Why portfolio clarity is required among family members in the small ,emerging organization?

In most of the family business, one of the common patterns I see is that all the family members use to get involved in all the business matters. Still, at the end of the day, either decision never gets taken or decisions deferred as no one will have the final say. In this process, the organization remains mediocre, or the growth opportunities are not leveraged as supposed to be.

There is no doubt that the organization had grown from startup to significant size due to the mew hardworking family members. However, if you want to take the organization to the next level growth or if you want to make the organization more of the professional firm by bringing external talent, the first step would be restructuring at the senior leadership level, ie family members level.

One of the restructuring processes is bringing clarity on the portfolio among the family members

What does Portfolio clarity mean?

• For each family member, define the roles and responsibilities according to their qualification, strength, and experience.
• Assigning the particular functions or set of functional deliverables 
• Empowering an individual to make decisions in their respective functions or domain. To continue the inherent, inclusive way of working, the information to be shared among family members periodically. 
• Making people accountable for the result

Benefits of portfolio clarity among family members:

1. Mainly, organization growth can be accelerated as inherently, and the business has resources. Still, due to a lack of clarity on portfolio clarity, resource's time is getting wasted by involving in all business matters and enriched with only information.

2. Duplication of roles and responsibility can be avoided, and the resources can be utilized effectively

3. Gives clarity to the people of the organization on whom they should report for what purpose. The clarity at a higher level will remove the ambiguity among the employees, and also we can avoid the manipulation of communications by the employees.

4. The decision can be taken faster which helps the organization to respond quickly to the external world.

5. Bring out the extraordinary talent of the individual when they work under pressure to deliver the results


When the business is growing from small to large size, professionalism will help to accelerate the growth and for the benefit of the organization's growth, relationship and accountability need to be balanced through portfolio clarity among the family members!.

Step by step process in implementing organization wide performance management system

One of the dreams or visions for most of the business head of the small, merging organization is to make the organization a system driven and to implement performance-driven management.


As we discussed the need for an organization-wide performance management system, now let us learn the step by step implementation step to make the performance management throughout the organization.

Step1:

Implementing Business performance management, keeping the second level reportees as stakeholders.


Business  Level Performance Management :

When the organization is small, or the first time, the organization is getting into the performance management system, the logical step would be determining the important business key performance metrics along with some of the functional key performance metrics and start measuring. Key performance metrics can be measured and tracked by the business heads and his/ her second level reportees, mainly functional heads. 

For example, some of the business KPI's like sales turnover, inventory cost as a % of sales, Plant effectiveness, attrition rate, % of NPD contribution over sales can be measured and tracked. This set of performance metrics can be reviewed along with functional heads, and they can be encouraged to work on the action plan to improve the business performance.

This process implementation duration can be one year. 

Benefits of  business-level performance management :

1. Senior leadership team becomes familiar with the process of performance management even though they are not feeling fully accountable for the result and but they feel they are part of the process.

2. Enhances the engagement among functional heads or second level reportees o when the business head reviews along with them every month or weekly 


Step 2:

Implementing Business performance management as done in the first year and arriving suitable functional level performance management, keeping the second level reportees and their team as stakeholders.


Business +Functional Level Performance Management 

Since the organization already familiarizes itself with a business-level performance management system in the first year, now the organization can have Business performance metrics that can be set by the business head and tracked along with the functional head.

In the second level, detailed functional level performance metrics can be set and assigned to the second level or operational head level. The functional performance parameters can have more functional oriented and some of the business metrics as derived from business KPI's from the business head.

For example, the supply chain function can have more functional metrics like no of vendors developed, inventory level at different levels, freight cost as % of sales, and so on. Similarly, for all functions, we can have more functional level metrics which can be assigned to respective functional heads and their team.

The functional heads and teams can be encouraged to present the performance metrics trend and a detailed action plan for the business head every month.


This process implementation duration can be one year. 

Benefits of business + functional performance management :

1. The focus will be given in-depth to the functional effectiveness, by the way, measurements are extended to all functional key activities

2. Since we involve functional heads and their team, their involvement and focus is improved on functional effectiveness

3. Most of the organization covers under different functional metrics and performance measurement system, eventually, there will be an improvement in the communication process, visibility of issues and the solutions approach, understanding the pains of cross functions enhances significantly.

