Lean or Fat!

It is said Lean goes with Six Sigma. Six Sigma is the process Quality tool while Lean is the process Speed tool. I have warned earlier to stay away from applying any of this to non-repeatable knowledge based industry. But lets view this in the Services context.

What do I mean by services? I would say Tagging Baggage at the airport terminal is service. Cooking food and serving it in a Restaurant is a service. Designing a chip is not the service we refer to here even if you are an outsourcing partner to Intel and you are offering your services to them. Because that’s non-repeatable to a large extent on the time scale. i.e. you have a cycle time of 2 years and with non-repeatable nature of work. OK you do design, verify the chip and prototype it. But you do a different design each time and based on the different design you do different verification and prototyping. So application of Lean and Six Sigma to this would produce false positive results and will mask the problems and lead to failure.

First of the things I like to do is to get rid of all the Manufacturing related jargon. And then to understand that Lean is an analytical framework to make processes faster. And the only thing it essentially says is to remove waste which is there from 30-80% in any service process. Whats waste? In standard Lean terms it is termed as anything that doesn’t provide value to a customer. It goes implied that customer pays for value and that this would correlate to revenues.

The second thing I would like to do is to create learning throughout the organization. Third most of the waste arises from decisions that are not based on facts. Now this might seem contradictory to management philosophy of making decisions on partial data. But since you are talking of processes you would have lots of repeat data to base decisions on.

“Think big, act small, fail fast; learn rapidly”-Lean Principle

Lean does talk about empowering the team but it shouldn’t be confused with people oriented methodologies which have people at the centerpoint. People oriented methodologies also need to make decisions on facts and for that we will visit MultiVariateTesting in the next article.

Six Sigma: A Critique!

I love six sigma, no, really!!! I was talking to someone who said “Six Sigma in the Knowledge Industry is like eating a Burger with Chinese Chopsticks” when I asked my brother as to what Six Sigma meant to him he told me “If you want someone to not interfere with the companies operations put him in the Quality department in Six Sigma projects”. Some more responses are “If you want to get promoted really fast Six Sigma implementation is the way to go” “It’s a sales buzz word to impress clients”

I started wondering and decided to have a deeper look at the methodology. And I love the knowledge economy and hence my assessment would have that in mind.

What do we have here? The fundamental principle of Quality.

“Eighty-five percent of the reasons for failure to meet the customer expectations are related to deficiencies in systems and process… rather than then employee. The role of the management is to improve the process rather than badgering the individuals to do better”-W.Edwards Deming

When was Six Sigma formulated? 1982 at Motorola. That was the industrial revolution and everything was production based. Wake up this is the knowledge economy. And who’s leading this economy? Oracle, Microsoft, Google, Yahoo, Sun and… Are they Six Sigma enabled? Hell No! the reason is primarily very simple. Six Sigma is a process methodology and is absolutely is a misfit for the Knowledge economy and companies. Does McKinsey or Lehman Brothers follow Six Sigma, ofcourse no. For Six Sigma to work you should have Repeatable and Reproducible Processes and Outcomes because that’s what you are going to improve. And this is based on the premise that in 85% of the cases human skillset and capability would have ZERO impact on the process. And you would achieve Six Sigma process capability if you reduce defects to around 3.4 defects per million opportunities.

So at McKinsey which is a knowledge based company. You don’t have operators yanking at machines producing Sugar Candy. So for every analysis decision that a McKinsey team takes could have 10 other options and the team could take 400 decisions to arrive at the right strategy for the company. So which means that there are 10^400 (10 to the power of 400) combinations in the decision making process and only one of the combinations is the right strategy. This number is more than the number of particles in the known universe and the chances of mistakes is 10^400 – 1 . That’s why Six Sigma will never work in a knowledge based environment.

So what about the revenue saving figures of various companies using Six Sigma? There are two aspects to it. The biggest profit figures are from manufacturing companies. But the services companies attribute revenue savings wrongly to six sigma benefits. While the concept of Six Sigma is irrelevant to knowledge companies the Six Sigma process improvement methodologies are generic problem solving tools which could be used in all companies across the board and it is this which benefits companies and not anything to do with Six Sigma. Basically its like going to Somalia and saying you spent $1000 to improve Living Standards by 6000% for a village. That’s what happens when problem solving methodologies are used in companies which use adhoc management techniques. They return results which are miscategorized as Six Sigma benefits.

And you could dismiss all this by saying that “The author is a proponent of People Based Methodologies”

Now I’m going to eat a Burger using a ChopStick. When I finish doing that in 3.4 million years I will get back to answering the comments on this article.

Growing the Salesforce

“Attitude Aptitude Experience Training Skills Closure Rewards”

I did mention that Sales is the most performance oriented function in the organization today. Which is highly lucrative for MBA’s the others being Private Equity, Investment Banking and Management Consulting.

