Best Practices & Capability Convergence

What do you think about a popular organized retail chain which changed its ERP system thrice during last seven years? Some individuals with the retail organization had opposed to the frequent change by the top management. Is this really bad a strategy considering our living in this era of exponential time where shift happens at the speed of Internet?

After technology acquisition, technology adoption along with required organizational innovations is the next logical step on the technology capability ladder. Capability convergence is the end goal while technology acquisition is the initial first step. However, technology dynamism can be visualized as the youth and vigor displayed by a firm in moving up and down the steps as shown above in the picture.

To the adopting organization, benefits resulting from adopting a new technology may include increased productivity, efficiency, improved processes, cost savings, improvement in market share or entry to new market et cetera. To an individual in the adopting organization, benefits derived from such change may be improved job performance and the associated rewards or benefits.

However, when new technology threatens earnings through corrupt practices, then its utilization is perceived as negative. It is also perceived as negative when the change requires sustained dose of consciousness, motivation and hard work to change routines and to come out of one's comfort zones. Also, when confidence is less in mastering the new technology, negative attitude of user group is derived. Thus it's important to know the root causes of resistance to change.

There is difference between decision of the firm to adopt a new technology and decision of its employees to adopt it. The firms' decision to adopt an innovation or a new technology may be motivated by 'rationalism', 'bandwagon pressure' or 'forced choice'. Rationalism assumes that firms choose and adopt new technologies freely based on fit with its strategy; under bandwagon pressure firms adopt innovations to imitate its direct competitors. The choice to adopt a particular technology may also be due to various forces like internal and external customers, government, vendors or consultants.

Technology Adoption is thus the receiving organisation's collective decision to accept the new technology and implement it sincerely by making necessary changes within the organisation and across the organizations. Management decision to adopt a new innovation or technology has to be supplemented by employees' positive attitude towards the new innovation.

It is very critical for organization to adjust itself to a new technology; the new technology must have a certain fit with the firm's organisational structure, processes, values and beliefs. Innovation imposed on organization without internal receptivity is bound to fail. Internal resistance results from incompatibility between the nature of innovation and the existing configuration of interests and resources.

Thus two issues of critical importance in technology adoption are opposition to the new technology from employees and difficulties in understanding and adopting the best practices.

The darkest blue is the zone of the tacit best practices.

Global Positioning System

There is a definite link between Retail & Infrastructure sector but there is one more link, i.e. their customer strategy. Associating cement to supermarkets is about how a company can learn from the companies from other industries. In this era of high competition chance favors a prepared mind. Competition favors a prepared company. Therefore, those companies that can improve their relative position during hard times gain a clear edge. This is the time to stress differentiation over productivity. The focus is required on value-added differentiation and not just price competition as it is a business assumption than a strategy.

Mr. Sampat, Commercial Head with a cement company was performing data analysis on the customer data of his company using his newly learnt data analysis skills. He soon realized that customers kept on changing their orders most of the times. The price of cement is largely determined by the transportation costs involved in delivering the cement. Due to such frequent changes in the orders by the customers, the delivery time and transportation costs were higher.

On further analyzing customer behavior, he thought that if he could know the exact location of the trucks carrying the cement bags by any means he could resort to a redeployment strategy that can reduce the over all transportation cost and delivery time. He called up his friend who was working with a courier and freight company to know how his company tracked merchandising and how it predicted demands for picking deliveries from various locations.

He thought for a Global Positioning System and then contacted a telecom company to put Global Positioning System (GPS) in their trucks. He then devised a central tracking and redeployment system. And, with this new system even if the order changed, the company could deliver more quickly than its competitor. It reduced its delivery cycle from 120 hours to 15 Hours, reduced its truck fleet by 4% and improved reliability from 24% to 78%.

The company thus learnt to correctly identify its crucial IT and business priorities. The analysis was typical of most businesses in that it learnt that, left to their own resources, projects would multiply and profits would decline. Instead the company analyzed its 30+ current IT projects in terms of value to the customer, resource utilization and possible productivity improvements. The company stopped 25 projects, slowed down 8, maintained 5, accelerated 3 and added 2.

