This column has drawn sustenance from media reports on developments in such diverse fields as politics, business and economy, to glean insights about the underlying management processes and theories. Thus a controversy about One-Rank-One-Pension for the armed forces was an occasion to reflect on the perils of a rigid pyramid structure for organisations.
Similarly, the news of suspension of two teams from participating in the IPL cricket tournament drew attention to the ill-advisability of a adhering to a rigid organisational structure that might have outlived its utility if the scale and scope of activities of the organisation have undergone a dramatic change since it was originally set up.
But is the traditional media (which in recent times has come to incorporate digital media as well) the only source of enlightenment about management theory? Instinct tells us that it cannot be, for the simple reason that the formal media captures only a fraction of all that happens in the real world.
That brings us to the next logical question: Does real life too offer insights that we can profitably apply to the world of business and commerce? Perhaps, management lessons abound in the most banal and commonplace of events and transactions that we are exposed to during the course of a typical day? It just requires that we tune our minds to specifically look for these learnings.
Value creation
This insight was brought home to me in the course of my reflections the other day, after an encounter with the neighbourhood milk delivery agent who had come to collect cash for the supply of milk for the current month. Most State-run apex milk cooperatives that deliver milk in the urban areas envision their role, quite rightly, as encompassing all activities relating to the sourcing of milk, its processing, packaging and so on, but stop short of delivering it to customers at their doorsteps. This, of course, fails to capture a significant aspect of value creation in the entire process.
Most city-dwellers don’t fancy the prospect of getting up in the morning at an early hour to trudge to the nearest milk vending booth to collect their quota of milk. But they wouldn’t mind paying a premium for it if somebody would deliver it at their doorsteps. Thus, in every neighbourhood, there has sprung up a business of service providers who collect money from customers, procure their monthly milk cards from the nearest sales offices of the milk cooperative, then tender it at the distribution point to collect the daily quota of milk and deliver it at the respective homes.
There is a mark-up over the official price of milk. Up until now, this writer was blissfully unaware of the extent of the mark-up over the official price, preferring to delegate these chores to someone else at home, in the best traditions of a patriarchal Indian society. For a litre of milk costing ₹34, the mark up was a good six rupees; in other words, 18 per cent of the gross value up to that stage.
On the face of it, an 18 per cent mark-p for the last mile connectivity would appear to be a bit on the higher side when the entire retail trade margin would typically be in the 20-25 per cent range for most goods. However, that has been norm all this while and, hence, I paid the amount demanded, without demur. But it became clear later that the ₹6 per litre did not just represent the charges for delivering a litre of milk at home but something more.
Call and put options
There was any number of occasions in the past when I would not lift my contracted quantity of milk either because the entire household was going to be out of town or there was some other contingency that ruled out the need for milk that day. It was understood that this would be adjusted in cash at the end of the month. In other words, every day that I was contracting to have milk delivered by the agent, I was also entering into a contract with him that conferred on me the right to sell a certain quantity of milk back to him which I may or may not exercise on each day.
In other words, the delivery agent was writing a ‘put’ option (the right to sell, in financial management terminology) in my favour, for which he was entitled to an ‘option’ premium. Similarly, there would be the odd occasion when the household would need some extra quantity of milk for the day. It was, again, understood that he would either deliver it immediately or arrange to get that extra quantity within the next hour so. That meant a ‘call’ (the right to buy) option.
The net result is that every day of the month, a specified quantity of milk delivered at the doorstep carried with it a ‘call’ (buy extra quantity) and a ‘put’ (sell the day’s quota) option, either of which could be exercised against the delivery agent. What the Option Pricing Models in financial management theory would recommend as the proper price (option premium) is not the point at issue here. It is that the situation should not be viewed in such simplistic terms as exorbitant charges for last mile delivery of a product with a unit volume as low as one litre.
The milk delivery agent has, perhaps, an intuitive understanding of the value propositions at work in his business, although he may not be able to articulate it. But they exist nevertheless. It is a good discipline for students, as part of a pursuit of an academic programme of management education, to see management processes at work in the most mundane and common place of events in day-to-day life.
Project management
But how does one acquire the ability to see management theory in day-to-day events? More specifically, is it an acquired skill or something deemed as an ‘art’ and, hence, you either have it or you don’t? It is very much a skill that can be acquired by practice. It requires that students and managers constantly think about where management theories can be applied outside traditional business situations.
To illustrate, take the concept of PERT-CPM (Programme Evaluation and Review Technique and Critical Path Method) approach to effective project management. The theory rests on the principle that any project consists of a number of activities. Some of these activities can be undertaken simultaneously while some require the completion of a prior activity before it can be undertaken.
By disaggregating a project into its numerous activities it is possible to discern the critical path (of inter-dependent activities) that a project follows and focus on those activities that lie along this path so that the project is completed in time. Can we think of an activity outside the realm of business where this approach can be beneficially applied? Yes, of course.
The process of preparing a meal consisting of, say, a soup (or ‘rasam’, if you prefer), a lentil broth (sambar), rotis, rice and sautéed vegetables is a project with a number of activities, some of which can be undertaken in parallel while others necessarily must await others’ completion. The liquid essence of steam-cooked lentils cannot be extracted for preparation of soup until the pressure inside the cooker simmers down. But vegetables can be cut even as lentils are being steam-cooked. A single-burner stove adds a lot more activities to follow in sequence while a double-burner stove allows for lentils and rice to be steam-cooked simultaneously, and so on.
By learning to apply management theory in non-business settings, one acquires the ability to see management principles at work in special situations that case-study learning hasn’t prepared one for. The process of evolving into a more complete manager would then be well and truly on.
What Shakepeare said in As You Like It to describe a life “exempt from public haunt” — that it “finds tongues in trees, books in the running brooks, sermons in stones and good in everything” — can be said of management lessons too. They are, indeed, to be learnt everywhere.