Less and More as Combinations: Intriguing Contextual Connotations

An interesting life mantra is that we should achieve more with less. The entire productivity paradigm is based on achieving higher output with lower input. The ratio of output to input is defined as the efficiency index. A criticism of this simple approach has been that it does not integrate other tangible parameters as quality and other intangible dimensions such as esteem. The simple model can therefore be expanded to integrate such tangible and intangible factors both on the input and output sides. Despite doing all that, the ratio tends to be one of output to input, with a higher index meaning higher efficiency or productivity. Another alternative critique has been that efficiency by whatever way measured is not the whole thing but effectiveness is!

If efficiency is the way of doing something well with no waste of time or resources, including money, effectiveness is producing a result that is wanted or intended. Efficiency and effectiveness may exist independent of each other but together they ensure competitiveness. Effectiveness is achieved when one is clear on the intended or desired result, understands the inputs required to achieve the outcome and deploys them in the right manner. If ‘less is more’ exemplifies the efficiency mantra, ‘right is right’ probably reflects the effectiveness credo. That said, life is more than efficiency and effectiveness. ‘Less’ and ‘more’, the defining blocks of any effort or result, have contextual combinations with interesting and intriguing connotations. This blog post considers some of these, as useful pointers for life journey.   

Counterintuitive

It is not necessarily true that less would need to be more. We know that only a small percentage of human brain is typically used for human faculties and actions. If only the humans are able to use more of their brains (no pun intended!) the human race as a whole would be more accomplished. There are operations, occasions and transactions when more tends to be more. For example, a higher load factor means higher profitability to an airliner. An event of celebration generates more happiness with greater attendance. A higher investment transaction, judiciously made, should generate higher returns. These truisms do not necessarily mean that the less is more efficiency paradigm is inappropriate; on the contrary, it is still appropriate and both approaches are synergistic. Any airliner would be more competitive if it is able to carry more passengers (more load factor) with less number of aircraft. Such proportionality may not work out in other two examples, however.

Rather than consider that less is more and more is more are intuitive or counterintuitive, one may hypothesize, therefore, that there is a contextual dimension in all these relationships. The context depends on the entities involved in any interaction. The nature of entities and the nature of relationship often determines how less and more interact in terms of accomplishment. As a general principle, one must have the ability to use more of one’s faculties. There is, however, little point in deploying excessive intellect of repetitive minor or mundane matters. To understand the contextual nature, we may appreciate that for any activity there would be a trigger and a receptor or a provider or receiver. A 2X2 matrix of less and more would provide contextually meaningful frameworks to conceptualize and analyze internal and external interactions for optimal outcomes.

Value arbitrage

In every interaction, there is a possibility for the giver to give less or more; equally for the receiver to receive less or more. There is thus a 2X2 matrix possibility in every transaction. We can see the power of this concept by way of a few illustrations. A Guru just needs a short profound verse to convey its deeper meaning to a group of accomplished sishyas. The same guru would need to annotate and explain in detail if the sishyas are first time learners. There are therefore situations when the giver needs to modulate between less and more depending on the receiver. Whether the giver gives more or less, or the receiver receives more or less depends on the nature of the entities. While ideally less should lead to more there would be occasions when more would lead to less or more would need to be provided to achieve the maximum, or even the very minimum.

In every interaction, there would be a perceptional, and at times real, arbitrage. An intelligent student may think that an hour of study is less important to him or her than it is to a less intelligent student, and may therefore while away time. But as a unit, time has equal importance to both types of students, albeit at different levels. A rich man may think the a hundred rupee note is less valuable to him than a thousand rupee note and may feel inclined to donate the former than latter. However, for the charity that receives the donation while the hundred rupee note is more valuable in its hands than in the rich man’s hands, the thousand rupee note helps the charity more than proportionately in its objectives. While there is a perceived value arbitrage, more fundamentally there is only a value exchange in the transactions. Dysfunctional economies are characterized by huge gaps between perceived value arbitrage and real value exchange.

