acreinc@20: 2nd Phase of the Corporate Journey

As I write this article, stockholders of SPSS, Inc. are preparing to decide on IBM’s offer to acquire SPSS, Inc. With the concurrence of management and an attractive premium for all common stocks, the acquisition is almost like a done deal. I believe that IBM will greatly benefit from this acquisition. First, it will fortify its consulting portfolio with downstream software applications. Second, it will acquire the capability to provide predictive analytics to growth-driven sectors. Third, SPSS is the leading analytics company and offers unique products and experience.

Acreinc has been SPSS’ partner in the Philippines for most of its corporate life. We share and are committed to SPSS’ mission of driving the widespread use of data-driven decision making. The time and resources Acreinc has invested to carry out this mission is I believe disproportionate to the predictive analytics’ current market size which. We call it advocacy and our social contribution towards improving the competitiveness of local companies.

We are not certain how IBM would restructure the distribution system in the Philippines. As an advocate of data-driven analytics and decision making, Acreinc will continue to invest on people, resources and marketing in the areas of predictive analytics and statistics. We are too deep into this advocacy to retreat. Hopefully, we will be given the same opportunity by IBM to provide decision makers with a powerful tool for analysis and decision making.

Predictive analytics in fact underscores the very essence of the second phase of our corporate journey. It is in this phase from 1995 to 1999 when we re-engineered Acreinc’s corporate business – from a research company providing IT solutions to an IT Solutions company providing research. There is a world of difference between these two major corporate strategies.

Acreinc Reengineered

In research, we were more focused on the implementation of a contract and less focused on marketing to get the contracts. In analytics, we were more focused on sales and marketing to get the contracts and less focused on the implementation. That difference alone needed a major shift in our corporate resources and methodologies.

Going though the second phase of our corporate journey, we had mostly technical persons and had little resources in marketing and market development. Re-engineering our human resource was probably the most challenging task. We needed to change the orientation of our programmers, data analysts and statisticians. We had to make them more customer-centric and sales oriented.

In the beginning, most of our people avoided answering the phone afraid that the caller was a sales prospect and would be asking questions about products and services. Slowly, they got the essence of customer service and how analytics could value add to the customers’ business. It took all of three years to re-invent our human resource from a strictly technical orientation to a customer-driven orientation. There were some Acreinc employees who responded to the shift in orientation with flying colors. They became the backbone of our new operations.

We activated a sales team whose members had the competence to not only provide the technical part of a consulting engagement but to also attend to very demanding pre-sales activities. The sales cycle for analytics products at that time was about eight to 16 months. Sales funneling and client management systems had to be customized because none were available.

That phase was an important learning experience. It provided us with the competence in sales and marketing layered on top of our technical competencies. Our sales profile reversed. In the beginning, research revenues accounted for 70% of total. Towards the middle part of this phase, software revenues accounted for 50% of total even if the volume of research continued to grow. It was this combination that enabled us to venture into other downstream software applications.

New Solutions

It was during this phase when we decided to expand our product mix to include other downstream applications, that is, software products that were used for decision making and analysis.

First on the block was a German product whose objective was to optimize production in heat-generated power plants. In this type of operation, efficiency (higher production) was inversely related to plant integrity (plant maintenance and sustainability). Performance of executives with responsibilities in efficiency was based on total production. Conversely, performance of executives in plant maintenance was based on the upkeep and continuing operation of the plant.

In this environment, the higher the heat level in the plant, the bigger the production volume. However, the higher the heat level maintained in the plant, the higher the chances of breakdown. There was a mismatch in the objectives. To make decisions, executives were using primarily experience and gut feel. The product that we sold provided an optimal solution based on linear programming. It defined optimal levels of production and plant maintenance.

Second on the block was a U.S. product whose objective was to trace and mitigate system losses in the transmission of electricity from the power generating plant to users and clients. At that time, government allowed distribution and production companies to incur system losses of up to nine percent. Companies absorbed system losses over and above the nine percent hurdle rate. The majority of distribution companies were in fact incurring losses that were more than the cutoff rate of nine percent.

Third on the block was a U.K. product on performance management, Balanced Scorecard in particular. We later supplement this with a U.S. product that included other performance management frameworks such as activity based costing and activity based management. This became acreinc’s third division. We continue to maintain this division and provide software and consulting services to many companies in the Philippines.


