Management Case Studies: May 2010

Thursday, May 20, 2010

Three Drawer Management

Victor Benjee got an offer of appointment from Traditions Galore Ltd. The offer was undeniably very attractive in terms of money and position offered. He started contemplating in terms of the change. However he was not very sure whether the change would be a right move in his career growth.

He was quite in friendly terms with his existing boss Jawahar Kurios in his present company Genuine Systemic Ltd. So he could discuss his personal matters with Jawahar Kurios. While generally changing a job is kept quite a secret by almost all the people, Victor found it OK to confide such things in Jawahar. He trusted Jawahar fully in such matters too.

Therefore, one evening when Jawahar was quite free from his work and was resting in his cabin, Victor dropped in.

He asked, “Jawahar, do you have about an hour to spend with me? I wish to discuss something personal. Do you remember that you had given me a good reference while I was applying for a senior position in your previous company Traditions Galore? I want your advice in that connection?”

Jawahar got curious, “Can I congratulate you? I guess they have offered you a job.”

Victor said, “Yes, they have. And the offer is brilliant. I will get some 55% more money than what you give me here. The designation is more appealing and I stand to get a bigger house, car and cabin.”

Jawahar laughed, “Then where is the problem? Jump in.”

Victor said, “But I am not sure about the culture of Traditions Galore Ltd. They say that it’s quite different from Genuine Systemic Ltd. One could find it difficult to work in this new company after having worked for a more professional company like Genuine Systemic. Now you have worked for Traditions Galore for quite some years and you have the first hand information about it. Then who could be a better person than you to guide me on this change?”

Jawahar replied, “OK. OK. I will tell you all. But that’s based purely on my observations and experience. I will not tell you whether you should leave Genuine Systemic and join Traditions Galore. That will be strictly your decision. But surely, I will fill you with some data.”

Then Jawahar went on to elaborate, “What you heard is correct. Though it’s huge company by all standards but it is one of those family owned types where family members or their inner circle people have strict controls over all the company activities. In nutshell, Traditions Galore’s Culture is almost opposite of what we do here. For example, our company believes lots in processes and systems where as in Traditions Galore most of the decisions are discretionary. While we have at least some semblance of delegation of power and one can take decisions at different levels, in Traditions Galore the decision making is highly centralized. We are more transparent here but Traditions Galore is full of secrecy. Yet let me hurriedly say that they have their own brand of systems too and they too make huge profits.”

Victor interrupted, “Jawahar, can you give me some examples from your own experience?”

Jawahar said, “OK. I will tell you this one experience and you may get a lot of insight. I had joined Traditions Galore after working for a good length of time in a professional multinational company. This multinational company had everything defined on paper and things went strictly in accordance with those things. For example, if I wanted to buy some material or some equipment, the system was very transparent. If I gave convincing justifications for the purchase, I was sure to get it or the sanctioning authority will seek further clarifications from me. And timeline for this type of decision-making and execution was clearly defined. So it was that simple and straight forward.”

Jawahar took a pause and then continued, “So after joining Traditions Galore, I tried to follow the same system in absence of any systems manual telling me what to do. The CEO of the company had given me a mandate to improve the efficiency of the manufacturing departments by a certain percentage within an year’s period. For achieving this, I needed to induct some specific equipment of the latest technology in the organization. So I made a justification note, attached it to the purchase requisition form and sent it to the CEO. After a week or so, the justification note with the purchase requisition was returned to me via company’s finance department.”

Victor asked, “Why, did not you have an approved budget for it?”

Jawahar replied, “I had made provision for it in my budget but finance people used to revisit the budget provision once more on case to case basis when the actual purchase was about to be made. As per them the budget was just a rough guideline. Now this was quite different from my previous organization. In my previous company once a budget was sanctioned, it became sacrosanct for all purposes. But here the CEO passed on my requisition to finance department without even informing me. It was quite strange for me. I had to spend many hours spread over many days to satisfy finance chief. Finally he signed on the dotted line. After this I sent the whole thing once again to my CEO. I waited for almost two weeks but I did not get any approval of the CEO.”

Victor was surprised, “Then, when did you get the approval?”

