with Ellen Saravis, Senior Editor, Six Sigma Management Institute
In today’s market climate, investment bankers and venture capitalists are facing a volatile operating environment that is fierce, resource constrained and highly regulated. Owing to this, many financial institutions (and corporations) are rethinking their strategic and operational priorities in the interests of increasing their value proposition.
For an investment banker or venture capitalist to dominate a particular market segment, they must not only be rigorous about using the more classical forms of economic risk assessment and abatement, but they must also be more innovative about the way in which its done. Herein lays the competitive advantage – being able to innovate new processes for securing high economic yields, as well as the ways and means by which those monies are allocated, distributed, managed and reported.
Consequently, investment bankers and venture capitalists must think beyond their client returns and internal profits. In today’s business environment, they must concurrently think about how to improve the system of roots that reaches out into the fertile soil of transactional quality, speed and cost. Only by improving the root system will the tree of business yield sweeter fruit in greater quantities. It also means doing these things in a simple and highly repeatable way – a tall order, indeed.
Euphemistically speaking, today’s investment environment is not for amateurs. Creating opportunities for added value and sustaining that focus over time is a task best left to seasoned, battle-hardened professionals. This is not to say that newcomers to the investment game should stay home and sit on the front porch; however, it is to say they need to reach out and embody new ways of business thinking. Doing so can get them off the porch and into the game.
To illustrate the pragmatic nature of latter points, most would concede that, for virtually anything in life, the following deterministic relation would hold true: Y = f (X), where Y is the result, X represents the inputs and f is the way in which X is transformed into Y.
In terms of investment banking and venture funding, we may choose to declare Y as the economic yield of a particular financial instrument or transaction. We’ll also declare the X’s to be things like quality, quantity, cycle-time and cost (collectively referred to as operational variables). Thus, economic yield (Y) is a function ( f ) of the operational variables.
Now, if we want to improve Y, we must naturally seek to improve or otherwise optimize f and X. So, why do so many investment bankers and venture capitalists spend 80% of their time focusing on Y when 80% of the result is attributable to f and X? Perhaps if this modus operandi was reversed, the client and investor could enjoy higher economic yields; thereby, promoting a win-win situation.
To better understand the practicality of deterministic reasoning, let’s consider the following heuristic equation: V1 = (C1 * C2) / C3. In this case, V1 is the present value of a transactional base (like some type of financial instrument), C1 is the transactional process capability, C2 is the maximum process capacity and C3 is the total transactional cost (fixed and variable).
Now, let’s say that V2 is the desired future value. Thus, Δ = V1 – V2. Given these considerations, we can now say that the Velocity of Value (VOV) can be expressed as VOV = Δ / T. In simple language, VOV is the “bang per buck,” so to speak. As one might surmise, the VOV concept can be applied to just about anything in the world of investment banking and venture capital.
Consequently, we can easily reason that if any of the causative factors (C1, C2 and/or C3) are favorably altered, individually or collectively, the VOV is increased. Of course, the converse of this is also true. So, the central question becomes: “What are the vital few determinants of value and what combination of settings will optimize internal profits and client returns.”
To better facilitate an answer to such questions, tools like experimental design, quadratic programming, regression and constrained optimization can be applied to uncover the most viable and robust solution for a given set of transactional circumstances and constraints. In this way, the transactional risks can be explored and abated without such a high reliance on experience. The idea is to augment experience, not replace it.
While this is a seemingly over-simplified lesson in the creation of value, it certainly underscores the timeless fact that we must always be focused on the right-hand side of the equation and not the left — if we are to expect higher profits (and client returns) that are both concurrently robust and sustainable.
Thus, value can be created, seemingly where there is none to reap. When properly managed, the rate at which such improvements can be realized (over a baseline condition) can be greatly enhanced. Hence, by increasing the VOV, an investment firm can achieve higher internal profits; and at the same time, greater returns for its clients. Leaving substantial amounts of money on the table is no longer an accepted cost of inefficient business, which we often mask through the use of computational constants and conventional practices.
Path to Success
As previously implied, the primary opportunity in the world of business is to increase Velocity of Value. To achieve this super-ordinate goal means creating and sustaining vertically connected levels of progressive economic value that are robust to changing market conditions and operational constraints. In this way, an enterprise can be focused on business growth and asset preservation with an elevated aim and stronger constancy of purpose.
The ways and means to accomplish this higher-order mission was developed by Dr. Mikel J. Harry over a 30 year period of working with the senior executive teams of nearly half of the Fortune 100. Exalted corporations like General Electric, DuPont and Ford Motor Company have underscored Dr. Harry and his methods of business improvement.
After many corporate successes, Dr. Harry was able to empirically distill the key cause-and-effect relationships that exist between the operations of a business enterprise and its financial performance. In short, Dr. Harry was able to make the “control function” of an enterprise both visible and accessible to the CEO and senior executive team. In this way, the leadership team of an enterprise can set the critical knobs of their business machine to their most optimal settings and then sustain those conditions over time, but do so in a robust and consistent way.