(This is Part 3 of a series of articles on the history of acreinc@20. It is about organizational and corporate transformation from 1995 to 1999. There is usually a time in the life of an enterprise where management challenges the business and the concepts that gave the enterprise its corporate life. Should we continue to be a player in the industry where we now operate? How can we leverage the resources and experience that we have to expand or venture into other businesses? How do we create an enterprise that grows faster and earns more? This is one of the most challenging moments of Acre, Inc. It was at that time when the environment was changing and business was growing fast. The speed by which technology was changing was also very evident, putting pressure on capital investments and process improvement. For comments, write to abfontanilla@yahoo.com or nick.fontanilla@gmail.com)

acreinc@20: growing pains (Software Division)

A Pain is a Pain

A pain is a pain no matter how you put it and in whatever context it comes up. I wrote this article in the first class section of a Philippine Airlines flight (PR811) to Davao on 19 September 2009. As a first class passenger, I was entitled to all first class amenities from boarding to the in-flight services. PAL customer relations upgraded me to First Class because I was bumped off from the first flight of that same day.

But enjoying all these privileges (including a free round-trip ticket to any local destination) did not ease up a bit the pain of being bumped off and of missing my scheduled meeting for the day. It also did not erase from memory how I thought I was callously bumped off.

I thought that I was literally chosen to be bumped off, not randomly as the PAL staff claimed. I was ahead of three other passengers on the same flight to Davao to approach my counter. These three other passengers got the boarding pass. I was bumped off.

I was almost impressed with the effort made by the customer relationship group and the counter staff, but as they were about to hand over to me a ticket for the original flight I was booked, they decided to release that board pass in favor of another passenger. Somehow, so I thought, everyone decided that I was the chosen one, that is, I was chosen to be bumped off.

From this experience, three things about PAL’s operations come to mind – staff competency, revenue management, and customer relationship management. If there were elements that led to this pain, they were probably at the top of the list. They were what I thought significantly contributed to the scenario where I was bumped off. I am prefacing my third article of part 2 of this series precisely because of these three points.

Data Driven Decision Making

In the last 20 years, Acre, Inc. has invested a lot of its resources to promote data-driven analytics and decision making specifically SPSS. This has been a very painful and expensive advocacy. I cannot say that we have gotten back the resources that we put into promoting SPSS -- thus, the term advocacy rather than investment. Yet in other countries, my counterpart SPSS partners have moved forward and are now reaping the benefits of their investments in SPSS data-driven analytics.

There are some fundamental pains that are endemic to the Philippine analytics market. First, decision makers prefer to employ qualitative judgment (or gut feel) even in the absence of or without the benefit of analytics. I attribute this to the managers’ financial orientation, reliance on decision-making tools acquired in classrooms and seminars, and prevailing management practices.

Second, the Philippine market remains wedged in a system where the IT division makes the final and important decisions on IT-driven investments. In other countries where decision-making has been more incisive, investments in IT-driven processes had been more of a responsibility and decision of the users.

In one of the premier universities in the Philippines where I also teach, the IT literally made the decision on the scope and type of analytics software that the university acquired for its computer laboratories. The decision was made based primarily on financial considerations even if that decision breached the process and the recommendation of the users. It was as if IT had to approve and decide on the book to be used by the professor and students.

Staff Competency

Why staff competency? I had the luck of queuing in a counter where the counter clerk was less competent than the others. Even if I was first to the counter than three other passengers in other counters, the staff assigned in my counter was not as fast in typing and processing as those in the other counters. As a result and because of PAL’s practice to overbook, I lost my chance to get a seat and boarding pass. Different service skills translate to different service quality. The customer relation staff who attended to me admitted that indeed the competence of counter clerks differ.

There was an attempt to upgrade me and give me a boarding pass. As that boarding pass was to be handed to me, the supervisor over-ruled the decision and ordered my boarding pass cancelled and shredded. The supervisor’s decision was based on his assessment on who deserved to get the boarding pass. Unfortunately, that was not me. His judgment was most likely flawed, discriminatory and ill-advised.

His judgment was not aided by data-driven decision making tools which is a practice now common in other airlines in other countries. I can only guess, but I suppose that cost considerations prevented PAL from investing in the appropriate tools. I can say this because I know that PAL had been actively searching for such a tool. Somehow, they never made a decision or the investment was downgraded to something that cost less.

