Sunday, June 12, 2016

Leadership’s Five Worst Mistakes to Avoid

Leadership is looked upon as the ultimate capability to succeed. Leadership is unique in that its success comes from the success of the teams that leaders lead. Leadership is, therefore, nothing but influencing the teams to perform to their full potential. Leaders typically possess a set of skills and attributes which they deploy in certain styles to lead the teams. Though leadership is, in part, contextual the broad set of leadership competencies remains the same. Many times leadership is based on excellence in a few attributes relative to others. The attributes of relative excellence could be any or some of the following (illustrative): conceptualization, strategy, decision making, execution, public speaking, memory, agility, perfection, empathy. The ability of the leader to influence his or her team members to succeed, based on such attributes, creates a leadership charisma.

Leadership charisma reinforces the success competencies of a leader leading to a virtuous cycle of success and charisma, in an ever increasing trajectory. Along with that comes a sense of infallibility and invincibility, fuelled by relative superiority. In some leaders it just remains as a streak and in some leaders it starts becoming a dominant stream. When the latter happens, leaders start committing certain mistakes with the assumption that their supremacy is unchallenged. This approach, in the long run, becomes counterproductive to the leaders and their organizations because, more often than not, the team comprises potential leaders who with time and given the space could step into the leader’s shoes. The sense of relative superiority, which is a result of self-perpetuating cognatic bias of a leader, prompts him or her to commit certain mistakes. Discussed below are five of the serious mistakes a leader can ever make, and should never make.

Competing with team

This is the most common mistake successful leaders make. A wise leader recognises that his direct subordinates could be better than he himself is on certain attributes and together the reporting team could be better than the leader. This awareness amongst the subordinates develops based on individual and team successes and group collaboration. A leader who is always out to prove that he is superior to his team would hardly give credit to his team for successes. A leader who is always attempting to prove his superiority over his colleagues ends up using his positional power to achieve this, given the fact that he may not be intellectually superior on all counts. There are several negative consequences of a leader competing with his team.

Firstly, the team becomes acquiescent, if not obsequious, denying the organization the benefit of collective wisdom. Secondly, it places too much power in the hands of one individual who has started trading his wisdom to aggrandisement. Thirdly, the broader organization becomes centrally driven diluting the authority and relevance of a whole team of leaders. Two things happen as a result. Potential leaders become blind followers, passive aggressors or take up early exits. By the time the leader and the Board come to realize the folly, mostly through some failures, they would find that the organization has no potential leaders. Eventually, the reputation of the leader as a concentrator of power would inhibit entry of external leadership talent.

Joker(s) in the pack

Though not very apt, the leadership team can be seen as a pack of cards utilized by the leader to win the game of business competition, majorly through skill but partly also through luck. As we know, the joker card which has no sequential or set attribute has enormous value to be used as any card to make a set or sequence. Leaders tend to have a team member who is loyal to the core and who fulfils the role of a joker in the pack for the leader. It is not uncommon even in great corporations to have a joker in the leadership pack; they do contribute to forward movement by adding their word (usually at the behest of their leader) to certain solutions desired by the leader. The trouble arises when the leader tends to have too many jokers in the pack.

Like in a card game, too many jokers in the leadership game rob the game of business any competitive strength. A leadership team filled with members of blind loyalty, even with substance, would add little to the long term strength of the company. Very soon there would be no issues to debate and no decisions to make. A leader who fills his pack with too many jokers would find it difficult to reconstitute the deck even if wisdom dawns on him because unlike the competent ones jokers tend to stay on for a lifetime! There is probably only one way to deal with an excess of jokers; offer them sinecure positions and make them lead inconsequential non-mainstream divisions.

Drawing the blinds

A company, more so its headquarters which houses its leadership team, is like a cozy home. It stays in its community (the supply base or the marketplace) but also could be a mini-community by itself. It is important for any house to draw in, from outside, sunshine and breeze so that the residents are healthy. A home may protect its residents but unless residents go out and are able to live their external life they would eventually become weak. The fate of headquarter leadership is also similar. Unless leaders undertake periodic viewing and listening tours in their fields they are likely to be isolated, and lose their touch with competitive pulse. Being blinded to realities is the worst handicap that a leader can inflict upon himself.

