Organizations grow as well as decline due to leadership. Leadership has many roles to play in an organization, many of them overlapping with the traditional roles of management. Two roles are however distinctive for leadership as opposed to management. The first relates to defining the strategic direction of the organization. The second relates to ensuring leadership continuity. All the other leadership tasks from planning to execution and from coordinating to monitoring can be performed by high caliber managers. Strategic direction and leadership continuity, however, are the two tasks that only a genuine leader can perform. In fact, a leader is differentiated from a manager by the effectiveness on these two parameters.
Setting strategic direction requires an intuitive conceptual ability, a trained analytical competence and a native entrepreneurial spirit. Strategic direction emerges from the annals of knowledge, teachings of experience and the visions of alternate futures. It is a core competence that scans comprehensively for visible and invisible opportunities but focuses precisely to crystallize the most appropriate product-market direction. Ensuring leadership continuity requires an ability to develop and manage a team of capable leaders, each member of which could potentially replace the leader at short notice or be capable of taking up leadership responsibility elsewhere. Developing and yet managing equally competent leaders is a core competence that sets apart leaders’ leaders from others.
Strategic leadership involves making a decisive change in the direction of the company. Some of the changes could be growth and profit boosting while some could be more of consolidating the present for supporting a better future. Mergers and acquisitions within the same domain could ensure a leadership position but need not necessarily imply strategic leadership. Real strategic leadership achieves a significant transformation in the business composition of a firm. Strategic leadership is greater than handling the strategy of a function; it is all about leading onto something transformative, which in the ordinary course of things would not have occurred despite the best of functional leadership. Strategic leadership in that sense belongs only to the chief executive officer (CEO), who must be the leaders’ leader to ensure that the sum of all the good parts of the organization results in an overall greatness.
Contrarian challenges
There are ten components which can be identified with each letter of leadership as a word, making it a meaningful acronym of ten critical attributes. These ten components are Logic, Emotion, Analysis, Direction, Engagement, Results, Swiftness, Harmony, Integrity and Precision. Viewed whichever way, these ten attributes emphasize how difficult the job of a leader is. For example, both logic and emotion, which tend to be contrarian, are equally important for a leader to succeed. The ability to deploy logic and emotion completely separately or in combination in different mixes under relevant circumstances cannot be a cultivated process; it needs to be a spontaneous hallmark of a natural leader. Swiftness and precision are again two attributes which could play against each other. Decision making requires swiftness which could at times come with a compromise to the quality and precision parameters of a process and its outcome. The same way, focusing on only precision could slow down a leader.
Engagement and direction are two very important process parameters which are applied together but also require drawing of a necessary line between them. Engagement requires patience, empathy and a relatively mass contact. The more engaged a leader is with his team, the more likely he or she could be successful in motivating the team. At the same time, engagement could suffer from the perils of multiple influences and vested advocacy. The leader would need to ensure that the team is directed to perform certain tasks, though the team feels different, mainly to ensure the desired outcomes. Very often, the leader is able to see a strategic picture that the team would not be able to see despite engagement; therefore direction becomes important after due engagement with the team. At the same time excessive use of direction under the umbrella of engagement would not go well either.
Many times, result-orientation is considered to be the dominant characteristic of leadership. This is not necessarily true. A leader with the right attributes of leadership carries out the right processes and succeeds in achieving the right results. In planning and executing for results, analysis and the science of analytics plays a major role. Too much emphasis is placed on the conceptualization and visualization as a striking differentiator of leadership with management. It is, however, the analytical ability that distinguishes a top class leader from others. There are also certain attributes of leadership which are mutually reinforcing with each of the other components. Integrity is one such attribute that reinforces corporate and functional conduct, including result orientation. Integrity leads to alignment of thought, expression and actions, across individuals, teams and the organization. Harmony is yet another characteristic that strengthens internal and external collaboration for the organization.
Practical leadership
Leadership is all about weighing in options and decision making. The ten attributes play a major role in determining how the leadership converts challenges into opportunities and opportunities into businesses. Let us take the case of an airliner facing deep operational and financial turbulence. We may simulate how the airliner’s leadership could role-play the acronym of leadership to achieve positive outcomes. The first task of the leader is to let logic and analytics prevail over emotion in planning for recovery. The leadership should be able to see beyond current turbulence and establish a case for industry and business revival, given the cyclicality of the airline industry. Once the case is established, the second task of the leadership is engagement, with the distraught employees, the circumspect passengers, and the worried external agencies, bankers and regulators. The process of engagement is helped by the level of integrity and harmony, with the right touch of emotion, that are displayed in the process of dealing with all the stakeholders.
These processes cannot be interminable; nor can they be viewed as processes of negotiation with the stakeholders as to who would blink first; whether it would be disheartened employees on voluntary attrition or panicky bankers and regulators with bailout packages and policy frameworks. Swiftness of a turnaround plan, rather than emotional stewardship, builds credibility and secures broad-based support to bail the airliner out of the turbulence. Precision in articulating the recovery pathway and metrics helps in reinforcing the credibility. Results orientation helps the leadership measure its own success, and articulate to build credibility amongst the stakeholders. Practical leadership would endeavor to turn around the airliner by its own efforts as expeditiously as possible without letting it sink on elusive hopes of public bailout.
At another extreme would be an entrepreneurial leader who has rolled out an enterprise on the basis of a minimum business program acceptable to the angel and financial investors as well as co-promoters. The entrepreneurial leader builds the logic of growth by the swiftness with which he achieves performance that exceeds its plans. A noted entrepreneurial pharmaceutical firm achieved in two years what it promised as its minimum program of five years, thus building a huge bank of faith in all its stakeholders. Direction and results constitute the hallmarks of a high growth entrepreneurial firm which help the leader engage with his stakeholders. Integrity is a major component of entrepreneurial success while harmony with emerging public policy and underserved social needs helps the firm constantly identify new opportunities.
