Академический Документы
Профессиональный Документы
Культура Документы
Madhusudan Jhunjhunwala
1
Genesis
Every enterprise - small, medium or large – needs managerial capabilities in its phase
of growth. The need is the same for each one of these categories; but the ability to
afford is not. In a time, when demand for such scarce resources far outstrips the
supply, there is an opportunity to innovate management methods and practices so that
enterprises will have affordable and executable management solutions. This is
particularly true for the Small and Medium Enterprise (SME) segment of the
economy.
Apart from the economic indices that underline the critical dependence of global
economy on SMEs, they acquire special significance in an age marked by academic
entrepreneurialism and innovation. In a very immediate context, effectiveness of large
enterprises also depends on an effective and efficient SME sector when “outsourcing”
is the key to cost rationalization, innovation and productivity
2
1. Objective of the “Talk.”
To reinforce a process thinking among those who have a stake in SMEs, start
ups and family-owned businesses.
Based on my own understanding of the issues and responses in the last
two decades.
Minimum theories, maximum application.
2. Justification for the topic
Why this topic
Its relevance to the audience – entrepreneurs, professionals, students and
society
Need to foster entrepreneurship in the new generation
3. Setting the context
1. Use of data and information on SMEs (size, market, issues, etc.) only to
develop a proper context.
4. Opportunities tomorrow and challenges today: possible practical responses
5. A few case studies and Jim Collins/Harish Mariwala/Ratan Tata
6. A story of change
3
Objective of the presentation
To initiate a process of thinking among those who have a stake in family-owned
enterprises, SMEs and start-ups.
All three of them are primarily a mindset and have many features in common.
Earlier successes were situational, today we need to plan for them.
New breed of entrepreneurs and enterprises – execution based on a detailed
planning. (Example: IT is an industry based on the hard work of old economy and
today the old economy has suffered for good people).
Earlier entrepreneurs (pre-liberalization) were innovators - built productive
companies with out-dated technologies and second-hand plant and machineries.
Families have built businesses and organization. There are a few gaps which if
filled can set path for another phase of business leadership.
One industry of the past has given birth to many variants in the future.
SME manufacturing has been the bed of technological innovation globally.
Start ups and aspiring entrepreneurs: out of ten steps required to build a business,
nine do not require money. Money is the tenth which automatically follows if the
nine are done well. It may be simple but not easy.
4
Setting the context
5
Family-owned enterprises, SMEs and Start-ups: key
characteristics
Owner has the highest stake and hence decision making could be faster.
Organically grown and cohesive organizations (if not far-flung and multi-
location).
Effectiveness of control could be higher.
Easier to keep a watch on implementation.
Risk is lower.
In case of start-ups, it is a clean slate to write and apply experiences of past
and others.
6
Family-owned enterprises, SMEs and start-ups: opportunities
tomorrow
1. SMEs can solve the so called “talent problem” of industry
2. Experiments and innovations in all fields of business
3. Unlock the hidden wealth of knowledge and experience in the company
rather than looking for solutions elsewhere
4. Market (domestic) can hardly be a problem.
5. Cost of quality@ 30% of sales mainly on account of rework and
rejections resulting from inadequacies in supervision, technical skills,
job knowledge, communication/reporting, role clarity, planning,
information about market, vendors and customers, business processes
6. Low productivity of people and assets
7. It is almost recession-proof.
8. Rationale for outsourcing by large enterprises is “low cost, higher
quality.”
9. Future industries and technologies require robust organizations.
7
Family-owned enterprises, SMEs and Start-ups: responses
today
– Operational
– Market
– Financial
– Skilled people
– Technology
– Environmental
– Regulatory
– Business processes
8
Family-owned enterprises, SMEs and Start-ups: responses
today
X Y Problems
X X On the verge
of collapse
9
What Constitutes the SME Sector
10
What Constitutes the SME Sector ……..