The third mistake leaders commit is to draw blinds on their homes, shutting out the view on and feel of outside developments. Artificial light and air conditioning may not only substitute the natural sources and be more comfortable. They may even give a false sense of control over them. They are, however, expensive and inappropriate; like artificial light can never help in vitamin D synthesis in a person as natural sunshine does. A leader who runs a headquarters that is isolated from its environment does more harm than good to the vitality of the leadership team and agility of the company. It is not enough for one or two potential leaders to foray into the environment. There must be continuous openness for all the team members.  

Decoupling with peers

A peer is someone at one’s own level. A leader, if he is hierarchy bound, and in addition has a mistaken feeling of superiority may never see anyone as his peer. It is important for a leader to appreciate that aspirant leaders who are one level below him organizationally, and even managers several levels below, can be peers based on intellectual capabilities. Organizational structures and processes are designed, despite their bureaucratic nature, provide several opportunities to couple with executives, managers and leaders of shared or overlapping processes.

The fourth mistake leaders commit is to decouple themselves from their peers despite organizational opportunities. Decoupling occurs in two ways; one is going through interactions in a mechanical manner and the second is to build silos around himself and allow other leaders to build silos around the divisions they head. Leaders who think of themselves to be superior or carry needless burdens of their weaknesses tend to deliberately decouple themselves from their peers; hierarchial or intellectual. A leader who does deliberate decoupling only downgrades his potential.

Tunnelling the vision

Leaders are charged with a rather sublime duty of conceptualizing a vision. Vision is not a definition of a future business. Vision is more an expression of how a business would build itself and endure over a really long time. Apple’s vision is to lead a digital revolution. Google’s vision is to organize all data to be useful. Microsoft’s vision is to seek diversity and inclusion in its business. Ikea’s vision is to create a better everyday life for people. Amazon’s vision is to be the world’s most customer-centric company. General Electric’s vision is to bring good things to life. Vision, in a way, represents a superordinate philosophy of a company. A leader’s differentiation will be evident in the nature of vision statement.  
The fourth mistake of a leader is to tunnel a vision; an oxymoron of sorts. Vision needs to be expansive as open sky horizon and capable of lasting in perpetuity. Expressing a vision in terms of products and businesses is a hallmark characteristics of leaders with tunnel vision. This leadership mistake restrains an organization from absorbing its fundamental purpose and establishing a perpetual connect with its stakeholders. It is not expected that a leader should develop a vision by himself. If the leader does not make the mistakes mentioned earlier he would be in a position to develop his leadership bench, bring out their inner and innate potential, and seek contributions from his team members to develop awesome vision.   

Board role

The role of apex leaders, among many other important things, is to be a model of leadership, and keep organizational processes on track. If the apex leaders, the Chief Executive Officers and other C-Suite Officers, themselves make any or all of the above five mistakes, it is difficult for others in the organization to correct such leaders. As mentioned earlier, the subordinate leaders and managers may just comply or exit. If leaders do not realize the need to avoid the five mistakes, the Board of Directors becomes the only hope.

The Board is the institutional framework that can mentor and coach the apex leaders to live their leadership role in totality, avoiding the above five mistakes. To be able to play that mentoring role, the directors on the board themselves must be seasoned and wise enough to understand the five mistakes that leaders could commit and they themselves should not have committed them. The Board’s role is not just review of performance, or even ensuring governance but is enabling the apex leader to do the right things and avoid mistakes, and reach the fullest potential.

Posted by Dr CB Rao on June 12, 2016

Monday, June 6, 2016

‘Bull-Bear’ Rollercoaster of Indian Stock Markets: Mitigating Behavioural Irrationality by Informational Rationality

Stock markets are considered to be the ultimate barometer of investor confidence in a nation’s economy. A healthy and vibrant stock market helps small investors of a nation make gains that can beat inflation in the long term. Indian stock markets have opened up to foreign investments after liberalization, and over time this has resulted in the Indian stock markets getting coupled to global markets. Foreign institutional investors (FIIs) determine to a large extent the ups and downs of the Indian stock markets based on their inflows and outflows. FIIs have a global canvas to invest and their relative allocations amongst countries and relative shifts have a profound effect on national stock markets. What happens in the Indian stock markets is thus a combination of domestic factors and global factors.

