Sometimes, management and strategy seem to be fairly complicated issues: everything is complex, interdependent, dynamic … Popular writers as well as business schools keep telling us how difficult it is to get all these things right. Everything else will lead to failure.
Our guest author Praveen Kumar. S shares some stories about businesses with very simple management systems – who are actually very successful!
By Praveen Kumar.S, Faculty-Department of Management Studies, Panimalar Engineering College, Chennai, India.
As I was carelessly browsing some questions posed in the website, to check the level of common sense, this question popped on my screen, it asked “You are participating in a race. You overtake the second person. What position are you in?” My educated mind had a quick answer “First, of course”. It replied “If you answered that you are first, then you are absolutely wrong! If you overtake the second person and you take his place, you are second.” It warned me to be more careful in answering the second, “If you overtake the last person, then you are…?.” My conditioned mind immediately said “second to the last”. It retorted back “If you answered that you are second to last, then you are wrong again. Tell me, how can you overtake the last Person? ” I started off with a hypothesis that probably, the educated mind tries to complicate things rather than to simplify.
The Grameen Bank – Micro Credit and its Macro Impact!
“We believe that poverty does not belong to a civilized human society. It belongs to museums”. – Muhammad Yunus
The basic idea of micro-finance is simple: if poor people are provided access to financial services, including credit, they may very well be able to start or expand a micro-enterprise that will allow them to break out of poverty. Grameen Bank was founded in Bangladesh in 1976 by Professor Muhammad Yunus as an action research project. The project began by offering loans of $50- $100 to poor women. These loans allowed the women access to capital for crafts, food production or animal husbandry.
A bank unit is set up with a Field Manager and a number of bank workers, covering an area of about 15 to 22 villages. The manager and workers start by visiting villages to familiarize themselves with the local milieu in which they will be operating and identify prospective clientele, as well as explain the purpose, functions, and mode of operation of the bank to the local population. Groups of five prospective borrowers are formed; in the first stage, only two of them are eligible for, and receive, a loan. The group is observed for a month to see if the members are conforming to rules of the bank. Only if the first two borrowers repay the principal plus interest over a period of fifty weeks do other members of the group become eligible themselves for a loan. Because of these restrictions, there is substantial group pressure to keep individual records clear. In this sense, collective responsibility of the group serves as collateral on the loan.
Today over 90 percent of borrowers are women. Intensive discipline, supervision, and servicing, characterize the operations of the Grameen Bank, which are carried out by “Bicycle bankers” in branch units with considerable delegated authority. The rigorous selection of borrowers and their projects by these bank workers, the powerful peer pressure exerted on these individuals by the groups, and the repayment scheme based on 50 weekly installments, contribute to operational viability to the rural banking system designed for the poor.
It was thought that the poor would not be able to repay; in fact, repayment rates reached 97 percent. It was thought that poor rural women in particular were not bankable; in fact, they account for 94 percent of borrowers in early 1992. It was also thought that the poor couldn’t save; in fact, group savings have proven as successful as group lending. The project grew and Grameen is now a registered bank. It earned the noble prize for its founder. In the past thirty two years, microcredit has spread to every continent and benefited over 100 million families.
Lijjat Pappads – A Women Revolution!
It was started in 1959 with 7 lady members with a borrowed sum of Rs. 80/- at Girgaum in Mumbai. On that day, they gathered on the terrace of the building and started a small inconspicuous function. The function ended shortly, the result – production of 4 packets of Papads and a firm resolve to continue production. This pioneer batch of 7 ladies had set the ball rolling.
As the days went by, the additions to this initial group of 7 was ever-increasing. The institution began to grow. The objective of the Institution was to provide employment to the ladies to enable them to earn decent and dignified livelihood.
How has all this been possible? Its story shows how an organisation can infuse Gandhian simplicity in all its activities.
Every morning a group of women go to the Lijjat branch to knead dough, which is then collected by other women who roll it into papads. When these women come in to collect the dough, they also give in the previous day’s production, which is tested for quality.
Yet another team packs the tested papads. Every member gets her share of vanai (rolling charge) every day for the work she does and this is possible only because the rest of the system is geared to support it.
The entire cycle starts with a simple recruitment process. Any woman who pledges to adopt the institution’s values and who has respect for quality can become a member and co-owner of the organisation. Those who do not have this facility can take up any other responsibilities, like kneading dough or packaging or testing for quality.
Packed papads are sealed into a box and the production from each centre is transported to the depot for that area. In some smaller towns or villages, the branch itself serves as the depot. The depots are their storage areas as well as pick up points for distributors.
The distributors pick up the quantity of papad they require and pay cash on delivery because they pay their bens (members are called bens, or sisters) every day. Since they have an estimate of the quantity each distributor takes, they produce accordingly. This ensures that they neither stock inventory nor pay heavily for storage.
Today they have around 63 Branches & 40 Divisions and give self-employment to about 40,000 sister members all over India with a sales turnover of Rs.300 crores which includes Rs. 12 Crores of Exports. Lijjat was featured in various T.V. Channels, which include BBC World in the programme “Business Bizarre”.
The Dabbawallahs and their Six Sigma
“I don’t understand terms like logistics, supply chain or time accuracy. I just know my work is to deliver lunch boxes on time, we didn’t even know the six sigma certification given to us. When we were told about it, we wondered what metal sigma was, gold or silver.” – Tripathi, a dabbawallah.
At the simplest, the dabbawallahs deliver home-cooked meals to individuals at their workplaces and return empty tiffin boxes to homes and, in some cases, caterers. For this, they charge Rs 300 to Rs 350, that is $ 6-7, a month.
The workforce of the tiffin box suppliers trust, the cooperative body that runs the system, is 5,000. Each tiffin box contains two or three containers, often carrying traditional Indian fare – rice, curry, chapattis, and vegetables. Housewives even send notes to their hubbies in these boxes.
The process begins early in the morning. Cooked food is picked up from houses and caterers by dabbawallahs and taken to the nearest railway station. There, the different tiffin boxes are sorted out for specific destination stations and loaded on to large, rectangular trays accordingly.
Each tray can hold up to 40 boxes. These trays then travel in local trains down to various stations. At each station, there are another set of dabbawallahs who quickly take the dabbas meant to be distributed in that area and push in dabbas meant for other stations.
A Mumbai local halts at a station for about 20 seconds or less and thus, the dabbawallahs have to work with precision and speed. During rush hour, it’s a nightmare. At each station, the boxes are once more sorted for localities and offices and taken there by handcarts or sometimes carried by individuals. They carry up to 35 kg for distances of a couple of kilometers.
The boxes are placed in the offices’ reception area by 12.30 pm and are picked up from the same spot by the deliverer a couple of hours later. The whole process then starts again in the reverse. The boxes are picked up from the offices, taken to the nearest station and sorted for their journey home.
Forbes magazine gave this service its highest quality rating of Sigma 6, which means that per million transactions, there is just an error of one. Every day, we deliver 175,000 to 200,000 lunch boxes and they use colours and code markings to ensure faultless delivery.
These codes would baffle a cryptographer! But they make perfect sense to the dabbawallahs. The codes and colours indicate the place from where a dabba is collected; the station where it must be unloaded and the office it is to be delivered. They use English alphabets to mark out stations – such as A for Andheri and Bo for Borivli. A simple method by simple people, had earned them the six sigma.
The uncanny and inimitable but simple style of these mostly unlettered management rebels is startling and forces us to rethink the management principles and concepts taught in our B-schools. However passion, grit, attitude, etc. cannot be taught probably, that is one of the reasons for B-school grads not making it as big as simple people with great ideas and its creative execution.