Lessons from Recession: Improve Operational Efficiency

Sharad Maloo (Department Of Management Studies, IIT- Delhi)

“Efficiency is doing better what is already being done.” – Peter F. Drucker

Abstract: Economy of developed nations has boomed out of proportion in last few years, private as
well as public sector enterprises have been very extravagant in their operations which were not visible
as that was compensated by the inflated profits they had because of market situation. But they are
finding it difficult to survive in the downturn. The recession provides us an opportunity to revise our
policies and learn to use resources optimally and follow a continuous process of innovation to explore
cost reduction methods. This paper discusses about the ways and practices an organisation should
inculcate permanently in its system to increase operational efficiency and continue to operate on the
growth path in any market situation. It has done it by illustrating leaders in respective area.
Ways to Improve Operational Efficiency
Innovate 
Process
Supply chain  Steel to achieve high rates of performance
Mgmt
Retain talent
Values
Organisaton 
Restructuring
Figure I: Targets to improve operational efficiency
1. Innovate & Modernize the Development
Life Cycle: Organisation needs to revisit its
entire product development process and find
out scope of reducing cost in terms of
resources or labour within the cycle. This is a
very broad category but applies to all types of
industries.
How to identify the loopholes?
Every organisation shall appoint an expert
team, which does a thorough analysis of
competitors (local and international)
technology used for development; keeps track
of latest technical evolutions; does a cost-
optimization trade off analysis for deployment
of new technology; run frequent programs for
analysing scope for new innovation in the
development process to reduce cost/time of
production.
Who has done it?
Let’s take an excellent example of
Tata Steel, how it found innovative
techniques to reduce manufacturing
cost potentially and have a massive cost
advantage over their competitors. Tata Steel
implemented TOP (Total Operational
Performance) program at its G blast furnace.
TOP was widely regarded, as a program,
which would have a maximum positive impact
to the bottom-line, with minimum investment,
required in minimum time. It aimed achieving
large improvements in the short term. In the
long run, TOP was expected to enable the Tata
improvement. Since Tata Steel’s scale of
operations was quite large, the whole
organization was divided into manageable
'units' to facilitate the implementation of TOP.
A unit team was formed comprising a unit
leader and two facilitators. The team worked
full time on the TOP program for a period of
12 weeks. Around eight units were addressed
simultaneously during the 12 weeks, and this
was also known as 'Wave.' The entire Wave
was divided into five phases. During Phase1,
the cost base was examined and the items that
had a maximum impact on the bottom-line
were identified. In Phase2 and 3 ideas were
explored and feasible ideas were shortlisted to
reach the set targets. Phase4 implemented the
shortlisted ideas and Phase5 took it to
implement ideas in other departments. As a
result Tata Steel had emerged as the world's
lowest cost producer of steel and the program
helped it to increase the Net profitability by
more than 10%.
Independant 
implementation 
to other 
Implemen‐
modules.
tation of ideas 
in pilot area 
Feasibility 
analysis of 
ideas 
Generate 
idea to 
reduce 
cost
Identify 
Maximum cost 
eating items
 
