"WHERE KNOWLEDGE IS WEALTH"

Saturday, July 26, 2008

RISK MANAGEMENT VIS-A-VIS RETAIL TRADING

ABSTRACT

The article deals with risk management vis-à-vis retail trading. It clearly says that risk is inherent part of life and lays stress on the importance of risk in our life. It focuses on the risks involved in small businesses and retail business. Anticipating and managing pilferage, dead and damaged stocks, the liquidity crunch and the involvement of interest burden in retail business are dwelt at length. It has taken the case study of a vegetable vendor doing business with business acumen and without formal education. The article lays stress that you cannot eliminate risk but you can only minimize risk by managing effectively and efficiently. At the end it concludes that not to take a risk is also a risk.

KEY WORDS: What is Risk Management? Pilferage and Damaged Stocks, Liquidity Crunch in Business, Involvement of Interest Burden, Business Acumen of a Vegetable Vendor, Tools to Manage Risk, Diversification of Risk, How to Make a Purchase Decision? Managing Dead Stock in Retail Business, Risk Management in Small Businesses & Conclusion.

- - - - - - - - - -

“A ship is safe in harbor, but that's not what ships are for.” William Shedd

WHAT IS RISK MANAGEMENT?

It is essential to explain about risk before focusing on risk management. Risk is the element of uncertainty involved in every aspect of our life be it in personal, professional and social life. Nobody would like to invite risk. But everyone faces risk either intentionally or unintentionally because risk is part of life. It is basically because of the ‘fear of failure’ or ‘fear of criticism’ or other reasons people avoid taking risks. But the silver lining of risk is the ability to create or innovate, which will unfold lot of prospects. At times, risk is like a boon in disguise. When we deliberate about risk management it is nothing but managing the uncertainty. According to Wikipedia, “Risk management is a structured approach to managing uncertainty related to a threat, a sequence of human activities including: risk assessment, strategies development to manage it, and mitigation of risk using managerial resources.”

Risk management is the term for the procedures that an organization follows to protect itself, its staff, its clients, and its volunteers. Practicing sound risk management is more than just looking out for potential problems, buying insurance, and avoiding lawsuits. It is an ongoing process. To define succinctly, risk management is the process of identifying the threats arising out of uncertainty and the potential problems and, if possible, averting the same, if not, minimizing the same to a larger extent by systematic and scientific approaches and methods.

PILFERAGE AND DAMAGED STOCKS:

In retail business usually we find pilferage of items by customers and by workers also. It is a type of risk that can be anticipated and can be contained. It is for this reason why video cameras are placed in various retail stores so as to check pilferage. Of course, cameras will also help the location of the staff and their performance in handling customers. Sometimes the goods are damaged due to improper handling or negligence or due to unforeseen accidents. These are all the risks involved in retail business and anticipating the same would help in effective risk management.

LIQUIDITY CRUNCH IN BUSINESS:

Liquidity tightness happens in business that is another risk in any business. And especially in retail trading there could be wide fluctuations as at some particular timing there will be high presence of customers and low presence of customers. Similarly we can expect heavy flow of customers especially on weekends, as office goers would be free to buy during this period. As a result, there will be good cash flow in the weekends and average cash flow during weekdays. Sometimes there will be liquidity crunch to meet the obligations if there is no brisk business activity due to unforeseen situations. Therefore, it is advisable to keep cash ready to meet such situations. It, again, comes under risk management.

INVOLVEMENT OF INTEREST BURDEN:

Business people borrow money on interest to meet their commitments. For a real businessperson commitment, indeed, is more important than making money as once the commitment is not honored the business person loses his credibility and good will. Every businessperson strongly believes that money can be earned at any time but not the lost good will. In order to honor his commitments he borrows money on interest and fulfils his commitment. In case if he is not able to generate adequate business then there will be interest burden mounting into more interest payments. In the long run, it affects the profit levels and closure of business. Therefore, involvement of interest becomes another factor in risk management.

BUSINESS ACUMEN OF A VEGETABLE VENDOR:

Let us take the case study of a vegetable vendor who manages the risk in his business although he may not have formal education. For instance, he buys ten varieties of vegetables from the wholesale market for selling in retail. In the first round, he sells the stocks, which are very fresh with handsome profits till he liquidates half of the stock. In the second round, he sells the balance stocks with nominal profits because the fresh stocks have already been sold. In the final round, he sells the stocks that are left over even for loss with an intention to liquidate and encash. In the third scenario, his intention is not to make profits but to encash, as the stocks if stored may result into getting rotten and also it helps in avoiding any hiccups as well as to keep the cash ready for the next purchase. Vegetable vendor does business based on intuition and gut feeling. Since he has been doing business for a long time he developed intuition and that can also be called as business acumen and that helps him.

TOOLS TO MANAGE RISK:

Once risks have been identified and assessed, all techniques to manage the risk fall into one or more of these four major categories

Avoidance (eliminate), Reduction (mitigate), Transference (outsource or insure), and
Retention (accept and budget).