More often than not, many firms also happen to be well established corporations with large organizational structures, comprising functional units or business units. The concept of leaders’ leader is well challenged in such organizations. For most such organizations, the emphasis would be on hard-wiring the leadership behaviors and processes with structures and templates. Logic, analysis, direction, results, integrity and precision are the dominant themes. Leaders need to add emotion, engagement, swiftness and harmony to the behavior models of the large corporations to ensure holistic leadership. Technology needs to be deployed in areas such as company-wide engagement while entrepreneurial leadership needs to be integrated at functional and business leadership levels. Harmony with environment could be a dominant integration need as is evidenced by the delays faced by large corporations in establishing new green field projects in steel, power and other such sectors.
Acronym for all seasons
Practical leadership is not only contextually appropriate but also conceptually relevant in any leadership situation. Organizations, large or small and public or private need leaders who can bring out the capabilities of the team to the fullest extent through a combination of attributes. Different types of organizations typically facilitate or require certain types of leadership. Practical leadership requires that the leaders achieve a transformation of leadership models to promote growth or fight decline as the case may be. Logic, Emotion, Analysis, Direction, Engagement, Results, Swiftness, Harmony, Integrity and Precision are the ten essential components of leadership that remind every leader of his or her attributes for success and fulfillment.
Posted by Dr CB Rao on April 29, 2012
Sunday, April 29, 2012
Sunday, April 8, 2012
From Business Matrix to Technology Matrix: The re-crafting of the BCG Model
The BCG Growth-Share matrix is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970s. It is based on the premise that a corporation's business units can be classified into four categories (shown as four quadrants of a business grid) based on combinations of market growth and market share relative to the largest competitor. Market growth serves as a proxy for competitive advantage and relative market share serves as a proxy for competitive advantage. These two variables of market performance are considered in the BCG model to be the critical determinants of profitability of a company.
The BCG matrix has lost much of its sheen over the years mainly because of three reasons. Firstly, business performance is influenced by a greater number of strategic factors than just market variables. Secondly, the four types of businesses are not independent of each other; some could be actually supporting the other while some could be in the kind of position they are in due to the others. Thirdly, the matrix is applicable more for broad and large markets rather than to small and niche markets. The concepts, unfortunately however, still get to be utilized extensively in academic and business settings mainly to determine the investment philosophy of a firm towards business units in each of the four segments. This is a worrisome factor.
Investment logic and fallacy
The BCG investment logic is that based on the future business and profit potential, businesses or products must be divested, analyzed, invested or milked, each of this being a mutually exclusive option, in the proponents’ view.
Businesses which have low market share and low growth rate tend to be marginal businesses which could consume disproportionately higher management time and organizational human resources. These businesses called Dogs must be divested, according to the BCG theory. Some consider these as cash traps which have little potential as a result of which the company would be better off without them than with them.
Question marks are products or businesses that grow rapidly, and as a result consume large amounts of cash. However, because they have low market shares they do not generate much cash. The result is a large net cash consumption. A question mark has the potential to gain market share and become a star, and eventually, a cash cow when the market growth slows. If it does not become a market leader it will become a dog when market growth declines. Question marks need to be analyzed carefully to determine if they are worth the investment required to grow market share.
Stars are products or businesses that generate large sums of cash because of their strong relative market share that too in a fast growing industry, but also consume large amounts of cash because of their high growth rate. So the cash being spent and brought in approximately nets out, unless managed well. If a star can maintain its large market share it will become a cash cow when the market growth rate declines. On the other hand, if stars cannot maintain their market dominance with reasonable investment logic, they could become dogs.
As market leaders in a mature market, cash cows are businesses or products that exhibit a return on assets that is greater than the market growth rate – so they generate more cash than they consume. These units should be ‘milked’ extracting the profits and investing as little as possible. They provide the cash required to turn question marks into market leaders. A corporation that has more cash cows in its portfolio tends to soar high on market capitalization. The concept of milking without investments does not appear to be progressive management thought, however.
Distorted logic
The BCG Matrix has always been deficient due to its preoccupation with visible variables of market performance, ignoring the underlying drivers of either firm competencies or market requirements. In fact, the way the investment logic is built up there is a clear absence of customer or market centricity and a dominant preoccupation with the firm’s business or growth. More importantly, the corporate responsibility to serve the markets with appropriate products and businesses is made subservient to return on investment as the only criterion. Fundamentally, products and businesses are built on investments in R&D and manufacturing assets which have a useful life. The corporate leadership has a responsibility to ensure that the assets run their useful life, and if the product life cycle outlives the asset life cycle, the assets are either modernized or substituted.
The BCG Matrix also ignores the logic that product technology has the capability to make the quadrants relive their utility or lose their utility much earlier than the asset life. Automobiles, for example, are a classic group of products which can be produced to newer capabilities on apparently dated machinery. Smart phones, on the other hand, can be rendered obsolete in a year due to changes in operating systems rather than the declines in the manufacturing assets. Technology well harnessed can help channel additional investments to enhance the returns on the total investments, past and the new ones together. The computer chip is a striking example of technology beefing that can rewrite the rules of the BCG Matrix.
The essential logic of the BCG Matrix is that all products and businesses outlive their utility, and firms must therefore be opportunistic in utilization of the assets. While the Matrix explicitly considers market based variables, it does not exhort firms to first understand the key drivers of the markets prior to matching the available or future assets to the market needs. The Matrix does not take into consideration either the consumer or the competition. While it may be argued that the BCG Matrix is not intended to address the issues of competitive strategy, an important management tool cannot be allowed to be grossly deficient, leading to errors in how corporate leaders use it while trying to serve their stakeholders, including customers and investors.
