A system overwhelmed by innovation

The stunning scale of the interventions under way in financial markets – barely imaginable just weeks ago – make it seem that nothing will ever be the same. A crisis so grave, so weighted with ideological implications, must point to a grand political realignment, with much of what we thought we knew about the role of governments and markets overthrown. So it is argued, and so many people hope.

It is possible. It happened after the Great Depression. But I doubt that this crisis will change the world anything like as profoundly. In the end, I doubt it will even overthrow much of the conventional wisdom about states and markets.

In thinking through the parallel with the 1930s, the important question is how far the financial emergency will infect the rest of the economy. The Depression changed the US and the world because it wrecked the lives of countless millions of people.

The US and many other countries face a bad recession – but surely nothing to compare with that sustained catastrophe. Ragged as the response to this emergency seems, we will look back and say that, compared with previous crises, the remedies were both prompt and massive. Notwithstanding the past few weeks’ arguments about how to stabilise the situation, we will also say that consensus was achieved with surprising speed – and that the willingness to support it with sufficient resources (meaning without limit) was never really in question. In short, the mistakes of the 1930s are not being repeated.

Sorting out the details of the response will be messy but the principles are now clear and policy is forming around them. First, address illiquidity in the market for mortgage-backed securities. Second, inject public capital on a huge scale, drawing in new private capital at the same time. Third, revive the inter-bank market with temporary guarantees. Fourth, especially in the US, step up efforts to slow mortgage foreclosures, to relieve the distress and stop house prices undershooting.

Britain was first to put most of these elements in place. It helps to have an impotent legislature. The US administration has to ask Congress first, so these things take a little longer. Washington will argue about whether the rescue package, together with the Federal Reserve’s existing powers, leave enough wiggle room for all of the above. But Hank Paulson, reeling from this week’s turmoil on Wall Street, is on board. Those four complementary parts, backed before this is over with a trillion or two of taxpayers’ money in the US alone, have every chance of limiting the damage to the real economy to a bad recession, as opposed to a new Depression.

One can also predict the central feature of the post-crisis regulatory regime. It was suggested on this page on January 31 by Charles Goodhart and Avinash Persaud: contra-cyclical capital requirements. The basic idea is simple: force banks to build up capital faster when their lending is expanding most rapidly. Financial busts almost always follow credit booms. Contra-cyclical capital requirements tax the expansion of credit and build a bigger cushion for any bust.

Very many other issues will need to be addressed, of course, including the meaning of the term “bank” for these purposes (it will have to be widened); regulation of derivatives; regulation of mortgages; and opportunities for international regulatory arbitrage (which put a premium on, at a minimum, closer co-operation among national regulators). Still, when all is said and done, contra-cyclical capital will be the central idea.

Suppose that the US and the world escape with a bad recession but no worse, and that a new regulatory system – one that shackles lenders more tightly in good times – is put in place. Where would this leave the underlying argument about state and market, and the prospects for government intervention in other parts of the economy?

My guess is: rhetorically adjusted, about where it was before the crisis. This is because countervailing forces are in play, limiting any net effect.

The intellectual climate has already moved decisively in favour of market-sceptics. Until further notice, pro-market triumphalism is over. In the US, most likely, Barack Obama will be elected – not just because of the crisis, though it helps – and he will have big Democratic majorities in Congress to help him govern. His stump speech ties the emergency to deregulation and “trickle-down economics”, the outgoing doctrines. All that is history, he says.

We shall see. Mr Obama’s laudable ambitions to extend health insurance to all Americans, to refurbish the country’s failing infrastructure, to make a college education affordable and to cut nearly everybody’s taxes will run up against the amazing demands that the rescue will place on present and future taxpayers. The fiscal mess left behind by the Bush administration makes the problem much worse. Supposing he wins, the intellectual climate will be strongly on Mr Obama’s side; the fiscal climate, and taxpayers watching these bills fall due, will not. Circumstances will force the next president to be a fiscal conservative on matters other than temporary stimulus and financial stability.