As far as possible the potential problems are to be averted and if not should be eliminated in toto. In the second category the efforts should be made to mitigate the problems. In the third category, there must be provision to insure the problem. In the final category it is necessary to accept the problems and earmark some budget for the same.

Risk can arise due to internal factors or due to external factors or forces. If risk arises due to internal factors either due to negligence or due to ignorance there is a need to own the responsibility and see to it that such things do not recur. If the risk arises due to external factors, which are beyond human imagination and control, there is nothing to bother much. But at the same time, lessons should be learnt and precautionary measures be taken.

DIVERSIFICATION OF RISK:

It is always advisable to have diversified products in retail trading so as to minimize risk. It is not necessary that all the stocks should be sold and it is not possible as no one can predict the sales with total business acumen. Keeping diversified range of products at the retail counter will help cater to larger customers where customers would be comfortable in buying everything under one roof. It also helps in minimizing the risk of piling up the stocks permanently. There would be movement of some products and effective running of business as cash keeps flowing into the business. Hence, it is vital to keep multiple products although in less quantity to cater to consumers so as to ensure effective cash flows and proper business rotation.

HOW TO MAKE A PURCHASE DECISION?

Proper purchase decision helps in minimizing the risk in any business to avoid stocks getting piled up which is also known as dead stock. If the businessperson has sufficient cash then it is advisable to buy against cash so as to avail cash discount. If the business is wholesale it is advisable to buy in bulk quantity, as there is discount for purchasing in bulk quantity. Before making purchases it is necessary to forecast the demand by surveying the market if the business happens to be new. If it is the running business then it is essential to check the previous records about the history of sales and accordingly the purchases can be made. Right judgment is needed to forecast the demand and then accordingly the purchase orders can be made.

After deciding the quantity required in various items then it is the time to take a call in placing orders. It is vital to call various suppliers about their prices, offers, discounts etc., without giving information about other suppliers. It helps in engaging the suppliers to compete and quote the best prices. Then the supplier who quotes the best reasonable price can be given an opportunity. This is how the purchase decision has to be made. Lot of research has to be done about the reliability and credibility of the suppliers and their capacity to deliver the stocks promptly as per the commitment. It is always easier said than done. Therefore, purchase decision is one of the keys to contain risk and it is part of risk management in any retail business.

MANAGING DEAD STOCK IN RETAIL BUSINESS:

However intelligent and experienced a businessperson might be there will be room for improper judgments. And that results into getting the stocks piled up becoming into dead stock or non-saleable stocks. Efforts may be made to return the suppliers if they are in a position to take back the stocks and if not then serious efforts should be made to sell the stocks at lower prices and even for loss. This helps in more space in the store rooms/warehouses and the same amount can be rotated in business. It is folly to hold the stocks in godowns/warehouses for long time as it involves payment of rents to godowns and also the stocks getting further destroyed. In retail business managing the dead stock is one of the key components of risk management.

RISK MANAGEMENT IN SMALL BUSINESSES:

To manage risk in your business :

· Write your business plan.
· Go through your business plan critically looking at every area that could involve risk, making a list of what areas you need to consider.
· Take time, preferably with others who know your business, to brainstorm all the possible catastrophes that might occur.
· From your lists developed in steps 2 and 3, decide what action or coverage is needed to handle that possibility.
· For those risks that can be handled by insurance coverage, determine how much and what type of insurance is needed.
· Choose a reasonable amount of insurance to cover those risks.
· Contact more than one insurance agent to get quotes on the insurance that is needed.
· Arrange for insurance coverage to begin before the doors open on your business, if possible.
· For those risks not covered by insurance, put together a contingency plan for handling each of the risks identified.
· Train all employees in what to do in any if any of these (or other) emergencies arise.
· Put your plan in a place where it can be located quickly, if needed. Have an extra copy in a safe location.
· Review your plan annually, including input from all employees.

CONCLUSION:

“Fear of failure must never be a reason not to try something.” Frederick Smith

Let us realize and learn that not to take a risk is also a risk. Life is worth living if it has uncertainty and challenges. At the same time, there should not be recklessness towards risk. It is essential to take calculated risks in life so as to lead progressive life. To sum up, it is impossible to eliminate risk in our daily. Let us accept the fact and learn to manage risk effectively and efficiently.

T H E E N D

Saturday, July 19, 2008

THE ART OF TRADING WITH BUSINESS ACUMEN

ABSTRACT

The article touches upon the basic tenets of trading. It briefly explains about business acumen which helps in trading. What makes the business tick, the tricks and tools for successful trading are focused. The benefits involved in cash purchase rather in credit purchase are highlighted and justified. Various styles of trading are addressed creatively and innovatively. At the end the article concluded that passion and acumen are essential for business success.

KEYWORDS: Case Study of Shyam, What is Trading? Business Rotation, Volume Vs Profit, Cash Vs Credit Purchase, Styles of Trading, Channels of Distribution, Tricks of the Trade, Tools of the Trade & Conclusion.