True value

Every transaction or activity involves value exchange. When an unknown person asks and pushes the right lift button for another person in the lift and the other person thanks him, there is a value exchange. A lecturer teaching the students may seem to reflect a transaction of knowledge transfer for a salary. However, the lecturer derives value from the record of teaching students over time, getting challenged with new questions that prod him to gain new knowledge. A student may seem to reflect a transaction of getting taught for a fee to the institution. However, the student derives value from the experience of learning with other students (ie., in an ecosystem) and the learning of a behavior pattern besides the subject. The point is that in addition to any product/service or money exchange that occurs in any transaction there is inevitably an embedded value exchange.

In a competitive world, the monetary levels of a product or service are set by the level of competition. Products and services are offered discounts. When a product or service is offered at a lower price, it is considered a value for money for transaction. However, the true value that is embedded is neither the discount nor the money saved; rather, it is the value accrual that takes place for the buyer through the saving of money. For the company that offers a ‘value for money’ product, the true value that is embedded is neither the additional sale or additional market share achieved; rather, it is the value accrual that takes place for the company through better sustainability of business.  The true value for the economy lies in the improved domestic savings and enhanced business sustainability. The need, therefore, is not a blind perception that less is more but that multiple combinations of less and more are value accruing.

Less and more

In transactions, the giver can provide low or high effort. The receiver may receive low or high value.  There exist four quadrants: Low Effort – Low Value (LELV), Low Effort – High Value (LEHV), More Effort – Low Value (MELV) and More Effort – More Value (MEMV). Of these, LELV and MEMV represent the rule of proportionality intuitively. MELV quadrant is clearly an unacceptable quadrant while LEHV is the most desirable quadrant. The entities (givers and receivers) could be businesses and societies, businesses and customers, businesses and businesses, businesses and governments, governments and societies, and so on. They can even be the internal self and external person, even within an individual. There are contexts in which the true value moves across the quadrants. The typical journey is from LELV in the startup phase, to MEMV in the growth phase, to LEMV in the maturity phase to MELV or LELV in the decline phase.

The conceptualization, analysis and management of product life cycle or business life cycle that governs business development must be based on true value analysis. Driving numbers, either of investments or of revenues without regard to inherent value that is generated and accrued would lead to sub-optimization. Business strategies and/or functional strategies such as marketing strategies, talent or manufacturing strategies must look beyond value arbitrage and focus on exchange of true value between entities. Perception of true value increases stakeholder loyalty and makes the wait for successive generations of development exciting and rewarding. The relationship between successful alumni and prestigious alma maters is an excellent example of how embedded value exchange continues to provide lifetime value alignment.  

The ability to calibrate effort and value is an important characteristic of development psyche, individual or institutional. Typically, the life of a product in use is a multiple of the time span put in the development and manufacture and delivery of the product. The life multiple is a function of the true value embedded in a product. The higher the true value, the faster a product moves into the LEMV quadrant and the longer it manages to stay in the quadrant. True value would be a better metric to judge the worth of a product strategy than the compression of time to develop. The principle holds good for individuals as well as institutions operating in the respective ecosystems, or the products and services they generate and offer to the ecosystems.     

Posted by Dr CB Rao on August 28, 2014          

           

 

A New Approach to Competitive Advantage: The Strategically Balanced Corporation

Corporations are established and developed based on a combination of vision, strategy and execution. Amongst these three, strategy sets the pathway to accomplish the vision through execution. Strategy differentiates one firm from the other, not necessarily in terms of performance but more in terms how it seeks to achieve its vision. Firms are commonly viewed as specialized, diversified, integrated, local, global, and so on. Strategy, in its core elements, has not altered much over the years but the environmental information and internal awareness that sets the tone for strategy has not only become more complex but also volatile. The number of players has also significantly increased in any industry. The corporations are finding it increasingly difficult to develop unique strategies. Strategy, in this context, is not about which industry or business to operate in but is about how to achieve competitive advantage in any chosen business or industry.

