Proactive Management vs. Mismanagement
Have you ever worked with a Chief Executive that prides on a large entourage of managers under his command with little much to show for their achievements?
I am sure, you have. If not, let me introduce you to one such high-flying CEO of a pharmaceutical company that I had the responsibility to shake up. In turn, he ended up with a lesson in Business Management that he may never forget.
This C.E.O. was a well-known Doctor with a roaring practice that kept the company going. He enjoyed a very high level of reputation, built upon his father's Medicine practice for almost four decades. In addition to his regular practice, he also ran a fairly well-known herbal products company. Naturally, customers across India paid higher prices for his products due to the trust factor.
Before I go any further, please allow me to mention that I enjoyed great friendship with him for many years before he once proudly invited me to visit his company. I suspected his reason for this surprise move was a feeling of superiority as I had made a quantum jump in my construction business, with projects in progress around the country.
Little did I know I will run into a totally messy operation where imaginary success took precedence over Lean Management. What change did I bring over the course of a severe three-month long overhaul of both the systems and the management?
The company multiplied its Market Cap threefold within a year.
From here to there, a glimpse into the journey:
The Year 1987-88; City: New Delhi, India.
Industry: Herbal Cosmetics and Personal Care Products,
Yearly Revenue: Less than USD Five Million per annum
Challenge: Multiple weaknesses, crying for a Bitter Pill
The solutions I recommended, and later applied
1. Streamline overall management by taking its focus away from immediate gains, and induce forward thinking supported by proactive decision-making
2. Help eliminate private contractors and consolidate production from 12 far-flung, smaller contractor-owned units to a single, company-owned, and operated entity to produce the entire range of products under one roof, with a constant and consistent quality control regime
3. Design and implement a laser-sharp marketing strategy
4. Introduce and enforce cost-efficiency benchmarks as a prerequisite across the board
5. Streamline Management Policies, Procedures, and Effectiveness
6. Identify and enroll capable Vendors to keep pace with growth projections
7. Introduce globally acceptable, export-oriented packaging solutions
8. Explore new, export markets
9. Draw plans for the long term, supported by both short and medium range goals
10. Implement advanced procedures for cutting-edge solutions to the daily challenge
11. Gain international exposure for its high-quality herbal, personal-care product line through active participation in Trade Shows in target markets, and last, but not the least
12. Show a quantum growth in both Y-2-Y Revenue and Profits
My first and foremost task was to sit down with the C.E.O. for an hour-long brain-storming session at which point a meeting was set-up with the GM, the Sales Manager and the Channel Distribution Manager that also acted as the Marketing Manager.
Too bad, they had neither a Production Manager in place nor someone responsible for quality control, leaving it up to the hard-pressed General Manager who happened to be a Pharmacist by training. Another missing component in the management team was an experienced Purchase Manager.
The meetings confirmed to me what I had suspected in the beginning: a lack of communication concerning crucial trigger points in production, sales, staffing requirements, and the latest market stats. They had all been living in an imaginary lead role, without any idea of the fast-growing competition. They were happy because the business was ‘booming,’ with scant regard to the levels it could reach after a drastic makeover.
I could see a massive opportunity for both quality control as well as cutting raw material wastage at so many locations through consolidation. Not only that, such a bold initiative would help the company keep track of demand and supply.
We could proactively match the production levels of each product in line with market demand. Once applied, this system would help control both shortages as well as overstock situations and bring in Lean Management.
The second necessary drill I introduced was a Daily Morning Management Meeting for 10 minutes to discuss updates, challenges, targets (yes, I pushed them to set daily goals for each department head.)
Next in line came the Purchase Department where I analyzed their entire purchase process of raw materials, packaging materials, stationery, marketing materials like brochures and information leaflets from A to Z. Identification of alternate Vendors helped me tremendously in routing out favoritism and bringing down the cost of almost every item of purchase.
One significant advantage of such a move was the resulting free flow of capital stuck in unnecessary purchases. Just-in-time receipt of specific raw materials helped inventory control issues.
I rescinded all the contracts with transport contractors that acted as the bridge between production units and the company warehouse. This action alone helped me cut sizable, unexplained losses in transit.
The Sales Manager had been running the entire sales Operation with only 5 Salespersons to cover the whole country. They only reported to the Head Office once a month and that too for just a day or two at the most. On the other hand, the ‘Marketing Manager’ was acting more as a Financing Manager (not the Finance Manager) through his paramount role of taking advance deposits from Regional Distributors as per necessity.
Instead of the company raising funds through proper channels, this manager brought in funds by doling out arbitrary favors to these distributors. Such unethical conduct, duly patronized by the C.E.O., put the company in a precarious situation, as every significant decision needed prior approval of these self-centered ‘financiers.’
Lack of proper feedback from the market, combined with delayed transmission of crucial information to the salespersons, had a significant adverse impact on the overall performance of the company.
The system I put in place brought market intelligence into proper focus. This exercise, despite a lot of resistance, brought huge rewards within a short span.
In my scheme of things, elimination of five Regional Distributors (East, West, North, South, and Center) led to a network of 20 Statewide Exclusive Agents with specific Performance Targets. Such a move gave the Head Office a much better pulse of the prevailing market conditions as well as various competitors. No wonder, the grass-roots information thus gathered led to many dynamic changes for the better.
I re-organized the entire Sales Department and helped the company register a massive growth by hiring anywhere between six to ten Resident Sales Representatives in each state, depending upon the size of the territory.
I also made it obligatory for the Sales Manager, and his newly hired Assistant Manager to travel across the country at regular intervals, and seek both market updates, and consumer feedback.
The existing Salesmen were promoted to the rank of Team Leaders in-charge of their specific territory. Their on-the-job experience earned them the right to a better pay structure and an override commission on their teams’ performance.
This way, reorientation training for the sales staff became much more relaxed and helped generate growth.
The above move quadrupled the company’s revenue within three months of launch, and that too, without any dependence on the previous Distributors’ funds. All the above became possible with a single act of eliminating Credit Facilities for the Dealer/Distributor network. C.O.D. (Cash on Delivery) supported the transition.
One month of my on-the-job involvement followed by three weekly visits, one visit after three months and another after further three months brought the company to a stage where they successfully participated in an International Trade Fair and bagged orders from foreign buyers to the tune of 6.5 Million Dollars US.
Before the end of the year, the company in question became a darling of the Stock Market as Joint Venture partners started knocking on its doors.
The above is an example of my hardcore management techniques learned in one of the most rigorous training grounds of all, the 'School of Hard Knocks!'
Fortunate enough for me, this was not the last time I handled (with care, of course) some other businesses that failed to see beyond the immediate because of their whimsical approach further worsened by their tunnel-vision support teams.
Please keep tuned, as I will be sharing a few more of my encounters with mismanagement in North America, in the modern-day society where instant communication is the norm rather than an exception.