- - - - - - - - - -

“Don’t waste time in learning the ‘tricks of the trade. Instead, learn the trade”.

CASE STUDY OF SHYAM:

Is there any profit in the trading activity of the below case study?

Shyam is a penniless person who has an ambition to start his own business. He approached few people for finance but he does not have anything to offer as collateral security to mobilize finance for his start up. Hence, he was denied finance. One of his friends who is a well established businessperson has agreed to offer his stocks on credit basis on a daily basis. Shyam agreed to take the stocks on credit so that he can pay back the amount by the end of the day. Shyam began taking 100 bags of rice everyday morning from his friend at a rate and started selling the stocks at the cost price in loose quantity and paid back the amount at the end of the day.

From the above case study everyone comes to a conclusion that there would be no profit as Shyam sells the stocks in loose quantity at cost price. But it is not so as Shyam sells each empty bag at a price of twenty rupees by selling the stocks in loose quantity thereby earning rupees two thousand per day apart from keeping up his commitment and building up his good will in the market That is what is known as Business Acumen.

The literal meaning of the word ‘acumen’ is “keenness and depth of perception, especially in practical matters.” Every successful businessperson, whether a petty shopkeeper or the CEO of a global empire, need to have the basic understanding of how to make money in business.

WHAT IS TRADING?

“My trade and art is to live”, Michel de Montaigne.

Trading is a process where buying or selling of the goods or services takes place at a mutually negotiated price. In the ancient days it was known as barter where goods were exchanged for goods. But in the present context, trading deals with exchange of goods or services against cash. In India we have 5 per cent of the population belonging to trading community.

BUSINESS ROTATION:

When a particular amount is invested into business, every trader is interested in rotating the same funds to avoid fresh influx of fund which might involve interest burden. As far as possible, the same capital is rotated maximum number of times although there could be less profit in each business transaction. Because of the competition no trader is interested in losing his business to his competitors and also he works hard to see that the funds are rotated maximum possible number of times. Business rotation plays a crucial role in any business. It helps in reaching the break even point earlier when the business is set up freshly.

VOLUME VS PROFIT:

Often volume of business is inversely proportional to it profit. Usually higher the volume lower is the profit. Especially in FMCG (Fast Moving Consumer Goods) sector the margins or profits are thinner while the volume of business in thicker. It makes a business sense as; any how, the desired profits are achieved in high volume business although the profits are meager. But it requires huge capital to invest.

CASH VS CREDIT PURCHASE:

When goods or services are purchased in cash, the trader enjoys the benefit as anything purchased against cash there will be discount in pricing. That is the reason why cash discount is encouraged in few businesses as there is no element of risk involved and also the same amount is utilized for business rotation. It helps in generation of quick cash flow thereby avoiding default of payments. On the contrary, if the goods or services are purchased against credit there would be little higher price to offset the interest burden as well as the involvement of risk. That is why it is said that ‘Cash is King’ in business environment.

A few traders enjoy in risk taking and sell their stocks against credit. For instance, when a trader sells his stocks on credit with a profit percentage of 25 per cent and if he does the rotation four times then he gets the total profit of hundred per cent. That means he realizes his capital by the end of fourth rotation and further he takes higher risk as he has recovered his capital amount. Of course, there are other costs like expenses related to establishment and maintenance of business.

STYLES OF TRADING:

Any unorganized businessman adopts four styles of trading while doing business.

The first style being, purchase in credit and sell in credit. In this style, he buys the stocks on credit basis from his suppliers as he enjoys good will in the eyes of his suppliers. At the same time, he sells the stocks on credit to his customers as his customers enjoy his confidence. In this style of business there is an element of risk as the stocks are sold on credit. If the costumer defaults in payments due to the inability to sell the stocks or if there is any unprecedented happenings the trader would be in risky position. At the same time, if the trader himself defaults due to non sales of stocks then his good will would be at stake.

The second style being, purchase in credit and sell in cash. In this style, the trader would be in a safe and comfortable position as he gets stocks on credit from his suppliers and sells the same against cash thereby generating immediate cash and reinvesting the cash in other areas and generates more business and more profits. And he would be in a position to pay back to his suppliers with in the committed date.

The third style being, purchase in cash and sell in credit. In this style, the trader has no worry as buys the stocks against cash and the only concern is to recover the stocks sold on credit. There is an element or risk involved as he would be in tenterhooks till he realizes the cash for the goods sold to his customer. However, he can charge little higher price as he sells on credit.

The final and fourth style being, purchase in cash and sell in cash. This is the safest style of business where there is no risk element involved while buying or selling the stocks as everything is revolved around cash transactions. But the profits would be limited. And rotation would be faster and smarter. The capital invested in the business can be rotated relatively many number of times.

The above four styles are adopted often in the unorganized sectors of business especially in trading during wholesale business.