For good measure, we do have a few strategic templates from management gurus; the principal ones being the theory of generic competitive strategy by Michael Porter and the theory of core competence by C K Prahalad. There are also several theories for firms and organizations to become effective and competitive, for example, the model of balanced scorecard by Robert Kaplan and David Norton, the theory of constraints by Eliyahu Goldratt and the theory of reengineering by Michael Hammer. All these theories, developed in the 1980s and 1990s, do not take into account the perfect spread of information and options that is now available for strategists and firms. Every leader, for example, is aware of the generic strategies of cost leadership and differentiation, and even the sub-strategies to achieve them. What strategy officers must now focus is on developing an elegant balance amongst multiple strategic options. This blog post proposes a paradigm of strategically balanced corporation.

Strategic balance

An optimal strategy is one that is open to environmental opportunities but also one that hedges against environmental uncertainties. It also plans execution based on available resources or resources that can be acquired to execute the strategy. This requires that the strategy must always balance rewards and risks on one hand and aspiration and attainability on the other. Seeking this balance is a delicate and complex process; with strategists requiring to be both conservative and aggressive as the situation demands. The concept of strategic balance is relevant for mono-product firms as well as for multi-product and multi-business firms. The concept is also not necessarily limited to only products or services but covers all the essential parts of a firm’s value chain such as products and services that are delivered, the manufacturing or delivery process used, the customer outreach methods, the human resources deployed, and so on.   

Research has focused on firms adopting certain extreme strategies. For example, it has been well researched if market share and profitability are correlated. It has also been researched if specialized and conglomerated businesses have unique sustainability characteristics. There is, however, practically negligible research on what constitutes a strategic balance and whether strategic balance leads to superior performance. In this context, this blog post creates a fundamental platform to understand and analyze strategic balance. We may define strategic balance as a firm-specific balance that exists by design amongst various key components of a firm’s value chain and between strategic options that exist in respect of each component of the value chain. Strategic balance must not be misconstrued as striking a middle ground; rather it should be seen as a quest for optimality of a firm. The concept of strategic balance is amplified below.

Value balance

There is a concept, in some schools, that it is not important for a firm to operate across all segments of the value chain. This school of thought argues that a firm could just develop and stick to a core competence and stick to it. An analogy could be that a firm could be a design house but could manufacture and market products with external alliances as successfully as a fully integrated firm. Such outsourcing hypothesis could be true to an extent but not to a sustainable extent. Corporate history has enough chapters of firms which mimicked a full value chain operation on certain basic internal strengths and a large extent of external support but withered away when the alliance partners denied support or failed to respond to growth opportunity because of lack of internal capabilities. As a matter of fundamental principle, a firm which does not ensure value chain balance with appropriate attention to key components such as R&D, manufacturing, supply chain, marketing, human resources and information technology would be suboptimal and sub-sustainable in a competitive world. By no means, this is an all-inclusive listing of value chain components.    

Portfolio balance

Every firm exists and grows based on products and services in a particular business, be it hospitals or healthcare business and automobiles or transportation business. The notion that portfolio concepts are valid for only diversified businesses is archaic. Even a business of coffee chains can apply and benefit from portfolio balance concepts. Once a business is defined, and however narrowly the business is defined, there would be creative ways to in-build a portfolio into the products or services. A portfolio approach is based on the strategic truism that a service or a product offers more than the product or service functionality to the customer. A restaurant may serve only food but it can provide umpteen choices in terms of culinary streams to its customers. Even Starbucks, known for its pioneering coffee line of business, has multiple beverages, hot and cold, besides several eats and food accessories as its portfolio. The strategic challenge lies in developing the right balance between specialization and diversification. Any business provides the opportunity of strategic portfolio balance;  a company manufacturing only heavy trucks can offer a wide portfolio from bare chassis to fully built custom application vehicles on one hand and from civilian to defence vehicles. Strategic portfolio balance ensures an optimal exploitation of environmental opportunity and appropriate hedging against volatility.

