Tag: Corporate Strategy

IT Strategist Job

Predicting monotonic events are trivial, whereas,  preciously predicting the continuous non-monotonic events are impossible. For instance, , it is possible to predict that the Sun is to arise on east the next day. Well, assuming that our star, the Sun, is not sucked by an external moving black hole (Yes, black holes can move!! and it was recently proved). The probability for a black hole to swallow the Sun on next day is almost zero.  Like wise, preciously predicting continuous non-monotonic events like weather,stock market for next ‘n’ days are impossible.

Any profit organization events are non-monotonic and preciously predicting the organization future is impossible. but, strategist can define it or approximate it.

A strategist or chief architect can shape up a small state and make it as an empire. Strategist lays a strong foundation for growth and road map to flourish. He (or she) uses abstract and vertical thinking skills to study the past, analyse the current, and approximate the future.  Chanakya, was an strategist, who lived 2500 years ago,provided thought provoking ideas to Maurya Emperor Chandragupta and defined strategy to transform the entire kingdom.

Strategy in an organization starts with people. A strategy can be made successful only if the strategy has an exemplary communication management plan.  In communication plan the following questions must be answered..

  • Why do we have the new strategy?
  • What are the expected results of the new strategy?
  • Will we be successful?

iPod of the car industry

Few years ago, when I saw iPod for the first time, like many, I was stunned for its design, simplicity and quality. I had at least 5-6 different cell phones in my life and each of the cell phone manual was around 150 pages and when I got the iPod few years ago, the manual for that iPod was 2 pages. When I brought up this to my close friends during my Sunday chat sessions, some of them argued with me that iPod  and cell phone functionalities are different and hence the significance in the manual size. Those friends were speech less when Apple came up with iPhone.

I was wondering, why Sony did not come up with something similar like iPod. They dominate this market for so long and why they were not the first one to come up with something similar to iPod.

After some study, as I understand, most of the Japanese companies use the Japanese management style in all strategic and operational management. The key approach, as I understand, Japanese management style is more on consensus building. If there are 5 members in a team, all of them HAS to agree on the direction, approach, next steps before an action is taken. It makes a fundamental assumptions that all the 5 members are subject matter expert and kind of have an idea of the future prediction through approximation.

Obviously this management style is to limit the agility, innovation and time consuming. Statistically, this style proven to produce better quality products. In other hand, quick to market approach management style is proven to be more innovative but lack quality.

In Walter Chrysler biography, Chrysler stated one of main reason for his success and innovation was: make quick decision ,observe the results and adapt instead of taking long time to make a decision and realize it was not the right decision. Historically Chrysler company proven to produce most innovative car product in the car industry. Walter Chrysler management style is other spectrum of Japanese management style.

It appears, based on the recent JD power survey and consumer reports, American cars quality have been improving a lot but long way to go. They are on the right track. Particularly, Ford has been producing high quality product with best fuel mileage in last year. Like Ford, if the other American car companies figure out a way to drastically improve the quality of their product AND keep the innovation which has been in their roots they are going to produce the iPod of the car industry.

I wonder, the Japanese car companies are making any adjustment to their management style to be more innovative to achieve what Sony failed to do so.

Bright Future for Auto-Industry

Simplifying a complex problem by breaking into small solvable parts and using knowledge learned in a driving school during a fatal accident are simplification and abstraction techniques widely used in a practical  world. Have you ever noticed the behavior of a person during  a fatal accident? During an accident, provided the person is not seriously injured and able to think to their capacity, the capacity (volume) and capability (strength) of the person is fully utilized to face and over come the situation. The capacity, capability and the effective utilization of it during the crisis or fatal accident increases exponentially.  If some one deeply think about why most of the people become effective during the crisis is due to extreme focus the brain forces itself to get over the situation. That is ultimatum for some of existing meditation techniques and the same reason why some of the adventures sports like rock climbing are very attractive. It is a kind of enforcement mind brings to mind itself. But at the same time, mind does not perform the strategic analysis  to its best during the crisis mode and that is the same reason why the best supreme court lawyer hires another lawyer when they face a crisis.

How this is relevant to current auto industry?

