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  • Types of Crisis when spans are misaligned

    In the last blog, we looked at the need for having equilibrium amongst the various spans. In today’s blog we look at what happens when these spans are misaligned.
    Spans of job if misaligned could create havoc in the way an organization works. Fundamentally, research has shown 3 possible situations

    1. The Crisis of Resources
    2. The Crisis of Control
    3. The Crisis of Red Tape

    Crisis of Resources occurs when executives focus on creating an entrepreneurial gap excessively – they focus too much on thinking about control, influence, and accountability and do not think about support. In pursuit of the entrepreneurial spirit, the essential support to this would be neglected to such an extent that the whole job design would not be able to reach out to anything.
    Crisis of Control is the opposite of what could happen in crisis of resources – In this scenario, the resources would exceed the demand for them – leading to suboptimal economic performance. The excessive decentralization leads to a lack of coordinated efforts across units, thus leading to missed opportunities and wastage of resources.
    Crisis of Red Tape occurs when spans of accountability and influence are very high but resources are insufficient and misdirected. One of the indications of this issue is the end-less time sent in staff meetings coupled with slow decision making – this put the organization on a slow track in responding to the changing customer demands and finally loose to competition

  • Equilibrium of spans – designing an effective organization

    In the last blog we looked at how high performing organizations could be designed using the concept of entrepreneurial gap. In today’s blog we look at the need for a good balance of the various spans and how we could visualize these.
    A careful observation of the four spans indicate to us that these could be classified into supply side spans and demand side spans.
    Span of control and span of support are related to the supply of resources at the position of responsibility. The span of accountability and span of influence deal about the demand side of the organization resource. So, the balance that is under discussion is the way these 2 classifications of the spans are handled.
    Research has shown that for organizations to operate at maximum efficiency the supply of resources must match the demand for these resources – in this context, span of control plus span of support must equal the span of accountability plus span of influence. If we are to plot this using the mechanisms shown earlier, this would mean the 2 lines intersect each other – similar to the supply and demand. This could be pictorially depicted as below.

    Source: Fig – Four spans of software company, Desining High-Performance Jobs – by Robert Simons

  • Entrepreneur’s Interview – Metrix Line

    Sachi: Good evening, today we have with us Prashanth Kaddi – a NITK and IIM A Alumn
     