 Manufacturing balance

Manufacturing represents a part of value chain which converts a proven design into a saleable product or service. Manufacturing can vary between complete integration and complete outsourcing. The former is highly resource intensive with high fixed overheads that could be highly catastrophic in the event of a precipitous demand downturn. The latter is certainly resource-lean with low overheads but could be highly vulnerable in the event of a sharp and sudden demand uptick. Each industry offers a paradigm of optimal manufacturing balance. A highly evolved industry where each component or material has also evolved into its own industrial structure provides several solutions for manufacturing optimality. On the other hand, a newly developing industry has fewer degrees of freedom to offer. The former implies an established quality and cost base that could afford higher outsourcing. The latter could have doubtful engineering and quality fundamentals that could demand greater control over manufacture through integration. An automobile manufacturer outsourcing differing components based on differentiated internal capabilities is an example of the former. On the other hand, a coffee chain seeking control over coffee plantations, roasting technologies and coffee making is an example of the latter. Strategic manufacturing balance ensures optimal quality, cost and delivery capabilities for a firm.

Marketing balance

The best of design and manufacturing optimality could come to naught with strategic marketing imbalance. Marketing balance is not about regional marketing effort allocations or domestic-export balance. It is about striking the right balance between the product and the sales channel, between different marketing channels and between sales and service.  Some of the technical marvels, Tata Nano car to quote an example, have failed to fulfill the potential of design and manufacturing brilliance due to marketing sub-optimality. Had Tata Nano been marketed through an exclusive car dealer network, with appropriate emphasis between different marketing approaches and a special after-sales package, potentially Nano would have caught the imagination of the target market segments. By way of another example, the best of marketing cannot make up for strategic imbalances in either design or manufacturing. Godrej Interio comes across as a prime example of lack of strategic portfolio balance (dependence on all-steel design and manufacture, as is Godrej wont) adversely influencing the final low-business outcome, despite some great strategic market balance. These examples also illustrate how a strategic balance amongst the various components of a value chain is also extremely important for a firm to achieve sustainable successful performance. 

Talent balance

Firms are a complex cascading network of leaders, managers and executives on one hand, and another equally complex network of organization, teams and individuals. Adding further complexity is the network of businesses, functions and processes. Across all this complexity, two components stand out:  individuals and teams. Organizations are often unable to comprehend and convey whether it is the individual performance or the team performance that determines performance. Talent management thought keeps swinging between the typical Western practice of individual superstar performance and the equally typical Oriental practice of consensual team performance. This leads to somewhat strange positions taken by leadership experts wholly deprecating either ‘we’ or ‘I’ in performance management. The concept of strategic talent balance requires that individual performance be treated as important as team performance. For organizations to be successful, meritocracy based on individual performance (and individual recognition) and organizational harmony based on team performance (and team recognition) must co-exist. Without overwhelming each other, ‘I’ as well as ‘We’ are equally important for strategic talent balance.

Strategically balanced corporation

The aspects discussed above are illustrative and not comprehensive. The value chain of a firm varies significantly, multi-functionally, depending on the industry. It is important for a firm to understand and map out its value chain in its entirety and then select the components that are critical for performance. The next step would be option mapping for each function and establishing the optimum strategic balance in each case. Exercises of long range planning which seek certain goals and develops strategies to execute towards the goals would not be effective unless they are set in the perspective of strategic balance. Strategists (whether they are chief executive officers, chief functional officers or chief strategic officers) must also be balanced professionals without any biases as to what constitutes the appropriate strategies; for example, some tend to seek diversification and some seek specialization preferentially as a pre-experienced panacea for success. Such biases limit the openness and effectiveness in developing true strategic balances.

A strategically balanced corporation is able to move through the economic and business cycles successfully while exploiting opportunities with agility. The journey of a small-cap startup through the phase of mid-cap company to the goal of a blue-chip company is based on strategic balance adding strength and resilience to exploit opportunities and withstand uncertainties. A strategically balanced mid-cap or blue chip firm leads to the evolution of a conglomerate. While a conglomerate provides much flexibility to define varied businesses under its fold (for example, salt to software and chips to ships), it is essential that each business or firm under the conglomerate umbrella is a strategically balanced corporation. The seeding, screening and weeding of individual businesses adopted by big conglomerates, from time to time, is proof enough of the need for the individual firms to be strategically balanced and sustainably effective. If research were to be undertaken on the performance of strategically balanced corporations, the results would surely support superior performance by, and superior competitive advantage for, such firms.