4. Eventually, engagement enhances across functions


Step 3 :

Implementing  Individual-level performance metrics which is derived from business and functional performance metrics 


Business Performance Management  + Functional Performance Management + Individual performance management :

Since the organization already familiarize itself with the business performance management system in the first year and the functional team engaged in the functional performance system in the second year, now the organization widens the performance management net to all the people in the organization. Ideally, it can be extended to executives, first-line supervisors level.

In this process, each individual is given a set of performance metrics that will have linkage with the functional parameters, which is derived from business metrics.

Each individual is accountable for improving their metrics and report the progress. The review period can be once every quarter or monthly basis, depending on the bandwidth of the organization. It is the responsibility of the functional head to review the progress of their team members. 

For example, the individual depending upon the level in the organization can be given performance metrics that are related to his/ her functions. Also, some of the development plans can be added.

By the way, almost the entire organization is governed by performance metrics related to business and functions.

Benefits of  organization-wide performance measurement system:

1. Since the direction is set for the organization at business, functional, and individual levels; it improves the focus and engagement.

2. Eventually, the organization gets clarity of performer and non-performer, and this will help to focus on people developmental efforts 

3. When the rewards and recognitions are based on the performance, it brings visibility, differentiates the performers and non-performers, improves the culture towards self and organizational performance improvement

Overall, performance management brings engagement among people, eases the communication, improves the focus on results or solutions, and thereby culture would become more of winning than blaming or complaining.

Implementing the organization-wide performance management system is a long process and needs to be implemented in a phased manner for sustaining the results and involving all the stakeholders to create performance-based culture!

Learn the art of conducting Business Review Meeting

In the organization, one of the effective forums for engagement or one of the time-waster can be  REVIEW MEETINGS !. The conclusion depends on the way the business head or the leaders conduct the meetings. 

Conducting a purposeful and Result driven review meeting is an art, and the business head and other leaders can learn with conscious effort.

Let us discuss some of the insights about the review meetings and the solutions approach to make it effective.

Mindset related to review meetings:

some people look at the meeting as wasting of time and believe that the meeting is not going to help. Eventually, they never conduct any meeting, and even if it requires some decision to be taken, they use to call the individuals over the phone or 1-1 conversation and again convey the discussion to someone else. In this process, actually, the business head or leader's personal productivity is getting affected.

I observe that the mindset behind this, the business head is not interested or has not learned the art of conducting review meetings. The reason can be fear of facing people in a forum, not able to hold the review meeting effectively. This root cause needs to be understood and challenged.

Hence, the mindset and belief about the meeting need to be changed. Meeting need to be seen as a forum of related people to discuss, take decision collectively, and in the process, communication issues, the time delay can be avoided. Once the mind shift happens, the leader is in a position to learn the art of conducting reviews.

Fixed Meeting Reviews as much as possible :

In a smart organization, one good pattern, we can see is the fixed meeting reviews on a daily / weekly basis. For example, the sales review meeting will be every Monday at 2pm, Production review meeting every day at 9.30 am, and so on.

When you have a habit of fixing the meeting reviews on a daily / weekly basis at a fixed time, it improves the planning process of all the stakeholders, and the accountability to the meeting outcome will improve eventually as the agenda, and people's responsibilities are almost fixed.

When you call for ad-hoc meetings, the people may not be prepared for the agenda, data may not be available; eventually, the effectiveness of the meeting will also be less. It does not mean that we should not have an Adhoc meeting, as it depends on the business situation. It needs to be understood from the right perspective.

Be clear on the meeting purpose - Business or Technical Review?

I have seen in many organizations, the business head diverts the review purpose by going in microanalysis or shifting the focus to technical aspects. For example, in one of the monthly P&L review meetings, the purpose of the review should be reviewing the previous month's sales performance, expenses, and profitability and to discuss the future action plan. The discussion calls for high-level decision making on specific business-related issues. Rather than focusing on the business issues, the business head and the engineer get into the details of rejections, tool design, and engineering dimensions, and the whole meeting purpose is defeated. The other people's time also was wasted. If the technical aspect is important and to be discussed, nothing wrong in that, that can be done offline along with the respective people in a detailed manner. The business head decision is essential in the business review meeting, and he must be conscious of his/her focus on business and technical aspects.

As a business head, you need to be conscious about working on macro and micro details and need to be aware of switching in and switching out.