Revenue Management

Why revenue management? Revenue Management (RM) is a pricing and revenue optimization tool. It focuses on how a firm should set pricing and product availability given different scenarios and resources. It is also known as yield management the objective of which is to maximize the use of resources given certain capacity constraints and customer demand.

It is commonly used in the airline and hospitality sectors. Airlines practice price discrimination throughout the booking schedule based on several pre-defined conditions such as capacity, timing of booking, customer profile and type of service provided. Now, RM is tightly integrated in the supply chain management of many other industries.

Under this framework, there are customers who benefit from the application of RM and there are those who become victims of RM. The concomitant result is supposed to represent an optimal solution for the company, that which gives the company the most profit.

It is not meant to be an equitable solution for customers. As such, users of revenue management are expected to exercise due diligence and to exhaust all possible remedies and strategies to increase profit generated from the optimal solution and, at the same time, minimize customer dissatisfaction. This is where I thought PAL failed – to exercise due diligence and to exhaust all possible remedies.

In my recent encounter with PAL, I did not see any evidence of a data-driven decision making tool powered by a quantitative model that makes use of past data, consumer profiles, and analytics.

Customer Relationship Management

Why customer relationship management? PAL’s solution applied to my problem was a solution after the fact – an aftermath. What I believe PAL failed to do was to apply a solution before the fact – the beforemath.

Best practices in quality and performance management demand a solution that manages the beforemath and avoid the pitfalls of an aftermath. The highest level of ISO requires a system that manages the beforemath. Even the Computer Maturity Model (CMMI), a standard for defining capabilities of software development companies, has several grades the highest of which requires a methodology for predicting customer problems and requirements. The supply chain management system is heavy on such data-driven decision making tools.

These three elements are representative of the decision-making landscape (or lapses) in the Philippines – the lack of data-driven decision making tools and the absence of an organizational discipline that demands the application and implementation of such a framework to delight customers. What we in Acre, Inc. are proud of is that despite these pains, we have persevered and continued to advocate the mission of driving the widespread use of data-driven decision making analytics. We are committed to continue with this advocacy.

(This is Part 2 of a series of articles on the history of acreinc@20. Part 2 talks about the start-up years from1989 to 1994. What is the main purpose of the business? What are the secondary purposes of the business? What markets and customers will the enterprise aim to serve? In what processes should it excel in a business where systems, methods and technology are victims of obsolescence? In what way should the enterprise position itself in an industry dominated by multinational companies or companies that have been operating for many years? This part discusses the important decision-making days and documents the impact of these decisions on the future of the enterprise. Some are book-line strategies and decisions. Some are blue ocean scenarios. For comments, write to abfontanilla@yahoo.com or nick.fontanilla@gmail.com)

acreinc@20: growing pains (1989 to 1994)

Growth in business is something that all enterprises work for. In challenging times like the present, few businesses in fewer industries are able to rise above the difficulties. During periods of economic growth, like in the first few years of the 20th century, there were relatively more enterprises able to grow and expand. Some in fact over-expanded and became victims of reckless growth.

Acre, Inc. benefited from the growth during the early years of that decade fueled by the boom in the power industry and foreign investments. Growth had its challenges, as we experienced. It was during this period when we changed our corporate structure from that of a single proprietorship to a corporation, a move that was in fact dictated by the growth in business and in the company’s organization. That decision was the least stressful. All other business decisions were either very risky or swaddled by too many variables.

We had to make painful decisions on three businesses -- our people-heavy data conversion division, our research and consulting division which was then our core business, and software marketing division featuring SPSS, a business that I felt had a lot of potential.

Data Conversion

Data conversion in the early 1990s was a growth industry. That industry provided employment to many Filipinos and earned dollars for the Philippines at a time when dollars were scarce. Acre, Inc. moved into this business via data encoding. We were contracted to encode arrival-departure cards, about 600,000 cards per month or 7.2 million per year. Data encoding was the most basic of all data conversion procedures. The engagement provided Acre, Inc. with the human resource, technology and financial muscle to look at other opportunities in data conversion.

