Of

Cats, Gurus, And the Economics of Redesign

Of Cats, Gurus, And the Economics of Redesign

By Porus Munshi

Once upon a time in a land far far away, there lived a guru at an ashram with his disciples. Every morning at 6 am the guru would do a pooja (prayer with rituals) along with his disciples. Now the guru had a pet cat and this cat would come in during the pooja and disturb all the pooja equipment so the guru would tell his senior most disciple to tie the cat to a tree nearby during the pooja and after the pooja to untie it. This went on for a number of years: everyday at 6 am tie the cat to a tree, do the pooja, after the pooja untie it. Year after year after year this was the practice. Then one day the guru died and his senior most disciple became the next guru and he instructed his senior most disciple to tie the cat to the tree before the pooja and untie it after the pooja. This again went on for a number of years. Then one day the cat died And the whole ashram was in a state of shock, Oh my god, the cat is dead. Now how will we do the pooja? So a junior disciple was dispatched to the neighboring village to buy another cat and the next morning this cat was tied to the tree before the pooja and untied after the pooja. The story above drawn from Anthony de Mellos lovely book, The Song Of The Bird, has strange parallels in the corporate world. Lets begin with processes. Over time, the need for a particular process passes because technology develops or a cat dies. However we very rarely subtract from a process. If anything we only add to it so that very soon a process is made up of a number of sub-processes that were added when a need arose but were never removed when the need passed. And of course this adds to cost and inefficiency. But thats only the very obvious part. Next, lets look at options. The guru had several options when the cat first began to disturb the pooja equipment. He could have given the cat away, he could have trained it to stay away during the pooja or he could have tied it to a tree. He chose the 3rd option. It wasnt the best or the worst option, it was simply an option. But over time one way became the way and cat-tying became an art. Theses were written on the fine art of cat tying: how to tie the cat, to what kind of tree, what to do if that particular tree was not available, what kind of cord to be used to tie the cat, what kind of knot, the sequence of how the knot should be tied and so on. People became better and better at tying the cat and soon the best person was designated as Head Cat Tier and he had a department of junior cat tiers under him who had to be trained in the fine art of cat tying. And of course one needed quality cats, quality string to tie the cat, quality hard wood to tie the cat to and so on. Soon, cat-tying became one of the most expensive parts of the entire pooja process. And then of course came the great talent wars. The smaller ashrams complained that they werent getting talented cat-tiers because the bigger ashrams were attracting them away with better offers. And consultancies sprang up to transfer best cat-tying practices from one ashram to another and to close the talent gap. Relentless poaching of talent began to take place and the cost of cats and cat tiers went through the roof. Governments had to step in and regulate cat-tying through legislation like the Monopolies and Restrictive Cat Practices Act.

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Of Cats, Gurus, And the Economics of Redesign Competition between ashrams became fierce and margins were taking a hit so ashrams first pursued efficiencies through economies of scale and then went in for Total Cat Management and Just In Cat processes to drive efficiencies and lower costs. After a while this wasnt enough so costs were further lowered by importing cats and cord from China and outsourcing the cat-tying process to India. The smaller ashrams didnt have economies of scale or large numbers of followers so they cut costs by using cheaper cats, cheaper string and inferior wood to tie the cats to with poor quality knots. And of course the larger ashrams scorned this. No self-respecting ashram that owed a certain standard of performance to its followers would stoop to this. Any talk of reducing cost and driving efficiency other than by (a) Economies of scale (b) Efficiency processes like TCM (Total Cat Management) and JIC (Just In Cat) or (c) Outsourcing, was dismissed as providing inferior value to discerning customers.

But Nobody asked why cats were needed at all!!!

And if they did ask, they were again dismissed as seeking to provide lower value to customers: How can you have a pooja without a cat? You see its easier to think about and pursue Economies of Scale rather than pursue Economies of Redesign. At first glance, doing away with something always seems to be providing lesser value or compromising. And it all begins, like cat-tying began, by choosing just one option out of a number of options. Soon that option and choice becomes a Law written in stone. And of course you can't break the law, can you? The reality is that over time we always drive inefficiencies rather than efficiencies, no matter how many efficiency processes we put into place. Organizations and industries bloat in order to become better and better at processes and use of equipment that may not be required at all. Take an example from the world of water systems. Piped water has been around for hundreds if not thousands of years and the earliest system was to have just a pipe with water continuously flowing out of it. Then some guru decided that the constantly flowing water was disturbing his pooja so he put a tap on it. Over time the tap began to be called a valve and valves became better and better and more and more complex as water delivery systems have grown larger and more complex. Large hydro projects like dams and pumping stations have large, complex valves that cost several million dollars each. And because of the cost of these valves and systems, the cost of large hydro projects shoots up sharply. The Narmada project in India, where a major river has been diverted, was no different. One phase of the project required part of the entire river to be lifted 72 meters (or 236 feet) straight up so that previously dry highlands could be irrigated. Hydro companies from across the planet bid for this part of the project and most bids were around $500 million or half a billion because lifting a river straight up needed complex systems and of course highly technical computerized valves to ensure that water didnt flow back down in case of any problems. So far so good because all the Hydro majors bid in the vicinity of half a billion dollars. But the company that got the contract, Kirloskar Brothers, won it on a bid of $100 million one fifth the cost that other companies had estimated.

