Solutions to business challenges often come from going back to the basic beliefs, Joydeep Datta, Director – Finance, Sapient. Keen attention to the levers that drive your business will make all the difference in the year 2016.
As we start the New Year, it is time to think of the resolutions we made on New Year’s eve and act on them. Amongst the many personal resolutions that I made (like not missing out on my morning exercise routine), there were some that I made about the workplace as well. What set me thinking was perhaps slightly different from earlier years – in a VUCA world where technology, competition, innovation and social change are in a continuous state of hyper-drive, how do we keep ourselves ahead of the competition? How do we keep getting leaner and better?
Facts & Trivia
Chartered Accountant, ICAI
We all think we know how to make our businesses more efficient and agile as soon as we come out of B-School (or its equivalent). The textbooks advise us to look at managing Working Capital and Days Sales Outstanding. They also advise us to control costs among the other good things we need to do. So everybody in the corporate world does all of that. What more do we need to do? I would say – Go Back to the Basics – keep a laser sharp focus all the levers that drive your business.
Let me explain.
In the early 1990s, I used to work for Onida. We were the market leaders in televisions in the Eastern part of India, where I was posted. Every year, we would launch new television models. Now, an interesting thing happened. Two of these models backfired – that is, their failure rates were extremely high. Customers started complaining. Remember, those were the days when our economy had just about opened up and foreign brands were not there. So customer service as we know it today amongst white goods manufacturers was not the norm. The usual reaction would be – ‘hey customer, you have brought the TV, from us. Since you have a problem, we will repair it.’ But Onida decided otherwise – they replaced the set completely. That reminded me that customer loyalty was the important lever that drove our business at that time. This was confirmed to me when I would meet customers and find that more than 50% of them would be repeat customers because they remember a time when either they, or their acquaintance, had purchased an Onida set a decade earlier (when colour television had just been introduced in our country) and they were very happy with its performance. For a novice who was just starting his career, it drove home an important point – businesses must identify the key levers that drive their business and then make sure that they address them.
If you see the profits in future periods doing down, the red flag has to be waved sufficiently in advance. So the big challenge is to forecast profit accurately and then take sufficient corrective action. And often a ‘push’ information report helps the case.
Now let us talk about the software-technology space where I currently work. One of the biggest levers that drives our profit is people utilisation. Companies calculate this in their own way, but think of it like this - a ‘techie’ has 100% utilisation in a week if he is working on a project earning money for the company. If he is on Bench, waiting to be staffed on a project, his utilisation for the week is zero. If you have too many people on bench waiting for projects, you are overstaffed. On the other hand, if utilisation is too high (or your bench strength is too low), you are running ‘hot’ and burning out people. So a bench strength of 7% to 12% of the total staff is usually considered optimal for a large software company. A higher bench during the week leads to reduced revenues (and hence, profits). If you see the profits in future periods doing down, the red flag has to be waved sufficiently in advance. So the big challenge is to forecast profit accurately and then take corrective action sufficiently in advance.
Now, forecasts can be accurate only if data is captured correctly. So for past weeks, we use timecard data. That is the easy part. Utilisation becomes equal to time spent on a revenue earning project divided by total time available. The numbers for the whole company can be grossed up and averaged to get the average for the whole company. Now the difficult part - how do you get the data for future periods? Even though there are staffing tools available in standard ERP systems, leveraging them to input staffing hours is difficult unless it is ingrained in the organisational DNA. Reason is that everyone in the company has to diligently do it. However, once data is entered, the ERP software then grosses them up at a company level.
Since this is a very important lever that drives our business, we have specialised staffing teams who make sure that everyone is staffed correctly. There are also disincentives built in at an individual level. For example, an employee cannot book an office transport unless he/she is staffed because the cost of the office transport is automatically charged to the Project ID. The ERP system also checks periodically whether a person is staffed and sends automated e-mails in case the person is not staffed. Such is the importance given to it that staffing is ingrained in the social fabric of the organisation.
In Greek mythology, Cassandra was the Trojan seer who uttered truthful prophecies, including warnings of danger. In business, a Cassandra is a bearer of bad tidings. In our lives, we are sometimes harbingers of good tidings and sometimes, the Cassandra. In the business context, good and bad news is equally significant.
In Greek mythology, Cassandra was the Trojan seer who uttered truthful prophecies, including warnings of danger. In business, a Cassandra is a bearer of bad tidings. And in the business arena, good and bad news is equally significant.
Hence, in my experience, it is important to get such information in advance and in as much detail as is possible. To do so, make sure that all reporting around the important levers of the business go out to people as ‘push reports’ i.e. they reach the Inbox of the individual at a predetermined frequency with the important points summarised in the body of the e-mail, and not as ‘pull reports’ where the individual has to take the trouble to click a couple of links that contains the report in order to read it.
A ‘push report’ ensures that news is speedily conveyed, the moment of epiphany comes faster and it can be acted upon immediately. It is this laser sharp commitment to the levers that drive each of our business that will ensure success in 2016.