Monday, March 18, 2013

The Trouble with Being Efficient ONLY!!

The problem with most companies is that they think only about efficiency. Don’t get me wrong, efficiency is great – you take cost out, get things done faster and are more productive – but it gets people only so far … it cannot get the juices flowing the adrenaline pumped up and the passion to come through …. It just cannot ! . There are stories after stories of companies that have driven productivity and then have hit a wall.

The real multiplier value comes when you drive effectiveness. So let me give you an example. Let’s take a standard hiring process of any organization. The real process that one should think about is not the hiring process but the end-to-end process that straddles the whole organization from the time you define who you want to hire for a job to ultimately the person joining and delivering and producing results. Think about what people spend time on in that end to end process. The hiring team is measured on their metrics: how quickly can they hire the right person. The training team is measured on their process: how quickly can they train. In reality, the right metric is end-to-end: How do you get the right person on the job that delivers effectively as fast as possible?

It’s quite likely that it is better to spend double the time on hiring because that allows you to spend one-third of the time on training and the probability of an effective person is higher and total end to end time shorter …. that’s effectiveness !!

But that’s not the way organizations are structured. Enterprises are structured as functions in silos. Processes on the other hand that delivers outcomes straddle from one function to another. There’s leakage of output in this straddle. There’s sub-optimization at the overall process level because each person who owns a function is trying to optimize their piece. It’s very difficult for organizations to get together and say we will optimize the overall process to produce the best outcome. And, by the way, the best outcome is not the total cost that I spend in hiring a person. It’s “I’ve hired a person who was effective on day two and produced fabulous sales on day five. And that, by the way, generated a hundred million dollars of sales “versus the cost benefit that I’d have got if I had done this cheaper and more efficiently maybe a hundred thousand dollars benefit.

Organizations in every case tend to focus on efficiency as functions and therefore sub-optimize the overall outcome that the process could deliver.

If you go and ask a company at the CEO or CFO level and say, “so how good are your processes ? " I’ll tell you the three answers they’ll give you:

1) " They are good or bad” - They won’t say how good or bad.

2) " I think I can improve my processes by x percent a year”

3) " I don’t know”

If you were to measure a number of these processes across large corporations and compare processes that are run really well in some companies vs. being run badly in other companies – the difference could be five to ten times better. For instance, there are companies that close their books in two days and those that take forty-five days. There are companies that pay bills to their suppliers in twenty-four hours and other companies that struggle to do that in ninety days. Some have a 5 % defect rate in goods shipped against orders while others have a 0.5 % defect rate. There has to be a way by which you can take the learning from the twenty-four-hour-payment company and transport it to the ninety-day-payment company and the value that you get there is not the efficiency value and the cost value, but the working capital of a billion dollars being released or the ability to capture 2 % extra discount on all your purchases from suppliers …. Effectiveness or outcomes!!

You can actually go to the granular level with granular metrics for any process in the world and define what "best in class" is. Some of us at Genpact have been on this journey to build this "Science of Process” for the last 15 years. We spent the first ten years collating data from running a number of these processes across companies and industries – we pulled all that together and said, so this particular process, how does this company run it versus that versus third versus fourth.

The interesting thing is sometimes the processes are pretty much the same or should be the same across completely unconnected industries. Why should a pharma company reconcile accounts or close their books dramatically differently than an automotive company? The reality is they actually do. So it’s not saying how I do this entire process better. It’s actually saying how do I do this little step better and the second step better, and the third step better, and for each of them there is a best in class. For each of them there is a connection to if I drive this improvement in this little process then here is the better outcome it produces!

How does one even begin to embark on this journey? It has to be in your DNA, a DNA of Lean, Six Sigma, and process granularity. Every process that we run for our clients, we measure at an extremely granular level. We collect all that data and create benchmarks. When we drive improvements, we know what drove that improvement and how much improvement was driven. We’ve done that for fifteen years. The missing link here was how to build it back into a framework. That’s the "Smart Enterprise Process” SEP framework that we started building about five years back.

We now have built it for twenty-six different processes across the world. And the fascinating thing is when we do a diagnosis of a company’s processes and go back telling them exactly which little step to improve which will result in outcome improvement – it shocks the wits out of them!! In fact, they are completely flabbergasted because they have always believed that they run their process really well. They’ve also believed that the improvements they typically can drive are five percent, ten percent versus five times, ten times which is what we’re able to deliver. Of course you have to measure outcome improvement Vs just efficiency.

That is the whole basis on which we have built “The Science of Process " and the more people learn it, which is learnable like any other science, the more people apply it. The more people use it and deploy it, the more value that they can generate for themselves, for their organization and for enterprises.

And by the way it’s not just about Technology!!

47 comments:

  1. Interesting Post! I like the word "Science of Process".

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  2. Very good explanation on how Leans and small improvements done at the granular level of the process and at the associate level impact the big Y's of any business. Proude to be associated with you Tiger.

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  3. Very complex things explained in a very simple way!! How do I learn this ? Is it only by gaining knowledge of the subject ? Or is there more to it ?

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  4. "Efficiency is doing things right, while Effectiveness is doing the right things."

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  5. i learnt one important thing that there is no powerful tool rather constantly impoving and realizing your current state.