CHANNELS OF DISTRIBUTION:

There are various types of distribution when it comes into marketing of goods. Let us take the traditional route of distribution where the manufacturer sells the stocks to wholesalers who in turn sell the same to their retailers and who carries forward the stocks to the consumer directly. It is, in fact, the retailer who gets in direct contact with the consumer and who reads and learns the pulse of the consumer.

The manufacturers directly sell the produced stocks directly to various wholesalers with nominal profit as he sells in huge quantity. The wholesaler keeps reasonable margin and sells to various retailers in small quantity who usually keeps diversified range of products where retailers would be in a comfortable position to buy as per their requirement in few quantities. The retailer usually holds limited quantities of all diversified products to cater to the end consumers. At the end consumers will have the option of purchasing everything under one roof.

Of late, the retail sector is changing dramatically in India with the entry of giants like Future Group, Reliance Retail, and Spencer’s. Because of their entry the traditional retailers will have major problem. The giants have deep pockets with financial muscle. They have economies of scale. They believe in mass procurement of stocks at lowest prices and passing on the benefits to the consumers directly thereby eliminating the role of wholesalers and middlemen. They are in a position to offer everything under one roof with many discounts and facilities. The petty retailers will also have tough time to survive from the onslaught of retail giants. Either they have to reinvent or evolve in their business approach or to exit. It is indeed a challenging and Herculean task for petty retailers and traders. The situation is similar to that of early nineties where Indian industry protested to the entry of multinationals into our country due to Liberalization, Privatization and Globalization. Subsequently the Indian industry took it in their stride and survived and, now, we have Indian MNCs who set up their shops else where across the world. The present unorganized retailers and traders should also evolve themselves accordingly.

TRICKS OF THE TRADE:

The traders play many tricks for their survival and success. When they know that the prices of the goods will go up due the changes in budget or shortage of stocks in the near future, they hold the existing stocks and stop selling thus creating artificial demand. When the supply is stopped the demand goes up automatically as demand and supply are inversely proportional. And also they buy the stocks from their co-traders against cash-purchase if they are confident that the prices shoot up. They go to the extent of procuring stocks from outstation traders for holding. And in some cases they take firm commitment from the co-traders by lifting the stocks in the near future by paying the cash for the same instantly. It requires a lot of business acumen to predict and forecast. Usually the traders have intuition and gut feeling and they go by the same during the decision-making.

Information is the key to success in trading activities. If the traders get information that more stocks are going to be dumped then they immediately release the existing stocks with lower profits to contain the damage. In few cases they do not hesitate to sell the existing stocks for minor losses as they believe in the slogan of ‘Immediate loss is quick gain’.



TOOLS OF THE TRADE:

Bill Williams used to say that trading is the ultimate psychotherapy. Trading style unfolds the qualities and characteristics of an individual. It helps in diagnosing ones attitude apart from being excellent in the art of trading.

During the seasonal business like school season, it is necessary to take stock of the history of the sales in the last year as it helps in forecasting the demand thereby averting the dead stocks (that is, the stocks lying unsold without any sales movement). In school season, there will be good demand for stationary items, bags, uniforms etc., Hence it is ideal to estimate properly to avoid getting the stocks unsold. Improper judgment in forecasting results into blockage of stocks resulting into storage of the goods till the next year. That results into paying rents for the warehousing and also hinders the rotation of the cash flow. Similarly during the rainy season there would be good sales of umbrella and rain coats. Therefore, it is essential to forecast the monsoon and prepare accordingly. Sometimes, luck plays a crucial in business. Therefore, we can say that ‘business is nothing but a game of luck and intuition’.

CONCLUSION:

Late Dirubhai H. Ambani was a great visionary who had excellent business acumen. At the time of control raj he converted the then existing threats into opportunities and built Reliance Empire. He did business under many constraints and limitations and excelled as he had fire and passion. Everything is possible in the business world if there is passion and acumen.

T H E E N D

HOW TO MANAGE CHANGE SUCCESSFULLY?

ABSTRACT

The research paper focuses on Change Management in a creative and innovative manner. The basic concepts of change and change management and its importance in the context of survival and success are addressed. How can we manage the change in the organization smoothly without any resistance is dwelt? The role of managers and leaders in effecting the change and the tools and techniques involved in effecting the same are highlighted. At the end, it has concluded that it is necessary to cultivate positive mindset towards change, as change is the key to survival and success in all spheres.


KEY WORDS: Case Study of Two Frogs, What is Change and Change Management? Importance, Steps for Successful Change Management, Mark Sanborn and Change Management, Why Failure of Change in Organizations? Why do People Resist Change? How to Manage Change? Role of Managers and Leaders, Tools and Techniques for Effective Change Management & Conclusion
--------------

INTRODUCTION:

“Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules, and they have no respect for the status quo. You can quote them, disagree with them, glorify, or vilify them. But the only thing you can’t do is ignoring them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world are the ones who do.”— Steve Jobs/Apple

CASE STUDY OF TWO FROGS:

Two frogs have been put in two different containers. One container having very hot water and other having water with room temperature where the water was gradually heated. The frog that has been put in hot water suddenly jumped out unable to tolerate the high temperature. The other frog got adjusted and adopted to the slowly rising temperature. From the above case study it is very obvious that any sudden changes cannot be accepted and adopted. On the other hand, if the change is gradual and slow then there will be acceptability and adaptability to change.