In the given scenario, it can be broadly said that the SME segment would
include the following
Retail Wholesale /
SME Segment
Corporate
Segment (Constitutionwise)
Segment
11
Enterprise Segmentation
MNCs
Large enterprises
(501-5000 crores,
10,000 people,
Multi location, but not
overseas
12
The beginning of big things
SMEs contribute globally:
32% of global output
97% of all number of enterprises
70% of all manufacturing jobs
95% of SMEs employ fewer than 100
people
13
SMEs – a global picture
Country No. of units % of mfg. Output % of
(% of total) jobs (%of GDP) Exports
Globally 97 70 32
USA 25 40 33
(68 mn) ( 4 trillion)
India 10 mn. 70 40 35
Japan 70 52
Korea 98 50 43
14
Indian SME Sector – A Profile
15
Macro- challenges faced by the SME Sector
(beyond control)
1. Non-availability of adequate capital for investment .
2. Difficulties in accessing the capital market.
3. Inadequate institutional framework for assistance.
4. Lack of opportunities to attract Foreign capital.
5. Lack of technological advancement/ updation.
6. Impact of / Threat posed by WTO.
7. Terms dictated by the large Corporate on whom the SMEs depend.
8. Access to finance for SME Projects
9. Lack of adequate working capital
10. Quality industrial infrastructure (inclusive of Power)
11. Sickness and NPA management
12. Setting up common facilities.
13. Ineffective institutional support – bureaucratic and slow response.
14. Missing interface with the academic institutions
16
Major operational and infrastructural issues before SMEs
(within our control)
1. Lack of proper market knowledge – both domestic and exports; heavy dependence on
existing customers; new customer development very slow and meagre.
2. Poor understanding of export market requirements and hence low exports.
3. Poor market and production planning systems leading to delivery failures.
4. High inventory levels leading to high cost of inventory and lower inventory turns.
5. Non-availability of skilled manpower and high manpower turnover.
6. Conventional / Old technologies.
7. Lack of systematic analysis of customer complaints including approvals
8. Low productivity of assets and people.
9. Problems in outsourcing
10. Delayed payments to SMEs
11. Difficulty in communication with customers, subcontractors, calibration, and testing labs.
12. Present skill of their employees in ICT handling is inadequate.
13. ICT facility to improve their communication system.
14. Performance planning, measurement and training.
15. Rework and rejects leading to very high cost of poor quality.
16. Technology up gradation and improvement in quality of products
17. Reluctance to change the way of functioning.
17
Categorization of SMEs
SME
Up to Rs. 500 cr.
Up to 1000 people
18
Enterprise Mapping – Analyzing SMEs challenges and opportunities
w.r.t. business and eco-system
Organization
Profitability Profit
1. Long-term health 1. Short-term gains,
2. Strategic 2. Cutting corners
3. Environmental factors 3. Tactical
4. Culture of the organization 4. Deferral of investments
5. Code of conduct and value 1. People
6. Skill and motivation 2. Technology
7. Sustainable development 3. Productivity
8. Sustainable productivity 4. New initiatives
9. Poor compliance bigger liability 5. Skill development
10. Policies, systems, processes 6. Quality programs
11. HR to be the key integrator 7. CRM
12. Innovative management 8. Strategic initiatives
13. Action plan for growth: 9. Vendor improvement
1. Productivity of assets 5. Psyche of shortage and crisis
2. Productivity of people 6. Insensible cost cutting
3. Improve compliance 7. Manipulation
4. Product innovation 8. Non-compliance
5. Technology 9. Deviations from specifications
6. Market expansion 10. Poor pays
7. Market penetration 11. Poor vendor management
8. Value addition 12. Unplanned outsourcing
9. Higher realization
20
A holistic approach to organization
Policies, systems,
Asset
Mission People Procedures and Business Model
Management
documentation
Customers,
Resource Organization
Goal alignment and Knowledge creation Network,
Objective And
leadership management Relations,
optimum utilization Human capital
21
The stories of three organizations
22
Organization A: A mid-sized company in power sector,
Period of change: 1999-2002
In 1999
– A well respected 35 year old mid-sized Indian company (a JV between a US MNC and an
Indian major) based in Pune in power sector.
– Sales 200 crores, no. of employees 700, plants in Pune, Hyderabad, and Daman.