Jawahar replied, “I did not get it. Couple of times I reminded him about my requisition but he posed very busy. Then after repeated follow up from me, he asked me to meet him and explain my plans on how I aimed at increasing the plant efficiency with the new equipment. But every time I requested for his time to do so, he made some excuse or the other and kept on postponing our meeting. Then I got fed up. I was already running out of time and being the first year of my employment I could not risk not achieving the mandate given to me. So I worked out some alternate plans without this technologically advanced equipment and somehow started implementing efficiency improvements.

Victor got puzzled, “You mean to say that you stopped sending all of your proposal to your CEO and still worked.”

Jawahar replied, “No, later on I knew the trick of how to get my proposals passed. Somehow with my keen observations I came to know about my CEO’s "Three Drawer System" which in fact was a top secret. Only intelligent people like me could decipher it. I told you earlier that even companies like Traditions Galore have their own brand of systems. My CEO there had a system which I branded as “Three Drawer System”.

Victor mentioned, “Jawahar, can you throw light on this ‘Three Drawer System’ please?”

Jawahar said, “I am coming to that. After getting clearance from finance your proposal goes to CEO. The scrutiny by finance itself is the first step of control on the expenditure proposed by you and wasting a couple of weeks. You have to explain a lot to finance people. Only if you are serious about your plan, you will take pains to convince finance department or else you will give up. So finance tests your patience and your seriousness about your proposal. Then your proposal goes to the CEO. Immediately on receiving the proposal, without even looking at it (forget about reading it), he shoves it into the top drawer of his table. Then as I did in my first encounter, you start reminding him about it. He tells you to meet him and explain the whole thing but for a few weeks or sometimes even for a few months he does not give you any time slot for the meeting. At this stage if you go slow on seeking his appointment, then after a few days he transfers your proposal papers to the second drawer (the middle drawer). Then he waits for you to push him for a meeting with him or convince him to give approval without the meeting. For some reason if you shy away from meeting him or you are incompetent to get his ears and convince him, he transfers your proposal to the third drawer (the bottom most one). In fact, since you have already waited all these days, weeks and months getting nothing, most people may totally give up. However few people still may try hard with him and in such a case the proposal papers may start a reverse journey through the drawers. However if you are not able to achieve this, you papers stay in the third drawer and soon find a way in the waste paper basket or the trash bin.”

Victor was amazed to hear this story, “My god, what an amazing control system! I could have never believed it unless it came from you. So, should I drop the idea of joining them?”

Jawahar said, “Why, are not they offering you 55% more salary; it’s quite high, one cannot ignore it. And what about the lucrative designation and bigger house, car and cabin? If you refuse, your wife and kids will miss all the fun. You already tasted this culture, why not taste the other culture too? Won’t it be fun for you too?”

Victor threw up his hands in desperation, “Jawahar, aren’t you joking? Damn it, I am totally confused.”

Related Book

"Sensitive Stories of Corporate World" (available from Amazon, get it online)

Read many more management anecdotes/management case studies in the eminent author Shyam Bhatawdekar's best selling book "Sensitive Stories of Corporate World" available online from Amazon as an eBook as well as a printed book.

Other Related Reading

For everything you wanted to know on building leadership and management, refer Shyam Bhatawdekar’s website: http://shyam.bhatawdekar.com/

Also, refer our High Quality Management Encyclopedia at: http://management-universe.blogspot.com/

For “out of box thinking” articles by Shyam Bhatawdekar, refer: (Out of Box Ideas) http://wow-idea.blogspot.com/

Read other blogs of Shyam Bhatawdekar at: (Home Page for Writings of Shyam Bhatawdekar) http://writings-of-shyam.blogspot.com

Monday, May 17, 2010

Fifty Percent Cutter

Babu Kutter got the fame as “50% cutter” in the new unit of Famous Expo Industry. The new unit of this company was in its project stage and obviously it had yet to breakeven and to start making profits.

The President of the unit was indoctrinated into Famous Expo’s very important dogma of thrift. Famous Expo was famous for its economy initiatives and managers of other organizations were deputed to Famous Expo to learn those tricks of the trade which saved enormous money for Famous Expo and earned for it one of the best profit figures in the industry.