WHAT IS CHANGE AND CHANGE MANAGEMENT?

Change can be called as the gap between the past and the present and also the gap between the present and the future. And also change is the difference between the status quo and status quo ante. People usually desire change in terms of comfort and convenience but they sternly oppose if the change is in terms of accepting new roles and responsibility, as there is always an apprehension of the unknown and uncertainty. And to manage the same there is need for ‘change management’.

“Change management - is the process of developing a planned approach to change in an organization.” It has been aptly defined that “Change management system is a structured process that will cause proposed changes to be reviewed for technical and business readiness in a consistent manner that can be relaxed or tightened to adjust to business needs and experiences”. In a nutshell, Change Management is the process of planning, organizing, directing controlling, coordinating and implementing the changes related to men, machine, material and money in an organization.

IMPORTANCE OF CHANGE MANAGEMENT:

If there were no changes we would have been in the Stone Age itself. Anything routine leads to boredom and monotony. Change brings out the best resulting into creativity. When we do something different that gives us great mental and intellectual satisfaction. Change leads to growth and prosperity. As a human being an individual changes from birth to death and that itself involves lot of changes. Born as a baby, evolving as an adolescent, teenager, middle aged and finally into old age and that comes to the end of the human life cycle.

STEPS FOR SUCCESSFUL CHANGE MANAGEMENT:

John Kotter , in his book ‘Leading Change’ (1995) and in his follow-up book ‘The Heart of Change’ (2002) has focused on three approaches to change i.e. seeing, feeling and accepting change by the people. He also came out with 8 steps towards successful change. First one- Increase urgency, Second – Build the guiding team, Third- Get the vision right, Fourth – Communicate for buy-in, Fifth – Empower action, Sixth – Create short-term wins, Seventh – Don’t let-up, Eighth – Make change stick.

Three stages in change management are accepting and adapting to change, controlling and coordinating change, and finally effecting and implementing change.

MARK SANBORN AND CHANGE MANAGEMENT:

Mark Sanborn , is a professional speaker in the areas of leadership, change management, customer service and teamwork. He said, “If there's one thing that's constant in life, it's that life is always changing”. He says that it is part of the human nature to resist change and nobody would like to come out of their comfort zones. He clearly says that we should start doing the things. Unless we do we can not come out of the phobia of change. When we start doing the things regularly it becomes habitual and gradually we forget that change is effecting. And whatever we do that must be a regular feature. There must of continuity and consistency in what we do. For instance, when an individual hits gym for a week and neglect further can he/she arrive at the desired results of fitness? Of course, not. Only when the individual hits the gym continuously and consistently for a very long time then can he expect the desired changes in shape and fitness. So is the case of change also.

WHY FAILURE OF CHANGE IN ORGANISATIONS?

“I am convinced that if the rate of change within an organization is less than the rate of change outside, the end is near.” — Jack Welch

Mark Sanborn felt that there are various reasons why there is failure of change in organisations. If the changed is not initiated with a right approach or if there is inadequate information about change and if it is implmented in haste then it would result in failure. Change should not be seen as an option but it should be seen as a must. If there is no involvement of the people in the process of change then it is bound to fail miserably. More involvement of outsiders rather than insiders can complicate the process of change. If there is no change in the incentive methods for effecting changes the desired change can not be expected. If there is no firm commitment from leaders and when there is no follow-up then there will be utter failure of change in organisations.

In some cases, failure in an organisation can bring out drastic changes for the progress of the organisation. Failures do occur either due to internal factors or due to external factors. If it happens due to internal factors or forces then the orgnisation has to own the responsibility and chalk out a strategy to set right the things immediately and properly. If the failure occures due to the changes in the external business environment, then efforts should be made to contain the same and navigate the organisation with caution and care. Mr. Mendoza of NetApp, said that during the dotcom bust in 2000, NetApp underwent lot of changes as their revenue shrank from $1 billion to a $250 million. It happened due to the unforeseen changes in the external business environment. The company has overcome this crisis and now it has grown to $4 billion. Mr. Mendoza said, "At the end of the day it comes down to leadership and culture. You can have the best strategy, but if you are asking people to change they have to believe in the change."

WHY DO PEOPLE RESIST CHANGE?

