- The amount of information that we were able to collect from a simple experiement;
- The size of the improvement opportunity we uncovered together.
Monday, November 23, 2009
Impressive Opportunity from a Small Experiment
Just published an analysis on the Fraysen Systems website today called "Material Flow Co-ordination Case Study" which gives the results -- with their agreement, of course -- of a quick opportunity analysis we did for one of our Clients. What is striking is:
Thursday, November 5, 2009
There is a Gap between Operational Excellence and Business Reality
Why do Managers not rush to put into practice every recommendation by their Lean Consultants, or to install Manufacturing and Business Intelligence systems? There is plenty of data to suggest that in general these methods and systems produce outstanding returns, and this is backed up by detailed analyses of selected leading companies.
I think there are just too many "IF"'s between the proposition and the return. In essence, when a Lean Consultant presents their report, they are saying "if you invest management time in changing your organisation's behaviour, and if you get your people to behave in this way, and if the consistently apply these methods even if it appears more expedient in a crisis to go back to the old ways, then you will reap the benefit of my advice." Similarly vendors of Operational and Business Intelligence tools are saying "if we pick the right KPIs (Key Performance Indicators) to monitor, and if you make monitoring these KPIs part of your people's management process, and if they respond quickly and appropriately when they are alerted to an issue, and if they carry the action through to closure, then our system will deliver a return on your investment."
Think about it: in a world where at least on the face of it a new machine will increase your throughput because it's advertised cycle time is 20% lower, or you can save millions in labour costs by moving to China because they earn 1/10 of people in the West, it is asking a lot of your Client to make such a complicated and contingent cased to their Board / Senior Management and then ask them to invest money in it. Should we just give up? No - we just need to make a better case, and I believe that by taking responsibility for the Client's problem, rather than limiting ourselves to being just a part of the solution, we can!
I think there are just too many "IF"'s between the proposition and the return. In essence, when a Lean Consultant presents their report, they are saying "if you invest management time in changing your organisation's behaviour, and if you get your people to behave in this way, and if the consistently apply these methods even if it appears more expedient in a crisis to go back to the old ways, then you will reap the benefit of my advice." Similarly vendors of Operational and Business Intelligence tools are saying "if we pick the right KPIs (Key Performance Indicators) to monitor, and if you make monitoring these KPIs part of your people's management process, and if they respond quickly and appropriately when they are alerted to an issue, and if they carry the action through to closure, then our system will deliver a return on your investment."
Think about it: in a world where at least on the face of it a new machine will increase your throughput because it's advertised cycle time is 20% lower, or you can save millions in labour costs by moving to China because they earn 1/10 of people in the West, it is asking a lot of your Client to make such a complicated and contingent cased to their Board / Senior Management and then ask them to invest money in it. Should we just give up? No - we just need to make a better case, and I believe that by taking responsibility for the Client's problem, rather than limiting ourselves to being just a part of the solution, we can!
Wednesday, October 21, 2009
The Operations Management Dilemma
Having spent a large part of my career in developing and selling Operational Intelligence Systems, I am one of many businesspeople around the world -- Manufacturing Systems vendors, Business Intelligence providers, Lean Manufacturing consultants and Six Sigma Black Belts who make their money persuading corporations to focus senior management attention on how they operate, and to spend money on ways to improve it. After all, a company's operations are what deliver value to its Customers and Owners, so why wouldn't they want to invest effort and resources in making them better. Right?
A presentation by Eoin O'Driscoll, (chair of the Irish Government's Enterprise Strategy Review Group) at the 2009 Midwest Entrepreneur Showcase gave me pause. In discussing how to create value for Customers, he referred to Peter Drucker's assertion that "Because its purpose is to create a customer, the business enterprise has two—and only these two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs" (my italics). Therefore we in the "Operational Excellence" industry are trying to persuade corporations to spend scarce management time thinking about things that they do not consider core to their success, and then follow that up by asking them to invest even more money into an area of the business they already consider to be primarily a cost. What’s wrong with this picture?