Well, GM and Chrysler both have had faced a separate fatal accidents.  Both are utilizing their capacity, capability and utilizing it effectively. When it comes to survival, as Maslow theory in the management suggests, your basic needs becomes top most priority and enlightenment are out of focus.  The decisions and execution made in last few weeks generally would have taken decades in their corporate culture. Executive management totally understand how to move forward. With assistance with auto task forces, concessions with unions, agreement with debtors ,reduction in  dealer network, dropping a brand, focus on fuel efficiency and quality  are good signs for a great recovery.

Why a great recovery waiting for them?

Four years ago, US market sold 17.5 Million units per year. This year, industry is struggling to sell 10 Million units. The average car age in America today is 9 years old.  Car purchase is the second biggest purchase a consumer would make after the American dream of owning a house.  Consumer confidence is the key and it is and it will continue to gain slowly for next 9 months and rapidly after that.  The credit market is far better than it was 6 months ago with enough capital infusion to credit market. Introducing better credit standards, oversight and governance, the credit market is stabilizing. The moment a person believes their jobs are safe, the consumer confidence in stock market, retail purchase, credit market will raise and the consumer is going to donate their 10 years old car to charity and buy the fuel efficient (Hybrid, Diesel, Electric) car. Both GM, Chrysler are making tough choices now and getting  ready to meet the huge market demand in 18 months.

Until then, sit tight and be part of the touch choices and move Detroit to new 2011++ future.

Yes I hear you.., I have not written a blog for almost a month.. that is mainly due to my last few weeks focus on completing  the graduate course on Linear Algebra. I had my finals yesterday and thinking about, should I take Dynamical Systems and Choas theory in summer. It will definetely help to model the current economical situation!!!

Big 3’s Product & Pricing Strategy for Cross over

Last Friday, I had a fatal accident. Miraculously no body was seriously injured. I was waiting (moving slowly 10-15 mph speed) in the traffic on the freeway and a pick truck  rear ended me at the speed of  75-80 mph.  This is the second time (first time, a deer came infront when I was on the freeway)  I had a serious accident and this time also He sent help along with the accident. Immediately (within less than 2 mins) after the accident, a medical doctor,a fire fighter and a moral supporter (he works for GM) were knocking my car’s door and made sure I was fine. They were travelling 2 -3 cars behind me and they noticed the accident live in their naked eye.  All of them were surprised I was alive after the accident.  My cross over and his pick up truck were totaled.  I thought none of our air bag went off. But, when I got the accident report from state police, his air bag went off.  I’m back in the market to buy a replacement car.

I utilized this opportunities to study the big 3‘s brand,product and  pricing  strategy. Generally, I try to reverse engineer a company’s strategy by observing and studying their product line, pricing, people, customer services and etc. I would say, my success in the reverse engineering the company’s strategy is Trader’s Joe.  If you are strategy person, you can easily paint their company’s strategy by looking into their unique product line, people in their store and their key differentiators.  I tried to reverse engineer the big 3 product and pricing strategy for the cross over product and compared it with other major automotive.

When I did this study, I had my consumer hat with strategist eye, architect’s view and  project manager’s approach.  My entire findings very well could become a  M.B.A (Corporate Strategy) capstone project. I summarize it in the blog a high level executive version.

Requirements:
Cross over – 6 or 7 seater with high safety rating, leather seat, dvd navigation, iPod integration, 40 gb Hard disk, Phone,  and decent mileage around 20 mpg in high way.

General Motors:

GM has following major division operated in North America:

and Luxurious product

(I’m ignoring their product line like Holden in Australia , Daewoo in South Korea, Opel in Europe, Vauxhall in UK)

Surprisingly all of their division except Hummer has a cross over product.  I made an assumption, that I decided to buy a GM cross over and explored how GM  product line is helping me (motivated and committed consumer)to make my choice. By going over their cross over product from buick, chevy, gmc product web site, I could find one major differences between all these products. Their product names are different. Other than that, I could not identify any other difference in their features offering. There is no differentiators among these products.  I was so confused. I wanted to compare their pricing

GM Cross Over Pricing:
All of these product pricing are in the same price range. A fully loaded Buick is same as Cadillac. Saab, Saturn price spill over to each other. There are too many choices to the buyer with no differentiators.