There is a broader point. The financial crisis was indeed a failure of regulation. The system was overwhelmed by innovation. Regulators are going to have to catch up and, you could say, try to hold innovation back. But finance is not a normal industry. The question to ponder is this: in which other industries will curbing innovation – also known as market forces – strike governments or voters, in the US or anywhere else, as a good idea?

Source – FT.com

Comparing Lean Six Sigma Program to Integrated Enterprise Excellence (IEE) Business Governance System

Organizations can go beyond Lean Six Sigma and the Balanced Scorecard with an Integrated Enterprise Excellence (IEE) business governance system that can transitions organizational firefighting to moving toward achievement of the 3 Rs of business; i.e., everyone doing the Right things and doing them Right at the Right time. A table that compares these systems is referenced below.

Six Sigma is a term coined by Motorola that emphasizes the improvement of processes for the purpose of reducing variability and making general improvements. Lean is to improving operations and the supply chain with an emphasis on the reduction of wasteful activities like waiting, transportation, material hand-offs, inventory, and overproduction.

Lean Six Sigma is a project based process improvement program. Lean Six Sigma is not a business system. Often a Six Sigma deployment evolves to a hunt for project system; e.g., we have someone going to training next week and they need a workshop project. This push-for-project creation often can lead to organizational suboptimizations and much wasted efforts; e.g., I am having trouble getting my project completed, nobody seems interested.

The balanced scorecard tracks the business in the areas of financial, customer, internal processes, and learning and growth. Each category is to have objectives, measures, targets, and initiatives. Scorecard balance is important because if you don’t have balance you could be giving one metric more focus than another, which can lead to problems. For example, when focus is given to only on-time delivery, product quality could suffer dramatically to meet ship dates. However care needs to be given in how this balanced is achieved. A natural balance is much more powerful than forcing balance through the organizational chart using a scorecard structure of financial, customer, internal business process, and learning and growth that may not be directly appropriate to all business areas. In addition, a scorecard structure that is closely tied to the organization chart has an additional disadvantage in that it will need to be changed whenever significant reorganizations occur.

Organizations are now finding an Integrated Enterprise Excellence (IEE) system to be very beneficial in overcoming traditional Six Sigma deployment issues. The IEE system goes Beyond Lean Six Sigma and the Balanced Scorecard.

IEE is a business system that has unique measure (30,000-foot-level tracking system), analyze, and improve components so that organizational measurements create a project pull system, where defined projects benefit the business as a whole. IEE is a system that structurally blends innovation with analytics and truly integrated Lean and Six Sigma tools both at the project execution and enterprise management as well.


Source – smartersolutions.com

Why Quality Teams (CAN) Fail

It is hard to talk about Quality as it relates to today’s market condition…where do you start.  But as I read through a recent Wall Street Journal article, ”SEC Faulted for Missing Red Flags at Bear” I couldn’t help but to draw parallels to a firm’s Quality team.  The article states that the “SEC simply failed to carryout its mission in its oversight at Bear Stearns”.  Under Mr. Cox’s (the SEC chairman) watch, the agency no longer has large firms left to oversee; Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley and Goldman Sachs have either gone bankrupt, been bought-out or morphed into a new entity.  The root causes of the failure discussed in the article were:

1. That the SEC did not have enough authority to effectively oversee the banks

2. Enforcement cases were stalled in part because the agency’s staff were asked to jump through additional loops

3. The idea of rapid deregulation (change) and having enough staff to keep up with audits was briefly discussed

Oddly enough these are the root causes for the failure of any once-healthy organization.  So it goes for the Quality team of a firm that is falling apart before the team can even take form.  This team is put in a position of leadership without any authority to drive change…textbook case of a paper tiger.  The Quality leader is given the charge to drive improvements and changes across the organization.  But the speed and the quality of the change are suffocated by the various committees and subcommittees that have to buy in before anything is accepted.  The concept of leadership is totally lost in the process.