Posted by Dr CB Rao on November 24, 2013   

 

Value Creation in Commodities: 'Water Lessons' for Managers

After air, water ranks as the most important element in human life. Water constitutes seventy to eighty percent of the human body. Unlike air which is a perpetual integral part of the environment, water which is fit for industrial and human use, is provided by the nature seasonally. When the human population was thin and industrialization was low centuries ago, such water was plentiful and unpolluted. Even today, despite the humongous growth in population and increase in pollution water is a more natural commodity than say, oil or metals; and is one of the most liberally wasted natural resources, either by failure to capture rain water seasonally or to control day to day consumption. Historically, it has been the responsibility of the governments all over the world not only to store the water but also treat it and supply it to the society. A striking feature of modern living has been the emergence of packaged drinking water as a product offered by private enterprise. This blog post, however, is not about water per se but about how the management of a commodity like water as a premium, differentiated product offers valuable lessons for managers who succumb to the commoditization of even high technology products.

Curious economics

The price of a good branded packaged drinking water in India is Rs 15 to Rs 20 per liter pack. The price of good branded packaged dairy milk is Rs 20 per liter pack. The similarity in pricing levels of packaged water and packaged milk, despite the complexities and costs involved in the latter is amazing. Water is freely available with minimal costs of collecting and extracting while raw milk has a significant cost of availability per se. The value chain involved in delivering the packaged milk product to the consumer on a 24X7 basis is extremely complex, comprising rearing of milk-yielding animal stock, collecting milk, processing, pasteurizing and packaging milk, and distributing the packaged milk in cold chain conditions. The picture becomes even more curious when the family consumption patterns of purified water and pasteurized milk are factored in. An Indian middle income household typically consumes 750 ml of milk per day per person in various forms, ranging from plain milk to milk converted into yogurt. The household also consumes 2 liters of packaged drinking water per day per person. Assuming a six member family, the household is willing to spend twice as much on water as on milk (Rs 180 per day on water versus Rs 90 per day on milk).

As one moves up on the richness scale, the consumer would be seen to be willing to as much as three to four times on an imported packaged water brand in a restaurant or hotel, providing an even more curious twist to the socio-economic puzzle. One cannot explain away the enigmatic dimension either on purity assurance or once-in-a-way indulgence of the rich. A life saving Dextrose infusion solution is priced probably at half of the price of the imported water brand. A life saving pharmaceutical product which is produced with the consumption of millions of liters of treated water, and recycling and treatment of millions of liters of effluent water is priced on par with packaged water, weight by weight. The issue perhaps is not in the quixotic behavioral patterns of the consumers. The issue relates more to the ability of managers to appreciate the compulsions of commoditization and the enablers of value creation in a more pragmatic manner. It is the managerial capability that creates value in an essential commodity like drinking water and depletes the value in a relatively optional nutritional product like milk or in a critical life saving or lifestyle product. Without making value judgments on the business behaviors and the social perversities involved in these curious scenarios, the intention in the discussion that follows is to understand the lessons that water as a packaged product teaches to managers in the competitive dynamics of commoditization.

Understanding commoditization

Commoditization is a function of demand-supply balance. An ordinary fossil fuel like coal would cease to be a commodity feedstock if coal-fired thermal power plants are required in greater measure or if the availability of coal mines becomes dramatically impaired. Gold and platinum see escalating value due to scarcity of mines and mining on one hand, and economic hedging coupled with social passion for jewelry on the other. The rare earths such as promethium and terbium are rare not because of lack of availability in earth’s crust but because of the complexity of their extraction and separation as well as radioactive impact of the effluents. China’s move to curb the export of rare earths is triggered not only by the desire to conserve the elements and avoid pollution but also by the desire to move up the value chain of producing value added products from the rare earths. Pricing of a product inversely correlates with commoditization; the greater the commoditization the lower the price. On the other hand, impact of technology has random behavior.