– 1998 onwards US MNC exits leaving the Indian operations to fend for itself.
– During 35 years company neither grew as other domestic companies did, nor it got any
major technology support/transfer from the US MNC (although the MNC had many
proprietary technologies).
– The exit agreement was unfavorable to the Indian company which had little choice but to
accept the terms given to them.
– The company was made to sign a non-compete agreement with the US major.
– Business model heavily dependent on SEBs, development funding from Word Bank. Zero
exports.
– Post-Pokharan sanction, business likely to be hit to the tune of 50% loss of sales.
– In operating losses for last 7 years and made profit only before 1991 in controlled and
closed Indian economy.
– High manpower cost (25% of sales), low worker and managerial productivity, heavy
overheads, aggressive and militant CITU union, used to work only in cartels, no major USP
or product to rely on.
23
Company A: 1999-2002 (continued)
2002
– Profitable operations.
– Manpower cost @ 10%.
– Market leader (domestic) in its product segment.
– Sales nearly doubled.
– Export of goods to many a countries including Europe.
– Employees’ attitude undergoes a major positive shift.
– 50% of workers’ accept VRS and go away through peaceful negotiations.
– Company once again becomes a part of a reputed MNC (Europe).
24
Company B: 2003-2006
In 2003
– A consumer durable company employing 800 people.
– An entirely new set up in a village setting ( only an industrial shed and machines )
– Poor access from the city, dysfunctional telecommunication and internet.
– Available manpower either class X or below against ITI (as required).
– Barely doing 10000 units of production per month.
– High absenteeism and attrition.
– Almost nil financial support due to fund crunch.
– Harassment by tax authorities and local politicians.
– The first and the only unit in that area for quite some time.
– No vendor base and poor supply chain.
– Quality and availability of water and power – major issues.
25
Company B: 2003-2006 (continued)
2006
– Computer literacy at 80-90% (all employees including workers).
– Unit had its own home-grown IT software (internally integrated ERP) though it didn’t have
internet access and comfortable telecommunication facility
– The young boys from village produced very high quality products at nearly ½ of the industry
cost and double the productivity.
– The unit became a benchmark in terms of productivity and cost within the 25 year old group, a
leader in its own business.
– Employees (workers and officers) worked together to build the infrastructure such as canteen,
office, gardens, sheds for storage and internal roads and introduced many innovations against all
financial odds.
– A team of 20 fresh engineers (0-1 years) played a very critical role in My SAP implementation
in the group and have become thorough bred IT professionals. They have all served the group for
nearly 5-6 years before they went out for better opportunities.
– They generated resources by using and selling scrap and designed and launched a few radically
improved products.
26
Company C: 1954-2010
2008
– A market leader in its line of business for the last 55 years.
– 4500 people, 175 branches/offices across country.
– Several JVs in and outside India.
– Strong R&D back.
– Worried that competitor will overtake.
– Had no clue as to what need to be done.
– Had a vague idea that it is an HR issue but didn’t know the specifics.
– Managers felt that they are doing an extremely good job and there is little room for
improvement with them and, therefore, problem lie elsewhere.
– Very motivated people dedicated to the company and been with it for not less than 15 years on
an average.
– The company knew its business and it was growing at 30%; yet they felt that the competition
will take over. And it was about to happen.
27
Company C: 1954-2010 (continued)
2010
– In 2008 the company starts an organzitionwide intervention at three levels – top (VP and
above), middle (Regional manager to AVPs) and lower levels ( workers to managers).
– Simplifies the vision statement (existed for 10 years but not understood due to
complexity),
– Launches organization-wide communication, helps everybody understand it and decide
what each one of them have to do to make it a reality.
– Precise roles are defined for everyone.
– Performance measurement systems are introduced for business and individuals.
– Simplicity is stressed in communication, processes and training.
– All the available knowledge with people is institutionalized.
– People admit that yes they need to change their mindsets and they do.
– Organization has a path and a plan to salvage its levels of confidence and grow further.
– It is working on it though it will take time to reinvent itself.
28
Companies A, B and C - Conclusion
Three companies
– Different business, different cultures, different age groups, different advantages
and different disadvantages.