It is clear that each division within GM is competing with other divisions within GM. I don’t know when these strategy worked successfully. In this web 2.0 and 3G world, even the enemies in the battle field collaborate on common problems.  I don’t know competing internally really is a good strategy. Wasting their energy fighting internal. Instead focus that energy to fight your real external competition.

Conclusion:

  • GM’s individual brand strategy does not appear to be aligned to the over all GM’s corporate strategy
  • GM Cross over product strategy – Neither it is too cumbersome  to reverse engineer it nor there was no cross over product strategy from GM company stand point
  • GM Pricing Strategy – No differentiators among their products. Their pricing spill over between their products. 
  • Confuses the consumer who decided to buy a GM product.

Ford

After Ford’s recent sale of Jaguar and Landrover division to Tata motors, Ford product line is not as complicated as GM. It has the following division.

  • Ford
  • Mercury
  • Volvo

Luxurious product division:

  • Lincoln

Ford division itself has following cross overs.

  • Flex
  • Edge
  • Taurus X

Mercury & Volvo also have cross overs products.  Volvo is utilizing the web 2.0 for the product marketing. They use youtube, twitter, flicker, for their cross over product to create a user community and make them feel good that they own the volvo product and allow the owners to freely collaborate.  It provides insight to Ford/Volvo that what are the problems being faced by the current owners and can be taken into the future models. It also helps Volvo on the preemptive    by closely monitoring the problems faced by current Volvo owners. Great Concept.

Conclusion:

  • Ford’s brand strategy is better and it will become best if they could find a buyer for Volvo.
  • Ford’s Cross over product strategy – It is not straight forward to reverse engineer it. It appears they have cross over product strategy from Ford company stand point. There is a differentiators  in the style, product feature and appearance. There are lot of room for improvement. They still need to make tough choices to streamline the cross over product within the company. Over all in each product line, there should be only three products. Low end, middle ground and high end. They are not there but close.
  • Ford’s cross over product Pricing Strategy – All the cross over products in Ford is in the same price range.
    • Fully loaded Taurus X price is same as the low end Lincoln. There is a price spill over between products.

 

Chrysler

There are three brands under Chrysler.

Since Chrysler announced that they are stopping Pacifica, Durango and Aspen I’m not taking those products into consideration. It means, there is no cross over product Chrysler Brand within the Chrysler LLC company. Pacificais the piooner in the cross over product space and it is unfortunate it will not be continued. I believe the key reason for pacifica not be successful in the market is due to the initial pricing was too high and product/pricing strategist were targeting agains Lexus. It must be a tough decision for Chrysler to stop the great product. I, personally love Pacifica and when I drew it for couple of years in 2004/5 and I made my own sticker and had it at the back of the car. “Pacifica is great and we love it”

Dodge Journey is the only cross over product in the Chrysler product portfolio. Jeep, Grand Cherokee is close to a cross over but it is a SUV.  Fully loaded Dodge Journey comes around $35K.

Conclusion:

  • Chrysler’s cross over product strategy is the best among big 3.
  • Need differentiator (like fuel efficiency or unique style, uconnect is not enough to differentiate )
  • Chrysler’s cross over product Pricing Strategy needs re visitation.  The base price is in correct range.   The fully loaded Dodge Journey price is high.

When I compared the big3’s product,brand and pricing strategy with Honda’s strategy. It is easy to draw a conclusion. If I decide to buy Honda cross over product, as a consumer, I have three choices with clear differentiator. It has CRV, Pilot and Acura’s luxurious RDX & MDX.  There is slit spill over in the price range between Pilot and Acura. It is easy to pick a product from their line if someone decides to buy Honda.

Performing all this study, I bought the same vechicle I had before and this is the thrid time I’m leasing the same vechicle but this time it is clean diesel bluetec technology.

IT Finance Management Framework – Part 3

Typically, the organization structure is,  managers, project managers & senior manager will be reporting to director in an IT organization. Directors will have a functional responsibilities like sales & marketing, customer service, finance and etc.  Managers and senior managers are responsible for the managing the project, lights on and enhancement. For a zero based budgeting, managers of each application area will be required to come up with forecast. The skills required for each managers to come up with forecast are given below.

