When I see – I remember; When I do – I understand!

How difficult is it to practice what you thought you understood? Very very difficult – a course on Strategic Marketing made me realize this. I understood the difference between simple sounding strategies and the difficulty in implementing those strategies. This elective course provided us a chance to work with a marketing simulation software – MarkStrat – over several years (each virtual year equivalent to one class) and design and implement strategies to win in that market. It involved the whole gamut of activities that would be needed to win any market.

When I chose the course my intention was to ‘practically learn’ the theories that I had learned. Learn – I did but only several magnitudes more than what I had anticipated. There is a huge difference between theory and practice and the whole exercise made the learning very much visible to myself.

Let me take a stab at recording few of my key learning:

• Even though you might want the whole population to buy your product, you may not have the bandwidth to sell it to everyone. So identify the strengths of your product and target the segment of the market that is most likely going to get impressed with least effort from your side.
• While identifying the target customer segment ensure that this segment is going to exist for as long as you are planning to sell your products. Imagine if you are targeting at ‘singles’ and very soon people prefer to get married early and the market size of ‘singles’ dwindles.
• Emotional detachment from your products is very important for survival. You might have invested huge amount of effort and funds to bring a product to the market. But if the customer does not like it, then no amount of advertisement will help you sell the product. It is tempting for you to keep on producing expecting the customers to attain maturity and start liking your product but the cost of lost opportunities for your working capital (the working capital that is getting stored in your warehouse in the form of products and the loss in the form of inventory storage cost) can kill your business. This is where a ruthless CEO or head of the business unit plays a prominent role.
• The sales forecast is very important – else the inventory will pile up or there could be a shortage. In either case, it brings in volatility into your whole orchestration.
• Sustained R&D investment is very important for future growth. If you do not realize this when you have enough funds then it might be too late when you are facing hard times – you may not have any budget left to invest in R&D.
• It is very tempting to want to be the first mover into a new market – but the risk is that you do not know what the customers actually need. So in some situations it might pay off to let your competitor move in first so that you get a chance to gauge the requirements of your customers.
• If you are the market leader then it is very tempting to not invest on further improving your product (or you might want to invest your funds somewhere else). In such case, your competitor is going to overtake you very soon (believe me – very easy to understand this sentence but very very difficult to comprehend and then implement it in real world)
• Do not target a market just because it exists – do you have the R&D and production capability to enter the market? Does your company have the capability to give your product the best possible entry into the market? Does your company have deep enough pockets to sustain your product in case of slowdown in the economy? Is everyone ready to stay committed to the product while it requires huge upfront investment for R&D and publicity?

Even though the simulation was in a products environment, I was able to relate the learning to a service market.

This course has made me realize the very important role played by the data from market research and the need for having access to consistently reliable data on market research. Being able to access the right data is the most important requirement to draw the right strategy.

The biggest learning for me – The usefulness of having a framework that provides feedback on my actions. If such a feedback mechanism is not available then it is worth investing on some report or something that will enable us to see the results of our actions.Worth the effort so that I learn and can take the right actions going forward.

OK, let me sign off now. I need to submit an assignment to Prof Kalam and Prof Gupta – I hope I get time to write about that course very soon!!

Just in Time

It is time I wrote this post. Having completed two terms (out of a total 5 terms) here at PGPX, if I have to write about one learning that made the biggest impact on me, then it would definitely be about the concept of ‘Just in Time – JIT‘ production process as evolved at Toyota’s ‘Toyota Production System – TPS‘.

My learning was via a 20 page case, a two hour lecture, a four hour group discussion and days spent contemplating about this concept. In spite of the realization that I cannot make justice via this blog I record my thoughts via this post. If this blog introduces you to the JIT concept and creates an interest, then my goal is accomplished! If it provokes you to gather further knowledge, then I am delighted!!

