How's my Luck now?

Reflections, views and descriptions during my stay at IIM Lucknow from July 2004 to March 2006

Name:
Location: India

Saturday, February 26, 2005

Farewell

The second-years have been done with their studies for over a week now. We had a 'Rendezvous' programme with the senior batch in the Commercial Plaza yesterday. Although I was there for all of 10 minutes only because of a lot of work, it seemed to be good fun. The seniors were enjoying themselves, making fun of each other. In a few days from now, it will be time for them to leave.
The most significant part of the evening for me was, of course, the dinner, which was arranged in association with Lucknow's Dastarkhwan restaurant. The food was fairly good and the imrati-rabadi dessert was excellent.

Tuesday, February 22, 2005

Rage

We were having a Marketing case discussion today in our group. There was a point there which none of us could understand the necessity of. We tried to rationalise, but one of our friends was not quite convinced. I tried to explain to him what we meant, but probably didn't do it too well. I didn't like the tone of his response, and I became extremely angry at him. I don't know where that rush of blood (or 'ROB factor' as Sunil Gavaskar calls it) came from, but I was almost shivering with anger. That caused a mental block for a few minutes thereafter. I must learn to control irrational anger, because it is to no one's advantage. Normally, I feel angry very often, but in most cases, I am able to get over it very fast without letting it show. Unfortunately, this wasn't such a case.

Friday, February 18, 2005

'Necessary but not Sufficient'

Yet another Eliyahu Goldratt novel that I have just completed. This time, he has co-authored it with Eli Schragenheim and Carol A. Ptak (The North River Press, 2000). And this time, they have officially sub-titled it 'A Theory of Constraints Business Novel'. This book extends the scope of TOC the farthest it can go.
This book is not quite as gripping as the earlier ones because there are a lot of dialogues that are not strictly required and are quite beside the point, in my opinion. There is also a self-congratulatory tone and some publicity about the effectiveness of TOC. However, the book succeeds in driving home its point.

I'll try to summarise how the novel pans out:

At the outset, it seems to be a novel on high-technology companies, as it starts with a scene in a leading ERP vendor BGSoft's office. This company was founded in the early '80s by Scott Duncan (the visionary) and Lenny Abrahms (the mathematician and ace programmer). Lenny coded their first software package, which was for Material Requirements Planning. Over the years, new modules were added and it evolved into an ERP package.
They partnered with a single company, KPI Solutions, who acted as their system integrators or package implementors at client sites. They had a unique selling tactic. They contacted and won over the technical staff of prospective clients even before the client had requested for any proposals. This way, they got their software's features to become the standard specifications asked for in the RFPs of the client, and so became the preferred vendors. They also ran most implementations on time and within budget.

The top management is now worried about exhausting their main market - the large corporations. If that happens, they wouldn't be able to maintain a 40% growth rate that they were doing currently, and their share prices would plummet. Just then, one of their clients questions them on the exact bottom-line value that their software provides them. Now, they are at a loss. The 'business justification' that they normally give their clients just doesn't translate easily into a higher bottom-line figure. So they start thinking, and come up with the answer - TOC techniques.

Each feature of their software has become so cluttered that any addition of new features takes a lot of time. With the simplicity of TOC techniques however, they actually manage to simplify their code and still achieve great bottom-line results in one of the divisions of the said client.
So finally, they have hit upon the great idea. It is to stop selling technology (as their competitors did) and start selling value. They do that and see an even greater boost to their sales, so much so that they have problems managing the large number of projects they have launched. But they realize that the amazing success they have got is not just because of the TOC techniques they have newly coded. It is because their clients also changed the old rules which prevented them from doing any better. So the message is: 'technology is necessary, but not sufficient' to bring real value. You have to change your old rules. Not all rules, but those which were built on the base of an acknowledged limitation that the new technology removes.

Their success so far, however, is limited to the production and distribution modules of the system. The logical extension would be to the other modules (financial, engineering, etc.) as well. And finally, right at the end of the novel, the client who first got them to change their approach, again approaches them with the idea that the high performance of their company alone will not work very well in the long run if their end-customers don't get the advantage of what they were doing. So, finally we have the idea of orienting the whole supply chain to TOC principles - its basics, its techniques, its new measures of performance.

I have skipped a lot of details in the above. The book is definitely worth a read to get an insight not just into TOC principles, but also the working of and the pressures in a high-growth company, especially a high-tech company.