“The world hates change, yet it is the only thing that has brought progress. A research problem is not solved by apparatus; it is solved in a man’s head. It is not what we know that is important, it is what we do not know.”— Charles Kettering

It is in the human nature to resist change. We encounter stiff resistance to change. It may be due to the apprehension of the unknown, or could just be an internal inertia. And, anything imposed will be opposed. People in the process need to be educated about the niceties of change, for instance, in which way and how does it affect them and also the institution etc., Attitude of the people need to be converted in a proper way so that we will not find any resistance. Nobody would like to come out of their comfort zones. Zig Zigler Zig said, “97 per cent of the people live in the comfort zone and only 3 per cent live in the effective zone.” Most of the successful people live in effective zone which is never comfortable. The moment these people find that the effective zone is becoming comfort zone they gradually swich over to another zone. It is like shifting from one orbit to another. We can observe this attitude among the leaders.

People resist change due to improper information, interaction and communication, inadequate involvement of people, ineffective leadership, improper motivation, lack of courage, improper support, lack of clarity in approach, shortage of skills and knowledge, unable to see big picture, half-hearted approach towards change etc.,

At times we find contradictory approaches among the people. When there is change in their comfort zone they are happy to change but when there is change in effective zone they feel uncomfortable. Changes in designs, styles, features of automobiles, houses, handsets, lifestyles and in various other areas is accepted immediately and why not the same in the area of accepting work, roles and responsibilities? There is always an element of uncertainty in new areas and uncertainity is often risky which might result in emotional disturbances, loss of monetary or disturbance in social, personal and professional life. Likewise, we can ascribe ample of reasons towards restance to change.

HOW TO MANAGE CHANGE?

One can anticipate both reactive and proactive responses while managing change in an organization with reactive being the most and proactive being the least. There are always two types of people in any organization with one type being proponents to change and the other type being opponents to change. To put it in the words of Ralph Waldo Emerson,
“There are always two parties—the party of the past and the party of the future; the establishment and the movement.” Greater efforts are needed to persuade the party of the past rather than the party of the future. Of course, it is well admitted fact that ‘managing change’ is easier said than done.

Proper communication is vital for managing change. Unless people involved in the change process are communicated effectively the desired changes cannot be arrived. Mr.Sumit Chowdhury-CIO Reliance Communications aptly said. "We are making 1400 changes in our system every year, which means 5 changes everyday. It is very important to communicate these changes and IT plays an important role in the communication process”.

ROLE OF MANAGERS AND LEADERS:

“In all of my writing about change I distinguish between bold strokes and long marches. If you have the authority, there are certain things you can do with the stroke of the pen. You can make a decision to open something, close something, lay off workers or make an acquisition. That’s a bold stroke. A long march is leading people in a new direction that changes their behavior, in which they voluntarily begin to act in new ways.” – Rosabeth Moss Kanter.

Both leaders and managers have a vital role to play in effecting the change smoothly in organizations. Usually managers look at the change from short-term perspective where as leaders look at the change from long term perspective. Both have a crucial role to play in this regard. But managers insist on their survival and short-term success and during this process they compromise in bringing out changes with in the establishment. In is in this context, The Dean (David West) aptly quoted, “Managers are not good at managing change. Why? Because most managers are stewards and not leaders. They tend towards security, stability and predictability .”

At times, managers effect change for the sake of executing but not by heart. It will result into failure. On the contrary, the leaders effect change with far sightedness unmindful of temporary implications and complications. Leaders that can challenge, motivate, and empower their teams through change are successful.

TOOLS AND TECHNIQUES FOR EFFECTIVE CHANGE MANAGEMENT:


· Look at change as a chance to initiate improvements.
· Create a strong faith in the people that change will pave the way for betterment. Hence, it is essential to create trust among the people towards change as trust begets trust which inturn leads to smooth changes.
· It is essential to enlist the support and cooperation of the people as without their active involvement, support and cooperation change cannot be ensured. Annette Simmons rightly said, “People are too complex to understand without their cooperation, and they are too difficult to change without their permission.”
· Let us have a strong feeling that there is always an element of thrill in uncertainty. We have to take change in our stride and grow. If we do not change according to the changing times we lose our relevance.
· Change should be gradual in process.
· Encourage people to overcome from the ‘fear of failure’ and from the ‘fear of criticism’, as these are the stumbling blocks to change.
· Let us realize and accept that change is the law of the nature. Mr.Patkar of NSE said, "NSE has transformed the way people trade in India. Change is the only thing which is constant, if you want to improve and excel in what you are doing."
· Change always triggers creativity and opens the new areas of learning and opportunities.
· Terry Paulson, the author of Paulson on Change, quotes an uncle's advice: "It's easiest to ride a horse in the direction it is going." In other words, don't struggle against change; learn to use it to your advantage.
· Keep your change process continuous and consistent so that you get used to it gradually.
· Look at the scenario from all angles. There are always niceties out of pitfalls. An optimist finds opportunities in threats where as the pessimist finds threats from opportunities. Therefore, always try to be an optimist and grab the hidden opportunities.
· Avoid the mindset that change is always is risky. If there were no changes we would not have grown as a human civilization.
· Creation of psychological ambience is essential.
· Always present the clear and constructive picture for an effective change.
· Be prepared to get into effective zone round the clock because the present competitive world demands the same.
· Be confident and positive. Have gut feeling and believe in yourself.
· Try to develop flexibility and adaptability.
· Always consider others.
· Never resist change. We would like to change our clothes, foods, and places and would like to have lot of variety in our life. Then why should we say ‘No’ to change? Are we hypocrites?
· Always look at the big picture, as it would focus both problems and prospects, which will help, take the right decision towards change-centric.
· Don’t become a change-phobic person.
· Learn to live with the realities. It is vital to know that only change is constant in this world.
· Accept the changes wholeheartedly. Don’t treat it as an enemy rather treat it as a friend. You will know that there would be more opportunities in disguise.