Few properties of the TPS:

Produce only what is needed, only how much is needed and only when it is needed. For example, once the frame for a particular type of car gets painted and starts its journey in the assembly line, only then the seat manufacturer starts manufacturing the seat for this car. The requirements for the seat depends on the model and the variations required (Camry itself had 23 models, 11 external colors, 24 internal variations and 30 options). The car frame takes around 6 hours to reach the post in the assembly line where the seat will need to be fit. Hence within this 6 hours, the seat manufacturer makes and transports the lot (seats for 58 cars make a lot) to the Toyota factory. The assembly line worker at Toyota has the power to stop the assembly line if the seat waiting does not match the seat needed for the particular car standing before him!! One worker stopping the line can cause a ripple effect and can stop the whole line!! There is hardly enough space to hold one lot of seats and hence there are multiple deliveries per day.

The assembly line does not produce the same product continuously. There will be a mix of products as per how the market demands it.

The whole assembly line works as a Pull system. Once the the last guy in the assembly line gets the car ready and sends it to the parking lot, the last-but-one-guy in the assembly line finishes his job and sends the car one post down the line. Thus the car gets pulled from the end of the assembly line rather than getting pushed from the start of the assembly line.

These are just few of the properties that I have highlighted in order to convey the following learnings that got etched into my hard disk:

i) The objective of JIT is to make the problem self evident by having a small inventory and by NOT having a backup option. A big inventory or a huge buffer can give you the results and keep you running, but you are wasting precious working capital in trying to maintain the buffer. When you try to work with ‘just in time’ supply of resources, the quality issues will be visible to everyone immediately and that will lead to resolution of those issues. Do not try to hide the quality issues by having a big system or a big inventory or an infinite supply of resources/people.

ii) The Pull system ensures that there is no overproduction (if there is no demand by the market) and hence no tie up of capital on products that are not needed. The production team does not produce a whole lot of models just because it is efficient usage of the assembly line (In normal assembly lines such a method is employed and when it happens, it is the responsibility of the marketing team to ‘somehow’ sell the overflowing inventory).

iii) A even balance of the product mix ensures that your suppliers have even demand. For instance if 25% of your cars need moon-roof and if you decide to produce all such cars in a stretch of 5 days (in a 20 day work month) then the moon roof parts supplier is going to have peak demand only on those 5 days and will be idle for the rest 15 days. If he tries to spread the demand across the month then you deviate from JIT and hence either you or your supplier waste capital in storing the moon roof parts. The intention is to have ‘low-cost suppliers’ and not ‘low-price suppliers’. So it is in your interest (as a consumer) to ensure that your supplier is able to keep his cost low. If not, eventually he is going to jack up his quote and either your profit goes down or you have to pass the extra cost to your customers.

iii) Empower your workforce so that they do not need to go via a hierarchy when they see quality issues, and they can take immediate action – even if it means stoppage of the production line and loss to the organization.

“Those who are not dissatisfied will never make any progress” – said Shigeo Shingo who is a leading expert on TPS. The JIT and the TPS are systems which are designed to fail. Fail so that you can resolve the failure and deliver further value to your customer. If it stops failing then reduce the threshold for failure so that the next weak link will fail, that failure will become self evident and you get a chance to fix it and further improve the value delivered to the customer.

Recognizing that it is impossible to attain ‘invincibility’

David Glass summed up the new challenges facing Wal-Mart “For a lot of years, we avoided mistakes by studying those larger than we were – Sears, Penney, Kmart. Today we don’t have anyone to study… When we were smaller, we were the underdog, the challenger. When you’re number one, you are a target. You are no longer the hero”

David Glass was the CEO of Wal-Mart and what surprised me here was the fact that this comment was made way back in 1993 (April 1993, USA Today). Having grown the company from USD 16 billion in 1987 to USD 67 billion in 1993, the CEO had every reason to assume the invincibility of his company and relax. It takes an extraordinary leader to realize that stagnancy will surely be challenged and develop strategies to reach the next level (Currently Wal-Mart clocks USD 400+ billion per year and continues to be #1 in its business !!). This reminds me of “Continuous Dissatisfaction with Continuous Improvement”.

Drawing from my own experience – It is very easy for the leader to assume invincibility and keep himself busy by focussing on daily operations and have a myopic view, while forgetting all about the direction in which we are moving, the speed, what lies in the horizon and what is the competitor doing. It is very easy for the leader to continue to be busy but without drawing strategies for the long term. Let me elaborate further in my next post.