  • Understanding of over all business process
  • Understanding of their respective business  strategy and their current annual business plan. For ex. if a manager supports call center systems, then that manager must understand customer and service business area’s plan for that year.
  • Understanding of external market condition
  • Understanding of work load in their area in the past and correlation with business strategy and its annual business plan
  • Understanding of technological obsolescence and flexibility of their systems
  • Trend analysis

The above skills will be used to develop the forecast for keep the lights on, discretionary and projects spend for their respective systems, infrastructure, shared service.

it-finance-structure

Each manager will have set of systems to support. Logical group of the system are assigned to an internal order number. Each internal order number will have a set of systems. The light on, discretionary and project spends are allocated for each internal order number.

Only the department level cost center and general ledger (GL) number level cost will be submitted to the controlling office and eventually in to the enterprise financial systems like SAP or Oracle Financials.   The cash budget will have line items only  GL level (like employee, contractor, and etc) , director level consolidation of GLs and department level consolidation of GLs.  The rest of classification like lights on , enhancement, internal order number and etc are just allocation within the ITM budget for better understanding and reporting.

This step completes the creation of budget for the IT organization. The next step is to track the actual and report to stakeholders. The next part will focus on tracking the actual cost and reporting it to the various stakeholders.

Management in business – Not a precision engineering

I observed few management team members  got into the trap of making management in business, a precision engineering.  Philosophically, I completely differ that management in business can’t be precise in a corporate environment. Due to office dynamics, politics, internal and external uncertainties, management in business is all about approximation but not perfection.

In most of the cases, the practical approach should be : “THINK BIG, START SMALL, RUN FAST”

Technically, management in business can be precise but it’s very expensive. I had read few dynamic programming papers published from Nasa on how the project schedule conflicts are resolved using various optimization theories. Those techniques were published as a research paper. While management in launching a rocket to outer space business need precision engineering but, for instance, when you create a draft project charter, you do not.  Corporation should not be spending their time to make it perfect when they you are dealing with uncertainities. I understand, plan is nothing but planning is everything. But when a project lacks clarity on its scope, don’t spend  time on planning but use it wisely to improve the clarity of the project.

IT Vendor Risk Management

IT vendor risk management is a component of over all IT risk management. In my previous blog on over all IT risk management, there is a comment from pmhut  to expand each component of the IT risk management.  Let me expand my thoughts on IT vendor risk management and provide a framework to develop the IT vendor risk management.

Steps to develop a IT vendor risk management plan:

  1. Develop a consolidated list of all IT vendors
  2. Categorize the vendors broadly
  3. Prioritize the vendors in each category based on the type of business you are in. For instance, if IT supports retail business, the Point of Sale is key functioin and the vendors supporting that line of business is very critical to the day to day operation. It will have top most priority than any other vendors.)
  4. Identify the potential risk of the vendors
  5. Analyze the potential risk of the vendors
  6. Develop residual risk matrix
  7. Monitor the residual risk matrix and repeat from step 4.
  8. Report the residual risk matrix to CIO office periodically.

Step I: Develop a consolidated list of all IT vendors

Get a IT vendor list from corporate purchase/procurement department. Make sure the following information are available

  • Account representative contact information – Office Phone, cell phone, snail address, email address
  • Investor contact information – Depends on the type of the company – corporate, partnership, properitary and etc
  • Client list

Step II: Categorize the vendors

Types of vendor involved in a typical IT organization.

  • Sourcing provider
    • Alliance provider (like out sourcing provider)
    • Human resource provider for in sourcing. It is generally for time and material model for 6 months to 1 year engagement
    • Consultant provider for insourcing. It is generally for time and material model for a specialized role for a very short time.
  • Software provider
    • Enterprise software system provider (like SAP, Peoplesoft, Fidelity and etc). Enterprise software system depends on the type of business.
    • Office software (like MS Office,and etc)
    • Specialized software provider  (for instance, in the financial industry, quantum is a specialized treasury software provided)
  • Service provider
    • Infrastructure service provider (in most cases, it includes all the system software like OS, database and etc)
    • Research consulting service provider (market research and etc – like gartner.com, executiveboard.com)
    • Specialized service provider (depends on type of business – credit score card development provider and etc)

Step III: Prioritize the vendors

Prioritize the vendors based on their dependencies to the core IT operation. It depends on the business you are in. If there is alliance provider to performing lights on support to an IT organization, then that provider play a vital role in IT operation. For an instance, if it is financial administration company (like financial out sourcing) then their enterprise application like SAP financial plays a major role to perform their core operation. 