Indian stock market regulations have, over the years, been progressively reinforced and refined with greater operational disclosures and better governance standards. Opportunities have been enhanced for public participation with prescription of minimum public float, both for public and private sector companies. Norms and procedures for initial public offers (IPOs) and follow on public offers (FPOs) have been streamlined with measures to avoid locking up of small investors’ capital. Easy listing norms for startups are also on the anvil. Despite all these measures, the Indian stock markets continue to be infamous for the rollercoaster rides and unexpected bull and bear cycles. Some experts opine that Indian stock markets are predominantly news and operator driven, and do not always carry a healthy correlation with either the state of the economy or the level of performance of companies.


Stock market analysts tend to simplify market movements to bull or bear cycles which take place under the sunshine or storm, respectively, of global macroeconomic developments. Stock market analysis is one domain where analysts’ moral commitment to what they say is notoriously weak, and correspondingly where public memory is notoriously short.  Around an year ago, analysts spoke of Sensex (Indian stock market benchmark index) crossing the 30000 mark effortlessly by end-2015 and even doubling itself in three years. In January-February 2016, however, all of them began talking of an imminent crash to around 15000 mark. Again, this June there is talk of a secular multi-year bull run. From time to time, there tends to be much emphasis on an invisible collective bull power or bear hug of the markets rather than on the performance of industrial sectors or companies; inevitably there is no accountability on missed forecasts.

Events in economy become outcomes in markets for operators. The markets witness exuberance whenever favourable announcements are made on economy, fiscal policy, monetary policy, foreign investments, monsoons, and so on. On the other hand, any perceived adverse news in such matters leads to gloom.  In doing so, markets price in expectations that cover one year plus outcomes in just that day’s or that period’s price. This is an interesting feature of behavioural finance that makes people respond to momentary data in a compulsive manner. When a whole universe of investors goes berserk in that manner, sudden bull and bear formations take place with current price-earnings (PE) guideposts thrown out based on future PE ratios and people wanting to have (or get out of) their share of the market at any cost. There is no mechanism yet of how the bull and bear impact can be circumvented, except the Buffet way.  


Warren Buffet is considered to be the most successful investor in this world. Buffet says he is never influenced by generic trend of the markets being in either bull or bear grip. He does not look for short term sharp returns. Instead he buys into companies and managements based on detailed internal information which is available to him as a large investor in a perfectly legitimate way. Not all will have a large portfolio nor the deep information to do a Buffet act on a retail basis. Most will also not have any time to analyse or grasp the key issues. Given these limitations, what one can do is to understand the nuances of behavioural finance and mould one’s approach towards the markets accordingly, understanding one’s life goals and one’s intrinsic limitations.

Professor Daniel Kahneman who won Nobel Prize in economics in 2002 for shattering the assumption that economics is rational has a lot to say on economic behaviour of individuals. His life’s work is anchored in studies showing that people are irrational. His works argue that people are prone to “cognitive biases” and “systematic errors in thinking”, made worse by chronic over-confidence in their own judgement – and the less intelligent they are, the more militantly certain they tend to be. Very relevant to stock market investing are his propositions that people do not always act in their own economic self-interest. Nor do they strive to maximize “utility” and minimize risk, contrary to the assumptions of efficient market theory and the core premises of the economics. He holds that people are myopic and human brain circuits respond to immediate consequences.


Depressing may it seem, Professor Daniel Kahneman concludes that individual investors are so persistently incompetent and incorrigible that they fail to recognize their own economic misbehaviour; they amplify their profits, fail to crystallize their losses and avoid own up their failures,  leading to a costly asymmetry. Having made these very insightful and pertinent observations, he offers no solutions either. He holds the funds, mutual or hedge, which are managed by fund managers also to be susceptible to the behavioural follies; he concludes laconically that the only thing certain with funds is their fees, besides entry and exit loads. Universe and stochastic processes are a great leveller; for those investors who make handsome economic profits in such asymmetrical investment scenario, there would be an equal number making precipitous losses. This see-saw of profits and losses reduces stock market investing by individuals to a game of chance where fortuitous timing and dogged patience pays, but only to an extent and never in an absolute sense.

A review of Sensex trends over the past few decades and company stock price movements over time suggests that the only thing that matters is when someone enters the market and when he would exit. Apart from the availability of investible surplus or the urgency of monetary need, the timing tends to be one of chance. The reason is that markets are irrationally rational. They are rational to the extent of appreciating a cause and effect approach but they are irrational in terms of the nature and quantum of response. In addition, there is a huge asymmetry in information, with no single agency being responsible for holistic analysis of all the trends that could impact the performance of companies and markets. When individual behaviour is based on logical asymmetry and is unknowingly irrational and complacent, the only way to minimize the impact is through greater information access. 