CONCLUSION:

“It’s not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.” – Charles Darwin

Always be prepared for change and be change-inclined rather than change-resistant. Let us open up our minds to acquire knowledge. Over a period of time the acquired knowledge should pave the way for new knowledge that helps us in applying new tools and techniques for prosperity and development. To sum up, let us cultivate positive mindset towards change and also let us realize that only thing constant in this world is ‘change’.

T H E E N D

Saturday, July 12, 2008

CREATIVITY IN MANAGEMENT

ABSTRACT

This is an article of difference where creativity works wonders. All effective executives need to cultivate and inculcate creativity as it helps unbundling various tools and techniques for their survival and success at the corporate world. A few techniques that generate various solutions are dwelt at length. The stages, characteristics and tools to develop creativity are highlighted. Application of creativity in various sectors is succinctly explained. At the end the article has concluded that there is dire need for creativity for all especially for effective executives.

KEY WORDS: What is Creativity? What is Creative Personality? Stages of Creativity, Characteristics of Creativity, How to Develop Creativity? Can Creativity be Taught? Tools and Techniques for Creativity, Innovation and Exnovation, Creativity in Various Sectors & Conclusion.

- - - - - - - -

WHAT IS CREATIVITY?

Creativity is the process of creating something new and novel solutions by building relations between unrelated problems. Creativity is also the ability to build relationships from unrelated situations so as to find a novel and viable solutions for problem solving. It encourages individual to think out of the box in spotting the opportunities. It encourages at looking at the things with optimism rather pessimism. It is essential to have creativity as the competition is becoming cut-throat. There are many companies that are getting into business of offering goods and services. The companies that can provide something different and novel have the ability to build a market for themselves thereby resulting into growth and profits.

WHAT IS CREATIVE PERSONALITY?

When an individual thinks independently, creatively, innovatively and unconventionally he is said to be a creative personality. These kinds of people are curious, sensitive and always insist on the road less traveled. They always think in terms of creating their own path rather than choosing others. They can also be called as trailblazers. They believe in adventurism, gut feeling and intuition. They are, to some extent, behave like alpha leaders where they get into conclusion spontaneously with their quick thinking capacity while others think that they arrived at the conclusion without any reasoning and logic. They are highly confident and are visionaries. They do not get influenced by others easily and they maintain strong individuality.

STAGES OF CREATIVITY:

There are fundamentally five stages for developing new ideas. In the first stage of exploring, information will be gathered by asking unusual questions and by lateral thinking. In the second stage of inventing, various tips, tools and techniques are created that helps in unconventional thinking. In the third stage of selecting, various generated ideas are analyzed and the best ones are selected. In the fourth stage of implementing, the best selected and short listed one is implemented and in the fifth and final stage of evaluating, the implemented one is evaluated for feedback.

CHARACTERISTICS FOR CREATIVITY:

Below are the characteristics for Creativity.

1. Newton got an idea when an apple dropped on the ground. Many things can be learnt and many inventions transpired by mere observation.
2. Inquisitiveness is essential and it is the hallmark of creativity. Having curiosity is an indication of creativity.
3. It is essential to be sensitive to the surroundings and environment as it enhances creativity.
4. Right judgment is the quality of a creative person.
5. An independent individual who is forthright can be more creative than a dependent individual.
6. Voracious reading helps in forming creativity because of the access towards various diversified books.

HOW TO DEVELOP CREATIVITY?

• People having diversified backgrounds can have wider creativity as having knowledge in divergent and diversified areas can make them think in different directions resulting into enhanced creativity.
• Often questioning the traditional and conservative approaches can provoke unconventional thinking. Questioning initially creates discomfort to the human mind but its results are fantastic.
• Relaxed mind can create cool thinking and there is possibility of analyzing the situation in a mature and creative manner.
• When routine activities are executed in a different manner it sparks creativity because human mind gets into comfort zone as it does the same on a routine manner mechanically. For instance, if an individual follows a different track than the routine one to go to his office it does rise to creativity. Similarly when an individual goes to a new shopping mall instead of the routine then he applies more pressure to his mind and thinks smarter and sharper.
• Respond to change more positively and constructively.
• Always have inbuilt attitude to make the one rather than to follow the one.
• Ability to put smart work rather than hard work can make people think creatively.
• People must have the ability to go extra mile.
• It is essential to get out of ‘fear of failure’, ‘fear of criticism’ as these are the stumbling blocks for developing creativity.
• Always look beyond the conventional solutions. In stead of looking at the solutions generated by others it is better to create new ones.
• Usually entrepreneurs are highly creative as they look at the things in a totally different perspective. And also they have the ability to take risk and experiment by following the uncharted path.
• Passion to excel in a chosen path sparks creativity.
• ‘Adversity brings out the best’, goes the adage. When forced to the corner the human mind works the best thus sparking creativity.
• Interacting with people will make us ventilate our views and opinions as well as it provide an opportunity to listen and understand their perspectives. At times it happens that certain things come out unconsciously from our mind during the course of conversation and interaction.