Quadrants astray
The BCG Matrix is essentially a 2X2 matrix. The author of this post has been a votary of the simple, but exceptional, usefulness of a 2X2 segmentation in the strategic classification of issues, products, assets or markets (please refer to the author’s earlier post, “The 2 Dimensional Matrix: A Universal Analytical Tool” in Strategy Musings, July 3, 2011). The 2X2 product-market matrix is a fine example of connecting existing products and new products with existing markets and new markets to define four unique strategies of market penetration, product expansion, market expansion and product-market diversification. However, the product-market matrix is just a lens to clarify strategic approaches to product-market options; and no less or no more. On the other hand, the BCG Matrix is erroneously used to drive the investment strategies of a firm that could actually injure the firm and its markets.
The concept of cash cows, for example, is deleterious to the long term health of a corporation. The approach that market leading products and businesses in mature industries must be milked to earn high returns with the least investments is deficient in that it could compromise key parameters of safety, quality and productivity, if indiscriminately deployed. The temptation to earn super-profits on the basis of lean investments needs to be resisted, and instead cash cows must merit reasonable reinvestments to ensure that the products and businesses, which are favored by mature markets, meet the high standards.
Stars are considered cash guzzlers as well as cash generators. The BCG Matrix suggests good management as the requirement to ensure the net cash surplus of stars. Management could, however, just be one factor. Luxury products in any space, for example, require significant investments. The ability of the stars to be net cash generators often is a function of economic strength of the nations as much as the managerial strength of the firms. JLR, for example, became sick as part of global meltdown but became a star in the hands of Tata Motors not merely because of the Indian management (or component supplies) but also due to the global economic recovery.
Question Marks need to be analyzed, according to the BCG proponents. Question marks actually require risk taking ability on the part of the managements as the products and businesses represent bets on the future. Focus needs to be on securing the right blend of technology and management to ensure that the question marks fulfill their potential. Manufacture of fire resistant glass could be a question mark given the high costs but with appropriate technology and scale it could be the most preferred glass option at least for commercial and industrial spaces.
Dogs is an uncharitable sobriquet given to a quadrant of products and businesses which the BCG Matrix recommends to be divested. Dogs, if at all, are the most faithful, loving and adorable creatures. It is rather paradoxical to suggest that businesses that served well once upon a time should be divested once they become frail. The inability of the leadership to read market signals and technological trends should not lead to divestitures. More appropriately, resetting of business priorities or the possibility of generating greater value for a business or a product line in someone else’s hands should be the real driver. The success of IBM’s computer business under Lenovo after the acquisition is an example of win-win divestiture.
Technology matrix
Management of the product-market portfolio is one of the greatest challenges of corporate leadership. As companies become multi-product and multi-business, the challenges of portfolio management become more complex. The strategic issue for the leadership is not as simple as finding an easy solution through simplistic analytical tools such as the BCG Matrix, which has several limitations in itself. The challenge for the leadership is to have a portfolio of projects with not only with the right growth and earning parameters but also with the needed customer centricity and technological profiles. For those who visit the established automobile plants of Japan and Korea it is a surprise how the relatively older plants produce the most gleaming automobiles. The answer lies in the prudent investments that are made in product and process technologies to keep the standards high. Once the leadership starts viewing its portfolio of products and services or businesses from a true market serving perspective rather than from the firm performance perspective, the BCG Matrix loses its glamour as well as the relevance.
The more appropriate dimensions to assess the portfolio of products and businesses of a company are the product technologies and process technologies. A technology matrix drawn on product and process technologies provides sharper insights into the management of the future. A quadrant with dated product and dated process technologies has no justification to stay in economic life; divestiture is not an option. Companies which have quadrants of products and businesses with dated product and contemporary process technologies, but with contemporary product and dated process technologies would be able to grow these question marks into viable options by making relevant investments in product and process technologies respectively. Companies which secure a quadrant of businesses and products that have contemporary product and contemporary process technologies are destined to win in the current competitive world. Responsible and proactive leaderships will need to consider Technology Matrix rather than Business Matrix as the tool to achieve sustainable growth with profits.
Posted by Dr CB Rao on April 8, 2012
The BCG matrix has lost much of its sheen over the years mainly because of three reasons. Firstly, business performance is influenced by a greater number of strategic factors than just market variables. Secondly, the four types of businesses are not independent of each other; some could be actually supporting the other while some could be in the kind of position they are in due to the others. Thirdly, the matrix is applicable more for broad and large markets rather than to small and niche markets. The concepts, unfortunately however, still get to be utilized extensively in academic and business settings mainly to determine the investment philosophy of a firm towards business units in each of the four segments. This is a worrisome factor.
Investment logic and fallacy
The BCG investment logic is that based on the future business and profit potential, businesses or products must be divested, analyzed, invested or milked, each of this being a mutually exclusive option, in the proponents’ view.
Businesses which have low market share and low growth rate tend to be marginal businesses which could consume disproportionately higher management time and organizational human resources. These businesses called Dogs must be divested, according to the BCG theory. Some consider these as cash traps which have little potential as a result of which the company would be better off without them than with them.
Question marks are products or businesses that grow rapidly, and as a result consume large amounts of cash. However, because they have low market shares they do not generate much cash. The result is a large net cash consumption. A question mark has the potential to gain market share and become a star, and eventually, a cash cow when the market growth slows. If it does not become a market leader it will become a dog when market growth declines. Question marks need to be analyzed carefully to determine if they are worth the investment required to grow market share.
