TEM Lab: Rwanda – RD Tech

By Mike Byrne

Gorilla Hangover

Coming off the excitement of the gorillas and beginning our fourth week, I was concerned that the euphoric aura leftover from the trip would bleed into the first day of our last full week on the project.  The gorilla trekking was a unique emotional experience, but the team could not afford to loose a half-day reminiscing.  To people who have never been to visit the gorillas I realize this may sound strange, but fresh memories of communing with quasi-human beings provide you with a fresh hit of adrenaline each time you remember the experience.  By no means did I want to destroy this pleasure, but we did need to control it.  The answer to this dilemma was simple, I would stick to the originally decided upon rules and exemplify the behavior I wanted from the group.

On Monday morning, I woke up early and was the first to the breakfast table, at around 7:15PM.  No question, I was still enjoying the gorilla high and moving as if I was on vacation, but I made sure to be the first one there and, later, the first one ready to go.  By the time 8AM rolled around, the entire team had gotten the drift and was in the car ready to head to work.  Some team members were a little frazzled after having rushed to their car seats, cutting their breakfasts short.  But when asked why we were leaving on time, I simply stated that we had all previous agreed to leave at 8AM and going into our last full week it was important that we stick to our guns.  To my teammates’ credit, my logic was received with action on their part.  As we reached the RD Tech driveway, the hatchback door of the RAV4 flung open, the team grabbed their computers, and we marched into the office ready to work.

Tying Loose Ends

The week began with some leftover pricing from the prior week.  During the Monday morning hours, we began tying off those loose ends.  Chadd and Rob were missing real estate pricing for land rental and leasing in Mombasa, and I was still trying to cajole the good folks at Maersk, UPS, and Africa Worldwide to provide freight prices for 20ft containers.  Caroline had scored big the preceding Friday with her work on e-waste disposal and began the week fresh by outlining our final report format and organizing all our research into folders for the client.  After a quick lunch, the group held a snap meeting to call out its remaining unknown prices.  I, in turn, created a “wanted” list on a flipchart that was hung on the wall.  “These are our targets.  Let’s try not to leave today without having found all of them.”  By COB, 90% of our missing prices had been crossed off the list and the other 10% were sure enough bets that I could turn off the office lights in good conscience.

The Home Stretch: Analysis Begins

On Tuesday, I was relieved to know that we could finally use the rest of the week for data crunching and analysis.  After more than a week and a half of pricing and other research, we were mentally drained.  We needed good intellectual fodder to re-energize the group and it came at the perfect moment.  Looking back, I would say that Tuesday morning was the point that the group turned the final corner and began the exciting, but arduous, work of heading down the home stretch.

The first critical point of the analysis was to remind ourselves of the specific outcomes we needed from the data.  While you might expect this to have been a straightforward conversation based on the clearly outlined project deliverables, it wasn’t.  In fact, what was interesting was seeing how animated people became when trying to convince others of their preferred unit of comparison.   My goal was to keep the discussion on point and intense without leaving the team divided.  With the fervor of an energizing political discussion, we debated the value of comparing operating costs to COGS per computer to breakeven analyses.

Consequently, these conversations spawned recognition of the different, yet complementary, interests of our clients.  When considering the needs of RD Tech’s US investors, who could potentially front the capital for internally integrating refurbishment in East Africa, the team tended to lean towards measuring operating costs and years-to-breakeven.  However, the team favored a comparison of COGS per computer when viewing the project from the perspective of Jules, the founder and principle manager of RD Tech.  Makes sense; the investors would want to know when they can expect a return and the manager wants to calculate profit margins.

As the team brought the various pieces of our research together, we were presented with another critical, yet potentially arbitrary, decision – if we assume that RD Tech internally integrates refurbishment, how do we weight the following five metrics to determine the optimal location for the refurbishment center?

• Business climate analysis of potential refurbishment locations, including: ease of starting a business, construction permit accessibility, employment & labor regulations, property registration procedures, credit accessibility, investor protections, taxes and operating licenses, legal environment, and ease of business closure

• Country risk analysis for each of three potential refurbishment locations

• Freight routing and pricing for all inland freight shipments from the three potential refurbishment sites to the five most attractive markets as determined by a market demand forecast

• Operational costs of running the refurbishment facility in each location

• Total estimated tax rate including all income tax, labor contributions, property taxes, etc.

For example, while Tanzania is considered a much less attractive choice for operating a business than Rwanda, it’s a more economical location from which to export freight throughout East Africa.  If we apply heavier weighting to shipping costs, Tanzania wins.  If we apply a heavier weight to the business climate, Rwanda wins.  But instead of two countries and two variables, we had four possible refurbishment scenarios (rent, purchase, etc), three countries, and five variables that required different weighting.  After coming to a general team consensus, we also engaged the client on the decision and came to a joint client-team agreement.  The weighted order would be as follows.

1a)  Operating Costs

1b)  Freight routing & pricing

1c)  Taxation

2)   Business climate

3)   Country risk

The team then determined the relative distance between the weighted variables based on an average of each team member’s ranking from 1 to 100.

Reflection and Redirection

Lastly, on Friday, as we calculated our initial results, we took out some time for reflection placing ourselves into the client’s shoes.

Despite all our hard work, if I were the client, would this current result answer my most basic question – Is it a financially savvy decision to internally integrate refurbishment in East Africa?

The answer was a hesitant “yes.”  Unfortunately, we couldn’t defend a hesitant “yes.”  We needed complete confidence in our answer and, therefore, were determined to identify and remedy those areas that weren’t bulletproof.

Late into Friday night and throughout Saturday morning, the team went through various cycles of group meetings and individual analysis in order to identify and suggest methods for reinforcing our findings.  The result came in the decision to recalculate about 50% of the entire analysis and to reengage the client on specific values from the company’s past financials that lacked coherence.

At its core, the fundamental flaw in our analysis was the assumption that we would calculate our results based on 36 containers of computers a year for 3 years.  This assumption had been agreed on with the client’s input, but we couldn’t shy away from the fact that in RD Tech’s current state of operations this was an unrealistic and potentially irresponsible assumption.  Today, RD Tech sells some 2,500 computers a year, only 15% of the amount upon which we were basing our calculations.

Hence, we decided to turn it up a notch.  We would not make one recommendation, but two – (1) a current scenario recommendation and (2) a future scenario recommendation.  The first recommendation would be a simple differential cost comparison of the status quo versus integrating refurbishment based on current retail outlet distribution and sales levels.  The second would be a recommendation comparing the purchase of refurbished computers from the US versus internalized refurbishment in East Africa assuming a future expansion scenario with five new retail outlets in East Africa and sales of 36 containers a year for three years.       

The results of these analyses will be revealed to our client this coming Thursday afternoon.  In order to meet the basic project requirements, we need to complete the following before the meeting:

o Finalize the analysis of both our recommendations

o Draft and edit the written results report

o Organize our research onto one DVD for the client

o Develop a short slide deck to guide our final conversation between our clients in the US and Rwanda

o Create a list of actionable steps that the client can use to implement either of our recommendations immediately

Having completed this list, I hope that we’ll still have enough fuel left in our tanks to go above and beyond and create some additional unexpected value.

Posted: 03|2|10 at 10:06 am.
Filed under: Leadership, Mike Byrne.
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