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  6. Thats the best example to explain the difference between effectiveness and efficiency.

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  7. It is a very thought provoking read. I agree that for processes to become effective, all the functions must work together to optimize the E2E process rather than optimise their own piece. Efficiency can get us only so far if we do not place enough emphasis on effectiveness.But since efficiency is what gets reported at the end of the day, effectiveness at times takes a backseat.

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  8. Mind blowing and eye opening

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  9. One of the best explanation i have ever heard on building a better process and doing things in a better way. Small and crisp.

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  10. It is really good and great example of leadership.. at CEO/CFO level what matter is total impact .... "It has to be in ever individual's DNA, a DNA of Lean, Six Sigma" was the best part..of this blog..

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  11. I concur with Tiger. I have a blog about strategic management where I published some weeks ago a post related to the value creation processes. A firm has to be focused on processes that really create value for the customers and that on top of that the value is really perceived by them. If you deliver this value creation processes to the customers they will be willing to pay you more and therefore the company will have more valuable customers to do business and get more income.

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  12. Interesting Read. Though we all know all these words and come across in books or some discussion but it should hit our heart and mind both...To understand and to deliver from the heart to get what we understand...!
    Very nicely explained and I would like to read it twice or thrice so that it remains in sub-conscious mind for long time :)

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  13. Hey there I am so excited I found your site, I really found you by
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  14. Thanks Sir,the blog on effectiveness is awesome! True, its a task to drive it as people are so focused on their own pieces...it gets even tougher when your immediate boss too is focused only on ur pieces and not ready to look at the broader picture or rather the end outcome...Thank you!

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  15. Sir , I read your blog which simply says to us that we have to focus on client relationship and help them to improve there busines , that means act as spinal cord for balancing busines structure.

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  16. Awesome clarity of thought...such large concepts explained in such a fundamental way is simply superb!

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  17. rather than deriving value,i see this as creating value

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  18. very nicely said and organised in very comprehend language, that is why tiger is called tiger..... i would like to say thanks to boss and one more thing here i want to add that customer is everything so behave with them in very proper and ardent manner...

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  19. Still in a dilemma. Can someone answer to this question.
    What kind of a relationship can we derive between 'Efficiency and Effectiveness' in terms of Which comes earlier...Efficiency or effectivness.
    And also can we achieve effectiveness without achieving efficiency?

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  20. I do agree with the post, what we need is the smartness of the process.

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  21. now i come to know about the :science of :process.. and agreed tat it's real not all about techonology

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  22. a real tiger byte

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  23. well said and well organised.

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  24. I could see this blog post as a great speech directed to business owners worldwide. Great insight, very inspiring and thought provoking.

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  25. Good mix of science of process & efficiency! good read.

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  26. Awesome clarity of thought, simply superb

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  27. Nice post, I bookmark your blog because I found very good information on your blog, Thanks for sharing more informatiom
    http://goo.gl/tGqfRs

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  28. Thanks for explaining things, I do appreciate your thinking and the work going in your company is the at its peak and I do hope it last forever.

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  29. Hi, I think the only takewaway of this blog was

    "The hiring team is measured on their metrics: how quickly can they hire the right person. The training team is measured on their process: how quickly can they train. In reality, the right metric is end-to-end: How do you get the right person on the job that delivers effectively as fast as possible?"
    You get from your employees only what you ask, or in biz terms their performace evaluation metric.If that is correctly worded using a Top-Down approach, half the issue is solved, because now people know what they are driving and how it impacts the biz as a whole.

    If the problem is well comprehended and articulated as well, then the battle is already won.

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  30. that was really awesome ; true!

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  31. I have recently joined GENPACT, and was wondering for every step some process is defined which works well in big organizations like GENPACT but is not a correct formula for compartively small companies.
    These are my initial thoughts.

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  32. Great thoughts comes from great mind and and great institutions like iit and iim.

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  33. Excellent synthesis..

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  34. Tiger Sir, you are really revolving with the earth's speed.

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  35. your word will apricateable for me effectiveness ...effficency ....leadership ....productivity...etc.. nice blog with nice word

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  36. Abhineet SrivastavaApril 28, 2014 at 10:21 AM

    Very informative and something i will keep into my mind throughout my professional journey....!! :)

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  37. True that. Learning has no full stop.We can continue to improve things as human behaviour is prone to making errors even in the bestest times.

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  38. Efficiency - handle every step of process separately and try to cut expenses regardless of the impact on next step in process or end result
    Effectiveness - handle all cost cutting in bigger picture that one step will be supporting other steps regardless of cost level.

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  39. Well said sir, 'effeciency' and 'effectiveness' in a way are two sides of the same coin, it is very important to keep the coin balanced... I appreciate the way you clearly distinguished the hiring process in various companies, and how to curb and keep the attrition rates under check.
    I liked the emphasis you put on the 'Human Resource department', aspect of hiring the right person at the very start, which is highlited in my previous paragraph.
    Nice Blog.

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  40. That's true, effectiveness and efficiency should come hand in hand by the way. A good cost-study of everything will mean a lot for this to materialize; and of course, a good behaviour towards work shouldn't be set-aside. Attitude is still the main thing for the whole play to role.

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