To handle the volume and at the same time manage fixed investments, we decided to work three shifts (or what we now call the 24x7). Our data encoding operated like an assembly line and required skilled and dedicated encoders. At any given time, we employed close to 100 people spread out in three shifts who were managed by two supervisors and one manager. The volume grew from month to month, tourism being a growth area as well. We were therefore caught in an endless catch-up mode: capacity was always calibrated based on the last three months’ requirements.

As we grew in volume and in number of personnel, two major pains started to manifest. These were people pains and financial pains. We experienced people pains because of fluctuating productivity (therefore increasing cost) and the usual behavioral problems. We decided to keep our core staff instead of implementing a planned employee turnover. Employees who had been with the company for years were thus holed up in one area working 12 hours (including overtime) seven days a week. That decision meant higher salaries each year. Moreover, it led to staff familiarity which, in retrospect, became the bigger problem.

People pains led to some financial pains because of the cost burden. Fluctuating productivity and regular increases in compensation (including benefits) bloated the operational cost and put a strain on profitability. Moreover, payment was delayed which added to the cost burden because of the very high cost of money at that time.

People and financial pains became so severe that we decided to move out of this business after five years of productive work. It was a painful (and probably an ill-advised) decision. Although the profit was thinning out, it was still a profitable business. It provided the company with the kind of skills that we needed for our consulting and sharpened our people management skills. After five years, we attempted to venture into this type of business again with no success.

Research and Consulting

I recall that our research and consulting business was really thriving. Consulting engagements were literally falling into our laps without the need for solicitation and promotions. By word of mouth and the internal commitment to deadlines and quality reports, Acre, Inc.’s consulting business became very competitive. We received many invitations to submit proposals. Other times, the company’s services were engaged without the benefit of bidding. Sadly, because of commitments to deadlines and quality, we had to literally give up many project engagements which limited our growth.

As an organization that thrived on challenges, we brainstormed to discuss our desired future – whether we would grow faster to take advantage of the growing demand for our services, or keep growth manageable and steady.

We decided to grow faster and take advantage of the opportunities presented before us. In short, we took all projects that came our way. As a result, there were many painful moments. That decision altered the life of the organization. Like the data conversion business, we had to work 24x7 to deliver quality results on time. We completed more projects than we ever planned for. Each month, we needed new filing cabinets to file proposals and reports. Each day (including weekends), staff members had to work 12 to 16 hours (sometimes 24 hours).

Those were fulfilling but painful moments. I enjoyed seeing more satisfied clients. But I felt empty whenever employees gave up their weekends and their daily routines for the sake of corporate growth. There were financial rewards. But financial rewards could never fully compensate for lost weekends and family time. There had to be a balance. As we approached the end of our fifth year, we decided to manage growth and to keep that balance between work and personal time.

Software Marketing

Our mission of driving the widespread use of data-driven decision making was magnificently aided by our decision to promote analytics through SPSS. With SPSS, Acre, Inc. was able to offer a package – the service plus the tool. Because it was a mission and an advocacy, we had to invest in educating the market. That decision became a heavy burden on our financials during the early years.

Analytics needed skilled people in the field of statistics and data processing. Fortunately, these were skills that were available in our consulting division. Unfortunately, they were fully engaged in the projects that they were managing. While we brought in new talents to handle the analytics, the consulting engagements proved too tempting that we had to rotate people in analytics to handle consulting services. Juggling people across divisions was probably practical from a financial perspective but not productive from an organizational perspective. The need to juggle people became even more rigorous in the next five years of Acre, Inc.’s corporate existence.

(This is Part 2 of a series of articles on the history of acreinc@20. Part 2 talks about the start-up years from1989 to 1994. What is the main purpose of the business? What are the secondary purposes of the business? What markets and customers will the enterprise aim to serve? In what processes should it excel in a business where systems, methods and technology are victims of obsolescence? In what way should the enterprise position itself in an industry dominated by multinational companies or companies that have been operating for many years? This part discusses the important decision-making days and documents the impact of these decisions on the future of the enterprise. Some are book-line strategies and decisions. Some are blue ocean scenarios. For comments, write to abfontanilla@yahoo.com or nick.fontanilla@gmail.com)

acreinc@20: growing pains

We were fortunate that our business startup was rather smooth and predictable. I believe that became possible for several reasons. First, Acre, Inc was organized at a time when the consulting market was expanding and needed more consultants or specialists. Second, the decision to provide services to specific industries that fewer consultants ventured into was an advantage. Third, we positioned the company as technology-driven, a decision which turned out to be a competitive advantage.