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Of Cats, Gurus, And the Economics of Redesign

And how did they manage to crash down the project cost? They did away with centuries of an industry given: valves. They instead asked how does nature enable and prevent water from flowing. And the answer was air blocks! Air blocks are the bane of water and sewage systems worldwide and a great deal of effort goes into ensuring that they dont occur. These folks decided to use air blocks as valves. So all they do when they want water to stop flowing is to inject a stream of air at high pressure at a strategic point in the system. This acts as a valve that prevents the water from flowing and when they want the water to resume flowing, they just suck out the air. Presto! No complex, intricate, expensive valves. Thats Simplexity as opposed to complexity. And the costs crashed because how much does it really take to just inject a stream of air? The costs crashed while maintaining quality and even more, they reduced electricity consumption by 35 million units annually amounting to annual savings of $3 million at electricity rates prevailing at the time. And thats Economics of Redesign at its best because not only did project costs come down, they also reduced annual expenditure. The company has now patented this and as you can imagine, is rapidly becoming a global player and sought after partner in major hydro projects across the world. And when I share this, the first reaction of many hydro engineers is one of gut-wrenching discomfort. How can you move large volumes of water without mechanical valves? Its like trying to do the pooja without a cat!!! Take Space travel. In 2004, a little known team, made up of an assortment of oddballs on a tight budget put man into space for a $10 million dollar prize. They did it at a fraction of what it would have cost NASA and heralded the era of space tourism. NASA is now outsourcing a great deal of design and engineering to private companies. And despite the success of the NASA program, Burt Rutan, the man behind SpaceShipOne who won the 10 million prize says, The government is poison for the process. The flying that America has done in the last 20 years is by far the most expensive way to get to space and the most dangerousNASA is clinging blindly to an embarrassingly expensive and dangerous space shuttle program that should have been scrapped years ago.And as he adds in an interview with Wired magazine, What I learned is that you don't really need government resources to achieve suborbital space travel. The technology of SpaceShipOne is relatively simple and inexpensive. The hardware is almost entirely reusable. In fact, the only parts subject to real wear and tear are the bearings in the landing gear, which can be easily and cheaply replaced. The spacecraft can theoretically take off and land from any airport. You don't need a launchpad or an expensive base facility - just a 9,000-foot stretch of runway. With simplicity comes safety. And by the way, Burt Rutan isnt a rocket scientist, hes an aeronautical engineer. Maybe we dont need rocket scientists after all. As the article in Wired adds, Rutan thought up a simplified design for a rocket motor and contracted its manufacturing out to SpaceDev, a company in Poway, Calif., that had developed rocket motors that burn a relatively easy-to-control mixture of liquid laughing gas and rubber, producing a full ton of thrust. And in a middle-of-the-night inspiration, Rutan came up with a way to avoid a hot, ultrahigh-speed, difficult-to-control reentry: Add rotating wings that would tilt back during reentry, effectively configuring the entire aircraft as one big air brake. It was a typically out-of-the-box innovation that stunned many of his engineers. And NASA has now decided to hand over a large part of its in-house operations to external agencies because they tend to be far better at it.