– All of them improved, though each in a different context and in a different
manner.
– None of them was one man’s job. Everybody participated, achieved what they
could only with available people and resources.
– All of them focused on what they controlled and what they could change, not
on what they did not control and therefore could not change.
– The available knowledge and skills was institutionalized and became an
internal source of intellectual growth and learning.
29
Successful Companies Companies in Trouble
Success
Renewal
Arrogance &
Innovation complacency
Initiative Competition
Lack of
imagination
Imagination
Failure to
adapt
Success Collapse
30
Signs of a troubled business
31
Organization growth – Equilibrium between external and internal constraints
32
Agenda for the organization
1. Leadership in cost, quality and service of our products. This alone can
leverage the hidden 15% ( out of the 30%).
5. Innovate ways people can know their precise responsibility and learn how
to perform them.
Performance targets
Performance targets
Continuous improvement
Continuous improvement
Implement plans
Implement plans
monitor performance
monitor performance
& provide feedback 34
& provide feedback
Effective operations
Time-bound
Vision
objectives
Learning
organization
35
Measurement
Financial
Financial Customer
Customer
Internal
Internal Business
Business Processes
Processes Learning
Learning and
and Growth
Growth
36
Commoditize Skills
Recruitment
Recruitment Induction
Training Deployment
Deployment
37
Real task
38
The story of the eagle…
39
The eagle has the longest life-span of
its’ species
40
It can live up to 70 years
But to reach this age, the eagle must
make a hard decision
41
In its’ 40’s
43
Its’ old-aged and heavy wings, due to
their thick feathers, become stuck to
its’ chest and make it difficult to fly
44
Then, the eagle is left with only two options:
die or go through a painful process of change
45
which lasts 150 days.
The process requires that the eagle fly
to a mountain top and sit on its’ nest
46
There the eagle knocks its’ beak
against a rock until it plucks it out
47
After plucking it out, the eagle will wait
for a new beak to grow back and then it
will pluck out its’ talons
48
When its’ new talons grow back, the
eagle starts plucking its’ old-aged
49
feathers
And after five months, the eagle takes
its’ famous flight of rebirth and lives
for ...
30 more years 50
Message of the story
Past, whether good or bad, creates baggage.
Change is improvement - getting rid of the baggage of past.
Improvement is the only condition for survival.
It is a integral part of the natural process of life – whether an individual or an
organization.
Improvement is an individual responsibility (without exception).
Improvement is real and painful.
Improvement is action based on a clear understanding of what one needs to
do.
Machine (technology) is a tool which is gives results when we know what it is
supposed to do and how we should operate it.
We do small things; big things happen.
Thoughts are unrealistically larger than action.
Opportunities in chaos, business in order.
Opportunities in noise, business in signals.
Opportunities in problems, business in solutions.
51
Improvement
People
(Need Vision and Objective)
Process Systems
(Improve) (Improve)
52
Internal Coaching
53
Change Management
Internal Environment
Culture – values& behavior
Learning and KM
Adaptability to external environment
Systems and processes
Technology
Hardware
External Environment
54
Change
1. Neither be forced nor it can be coerced; it can even be through persuasion; it can only be
inspired.
2. A process of making an individual primarily, and organization collectively, what they should
be.
3. Adapting internal environments and conditions of an organization with the rapidly changing
external environment.
4. Equilibrium between internal and external environments with respect to an organization and
also between organization and individual and among individuals in an organization.
5. This equilibrium is a dynamic one and the most serious threat to it is emotional – individual
and organization behavior and culture.
6. In other words, change is about transparency and encouraging human respect and values in a
organization first and foremost.
7. Transparency is essentially de-complexing the organization and therefore change is about
“SIMPLICITY.”, because simplicity and transparency are synonymous as both of them have
the same goal – make things what they ought to be.
55
Finally…
56
Actions:
1. We must recognize that business operate at tow levels primarily –
transactions and monitoring.
2. You have to make a decision and commit yourself to it (improvement at
any cost in process adherence and compliance).