Stars are products or businesses that generate large sums of cash because of their strong relative market share that too in a fast growing industry, but also consume large amounts of cash because of their high growth rate. So the cash being spent and brought in approximately nets out, unless managed well. If a star can maintain its large market share it will become a cash cow when the market growth rate declines. On the other hand, if stars cannot maintain their market dominance with reasonable investment logic, they could become dogs.
As market leaders in a mature market, cash cows are businesses or products that exhibit a return on assets that is greater than the market growth rate – so they generate more cash than they consume. These units should be ‘milked’ extracting the profits and investing as little as possible. They provide the cash required to turn question marks into market leaders. A corporation that has more cash cows in its portfolio tends to soar high on market capitalization. The concept of milking without investments does not appear to be progressive management thought, however.
Distorted logic
The BCG Matrix has always been deficient due to its preoccupation with visible variables of market performance, ignoring the underlying drivers of either firm competencies or market requirements. In fact, the way the investment logic is built up there is a clear absence of customer or market centricity and a dominant preoccupation with the firm’s business or growth. More importantly, the corporate responsibility to serve the markets with appropriate products and businesses is made subservient to return on investment as the only criterion. Fundamentally, products and businesses are built on investments in R&D and manufacturing assets which have a useful life. The corporate leadership has a responsibility to ensure that the assets run their useful life, and if the product life cycle outlives the asset life cycle, the assets are either modernized or substituted.
The BCG Matrix also ignores the logic that product technology has the capability to make the quadrants relive their utility or lose their utility much earlier than the asset life. Automobiles, for example, are a classic group of products which can be produced to newer capabilities on apparently dated machinery. Smart phones, on the other hand, can be rendered obsolete in a year due to changes in operating systems rather than the declines in the manufacturing assets. Technology well harnessed can help channel additional investments to enhance the returns on the total investments, past and the new ones together. The computer chip is a striking example of technology beefing that can rewrite the rules of the BCG Matrix.
The essential logic of the BCG Matrix is that all products and businesses outlive their utility, and firms must therefore be opportunistic in utilization of the assets. While the Matrix explicitly considers market based variables, it does not exhort firms to first understand the key drivers of the markets prior to matching the available or future assets to the market needs. The Matrix does not take into consideration either the consumer or the competition. While it may be argued that the BCG Matrix is not intended to address the issues of competitive strategy, an important management tool cannot be allowed to be grossly deficient, leading to errors in how corporate leaders use it while trying to serve their stakeholders, including customers and investors.
Quadrants astray
The BCG Matrix is essentially a 2X2 matrix. The author of this post has been a votary of the simple, but exceptional, usefulness of a 2X2 segmentation in the strategic classification of issues, products, assets or markets (please refer to the author’s earlier post, “The 2 Dimensional Matrix: A Universal Analytical Tool” in Strategy Musings, July 3, 2011). The 2X2 product-market matrix is a fine example of connecting existing products and new products with existing markets and new markets to define four unique strategies of market penetration, product expansion, market expansion and product-market diversification. However, the product-market matrix is just a lens to clarify strategic approaches to product-market options; and no less or no more. On the other hand, the BCG Matrix is erroneously used to drive the investment strategies of a firm that could actually injure the firm and its markets.
The concept of cash cows, for example, is deleterious to the long term health of a corporation. The approach that market leading products and businesses in mature industries must be milked to earn high returns with the least investments is deficient in that it could compromise key parameters of safety, quality and productivity, if indiscriminately deployed. The temptation to earn super-profits on the basis of lean investments needs to be resisted, and instead cash cows must merit reasonable reinvestments to ensure that the products and businesses, which are favored by mature markets, meet the high standards.
Stars are considered cash guzzlers as well as cash generators. The BCG Matrix suggests good management as the requirement to ensure the net cash surplus of stars. Management could, however, just be one factor. Luxury products in any space, for example, require significant investments. The ability of the stars to be net cash generators often is a function of economic strength of the nations as much as the managerial strength of the firms. JLR, for example, became sick as part of global meltdown but became a star in the hands of Tata Motors not merely because of the Indian management (or component supplies) but also due to the global economic recovery.
Question Marks need to be analyzed, according to the BCG proponents. Question marks actually require risk taking ability on the part of the managements as the products and businesses represent bets on the future. Focus needs to be on securing the right blend of technology and management to ensure that the question marks fulfill their potential. Manufacture of fire resistant glass could be a question mark given the high costs but with appropriate technology and scale it could be the most preferred glass option at least for commercial and industrial spaces.
Dogs is an uncharitable sobriquet given to a quadrant of products and businesses which the BCG Matrix recommends to be divested. Dogs, if at all, are the most faithful, loving and adorable creatures. It is rather paradoxical to suggest that businesses that served well once upon a time should be divested once they become frail. The inability of the leadership to read market signals and technological trends should not lead to divestitures. More appropriately, resetting of business priorities or the possibility of generating greater value for a business or a product line in someone else’s hands should be the real driver. The success of IBM’s computer business under Lenovo after the acquisition is an example of win-win divestiture.
Technology matrix
Management of the product-market portfolio is one of the greatest challenges of corporate leadership. As companies become multi-product and multi-business, the challenges of portfolio management become more complex. The strategic issue for the leadership is not as simple as finding an easy solution through simplistic analytical tools such as the BCG Matrix, which has several limitations in itself. The challenge for the leadership is to have a portfolio of projects with not only with the right growth and earning parameters but also with the needed customer centricity and technological profiles. For those who visit the established automobile plants of Japan and Korea it is a surprise how the relatively older plants produce the most gleaming automobiles. The answer lies in the prudent investments that are made in product and process technologies to keep the standards high. Once the leadership starts viewing its portfolio of products and services or businesses from a true market serving perspective rather than from the firm performance perspective, the BCG Matrix loses its glamour as well as the relevance.
