How to Turnaround a Business through Design Thinking?

In my last blog I illustrated the 4th principle of Design Thinking (Observe the whole and not the parts) through a technical problem. In this post I am going to illustrate the same principle but through a case study from the business world, which I personally dealt with. However, the other principles of Design Thinking would be implicitly demonstrated too through this story.

 

Whether a company would live long or die prematurely would depend greatly on the ability of the managers to solve business problems – not through help of models but by using the principles of Design Thinking.

 

Why is that?  Unlike mathematics problems, business problems are such where everybody wants an answer but is not clear as to what the answer might be or how to reach the solution.  

 

For example, if someone asks us to find out the square root of 31. 5 we know for sure that by applying a given method or model we would find out the desired solution quickly. This is what most of us try doing when we are confronted with business problems. We desperately search for a method to find the answer. But unfortunately, this style of finding a solution to a business problem simply does not work.

 

Then what can managers do?

 

Most business managers try solving their business problems thru gut feelings, experience, common sense or plain logic or they try applying solutions that have worked earlier. They may also try applying solutions or methods they have only heard from others or read in some book or journal. They try to implement some system to bring about some order into the chaos that already exists.

 

Alternatively, they continue to do what they have been doing with perhaps additional emphasis on ‘harder work’, ‘better work’ or ‘smarter work’ or ‘closer and more stringent supervision’ or thru coaxing, manipulating, reward or punishment. But by its very nature, business problems are always tricky and are not so amiable to such treatments. As a result business problems remain unresolved and companies fail to gain dramatic  improvement in performance  – essential to realize their well thought out competitive strategies.

 

Even tried and tested techniques like brainstorming, field force analysis, failure mode effect criticality analysis have limited value in solving business problems. These may generally fix something that is broken or improve it marginally. Using such methods is a way of simply trying to solve the problem by specifically trying to look at some issues or parts of their system.

 

But dramatic improvements never happen. Why is it so?

 

This is because we sometimes misunderstand the term business problem solving. We may think that we have solved a problem only to find that it is either a partial solution or we have landed up with a bigger problem or we have created many new problems. In short, we did not get the benefits that we initially thought we would.

 

The objective of business problem solving therefore is to solve a problem permanently, gain dramatically without creating any adverse side effects and help people do their job better. Apparently it is a tall order. But it need not be so as the story would demonstrate.

 

The trick is to observe the system in totality and find out the present imperfections within the system, which interact to create the problem. Once such imperfections are found we then creatively find ways and means to eliminate such imperfections for good to restore or bring about the needed balance in the system and boost business results by leaps and bounds. This method of solving business problems comes under the broad umbrella of Design Thinking. Specifically, I call it the ‘Theory of Imperfections’.

The application of Design Thinking principles is varied. It can not only be used to solve tricky business problems but also be used to transform organizations under any business conditions, improve any individual processes for performance, quality improvement, product development, knowledge development, etc.

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The Story or the Case Study

 

0th Principle of Design Thinking – The Context

 

A company ABC (name withheld for confidentiality) operates in India to produce plastic molded parts. The monthly turnover of the company is say X units (in money terms). The company is 12 years old. The technology has been imported from Germany. The market is stable. But there has been a slow build up of order backlog and the backlog at the present rate of production would take around 11 months of sustained production to complete execution of the orders.

 

This generates a business problem. The marketing department is unable or unwilling to book any more orders since they would not be able to keep delivery commitments and the company would incur late delivery charges. At the same time since orders can’t be executed in time the company suffers from severe cash flow problems.  60% of the raw material is either imported or has to be purchased against advance payment. Moreover, raw materials make up for 60% of the product cost. Machine availability varied between 80 to 90%. Management has not been able to pay dividends to its shareholders for the last 4 years. At present, it does not have much liquidity to buy any additional machine. The banks have refused to lend money. If this state continues the board has even contemplated to close down the factory and sell off the company or its assets. The 63-year-old Chairman of the board is a very experienced and knowledgeable hands-on technocrat in the country with a MBA degree from the best business school in India.

 

1st Principle of Design Thinking — What are the Assumptions? Challenge them!

 

a)       If the production process can be speeded up the orders can be executed in time and that would improve the cash flow of the company.

b)       The management is unable to increase the price of the product owing to competitive pressures.

c)       The labour union does not have any incentives for higher production.  The union is not pro-management but might not offer too much resistance to improve productivity if proper incentives are paid.

d)       If the management fails to step up production then the loss and subsequent closure of the factory is imminent.

 

2nd Principle of Design Thinking – The Constraints

 

a)       No liquidity

b)       No money to buy new technology

c)       Bankers refuse loans

d)       Machine availability is low

e)       Competitive Pressures are high

f)         Talented fresh blood refused to join the company.

 

How the company wanted to solve the problem?

 

Management thought a lot on traditional lines and decided to initiate many actions to improve the situation. The actions along with the results are listed below.

