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Resource Reallocation: the current crisis

"A recent study of more than 200 large enterprises by McKinsey found that the reallocation of resources to faster-growing segments within a company’s portfolio of businesses was the largest single driver of revenue growth." --Donald Sull.

We have been working with clients on this subject, using a "reasoning process" for decision-modeling and simulation of the Resource Reallocation problem. The challenge is how to redeploy resources in the areas of the business that generate the greatest benefit towards meeting the changing organizational objectives--effectively a "cost-benefit" approach to resource reallocation.

 

Decision-making today and the implications to "the other side"

Download quicktime animation of slide

We see a major shift to "cost reduction initiatives" during this extended downturn. In many businesses this is the only thing people are doing now. Development, innovation, investment and the future seems to all be on hold.

Using cost-benefit analysis is key to knowing what to keep and what to kill. Further, making these decisions, without considering the implications to strategy, when we come out on the "other side" of the recession, is short sighted and can potentially have devastating effects on future business growth.

Drive with "both feet"

 

Great interview with Donald Sull (London Business School Professor) that played yesterday on the public radio program "Marketplace." He talks about business opportunities during the downturn.

Of particular interest to me was his driving analogy. He said that when the economy/business is good, managers drive with their foot on the accelerator full throttle, paying little attention to spending. But when business takes a dive (like now) they jam on the brakes. Rather, Professor Sull suggests driving with "two feet" during this down turn--tapping on both the accelerator and the brake. Only then he says will people see the opportunities available.

I really liked this idea. We are seeing major "whiplash" in and around Silicon Valley as companies hit the brakes. I think the damage they are doing now through this violent (all-or-nothing) slow-down (to a stop) can have long term implications for the way they do or don't emerge from the recession. My greatest concern for some is the way in which everything stopped, even the good stuff. There seems no sense of moderation or control--perhaps this is the definition of "panic?" This is why it is important to prioritize operations so you know where to cut, versus cutting all (i.e. brakes and accelerator).

Breaking the inertia of inaction, Intel leads by example

Inertia: "The tendency of a body to maintain its state of rest or uniform motion unless acted upon by an external force."

 

Intel's announcement yesterday by CEO Paul Otellini is a great demonstration of Leadership-by-Example. It was nice to see Intel taking a leadership role yesterday with their announced $7B re-investment program. Clearly they are planning for the time when we come out of the abyss.

It is difficult, especially now when spending has been eliminated, to get people to fix problems before they occur or improve efficiency for the time when the demand will increase. Rather, many organizational cultures reward people who arrive heroically on the scene at the last minute to save the day in the mist of the crisis.

Force Field Analysis & Decision-Modeling to focus on what to change first

Download a quicktime animation of force field analysis (slide above)

This is an example of applying Force-Field Analysis (FFA) to a cycle time reduction problem. The idea is that you remove resisting force to create change (i.e. movement), rather than working on the driving forces. Remove resistance rather than push harder. This use of FFA is an example of how we used decision-modeling to determine where to focus an intervention effort to get the maximum return on the investment.

cost-cutter-TOOLBOX

An example of the daily news illustrating the point that "change" is more than a campaign promise...

Clearly the technology world is changing. Each day brings news of consolidation, reallocation of resources, and fundamental changes in the structure of companies around the world.

We have observed revenue and operating margins falling at an alarming rate in the past two quarters, with each successive quarter worse than the last.

Re-emergence of re-engineering

Download Business process improvement flow (quicktime animation)

We have recently seen the re-emergence of re-engineering as companies search for ways to optimize and rationalize their operations in order to cut cost.

We were deeply involved in re-engineering in the mid-1990's during the height of that "consulting craze" which was lead by the guru of process redesign, Michael Hammer.

A.M.P. Program

I was reminded today of a "program" my old friend Bob Biddinger told me about years ago, during that last major technology down-turn in the early 1990's.

He developed a "program" at Seagate in the mid-1980's which was inspired by Al Shugart (one of Seagate's founders). Bob and the other thirteen founding members of Seagate used the A.M.P. Program to "motivate" that first batch of employees in Scott's Valley.

AMP PROGRAM:

• Adapt, or

• Migrate, or

• Perish

Given the current difficult economic times, perhaps the AMP Program could come back in fashion! The operative concept is the "A" part of this! At Seagate, they said "adapt (i.e. change) or leave or stay and get killed."

A management simulator... what to cut in order to achieve the maximum benefit from the remaining resources?

A majority of our clients are, at the core, engineers or scientists--willingly or unwillingly forced into executive leadership roles. This is the norm in the tech-business.

A client said to me recently, "our executives just want to work on everything and don't want to make the hard decisions to kill anything." He went on to say, "we are at a point financially were the gap between what they want to do and what can be done with available resources is just too large...it is a point of departure for us were something must be done."

Reduce (the right) costs quickly

Given the current economic uncertainly, one more question to add might be:

 What if my next quarter forecast is looking overly optimistic and we will need to cut more, faster? ...Which ones and how?

We've implemented a Cost Leadership Initiative (CLI) methodology that combines decision analysis (to select the right cost reduction projects), a common planning methodology (to get consistent project planning and tracking), and a reporting system (to manage the execution) so that savings are achieved on or before the target commitment dates.