    He has since started the company called Metrix line. Without further delay lets request Prashant to give a background about himself and then explain about his company.
    Prashanth: Thank you,
    I am Prashant. I had a very studious background –my schooling at Kendriya vidyalaya and then moved on to do my bachelors in Computer Science from NITK in 1995. Through the campus placements I joined IBM. While at IBM, I looked at how the IT industry was working and wasn’t happy with it. So within an year, I got a call from IIM Ahmedabad.
    I had set a goal of being management consultant when I joined there; I got an opportunity to do my summer internship in the company – Anderson Consulting in their business consulting wing. I realized that just consulting wouldn’t give me what I was looking for; I needed more action in my work.
    While at IIMA, I attended a course by Prof Sunil Handa – Laboratory in Entrepreneurial Motivation. I didn’t have a very clear objective of what the course would give me – the course gave me a stimulus into what I wanted to do in life.
    I joined ICICI from the campus placements, partly motivated by the education loan I had to clear. I also wanted to look at the marketing front of activities in business. I had a pretty good stint here – I was involved in many new financial product design and marketing. The impact of our work was significant – with a lot of results to show. The work I did was interesting, but I was not feeling excited about the environment – working in a large company. After having a stint in large companies this far, I felt I didn’t like working in large companies.
    Jump into entrepreneurship was more a decision from the head than the heart – I didn’t enjoy the stress levels that was building up which in turn prevented me from enjoying the good things that were happening around me.
    After 2 years at ICICI, I began talking with a lot of people – there were multiple groups formed focusing on different ideas. In one such group, I had found a batch mate of mine, who himself wasn’t very serious – but put me in touch with his senior who was keen on starting off. This partner of mine had begun working with a startup and stayed with its journey towards being a large company. The idea we began working was – governance of IT outsourcing. Having observed the business very closely at IBM and Mphasis (where my partner worked earlier) – we realized that
    1. It is a high value business
    2. It has a large amount of inefficiency built into it.
    We decided to use metrics and quantitative assessments, which could according to our estimates increase the efficiency by 10%. Nasscom was projecting the industry to be of $ 50 Billion – and say with 10% we would be saving $ 5 billion for our clients. So clearly the company product we were developing had the potential of being $100 million.
    We got our first consulting assignment in the same space – which could fund salaries of 5-6 people, we put together a small team – this was around end 2005. We came out with the first version of the product in 2006, two things followed –
    1. This version received a lot of resistance from the market and it wouldn’t fly easily.
    2. We would require raising finance to accelerate product development.
    From our friend’s experience and the reading on the internet we realized that the equity we would part for this purpose would be extremely high!
    The good thing that happened during this time was that a couple of companies we were speaking to began showing some traction – the challenge that these companies were facing was about the silos of organizing data. Each of these were understood only by certain group of people. Take for example – A product manager wants to get the P/L associate with his product; unless the finance person has the bandwidth to provide this info, there was no way it would be accessible to him. But this was an important feeder into the decision making about the product line!
    This was the space of analytics and business intelligence. Tough our platform was capable of doing this, but we had a very narrow domain focus. We realized that we needed to make the product more generic and this would help us get a lot of traction. Large companies hadn’t figures out the solution to this problem world wide – So this was a problem we felt we could solve for the world the very first time from India!
    IBM has bought a business analytics company for 6 billion dollars in 2008. SAP bought “Business objects” for 5.5 billion dollars. Harvard guys have begun writing about this too – a book called “Competing on Analytics”. These changes have happened over the last 5 years. In the book “Competing on Analytics” it is said that – product is no longer a differentiator – the only differentiator is going to be quickly you understand market trends and how quickly you could react to these trends.
    And everybody looking at there is huge growth market, and in in hindsight the traction was real. So today, we have a product which we call –a data to information platform – we have figures out how we are different from all other solution in the market, also differentiate ourselves in a competition from large companies like IBM, SAP or other dozens of companies that have emerges in the same space.
    Sachi: How are you addressing the challenge posed by the larger companies in the field?
    Prashanth: We could look at it in 2 ways – the technological angle and the business angle.  These are not by design, but have evolved over our years of business.
    In general, any data to information service provider would do the following 3 things
    1. Aggregate the data at a single place
    2. Analyze and Synthesize the data
    3. Interpret and Present the data as information.
    Traditionally, it was extremely hard to have an integrated product for all these – it was typically a combination of 4-5 different products. These had to be configured and programmed to work for specific organizations – this meant a large cost implications for the companies. The companies would have to invest nearly Rs 4-5 Crores before beginning, also the problem addressed was typically fewer in numbers. This was a huge pain point with users.
    We focused on this pain point and designed our technology to be extremely flexible with minimal programming effort at the customer end. This would make our product easier and faster to deploy. Our objective was to reach to zero-programming design; this has put us way better than many existing products. This was the differentiator on the technology front.
    Pretty early we realized that most of the enterprise IT solutions were moving to hosted and subscription based solutions. The poster boy of this move was – Salesforce.com. Lot of people were beginning to say – I don’t want to buy your software, I just want to use it – this was a shift from ownership to usage of a license. Given this, we decided to try out the subscription model.
    This decision helped us reduce the extra costs associated with trying to sell a high priced product. This was a differentiator for us from the business model point of view.
    Sachi: In your journey of the last 6 years, what have been your best and worst moments?
    Prashanth: Entrepreneurship is a crazy emotional ride with many ups and downs.
    One of our first down we faced was when one of our best product developers quit – that was primarily for money. Since we were a small group, this reduced our team size by nearly 10%! It was really hard to accept this for a few days!
    The second down side we faced was when we lost a client – we had engaged very close with a company; but then there was organizational restricting and the CEO with whom we were working was fired – the organization changed their complete direction; which made us redundant. We had even begun making some revenues and if the contract had gotten implemented completely, it would have defined our next growth!  2009 was anther hard year; we were close to closing 2 enterprise levels working with 2 fortune 500 companies. One of them fired 40% of their staff! What we had projected to achieve in 2009, we were finally able to achieve it in 2011.
    In 2009 when we came up with the product, the market was tanking; but we stuck to what we had decided to have our first 10 clients from among the fortune 500 companies. This would make it easier for us to sell to the 11th client. When we achieved each of these milestones – it was great feeling.
    Another high has been in the last 2 years, when we were in direct competition with the major companies. When we won contracts for specific products from this competition – it was a bigh high for us.
    In start ups, you don’t have the time to enjoy your small victories for a long time; you need to move on.
    Last year was the most memorable day for me – It was when we signed our contract with Microsoft. This was special for 2 reasons –
    1. They themselves had a competing product to ours in the same space
    2. They are the world’s largest product company.
    Sachi: How did you sustain in the last major economic crash?
    Prashanth: 2009-10 was really hard years. We had entered the market in 2008 and the product revenues had just begun kicking in; the services revenue was still with us. While the services helped us survive, the product side was severely dented.
    The crash taught us an important lesson – Our primary target at that time was the US market given the margins. We realized that over reliance on US was really terrible – since then we have tried to expand our business into a mix of developing and developed economies.
    Since we have subscription model for our product – it was in some sense was a recession proof business models. Though initially we stuck with this as a matter of chance, it proved to be extremely beneficial for us.
    Sachi: from this experience, what was your biggest take away?
    Prashanth: 
    1. When I look back I realized I was hung upon the Idea – which could be 100 million dollars; I didn’t want to be a small shop. In reality – you have to be there and do that, in order to say that you know. It cannot be based on imagination.
    2. Cash is absolutely king.
    3. Its ultimately about people – we need to take this aspect more seriously and learn to keep the motivation high and running. It’s ultimately all about retaining the best talent when you have little monetary buffer.
    Sachi: What is your message for the aspiring entrepreneurs?
    Prashanth: Start with a right motivation – it has to strong emotionally to handle the ups and down of the business. Do not take to entrepreneurship for reasons like – the glamour quotient associated or just for fun.
    As a broad principle having an understanding about the space is a good starting point if you are thinking of – this is for non breakthrough sort of innovations.
    It is important to manage the friends and families who would be your support line in this journey.
    Sachi: Thank you Prashanth, thank you once again.