While the issue is not quite as black and white as I describe above -- otherwise there would be no manufacturing software companies or Lean Six Sigma consultants at all -- it does jib to a startling degree with what we see in the market. In 2004, average western manufacturing efficiency was quoted as 45%, with world class companies at 85%. The figures have not changed that much since; the opportunity has been obvious for decades -- see the US vs. Japanese auto industry saga -- and yet many companies still at best reluctantly invest leadership time and effort into Operational Excellence as it's currently sold. They don't want what the industry is trying to sell them. Could they be right?
A presentation by Eoin O'Driscoll, (chair of the Irish Government's Enterprise Strategy Review Group) at the 2009 Midwest Entrepreneur Showcase gave me pause. In discussing how to create value for Customers, he referred to Peter Drucker's assertion that "Because its purpose is to create a customer, the business enterprise has two—and only these two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs" (my italics). Therefore we in the "Operational Excellence" industry are trying to persuade corporations to spend scarce management time thinking about things that they do not consider core to their success, and then follow that up by asking them to invest even more money into an area of the business they already consider to be primarily a cost. What’s wrong with this picture?
While the issue is not quite as black and white as I describe above -- otherwise there would be no manufacturing software companies or Lean Six Sigma consultants at all -- it does jib to a startling degree with what we see in the market. In 2004, average western manufacturing efficiency was quoted as 45%, with world class companies at 85%. The figures have not changed that much since; the opportunity has been obvious for decades -- see the US vs. Japanese auto industry saga -- and yet many companies still at best reluctantly invest leadership time and effort into Operational Excellence as it's currently sold. They don't want what the industry is trying to sell them. Could they be right?
Monday, August 17, 2009
High Velocity Business
I had the pleasure to read Steven J. Spear's "Chasing the Rabbit" during my Summer vacation, in which he discusses the unique attributes of industry leading companies like Toyota and Alcoa. What Mr. Spears wanted to understand is why these companies have maintained and even extended their competitive advantage over their peers, even as these peers have learned from these leaders and themselves improved. Interestingly, what he singles out as unique about these companies is not that they apply methodologies such as Lean and Six Sigma, although they do, and very effectively, but the fact that they apply these methods in the context of a business culture which is focused on learning and improvement, from the 'highest' to the 'lowest', in everything they do.
What these companies do is simply to recognise that their businesses are complex systems which it is impossible to design perfectly from the outset. So instead of pretending that the system is perfect, and making do as best they can, they accept that there are going to be opportunities for improvement, and invest in their ability to spot, understand, address and learn from these opportunities. As a result, whereas their competitors come to work on a Tuesday at a similar level of performance as on Monday, and expecting to have to overcome most of the same problems as faced them on Monday, the High Velocity Business is coming to work having solved at least some of Mondays problems for ever, and therefore is starting the day at a higher level. These improvements quickly accumulate over time, propelling the High Velocity Business forward even as competitors repeatedly attempt to catch up.
What these companies do is simply to recognise that their businesses are complex systems which it is impossible to design perfectly from the outset. So instead of pretending that the system is perfect, and making do as best they can, they accept that there are going to be opportunities for improvement, and invest in their ability to spot, understand, address and learn from these opportunities. As a result, whereas their competitors come to work on a Tuesday at a similar level of performance as on Monday, and expecting to have to overcome most of the same problems as faced them on Monday, the High Velocity Business is coming to work having solved at least some of Mondays problems for ever, and therefore is starting the day at a higher level. These improvements quickly accumulate over time, propelling the High Velocity Business forward even as competitors repeatedly attempt to catch up.
Thoughts about Starting a Technology Business: Final Thoughts
It always takes longer than you thought, so don’t be impatient, but do plan and provide for the long haul, whether that be by recruiting investors with deep pockets, or having another line of business that keeps you going. Do try to make your mistakes as early as you can. You are going to learn from your mistakes, and the only way you are going to succeed is by taking the risk that you might fail. Don't be too worried about what other people will think of you, or that they will remember your failures. In my experience, people are too busy with their own lives, and just aren't interested anyway, so take advantage of that and don't worry too much!
Thoughts about Starting a Technology Business: People
Hiring and managing people in your own business is different from doing the same as a manager in a large corporation, so here are some thoughts about that.