Because leadership is afraid to take a decision, various layers of red tap are introduced.  And before you know it what was once the right thing to do for the company (based on data) has morphed into something unrecognizable.  As we sit (literally and figuratively) on the side lines and watch, we cannot help but to feel sorry, helpless and frustrated for the Quality team.  We know it is just a matter of time before the whole concept gets abandoned.  What once was a good and necessary idea (an independent team to drive unbiased change) is cast aside because the foundation (read leadership) from the start was weak (read not completely on board).  This the most unfortunate and also the least  controllable outcome from an external consultant’s perspective.  If anyone has ideas as to how we can combat this please share!


Source- Asq.org

Looking beyond the obvious

Americans tend to be a “roughly right and let’s get on with it” culture—though they often see themselves as quality-seeking perfectionists. Take a look at just about any American company’s vice- president of Quality or vice- president of Customer Experience. You know he or she is never going to be the CEO. Even after a generation of Six Sigma, ISO’s, and CMMI’s, America is still famous as the home of the “80 %.” Get it 80 % right, put a price tag on it, and get it out there.

To be honest, it’s not quite that simple. This description of American culture has subtle layers of complexity. As with all cliches and generalisations, there’s some truth here. Take Ford and General Motors. They’ve been losing market share in cycles to both Toyota and Honda for years based to a degree on perceived quality. But as recently as mid-2007, Ford scored higher on its overall quality than any car company in the world, and GM has been scoring among the top three in consumer-ranked quality surveys on some of its cars.

And, of course, in leading edge IT technology, America continues to be, by far, the world leader in quality in hardware, software , storage, printers, and services. In the world of airliners, severe quality problems in the electrical systems on the grand Airbus 380—the proud centerpiece of Europe’s half-public-half-government controlled consortium—set back its delivery schedule more than a year and helped the US’s Boeing Aircraft Company, which had been sagging, recapture market leadership. An impressive comeback, even as Boeing faced its own, though less severe, delays in rolling out its new Dreamliner 787.

So Americans do strive for perfection, for excellence, for superior quality, for CMMI Level 5, and for Six Sigma Quality. And they can be dammed hard on suppliers, vendors, and partners who don’t deliver at the level they want.

But what tends to happen is this: as the product or project moves close to completion, the role of the technical and quality people gets less and less attention. At this point, the marketing, advertising, and sale teams have the spotlight—and to a degree, the power. They’ve created advertising campaigns, marketing roll outs, speaking engagements, beta demonstrations, and they’ve set dates. This huge “go-to-market” people are better looking, better dressed,and much better presenters and social schmoozers than the technical team.

But this is still only part of the picture…..

My observation is that the key differentiator behind American success is flexibility. Sometimes this requires moving ahead with an 80 % solution, sometimes it means going for Six Sigma quality. The British are good at this, too, but their stubborn, muddle-through confidence keeps them wedded to the original plan a bit longer. The Germans are so good at anything they do they are loath to change course; the French (who are very hard workers) labor for a higher God who doesn’t seem to care if they have a plan or not; and for the Japanese, the plan has been so well conceived it practically is a God.

The Chinese can move very quickly, but their entrepreneurial flexibility is not yet clear to me. Flexibility is a special type of genius. Whether Americans push on to 99.999 % quality, or “put a fork in it and serve it up at 80 percent solved,” their ability to make this decision in near real time has worked well so far. It is the underlying reason that a country of only 300 million people, 17 % of whom are over 60 years old, generates a $12 trillion economy.

Where does India stand in the “flexibility” spectrum? My sense is “very high.” After all, India has grown its software services and software-enabled businesses from almost nothing to upwards of $50 billion in the market capitalization of its top four IT players (TCS, Insosys, Wipro, Satyam) in less than 25 years. They are even outsourcing some of their work to China

Distinguished executives such as Symphony’s Ajay Kela, MindTree Consulting’s Subroto Bagchi, and HP’s Dilip Phadke have spent so much time in the US that talking to them gives you a feeling that you are talking with American executives. The difference is they are more deliberate and precise in what they say and how they explain complicated issues.