The more appropriate dimensions to assess the portfolio of products and businesses of a company are the product technologies and process technologies. A technology matrix drawn on product and process technologies provides sharper insights into the management of the future. A quadrant with dated product and dated process technologies has no justification to stay in economic life; divestiture is not an option. Companies which have quadrants of products and businesses with dated product and contemporary process technologies, but with contemporary product and dated process technologies would be able to grow these question marks into viable options by making relevant investments in product and process technologies respectively. Companies which secure a quadrant of businesses and products that have contemporary product and contemporary process technologies are destined to win in the current competitive world. Responsible and proactive leaderships will need to consider Technology Matrix rather than Business Matrix as the tool to achieve sustainable growth with profits.
Posted by Dr CB Rao on April 8, 2012
Sunday, April 1, 2012
Leading India to Growth with Equity through GLAM: The Generic Leadership Accountability Model
India needs leadership, in all its facets to become economic superpower. In this, industrial and business leadership has a major role to play, in terms of driving economic activity through industrial and business ventures and in the process generating employment. The word “leadership” is rather freely used in contemporary times, and is conferred even on professionals who are at best managers of status quo. Even more worrying, leadership is seen as synonymous only with driving growth of the enterprise, without a view on a larger purpose. An article in The Smart Manager attributed to Jason Jennings talks of six guiding principles, the first of which is that smart leaders are committed to double-digit revenue and profit growth! The other five principles relate to delegation, risk taking, strategy articulation, grassroots ownership and stewardship. None of these is beyond common sense, and none is nationally contextual. Leaders surely are those who can manage a total enterprise or those who can manage businesses, sites or functions with a total enterprise perspective.
Driving growth is a key facet of leadership but mere firm level growth need not necessarily contribute to national development. In the context of India's socio-economic profile marked by lack of access to minimal services to an overwhelming proportion of population, an industrial and business model that is predicated upon only growth would be inadequate. Rather, industrial and business leaders must focus on growth with equity. Driving growth with equity requires leaders who are leaders in the true sense of the term. Leadership is also working successfully under multiple constraints and fulfilling multiple objectives simultaneously. The cornerstone of leadership for India, Inc is therefore growth for the country and equity for all the stake holders, most importantly the common man. This blog post proposes a Generic Leadership Accountability Model (GLAM) for driving India's equitable growth through ten relevant native leadership principles of accountability.
Principle # 1: Priority Pyramid
The principle of priority pyramid encourages leaders to focus on what different strata of the Indian society requires and not just what the most elite or the most affluent needs, although the latter could provide a quick route to entry, growth or profits. The example of Indian Hotels, owned by the Tata Group, is a good case. From being a luxury hotelier the chain has moved to become a multi-segment accommodation provider with different brands, and properties, catering to luxury, business, family and budget categories. Both the Tata Group and Mahindra Group which are into high end commercial and residential spaces are looking at affordable housing too. Luxury and economy can never be mutually exclusive in India where over sixty percent of the population has no access to basic amenities and services. Between a Maruti-Suzuki or Tata Motors which cater to every segment of car users and Audi or BMW which are focused on the few affluent, the former are more relevant automobile enterprises for India surely. CK Prahalad's Bottom of the Pyramid theory is exceptionally applicable to Indian development and enterprise growth. Leadership for a contemporary India is thus all about having a degree of social accountability to the national needs.
Principle # 2: Rural Integration
An interesting data set emerged that the demand for the Indian consumer goods and white goods demand is being increasingly driven by rural consumption. The rate of growth for rural demand has outstripped that of the urban demand. Encouraging as the trend is we need to be cognizant that nearly seventy percent of India's population is still rural and thirty percent of India's GDP needs to be generated out of agriculture. The proportionality of rural-urban demand can change only when India moves into the rural areas with a complete package of mixed use economic infrastructure comprising modern agricultural inputs and services, rural bazars, agricultural and food processing industries, supply chain and distribution centres, schools, colleges and hospitals, BPO units and call centre complexes. In other words, relevant customized urban clones need to be created to bring urban development to the door steps of rural households. This would not only reduce cost of urbanization and urban production but also place wealth directly in the hands of rural population without the costs of intermediation.
Principle # 3: National Research
Notwithstanding the progress on several fronts, India still trails the advanced world in original research, product innovation and generation of patented intellectual property. Quite apart from the resource and talent bottlenecks, mindless pursuit of product specifications of the Western world has led to skewed and infertile research efforts. Research on product and process technologies relevant for India would have reversed the trend of dependence on the Western models of innovation. The Economist has recently carried an article on how products developed in India based on frugal engineering are disrupting the traditional high specification and high cost models of the West. While the more sophisticated equipment may continued to be developed in the West and Japan and Korea, there is no reason why more products for the bottom and middle of the pyramid cannot be invented, developed and patented out of India. We need to develop national specifications eschewing the imported specifications. The Bureau of Indian Standards (BIS) should focus on defining the kind of products and product specifications that India needs as a research mandate, and the government should strengthen the higher research institutions and the patent offices to give a leg-up to truly national research. Leadership needs to be accountable to a nationally relevant product and process development strategy as GE India with the India-smart diagnostic devices and Tata Motors with Nano car have done.
