Archive for January 2013

My Experiences -Last time (MELT) – 5212

January 2, 2013

I wish all my readers a Happy and Prosperous New Year. I have great satisfaction in ending the year with this blog. I started writing my weekly blog sometimes in August, 2012 in WordPress to share my experiences. I should thank Ramanan (L&D leader at EY) who planted this thought in my mind. Thanks to all my readers for their encouragement which kept my motivation high to write every week. I wish to continue writing but due to heavy work ahead in my professional life, I will be cutting down to either one or two posts per month.

I am concluding my three part series on leadership encounter (the first was 5012 and followed by 5112). At the end of this blog, I have shared “Five practices of exemplary leadership’ and I want you to read these three parts and write down which one fits the five practices. If you were Srini what would you do differently? You can either give your comments in WordPress or e-mail me with your comments. I have invested my time in sharing my experience and I am sure you can invest a little bit of time to respond to my request. I assure you all that this will be a great learning experience.

Leadership Encounter 3

Harish was very excited that day as he was looking forward to the management committee meeting. Srini had called for a whole day meeting to formulate a strategy to turn around Zemco. He invited all senior and functional managers and the labor union to be part of the meeting. Although the factory manager was not comfortable in inviting Harish to the meeting, Srini insisted on Harish’s presence as he felt it will be great exposure to him. People who knew Srini vouched for his leadership but people were not comfortable by his caustic and harsh remarks against any inefficient performance. This was one of the reasons why the plant manager did not want Harish to be part of the meeting.

Srini welcomed all the participants and started with the problem that Zemco was facing. Summary of his speech is given below:

“We have been running this business without having a deep understanding of the industry and the product we produce. I want to clarify certain basic facts before we arrive at a solution.  We can’t arrive at any solution without having the fundamental right. Zemco is dealing in bio product called Y-ADD ( not real name) which is perishable and has to be consumed the same day or at best can be stored below sub zero for three days. As you all know Y-ADD is used in the Food industry.  Zemco is currently in the buyer’s market as few small time manufacturers are able to sell at lower price due to low cost of production and huge credits. Y-ADD is used as a catalyst in preparation of food products. The industry is fragmented and largely in an unorganized sector except for couple of large producers. The producer who uses F-ADD thrives on daily sales to ultimate consumers which are on cash and carry system.

As the supply of Y-ADD far exceeds the demand, food producers are the major beneficiaries by getting lower cost and huge credits extended by small time manufacturers. As most small time manufacturers do not have sophisticated accounting system, they are measuring profits on cash basis. Heavy credits result in defaults and pressure on profitability and working capital. This results in small time manufacturers compromising on quality leading to heavy rejection rate. Industry as a whole is going through the crisis of confidence.

I have met all the producers of Y-ADD and have an unwritten and gentlemen agreement of sharing the demand based on the ratio of installed capacity. I have also requested them not to undercut prices in the market. People can take higher market share by increased quality or through after-sales service but not direct reduction in price. I therefore urge to weigh in all those and come with an executable action plan to revive not only the Industry but also Zemco”

Everyone’s jaw dropped when he finished talking about agreement on price and sharing the market on installed capacity. Most people in the room appreciated this simple thinking but wondered whether this could be executed effectively. What Srini did not share with the group was the method he adopted for his competition to agree on this.

This is what transpired on the day when Srini met all the manufacturers. His opening remark was that if he undercut the price below his marginal cost for the next year or so, all his competition would be wiped out. He said he had a mandate to kill the competition in the next one year from his management. He said he personally did not want to kill the competition as he believed in healthy co-existence. He further said that effective tomorrow he would order a 30% price cut but would be willing to take it back provided there is an agreement on the following

  1. No manufacturer will release more than his allocated quota of production which is a ratio of market demand to installed capacity (He gave analogy of OPEC agreement those days).
  2. There will not be any undercutting of price. Increase in market share will be through quality initiative and product innovation.
  3. As the final consumers were paying cash, F-ADD manufacturers should also follow cash and carry system.

All competitors agreed on this simple formula as they were equally aggrieved by the conditions in the market. Srini also mentioned that he would form an association and represent it in chamber of commerce to push for incentive on research and innovation.

Srini guided the management committee meeting to arrive at the following decision

  • Restore prices that were prevailing 18 months back (which was some 25% increase from prevailing price). Amal, marketing manager was reluctant and dramatized it by offering to quit. Srini took him aside and mentioned that if Zemco failed, that would be end of his career as well and hence would not support or take a decision that will lead to its failure. This gave comfort to Amal.
  • They follow cash and carry (no credit to be offered hence forth).
  • Increase the yield by 5%
  • They will invest in buying a temperature controlled vehicle  which will offer to replace if the quality goes bad within a couple of hours,
  • Launch Research and Development initiative to come out with a product that can be preserved for longer than three days. This would help consumers to store F-ADD and save on daily transportation cost.
  • Decentralize decision making process.

Leaders forge unity. They don’t force it. Leaders make extraordinary things happen in organizations.

Everyone walked out of the meeting learning a lot about how to run a company. It was a great learning experience for Harish in radical thinking and having the right focus. Ajit met Harish after the meeting and said that he saw a future CEO in Srini.

After one year, all of Zemco’s accumulated losses were wiped out and other competition also thrived. Srini promoted Amal as Marketing Director and Harish as divisional accountant. The laboratory manager was made the R&D head for both the plants. He called for a one day celebration at a hill resort with the family of the management team including the union committee members.

The story which I shared above is real and happened 25 years back but I kept the names of character fictional to protect the identity of people, product and company. James Kouzes and Barry Posner suggested five practices in their book called “The Leadership Challenge” some 25 years back. The five best practices are

  1. 1.     Model the way – Clarify values and set examples
  2. 2.     Inspire a Shared vision – Envision the future and enlist others in common vision
  3. 3.     Challenge the process – Search for opportunities and seize the initiative
  4. 4.     Enable others to Act – Foster collaboration
  5. 5.     Encourage the heart – Recognize contribution.  

Spend a little bit of time and let me know how this story fits into the five best practices. What would you have done differently?

My brain was Muted

I have owned a car with a music system for the past five years. I also own a blue tooth speaker to facilitate attending mobile calls while driving. For the past five years when ever there was an incoming call, I used to switch off my music system and attend those calls. Last week for a change I made my daughter sit next to me rather than my wife. The change was largely driven by my desire to drive without any control exercised on me by my better half. As luck would have it, I had an incoming call and I switched off and started attending the call. Soon after I finished the call, my daughter asked me why I switched off the system instead off pressing the mute button. That was the first time me or my wife noticed the ‘mute’ button. I was ashamed at my lack of attention to details. Now you know why the job should be rotated – to observe those mute buttons.

Dessert

You don’t need to wait for 1st Jan to start anything new. Every day is new and you can choose any day to start anything new. Choose one improvement per week and at the end of the year you would have made 52 improvements. With those thoughts I bid you good bye with my usual signature ‘life is beautiful’

See you when I decide to see you.

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