levels and not much familiar with business aspects. In both types of personalities, we see benefits and drawbacks as well. Only a few smart business heads able to balance the priorities between survival and growth-related activities.

The point is irrespective of the personal style of management, the business head must know some of the aspects of the business at a macro level, and in a fixed interval he must review along with his team. His macro level business acumen and reviews will help the organization to prepare proactively for any uncertainties or opportunities which impact profitability and growth.

The following business aspects the business head must be familiar and review frequently.

  1. Profitability
  2. Cash flow
  3. Capacity constraints 
  4. People capability and development
  5. Next level growth plan 

1. Profitability :

He must have a practice of reviewing P&L once in a month along with the team. Reviewing P&L will give a fair idea about the healthiness of the organization regarding cost, product mix, and pricing

Also, he must be aware of his cost structure or value chain and its impact on the profitability.

He must have a clear idea of the product mix or customer mix which gives maximum profitability. This clarity will help him to focus on customer or product rationalization

2. Cash flow : 

One of the pain areas for most of the SME organization is poor cash flow management result into affecting day to day operations, sometimes, finding difficult to pay even salaries on time. This delay seems to be a regular event from the management point of view as multiple transactions happening across the supply chain, but from an employee point of view, these delays some time affect the morale and engagement. Better cash flow management is required to avoid hand to mouth situation of cash flow.

The business head must know his breakeven point, cash flow transactions, and payables/ receivables outstanding in a regular frequency through MIS so that he can intervene at right time with right people to mitigate the risk before it occurs

3. Capacity constraints : 

One of the competitive edges for the organization is speed and delivery flexibility, and this is going to be a major expectation from customers. The business head must know his organization constraint points and work continuously on debottlenecking or improving the capacity to stay ahead of the competition. The constraints could be anywhere in his operational and business processes.

Meeting the customer’s expectation on time must be one of the key performance indicators of business head

4. People capability and development : 

Today one of the significant challenges for SME’s is people management. It includes selecting the right people, compensating them at par with industry and retaining them. As most of the organizations realize the cost of replacement and training the new entrants, it is one of the critical priorities for business head to identify the people talent on time and develop them for cost efficiency and future fit point of view.As a business head, he must continuously invest in people capability development initiatives. 

5. Next level growth plan  : 

Since most of the team members in SME’s are working on operational issues and someone must think about sustainability, the growth of the organization. It is the responsibility of the business head to think ahead and work on the growth opportunities. To work on growth, he must be aware of the external environment, trends, customer’s expectation.

Organizational profitability and growth depend on the amount of time, the energy the business head spends in all aspects of business !!!

Monday, 4 September 2017

Three important rituals a (SME) business head must do in the first week of every month?

Getting into business is relatively easier than running it successfully by fulfilling all the stakeholder's expectations.It requires disciplined approach in managing business processes. As we witness in most of the small, medium size organizations, the business head seems to be busy in managing the business outcome, but with little focus on the business performance review.Despite multiple priorities and engagement with different stakeholders, the business head must do some important ritual or activities which he can not entirely rely on others.

This important ritual or activities can be classified into monthly, weekly and daily basis.When the business head is missing the routine or not doing at a specified interval, it brings chaos into the system and pulls his time, energy to bring back the business to healthy.

Let us discuss only the three important rituals or activities a business head must do in the first week of every month 

1. Reviewing monthly operational profit & loss 
2. Reviewing outstanding payables & receivables
3. Reviewing the operational plan & performance

1. Reviewing monthly operational profit & loss :

Evaluating monthly profit and loss statement is the most important job of a business head as this gives the overall performance of his operations of the previous month. As this review will give clarity on what product mix made him make profit or loss, what kind of expenses he is incurring to realize the profit and losses.

Once he knows this trend or pattern on a regular basis, he can take right call on the following

1. Choosing a right product mix
2. Right initiative on cost optimization projects
3. Knowing his cost drivers and plan accordingly 

Since most of the #SME ‘s equipped with enterprise software like Tally, it is easy to fetch the P&L statements.Sometimes, it may not be as accurate and covered all the transactions as business units used to get at the end of the financial year. However, it will give a fair idea about the health of the organization on a monthly basis.

2. Reviewing outstanding payables and receivables :

      Cash flow management as this is one of the pitfalls most of the business head trap and spends most of the time to run the day to day affair.The reason could be lack of structured review and follow up on the receivables and payables areas. Timely intervention of business head on receivables and payables will help in managing the business smoothly as well improve his creditability in the suppliers.Like profit and loss statement, it is easy to get instant data on the outstanding payables and receivables from any accounting software.

We have seen from our experience, wherever business head is keen on the cash flow improvement, he runs the overall business very well.I think managing cash flow very well gives much quality time to concentrate in other value additions.Hence, this needs to be reviewed by business head at-least once in a month if he delegates to his second level on a daily basis.

3. Reviewing the operational plan & key performance indicators (KPI's) :

During the first week, it is the prime responsibility of the business head to review the previous month key performance of operations like delivery, customer ‘s service, project performance and also set the direction for the current month. It includes reviewing the operational plan week-wise, ensuring capacity availability or giving decisions on outsourcing or extending hours, etc.
This review ensures the clarity on the direction and sets the team to perform as there is certainty in the expectation. Most of the time, the team struggles on priority and decision making.In fact, this ritual plays a major role in improving the morale of the team, in turn, engagement.