3. The basic issue will be “people capability.”
4. They have enough knowledge accumulated over time and loyalty to the
organization which is needed to achieve this. It needs to be captured,
validated, integrated, documented, institutionalized and shared with those
who need.
5. Our existing resources and technology may not be the best but we can make
a better use of it.
6. Doing this will build a platform for training and developing people on the
job.
7. This itself will create confidence and passion necessary to trigger change.
8. You would need to take the process forward and sustain it.
9. This is the “the least and the most” that we can do to begin the process of
improvement.
10. It is simple but certainly not easy.
57
AIMA –Impact assessment: impediments to growth
58
SMEs predominance in
Food products Paper products and Printing
Cotton textiles
Hosiery and garments
Wool, silk and synthetic fibre textiles
Wood products
Jute, hemp and mesta textiles
Nonmetallic mineral products
Other services 59
6
For example: basic issues in marketing
Customer data
– accurate and updated details on new customers such as contact, specification of
requirements, price expectation, etc. not available in most cases.
– Available data bases and information on websites are not enough.
– Request for above information is not responded properly.
Quotation
– There are more than reasonable mistakes in quotations and poor follow up.
Comfort zone
– Dependence on existing customer base and natural market growth.
Marketing
– The basic concept of marketing is not understood.
– Marketing and selling are thought to be the same.
Customer feedback and involvement
Delivery and quality are compromised.
Order execution and documentation.
60
Indian experience in SME Banking
61
For example: factors inhibiting banks in SME
financing
Sketchy data on the financial position and lack of comparative data.
– Lack of transparent credit information, access to credit history
– Limited sectoral data
– Low capitalization and collateral- high impairment propensity
High cost of acquisition of new client, high cost of credit processing, services
& delivery coverage
Difficulties in effective monitoring of accounts/ capturing cash flows.
Poor legal framework for collateral enforcement
No secondary market for SME loans
– No clear exit route for private equity
Fortunes depend more on the individuals behind the business rather than
business/ trade cycle/ behavior.
Vulnerability of the small sized players to globalized economy.
62
Harsh Mariwala’s innovation
63
Future technologies/industries will require more prepared
organizations: an example from future variants of the old
energy industry
1. Capturing wind
2. Solar energy
3. Electricity from the oceans
4. Combined heat and power
5. Super-efficient homes
6. Electric cars
7. Motor fuels from cellulose
8. Capturing carbon
9. Biochar
10. Soils and forest
64
A few inevitable realities
65
Surplus
Basic issues is productivity of people and assets.
We don’t understand money market or currency market, but we need to
understand where and how money should be utilized and that is the most basic
principle of business.
Availability of money happens either we produce surplus or we print money.
It is anybody’s guess which is more sustainable.
SMEs’ real development (not lip-service) can alone give a sustainable
response to global crises we face or are likely to face from time to time,
because statistics show that majority of people (70%) get employed in this
segment. An increase in the productivity (managerial and technical) of people
in this segment will have an overall positive impact on the economic well-
being.
NSDC – 70-80% of people are B.Sc and below.
66
Management innovations in SMEs
67
Three options for anyone
1. Lead
2. Follow
3. Get out of the way
68
The attributes of a desired state of working in a business
organization
• A process is well understood when:
‾ All critical sources of variability are identified and explained to people who are
responsible for correct execution of the processes.
‾ Variability is managed by the process.
‾ Product quality attributes can be accurately and reliably predicted over the design space
(boundaries) established for materials used, process parameters, manufacturing,
environmental and other conditions.
• Organization’s product (& service) quality and performance are achieved and assured by design
and implementation of effective and efficient business processes.
• Product and service specifications are based on a thorough understanding of how inputs (raw
material and human efforts) and business process factors impact product and service
performance
• An ability to effect continuous improvement and continuous “real time” assurance of quality
• The Learning and development systems work towards attaining the above conditions.
69
Challenges Key issue Reasons Solutions
Operational
Marketing
Financial
Technology
Skilled people
Global environment
Domestic –
regulatory and
governance
70
Macro - challenges faced by SME sector in india
Pre-Globalisation Post-Globalisation
71
9