Similarly, the winners in the supermarket industry will be those that will use new digital tools to create a customer-responsive way of doing business. Retailers, distributors and manufacturers will have to share data efficiently and effectively in a manner so that they communicate fully. Transactional data is just a subset of what you really want to know.

Crossing the Chasm - India Retail

Retail boom in India is a reality. And, every corporate retailer is eyeing a big pie. However, there is a fear among the retailers entering the next phase, a situation that led marketing consultant Geoffrey Moore to term the transition as 'Crossing the Chasm'. The difficulty of crossing the chasm in current context means many corporate retailers who were comfortable in initial years of organized retailing are now finding it difficult to expand to the mainstream of the market. The story line of this case study will throw some light.

First time when I met the king of India retail at a retail summit, he looked very aggressive seeking feedback of his fellow retailers on a recent happening in the industry. Just two days back, the biggest retail firm globally had announced its entry in India with a new tie up.

During the course of the day at the retail summit, I could see exchange of heat between the king of retail and the CEO of the Indian firm which had tied up with the biggest retail chain. The king of Indian retail was stressing on having consumption led growth for the Indian retail and thus preventing hasty market entry of the big conglomerates in the sector. I heard him saying the words 'who knows what matters' when some body asked this future oriented retail king about the success mantra of organized retailing in India in its next phase.

I am sure corporate retailers will see a cut throat competition once the industry moves on the S curve ahead. I am really not sure if Indian corporate retailers would be thinking in terms of Blue Ocean Strategy. Many are waiting for the year 2009 when stores and malls of many corporate retailers will be ready to open. However, it should be understood that 2009 will not be a decisive time for Indian retail as many retailers say but the 'now' when every one in the market are working on ideas of launching innovative retail formats to be started 2009 onwards and which will supposedly satisfy a real consumer need 'then'.

Mind well, in the next phase of Indian retailing, the consumer will be more demanding and corporate retailers have to show strong evidence of value and ethics. First mover advantage will not help alone as red queen effect on competition will be stronger. Moreover, the unorganized sector will be creating barriers to the entry of corporate retailers in the market.

Corporate retailers looked really concerned when strong agitation started against a chain of fresh stores of a corporate retailer recently. Chief of Retailers' Association suggested that there should be no distinction between organized and unorganized retailing and the industry shift towards organized retailing should be looked as a step toward modernization of the industry and the society. Although I am not very clear on this suggestion of his but one thing is very clear that he was not sure of a adaptation strategy for the next phase.

For managing the uncertainty, I suggest all corporate retailers to concentrate on a single niche of the market while making transition to sell to the mainstream of India. Don't spread your resources too thinly across many activities or formats. Cross the Chasm with right strategic positioning in the next phase. Start riding the S curve in small steps with increased market segmentation. Build on success stories. Promote innovation in agriculture, infrastructure and related technologies, Understand aspirations and needs of mainstream again with a new insight. Have a robust resource management and a risk management strategy to avoid waste of efforts, unnecessary expenditures and corporate failure.

Corporate Dyslexia

Mr. Anjani, Canta Coffee Company's CEO had quit the troubled coffee chain after a short one-year stint. He was the third successive top-level official to have exited this group-owned coffee chain in a span of two years. The core of Canta's problems included an indiscriminate expansion strategy, steep overhead costs, high employee churn, new competition and high prices. Recently, the group sold off its stake in the chain.

Knowledgeable people are the key to corporate success. The corporate houses which cling to yesterday's haphazard means of developing organization and their people suffer from corporate dyslexia. In this era when executives are turning entrepreneurs or joining competition for higher perks, it is important to know about the next big opportunity as well as innovative organizational dynamics and business frameworks which can overcome this so called corporate dyslexia.

There's a scene in Alice in Wonderland when Alice comments that everyone in the domain of the Red Queen seems to be perpetually running. The Red Queen responds that Alice must live in a very slow place indeed, for in her world everyone must run simply to stay standing.

