Deeper Learning & Systems Thinking
M.S. Jayaraman is the
President of Lumino Strategies, a Chennai based consulting firm on IT strategy
and a Senior Consultant in Deeper Learning and Systems Thinking. Jayaraman
holds an M.Sc. in Mathematics from the Madras University with specialization in
statistical quality control and operations research.
Jayaraman recently delivered a presentation on `How to ensure adequate Return on Investment (ROI) from Enterprise Resource Planning (ERP) and Supply Chain Management (SCM)’ at a recent Chartered Institute seminar. We talked to Jayaraman to learn more about him, his presentations as well as the other areas of specialization.
By Ayesha Zuhair,
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I hold an M.Sc. in Mathematics with specialization in statistical quality control and operations research. My working life commenced at Bombay Suburban Electric Supply as a Systems Manager and later I moved on to a company called International Computers Limited (ICL). I was a member of the team that designed OMAC, ICL’s software for Online Manufacturing Control system, which I implemented in ICL’s own plants in the UK.
Fifteen years ago, having gained years of experience in the field, I set up my own firm – Lumino Strategies – offering consulting services in the areas of IT strategy and Business Process Re-engineering (BPR). In fact, I have written two books on the subject. The first book came out in 1996 and the other in 1999. The co-author is Ganesh Natarajan who is currently the Deputy Chairman and Managing Director of Zensar Technologies, a global software services firm that provides consulting and software services across 18 countries. The books consist of only Indian case studies.
Until then, the problem was that Indian companies restricted themselves to looking at American firms like General Electric or Wal-mart for directions on BPR. However, I felt it was more important to focus on the work that was being done in India with regard to BPR. This is why the books, published by Tata-McGraw-Hill, were well received.
Let me explain what systems thinking and deeper learning mean. Initially when people get together and start a company, there is a lot of learning that takes place. Subsequently, when things settle down, there is less real learning that occurs. The transfer of information and experience is taken as a substitute for learning. So there is training but no education.
There is a way of differentiating training and education: while training answers the question of `how’, education answers the question of `why’. Children constantly ask “Why?” and we adults tend to become rather uncomfortable. We feel more at ease telling them how to do something rather than explain why it should be done. How many people continue to ask why, as they grow up?
This is the point that arises in recreating a learning organization. As companies `mature’, real education declines. As a result, mental models set in and opportunities may be missed out. In this regard, smaller companies enjoy an advantage because of their capability to stay `learningful’ and quickly maneuver to reach out to emerging opportunities. The entire theme of creating a learning organization is how to bring back and instill the `spirit of why’.
Meanwhile, systems thinking refers to the importance of connecting to the bigger picture. One of the negative aspects of schooling is that we become over-analytical. When this happens, we become fragmented in our approach. For example, when a patient visits a hospital, he/she finds a neurologist talking only about the brain and nervous system and a cardiologist referring only to the heart. Nobody wants to look at the patient as a whole. Health is supposed to be holistic, but that’s an area with a lot of fragmented thinking. Thus, there is a need to look at the system as a whole, and understand the connectivity and its implications. It is an ability we all have, but sometimes it has to be re-initiated. We were all born with the advantage of systems thinking and through the process of schooling, we were taught analytical thinking. In essence, systems thinking attempts to put the pieces back together to form a whole.
There is a lot of research being carried out in this area by Dr Peter Senge who is a senior lecturer at the Massachusetts Institute of Technology (MIT). He and his team at MIT have written many books on this subject. He found out that even the best of the integrated systems seem to fail at implementation level. The reason, he discovered, was because people who implement the system are fragmented in their thinking. So I do a lot of work in this area, which involves working with groups of people, talking about team learning, and helping them develop what we term conceptualization skills – that people should be able to connect to the larger picture, which is the essence of systems thinking.
ERP is the application software that integrates everything within the enterprise. Prior to the time we had ERP, we used to have systems developed independently. For instance, there was a sales system, production management system, and a material control
system. But these systems were not integrated; they were only connected through a line.
In a non-integrated system, there is an information float. Let’s suppose there is a salesman. This salesman has to follow up payments and he finds out that a particular customer owes a lot of money. Without calling the customer immediately, he calls the finance department to find out whether they have received a check. This is what we mean by the information float. ERP eliminates all this. It connects all the transactions together and when one transaction takes place, it automatically updates all the connected transactions. That is one key aspect of ERP.