Steel is a perfect example of economy linked supply factors overriding the technological challenge and investment intensity of steel production. Poor growth in infrastructure lowers the demand for steel, creates oversupply of the product and makes steel a commodity. As basic steel making technology is mastered by a greater number of producers steel became a commodity product. Technology has a random impact in addressing the challenge. For example, steel could be a commodity but automotive steel is not. At a gross level, technological improvements in input material quality control, conversion efficiencies and energy consumption can reduce the cost of steel production and either protect the margins or spur the demand. On the other hand, forward integration into value added products such as automotive steel, on the basis of technology, could make steel producers create niche positioning. As industrial managers face the grim prospect of commoditization of even high technology, high investment products by their own actions, they need to appreciate how a naturally occurring commodity product like water could offer lessons in de-commoditization.

Function-value matrix

Every product offers functionality and value as its two fundamental dimensions. Water offers functionality as the essential nutrient and osmotic agent. Water provides a balance in the body – homeostasis. It provides an absorption of the water-soluble substances, transportation of the nutritive elements to the target cells and the excretion of waste products of the metabolisms of the body. Water is taken so much for granted that its elevated role in ensuring homeostasis is never understood in detail. On functionality and value, the packaged water has traditionally been split in terms of purity and branding, with a perceived correlation between brand popularity and water purity. Industrial managers, however, have succeeded in vesting water, which has been a co-element of life from the inception of life, with several additional dimensions of functionality and value. The fundamental functionality is in terms of a matrix of portability and storability; ensuring the availability of the product from the smallest bottle size of 200 ml to the largest size of 2 liters for individual use and the smallest can size of 5 liters to 50 liters for use directly as storage carriers or in tandem with water dispensers. The distribution logistics have been so perfected that the user has now a total assurance that he can access a packaged water bottle wherever and whenever he needs it. By making the packaged water available ubiquitously, the producers and distributors have liberated the user from the need to carry water around, and created value around supply assurance.

On the purity front, producers perfected the purification processes to achieve continuously higher levels of purity and taste. Fundamentally, by adopting multiple sources for water extraction from public treated water to mountain springs, manufacturers tried to assure lower impurities from source. Typical multi-step purification process includes reverse osmosis, ozonation and carbon filtration at the minimum. Each of these steps, even individually, and collectively is designed to remove manufactured molecules such as chemicals and pharmaceuticals, as well as naturally occurring substances such as impurities and heavy metals. By keeping the Total Dissolved Solids (TDS) below the levels mandated by the FDA, manufacturers create new standards. TDS is the sum of all solids dissolved in water measured in parts per million (ppm). Examples of substances that can account for TDS include carbonates, bicarbonates, chlorides, sulfates, phosphates, nitrates, calcium, magnesium, sodium, potassium, iron, manganese, and a few others. Value creation often entails investments in product development, manufacture and distribution to breach higher technological barriers, and higher marketing expenditures to convey the superior function-value matrix to the consumer in terms of brand explanation. The question that arises is whether commoditization has any scope for innovation.

Innovation for de-commoditization

It is often assumed that commoditization is only a one way street, and except for demand-supply factors there is no way to de-commoditize a product, particularly once a commoditized product has been stretched to the limits as is the case with current branded packaged drinking water products. Not really, as innovation has no limits and could turn even commoditized products into differentiated products. For example, the current filtration processes remove all the TDS while a new technology that could retain essential minerals such as calcium and potassium could provide a value edge. At a higher level, purified water with added nutrients and taste agents could provide additional value. Given the extensive use of plastic in packaging water, innovations in the use of plastic which is absolutely non-reactive and non-carcinogenic over an extended shelf life could provide added value assurance. Quality control and quality assurance on plastic bottles assumes greater importance given the higher dependence on recycling. Similarly, in distribution additional protection that assures dust-proof protection and dust-free delivery would provide additional delivery assurance.

Innovation in commoditized products could take the shape of positive environmental balance as well. It is counter-intuitive that a water packaging corporation could generate more water table than the water table it depletes. This would, however, be possible on an overall global scale by resorting to rain water harvesting, creating rain water reservoirs around manufacturing complexes and providing community watershed schemes. At a different level, by conducting research on the role of hydration therapy for persons of different clinical conditions such firms could help establish better linkages between water and life. Comparative studies between different sources of water in terms of impurities and TDS and related manufacturing efficiencies could help achieve better manufacturing economics. Developing linkages between water quality and other beverages could help beverage manufacturers achieve better taste and consistency parameters. Given the propensity in emerging economies to counterfeit, reuse-proof, theft-proof and tamper-proof plastic containers could constitute an agenda for packaging innovation. In sum, if a simple natural product like water could lend itself to enormous value differentiation and de-commoditization other more complex products could provide a significant potential for value creation.