If you are a business leader, chances are you know the feeling. Like the Red Queen, you live in a world in which continual changes in technologies, markets and organizational forms require your firm to be in constant motion just to keep in place. Understanding the paradox of the Red Queen involves recognizing that, unlike in the tidy world of economic and organizational theory, in the real world there is no equilibrium. If you are doing a good job causing problems for your competition, you are sowing the seeds of problems they will cause you down the line.

Drawing from a recent happening where Mr. Ram, MD & CEO of a book store retail chain, who moved out to create a new business model, where client companies will become virtual organizations, outsourcing essentially all of their management activities. This new concept venturing in future retail practices will manage complete gamut of activities like, project roll out, human resources planning, marketing, store designing and M&A consulting etc. These kinds of changes disrupt the market and over time, alter the basis of competition.

Thus to overcome this corporate dyslexia, the business leaders should keep in mind that today's innovation is tomorrow's noose. Organizations that don't keep changing eventually become punished for being really good at what used to be rewarded. In 1980s, for example, Bank of America's efficient brick-and-mortar operation became a liability as automatic teller machines and electronic funds transfer emerged to allow people to get their money more easily.

Nevertheless, competition is one of the best forces for organizational learning and improvement. Dealing with the troubles of competition allows you to build the capacity of your organization. Good business models arise from trial and error and even the road to microprocessors and the Internet were fraught with early misjudgments about the utility of personal computers and linked networks.

Business leaders must therefore face the Red Queen head on. One way of doing so is to get in on early diffusion of the product, which can often give a firm an advantage. Establishing product teams, phase reviews and cross-functional mechanisms can all speed the rate at which an organization is able to respond to the market. But it's not just about going fast. The art of strategy is about understanding your industry well enough to know a promising innovation from a blind alley.

Leaders should focus on connecting strategy planning teams with those who are involved in product and service development and are actually in touch with customers. In the end you want to think of yourself as the architect of a system that is trying to engage, not eradicate, competition.

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It is not the strongest of the species that survive, not the most intelligent, but the one most responsive to change. - Charles Darwin

Rendezvous with your ERP

A retail chain was facing a lot of problems with its new ERP system. The management was experiencing missed deadlines, unmet requirements, dissatisfied customers, excessive costs, and underused systems. Although there was no significant system or control failure as per internal audit reports but everything was waiting for a failure to happen and the retail chain was exposed to high risks.

New ERP system had all kinds of bugs and yet was not described as a failure. New ERP system was delivered late, at inflated cost, with inaccurate functionality, and most functions were largely unused. The management could command the resources and had power to sustain it and thus the new system was not considered a failure. The leadership announced successful implementation of ERP as it was serving some of the organizational purposes. System was functional although not perfect.

An interesting distinction needs to be drawn between failure and flaws. Most internal auditors would agree that every information system is flawed in some way or other and that flaws are characteristic of the systems themselves and of the innovation process. However, flaws may be corrected at a cost or accepted at a cost after considering its significance and potentiality to become a root cause for a failure.

Internal Auditors often view the process improvement along with ERP implementation as a mechanical, predictable activity that should, with good project management, lead inevitably to the planned results. However, developing processes along with new ERP have two important dimensions i.e. innovation and support management. Building and maintaining an ERP system is not a routine process, even with the best methods and tools available. It is an innovative process and, therefore, necessarily involves uncertainty.

Politics and human frailties loom large and have an inevitable impact on the outcome of new ERP implementation too. When systems failures or disasters occur, blame is often placed on the users for not acting in accordance with procedures or for not diagnosing a problem quickly enough. In investigations following a major failure or disaster, a common approach is to focus simply on the operational activities as the most likely cause.

ERP implementation should synergies with management accounting needs of the business as decision making is not supported by mere seamless integration of business functions like financials, HR, production, CRM but dynamic management accounting principals. If you can't see the entire picture, you have disconnects between strategy and people processes.