Firstly, you will be anxious to hire people to help you, and may find it difficult to imagine that people will actually want to come and invest their futures in your improbable little venture. Don’t hire the first willing candidate just because he or she is there! There are many adequate to good people in every profession. It is rare to find great people. It is also rare to find people who want to work for a small start-up, but these are the people you have to find, and you are better off hiring no-one if you can't than to hire a journeyman or someone who would prefer the "safety" of a large corporation, but needs a job right now.
Understand and specify clearly what you need the person to do. You are starting the next great business, so anyone you hire should be excellent at their job, should be willing to work to demanding targets, does not bring baggage (i.e. avoid the brilliant but trouble types!), and is willing to accept risk for reward (typically equity), which you should be prepared to give willingly and reasonably generously to the right people!!
One important point: don’t hire just for company! Being an entrepreneur is lonely. Being an entrepreneur who hired a less than stellar person so you wouldn't feel so alone is lonely and a pain in the neck.
When you have hired, remember: you are the boss. Don’t be afraid of confronting issues. Raise then respectfully with the aim of resolving them, not beating people up. Remember you are under a lot of stress, so it will be tempting to blame other people, especially your team. That said, be prepared to fire / part company quickly, especially early on if you find one or both of you have made a mistake. It's best for everyone if done with dignity.
In all your dealings with your employees, partners, consultants and other team members, be consistent, honest and empathetic. Remember you are the boss, and the reason they are there: it’s your job to inspire them, not theirs to inspire, reassure or comfort you. Finally, lead, don’t drive! You'll get some results by threatening or manipulating people. You will get much more by making them want to do their best for you and the company.
Firstly, you will be anxious to hire people to help you, and may find it difficult to imagine that people will actually want to come and invest their futures in your improbable little venture. Don’t hire the first willing candidate just because he or she is there! There are many adequate to good people in every profession. It is rare to find great people. It is also rare to find people who want to work for a small start-up, but these are the people you have to find, and you are better off hiring no-one if you can't than to hire a journeyman or someone who would prefer the "safety" of a large corporation, but needs a job right now.
Understand and specify clearly what you need the person to do. You are starting the next great business, so anyone you hire should be excellent at their job, should be willing to work to demanding targets, does not bring baggage (i.e. avoid the brilliant but trouble types!), and is willing to accept risk for reward (typically equity), which you should be prepared to give willingly and reasonably generously to the right people!!
One important point: don’t hire just for company! Being an entrepreneur is lonely. Being an entrepreneur who hired a less than stellar person so you wouldn't feel so alone is lonely and a pain in the neck.
When you have hired, remember: you are the boss. Don’t be afraid of confronting issues. Raise then respectfully with the aim of resolving them, not beating people up. Remember you are under a lot of stress, so it will be tempting to blame other people, especially your team. That said, be prepared to fire / part company quickly, especially early on if you find one or both of you have made a mistake. It's best for everyone if done with dignity.
In all your dealings with your employees, partners, consultants and other team members, be consistent, honest and empathetic. Remember you are the boss, and the reason they are there: it’s your job to inspire them, not theirs to inspire, reassure or comfort you. Finally, lead, don’t drive! You'll get some results by threatening or manipulating people. You will get much more by making them want to do their best for you and the company.
Thoughts about Starting a Technology Business: Sales
Which brings us to sales. Let me sum this up for you: good Sales People are different from Engineers. Sales is a complex and difficult profession. It requires the sales person to follow a rigorous process methodically. It requires an ability to build a profile of likely target Customers, so that efforts are focussed on people who are likely to buy, not just those willing to talk to you. It requires the discipline to track progress against objective criteria, and the ability to maintain confidence while being realistic about each lead or prospect's likelihood of buying.
Good Sales People can tell you what their goal is for each Prospect, and what their goal is for each communication -- mail, letter, document, meeting, demo -- with that Prospect. These goals are specific, and achieving each goal removes a reason why the Prospect won't buy, or won't buy from us.
Sales is a skill. It requires an ability to make human connections with Customers. Bad Sales People make superficial, manipulative connections. Good Sales People show genuine interest in identifying and understanding the Client's needs, help the Client articulate the value of what they are trying to achieve, and guide them to a decision without forcing them. Because sales is about people: needs must have owners who care about the value they -- personally as well as organisationally -- will achieve from addressing the need, otherwise there will be no sale. And remember, sell to those able to buy, not to those willing to listen!