The President of the unit had come up from the ranks in the company and swore by its principles of frugality. The motto of the company was, “Save wherever and whenever even remotely possible”.

The new unit of Famous Expo which was in its commissioning phase had employed people from various outside organizations. Therefore, they were yet not so conscious about the economy principles of the company.

Being a new unit, the activity of purchasing this thing or that thing was one of the highest order activities. All kinds of employees from all kinds of departments of the unit used to raise purchase requisitions for various materials required for the completion of the project. Absence of a budgeting system (the unit being new, this system was yet to be formulated for implementation) and absence of consumption norms (again, the unit being new) made it difficult to find out a basis for approval or disapproval of the quantities of materials requisitioned.

Yet, the President found out a way of controlling the incessant purchases by installing Babu Kutter in the unit’s budget control department. Babu Kutter was a carbon copy of the President at least in the matters of respecting money. He had earlier worked under the shadow of the President in company’s other units. The President was confident that Babu Kutter was a system in himself and that system had a way of controlling the expenses. The President himself did not know exactly how Babu Kutter used to control expenditure in the company; but he knew for sure that it worked thoroughly though it always remained an enigma to him. Yet…….

As soon as Babu Kutter was brought in the saddle, all the purchase requisitions started getting routed through Babu Kutter before they landed on the desks of the buyers of the unit. Babu Kutter invariably slashed down the quantities on the requisitions. For example, if a user department’s manager asked for purchase of say 100 kilograms of some material, he invariably was made to get a surprise by receiving only say sometimes 70 kilograms or other times say 65 kilograms. When enquired about the short purchases, the buyers would direct their fingers at Babu Kutter of budget control. When they asked Babu Kutter about it, he simply used to say, “Start working with 70 kilograms. Right now the funds are a bit of a problem. Whenever and if you feel the necessity for the rest 30 kilograms, you can always raise a supplementary purchase requisition.”

The user department’s initial reaction to this was, “Fair enough.” But soon they realized that this story of Babu Kutter was going on and on; short purchases became a rule. Short purchases were creating problems in the expeditious completion of their work. On the other hand constant pressure was created by the President all the time to expedite the project.

Whenever, the user managers took up this case of short purchases pointing out to Babu Kutter as the reason, the President used to laugh out and say, “Come on. He is doing his job. You should do yours.” And the matter died there.

Soon user departments learnt a new trick. They would inflate the figures of materials to be purchased by around 25% to 30% over and above what was actually needed, on the purchase requisition slips. And after the cut by Babu Kutter, they would finally receive exactly the quantities of materials they needed. Soon, people stopped complaining to Babu Kutter or the President.

Babu Kutter and the President were no fools. Stoppage of complaints from user managers alarmed them. They conferred with each other and secretly worked out a new system of budget control.

From that day onwards, Babu Kutter started cutting the quantities on the purchase requisitions by exactly half. He started applying his well tested formula of 50% cut. Babu Kutter’s job became simpler and more effective. He did not have to think about whether to cut 20% or 25% or 30% or any other percent, he had just one figure to apply i.e. 50%.

It created havoc amongst the user managers. But they could not do much about it. They had played a trick and now Babu Kutter played a trick. Tit for tat- nothing wrong about it. So, they ganged together to teach Babu Kutter a lesson. And soon an opportunity came their way.

The President had decided to shift from his make shift city project office to his new permanent factory office. The office needed furnishing and decoration befitting a president of a highly reputed and huge organization of the scale of Famous Expo. Unit’s administrative manager was in charge of this.

Administrative manager performed his job of furnishing the new factory office of the president meticulously.

And one fine day, the President wanted to inspect his new factory office and also inaugurate it formally before physically shifting there. All the heads of the departments of the unit along with their key subordinates including the administrative manager and Babu Kutter were invited to attend this inaugural ceremony.

The president cut the ribbon. Everyone present clapped. And the president entered the office along with all the invitees. The curtains in the office attracted his attention first before he could look at anything else. He noticed that all the curtains were half in length of the standard length really required of those curtains. All the curtains started from the ceiling alright but invariably abruptly ended somewhere in the middle of the window or middle of the wall. They looked like rags and incomplete.