  • Entrepreneurial gap – the secret of high performance organizations

    In the last blog we looked at the way one could adjust the various spans of control to be wide or narrow. In today’s blog we look at a desired state in a lot of large organization – having an entrepreneurial team by the way the job is designed. 
    If someone is to create the entrepreneurial job – it has to create a situation where the resources are not sufficient to meet the goals that are set. This is not in alignment with the adage that – authority should match responsibility. In high-performing organization, employees are held responsible for broader goals with very limited resources they possess – this leads to a gap called the “entrepreneurial gap”. The employees in such situations would have to use their creativity to succeed without the direct control of the resources they have control over.
    The same could be explained with the diagram below.
    Source: Fig – Creating the Entrepreneurial Gap, Desining High-Performance Jobs – by Robert Simons

  • Balancing the four spans of job design

    In the last blog we looked at span of influence and span of support and their influence on the job design. In today’s blog we look at a summary diagram which could tell us how managers could adjust the spans of job design to create positions that are tuned for optimum performance.

    Source: Fig – The four spans, Desining High-Performance Jobs – by Robert Simons

  • Job design – span of Influence and span of support

    In the last blog, we looked at span of control and span of accountability. In today’s blog we look at span of influence and span of support, and how they are to be considered while designing a job.
    The span of influence refers to the width of connections that the individual would need to generate to collect data, probe new influence and influence others. An employee with a narrow span of influence would not pay much attention to people outside the small area that is aligned with his job alone, on the other hand a person with a wider span of influence would need to interact with many people extensively. 
    It is interesting to note that the span of accountability is driven by the nature of manager’s gorals and the difficulty level associated with goal drives the sphere of influence. Executives in companies could use accounting and control systems to adjust the span of control. It has to be borne in mind that more complex and interdependent the job is the more import a wide span of influence becomes.
    The span of support refers to the amount of help and individual could expect from people in other units of the organization. Positions in organizations that have a commission based in an efficient market do not require wide spans of control; however when the organization is looking at customer loyalty as a strategic focus having a wide span of support is critical. It is the employee’s sense of shared responsibility which is important to really!
    Over the next few blogs we would look at how these 4 spans interact with each other and what would be the considerations when a job is being designed.