So the first thing that happens is when you create a taskforce to go out there and sell your products is that the sales people don’t have a clue about the product. And then you decide to bring in people who have a similar background. That’s the first flaw. The reason being organizations today don’t have the culture of investing in people and everyone wants to show quick performance figures and go up the ladder, so it better be good and it better be quick like 6months or 1 year which is enough time to prove that you have justified your paycheck.

Part two of the problem is to artificially jackup the sales targets to what you have proposed/agreed to the board or your Top Management.

So for the part one the solution lies in building a sales force. You get people with some experience in sales with an aptitude for the function and the attitude that’s needed to make it in your industry. You train them on the products and the market. And then they use the skills to go out and Close the deals. Followed by quick rewards as incentives and bonuses to the salesforce. Sounds simple? Its first principles but then no one is following it.

The second problem is drawn from organizations I know of who draw the sales targets on Excel sheets. So basically the Top Management says the target is 140% of the previous target. Where did that figure come from? Gut? Instincts? But this is a great way to break any salesforce. And what ends up happening is that the sales force tries to cut short the sales cycle in a bid to close more and more sales, promising anything and everything under the sun. Who suffers? The Engineering who tries hard to deliver but fails. Once you break promises you are soon termed by customers as illreputed company. And with that goes the future of the organization.

And it all started with some overshot numbers on the Excel Sheet. Or someone who needed to justify his paycheck.

Unless you are aiming for the IPO or a sellout at an exaggerated valuation. It is not worth the risk to overshoot sales targets in the short term. Because it’s a long term death wish. The answer lies in organic sustainable growth.

Failing Knowledge Economies

We live in the knowledge economies and I have heard of PCMM and CMMi and god knows what. I used to follow the Carnegie Mellon Institute’s website 10 years back. And they have done a great job nevertheless. I see many consultants around me who say they are Six Sigma consultants or PCMM consultants and others. I also agree that sometimes a company is required to be Six Sigma compliant and have people maturity levels to compete for deals with various companies.

And hence the need for the costly $500/hour consultants who enable Six Sigma in your organization. But the bottomline is this no amount of processes impact the People Based Organizations (Manufacturing/Production are Process Oriented Organizations). And considering everyone from telecom to software to embedded to pharma are all people based. It is not hard to see why there is little or no competition to the world leaders. If people are the key to success I don’t see many companies putting any effort on that front.

The whole bottomline in this learning is that having an MBA is good but thinking that Creating Excel Sheets gets you the results is behaving like an Ostrich which sinks its head into the Sand on sighting danger. Or better it can be termed as being in an alternate reality.

People People People!!! People is what gets you places. And while Processes and Statistics are necessary to measure monitor and control the growth of an organization it is not a substitute for People. And by that I don’t mean going out there and getting another PCMM certification.

Nurturing, grooming, communicating, leading is what gets people to work.

And in absence of that we will always hear stories of how people leave high paying jobs to do something they want. How exit interviews are full of lies. Nepotism, Empire building, Harrasment, Employee Turnover numbers, Employee Disatisfaction…

Sadly there is a dearth of leaders in organizations today. Its all about going up the ladder by hook or crook. Luckily for most excel sheets and cookie cutters do the trick.

Now once you have the people the second part is to build a Knowledge Ecosystem, a topic for another post.

On Going Global

India has gone global but sadly according to current figures its Real Estate industry has more PE investment than Technology companies. I was pointed to some real estate deals that were the costliest in the world. And as we all know Indians love Gold and Real Estate. Sadly for us the Chinese are in love with Technology.

According to McKinsey Germany and USA have the highest value added per annum per employee and India is 30 times lesser on those figures. China has the highest value added per employee per unit labor capital costs. And hence it is quite clear why the Chinese technology sector is booming. But labor costs in china are increasing as much as their productivity increases. What that means is if you put $1000 in china in 2007 and 2008 each you will get the same amount of output.

Sometimes native Chinese companies are more productive than the Foreign companies in China. The largest companies in both the segments are far more competitive than other smaller companies. In essence I would say in this world it is better to be a Technology company based out of China. And in China it is better to be a native Chinese company. And amongst that it is the bigger you are the higher productivity advantages you have.

So in plain and simple English terms don’t you think that’s a perfect market to be in? These are the perfect competitive reasons that are enabling China to be a Global Economy. But this post is about India. So lets talk about India.

Between India and USA all the core Technology work happens in USA. In India the foreign companies have better productivity and brand value than the Native Indian companies. And the bigger companies have almost the same productivity as the smaller companies i.e. in India there is no advantage in being bigger.

How did we end up this way is the question we need to ask ourselves and to find an answer and then to implement it to correct the Market Equations. Otherwise on a unrelated note it will happen that in 2100 A.D. we would say to ourselves “We cannot do anything today because we lost the Patent Wars a hundred years back and we couldn’t start then and we are left with no capability to do anything now” The bottomline is that this needs to be fixed urgently at both Macro and Micro Economic scales, both in terms of Federal Policies and Corporate Functioning.

