Monday, November 22, 2010

What is our intellectual horse power?

What is our intellectual horse power?

“Do we hire people in this company to think at all?” asked Raghu Parthasarathy who had assumed charge as the Chief Knowledge Officer. Raghu had returned to India after spending over 20 years in the US. He holds several patents and helps companies develop the capacity of the people to innovate and enhance the intellectual capital base.

He was making his observations known to the CEO and the board on why he is compelled to ask that question. He revealed some interesting statistics:

Against the 2.5% of the turnover the company was spending in R&D, it was ‘importing’ knowledge and outsourcing thinking that costed the company nearly 30% of the revenue! In other words for every one rupee spent on commercializing new ideas, the company was spending 12 times that borrowing it from elsewhere. Therefore the company’s ability to think, that he termed ‘intellectual horsepower’ was at mere 8.33% If the company was content to encourage so little thinking and do much shopping for ideas from external sources, why at all hire top flight engineers and MBA’s from Ivy schools at exorbitant starting salaries?

He reeled off examples:

The human resource department does very little thinking or even doing. They outsource everything from climate surveys, Employee satisfaction surveys, recruitment and selection of senior and junior personnel, annual compensation benchmarking, skill assessment for all new positions and even 60% of the training. The cumulative financial load of all these outsourced activities was equivalent to one month’s wage bill for the entire company, 20 crores! The HR department had become a buying agent of HR services. This does not include payroll processing and the HRIS platform under automation.

Marketing itself does very little thinking related to their function. Everything from creative advertising, to consumer research, brand equity assessment needed to be audited, analyzed and reported for market share gain and loss; all these were offloaded on to third party suppliers. All that Marketing did was to arrange them make presentations to the CEO and settle their bills. They gave away almost 30 crores of business in the previous year and felt the spending should go up higher! When will they learn to do these works in house?

The Director of Communication had appointed specialized agencies to bring out the company brochure, design the balance sheet, edit and print he monthly newsletter, convene all promotional events including press meets and the maintenance of the company’s Intranet. That cost another 24 crores; down the drain.

Information processing department outsourced all their data entry work and the related analytics to a specialize agency that is supposedly statistically more literate then us. No single agency within the company was capable of generating any special reports or analysis of our own.

Raghu parthasarathy highlighted the need for the company to institute a policy that will make the ‘import of thinking ‘abilities far more stringent. He went on to categorize knowledge work into five:

  1. Internally developed proprietary know how: Ready made, tried and tested proven application
  2. In house research and analysis: Confidential and tightly managed development program
  3. Fully outsourced projects: Routine and cost effective to get done from the outside
  4. Off the shelf bought out solution: Import ideas if they are it can be developed faster and better buy
  5. Custom designed package development: What is needed to develop it in house?

The first and second should be actively encouraged.

The third and the fourth seriously debated.

The last one actively discouraged; it should either belong to the first two or the next two.

Else it will become prohibitively expensive to maintain and upgrade. .

Unless the estimated 80 crores on outsourced knowledge work is actively tracked and brought down, not only would the company be at a disadvantage, it will also affect the morale of the people who have to look up to outsiders for creative solutions. will that not be counter productive in the longer term?


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