The other disciplines of conducting review meetings:

• start on time and finish it on time
• Go by the data or fact, less on opinion and emotional aspects
• Respect each one to voice their concerns, ideas, and suggestions
• Focus more on the decision /actions
• Be patience when others are talking
• Learn the art of questioning and giving feedback with the intention of curiosity and improvements than finding fault and blaming.

The facilitation skill of the chair is important in making the meeting more effective or just time wasters. The good news is that facilitation skill can be learned through awareness and practice!

Business Head's Mindset for Sustainable Growth

In any business, there are peak and valley in terms of sales growth and profitability. However, a few organizations thrive well all the cycles and been in the business for a longer time, some organizations exist even beyond the third generation. 

When I observe those organizations, when I deal with them as a consultant and coach, there are some typical patterns among the founders or the business heads. I can call those patterns as the mindset of the founder or the business head, which makes the business to manage through all the struggles and sustaining the growth.

I can classify the mindset into three areas

1. Mindset towards the Business

2. Mindset towards the People or Employees

3. Mindset towards the Customer

1. Mindset towards the Business:

In a sustainable business, the business head looks at the business with a larger purpose than just survival alone. He/ she is looking at the business as a means to maximize all the stakeholder's interests or expectations. The stakeholder could be financial institutions, employees, customers, even the promoters, suppliers, government, and the society in which business is operating. It does not mean that profit motive is absolutely absent, they also realize that rich cash reserve only will do all the activities to maximize the stakeholder's expectation. The point is they look at the business more than themselves. Their thought process, behaviors and decision making are all pointed towards meeting or maximizing the stakeholder's interest.

2. Mindset towards the People or Employees:

In a sustainable business, the business head always looks at the employees as an Asset rather than Commodity. This mindset is essential in making decisions on development, training, allowing the people to experiment, taking the risk, empowering people to make decisions, and providing an opportunity for learning and to grow along with the organization. Alternatively, if the business head looks at the people as a commodity, he treats them also in a low-level dignity, because he believes that there is abundance in people resources, even if x leaves the organization, Y can be recruited quickly from the market. With the mindset, no effort would be taken towards people's development and engagement aspects. 

I know in one of the organizations, the CEO looks at each people as an asset, and some of the people are staying in the organization for more than 30 years and also had grown along with the organization by developing themselves and contributing to the organizational growth.

3. Mindset towards Customer:

In a sustainable business, the business head looks at each customer from a long term perspective even though there is a loss of monetary benefit in the short term. The focus of the business head would be meeting or exceeding the customer's expectation, maintaining a cordial relationship with the customer irrespective of the customer's representative that is changing at the customer's end.

As stated above organization, the business head works with only a few customers for more than 25 years and grown along with the customer. Even when the business head expands his business beyond the old customers, the customer is keen to work with the organization. The relationship is based on the long term, and the bonding helps both of them in terms of mutual growth.

The point is the business head's mindset towards business, customers, people make a significant impact on the sustainability of the business!

How do you measure your business or plant effectiveness as a Business Head?

As you are aware the famous quote, "what you measure is what you get."

Measuring is very significant for business performance, and what and how you measure is very critical. If you measure wrong or suboptimal or standalone, then your business performance will also be suboptimal.

Typically, we use to measure our business or plant in the following ways.

1. Utilization perspective :

2.Efficiency perspective :

3. Capacity perspective :

4.Machine hour rate perspective:

5. Yield performance perspective:

All those measures are right and serve the purpose to some extent for what it is intended. For example, you may be measuring capacity utilization as the ratio of production qty/capacity installed, which measures say, for example, 80 %, that means you may conclude that 80 % of the installed capacity is utilized. It may not give the other information like the efficiency during the production and how much actively passed through quality specification and how much cost you incurred and so on.

Likewise, all the above typical measurements will give you standalone, suboptimal information to you about each function, and you need to look at altogether to arrive at some common conclusion about your overall business or plant performance.

To overcome the above limitations only, smart organizations adopt one measure, which will give a holistic view of your plant or business effectiveness rather than standalone performance or utilization or yield performance.

Introduction to Overall Plant Effectiveness  or Overall Equipment Effectiveness :

OPE 

In case your plant is small, one or few lines is determining your business profitability. You can take that line for measurement, which will have a direct correlation with your business performance. You can measure as Overall Plant Effectiveness.