'Water lessons' for managers

Water provides several business and technical lessons for managers. Ten of these are summarized as follows. Firstly, it demonstrates how product management could alter the lifestyle choices, leading at times to skewed deployment of resources and returns. Managers must therefore understand their own ability to influence consumption patterns and utilize the power in a socially responsible manner. Secondly, product strategies need to simplify life in terms of portability, mobility and universality. Managers must try to optimize a total eco-system around core and related products rather than focus only on optimization of their core product alone. Thirdly, governmental and regulatory standards are guidelines and offer opportunity for firms to differentiate themselves beyond. Managers must accordingly focus on futuristic bar-setting and technological efficiencies to be ahead of the curve. Fourthly, all products, whether of human consumption or non-consumptive usage, have an impact on health. Managers must endeavor to correlate product performance and health impact. Fifthly, corporate social responsibility requires that what is taken from the environment must be more than made up. Managers are, therefore, responsible to develop and implement environmentally regenerative strategies.

At a product level, managers must have faith in the technical characteristics of the products they develop and manufacture. If water can have marketable properties, a chemical product or an automobile product would have several properties based on which they can be differentiated. Managers who fail to study and grasp the technical attributes of their products, and who attempt to market them solely on price considerations are value destroyers for their corporations. On the other hand, managers who undertake techno-economic marketing of their products create not only outstanding value for their products but also lasting value for their companies. Secondly, the quality of raw materials and intermediates influences to a great extent the product quality and manufacturing efficiencies. Managers must therefore focus on incoming quality as much as on in-process and outgoing quality. Thirdly, manufacturing is a key differentiator in terms of attainable conversion efficiency and deliverable quality standards. Managers who develop manufacturing systems that achieve tighter manufacturing tolerances, lower number of operations, and lesser effluents with greater recycling contribute to operational sustainability. Fourthly, quality needs to be perceived transparently at the time of purchase and in regular usage. Managers who ensure integrity in product delivery and usage with good packaging, transportation, distribution, delivery and after-sales service practices contribute to overall conservation of resources. Fifthly, and most importantly, irrespective of whether the product is commoditized or prone to commoditization, innovation can slow down or reverse commoditization. Managers need to support innovation across the value chain as much as they seek cost economics.

Multi-point value chain

There are fundamental differences between companies which choose to be completely commoditized, to have a mix of commoditization and innovation and opt to be completely innovative. The first group operates in a negative spiral of managing on costs, and having no wherewithal to reinvest. The first group brings down not only itself but all of its suppliers and vendors. The group believes it is operating in low risk-low return class, but actually runs the highest risk of industrial sunset, as customers who constantly evolve would see declining value or relevance for such products. Typically, such companies convert their industries into sunset industries. The second group operates at multiple value points ranging from pure commodity, low value, low cost and mass products to pure innovation, high value, high cost and niche products. The second group consistently innovates products, and moves them down the value chain as markets evolve. A sub-set of the second group has the capability to introduce products simultaneously at various value points. The second group has the utmost capability to achieve long term sustainability. The third group of totally innovative companies operates at the highest levels of risk and reward but is the essential trigger for evolving new sunrise industries. The third group has the ability to create markets, and even industries, around its innovations.

Water is a product that cannot be differentiated visually or in use. Yet, as this post has brought out differentiation could be done creatively even for an apparently commonplace product. Clearly, various other products which have so many technical complexities and nuances offer manifold opportunities for differentiation. Managers, irrespective of the industries they operate in, must use their intellect and perseverance to innovate against commoditization. Long term sustainability stems from innovation rather than commoditization. Water, as an industrial product or as lifestyle packaged product, has several instructive lessons for managers in building value for products and corporations.

Posted by Dr CB Rao on February 6, 2011.