Under the weather

Today was a slightly unusual day. The morning was cloudy and I woke up with a slight headache. The morning classes went off fine, but post-lunch, the headache suddenly increased a lot, and I decided to sleep away the ache. In the process, I missed an afternoon class of PMIR, which willy-nilly became a kind of an event. This was the first class I missed at IIML. My classmates seem to be quite surprised. However, it wasn't an 'unforced error', so it doesn't perturb me. After catching some sleep and having some tea, I am still feeling a slight headache. I am quite prone to catching colds, so it irritated me no end when I heard that the common Indian cold drugs were suddenly not to be trusted anymore. I have to make do with 'alternative therapy' now, i.e. preventive medicine.

Thursday, February 17, 2005

Pleasant evenings

The evenings have been very pleasant at the campus for the last four or five days. With the absence of the chill factor and with the heat not yet on, it is ideal weather for taking a walk. And that's what I have been doing for the past few evenings - taking one good walk around the campus. My motivation is the pleasure of walking in nice weather rather than exercise, though. The latter is a byproduct.

Wednesday, February 16, 2005

End of another exam

The mid-term exam ended today. Barring a few minor mishaps, it went off satisfactorily for me, especially after the false start I had got off to. As it happens for most things, appearing for exams has also become a very routine process, so that there is not much pressure when an exam comes, and no great feeling of relief when it gets over. All the same, it is an important milestone, if only to indicate that time is running fast here.

Sunday, February 13, 2005

Fall from grace

I personally think journalistic standards at the Times Group have deteriorated considerably (especially those of the Times of India) in recent years. But you know something is seriously wrong when you open the Sunday Economic Times (no less) and find that it is almost entirely devoted to the Valentine's Day. Rs. 10 down the drain today...

Adding:
The Lucknow Times carried an interview of a prominent UP politician on the subject of the Valentine's Day. The politician said, "We don't believe in this, it's a Western concept", etc. etc. The correspondent, not to be undone, persisted, "But still, who would you choose as your Valentine?" And the politician said, "My wife, of course!" The moron! :)

Saturday, February 12, 2005

Day one report: dismal

Today's exams - Fin. Mgmt. and Marketing - didn't go well for me. The former was a lengthy exam, and I couldn't attempt one question, and I haven't tried to find out how correct my other answers are. The questions were quite simple, but with a lot of extra information, so sifting through the information and distinguishing the useful information from the useless took some time. The latter had a 20-mark case (in a 40-mark exam) to which I don't think I did enough justice. Basically, I couldn't really bring structure to the case and my answer was a rather rambling one. It's a familiar feeling...

Thursday, February 10, 2005

Fibonacci series and stock price movements

My friend Samrat has written a very interesting article on how the Fibonacci series (or the Golden Ratio - 1.618) is related to individual stock price and stock market movements. He indicates three effects:

1. Fibonacci retracements: wherein stock prices seek a floor (support) price and a ceiling (resistance) price which seem to be guided by the two values that ratios of adjacent terms-to-their sum converge to - 0.382 and 0.618, after sharp price movements.

2. Fibonacci fans: wherein lines drawn from the lowest stock price for a particular time period at slopes which are 38.2%, 50% and 61.8% of the slope of the line joining the lowest point with the topmost point in the range, actually pass through many support and resistance levels in that time period.

3. Fibonacci time line: wherein vertical lines drawn at Fibonacci intervals (1 unit, 2 units, 5 units, etc.) on a line graph of a market index cut that graph at points where major market-trend changes occur (in the positive or negative direction).

At first I was amazed at how so man-made a phenomenon as the stock market could show such affinity towards the Golden Ratio. But then, as Samrat told me, the stock market is quite a chaotic system, and so chaos theory findings can apply to it, which can explain why the Ratio figures so prominently there. There are more such effects as well.

Mid-term time again

Saturday sees the beginning of yet another mid-term exam. This one will be a whirlwind of 7 exams in 5 days. This term, most of the subjects are very descriptive in nature, and so it's very difficult to concentrate on any one for any significant length of time. Basically, the feeling of being 'globed' comes about before a half-hour is out :).
In this situation, it is Financial Mgmt. - II which comes to the rescue. The brilliant textbook written by Brealey and Myers is such a refreshing read that the fatigue of 'globe' wears away fast. They deal with corporate finance in a very clean way that clears the big picture in the mind. And, they have a good sense of humour as well.

Monday, February 07, 2005

'Critical Chain' - III

The book introduces some fundamental assumptions and tools of TOC:

1. How would you define a 'problem'? A superb practical definition given in the book: "a problem is not precisely defined until it can be presented as a conflict between two necessary conditions."
Also, "one of the foundations of TOC is that whenever we witness a conflict, it is a clear indication that someone has made a faulty assumption which can be corrected, thereby removing the conflict." It does not seek a compromise between those two conflicting conditions.

