Tom H. C. Anderson - Next Gen Market Research

Tom H. C. Anderson and Management/Business Process Optimization Guru Eli Goldratt discuss TOC, market research offshoring, and what we are not considering (Post 2 of 5)

Picking up today with the interview I conducted with Eli Goldratt. Today’s (part 2 of 5) focuses more specifically on the growing trend in the market research industry of offshoring. Many market research suppliers are offshoring both business processes and knowledge processes. I thougt it would be interesting to get Eli’s thoughts on this as he is THE foremost thinker on Business Optimization and his Theory of Constraints (TOC) is all about removing bottlenecks and increasing productivity. Enjoy!

TA: …Yes. As I was saying earlier, while your books are required reading, for operations and information management at almost every single MBA program, I was a little bit surprised to see that your books came up - or your name came up - on the top 10 list among Next Gen Market Researchers - [in our recent study among] 850 market researchers… And while, probably, some of them remember ‘The Goal’ from their graduate program and some have probably started reading ‘Isn’t It Obvious?’, I also thought that maybe it has to do with some of us [market researchers] trying to apply TOC to offshoring.

So, related to my previous question, many industries, including - and perhaps especially - market research, have begun to offshore more and more. Not just simple business processes or IT, but also what we call KPO, or knowledge process offshoring. And that often requires offshore employees to make complex decisions and have advanced degrees.

Obviously, in offshoring to low-cost countries, we’re dealing with a host of issues; from different time zones to cultures. So this hasn’t been a totally smooth process for a lot of market research companies who have tried it. How do you think TOC can be brought to bear on solving these issues, in terms of knowledge process offshoring?

EG: Hmm. Now you’ve forced me to go into a little bit dangerous waters, but I’ll try to answer you to the best of my knowledge. Look, one of the first problems that I was talking about from day one is that companies somehow are misled to think that local optimums always lead to the global optimum. So, if I want to improve my company, I have to improve every section of it, and every improvement on its own merit is important.

I think that already in ‘The Goal’ I showed how ridiculous this notion is, because there are two different things. If you are looking on net profit, net profit is sales minus expenses minus cost. If you’re talking about cost, cost lends itself very nicely to local optimum; in other words, the cost of the organization is simply the summation of the cost of each and every part of it. So, if you will reduce the cost of the parts you will reduce the cost of the whole company.

What about sales? You know very well that, in order to get a successful sale, how many departments are involved in order to achieve it. Basically all of them, starting from engineering, production, distribution, definitely sales, marketing, market research. And, if one of them makes a mistake or if one of them doesn’t operate good relative to the other departments, it will have a huge effect on them, correct?

TA: Right.

EG: Which means that if you are looking at the sales - or throughput, as I prefer to call it - it’s all a chain of different tasks where each one affects the other. And, because of it, in this chain, as long as we have some variability in the process, there cannot be more than one constraint. So, the minute that you have a constraint, local optima is not equal to the global optima, period.

Now look at what you’re talking about. You’re talking about offshoring of market research, correct?

TA: Right.

EG: Now, the whole purpose of market research - and correct me if I’m wrong - is to improve sales, correct?

TA: Correct.

EG: Which means, it is a throughput issue, period. Why are you going offshore? If I’m not mistaken, the main consideration will be to save costs. Don’t you see the contradiction immediately?

TA: I believe that the main point is to save costs.

EG: Costs? You’re saving cost on what? On something that is supposed to provide you with the most crucial answers for sales! So cost is not the real consideration. The real consideration is the quality and the relevancy of the answers that you get from the market research, correct?

TA: Yes. I agree.

EG: And these factors, through the sales, have how much more impact on money than the actual cost to assemble the data and to analyze it? You’re breaking out a wrong product, and the damage can be - or the gain can be - hundreds of millions! You can compare it to the cost of doing the research? So, all of a sudden, when we’re coming to do the research, the most important factors are not the quality and the validity of the research, but the cost?!?

Do you think if that is the approach you will get something sensible?

TA: No, I agree. Cost should not be the most important factor.

EG: It’s probably the least important factor in this equation, in your field.

TA: Right. Well, another argument for offshoring market research is that people can work around the clock through different time zones on the same project…

EG: That’s fine. This might be a very important thing because, if people are working around the clock and by that, without degrading the quality, you can shrink the lead time to get the answer, then its very, very important. But let me ask you something, and I’m asking from other experiences that I’ve had. Does the fact that these people can work around the clock actually shrink the lead time of the whole project? Because you have brought in other things, like communication problems and culture problems, and these problems may tend to increase the lead time dramatically.

Has anybody done a real research on what happens to the lead time when you are using off shore?

TA: I’ve found, personally, that yes, that has been difficult. All companies, I guess, are managing it differently. I guess there’s probably some sort of advantage with economies of scale, perhaps?

EG: Now you start to understand what I’m saying: let’s do a proper cause and effect analysis. Maybe the answers will come out totally different and, by the way, from your own questions - and I understand that you are one of the veterans and the real professionals in your field - I’m getting the impression that this type of analysis was never done. Which means companies may go offshore without understanding at all what is the cause and effect by which the offshoring impacts the bottom line, and not just the cost.

TA: Yes. I’m also wondering to what degree these studies have been done. Obviously, initially at least, it was definitely to try to save costs. Another argument is to take advantage of the labor pool, highly educated labor pool. India, for instance, has a lot of MBAs and so forth.

EG: No, no, no, no, no! Here I know a little bit more. This is an excuse. Yes, we prefer to go to India, rather than to Vietnam, because India has a very large labor pool of intelligent and educated people. But for heavens sake! If you are talking about a pool of this type of people who know the market even better, then you will not find it in India, you will find it in Europe or in the States. So this is a ‘nice’ excuse.

I’m talking about a real analysis that shows what the real bottom line impact is. Not when you look at the budget of the research, but when you look at the impact of the research on the whole company!

TA: Yes. Impact of research, or ROI on market research, is sort of a ‘Holy Grail’ that we’ve talked about many years in our industry, but it’s been hard to measure.

EG: Is it? That’s what I heard when I went into production and then went I went into projects and then when I went into marketing. I’ve heard the same thing all the time. Now, if you’ve read any one of my books, you will see how easy it is if you know how to think properly. If you are not going after the effects and by analyzing statistically the facts, you think that you’ve got the answer. You have to understand that these effects are all stemming from a much deeper cause and, usually, this causes a conflict. And, as long as you don’t see the whole logical picture, what you’re doing is shooting in the dark. Once you see it, the answer comes out so obviously that you will call it common sense!

That’s it for today, will continue with the interview in the next blog post. I must say that I really agree with Eli here. Part of the problem in getting a proper understanding of any costs and/or savings in offshoring market research is definitely made more difficult by the defacto lack of transparency in MR offshoring.

Stay tuned for more from Eli soon.

@TomHCAnderson