De-stock, exchange!

Regulators in India have done great things in recent years to enhance timely, pre-formatted disclosures through stock exchange sites. Over the last few decades, exclusive daily business and economic newspapers and 24X7 specialized television channels to present daily economic and business information and track stock market happenings have become very pervasive and popular. In addition, firms have tied up with stock exchanges to capture real time market data and presented corporate data to develop multi-layered databases for investors.  All this have provided more information at the hands of investors than they had ever. The issue, however, is with classification of open source raw information, pricing of analytical information and access to both types of information. If regulators are committed to healthy growth of stock markets and protection of investor interests, as indeed they are, the stock exchanges must establish a non-profit or a subsidised organization to provide raw and analysed information to all sections of population on a free of charge basis.

Stock exchanges are the platforms with daily turnovers in the range of Rs 20000 crore approximately while a few hundred crores are collected annually through transaction taxes. Stock exchanges should utilize a fraction of the funds generated to provide to the investors the following: (i) a daily information newsletter including all submissions of the day, (ii) a daily newspaper providing corporate performance data, (iii) a television channel which provides stock market and company performance data (without advertisements, interviews and induced biases), (iv) a mega portal which provides company and stock performance data in raw form, classified into large, medium, small and micro sectors in each industry as well as across industries, and (v) an analytics infrastructure which analyses the raw data in terms of multiple analytical formats and trends. If stock exchanges feel that any compilation and analysis of data through media impacts their independent status they can promote an independent corporation to undertake such activities. De-stocking of the huge amount of information that passes through the exchanges each day and presenting it meaningfully and analytically is essential for investors to moderate the travesties caused by irrational and vulnerable human financial behaviour.    

Posted by Dr CB Rao on June 6, 2016 

Sunday, June 5, 2016

Two Minds Are Better Than One: The Theory of Twin Leaders

Management processes are developed over time to facilitate, enable and ensure success. Organizations create departments around functions and identify managers to lead. Organizations are also corporations with departments, all headed by CEOs as singular leaders conducting corporate management in the quest for success. Organizational practice, over time, also got concerned about vesting singular powers in individual managers and leaders, and has tried to use departments as mutually critical of each other while requiring them to be collaborative.  Individual managers and leaders are trusted to deliver through such singular power or face consequences later (Google Nest is a recent example). Concerns are delayed recognition of failures has led to organizations being layered vertically and horizontally with departments that oversee each other.

The zig-saw puzzle of ‘trust and verify’ is reflected in several organizational structures. Production produces but Production Planning counts while Quality verifies. Accounting records and Finance tallies. Internal audit checks veracity of all these processes. This has been the traditional structure. It has not stopped some business failures and occasional malfeasance. Investors and regulators became concerned, and new departments such as compliance, risk management and ethics came into organizational mainstream. There is another dimension too. In early days, all departments used to be consolidated into just two broad divisions: technical and commercial. Over time, not merely due to increasing scale but also due to avoid departmental cartelization, every department (almost) started getting a C suite officer. Despite all this, looking at the broad range of business failures one would wonder if the management processes, as they have evolved, provide an infallible solution.

Which two?

The efforts to find the right balance continued to extend, and that too to the higher levels of organizations. The Chief Executive Officer (CEO) or Managing Director (MD) is required to hive off day to day operational responsibility to the Chief Operating Officer (COO). The roles of Chairman and MD are now expected to be different. MD and CEO are expected to operate under the superintendence and guidance of a board of directors with diversity of experience. The Board itself is divided into independent (non-whole-time) directors and non-independent (whole-time) directors, independence being related to material pecuniary relationship with the company of a director over a sufficiently long period of time. In further addition, the Chief Financial Officer (CFO) is expected to report also to the Board. An audit committee of select directors of the Board acts as an independent reviewer of accounts, interacting with external and internal auditors. And, there exist other board committees for investments, risk, compliance, and so on.  

The audit committee also acts the ultimate stop for the whistle blowing mechanism in the company and as an ombudsman of sorts. There are many further nuances, both from regulatory and company perspectives, which are expected to support the endless divisions and superintendence. All these mechanisms expect remediation to be carried out only by the CEO and the other C suite officers who alone have the day to day knowledge and execution capability. The audit committee and the board may go through all the internal audit recommendations but will only have to look at the CFO and CEO to implement the remediation plan. In battles between heads of production and purchase, production and sales, finance and all other departments, only those respective departments have to implement corrective processes. All this discussion leads us to wonder if different functions, departments or responsibilities that are headed individually are the solution (or the problem?) and something else is the problem (or solution?).  