CAN CREATIVITY BE TAUGHT?

Creativity is not a talent but a skill. Talents are inborn which can not be acquired but can be inherited by parents where as skills can be acquired by way of observation, reading, experience, training etc., Creativity being a skill can be acquired by various techniques like Brainstorming, Reserve Brainstorming, Synectics, Six Thinking Hats, Lateral Thinking, Guided Visualization, Delphi Technique, Creative Thinking Network, Parallel Groups, Creative Overloading, Creating Benchmarking, Creative Scenario Building, Intrapreneurship, Kaizen etc.,

TOOLS AND TECHNIQUES FOR CREATIVITY:

Here is the brief explanation of the Creative Techniques. In Brainstorming Technique, quantity of solutions is generated where the problem is thrown open. People discuss the problem and there will be no interference or intervention during the process. People express different opinions and best of the solutions would be taken as the final solution. In the Reverse Brainstorming Technique the reasons behind accepting the particular solution would be questioned and the same has to be justified. In the Delphi Technique the best of the solutions and the best points of all the solutions would be appreciated and accepted. In Synectics Technique, different and divergent elements and irrelevant elements would be joined together and it is known as group technique. In Six Thinking Hats Technique people wear different hats like white, green, yellow, black, red and blue hat with each one representing particular stage of problem solving and it was coined by Dr.Edward De Bono. The Lateral Thinking Technique was again coined by Dr. Edward De Bono where he differentiated between vertical thinking and lateral thinking. The vertical thinking helps in finding similarities in situations with reference to the environment. Where as the Lateral Thinking involves looking for solutions in abnormal directions. In Guided Visualization Technique, the images and graphics are used to express ideas or solutions to a particular problem and during this the participants are not allowed to talk except in drawing.

In Creative Thinking Network, the likeminded people come together to discuss the problem in various dimensions. It is like birds of the same feather flock together. When they come under one platform they create solutions for a specific problem. In Parallel Group Technique, two different groups work for finding out solutions and at the end the solutions are compared for implementation. In Creative Overloading Technique, the overloaded things are broken down into pieces, analyzed and looked at creatively. When an organization compares itself with the best in the industry of similar or sector then Creative Benchmarking Technique is utilized. In Creative Scenario Building Technique, the participants step into the shoes of the problem and come out with solutions. It is extension of Delphi Technique. When an organization encourages its employees as well as outsiders to come out with innovative solutions then it is called Intrapreneruship Technique. The word Kaizen has been derived from Japanese language where the improvements are effected while focusing on creativity and innovation. It is known as Kaizen Technique.

INNOVATION AND EXNOVATION:

Both innovation and exnovation are the jargon related to creativity and it is relevant to explain the same in the context of creativity. Innovation is the ability to put the created ideas into practice. All organizations are insisting on innovation for their survival. For instance, Idea Cellular always believes in innovative ideas. And its slogan itself is ‘An idea can change your life’. It always releases innovative advertisements which are very catchy and stays in the minds of the viewers. Exnovation is the ability to replace the present adopted idea with the latest better idea.

CREATIVITY IN VARIOUS SECTORS:

Creativity plays a crucial role in all sectors of business such as in the advertisement, film, pharmaceutical, automobile, telecom and so on. In the case of pharmaceutical industry, a considerable amount of percentage is earmarked for R&D so as to get patents. These days, every pharmaceutical company is looking out for the right vaccine for AIDS. If they develop new drugs and vaccines they can take up patents and can have huge profits. Innovation is the slogan in all sectors. In the automobile sector, they always look for new designs and styles and for better mileage etc., In the case of mobile manufacturing segments; they look for more features, services, styles and designs. Creativity is the root of either innovation or exnovation. It is the basis on which everything depends.

Consumers are more demanding and they want the best for the least price. Therefore, innovation is the mantra for success. The expectations and aspirations of the consumers are rising drastically due to the growing information by way of media and internet. Ultimately the ball is falling into the court of manufacturers to produce the best for the least price.

CONCLUSION:


Creativity is the key to survival and success in the corporate world. Creativity is essential in all levels of management for creating effective executives. Being creative is a state of mind where anyone and everyone can be creative.

T H E E N D