He was furious. He was fretting and fuming. He looked at the administrative manager accusing him with his eyes gone red and watery, “What’s this joke?” He could not speak any more; he was feeling so very humiliated in front of so many of his subordinate employees.

The administrative manager said with a calm and quiet disposition, “Sir, I had asked for the full length curtains on my purchase requisition alright but I understand that Mr Babu Kutter cut it by 50% as an economy measure. That’s why.”

Related Book

"Sensitive Stories of Corporate World" (available from Amazon, get it online)

Other Related Reading

For everything you wanted to know on building leadership and management, refer Shyam Bhatawdekar’s website: http://shyam.bhatawdekar.com/

Also, refer our High Quality Management Encyclopedia at: http://management-universe.blogspot.com/

For “out of box thinking” articles by Shyam Bhatawdekar, refer: (Out of Box Ideas) http://wow-idea.blogspot.com/

Read other blogs of Shyam Bhatawdekar at: (Home Page for Writings of Shyam Bhatawdekar) http://writings-of-shyam.blogspot.com

Additional Reading Opportunities

Alphabetic List of of Management Topics and Their Site URLs
(The term "management" here does not limit itself to just about business management but it encompasses management of all kinds of things like life management, home management, family management, health management, travel management, food management and so on).

Home Pages for All the Topics

1. (Home Pages for Brief Introduction to All the Business Management Topics) http://management-universe.blogspot.com/, http://management-universe-enotes.blogspot.com/ and http://shyam.bhatawdekar.com

2. (Home Page for All General and Psychological Counseling) http://counselingfamily.blogspot.com/

3. (Home Page for All Home Tips: Home and Family Management) http://home-tips-tricks.blogspot.com/

4. (Home Page for All Products: Products Knowledge Management) http://products-all.blogspot.com/

Topics Starting with Numbers

(5S Housekeeping) http://5s-housekeeping.blogspot.com/
(5S Housekeeping at Home: Home Management) http://5s-housekeeping-home.blogspot.com/

Topics Starting with Alphabets

A
(ABC Analysis or Pareto Analysis or 80/20 Rule) http://abc-pareto-analysis.blogspot.com/ or http://shyam.bhatawdekar.net/index.php/2011/07/20/abc-analysis-or-pareto-analysis/
(Activity Based Costing- ABC) http://activitybased-costing.blogspot.com/
(Advertising) http://advertising-mass-communication.blogspot.com/
(Anecdotes in Management) http://management-anecdotes.blogspot.com/
(Anger Management) http://controlling-anger.blogspot.com/
(Articles, blogs and knols of Shyam Bhatawdekar: Home Page) http://writings-of-shyam.blogspot.com/
(Assertiveness) http://assertiveness-skill.blogspot.com/
(Assessment Centers) http://assessment-centers.blogspot.com/
(Authentic and Free Management Notes) http://authentic-management-notes.blogspot.com/
(A to Z of Management Systems) http://a-z-management-systems.blogspot.com/
(A to Z of Quality Techniques) http://a-z-quality-techniques.blogspot.com/

B
(Balanced Scorecard) http://balanced-scorecard-system.blogspot.com/
(Basic Statistics) http://statistics-basic.blogspot.com/
(Behavioral Safety) http://behavioral-safety.blogspot.com/
(Benchmarking) http://benchmarking-system.blogspot.com/
(Body Language or Non-verbal Communication) http://body-language-communication.blogspot.com/
(Books- Best Books) http://best-book-list.blogspot.com/
(Books- Best Management Books) http://best-management-books.blogspot.com/
(Boundaryless) http://shyambhatawdekar.blogspot.com/
(Brainstorming) http://brainstorming-technique.blogspot.com/
(Branding- Personal/Professional Branding http://professional-branding.blogspot.com/ or http://shyam.bhatawdekar.com/
(Business Ethics and Ethics in Management) http://business-management-ethics.blogspot.com/
(Business Plan) http://business-plan-preparation.blogspot.com/
(Business Process Reengineering- BPR) http://business-process-reengineering-bpr.blogspot.com/