2. Realize that: "Real-life systems have one, maximum two, constraints."

3. The Current-Reality Tree:
This is a powerful tool to help you assess the ultimate impact of the current assumptions and practices followed in an organization (or division, project, etc.). It starts with the main assumptions or facts, combines them logically, and gets another fact. This goes on, facts and deductions being combined at each level, until we reach one final fact which is the real impact of all the facts in the tree together.

4. Is NPV conceptually wrong?
This statement really stunned me. The concept of net present value or NPV is so widely accepted to be a true measure of viability of a particular capital expenditure project, that to think that it is conceptually wrong is disturbing.
The argument of TOC is this: when capital availability is limited (which is true in most real-life cases) relative to the number of capital expenditure options available to a firm, any investment done has to be measured in terms of money-days. The simple payback method takes only time into consideration, not the amount of initial expenditure, and similarly NPV takes only money into consideration, not time. I haven't yet got the hang of this argument, and will have to think much more to grasp it.

'Critical Chain' - II

Some more practical difficulties encountered in project management are as follows:

1. How safety is inserted into the time estimates of almost every step of the project:
It occurs by three mechanisms:
i. Time estimates are based on a past pessimistic experience, the end of the normal distribution curve.
ii. The larger the number of management levels involved, the higher the total estimation, because each level adds its own safety factor.
iii. The estimators also protect their estimation from a global cut, which is expected to come from the top because of external constraints like competitor moves, etc.

2. How most of this safety is actually wasted, ultimately leading to project lateness:
It occurs by three mechanisms:
i. 'Student syndrome' - since the estimator knows about the built-in safety in his estimate, he actually starts late or works less productively, since he knows he has a lot of time.
ii. Multi-tasking - when a single resource is saddled with many things to do at once, and he does a little bit of each task in turn, the lead time of all tasks suffers.
iii. Dependencies between steps - a delay in one step is passed on fully to the next step. An advance made in one step is usually wasted. In the case of parallel steps, the biggest delay is passed on to the next step, while all other early finishes do not count at all.

So, how can these difficulties be solved? With the help of the Genemodem example, Goldratt shows the mechanisms by which the TOC process can be implemented. The changes required are:

1. Identification of constraint:
Realize that the constraint of any project is its critical path.

2. New operational measure to track project progress:
Use 'percentage of critical path already completed' as a measure to track project progress.

3. Project buffer:
All resources should be persuaded to cut their lead time estimates to a 50% completion-chance estimate. Then, to these stripped-down estimates, add a time buffer (the project buffer) at the end of the critical path. Any delay on the critical path would be absorbed by this buffer.
A rule of thumb to decide the size of the buffer: make it half as long as the project lead time.

4. Feeding buffer:
To absorb delays in any step on a non-critical path, a time buffer called the feeding buffer should be added at the point where that path merges with the critical path.
Now, we have a radical recommendation: completion due dates for each step of the project should be eliminated. The resource should just be advised to complete a task as fast as he can.

5. Resource buffer:
One major problem in many projects is resource contention - when one resource is assigned tasks on different paths of a project, and they conflict in time. To remove this, a resource buffer should be implemented. But this is not a delay-absorbing buffer.
It is operationalised in this way: it is "a mechanism of letting a resource know in advance about his/her critical path activity, so that when the time comes to start the activity, he/she leaves everything else and does that activity."

6. Critical chain:
In projects where resource contention is a major problem, the constraint of the project is not the critical path, but the 'critical chain'. This is "the longest chain of dependent steps, where the dependencies may be due to the path, or a result of common resources."
After identifying the critical chain, we can serialize the schedule to remove resource contention, which will involve repositioning of feeding buffers also.

7. Bottleneck buffer:
In case of a resource which is a bottleneck across projects, we have to implement another buffer (a bottleneck buffer) in a way similar to that in which a resource buffer is implemented.

Implementing and adhering to these principles would make projects much more manageable within budget and within deadlines.
In the next post, I will write about a few TOC fundamentals introduced in the book.


Saturday, February 05, 2005

'Critical Chain' - I

I read this book by Eliyahu Goldratt (see earlier post on 'The Goal') a few days ago. Once again, this is a management novel, and this time it is about the application of the Theory of Constraints to project management. Another fascinating book. By now, I have become a Goldratt fan, and am already digging into another book by him.

This book has been written 14 years after 'The Goal' was published. In the interim, Goldratt has developed TOC not just as a production theory, but as a management philosophy. He has a contempt for purely academic research and wants research to be ruthlessly practical, related to the real world.
The setting of the novel is extremely interesting. Dr. Richard Silver is a struggling academic striving to achieve tenure at his business school. Silver's approach to teaching (open discussion and development of concepts by the students themselves) is well-appreciated. But his research publications are very few in number, and so he finds it difficult to get tenure. He doesn't like obscure mathematical optimizations which no manager would ever apply to his real-life problems.
Now, the business school he is at is also in trouble as enrolment is declining. There is a general feeling that MBA courses are not teaching students problem-solving techniques for the real world. In a desperate bid to achieve tenure, Silver makes a deal with the university president to get ten students in the next year to the Executive MBA programme of the school.