Current Enterprise wide resource planning and management puts reality behind the numbers. ERP should specify how the various moving parts of the business will be synchronized to achieve the targets, deal with trade-offs that need to be made, and looks at contingencies for the things that can go wrong or offer unexpected opportunities. Do your business managers refer to ERP at the time of making a decision? If not then what is the use and yield? The business managers should be able to see preview of his/ her proposed decisions.

Innovation and lateral thinking is missing in the entire process. ERP needs to rendezvous with knowledge of business, with management accounting.

Ethical Shoplifting - Retail Story

If you think risk of shrinkage in a retail outlet can be reduced completely with latest technological controls like bar codes, smart tags, RFID, Scanners, and CCTV together with tight physical security then you may probably need to rethink.

Ethical shoplifting is a fraud story of a food retail chain in Mumbai. The story has dramatic scenes of shop lifting and shop un-lifting and inventory leakage without physical goods moving out of the store. If you wonder how it is possible to have inventory leakage without physical goods moving out unethically and voids. Read more.

A year back, I was on an assignment for a retail giant at their Lower Parel Office in Mumbai; one gentleman approached me and asked me if I am again on a hunt? I was surprised to hear the words and I felt that I have seen him earlier before.

I had managed to break traps of this Mr. Fraud when he was working with a renowned retail chain in Mumbai as a supervisor. Although he had changed his job since then to work with this biggest retail giant in Mumbai; he remembered me distinctly and how I had caught him and his tricks in the past. He was looking humble but cunning still.

This smart man has seen various store situations, peak time footfalls, power failures in stores, consumer disputes, and night times of cash counting etc. He had discovered around 10-12 tricks to earn Rs. 4000-5000 every day i.e. around 1% of the revenue of the store.

I am sharing one of his tricks here which is about ethical shoplifting/ un-lifting.

People leave articles at the cash counters before they settle their bills. They dont want to purchase may be. Even some times people return articles immediately after the same gets billed. People have disputed because they have been told to pay first and then return it at the sales return counter to get the money back. Many people paid less and left the articles at the counter. This is all about billing errors and mood changes of the customers. You cannot think what all happens at peak hour at a food retail hypermarket in crowded urban city like Mumbai and when customer service is your motto.

Duplicate bills. If you are a Retailer, I am 150% sure that use of duplicate invoices are not getting tracked properly in your store. I bet, just check back.

Mr. Fraud with his one favorite cashier had done the trick. They were managed to print duplicate bills on basis of which they picked up articles from the racks inside the store to send to the sales return counter as if articles were left behind by the customers after they have been billed but for which no collection could have been made.

The sales return counter had seen such situations and disputes with customers earlier. So, he could easily believe the circumstances. He could not perceive a risk because it never involved GIVING as no cash refund involved at the outset. Moreover he received the article which needed to go back on the racks after the due procedures. Mr Fraud, who was a supervisor un-lifted the lifted material at the sale return counter with the duplicate bill which had the sale of the article.

The cashier removed that much cash from the sales. At time of final cash reconciliation short cash got adjusted for the sales return. No one ever questioned the inter-counter cash adjustments between cash counter and sales return counter as there was a physical material present in view which got un-lifted at the counter some hours back in the good spirits. At night every body wants to go home. In morning, all controls are paper works and you will never know what had happened last day.

If you doubt that with strong physical control no cashiers can take cash out of the store, then mind your thought as it is the easiest of all. You can have hundreds of secret pockets and baskets in which cash can go out. NO POCKET policy is a flop. I could catch this trick of his and his other 12 tricks because I had an idea of some thing called THREADS. THREADS are always there.

My next study is on Just in Time (JIT) Inventory Method Blunder. This is not a fraud story but incorrect application of JIT.

After this, I want to write on ENRON & BOW-FORCE. I know you will like to know in brief how SOX had taken birth to take away millions of dollars from the corporate world and it is unfortunate that the situation is still the same and chances of corporate frauds have never reduced at all.

Nowadays many want to look SOX as a process improvement tool rather than Fraud Prevention Assurance Tool. I bet; all big minds have again missed it completely and ethically justifying higher controlling costs.

Bye for now.