Although several of the methods used by Dr. Harry have been around for many years, he was able to successfully integrate these traditional techniques with several innovative concepts and proprietary methods. The result was a system that takes profit maximization to the next level, yet done so in a more simple and direct manner.
Essentially, the net effect of Dr. Harry’s heuristics, empirical studies and supporting equations revealed that several of the classical assumptions that underpins the formulation of business strategy and operations management practices were either flawed, misleading or in error.
In this context, Dr. Harry was able to extend the power of Six Sigma into the inner core of profit maximization. In this sense, Dr. Harry’s Six Sigma approach led to the optimization of profit maximization and produced stunning results (see illustrations below).
Dr. Harry’s innovative thinking; lessons-learned and best-in-class practices were woven into a strategic fabric (system) for business improvement, now referred to as his Business Yield Optimization System, or BYOS for short.
Essentially, BYOS is designed for large-scale to mid-sized companies and is aimed at strategically optimizing top-end growth while tactically minimizing the bottom-end cost structure. Of course, the latter is accomplished by attenuating natural and unnatural variations in the total variable cost structure, as well as upwardly tuning the rate of top-end growth.
From this perspective, its easy to see that the overriding purpose of BYOS is to install a measurable and verifiable methodology by which an organization can close the gap between its baseline of deliverable value and the prescribed goal, but done so in a very rapid, robust, effective and efficient way; hence, the focus on maximizing an organization’s Velocity of Value.
As we all know, to get the right thing, you must do the right thing; and to do the right thing, you must know the right things. To enable BYOS, Dr. Harry has immediate access to many of the world’s top subject-matter-experts in a wide array of business competencies and Six Sigma. This means he can quickly assemble the right people at the right time at the right place with the right knowledge with the right mission.
Following a proprietary diagnostic process, a specialized BYOS team can be quickly assembled and brought to task for each client. In this way, a wide range of client-centric needs can be fully satisfied across a wide range of economic needs. For the average company, the aggregation of BYOS benefits can quickly amass to a 5-10 point improvement in a company’s overall value proposition, usually accomplished within 180-240 days of engagement.
Tributes to Success
Dr. Harry has been widely recognized and cited in many publications as the principal architect of Six Sigma and the world’s leading authority within this field. His book entitled “Six Sigma: The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations” has been on the best seller list of the Wall Street Journal, Business Week, and Amazon.com. The following is just a few of Dr. Harry’s many citations:
“Mikel Harry’s innovation of Breakthrough Strategy has taken quality into America’s boardrooms.”
Gregory Watson, President, American Society for Quality
“Welch fired the first Six Sigma leadership shot heard throughout the entire GE organization when he brought in Mikel Harry.”
Tampa Bay Business Journal
“Harry’s presentation succeeded in capturing our imagination. I sensed [Six Sigma] was a lot more than statistics for engineers … At Six Sigma’s core is an idea that can turn a company inside out, focusing the organization outward on the customer … This is not about sloganeering or bureaucracy or filling out forms, Welch says. It finally gives us a route to get to the control function, the hardest thing to do in a corporation.”
Jack Welch and the GE way, McGraw Hill
“Mikel Harry, the founder of the Six Sigma methodology and the world’s leading authority in the field has tutored corporate legends such as Jack Welch, Jac Nassar and Larry Bossidy.”
The Economic Times
“Since his introduction of the Six Sigma methodology as a breakthrough business strategy at GE, Dr Harry has been coach to the leaders of many corporations including heavyweights like Ford, DuPont, Dow, and Toshiba.”
The Economic Times
“How does one write a recommendation for a living legend like Dr. Mikel Harry? One would certainly cite him as the driving creative force behind the Six Sigma methodology — one of the most important and successful management theories of the last 150 years. One could also cite the long list of captains of industry who rely on his keen insights and sage counsel. Or one could commend his success as an educator who has created innovative yet pragmatic systems for bringing his ideas to the masses. And one could still pay tribute to his accomplishments as a best-selling author and sought-after speaker. Common to each of these remarkable achievements is the distinctive Mikel Harry touch — a unique combination of deep understanding, paradigm-shifting innovation, and playful irreverence for conventional thinking. Where others decompose problems into many smaller ones, Mike has the exceptionally rare ability to distill any challenge down to its essence. Consequently, the solutions he devises are robust and holistic. They stand the test of time and changing environments, and they often inspire entirely new ways to view the world we live and work in.”
Gary Cort, Former Sr. Vice President, Research in Motion (Blackberry)
Business Phone: 480.515.0890
Business Email: Mikel.Harry@SS-MI.com
Copyright 2013 Dr. Mikel J. Harry, Ltd.