Silver chooses to teach Project Management in his first assignment as teacher in the Executive MBA programme. Among the students are three employees of Genemodem, a modem-making company. These three have been assigned the task of finding a process to systematically reduce their new product development time, and in trying to achieve this, they have joined this programme. All the discussion relating to project management flaws and TOC applications now takes place in the classroom.

I'll first touch on the problems in project management so magnificently pointed out in the book. In doing so, I will quote a few sentences verbatim from the book:

1. On the causes of project cost overruns and lateness:
"Uncertainty is what typifies projects. It's the nature of the beast."
"There is little positive incentive, if any, to finish ahead of time, but there are plenty of explanations required when we are late."
Hence, "most of the people involved in a project build a lot of safety into their time estimates of every step. They don't give their time estimate as the median of a normal distribution (probability of completion: 50%), but give a time estimate at which that probability is 80-90%."

2. On the mis-emphasis on cost overruns:
"Financially, the cost overruns are almost always much less important than the overdue. Companies are so immersed in the mentality of saving money that they forget the whole intention of a project is not to save money, but to make money."
And then, when a project is late, "cost and time overruns are blamed on other people or external factors. The lower the level of the employee, the more the finger points internally, rather than externally. "

3. On the inappropriateness of the operational measure used to measure project progress:
"Project progress reports generally measure progress according to the amount of work, or investment, already done, relative to the amount still to do. This measurement does not differentiate between the work done on critical path from that done on non-critical paths. This measurement rewards starting each activity at the earliest possible time and encourages the project leader to start unfocused."
Then, how should a good metric be? It should: "1. induce the parts to do what is good for the system as a whole. 2. direct managers to the point that needs their attention."

4. On the importance of focus to a project leader:
"For every activity on a non-critical path, there is a tradeoff between an early start and a late start. If you start early, you commit investments earlier than required, the project manager has too much on hand right from the beginning. If you begin late, the slack time on the activity has already been eaten up, and again the manager will have problems focusing on all the tasks at hand."

5. On the inappropriateness of the contract terms with subcontractors:
Vendors or subcontractors have been conditioned to compete on price for a contract. This is totally inappropriate if it is really the lead time that is the more important variable for you. Vendor contracts should be negotiated on lead time, with money being traded off for shorter lead times.

6. On the inappropriateness of the entire management outlook:
Because of the mentality of cost reduction ingrained in most managers (which Goldratt calls 'the cost world'), the emphasis is on optimizing each individual step (because that is what gives cost efficiency).
This is in fundamental conflict with the TOC philosophy ('the throughput world'), which seeks to protect the throughput of a system, with the ultimate aim being making money. (See earlier post on 'The Goal' for the 5-step process to be followed in the throughput world.) The aim (and challenge) is to make each step function in a way that would be beneficial to the project as a whole.

In the next post, I will mention a few more practical problems encountered in project management and the solution based on TOC principles proposed by Goldratt.

Reservoir dogs

This campus is going to the dogs. No, no, before you make some hasty conclusion, I must clarify that I mean it in a literal sense. The dog population has shot up since I came here. They are the most regular visitors to the night mess. Some of them also climb up all the way to the second floor of our hostel and invert the dustbins to forage for food. And they make quite a noise at night, howling and crying and quarreling. But at least, they don't bite (or they haven't, so far).

Thursday, February 03, 2005

Role play in Communications

In our Communications - II class, our group had been asked to present a role play on the topic of 'Cross-cultural Communication' - what kinds of things Indian businessmen need to keep in mind when dealing with people of different cultures for the purpose of business. We depicted a situation wherein a sales manager of an Indian software firm tried to sell the firm's products and services to big-ticket clients in Japan, Saudi Arabia and the USA. We showed how after failing miserably while dealing with the first two (due to ignorance of cultural mores), the manager learns, takes advice, and seals a deal with the US prospects.
But we did not just go and act this out. We smelled a chance to parody something, and we did parody it. What that something is, I cannot reveal here. But we couldn't go the full distance because of paucity of time, otherwise the class was having a fairly entertaining time.

Wednesday, February 02, 2005

Cold wave

It has been raining in the evenings for quite a few days now, accentuating the cold. Even in the daytime, it remains cloudy (though it isn't today). And cold winds are also blowing today. Brrr...