To put that in a marketing perspective, the environment for consulting services in the first five years of Acre, Inc.’s corporate existence was friendly. At the same time, Acre, Inc had the right mix of corporate and business ingredients to be viable and to grow given that type of an environment.

However, as in any venture, there were growing pains which were clearly evident during the first five years of Acre, Inc’s corporate journey. There were three major pains although, in retrospect, we considered them as challenges and opportunities. These were people, administrative, and client development pains.

People Pains

People pains pertain to the challenge of establishing a corporate culture, in particular, the culture of discipline and the commitment to live and relive a set of core values that served as the moral and foundational platform of the company.

Of all forms of people pain we experienced, the discipline of time management had been the most difficult. Until now, and in the environment where we operate, we still find this value the most challenging. We used the Stan Davies model which gave us a better understanding of time – that it is a resource, not a constraint. By changing the context or our understanding of time, we looked at time as an ally.

Another form of people pain that we had to manage was productivity. Work was understood as 8 a.m. to 5 p.m. It was hardly considered as the output associated with the eight-hour day. As a service company, productivity was a critical performance indicator. However, it was an abstraction to employees and needed to be translated into a language that everyone could appreciate.

We re-engineered our concept of productivity and endeavored to understand it from the perspective of client relationship. Employees performing core functions were asked to directly deal with clients and to make commitments, on deadline and quality. I was surprised at the impact of this “re-engineering” on the attitude of employees. It was a 360-degree turnaround. I could not tell if it was due to client orientation or fear of accountability. But it worked.

The daily task of office care was another form of people pain, in fact, an annoying form of pain. We needed daily reminders plus a program of demerits for people to get used to turning off computers when taking a long break or stepping out of the office, and to cover all office equipment before leaving the office. It took us months to get some form of regularity and positive response. People had to feel the financial impact of the demerits.

Administrative Pains

Administrative pains pertain to two elements – compliance to government procedures (or peculiarities) and project financing. In enterprise development, we expect government and banks as partners. In our experience, that is so far from the truth.

In a previous article, I wrote about our experiences with the Bureau of Customs. There were occasions when we had to abandon a shipment of “intelliwares” because the assessments were unreasonable. There were also occasions when shipping-in a single book, which was technical (like Design of Experiment by Montgomery) meant paying the agency twice the cost of the book. In any transaction, we experience some form of annoying pain. It is a good thing that there are now Country Ratings that rank countries according to their competitiveness. Government agencies are starting to benchmark their effectiveness and are more conscious of the need to be service oriented. It was so different during our start-up years.

Managing cash flow in the first five years when we were growing fast was stressful but very educational. It is in these stressful moments when we discovered that first, banks were never and will never be catalytic partners to their clients, and that second, there were more effective methods of managing cash flow other than relying on your main bank and equity. Although the range of our banking transactions had been limited, we had enough options to get by with flying colors.

Client Development Pains

Client development pains pertain to the struggle between internal capacity and demand. They need each other but they do not usually and automatically adjust according to each other’s requirements. There was a need for us to break the cycle by first investing in capacity (people, hardware, software, space), hoping that the demand came at the appropriate time.

Our clarity of vision enabled us to make policy decisions in favor of investments in capacity well ahead of demand. Early in our corporate life, we planned for a 1:1 computer to people ratio, a paperless office, computer-aided processing and interviewing, and data capture using many types of methods including optical character recognition, computer-based DE and many others. While that policy decision put a strain on our cash flow, it was strategic and it paid off over the long term.

(This is Part 2 of a series of articles on the history of acreinc@20. Part 2 talks about the start-up years from1989 to 1994. What is the main purpose of the business? What are the secondary purposes of the business? What markets and customers will the enterprise aim to serve? In what processes should it excel in a business where systems, methods and technology are victims of obsolescence? In what way should the enterprise position itself in an industry dominated by multinational companies or companies that have been operating for many years? This part discusses the important decision-making days and documents the impact of these decisions on the future of the enterprise. Some are book-line strategies and decisions. Some are blue ocean scenarios. For comments, write to abfontanilla@yahoo.com or nick.fontanilla@gmail.com)