But frankly nobody I talked to could disagree with my assessment and couldn’t also provide a solution.

Two Quotes

"Usually there is nothing advantageous in choosing the familiar approach other than that it requires less effort and thinking and lesser blame for failure when it doesn't work out."


Another one from one of my friends


"A witty quote proves nothing. Not even this one."

I know two geniuses...

One is Tesla and the other one is Bill Gates. I'm not saying there aren't others, ofcourse there are but the former two have created a great impact on this world.

This is an email within my peer group and it talks about Tesla. You all already about Bill Gates the Phillanthropist. Somehow as business leaders it is more difficult to create an impact on the world than perhaps leading the Army, Being the President, Dalai Lama, Nelson Mandela, Gandhiji, President Lincoln. This world is a place to live in and there are leaders in all fields of life which merit mention.

There is no Nobel prize for being the CEO of IBM or Sun. But it is leadership in all walks of life that change the world. And we have to learn to respect our leaders and learn from them. Somethings cannot be taught in schools. I personally think we kill all hopes of someone doing something for the world very early on in School and divert them into Money Minting Machines.


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I should be more careful with friends. You told me about this 2 months back and I got a chance to read it today. That's bad on my part. And I risk losing close friends due to my lazy habits.

I think this is the link you were referring to… http://en.wikipedia.org/wiki/Nikola_Tesla

This is what I think. Tesla was a genius and he was a very simple person with very modest family background but that said he was clearly eccentric like all geniuses. Edison's character hasn't come out very well either. This is an article on Tesla and will contain the viewpoint of his sympathesizers. Whatever be the facts they are always rewritten by winners, and history as we know it today might not normally be what happened, for there is no live witness and even if there was one alive today his opinion would be adulterated too.

The other thing I noted is that like all the best people he had grown beyond the fight for means and ends. Somehow there is a reciprocal link between them and achievements. All those who are successful in their fields have little regard for money and despite their genius don't spend even an iota of their brain on furthering their prosperity which they clearly could.

Even though today the world is much more organized in terms of harvesting gains from knowledge & research it still succumbs in parts to touts and people of mediocre thought process. But all I would say is that we shouldn't think of all this as mere artifacts of literature but as an act of bearing witness to the evolution of the species. For it is now that the world is growing and taking shape, the technology is mature and what now stands before us is the prospect of leaping across and beyond the boundaries of faith and science.

And jump we will.

Do send me more articles worth the calories burnt on reading them. For I would prefer intellectual simulation over the rich trash thrust down my throat everyday by the media. Today I have no regard for works of fiction but I still need a square meal for my brain, which we all do in some proportion as humans, without which it would decay into oblivion.

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How not to listen to customers: Sometimes you shouldn't!

Why is this mentioned on this blog? Because it’s a classic case study of how not to listen to customers. All companies proclaim they are customer oriented companies and they have SLA’s to resolve customer problems in X hours. Sometimes customers don't really comprehend what they are asking for and its implications to the company theirs & ours and the industry. Like I say beware of what you ask you might get it. But considering that most companies management are not populists when it comes to strategy it is quite safe. But in some cases of community driven and open source projects it could be disasterous. And thats where the difference lies. The latter have massive manpower and will to get ahead but lack the coordination in terms of a unified strategy.

Please refer to http://www.iht.com/articles/2008/06/29/technology/digi20.php

But what is Randall Stross asking for here? He is saying something like this, Microsoft should scrap windows and create a new OS afresh. Isn’t this contradictory? First there is so much hue and cry because companies cannot run 10-15% of their programs on Vista and they are crying about not adopting it and how bad it is. And now they are asking Microsoft to create a new OS from scratch which will not be able to run any native legacy applications whatsoever. How is that going to solve any problem? If no current applications run on it other than perhaps Managed CLR apps which might run, if they are not using any OS calls, once the CLR is ported. Doesn’t that mean that Microsoft’s market share would drop from 90% to about 20% in no time. How good could that be for Microsoft?

To think of it all Microsoft products would need to be ported to the new OS and so would all the applications around the world. This seemingly simple suggestion would cost over a Trillion dollars if not more to companies. Imagine everything would need to ported from Oracle 11i, Oracle Database’s, SQL Server, Windows Media player, IE, Firefox you name it.

And everyone should be excited about this? Why?

Apple has a small market share and what worked for Apple will not work for Microsoft i.e. creating an OS afresh. I think the problem that everyone has with Vista is more of the Memory/Processor hogging nature than with other actual problems. I don’t buy comments like ‘We have to learn a new OS’ because the world will evolve and learning is a continuous process.