My very cursory observation is that Indian IT professionals in general, perhaps because of their advanced technical educations, might tend to analyse a problem from four different angles while Americans will look at it from just three angles, and then run out the door and start selling it.

And of course the more enlightened Indians and Americans will realise that the problem in front of them is actually part of a larger issue, and then search for ways to satisfy or surpass expectations. Then there are these telling…

words from Pavan Varma’s book: “Whether in India or abroad, Indians have one quality which has stood them in good stead: resilience.”

One last thought abut Americans and how they often appear to be lazy and irresolute—particularly in popular films, music videos, and sometimes in real life. How can this be in a country that generates a $12 trillion economy? Of course, ask young Chetan Bhagat what he thinks of Americans, and the author of the popular book One night @ the call center will tell you by way of a rant from one of his book’s characters, six-foot tall Vroom. Vroom works on the night shift at a fictional call center called “Connexions,” where they handle service calls for their client, the fictional company Western Computers and Appliances. On this particular night Vroom has had to listen to complaints from one too many Americans: “There are two things I cannot stand,” he says. “Racists and Americans.” Ignoring the obvious contradiction of what he just said, he goes on: “Why do some fat-assed, dim-witted Americans get to act superior to us?Do you know why? I’ll tell you why. Not because they are smarter. Not because they are better people. But because their country is rich and ours is poor. That is the only damn reason.”

Source – financialexpress.com

Innovation can drive your growth

Want to become a market leader? If your business can use innovation and target a new market, or change its market position, the best leader in that niche will be a natural choice.

If you are producing the same product or service as everyone else, you are destined to end up in a commodity market competing around promotions and price.

Unless you happen to have the benefit of economies of scale or preferential access to low cost components or ingredients, your profits are always going to be marginal and growth is going to elude you.

Only by moving away from commodity marketing and building a sustainable competitive advantage can you start to push your price and margins up. In the end, you need to be a market leader in a highly targeted market with a product that solves a compelling need to provide the fuel for growth. This is where innovation plays a big role.

Innovation, in its most basic form, is simply bringing something new to a market situation. It is more than invention, although many products brought to market are based on new knowledge.

Innovation changes a market situation by upsetting the established order, by finding new ways to solve old problems, better ways to solve an existing problem or new ways to bring established products into the market. Innovation can be though product features and design, new processes or new business concepts.

The advantage to the business that uses innovation to change its market position is that it gets to lead the market in some dimension, which plays well to a segment of the market who desire that differentiation.

By tapping into an unmet need it can establish a higher price, higher margin and capture market share. Providing this is done in a sustainable manner, such as through some form of protection, that new market share can be held for some period of time.

Thus copyright, patents, brands, trademarks and licenses are strong forms of innovation protection. Other methods such as loyalty schemes, long term preferred supplier contracts, embedded operations and control over channels to market can also form barriers to competition.

Innovation, however, needs to be directed towards solving a specific problem in the market that can create this leading position. The aim should be to target innovation around problems that can form longer term barriers.

A focus on difficult to solve problems, problems that have a sense of urgency about them or are associated with meeting compliance requirements, will always drive higher market growth. Incremental innovation which simply keeps pace with the competition will not drive growth in its own right.

Although it is very tempting to see innovation as a logical extension of existing product specification, it only protects what has already been achieved but it doesn’t capture market share from competitors or gain a greater share of a growing market. So while all innovation has an impact, it is the bold innovator who will change the game.

Smaller companies are better suited to differentiated niche markets where specialised solutions can give them a protected market, but also allow them to set higher prices. In this context, innovation driven through customer feedback, internal research and development and market scanning, can bring forth periodic improvement in products and services to keep them in a leadership position.

What is very clear is that without innovation, a leadership position will never be established nor maintained.

Source –