Figure II: Wave Program’s steps by step progress
2. Supply Chain Management: Supply chain
management is the management of
a network of interconnected businesses
involved in the ultimate provision of
product and service packages required by end
customers. Supply Chain Management spans
all movement and storage of raw materials,
work-in-process inventory, and finished goods
from point of origin to point of consumption.
This contributes to a significant portion of
final product/service delivery cost; hence
organisation needs to plan this activity in the
most cost effective way.
How to improve Supply chain management?
View ‘Value’ from the perspective of the
Customer.
Eliminate all waste & non-value-add
activities from the chain.
Capture demand data at point of use & use
this to control the chain
Use rigorous process analysis &
improvement techniques to optimise the
chain
Integrate all key elements (links) of the
chain, students, academic staff, service
staff, service providers, suppliers,
administrators & finance.
Establish a steady continuous flow based
on pull/demand
Use automated systems to deliver Straight-
Through-Processing[1] (STP) wherever
possible.
Use data & metrics collected within the
process to continuously refine it.
Who has done it?
Hennes & Mauritz AB (H&M),
Swedish clothing company,
known for its fast
fashion clothing offerings for women, men,
teenagers and children. Its innovative supply
chain management enabled the company to
gain advantage over other fashion retailers in
the world. H&M designed garments centrally
at Stockholm, Sweden. These were then sent
to the production offices of the company and
then to the manufacturers. H&M did not own
any manufacturing facilities and all the
production was carried out by more than 700
independent suppliers located in Asia and
Europe. In the case of garments that were in
demand, H&M used the facilities of the
manufacturers in Europe. The garments with
longer lead times were made in Asia. The
garments manufactured at different locations
across the world were sent to a central
warehouse located in Hamburg, Germany. In
every country in which it operated, H&M had
a distribution centre. From Hamburg, the
garments were sent to these distribution
centres, from where they were distributed
locally. The garments were replenished every
day depending on the demand. With constant
replenishment, H&M maintained novelty in its
products, due to which the customers visited
the company's store repeatedly. The secret of
H&M's success was a well-integrated supply
chain - the clothes designed by the
headquarters at Stockholm were made by more
than 600 suppliers located in 22 countries in
Europe and Asia. After the garments were
manufactured, they were shipped to stores
across the world. H&M decided on the
suppliers depending on the lead time. The
products with higher lead times were made in
Asia, and those that were in high demand were
made in Europe.
Designing at 
Stockholm 
Longer lead  Garments in 
time Demand
Asia  Europe 
Central Warehouse, Germany 
Distribution Centres across the world 
⇒ Replenish stock daily 
⇒ No item on shelve for more than 
a month
Figure III: Supply chain management at H&M
3. Effective use of IT: Every organisation has
certain bureaucratic processes involved for say
salary processing, sales accounting, market
profiling, etc. These processes are difficult to
follow since they are full of data and are
dynamic in nature. Use of effective Enterprise
management Systems such as SAP can help
the organisation improve efficiency and limit
errors.
What are the scope and advantages of IT?
IT can be used to automate various
unavoidable and time/resource consuming
processes. Some of the applications are
payroll; effective, faster & continuous
communication; ERP[2] to analyse business
strategies of self and competitors; employee
record maintenance; asset management;
training; 24x7 operations.
Who has proved it?
Take the case of The
Switzerland-based Schindler
Group the world’s largest
escalator company and second-largest elevator
company. Schindler designs, manufactures,
installs, maintains, and modernizes internal
transport systems for almost every type of
building requirement worldwide. Schindler is
responsible for tens of thousands of elevators
and escalators throughout North America.
Each day, thousands of highly trained
technicians are on the road to service and
repair these systems and help in emergencies.
These routes require precise and optimized
planning since technicians service many
buildings with varied equipment as diverse as
hydraulic elevators, escalators, and traction
elevators. Every piece of equipment has a pre-
assigned periodic schedule for maintenance
such as greasing and cleaning. These
maintenance schedules can include 10 or more
visit periods ranging from daily to quarterly. In
addition, each building has a visit schedule
influenced by customers’ preferences such as
making certain the elevator is not taken out of
service during the busiest time of day.
Schindler teamed with ESRI[3] and its
Professional Services Division to form a
project team consisting of people with
business, project management, information
technology, and operations research
experience. The extensive project was named
Planning Assistant for Superintendent
Scheduling (PASS). The project team decided
on Software with local street map storage.
Keeping large street data files on local PCs
prevented overloading the dial-up network
connections between offices and headquarters.
Now, Schindler superintendents manage
several million service hours per year and
maintain the visibility of tens of thousands of
units of customer equipment using the PASS
system.
4. Retain talent: Make your organization a
place where people want to work. Foster
strong values and a great culture. Create
incredible jobs—where superstars have
opportunity for rapid advancement, people
receive extraordinary professional
development, and compensation differentiates.
Don’t be afraid to attack outdated reward
systems—if you don’t pay what it takes to
retain top performers, your competitors will.
Create a culture where it’s expected that the
career track of the best people will be
accelerated—and that others will be truncated.
In these organizations, line managers are held
accountable for managing the quality of their
talent.
Long term 
How does it reduce cost? thinking 
Recruitment process and training of new
employees contributes to about 17% of cost of
an organised company. Moreover the
experience which an employee earns over the
period of time by working in a specific project
is very valuable resource. If an organisation is
successful in retaining its experienced/talented
lot than it can directly reduce operational cost
and also increase productivity.
Who is the modern trendsetter?
 NetApp, the San Francisco-based Who is the role model?
data storage and management
company continues to grow Bharti Tele-Ventures is
revenues while boosting India's leading private
employee morale. For instance, in 2008 it sector provider of
introduced a program called Volunteer Time telecommunications services. The Company
Off, which has proven to be one of the through its subsidiaries also provides fixed-
organizations most successful programs to
date. In the program, employees across the
globe are provided with the opportunity to
have five days off [a working week], to
volunteer at a non-profit organization. It
allows for a tremendous amount of work-life