I bet everyone would be more than happy to spend 20 hours a day on Facebook trying to figure out all the app’s and writing messages to friends but they wouldn’t be able to spend a total of about 25 hours once to learn the Click-Use Vista.

Lets say I wrote a counter article about all the shortcomings of Linux and then would Linux developers be ready to recode the OS from scratch?

On the other hand a Trillion dollar business opportunity for software vendors would stimulate the economy or it could bring the world to a standstill. Even if a new OS is released by Microsoft in parallel we are looking at another 10 years before applications are ported to it. Those who want to learn how the evolution would take place in the view of a new OS have a look at Singularity or Cosmos and follow their progress. They will get bloated almost as soon as Windows did. Windows tries to give an Out Of The Box Experience and hence is a huge package while these OS’s could allow features to be plugged in or taken out. Is that Good? People aren’t willing to spend 20 hours learning Vista can you expect them to learn assembling their own OS how ever user friendly it is? I’m referring to end users.

I think as far as testing and upgrading applications is concerned it is worth the effort and will cause minor headaches compared to creating them afresh for a new OS. ;-)

Personally I would rather buy a more powerful machine with more RAM and Quad processors, than wait for a new OS, and carry on with my Business.

Gross Margins & World Wars

I’m located in India so wherever I see I can see Services companies around me specially in the IT space. I was reading the figures for Gross Margins for HP (6%) and IBM (12%) and every company I see around me otherwise has targets of 30-40% GM’s. Some people are proud to say that their projects have gross margins of 80%. That should be great wouldn’t you say? The more the gross margins the more would you grow. Not exactly here’s how.

There is tremendous pressure from Clients across the world on India and China with the coming of coutries like Mexico and Brazil entering the IT Services space to reduce billing rates. You won’t believe me if I told you that most projects in most companies have billing rates equal to the Daily Wage/Hourly Rates of McDonalds workers. The companies simply accept the demands and bid at even lower rates by employing armies of fresh college grads who haven’t absolutely no knowledge about how business works. To top it all companies are actively throwing out talent and shying away from the Intellegentia. Because they are costly. The only companies that can now afford talent are Product companies in Bangalore. Google is in Bangalore and to tell you frankly they offered one of my friend from a well known startup Rs 1 Crore (i.e. US $2,50,000 pa) to join as the Team Lead (Which is a very common position to warrant an offer like this under normal circumstances). That’s the cost of real talent.

We have bigger problems to solve than pushing Gross Margins up. Instead of throwing talent out of the companies we should concentrate on building a meritocracy. How many IT companies in India hire Ph.D’s? Do they need them?

When you have a country like India with one of the lowest per capita income in the world, one cannot pride by claiming that a certain firm provides employment for 1 million employees at the salary level of US Daily wage labourers.

We need to build ecosystems around the firms. Ecosystems in which the talent thrives and grows. Otherwise we cannot curb this situation which has grown into MacroEconomic problem at the level of countries. At the end of this decade in 2 years all the talent in India would have fled the country and with no means to nourish or replenish it. A college is like a nursery where you can seed talent but it needs the rich industrial environment to practice, grow and flourish.

On top of this there is an increasing emphasis on Process Compliance and Documentation. It is like training sportsmen for Olympics by putting elaborate processes in place to monitor them walk through the high jump hurdle, without any world class coaches to teach them to jump across. Creating graphs on the Excel sheets doesn’t get the job done how ever pretty the graphs are.

So you basically not only lose talent, you lose knowledge, you end up losing projects and any credibility and then you become yet another services company without any individuality. That amounts to no unique advantange amongst competitors and which in turn leads to a higher reduction in billing rates and then the Gross Margin falls down to where it started from. But now you have lost all capability to compete and sustain yourself as a world class company. That is a situation where you cannot return from. That’s the reason there are 10,000 services companies in India and other than the top 3 none ever stand out or grow any further.

All this can be avoided if you seed the company with 10% highly skilled talent and keep it that way. Otherwise you will end up going to war having an army of 10million soldiers with batons and no artillery or air power.

The Quality Conundrum

The world over Indians pride in their education system, while the rest of the world believes that the US education system produces better leaders. Most of the US MBA programs use collaborative, interactive, case based studies. Whatever the college is, its teaching philosophy is highly people oriented. Manufacturing companies use low skill labour and rely mostly on process based methodologies. VP / CEO’s of companies don’t comply with any metrics or processes to produce better, faster, taller CEO’s what they do is very individual and highly skilled.

If we can say that Process Based methodologies are used when the skill is low and People based methodologies are used when the skill is high. Could we say that we could solve quality problems in low skilled environments by using the Corollary that “Shifting to people based methodologies could push the skill level upwards and hence the Quality”?

If the conjecture holds true then we could in fact solve the so called Quality problem. It just has to be seen in a costly real life experiment and empirically proven.