Are leaders looking for the right information?

Last month I dropped in at a friends manufacturing plant in Pune recently. He was both happy and very busy, and why not? They were doubling sales every two years.

He and his family reflected visible aspects of the India growth story. I was happy for him.
We were having a cup of tea when a senior member of his team walked into the cabin. I was surprised to see that the gentleman was an old colleague of mine.

We chatted briefly about things in the industry and also about former colleagues etc. I knew him to be a very good engineer and manager. During his tenure with my company we had undertaken many path breaking initiatives in technology and management.

I asked him if he was still undertaking industry benchmarking studies like he had when he worked for us and which had been extremely useful for us. My friend immediately butted in and retorted; "we have a policy here not to concern ourselves with others, we are preoccupied with our own internal issues."

I was aghast to hear this statement. My friend and his family ran a Rs 223 Crore (approx US$ 50 Million) company. I was shocked to say the least,  for it was no small company and the strategic perspective was quite different from what I would have expected. I felt so disturbed that I sat down to write this article.

Several studies and my own experience has shown that, information systems in most organisations focus only on internal data and sometimes on information. Inventories, costs, outputs, quality levels etc. This may be somewhat useful but only a part of the requirement for leaders.

Very rarely are information systems within organisations geared to look at the rapidly changing and dynamic world around us. This is exactly the kind of information that leaders need.

Both opportunities and threats to an organisation emerge mostly from outside the organisation. Failure to keep tabs on workings and plans of customers, competitors, suppliers, technology can be extremely dangerous to organisations. Government policy, foreign currency movements and associated risks, environmental regulation can also impact an organisation in unexpected ways.

If leaders are only minding the store then who is looking out beyond the gates and the future?
Failure to keep tabs on the external environment will keep the organisation in either reactive or inactive mode. They will not be able to cope effectively with threats or to seize opportunities.

It is difficult to look outwards when things are unstable within an organisation and if leaders are preoccupied with fire fighting. It is therefore essential to structure responsibilities to have routine work handled in a routine manner by staff. This spares time for leaders to be able to focus a good amount of their time on the external environment.
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Here is a personal experience.
We used to supply components to various customers who were mainly automotive companies. One of the things that has significant impact on the profitability of an enterprises is inventory levels.
Stocking the wrong raw materials and finished products can play havoc with a companies finances, and add to costs. On the other hand failing to procure materials in time can mean loss of opportunity and market share.

It was understood that customers would provide us a three month tentative requirement plan with one month requirement being firm. This was never adhered to by most domestic customers.

It would normally take us 40 days to procure raw materials and manufacture parts for customers. Yet we would be given only 48 hours notice to deliver products.

The dilemma was solved by most of the people in the industry by suppliers keeping huge inventories of stocks of all likely requirements and pray that they have read the crystal ball predicting the future correctly. Often the excess parts stocked were rendered obsolete or had huge storage costs and also ran risk of damage. More decisions are made on the gut feeling rather than on hard facts (firm requirements would remain unavailable).

Faced with this serious problem we attacked the problem by moving to a JIT ( Just in time) production system. This allowed us to produce at short notice cutting manufacturing time by 80% or more. On the other hand we set up a team to forecast customers likely requirement.
Initially we were able to predict with an accuracy of 47% or so, but at the end of 18 months we had achieved a reliability factor of 96%.

We began to monitor our customer's inventory levels, production plans, status at our competitor's plants on productivity, production plans, quality issues and their raw material procurements. We monitored the final markets of our customers along with their market share to see if there was a likely hood of increased demand or slackening.

Based on this data and other data we had a fairly accurate prediction on likely requirements of our customers. We were able to meet almost all surge requirements and also maintain low inventory levels.

This was one of the secrets of higher profitability and customer satisfaction. It is often impossible to change the customer so it was best that we learnt to cope. We had to respond in innovative ways. This was made possible only by focusing on information both within and outside of the organisation.

Looking outwards based on information is only one of the skills that leaders has to focus on, but is useful only if accurately analysed. It is useful to remember that Economists have accurately predicted 14 of the past 5 recessions, if you get my drift.