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Of Cats, Gurus, And the Economics of Redesign There are 3 factors in common in both the examples above: 1. Both developed a very fascinating redesigned option that didnt compromise on quality or end result and that eventually benefitted the customer and potential customer. They did it by challenging industry orthodoxies. 2. Both went back to the roots and questioned every choice node. Did cats have to be tied? Did mechanical valves have to be used? Did a rocket have to be launched vertically? 3. They were created by Outliers: companies not in the mainstream and not leaders in the field they make a breakthrough in. These Outliers are going to emerge more and more from the BRIC nations and from challenges like the Ansari X-Prize that force a re-think. Companies from BRIC nations are natural Outliers because most international industries and markets are ruled by a clutch of companies that have become exclusive clubs that are difficult to break into because the entry costs are high. The only real competitive advantage most industry incumbents have is high entry cost. Most incumbents dont really strategize or change the game. All they do is more of the same and rely on high entry costs to block out newcomers because its too expensive to manufacture, market and ship products/services the same way the incumbents do. However more and more outliers are breaking through the entry barrier by fundamentally Redesigning all that was taken for granted. They change the cost-benefit equation drastically by adding high value and lowering cost. They do this by questioning every handed down Law and redesigning everything from scratch. The Economies of Redesign Most manufacturing experts will tell you that any manufacturing process is made up of a number of Choice Nodes where there a number of options available to do something and one option has been chosen at each node. There could be anything from 3 to 6 options at every node. Now imagine a very small process with just 3 nodes and just 3 options at each node. That alone throws up 27 different paths if I have my math right, and of this only one path was chosen. Now you have no idea if that is the best path or if it is needed at all. Youve just got something handed down and we spend a lot of time and energy making that path more and more efficient. We go in for economies of scale to drive efficiency but very rarely do we go in for Economies of Redesign. The Economics of Redesign has 2 very simple gates: provide far greater benefits to the customer AND do it at a radically lower price point. Note its not Either-Or, its AND. High benefit AND lower cost. Both the hydro company and SpaceShipOne did just this. Economies of Redesign by the way is a metaphor for doing much more with fewer resources, no matter what the resources. It could be about doing something radical with lower costs, fewer people, or even in less time. For instance the newspaper industry across the world accepts that when a newspaper launches in a new city, it takes the newcomer it takes at least 5 years of struggle for incremental market share before the newcomer can become a market leader if it ever does become one. This is because people dont switch newspapers as easily as they do shampoos or soaps. For nearly a hundred years there has been only way to grow the newspaper business. But then an outlier, Dainik Bhaskar suddenly burst on the newspaper scene in India and decided they wanted to be market leaders and number 1 in every city of launch from the first day of launch!!! Theyve done it in city after city after city. These folk grew from one city in 1996 to 48

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Of Cats, Gurus, And the Economics of Redesign cities as of 2011 and are leaders in 44 of these cities. They again identified the cats in their industry the cats were the belief that it takes 5 years or more to be a leader and that theres only one way to launch a newspaper. There are many industries today that are ripe for disruption and breakthroughs. The Pharma/health/medical devices industry could be one of them. Its now extremely bloated. It needs a whole bevy of Ph.Ds and other extremely highly educated people in the pharma field to discover molecules and produce drugs. It may be time for the kind of breakthrough here that the the Ansari X-Prize did for space travel. Space was the exclusive preserve of government the way Pharma is the preserve of big companies. It also needed large numbers of highly educated rocket scientists, and then all of a sudden NASA realized that people out there could do a lot more with far less and a whole new way of getting into space is emerging. As a general rule the more Ph.Ds required for entry-level tasks, the more ripe the industry is for a breakthrough because too many cats are being tied. Theres already a great deal of redesign happening in surgery, in medical services and in medical devices in countries like India because its very clear that to serve such a large population, a great number of cats will need to be untied. And its just a matter of time before the face of healthcare as we know it could radically change. So if youre a large, established organization or even if youre starting off new and you want to go about the Economies of Redesign, but find it difficult to do it because its difficult to see where were tying cats, an option is to learn from organizations that are challenging paradigms and doing away with cats across industries. For instance Aravind Eye Hospital in India treats millions for cataract surgery and has developed a system so effective that even though only 30% of its patients pay (the remaining 70% are treated free) yet it makes 40% operating margins year on year. They have fantastic systems in place. Now at one level its easy to dismiss what they do as NAH or Not Applicable Here because maybe Aravind belongs to a different continent or country or in a different industry or deals with a different category of customers. The first reaction could be NAH (pronounced Naaaaaah). Naaah, thats possible only in India, thats possible only in cataract surgeries and not much of these happen in the West, Aravind is possible because it provides lower value (it doesnt), and so on. But whats unseen is the careful thinking, the challenging of industry orthodoxies, the relentless search for scale and perfection that has gone into creating a breakthrough like this. And as long as NAH happens, learning doesnt take place. But the fact is industries from software to engineering to airlines to services to government can all learn from an organization like Aravind thats done away with many many cats common across industries. To sum up, todays breakthroughs in existing industries will come from Economies of Redesign rather than economies of scale. And Economies of Redesign provide game-changing benefits at a game-changing cost. ***

Porus Munshi