C
(Career Planning within Organizations) http://organizational-career-planning.blogspot.com/
(Case Method) http://case-method.blogspot.com/
(Case Studies in Management) http://corporate-case-studies.blogspot.com/
(CEO Roles, Qualities and Competencies) http://ceo-qualities.blogspot.com/
(Change Management) http://manage-change.blogspot.com/
(Child Development: Stories for Children) http://stories-children.blogspot.com/
(Children’s Behavior Problems: Family Management) http://child-behavior-problems.blogspot.com/
(Coaching) http://coaching-skill.blogspot.com/
(Communication) http://communication-for-business.blogspot.com/
(Competencies- Life Management) http://shyam-bhatawdekar.blogspot.com/
(Competency Matrix/Competency Mapping: Success by Building Competencies/Skills) http://competency-matrix-mapping.blogspot.in/
(Competency Mapping) http://competency-map.blogspot.com/
(Competency Matrix) http://competency-matrix.blogspot.com/
(Conflict Management) http://manage-conflict.blogspot.com/
(Corporate Governance) http://corporate-governance-policy.blogspot.com/
(Cost Management) http://cost-management-control.blogspot.com/
(Cost of Quality- COQ) http://cost-of-quality.blogspot.com/
(Counseling at Workplace)http://counseling-skill.blogspot.com/
(Counseling: Psychological) http://counselingfamily.blogspot.com/
(Creativity- Out of Box Articles) http://wow-idea.blogspot.com/
(Creativity and Innovation) http://creativity-management.blogspot.com/
(Critical Thinking skills) http://critical-thinking-skills.blogspot.com/
(Cross Cultural Etiquette and Manners) http://cross-cultural-etiquette.blogspot.com/
(Customer Orientation) http://customer-orientation.blogspot.com/
(Customer Relationship management- CRM) http://customer-relationship-crm.blogspot.com/

D
(Daily Management) http://daily-management.blogspot.com/
(Decision Making) http://decision-making-role.blogspot.com/
(Delegation) http://delegation-skill.blogspot.com/

(Democracy) http://democracy-liberation.blogspot.com/
(Design for Manufacture) http://design-for-manufacture.blogspot.com/
(Dining Etiquette and Table Manners) http://dining-manners.blogspot.com/
(Discipline at Work) http://discipline-at-work.blogspot.com/

E
(Effectiveness and Efficiency) http://effectiveness-efficiency.blogspot.com/
(Effectiveness Management: HSoftware) http://humansoftware.blogspot.com/
(Efficiency Techniques: Work study: Motion and Time Study) http://work-study-measurement.blogspot.com/
(Efficient Work Methods or Practices) http://efficient-work-methods.blogspot.com/
(Email Etiquette) http://email-etiquette-manners.blogspot.com/
(Emotions) http://emotion-feeling.blogspot.com/
(Emotional Intelligence) http://emotional-quotient-intelligence.blogspot.com/
(Empowerment) http://employee-empowerment.blogspot.com/
(Enterprise Resource Planning- ERP) http://erp-management.blogspot.com/
(Entrepreneurship and Entrepreneur) http://entrepreneurship-entrepreneur.blogspot.com/
(Entertainment Management- English Movies) http://popular-movies.blogspot.com/
(Entertainment Management- Hindi Movies) http://hindi-movies-choice.blogspot.com/
(Executive Etiquette and Manners) http://executive-manners.blogspot.com/
(Exit Interview) http://exit-interview.blogspot.com/

F
(Financial Ratios and Financial Ratio Analysis) http://financial-ratios.blogspot.com/
(Financial Services) http://finance-related-services.blogspot.com/
(Free and Authentic Notes on Management) http://authentic-management-notes.blogspot.com/
(Functions of Management) http://functions-of-management.blogspot.com/
(Food Management: Recipes, Easy to Cook) http://easytocook-recipes.blogspot.com/
(Food Management: Recipes, Exotic) http://tastetherecipes.blogspot.com/