This is done through what we call event-driven process chains. For example, the moment a purchase order is raised, it will automatically update the Goods Received Note (GRN), so that they know that it is coming. It also informs the finance department to provide for funds to pay the supplier on delivery. Therefore the first aspect of ERP is integration and the second is process embedding, and its chief benefit is in making all the work to simply `flow’ through the processes.
SCM comes when you have to link up with your vendors and customers. In accomplishing the business cycle viz. `cash(out)-buy-make-sell-cash(in)’, there is the need to deal with vendors where purchases are involved, and customers where sales is concerned. Connecting the enterprise with the vendors as well as the customers is called SCM. Therefore, ERP is integration within the enterprise and SCM provides integration with a larger universe.
For example, there is a manufacturer in the small town of Dindigul in the State of Tamil Nadu, who makes cartons for Hindustan Lever products in Mumbai. His products may be sold in Pondicherry, Tamil Nadu or somewhere else in India. This manufacturer is connected to HLL’s SCM and he knows the exact quantity that is required to be printed. This way, SCM provides information transparency for all partners in business, thereby ensuring that wastage is eliminated throughout the chain.
With regard to the main messages I got across to the audience at my last presentation, the primary point was why ROI is of concern to businesses. Top managers in particular are worried because ERP is expensive. A billion-rupee company will have to spend close to Rs.40-60 billion and that can be about 4-6% of their sales turnover. This kind of expenditure used to be incurred only by insurance companies in the past since they considered technology to be a critical aspect of their businesses.
Given that this is a high investment, returns are naturally expected. However, only one out of four ERP exercises are successful. Success in this context refers to whether the set objectives were achieved or at least whether benchmarks or industry standards were attained. Therefore, there needs to be awareness that just placing ERP is not sufficient. Installing a SAP or Oracle ERP system alone does not ensure that integration and process embedding will take place automatically. That was the first message I conveyed.
Then, I pointed out that almost 80% of companies don’t carry out the required elementary preparatory work. Critical Success Factors (CSFs) and the measures or performance indicators with which said objectives are going to be achieved have to be identified and written down. Each CSF has to be clearly quantified. Without quantification, the returns can never be measured.
For instance, if a company wants to improve its on-time delivery, then the current on-time delivery has to be found out. Generally, `comfort figures’ which don’t represent the truth will be quoted. That is, if the figure stands at 40%, the company would say that it is 80 or 90%. One of the most important aspects of ERP is that companies must know exactly where they stand and be truthful about it. In fact, I went on to say that if companies are honest in stating their current position, they could make improvements even without ERP.
Next, I introduced the ROI compass to the participants, in which I told them to write three CSFs and ten metrics, and measures that will enable them to achieve the CSFs. I emphasized that they should be honest and be quantified. Participants were placed in ten groups and we asked them to create the compass for their own enterprises.
In the first attempt, participants wrote `goody-goody’ statements as their CSFs. One group said that they wanted to become an agile company. I pointed out to them that such a characteristic is not easily measurable. It has to be made enterprise specific. The question was, “How can it be made enterprise specific? I told them to do a cut and paste. “Pick it out of your company’s CSF, place it as a CSF of some other company. If it continues to read well everywhere, then it is a cliché. The moment you say customer-specific, it should look odd elsewhere when picked out”.
Often, we get carried away by Oxford English in trying to define the CSFs. English is not important; specificity and an ability to reflect the organization’s current status in numerical terms are important. I gave some case studies of Indian companies such as Bharat Petroleum, TVS Motors, and Hindustan Lever in India and how thoughtfully they had listed their CSFs and quantified them. The difference between a successful company and a not-so-successful company can be immediately seen in how they construct their CSFs. However, I agree that there will be certain aspects, which cannot be quantified, they reflect the realism of business, but genuine attempts have to be made to quantify CSFs to the greatest possible extent. The exercise with the ROI compass was quite educative. In addition, it also made participants more diligent.
My focus was on the corporate entities since they are considering ERP seriously because of the business pull. In Chennai alone auto components close to a billion dollars in worth are manufactured for General Motors and other US auto majors. These components have to be delivered by a particular date and time. In the past, contracts used to have a penalty clause. That is, if a delivery is delayed, a penalty has to be paid. Today many contracts do not invoke any penalty clause. Instead, if the agreed date of delivery is not adhered to, the company at the receiving end will simply pull out and chose another supplier.