 

a)  Introduce productivity tools to eliminate manual operations. This was carried out in a systematic manner. However the turnover of X units of money per month remained the same. Delivery backlog remained at the previous level of 11 months.

 

b)  Get higher productivity die for faster processing. The die was designed, manufactured and fitted. The speed of processing improved by 20 to 30%. However, no significant improvement in productivity took place. Monthly turnover remained at around X units with estimated backlog at 11 months.

 

c)  Get an industrial engineering study done – time and motion study. This was done No improvement in productivity or reduction in backlog showed up.

 

d) Offer financial incentives to the workers for higher productivity. This was instituted with no visible improvement in productivity or order backlog.

 

e)  Introduce system approach — TPM – the Japanese way. It was thought that this takes time to implement to get appreciable results (minimum 3 years). Hence the idea was dropped.

 

f)  Buy additional machinery. This was not done for want of funds.

 

g) Reduce manpower Could be done marginally since the company was already operating with the bare minimum manpower. No improvement seen or felt.

 

h) Reduce cost. Some improvements could be done on raw material. The effect was marginal and not lasting since price of raw material went up offsetting the advantage.

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So we see that traditional thinking did not help the company achieve its business objectives and improve its bottom or the top line. More than two years of valuable time were wasted experimenting with proven ideas.

 

I hope that the Paradoxes (3rd Principle of Design Thinking) clearly stand out for everyone to see. 

 

Now let us see what happens when we apply the 4th Principle of Design Thinking – Observe the System as a whole & not in parts — to this tricky problem.

 

But how does one see the whole in Operation Management. There are many ways but one of the easy ways is to see the 3 fundamental things, which are the following:

 

a) The flow of materials – how the materials move from one place to another – how smooth it is.

b) The flow of information – what type of information flows across the organization and how, what is the speed of the movement, how many routes does it take, what is the quality of information, etc…

c) The flow of energy and signals – How much energy is added at different work stations, what is the transformation at each station, how much is wasted and how is it wasted, etc…

 

Basically, I looked at the different types of ‘flows’ and their interactions that were taking place all over the organisation to keep the operation alive and productive. 

 

On doing this, I quickly discovered that the ‘imperfections’ lay in the information and material flow.

 

As for the information flow a strange thing was happening. All bits of information in the plant were sort of looping around a *centre* repeatedly before these achieved their intended purpose. This was causing delay at every stage of the internal decision making process and with time, these delays were stacking up one upon other to form ever increasing delay loops all across the operation. This was getting reflected in the productivity, poor availability of the machines and order backlog.

 

The material flow problem looked something like this. Large quantities of materials were stacked across different work stations. This was because they wanted to process as many orders as possible in parallel mode. That is simultaneously process two or more orders. Common wisdom would say that it would speed up the production process – just like modern computers do – parallel processing. But instead of speeding up the process it was delaying the process since every time a new order has to be processed the machines are to be set differently, different dies were to be used. And all these operations, seemingly small, were cumulatively consuming a large amount of time. 

 

5th Principle of Design Thinking – Making intelligent choices

 

To fulfill this Principle is relatively easy once we successfully negotiate the 4th Principle.  The choices that lay before me were clear. I now had to redesign the system to eliminate the system imperfections as much as possible. Accordingly, the information flow was redesigned and the production scheduling was also redesigned. It was redesigned in such a manner that it was easy to do (6th Principle of Design Thinking — Algorithm) and day to day decision making at different stages of the operation would be extremely easy (7th Principle of Design Thinking – binary code).

 

Results of the application of Design thinking to solve this tricky problem:

 

1. Monthly turnover increased from X units (of money) to 2X units in just one month.

2. By the end of the seventh month from implementation the turnover increased to 3X units per month

3. The order backlog of 11 months was wiped off within the first 4 months of the change.

4. Cash flow problem vanished.

5. The company made a profit for the first time in the last 4 years and could pay dividends.

6. The company could lessen the manpower and still work more effectively.

7. The sales people picked up their bags again and started connecting customers with the new found confidence for fresh order.

 

How did this all happen?

 

The only miracle that was needed was to look inwards and understand the System as a whole as opposed to seeing the problems in parts and blaming this or that. And that is done by successfully applying the 8 basic principles of Design Thinking.

 

But this is not the end of the story. The system would again change with time and a new set of problems would appear. When that happens we would again have to look at the system with fresh eyes and not assiduously stick to something that worked well for us. The *brilliant* solutions of today would be outdated tomorrow.

 

Acknowledgement

I gratefully acknowledge with thanks the permission given by Mr. Madan Mohanka, Chairman, Tega Industries Limited to publish the story of one of his subsidiary plants where the Principles of Design Thinking were applied to solve the tricky problem to turnaround the organisation. You may reach him, if you like, at

madan.mohanka@tegaindustries.com

 

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