Principle # 4: Manufacturing Core
India cannot be the super economy of the world without a superlative manufacturing core. The recent travails of the India's capital goods industry in a background of more competitive imports from European and Chinese manufacturers is a clear alarm that India's manufacturing needs to reinvent itself. In a globalizing world, customs tariffs and indigenization schedules have ceased to be triggers and protectors of local production. The enigma of Indian manufacture is proving to be somewhat counter-intuitive after decades of manufacturing infrastructure development. From furniture to toys and tableware to toys imports are dominant while the whole spectrum of high end automobiles, white goods and electronics goods is import-dependent. Statistics of increasing manufacturing output in India hide the fact that most high technology production is based on imported precision manufacturing equipment and incorporate high technology components. Leadership has to eschew the expedient route of ready imports And encourage local capabilities. World-class industrial design would be one priority area that could help commonplace manufacturing goods regain their competitiveness. Progress in microelectronics and tool and die manufacture would help the Indian manufacture get toeholds in the technology intensive manufacturing sector.
Principle # 5: Clean Environment
The Indian census 2011 has brought out the dramatic fact that over fifty percent of India's population has no access to basic sanitation services. The Indian civic and industrial society generates millions of tonnes of waste of all types which is neither segregated and treated well at source nor recycled and reused safely. Non-renewable and slow-renewable resources are consumed indiscriminately. Waste management and resource protection offer a huge potential for corporate entry and growth. Leaders who have recognized the potential are few and far between. Ramky group has shown that waste management makes both civic and economic sense. Leaders of major corporate groups need to demonstrate their social commitment and environmental sensitivity by establishing companies which treat, recycle or otherwise dispose of waste and effluents on one hand and also which limit indiscriminate use of non-renewable resources. In several cases, resort to superior process technologies and materials can eliminate waste. High capacity coolants high eutectic cutting tools can reduce the waste of coolants and coolant water. Solvent-free manufacture of bulk drugs and other fine chemicals reduces effluent load dramatically. Leadership has to take the technological and business route in ensuring a clean and holistic environment. Planting of trees, though essential and positive, hardly compensates for lack of fundamentals of clean living and clean production.
Principle # 6: Cultural Sensitivity
It is important that Indian leaders are sensitive to the Indian culture. The Indian culture is not a religious culture although Hinduism as the largest religion of India, with its several universal teachings, has a profound impact. The Indian culture, also absorbed the good points from the several nations which occupied India for over three centuries. India became independent on August 15, 1947 due essentially to a grassroots nationalistic and patriotic peoples movement led by the Apostle of Nonviolence and Father of the Nation, Mahatma Gandhi. As a result, the Indian culture tends to be nationalistic and patriotic, reflecting unity in diversity. The Indian culture respects the woman as the builder of the family and therefore the society but has also been open to encourage the women to take up professional work. Leaders have to be cognizant of the several hues of the Indian culture. When leaders seek mute compliance to their diktats what they actually get is simmering dissent. When leaders run their airlines with air hostesses dressed up the western way they make both the visitors and Indian hosts uncomfortable. Indian leaders of MNCs have a responsibility to explain the nuances of the Indian culture to their global colleagues and also vice versa, and develop models of positive cultural fusion. Good culture leads to good business too.
Principle # 7: Quality Revolution
If there is one ultimate and sustainable determinant of competitive advantage, it is quality. Positions of cost and differentiation may provide initial as well as growth advantage but quality determines who would remain in the competitive game. The Indian leadership has not played its due part in making quality a national asset rather than a firm-specific asset. Several companies, surprising amongst all of them, Toyota, the gold standard in quality, have realized that quality requires the continuous attention of the entire organization for sustainability. Quality also covers the total value chain, from design on the drawing board to the delivery to the customer, including also vendors and suppliers making it necessary for all the internal and external stake holders be aware of the quality needs. Leaders in India would need to ensure that quality gets the highest priority. Quality encompasses all behavior and leads to compliance with various other critical parameters such as safety and productivity.
Principle # 8: Women leadership
Leaders of modern India must make special efforts to bring women into the leadership rungs. The author’s previous blog post on gender diversity dealt with this issue at great length (“Gender Diversity in India: Number Game or Talent Paradigm?”, Strategy Musings, March 18, 2012). If corporations are willing to just invest two years of career support in talented women professionals, the goal would be entirely realized. Other strategies could be to enable reeducation and lateral entry to capable women managers who had to take a break for family reasons. There is a larger national purpose in having home makers as business makers. Would a woman leader at the helm of a sugary carbonated fizz drink company lead a diversification into health foods with greater understanding, empathy and passion? Would a woman dean at the hem of an educational institution make special efforts to steel the women students to the rigors of professional life better? The answer, probably, is yes to both the questions.
Principle # 9: Infrastructure Reinforcement
Not all leaders are expected to be in infrastructure companies. Those who are must obviously aim at executing the long gestation infrastructure projects with utmost speed. Leaders in infrastructure companies in India must possess exceptional skills to structure projects with environmental sensitivity, cut through land acquisition difficulties, choose appropriate technologies, tie up mega finances, interact with myriad government, non-government and private agencies and have longevity greater than the long gestation times of infrastructure projects to make sustainable impact. Does L&T with continuity of leadership of its CEO better than BHEL which sees quick periodic changes of its CEOs? The answer probably is yes. It is, however, possible for leaders who are not in infrastructure companies also to influence the development of infrastructure; in fact they have all the stake in good infrastructure. The role played by a bold and vocal leadership of Electronics City companies for building of road infrastructure in Bangalore is a case in point. Leadership that participates in industry associations such as CII can view things in broader perspective and advocate infrastructure. Bold leaders would make India infrastructure savvy.
Principle #10: Safety Net
India, like many other oriental countries, is not opportunistic. India Inc does not consider employees as a variable factor. During the global liquidity crisis of 2008 and 2009, amongst all the countries India has been the only country that avoided job cuts. Indian employment carries its own safety net. However, there are vast sections of population employed in the unorganized sector for whom minimum wages are abysmal. There are also employees, both in organized and organized sectors, who do not have adequate medical insurance. The travails of senior citizens who are no longer in employment for healthcare are particularly severe in India. Leaders need to plan the compensation policies not necessarily on current market forces but more in terms of greater retirement security. Safety net can be created when operations and businesses have long term sustainability. Given the talent crunch, employee loyalty can be nurtured in creative India-specific ways, for example, through healthcare options. Similarly, corporatization of unorganized sector could help improve living conditions for the indigent labor.