 Lately, almost all organization utilizes the outsourcing company to provide lights on service to the core IT operation.

Step IV: Identify the potential risk of the vendors

Sourcing provider (includes alliance and out sourcing provider) is taken as an example and the associated risk are identified. The similar steps can be taken for other types of vendors.

Service level risk

Measure the performance of the provider against the objective set in the beginning of the engagement.  In some cases, the sourcing provider is selected to provide partnership or alliance to improve innovation or business consultation or value creation and few other cases, the provider is selected to provide the on going lights on support. In my example, I will assume the provider is selected to provide the on going lights on support. The typical performance measure for the lights on support are given below:

  • Service quality
  • Service delivery time
  • Missed service level
  • Response time
  • Resolution time
  • Problem repeatability rate

For an outsourcing engagements after the due diligence and contract and terms & conditions are agreed by all parties, there are two major phases. Transition phase and stabilization phases. The sample performance measure listed above will be used for the risk identification after the stabilization phase.

Receive the trend data for the performance measure and compare against the original agreement with the provider. Develop a variance analysis and repeat the cycle. If there is a negative variance in the measure for a prolonged duration then there is an issue. There is a risk that provider to continue under perform and impact the core IT operation.

Vendor Financial stability risk

I would not have come up with this as one of the potential risk item before Satyam scandal. I would not had  even considered it before the scandal. 

  • Participate in quarterly earning call
  • Study the provider balance sheet
  • Study the probability of liquidation or solvenacy
  • Identify your contribution percentage to the provider’s bottom line
  • Identify their auditors reputation

Vendor strategy risk

Request vendor to provide their corporate strategy and make sure their direction is aligned to your expectation of their service. If provider corporate strategy is to out of service business and sell software products, then organization currently receiving provider’s service need to know that. There is a risk that the provider will not focus on the service in near future and their service quality will deteriorate

Vendor cultural risk

It is a philosophical discussion. It depends on the philosophy you believe in. Few believes, same behavioural partners will lead into the strong longer marriage and few believe the opposite. I have an unpublished paper on “Q-learning algorithm for a quick and better mutal understanding of marital partners in the east Indian arranged marriage culture”. Two years after my arranged marriage (I saw my wife a week before my marriage) I wrote this paper. This paper assumes that both partners have commitment before the marriage that no matter what happens, they are going to make their marriage successful. 

I will leave the vendor cultural risk assessment up to your belief. Whatever your believe, the vendor cultural risk must be assessment.

Vendor Geo-political risk

Majority of the outsourcing players are from India. Geo-political risk for an outsourcing project has been a factor all the time. When it comes the analysis of the risk and probability of occurance, it used to score very low. In the recent past, as mentioned in my previous blog, it is elevated.

Vendor take over risk

In the financial world, when a small fish swims with strong cash gills, the big fish will swallow for good.

The above identified risks are  the major risks I could think of. There are few risks like provider employee retention and etc.. Those risk can be amplified based on type of organization you are in. I heard many times that business knowledge like electronic fund transfer knowledge will be lost if the provider keep losing their employees. In my opinion, those are very insignificant risk because eft can be learned by any programmer very quickly. However there are areas like 3D drafting package development out sourcing. Systems like this needs extensive analytical geomentry mathematical knowledge, programming language knowledge, device drivers knowledge and etc. It is very difficult to get people with all the skills. Mathematicians with extensive computer engineering hands on experience with executive level communication skills.  The initial training for these kind of development would take 8 – 10 months. These are rare cases and I’m not going to expand.

Step V: Risk analysis

All the above identified risk should have:

  • Probabaility of occurance
  • Cost of business impact if the risk becomes an issue
  • Risk treatment
    • Avoidance
    • Reduction
    • Transfer
    • Retention (accept it)
  • A plan for avoidance, redution and transfer risk treatments

Step VI: Residual Risk Matrix

The residual risk matrix is a consolidated vendor risk exposure to the organization.

Step VII: Monitor Residual Risk Matrix

A dedicated team and process to monitor the residual risk matrix of the organization.

Step VIII: Reporting

Report the RRM to the CIO, steering committe and operating committe of vendor management for a proactive informated decisions.