G
(Games and Icebreakers for Trainers) http://training-games.blogspot.com/
(Gemba Kaizen) http://gemba-kaizen-improvement.blogspot.com/
(General Knowledge Management- GK) http://general-knowledge-gk.blogspot.com/
(General Knowledge Management- Top 5/Top 10 of Everything) http://top-five-everything.blogspot.com/
(Genuine Professional- Long Article) http://professional-genuine.blogspot.in/
(Global Mindset) http://global-mindset.blogspot.com/
(Goal/Target Setting) http://goal-target-setting.blogspot.com/
(Good Boss) http://good-boss.blogspot.com/
(Great Professional) http://professional-genuine.blogspot.in/
(Group Discussion) http://group-discussion-gd.blogspot.com/
(Group Discussion for Job Seekers and Students) http://group-discussion-gd.blogspot.com/
(Group Dynamics) http://group-dynamics-process.blogspot.com/

H
(Health and Safety Management) http://safety-health-management.blogspot.com/
(Health Management- Cholesterol Control) http://controlling-cholesterol.blogspot.com/
(Health Management- Homeopathy) http://homeopathy-medicines.blogspot.com/
(Health Management- Exercises) http://exercises-plan.blogspot.com/
(Health Management- Quit Smoking) http://quit-smoking-plan.blogspot.com/
(Health management- Swine Flu and Its Prevention) http://swine-flu-precaution.blogspot.com/
(Health Management- Walking) http://walking-plan.blogspot.com/
(How to Be a Good Boss?) http://good-boss.blogspot.com/
(How to Get Promoted?) http://get-promoted.blogspot.com/
(How to Save Money?) http://save-money-ideas.blogspot.com/
(How to Save Money?- Long Comprehensive Article) http://manage-moneysaving.blogspot.in/
(Home Management- Home Page for All Home Tips) http://home-tips-tricks.blogspot.com/
(HR Dynamics) http://hrm-dynamics.blogspot.com/
(HR Strategies and Functions) http://strategic-functions-hrm.blogspot.com/
(Human Capital Architecture) http://human-capital-architecture.blogspot.com/
(Human Relations) http://human-relations-aspect.blogspot.com/
(Human Resource Management- Comprehensive Coverage of HRM) http://human-resource-management-hrm.blogspot.com/
(Human Resource Planning) http://human-resource-planning.blogspot.com/
(Human Software- HSoftware) http://human-software-hsoftware.blogspot.com/

I
(I Am Liberated- Life Management) http://i-am-liberated.blogspot.in/
(I Am OK, You Are OK) http://life-positions.blogspot.com/
(Icebreakers and Energizers) http://management-games-icebreakers.blogspot.com/
(Internal Motivation or Self Motivation) http://internal-motivation.blogspot.com/
(Interpersonal Relations) http://interpersonal-relations.blogspot.com/
(Interview Skills) http://interviewing-skill.blogspot.com/
(Interview Preparation for Job Seekers) http://interview-preparation-jobs.blogspot.com/
(Interview Questions) http://interview-question-bank.blogspot.com/

J
(Johari Window) http://johari-window-model.blogspot.com/
(Just in Time Management- JIT) http://just-in-time-management.blogspot.com/

K
(Kaizen) http://kaizen-improvement.blogspot.com/
(Knowledge Management) http://knowledge-management-initiative.blogspot.com/

L
(Lead Time Management) http://lead-time-management.blogspot.com/
(Leadership) http://lead-max.blogspot.com/ and http://shyam.bhatawdekar.com
(Lean Enterprise) http://lean-organization.blogspot.com/
(Learning Organization) http://learning-organization-profile.blogspot.com/
(Life Management- Latest HSoftware Model) http://life-effectiveness.blogspot.in/
(Life Management- I Am Liberated; Freedom from Shackles and Burdens) http://i-am-liberated.blogspot.in/
(Life Management: Success in Life) http://success-complete.blogspot.in/
(Life Management: My Exotic Dream: World Peace and Other Good Things of Life)

http://exotic-dreaming.blogspot.in/

Saturday, May 15, 2010

Cool Initiative

During the worst worldwide recessionary time, lots of pain was felt by lots of people though some rich and famous were unaffected by it as usual since they had already transferred lots of money from others in their coffers through various creative means.