balance because each individual has his own
personal choice around how they want to give
back. Again, that also talks wonders for the
motivation of employees and their
empowerment. Not surprisingly NetAPP has
been rated as best Fortune Employer to work
for, 2009.
Figure IV:  Organisation restructuring at Bharti
5. Organisation Restructuring: Every
organisation has a defined structure based on line, VSAT, Internet services and network
division of labour, span of work and levels of solutions. The Company has also commenced
hierarchy. With time needs, roles, transparency offering national and international long
levels and responsibilities of different distance services. Bharti Enterprises unveiled
positions and hierarchy defined changes. its new apex level organisation structure
Organisation needs to analyse and re-define its reinforcing its best in class governance model.
organisation structure time and again to The new organisation structure reflects
increase operational efficiency. Bharti's strategic intent to lead, build & grow
in businesses that make a positive difference to
Which parameters, to think upon? the lives of people - telecom, retail &
wholesale, communication & media devices,
Smart sizing (deciding optimal size of
insurance & financial services, Agri business,
organization with clear definition of each
BPO/software & the Bharti Foundation. The
role); Networking (refers to process of
new structure strengthens empowerment &
breaking companies into smaller independent
accountability for business leaders of
business units for significant improvement in
individual companies thereby enhancing the
productivity and flexibility); Virtual
existing high degree of professionalism in the
Corporation (this is a futuristic concept where
group. Bharti Enterprises will be the strategic
in company will be edgeless, adaptable and
architect of all businesses of the group and will
perpetually changing. Companies sends
provide overall direction and macro strategies.
employees to clients to gather exact needs and
Responsibility for business strategy,
specifications which help them develop
operations & its results will reside with the
‘virtual product’ before the final product); De-
business heads of the companies with Bharti
layering (a proper hierarchy level to make
Enterprises having a supervisory role. Bharti
decision making process faster, faster
Enterprises has recently diversified into new
implementation and reach ability of top
business areas. After successfully establishing
management by every level).
India’s leading telecom services provider -
Bharti Airtel and Bharti Teletech - the leader
in telecom terminals, Bharti Enterprises is
getting ready to take significant strides in new
areas such as retail & wholesale,
communication & media devices, insurance &
financial services, Agri business & the Bharti
Foundation. Bharti has also institutionalized
three group level governing bodies to reinforce
its best-in-class governance model. These are
the Bharti Management Board, the Group
Finance & Audit Council & the Bharti
Management Council.
6. Value Alignment: When the values of an
individual are the same as the values of their
Organization, then there is a values alignment.
When the values of the organization are
focused on the higher levels of consciousness
and employees are focused on the lower levels
of consciousness employees are encouraged to
grow and develop. Organizations that don’t
have this alignment tend to be more inward
looking, bureaucratic, and stressful to work in.
To create values alignment is to map the
values of the organization as perceived by the
leaders, managers and employees. Strong
value alignment helps the organization
functioning; increases efficiency of employees
tremendously; effective communication from
top to bottom and vice versa.
Who has gained from it?
Cadbury is a leading global
confectionery company with
an outstanding portfolio of
chocolate, gum and candy brands. It employs
around 50,000 people and has direct
operations in over 60 countries, selling our
products in almost every country around the
world. One of the most important reasons of
its success over the years is its strong value
system which consists of 5 major parameters:
Performance : Passionate for winning, 
prepared to take risks
Quality : Put quality and safety at the heart of 
all activities
Respect : Genuinely care for business and 
colleagues
Integrity: Honesty, openness and being 
straightforward
Responsibility:  Take accountability for our 
social, economic and environmental impact
Figure V:  Value system at Cadbury
7. Administrative cost-optimization: There
has been a lot of investment by the companies
during the economic boom period for various
employee friendly and recreation activities.
They definitely help in boosting employee
satisfaction, but if there’s liquidity crisis then
reduction cost in these areas shall be the first
step, so that the company do not have to take
extreme steps like layoffs to balance its
accounts. There’s an endless list of items on
which company can save cost like travel cost
of employees (substitute is Cisco Telepresence
which helps organising online live meetings);
virtual worker who uses sophisticated tools to
work and keep in constant touch with
clients/colleagues from home or alternate work
place.
How to innovate in this area?
For e.g. Microsoft, the US
based Multinational
Corporation which develops,
manufactures, licenses, and supports a wide
range of software products for computing
devices. It is the world’s biggest software
giant. Microsoft Bangalore launched an
innovative product i.e., a digital bus in which
employees can start work from the bus itself
and their office hours count from the time they
start work in the bus. Same way, total working
hours of the day calculated based on the
time they stopped work in the bus. As Traffic
jam in Bangalore is quite normal and company
 does not want to waste the time of the
employees while in travel.

Figure VI:  View of Microsoft Bangalore’s Digital Bus
 Appendix

[1] STP: Straight Through Processing enables the entire trade process for capital
markets and payment transactions to be conducted electronically without the need for re-keying or
manual intervention, subject to legal and regulatory restrictions.

[2] ERP: Enterprise resource planning is a company-wide computer software system used to manage
and coordinate all the resources, information, and functions of a business from shared data stores. An
ERP system typically has modular hardware and software units and "services" that communicate on a
local area network. The modular design allows a business to add or reconfigure modules (perhaps
from different vendors) while preserving data integrity in one shared database that may be centralized
or distributed.

[3] ESRI: Environmental Systems Research Institute is a software development and services
company providing Geographic Information System (GIS) software and geo database management
applications.
 References

www.icmrindia.org

Innovation: the attacker's advantage - by Richard N. Foster

Essentials of supply chain management - by Michael H. Hugos

Organisation Development – by Vinayshil Gautam

The Application of IT for competitive advantage - by Keane

www.business-standard.com/

www.cadburyindia.com/

http://gconnect.in

http://money.cnn.com/magaznes/fortune

http://www.esri.com/library

Economic Times

Business Today: August, 2008

http://www.bharti.com/