Initially, this practice of operational performance seems to be difficult. However, we have witnessed in most of the organizations; it helps the team in a big way like 

1.Clarity on the target or direction
2. Improvement in cross functional engagement
3.Improvement in business performance

Ultimately, the business head should know the direction of his #business.More he does the above rituals, more control he has on the business and of course on the business performance.Re look at your rituals for better business performance!

Wednesday, 12 July 2017

How to develop employee engagement culture in SME organizations?

Employee engagement culture can be understood by the way all the employees involve themselves on an organizational day to day processes, interaction with each other, to customers and other stakeholders, continuously improving the technical, functional, managerial process and continuously contributing to the organizational objectives like profitability, growth. In an engaged culture, the focus of the organization would be on "solutions" rather than on the problems, fixing people, complaining and firefighting mode of working.

Bringing the people together towards a single goal and working together is a real challenge in most of the small, emerging medium size organizations and it requires the sustained commitment and hard work from the head of the organization as well as from the team.

In some organization, as long as they are small, engagement is positive under the close supervision or interaction of the business head. When the organization grows big, the employee engagement becomes complex as increased size of people, the quantum of interaction and communication, different priorities make the engagement as a challenge.

Even then the employee engagement challenge can be managed with a long-term focus, driven by top management, well-defined process, and consistency in execution.This execution must be visible in day to day management, in the quality of interaction between all the stakeholders.

To bring the employee engagement, business head or leadership team must inculcate the fundamental principles in place as follows

1.Respect the individual and accept the diversity
2. Treating people as ASSETS rather than COMMODITY
3.Differentiate performer and non-performer
4.Learning and development as lifelong process

Factors facilitate the employee engagement

There are many factors affecting the engagement irrespective of product lines, business nature; those factors can be categorized into two factors namely

1.Physical Environment inside the organization

2.Structured Management Process & Consistency in Execution

The importance of physical environment on employee engagement 

Environment triggers the positive or negative behavior in people and in- turn as action.When the environment is conducive, it will trigger positive, learning behavior whereas if the environment is not conducive, it triggers only negative, low-level activity among the people.

For example, when we visit a temple or library, our behaviors to silent are different than when we visit a local vegetable market.The environment triggers our behavior, in turn, our actions.

Similarly, some of the physical environmental factors inside the organization drive positive behavior and actions like

1.Uniform that promotes equality among employees

2. Basic amenities like washrooms, drinking water facilities

3. Good ventilation and lightings

3. Facilities for eating foods

5.Good housekeeping and safety layouts

6.Visuals promoting positive thinking and teamwork

The list looks like soft issues or infrastructure and those are all considered as expenses.However, their presence makes an invisible impact on the behavior and actions of the people as we have witnessed in many organizations.

The importance of structured management process & consistency in execution:

In some organizations, we are witnessing that employee engagement programmes are initiated with great enthusiasm by having inauguration event, motivational lectures, and celebrations, etc. However, over a period, the momentum fades. The reason could be the process of administrating the engagement process, engagement framework, assigning responsibility, consistent recognition methods and events are not being thought out and articulated.

Some of the management process that enables employee engagement in a consistent manner

1. Setting the targets for the organization/ functions/ cells

2. Clear Communication to the team

3. Expectation set and articulated

4. Periodic review forums to see the progress

5. Recognizing the talent and visibility of the improvements 

6. Standard operating procedure with details on communication, engagement process, rewarding and recognizing methodology and people responsibility.

Since the organization consists of people from different educational / work experience and different motivational needs, different engagement programmes must be created to cater to different levels and needs.

The general framework for employee engagement programmes/initiatives for different levels of people inside the organization is given below

As said, Engaging the people towards organizational objectives and working towards solutions and growth requires a long time focus and commitment from senior leadership team and all employees. This is a difficult process, but once you establish and sustain the positive engagement culture, your organization will survive any external challenges.The positive, winning mindset culture will become a competitive edge and can not be copied by anyone.Are you ready to invest your time, energy on the long-term asset building?

Monday, 26 June 2017

How to evaluate the plant layout options ?

One of the management challenges is to decide right plant layout given the many options.Even though Engineers are trained to design the plant layout considering the material, process, communication flow using a different set of techniques, taking a decision is cumbersome since one layout options may give a set of advantages, time, drawbacks and some other layout options may give a set of advantages and drawbacks.

Most of the time, a making .wrong decision might have taken by team depends on who is influencing the layout options or go by subjective decision making.

To avoid this mistake and consciously take the decision without much bias, Pugh Matrix with Evaluation Criteria will help.

Some of the Evaluation criteria for best plant layout

1. Shortest material flow route
2. Minimal or zero criss-cross movements
3. Ease of communication
4. Flexibility for expansion
5. Cost of layout
6. Ease of Maintenance 
7. Faciliating safety aspects
8. Ease of planning
9. Floor Space Utilization
10. People Utilization 
11. Aesthetics

Each of the above criteria can be given some weight depending upon your industry / organization/type of layout changes, and against that criteria, each layout options can be scored on the 0-5 scale. The overall multiplication of score against weight will give the FINAL score for each layout options.

You can objectively select the layout options with HIGH SCORE as it considers all the parameters with weights.

This techniques Pugh matrix evaluation removes bias to some extent while evaluating and choosing the right layout options.