Thoughts about Starting a Technology Business: Marketing
Marketing
First of all for my fellow technologists, let's be clear about what marketing is. You'll hear lots about brand, collateral, communications, etc, etc. These are merely the day to day tools of marketing. Simply put, marketing is "discovering a need and communicating your ability to satisfy it better than anyone else."
Notice I did not mention your technology. Technology is essentially irrelevant to marketing. Business is about satisfying a need. That need must be specific and have value. If your Customers are businesses, this value must be expressed in $ and €. In fact, if you cannot find the line on their P&L or Balance Sheet that you increase or reduce, then you have not identified their need yet. Go look again! If your Customers are individuals, then your value may be in $ or €, or it may be emotional. Not being an expert on consumer marketing, I'll leave you with that.
In large markets, like the United States, the opportunity is much greater for an entrepreneur to meet visionary, risk tolerant Customers who can understand the value your product provides, even if you don't. These Early Adopters give start-ups in these markets a foot hold and early sales. However, given that I believe it is particularly difficult for technologists to think of their products from a Customer perspective, the risk is that the entrepreneur never internalises the need they are satisfying or the value they are providing, and therefore they cannot articulate this to the mass market. So they hit the chasm, and they die. Or maybe they achieve some understanding, but never fully realize what they could provide, and putter along, with their full potential never achieved.
In a small market, the chance of happening on one or more of these early adopters is much, much smaller. Buyers also tend to be more conservative, and often have to justify their decisions to parent organisations far away. This means that, from the start, the entrepreneur must do that hard work of understanding and crystallising the need they satisfy, how their solution does it better, and the value their Customers will receive. Therefore there is a higher risk that the start-up will run out of cash before it achieves "traction" -- the disadvantage. On the other hand, because the entrepreneur is forced to think harder than their competition in more "favourable" locations, it can take their offering to a value higher than that which their competition has been able to identify and articulate, and allows them to develop a proposition that will bridge more effectively from the early adopter to mass markets. If you live this long, this could be a great advantage!
Achieving this, of course, requires that the entrepreneur be an unusual person. They must understand:
First of all for my fellow technologists, let's be clear about what marketing is. You'll hear lots about brand, collateral, communications, etc, etc. These are merely the day to day tools of marketing. Simply put, marketing is "discovering a need and communicating your ability to satisfy it better than anyone else."
Notice I did not mention your technology. Technology is essentially irrelevant to marketing. Business is about satisfying a need. That need must be specific and have value. If your Customers are businesses, this value must be expressed in $ and €. In fact, if you cannot find the line on their P&L or Balance Sheet that you increase or reduce, then you have not identified their need yet. Go look again! If your Customers are individuals, then your value may be in $ or €, or it may be emotional. Not being an expert on consumer marketing, I'll leave you with that.
Crossing the Chasm in a Small Market
I started Fraysen Systems here in Ireland, a small island of 5-6 million people far from the large markets at the centre of Europe. This fact has an effect which can be viewed as an advantage / disadvantage. I have found that Customers are, in general, unwilling or unable to articulate their needs, or to bridge from your solution to their need. When you think about it, it's perfectly reasonable -- it's not their job! I believe this is the reason for the famous "chasm" that new technology products must bridge from their early adopters to their mass market.In large markets, like the United States, the opportunity is much greater for an entrepreneur to meet visionary, risk tolerant Customers who can understand the value your product provides, even if you don't. These Early Adopters give start-ups in these markets a foot hold and early sales. However, given that I believe it is particularly difficult for technologists to think of their products from a Customer perspective, the risk is that the entrepreneur never internalises the need they are satisfying or the value they are providing, and therefore they cannot articulate this to the mass market. So they hit the chasm, and they die. Or maybe they achieve some understanding, but never fully realize what they could provide, and putter along, with their full potential never achieved.
In a small market, the chance of happening on one or more of these early adopters is much, much smaller. Buyers also tend to be more conservative, and often have to justify their decisions to parent organisations far away. This means that, from the start, the entrepreneur must do that hard work of understanding and crystallising the need they satisfy, how their solution does it better, and the value their Customers will receive. Therefore there is a higher risk that the start-up will run out of cash before it achieves "traction" -- the disadvantage. On the other hand, because the entrepreneur is forced to think harder than their competition in more "favourable" locations, it can take their offering to a value higher than that which their competition has been able to identify and articulate, and allows them to develop a proposition that will bridge more effectively from the early adopter to mass markets. If you live this long, this could be a great advantage!