  • Job design – Span of Control and Span of Accountability considerations

    In the last blog, we began looking at how to design a good job and discussed the 4 questions to be answered. In today’s blog we look at two of these 4 factors – span of control and span of accountability. 
    Span of control refers to the range of resources (people and infrastructure) that are given to the manager to decide upon. Since the manager is responsible for controlling he/she is also responsible for the performance of these resources. Managers would have to adjust the span of control for each position on the basis of how the company delivers value to its customers – it has to align with the company’s focus. This span could be “wide” or “narrow”.
    The Span of Accountability reflects the trade-offs that affect the measures used to evaluate a manager’s achievement. The setting for this span allows us to determine the behavior we intend to see. 
    The span of control and span of accountability are interrelated, and make the most sense when considered together. Span of Control defines the resources available for the manager, while the span of accountability defines the goals that manager should focus towards. This is in synch with the common knowledge – “Authority should match responsibility”
    We shall look at the other two spans of in the next blog.

  • Designing a good job


    In the last blog we concluded with the last of the mechanisms to control the issues of agency costs. In this blog we begin a new discussion on the design of jobs – the discussion that follows over the next few blogs is based on the HBR article – Designing High performance jobs by Robert Simons.

    A common situation that an entrepreneur gets into is that after having begun with an exciting vision and building a good strategy and developing a strong product, hired good people to build the necessary networks but then implementation goes bad! A lack luster response is seen from the managers, delays in delivery to customers are common, and there are several coordination issues. The entrepreneur begins to ask – “have I chosen the wrong people in these critical jobs?” A closer look and the problem look to be at all levels and across the organization.

    These issues are generally because the balance of what an employee expectation of organization’s resource in supply are not balanced by the demand that the individual in that role has for the organizational resources. The balance is essential and requires answers to the four basic questions

    1. What resources do I control to accomplish my tasks?
    2. What measures will be used to evaluate my performance
    3. What do I need to interact with and include achieving my goals?
    4. How much support can I expect when I reach out to others for help?

    Put other way these are questions about

    1. Control
    2. Accountability
    3. Influence
    4. Support

    We shall continue discussion on these over the next few blogs

  • The role of market discipline in agency theory

    In the last blog we looked at bonding and incentives as a mechanism to handle agency costs. In today’s blog we look at the role markets play in determining the arrangements and outcomes that agency theory predicts.
    Agency theory adopts a semi-strong form of capital market efficiency. We mentioned this to be semi-strong since the asset prices do not reflect all the information – irrespective of public or private. We also cannot call it weak since the info of prices doesn’t limit itself to historically available information. 
    One of the implications of this semi strong assumption is as follows – if managers (agents) of the firm  take actions that are viewed adversely affecting the value of the firm’s assets, then the price of these (stock price) will drop. If the situation progresses this way, the firm’s management could eventually lose control of the firm – the old high agency cost managers will be replaced by low-agency cost managers. This is akin to take over. If by the takeover, significant wealth gains are achieved – in many ways this could be associated with the reduction in the agency cost that is expected after the acquisition is complete.  
    In many cases economics is slow to recognize conflicts within firms and between the firms and its numerous stakeholders, the influence of agency theory in organization economics could hardly be neglected.

  • Bonding as a mechanism to reduce Agency costs

    In the last blog we looked at the monitoring mechanisms that are used to reduce the agency costs. In today’s blog we look at Bonding and Incentives as a mechanism to reduce the agency costs.
    To understand this mechanism of reducing agency costs – it is important to realize that it’s not just the principal who has gains by reducing the agency costs, the agent too would benefit from this. Incentives are the most common of the bonding mechanisms that agents use to bond closer to the principal. Generally, the agent aligns the incentives such that their self-interest is aligned so that they behave consistent with the interest of the principals. 
    The most common of these is the agent’s compensation package. The Principals would prefer an incentive that fully penalizes agents for shirking and opportunism; however in many cases it is the environmental risks that really define the outcome. Thus the agents wouldn’t be comfortable with this structure. The fixed salary format in fact would free the agent from any of the alignment possible with the principal and might not find the buying in easy from the principals.
    Research has found that, managers with significant ownership interest in their firms are less likely to engage in behaving in ways that are not in synch with the principal’s interest. Last but not the least it is important to look at incentive structure not just limited to payments as incentive – promotions too are an important factor.