India-specific leadership
As the above discussion shows, leadership in India can be, and needs to be, on a plane larger than growth and profits. Corporate and business initiatives need to be contextually relevant to Indian environment to usher in growth with equity. There needs to be a unique Indian leadership model built on the classic global leadership principle but with accountability to the Indian needs. The Generic Leadership Accountability Model (GLAM) discussed for India could have wide applicability for emerging nations, and even for the advanced nations with faltering economies.
Posted by Dr CB Rao on April 1, 2012
Driving growth is a key facet of leadership but mere firm level growth need not necessarily contribute to national development. In the context of India's socio-economic profile marked by lack of access to minimal services to an overwhelming proportion of population, an industrial and business model that is predicated upon only growth would be inadequate. Rather, industrial and business leaders must focus on growth with equity. Driving growth with equity requires leaders who are leaders in the true sense of the term. Leadership is also working successfully under multiple constraints and fulfilling multiple objectives simultaneously. The cornerstone of leadership for India, Inc is therefore growth for the country and equity for all the stake holders, most importantly the common man. This blog post proposes a Generic Leadership Accountability Model (GLAM) for driving India's equitable growth through ten relevant native leadership principles of accountability.
Principle # 1: Priority Pyramid
The principle of priority pyramid encourages leaders to focus on what different strata of the Indian society requires and not just what the most elite or the most affluent needs, although the latter could provide a quick route to entry, growth or profits. The example of Indian Hotels, owned by the Tata Group, is a good case. From being a luxury hotelier the chain has moved to become a multi-segment accommodation provider with different brands, and properties, catering to luxury, business, family and budget categories. Both the Tata Group and Mahindra Group which are into high end commercial and residential spaces are looking at affordable housing too. Luxury and economy can never be mutually exclusive in India where over sixty percent of the population has no access to basic amenities and services. Between a Maruti-Suzuki or Tata Motors which cater to every segment of car users and Audi or BMW which are focused on the few affluent, the former are more relevant automobile enterprises for India surely. CK Prahalad's Bottom of the Pyramid theory is exceptionally applicable to Indian development and enterprise growth. Leadership for a contemporary India is thus all about having a degree of social accountability to the national needs.
Principle # 2: Rural Integration
An interesting data set emerged that the demand for the Indian consumer goods and white goods demand is being increasingly driven by rural consumption. The rate of growth for rural demand has outstripped that of the urban demand. Encouraging as the trend is we need to be cognizant that nearly seventy percent of India's population is still rural and thirty percent of India's GDP needs to be generated out of agriculture. The proportionality of rural-urban demand can change only when India moves into the rural areas with a complete package of mixed use economic infrastructure comprising modern agricultural inputs and services, rural bazars, agricultural and food processing industries, supply chain and distribution centres, schools, colleges and hospitals, BPO units and call centre complexes. In other words, relevant customized urban clones need to be created to bring urban development to the door steps of rural households. This would not only reduce cost of urbanization and urban production but also place wealth directly in the hands of rural population without the costs of intermediation.
Principle # 3: National Research
Notwithstanding the progress on several fronts, India still trails the advanced world in original research, product innovation and generation of patented intellectual property. Quite apart from the resource and talent bottlenecks, mindless pursuit of product specifications of the Western world has led to skewed and infertile research efforts. Research on product and process technologies relevant for India would have reversed the trend of dependence on the Western models of innovation. The Economist has recently carried an article on how products developed in India based on frugal engineering are disrupting the traditional high specification and high cost models of the West. While the more sophisticated equipment may continued to be developed in the West and Japan and Korea, there is no reason why more products for the bottom and middle of the pyramid cannot be invented, developed and patented out of India. We need to develop national specifications eschewing the imported specifications. The Bureau of Indian Standards (BIS) should focus on defining the kind of products and product specifications that India needs as a research mandate, and the government should strengthen the higher research institutions and the patent offices to give a leg-up to truly national research. Leadership needs to be accountable to a nationally relevant product and process development strategy as GE India with the India-smart diagnostic devices and Tata Motors with Nano car have done.
Principle # 4: Manufacturing Core
India cannot be the super economy of the world without a superlative manufacturing core. The recent travails of the India's capital goods industry in a background of more competitive imports from European and Chinese manufacturers is a clear alarm that India's manufacturing needs to reinvent itself. In a globalizing world, customs tariffs and indigenization schedules have ceased to be triggers and protectors of local production. The enigma of Indian manufacture is proving to be somewhat counter-intuitive after decades of manufacturing infrastructure development. From furniture to toys and tableware to toys imports are dominant while the whole spectrum of high end automobiles, white goods and electronics goods is import-dependent. Statistics of increasing manufacturing output in India hide the fact that most high technology production is based on imported precision manufacturing equipment and incorporate high technology components. Leadership has to eschew the expedient route of ready imports And encourage local capabilities. World-class industrial design would be one priority area that could help commonplace manufacturing goods regain their competitiveness. Progress in microelectronics and tool and die manufacture would help the Indian manufacture get toeholds in the technology intensive manufacturing sector.