And in the plethora of pains among majority of people, the specks of funny absurdities could surely make one laugh occasionally and forget the pain momentarily.

This is what exactly happened in the Ultimo Efficacy Inc.

Ultimo Efficacy was doing pretty well and making good amount of money even in recession. But recession provided a great and valid excuse to many companies including Ultimo Efficacy to cut out even on the otherwise normal expenses of the corporation and get the employees at various levels to work in highly constrained conditions. Idea was that they would easily accept such a thing under the hoax of recession. Rather they would be happy doing it, feeling all the way like martyrs and would soon get habituated to it. That way even after the recession was over; they would not grudge the absence of perquisites, facilities and money withdrawn from them during recession.

So, Ultimo Efficacy which was already adept at converting threats into opportunities, used recession to suddenly impose one of the most important management principles i.e. cost reduction or cost control. Though they could have very well used cost reduction to their advantage even in non-recessionary or normal times of business but did not do it because at that time they were soaked in unimaginably high profits and cost control was thrown out of the windows as an obsolete management principle or unnecessary distraction.

They got reminded of cost control mainly to achieve the objectives enumerated in one of the earlier paragraphs. So, top management of the company issued out a circular to each and every employee which read as follows. The measures contained therein were addendum to the cost control that was already being exercised by the company through the customary layoff of employees practiced as a part of recession time ritual. The contents of cost control circular issued in Ultimo Efficacy are given below:

Under compulsions of difficult circumstances of recession, all the employees at all the levels are requested to concentrate on cost reduction throughout the organization.
In view of this company has decided to go slow on promotions and salary raises for the next two years; the budgets on this count are being slashed by 75%. (Not on the office circular: It was another matter that the CEO and other top executives of the inner circle of management got away with bigger packets of fat (underserved) salaries and obscenely high bonuses during these two years later on).
Avoid travel. All the employees will travel by the cheapest modes of travel if travel is at all essential. It will be in the interest of the employees to walk if the distance travelled is at least 5 miles or below as you may be aware that walking is the best exercise to keep oneself fit and healthy. If any employee wishes to walk for over 5 miles, it will be highly appreciated. (Not on the office circular: It was another matter that the CEO and other top executives of the inner circle of management continued with their earlier habits of traveling by private or chartered aero planes or by the first class in commercial airlines and using limousines).
Everyone will start using both the sides of the paper for writing. Pencils should be used to write rather than pens. The advantage of using pencil is that you can erase what is written by it and thus use the paper again and again. Company is glad to provide a pool of erasers for this purpose as an extra facility.

And the instructions in the circular went on and on.

Employees had a fun-day reading the circular and savoring its contents. It brought to them some momentary pleasure amidst the pain created due to bleak recessionary environment.

A particular junior officer Simple Simpson in company’s purchase department got hyper after reading the circular. He decided to contribute his might to the laudable company wide cost control efforts.

It was summer time and the region where Ultimo Efficacy Inc’s offices and factory were located; the summer could be very severe. So the employees were provided cool water to quench their thirst in such severe summer. The company used to provide many water coolers at different locations in the offices and factory premises. Every year company used to replace the worn out water coolers with the new ones. The purchase requisitions for replacement water coolers were made by the user departments and sent to purchase department. Simple Simpson in purchase department used to process the purchase requisitions of water coolers, contact the water cooler manufacturers and buy them.

However, in view of the cost control measures, Simple Simpson suggested to the user departments that instead of water coolers he proposed to buy the earthen pots. He had seen such earthen pots being used by the people who could not afford to buy refrigerators or water coolers, particularly in the poorer countries. The water filled in the earthen pots got cooled pretty fast and remained cool for unlimited period.

User departments were too happy to go along with this proposal of Simple Simpson. They thought that in doing so they too would thus contribute towards top management’s cost reduction plan. If price of a water cooler was equivalent of $350 to $400, price of an earthen pot would be mere $1 or so. The proposal had tremendous potential of cost reduction.

A total of 100 earthen pots were requisitioned. Simple Simpson started processing this requisition for purchase of earthen pots. He sent out enquiries, got the commercial terms from the makers of earthen pots, compared various quotes thus received and finally zeroed in on one supplier who offered the minimum price per earthen pot.