OEE:

In case your plant is relatively large and consists of many types of equipment and lines, you can identify the most critical or constraint equipment, which you can measure holistically. There you can measure as Overall Equipment Effectiveness

In a small, emerging organization, if we apply OPE or OEE rightly, this will have a direct correlation with delivery performance, sales turnover, and profitability, as I have seen in my client organizations irrespective of their manufacturing industry classification.

The measure either OPE or OEE will consider the importance of EFFECTIVENESS rather than any standalone measure like efficiency, utilization, or yield performance. 

Now let us discuss the elements of OPE or OEE :

It consists of 3 parts namely, Plant Utilization, Output efficiency, and product yield performance 

 detailed working is given in OEE Introduction to OPE / OEE measurement

In the picture above, 

the plant utilization is given as 75 % as it is derived from the ratio of working hrs ( 6 hrs)  to available hrs  ( 8hrs)

The output efficiency is given as 83 % as it is derived from utilization data. For example, in a given 6 hrs, the plant supposes to deliver 600 nos ( assume 100 per hour), whereas, the plant produces the actual output as 500 no's. hence plant efficiency is  500 / 600 equals to 83 %

the quality performance is given as 80 % as it is derived from efficiency data, For example, 500 no's produced and 400 no's only pass through the quality test, and the final yield is 400/ 500 equal to 80 %

Hence, Overall Plant Effectiveness (OPE) is a multiplication of Plant Utilization and Output efficiency and Yield improvement, ie, 49 %

So, instead of looking at standalone measure either 75 % plant utilization or 83% people or output efficiency or 80 % yield performance, we are getting a HOLISTIC MEASUREMENT to say  EFFECTIVENESS  as 49 %.

This measure will give you a HOLISTIC idea about your plant's Effectiveness at the end of the day.

Business Implication of EFFECTIVENESS measure:

what does 49 % OPE or OEE indicate?

Given your current sales turnover or profitability, whatever you achieve is due to operating the plant at 49 % effectiveness. If you want to improve sales turnover or profitability, it is only possible by enhancing plant effectiveness measures. Improvement of plant effectiveness measures can be working on plant utilization losses, people efficiency losses, and improving quality issues.

Benefits of Holistic measurement :

1. As this measure encompasses utilization, efficiency, and quality performance, you will get a holistic idea about your plant effectiveness at the end of the day

2. Easy to communicate to all FUNCTIONS 

3. Since all functions involved in the improvement of this measure, this measure enhances engagement

4.Helps to focus on the overall performance of the plant rather than standalone areas

5. It has a direct correlation with sales turnover, profitability 

The action point is to understand your current plant or equipment effectiveness and the reason for the losses and the improvement actions to improve the Effectiveness and, in turn, your business performance.

Enhance your Planning Window for Sustainable Growth

Most of the small, emerging organizations are working on the current month or week or day and may not have much clarity about the immediate medium term. This practice results in the scenario "always busy" or "firefighting" mode to serve the customers all the time. But as a business, it will lose the long sight vision or growth potential.

One of the ways to come out of firefighting mode is to enhance the planning window.

Planning Window :

Instead of planning for the current month, extend the planning horizon for the next 3 months so that the business head and the organization will have visibility about the sales potential, working capital requirement to buy Raw material, capacity availability vs. requirement. Also, this enhanced planning will give more time to RESPOND to uncertainty.

Tool for enhancing the planning window:

The simple, yet powerful tool is 1+3 planning format. This could be used for sales projection or forecasting, working capital planning, or even for profitability projection.

For example, let us take the case of sales projection into a 1+3 format.

In a 1+3 sales format, you need to fill the data with sales projection for 1+3 months timeframe.

1 - a month is the current month, mostly firm / confirmed order

3 months can be for the next 3 months projection with firm/ confirmed order and then tentative  orders

Advantages of extending planning horizon :

1. When you see your sales projection data down the line 3 months from now, you will come to know the order position vs. target gap. That will give you response time to reach out to existing customers for more orders or pitch-in new customers for new orders
2. Since any new order requires time for approaching the right customer- processing inquiry - price finalization- proto proving- getting bulk order, this 3 months time horizon will give the flexibility and sufficient response time

3. If you know the projection for the next 3 months with some level of accuracy, that will help you to utilize your capacity well, manage the cash flow proactively.


The thought process of the business head must be proactive and beyond the current day or month for sustainable growth. This 1+3 projection will help to stimulate your thought process!