Principle # 5: Clean Environment
The Indian census 2011 has brought out the dramatic fact that over fifty percent of India's population has no access to basic sanitation services. The Indian civic and industrial society generates millions of tonnes of waste of all types which is neither segregated and treated well at source nor recycled and reused safely. Non-renewable and slow-renewable resources are consumed indiscriminately. Waste management and resource protection offer a huge potential for corporate entry and growth. Leaders who have recognized the potential are few and far between. Ramky group has shown that waste management makes both civic and economic sense. Leaders of major corporate groups need to demonstrate their social commitment and environmental sensitivity by establishing companies which treat, recycle or otherwise dispose of waste and effluents on one hand and also which limit indiscriminate use of non-renewable resources. In several cases, resort to superior process technologies and materials can eliminate waste. High capacity coolants high eutectic cutting tools can reduce the waste of coolants and coolant water. Solvent-free manufacture of bulk drugs and other fine chemicals reduces effluent load dramatically. Leadership has to take the technological and business route in ensuring a clean and holistic environment. Planting of trees, though essential and positive, hardly compensates for lack of fundamentals of clean living and clean production.
Principle # 6: Cultural Sensitivity
It is important that Indian leaders are sensitive to the Indian culture. The Indian culture is not a religious culture although Hinduism as the largest religion of India, with its several universal teachings, has a profound impact. The Indian culture, also absorbed the good points from the several nations which occupied India for over three centuries. India became independent on August 15, 1947 due essentially to a grassroots nationalistic and patriotic peoples movement led by the Apostle of Nonviolence and Father of the Nation, Mahatma Gandhi. As a result, the Indian culture tends to be nationalistic and patriotic, reflecting unity in diversity. The Indian culture respects the woman as the builder of the family and therefore the society but has also been open to encourage the women to take up professional work. Leaders have to be cognizant of the several hues of the Indian culture. When leaders seek mute compliance to their diktats what they actually get is simmering dissent. When leaders run their airlines with air hostesses dressed up the western way they make both the visitors and Indian hosts uncomfortable. Indian leaders of MNCs have a responsibility to explain the nuances of the Indian culture to their global colleagues and also vice versa, and develop models of positive cultural fusion. Good culture leads to good business too.
Principle # 7: Quality Revolution
If there is one ultimate and sustainable determinant of competitive advantage, it is quality. Positions of cost and differentiation may provide initial as well as growth advantage but quality determines who would remain in the competitive game. The Indian leadership has not played its due part in making quality a national asset rather than a firm-specific asset. Several companies, surprising amongst all of them, Toyota, the gold standard in quality, have realized that quality requires the continuous attention of the entire organization for sustainability. Quality also covers the total value chain, from design on the drawing board to the delivery to the customer, including also vendors and suppliers making it necessary for all the internal and external stake holders be aware of the quality needs. Leaders in India would need to ensure that quality gets the highest priority. Quality encompasses all behavior and leads to compliance with various other critical parameters such as safety and productivity.
Principle # 8: Women leadership
Leaders of modern India must make special efforts to bring women into the leadership rungs. The author’s previous blog post on gender diversity dealt with this issue at great length (“Gender Diversity in India: Number Game or Talent Paradigm?”, Strategy Musings, March 18, 2012). If corporations are willing to just invest two years of career support in talented women professionals, the goal would be entirely realized. Other strategies could be to enable reeducation and lateral entry to capable women managers who had to take a break for family reasons. There is a larger national purpose in having home makers as business makers. Would a woman leader at the helm of a sugary carbonated fizz drink company lead a diversification into health foods with greater understanding, empathy and passion? Would a woman dean at the hem of an educational institution make special efforts to steel the women students to the rigors of professional life better? The answer, probably, is yes to both the questions.
Principle # 9: Infrastructure Reinforcement
Not all leaders are expected to be in infrastructure companies. Those who are must obviously aim at executing the long gestation infrastructure projects with utmost speed. Leaders in infrastructure companies in India must possess exceptional skills to structure projects with environmental sensitivity, cut through land acquisition difficulties, choose appropriate technologies, tie up mega finances, interact with myriad government, non-government and private agencies and have longevity greater than the long gestation times of infrastructure projects to make sustainable impact. Does L&T with continuity of leadership of its CEO better than BHEL which sees quick periodic changes of its CEOs? The answer probably is yes. It is, however, possible for leaders who are not in infrastructure companies also to influence the development of infrastructure; in fact they have all the stake in good infrastructure. The role played by a bold and vocal leadership of Electronics City companies for building of road infrastructure in Bangalore is a case in point. Leadership that participates in industry associations such as CII can view things in broader perspective and advocate infrastructure. Bold leaders would make India infrastructure savvy.
Principle #10: Safety Net
India, like many other oriental countries, is not opportunistic. India Inc does not consider employees as a variable factor. During the global liquidity crisis of 2008 and 2009, amongst all the countries India has been the only country that avoided job cuts. Indian employment carries its own safety net. However, there are vast sections of population employed in the unorganized sector for whom minimum wages are abysmal. There are also employees, both in organized and organized sectors, who do not have adequate medical insurance. The travails of senior citizens who are no longer in employment for healthcare are particularly severe in India. Leaders need to plan the compensation policies not necessarily on current market forces but more in terms of greater retirement security. Safety net can be created when operations and businesses have long term sustainability. Given the talent crunch, employee loyalty can be nurtured in creative India-specific ways, for example, through healthcare options. Similarly, corporatization of unorganized sector could help improve living conditions for the indigent labor.
India-specific leadership
As the above discussion shows, leadership in India can be, and needs to be, on a plane larger than growth and profits. Corporate and business initiatives need to be contextually relevant to Indian environment to usher in growth with equity. There needs to be a unique Indian leadership model built on the classic global leadership principle but with accountability to the Indian needs. The Generic Leadership Accountability Model (GLAM) discussed for India could have wide applicability for emerging nations, and even for the advanced nations with faltering economies.
Posted by Dr CB Rao on April 1, 2012
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