The bigger and more successful a firm is, the more vulnerable it can be to disruption! But the good news is that by exploiting “hidden” capacity in production and “untapped” demand in the market, a company can flourish by constantly increasing gross contribution without inflating Operating Expenses and without any capital risk.
Are we facing a crisis in management, as a body of
Average Life Span of Companies in US S&P 500 has come
down in last 5 decades*
In last 5 decades, the average life span of human beings
has gone up**
Average Tenure of Companies (yrs)
Average Human Lifespan (yrs)
Source: *https://www.innosight.com/insight/creative-destruction/ **http://www.geoba.se/population.php?pc=world&type=015&year=2027&page=1
We can claim, progress in field of health science.
Can we claim the same about management science?
The bigger and more successful a firm is, its
ability to disrupt the industry deteriorates
52% of the firms in fortune 500 have either
become bankrupt, ceased to exist or got
Management as a body of knowledge can only explain the above phenomenon BUT cannot
prevent it ! (outsiders saw the obvious, the incumbent firms just couldn’t see it until it was
About 70%* of large transformation projects fail
Source: * https://hbr.org/1995/05/leading-change-why-transformation-efforts-fail-2 **https://www.forbes.com/sites/brucerogers/2016/01/07/why-84-of-companies-fail-at-digital-transformation/
84%** of the companies fail in digital
We just do not know how to transform a company !
* Can grow sales consistently year on year AND can grow profits year on year AND
maintain a ROI of minimum 25%
If the body of knowledge of management is all
about creating successful (ever-flourishing)
organizations, we seem to have made no
progress at all!
To be successful is a rare event. Only 3
companies meet the criteria of Ever
flourishing Companies* as per BSE Sensex
What is the point of studying management ?
LET US NOT GIVE UP
To get a clue on the potential of a new body of knowledge, let us
investigate how companies die!
• Creeping increase in costs, to deal with inflation –
this does not increase capacity.
• At same time markets tend to get saturated or get
reduced for established products.
• Unviable business !
The Aging related Death
• Very high investments made in capacity and
• Future does not materialize as envisaged
• The company runs out of cash
The Accidental Death
Let us not give up
The only way to keep surviving and flourishing, is to find out ways to keep increasing the rate of gross
contribution as compared to rate of increase of OE, without taking risks on capital deployment.
(Sales – Truly Variable Costs)
The decouple - graph
Decouple operating costs from sales
One of the reasons why the above curves are not decoupled is because
managers EXPAND on assets before EXPLOITING THEM
Is there a way out?
The only way out is to maintain the
decouple - graph trend which can be done by
Get more out from existing capacities before
you expand capacities
Exploited capacity Hidden Capacity
Producing what is not required
Unplanned set up
Expediting and priority changes
Symptoms of Hidden Operational Assets
Non-uniform output across time periods –
skew in efforts and output close to target
High level of expediting and priority
1. To exploit hidden operational assets
Real Sales Non-Sales
Get more share from existing products and markets before
you expand into new products and categories
Do organizations really have wasted capacities in sales
team and hidden opportunities in the Market ?
Non Sale Activities
Follow up for material,
receivables, documents etc.
Waiting for meet schedules,
Making quotations, Order entry,
Reach gaps in market
Narrow definition of market
2. To exploit market assets
Bandwidth should not used up in running after short
term issues & targets (rather than working on the long
term plans which secure the firm, and not get
Hidden Managerial assets
Capacity used up in short term issues , conflicts ,
endless meetings – nothing left to work on long term
Each role seems to do work of level below or
another role in org!
No capacity available to even think and ponder
Short Term Conflicts
Intervention to meet short term goals
Doing work of sub ordinates
Doing work of colleagues
Short Term Conflicts
3. To exploit top management assets
We will continue to have lots of meetings till we
find out why no work is getting done!
WHAT CAUSES CAPACITY WASTAGES
• If every resource is busy, then we get higher
overall more productivity
Corollary: If we stretch more ( more the WIP),
more is the likely output!
• If we improve every where, the net outcome will
be additive improvement
• If every manager meets their individual
budgeted targets, we will meet the company
wide budgeted numbers
• If we have many improvement projects, more is
the level of improvement
LOCAL OPTIMA THINKING
is the guiding mantra of
What causes capacity wastages?
Local optima thinking
Why does local optima thinking creates wastage of capacity ?