As per the formal authority delegation chart of the company, a junior officer at Simple Simpson’s level was not authorized to negotiate with the suppliers. Only his boss was authorized to do so. But Simple Simpson wanted to be true to his salt at least on this occasion. He wanted to respond to the call of cost reduction of top management all by himself. After all it was his suggestion to buy earthen pots in place of water coolers and save for company thousands of equivalent dollars. So, he decided to stick his neck out and decided to negotiate with the shortlisted supplier of earthen pots to get a still better deal from him.

The maker of the earthen pots did not reduce the price further but agreed to give away 20 earthen pots over and above the 100 on the purchase order. He mentioned that he had no use of those 20 pots and could as well give them away to Simple Simpson. Simple Simpson was mighty happy with his first stint at negotiations.

The 120 earthen pots were received by Simple Simpson and he got them positioned inside Ultimo Efficacy Inc’s premises. People liked the cool water of these earthen pots and employees at grass root levels appreciated the creative brains and efforts of Simple Simpson and the resultant enormous savings. Simple Simpson became a hero for the time being.

But his glory did not last long. The period during which these 120 earthen pots were purchased was the physical inventory checking period of the company as per its laid down systems. A sharp young auditor did an audit on the earthen pots. He had the numbers on the earthen pots on the material requisition slip reading at 100 and the same 100 number was found on the purchase order. But despite physically counting a number of times the physical inventory of earthen pots came to 120 on every count. Several hours over a few days were spent by the auditor in counting the earthen pots again and again because the physical count was not tallying with the numbers mentioned in the documents and he thought that he was making some mistake in counting. Finally he decided that the physical count did give him a figure of 120 earthen pots and he was not making any mistake in counting. As per him it was a serious audit discrepancy- how the company could have more material than what was ordered? That showed slack internal controls. Then after doing a detailed research on the causes of this discrepancy, he ultimately stumbled on the fact that the discrepancy was the outcome of the negotiations carried out by Simple Simpson. And that was another serious violation of internal controls since Simple Simpson had no business to negotiate with the suppliers as per company’s policies.

As per the auditor a number of violations of systems and procedures of the company were found in the transactions of earthen pots. He documented them in his formal written report as follows:

As per the company requirements and budgets approved, water coolers were to be purchased and not the earthen pots. No approved or otherwise budget was available to purchase earthen pots. And there was no written authorization of any competent authority to authorize the purchase of earthen pots.
Discrepancy was found in the number of earthen pots actually physically found in the company’s premises as against the ones requisitioned and ordered. It was a grave violation of the internal controls.
On enquiry we found that Mr Simple Simpson who was in charge of processing the requisition insisted that he took all these actions as per the management’s directive of cost reduction. Therefore, he took initiative even to negotiate. This again is another violation. Company’s formal delegation of authority does not permit employees at Simpson’s level to take such decisions of purchase of earthen pots in place of water coolers on their own and also to negotiate, all by themselves, with the suppliers.

The audit observations were forwarded to the top management of the company. Top management was not used to getting such sort of audit reports.

Top management of the company felt terribly offended by such irregularities committed by its employee and ordered an enquiry against Simple Simpson. He was wondering as to what wrong did he do in saving such a lot of money for the company- he did not commit a fraud, he did not commit a crime, he did not squander company’s money, he did not take bribe- all he did was to take initiative and save money. And for this was he being pushed in front of the firing squad?

Related Book

"Sensitive Stories of Corporate World" (available from Amazon, get it online)

Other Related Reading

For everything you wanted to know on building leadership and management, refer Shyam Bhatawdekar’s website: http://shyam.bhatawdekar.com/

Also, refer our High Quality Management Encyclopedia at: http://management-universe.blogspot.com/

For “out of box thinking” articles by Shyam Bhatawdekar, refer: (Out of Box Ideas) http://wow-idea.blogspot.com/

Read other blogs of Shyam Bhatawdekar at: (Home Page for Writings of Shyam Bhatawdekar) http://writings-of-shyam.blogspot.com

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