Achieving this, of course, requires that the entrepreneur be an unusual person. They must understand:
- People: their Customers, both as organisations and individuals;
- Business: the need they are satisfying;
- Finance: to articulate the value they are delivering; and finally,
- Technology: presuming theirs is a technology based business!
Sunday, July 5, 2009
Thoughts about Starting a Technology Business: Introduction
Introduction
Although this blog is to be more about how to use information systems to manage complex, high tempo businesses, Graham Royce kindly invited me to make a presentation to the kick-off session for the 2009/2010 participants at the Limerick Institute of Technology's LEAP Program, which he runs. I though it might be a good first post on the things I have learned so far about trying to start a technology business, and it might also serve as something of an introduction to myself.
When asked to speak to the LEAP participants, I felt the most useful thing I could do would be to share the lessons that it has taken me longest to learn so far, and that in the life of my company, Fraysen Systems, have caused the most problems.
About Me
My name is Finbar Gallagher. I founded Fraysen Systems, where we develop Pervasive Operational Intelligence systems, in February 2002 after spending 12 years with Hewlett Packard in Manufacturing Engineering in their Medical Products and Inkjet Supplies divisions and then 2 years at Tellabs' R&D operation in Shannon, Ireland, where latterly I was responsible for development of one of their European cross-connect products. I hold a Bachelor's in Engineering from Trinity College, Dublin, and a Master's in Systems Engineering from Boston University.
I started Fraysen Systems as a technologist from a multinational background with some excellent companies. I believed that experience gave me a good appreciation of business and people management as well as my technical abilities. I felt I had a good idea and was well equipped to succeed. Starting Fraysen was a long held goal of mine -- I started saving seed capital for the project12 years before I incorporated the company, and chose the name all the way back in 1998.
Three Problems
Having said all of the above about business and people experience, you will be interested that the aspects of starting up a business that I have found most challenging are Business, in particular Marketing and Sales, and People! For those of you who are Sales and Marketing professionals, I'm sorry if my observations seem obvious. I can only speak for myself when I say they weren't obvious to me, and I have met enough Engineers to suspect that they aren't necessarily obvious to other members of my profession either!
Although this blog is to be more about how to use information systems to manage complex, high tempo businesses, Graham Royce kindly invited me to make a presentation to the kick-off session for the 2009/2010 participants at the Limerick Institute of Technology's LEAP Program, which he runs. I though it might be a good first post on the things I have learned so far about trying to start a technology business, and it might also serve as something of an introduction to myself.
When asked to speak to the LEAP participants, I felt the most useful thing I could do would be to share the lessons that it has taken me longest to learn so far, and that in the life of my company, Fraysen Systems, have caused the most problems.
About Me
My name is Finbar Gallagher. I founded Fraysen Systems, where we develop Pervasive Operational Intelligence systems, in February 2002 after spending 12 years with Hewlett Packard in Manufacturing Engineering in their Medical Products and Inkjet Supplies divisions and then 2 years at Tellabs' R&D operation in Shannon, Ireland, where latterly I was responsible for development of one of their European cross-connect products. I hold a Bachelor's in Engineering from Trinity College, Dublin, and a Master's in Systems Engineering from Boston University.
I started Fraysen Systems as a technologist from a multinational background with some excellent companies. I believed that experience gave me a good appreciation of business and people management as well as my technical abilities. I felt I had a good idea and was well equipped to succeed. Starting Fraysen was a long held goal of mine -- I started saving seed capital for the project12 years before I incorporated the company, and chose the name all the way back in 1998.
Three Problems
Having said all of the above about business and people experience, you will be interested that the aspects of starting up a business that I have found most challenging are Business, in particular Marketing and Sales, and People! For those of you who are Sales and Marketing professionals, I'm sorry if my observations seem obvious. I can only speak for myself when I say they weren't obvious to me, and I have met enough Engineers to suspect that they aren't necessarily obvious to other members of my profession either!
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