It is because of this highly competitive environment that on-time delivery is becoming extremely important. Even a 95% conformance to promised delivery is not good enough for a Japanese company like Suzuki or Yamaha. For them it is like a nurse working in a pediatric ward who says that out of the 100 babies she carries, she drops only five! Since increasing on-time delivery is becoming an imperative, particularly for corporates that want to be a part of global trade, there is a compelling need to institute ERP and SCM. That is the reason close to a 100 CEOs and 75 managers attended the program I conducted here.
Yes, very much. Bharat Heavy Electricals in India is a classic example. It is the largest engineering and manufacturing enterprise in India catering to the core sectors of the Indian economy including power generation and transmission. They used to take 30 to 36 months to set up a modern power plant but after implementing ERP, this period has reduced to 18 months and they have become globally competitive because of it. In India, the public sector is one of the largest users of ERP and SCM because today irrespective of whether an organization belongs to the public or private sector, they have to be globally competitive. Especially after market liberalization in the 90s and with globalization becoming an ever-increasing reality, both public and private sector institutions have to compete with other institutions in their filed. It is because of these reasons that ERP is most applicable to the public sector.
I will explain this using the concept of six sigma as an example. Six sigma is statistically based and it focuses not on average but on the actual status. General Electric’s Jack Welch, when he adopted this concept, said that working globally on `average’ as a measure is like trying to cross a river knowing its average depth! There is something called variation and standard deviation. With six sigma the number of errors are restricted to three per million; that is if a million components are manufactured, the number of products with errors or defects should not exceed three. That is the level of perfection that can be reached with six sigma.
As part of Total Quality Management (TQM), we use statistical quality control very extensively. I work with two hospitals in Chennai. Sankara Nethralaya is an internationally reputable eye hospital, and the other is the TTK Hospital, which treats alcoholics and drug dependents. For both I work in the area of TQM.
For Sankara Nethralaya, we use statistical observations, particularly with regard to patient waiting time. We used to think that a waiting time of one hour is acceptable but then we discovered later that while the average was alright, there were some patients who have to wait for about four or five hours. Our objectives there were the same as six sigma, which was to bring down the number of things that could vary from the standard to a miniscule figure. So statistical quality control plays a great role both in TQM and in particular six sigma initiatives.
In the last ten years, we have seen the differences narrowing down rapidly. In IT for example, we are on par and in many respects we are slightly ahead for the reason that it is the Indians who are leading in IT innovation. In Bangalore there are many people working on data warehousing and data mining techniques. It’s for very large enterprises where data is monitored to give some insightful information.
Wal-mart, for instance, found out that on Fridays both babies’ diapers and beer sold high. They could not make out the linkage. When they investigated, they found out that they were purchased by young husbands in their early 30s. Since diapers were voluminous and the man drove the larger car, the wife asked the husband to buy diapers for the baby for the weekend period. When the husband went to buy them, he also bought beer along with that. When the linkage was found out through data mining, the store brought the beer selection closer to the diapers section.
Finger Hut, a mail order company, was told something interesting by their data mining software. In mail order business, credit worthiness is of utmost importance because they have to be sure that customers will make payments on receipt of their goods. It was said that people with middle names seemed to be more credit worthy than people who don’t have middle names. For example, Barbara Newton Taylor is more credit worthy than Barbara Taylor. They investigated how this happened and found out that in America, an individual had a middle name by his/her own choice. They discovered that the choice of having a middle name has much to do with the relationship a person has with their parents and those who chose to have a middle name seemed to share the same value system of their parents. This way the middle name has a value and the investigations confirmed the co-relation was real.
I gave these two examples because there are a number of Indians working in such data mining techniques. So the benefits also come to the companies within the country and because of globalization we find that the gap has narrowed. The way companies are managed in Chennai is not very different from the way they are managed in the UK or US today.
Currently I am working on an ROI exercise for a client of Siemens Information Systems. Siemens have implemented a workflow for the client and now wish to evaluate how far this solution has really benefited the client. Though they may be capable of doing it themselves, it is useful for them to get an objective evaluation carried out by a senior consultant like me. It also enhances Siemens’ credibility with the client; that they not only deliver but engage someone to evaluate what they have delivered.