Customer is not interested in your inventory

In one of the client organizations, the team has kept two months' inventory worth of say 20 Lakhs to service the customer as directed. The client organization is supplying to one of the reputed, large scale engineering organization. The monthly avg billing is around 10 Lakhs, and the customer insisted the client keep a minimum of 2 months FG stock at any point in time. The customer made it as one of the key performance metrics for the client organization and advised to keep the customer updated on the FG inventory status periodically.

As I diagnosed with the organization, their overall average delivery schedule actualization to the all the customers around 60 % only, and the manufacturing plan is usually based on the urgency or followup by the customers daily.

We worked with the organization and identified the constraints in the casting process, and their OEE was also low as 25 %. Eventually, within nine months, their OEE started rising to 60 %, and the business head is also working on machine maintenance improvements, technology up-gradation, daily planning based on capacity rather than urgency, and so on. 

The above said customer 's order was being fulfilled at a 100 % rate every month, and the organization's business head felt that there was no need for keeping two months FG stock as the production capacity increased to deliver the order commitment every month. So, they reduced the inventory to the safety level of 15 days, and the customers' also getting the KPI dashboard periodically as usual. 

Things were moving smoothly. During one of the conversations between the customer's representative and the business head, the customer said that they were not particularly interested in insisting on minimum FG stock. Since their history of delivery commitment was not so good, for safer side, they asked on maintaining minimum stock. They were ok with the reduction in inventory norm as long as delivering on time.

The moral of the incident :

The customer is not interested or does not want to penalize the supplier for insisting on keeping a minimum level of inventory in the name of vendor managed inventory or warehouse stock etc. as long as the supplier has the capability and flexibility to serve them. Keeping inventory is only to protect the variation in demand or supply, not to penalize the supplier.

It is up to the small organization to be smart in the manufacturing process, capacity, and planning to avoid or reduce the inventory and prevent the customer from imposing any rule on keeping inventory!

Pricing process and typical mistakes in pricing decision in small business

Below some of the pricing mistakes most of the business heads do in the small, emerging organizations as I came across in my client's business.

What is meant by " Pricing"?

Pricing is a process to determine the selling price for your product or service.

Pricing is not just a mathematical calculation of adding all your costs, then add your desirables profit and arriving some numeric value as a selling price.

Pricing process even though it looks straight forward, in reality, pricing decision is more of strategic to each customer or product or services. Pricing is a combination of science and art.

If you fix a higher price and your product is commodity nature, then you will lose it to your competition.

If you fix a lower price, then you may be losing your profitability. In the long run, your business may not be sustainable to run as the cost keeps going up.

Typical mistakes in pricing process :

1. Going by thumb rule, which was fixed a long time back. Thumb rule may not be relevant today.

For example, I had seen some people fix their process cost as 10 % of their material cost. In contrast, in reality, as per the latest P&L analysis, even the average variable price is more than 10 %. The point is the lack of relying on the newest cost details, and going by the thumb rule puts the organization in making the mistake of wrong pricing.

The organization can develop the process of checking the P&L value chain every month and can have an average value of each value chain once in a quarter. That will give the business heads or cost estimation team the realistic cost structure of the organization.

2. Not standardizing the costing process :

except for few organizations, most of the organizations, the process of pricing is being done by the business head based on his / her way of estimating the cost and finally arriving the price. One way, he/she mentally prepares the estimation based on the experience and the judgment about the product and customer. Still, when the organization is growing, a standardized process of evaluation is required. The estimation process may be customized with the template and having the process checklist like lot size, changeover time, cycle time, the weight of the component, rejection %, and typical other costs like inventory, freight cost, etc. Once the organization standardize the process, and it can be delegated to engineers to make the first level costing, and the business head can have a final decision on the pricing

3. Expecting the same profitability across product lines and customers:

as mentioned, some business head has a thumb rule of maintaining some profitability across all product lines and customers. Pricing is always strategic, and the decision will vary from customer to customer or product lines. The Business head must think about the short term and long term implications of the pricing decisions. For example, if the organization already achieved its breakeven point, it can consider any further volume or customer with less profitability than the usual profitability margin. This additional volume or new customer will bring down the cost of operation further down, and this is beneficial only for the organization.

The pricing is the combination of science and art. The decision must be taken by the business head, considering the short term and long term implications of the pricing sensitivity to the customer.