Root cause 

The root cause for bad performance is usually bad decision or bad execution, or both. Without addressing the root cause for bad performance mere structural redefinition would not help. Better processes do help to an extent but essentially, individuals need to be better at decision making and execution. There is one reason other than leadership skills as to why leaders do make bad decisions or do turn bad at execution. That reason is that leaders are also human! We may aim to achieve precise and clinical leadership through various efforts of leadership development. However, leaders as humans are subject to pressures, internal and external as well as biases, internal and external. While it is part of leadership skill set to be confident and objective (which should address issues of pressure and bias, respectively) it is indeed humanly impossible to be extraordinarily virtuous. It is, therefore not uncommon to see even seasoned leaders wilt under pressures of the Street or get mesmerised by their own pet ideas.

When the issue is within the native profile of human behaviour, there is only a limited alleviation that organizational structures and processes can offer to offset the impact of pressures and biases; particularly when such structures are in the nature of dividing responsibilities, and reviewing decisions and actions sequentially.  The key here is that the primary decision or execution is singular by an individual; so is the secondary review of decision or execution. Though review by a board is plural it is also a post-facto delayed quarterly review of singular decisions or actions. It is important to enable challenges, debates and superior outcomes in decisions and actions. This cannot be achieved just through a discussion between the boss and his subordinates as the former eventually displays positional power and the latter eventually succumb to career growth issues. This cannot be through peer level discussions either as peer groups tend to eventually “live and let live” rather than aim at the best outcome.

Two minds

It is often said, “Two minds are better than one”. In fact, the concept of synergy lies in being “One plus One becoming Three, rather than an arithmetical Two”. The first is a typically social adage that implies that two minds can bring to the table viewpoints that would not be obvious to just one person. The second is a typically corporate adage implying that when two minds get together some sort of catalysis takes place. There is a saying related to individual experience that plays spoilsport though: “I am in two minds”! In corporate setting, indecisiveness is frowned upon. This has been one evolutionary reason why singular authority has been encouraged in all organizations. As we have seen in the earlier sections, this concentration of power has the potential to lead to inappropriate decision making or execution. A bold new experiment could be to have two leaders responsible for a single function. For example, key functions such as Finance, Operations and Commercial could have two equally titled top executives lead each of them. All decisions could be taken and executed only by the two together.

The rationale for two minds taking one decision or supervising one execution is clear: two minds are better than one, especially when the function is too complex to decipher or when multiple solutions require multiple viewpoints. Having two equally endowed executives enables each of them to overcome their pressures and biases through the critical thinking of others. Having another powerful co-sharer of decision making and execution enables the two member team take bold decisions which each individually would not probably be taking. There are, of course, risks that the two leaders could form a conveniently colluding cartel rather than critically thinking team. As long as this two member team concept is not limited to just one function but covers a few other important functions besides the CEO role itself, the risks of such cartelisation would be low. There would be higher costs associated with the concept but can be overcome with greater infallibility and greater value building through such pooling of strengths.

Left and right

The general approach in a Twin Leader deployment could be to select them based on complementary domain skills. For example, of the two to head the commercial function, one could be a sales oriented leader and another a marketing oriented leader. Of the two, heading the finance function, one could be a growth oriented fund raiser and another precision oriented cost accountant. In the operations domain, one could be a production expert and another quality expert. At the level of CEO itself, one could be conceptual and another analytical or one could be thinker and another implementer. The logic is that by putting together these skills at the leadership level one gets the best domain leadership capability. There is much to support such a skill based approach. There is another approach too that could be very viable that is rooted in neuroscience.

Ever since Roger Sperry, the 1981 Nobel Laurate, brought out the concept, lot of research has focused on lateralization of brain through left brain and right brain functionalities. Right brained individuals are expected to be more intuitive, thoughtful and subjective while the left brained ones to be more logical, analytical and objective. It is not that the two sides of the brain are completely compartmentalized; the brain does work together with the various parts of the brain including the left and the right conversing through the corpus callosum which joins them. The point here is that the twin leader approach has an enormous potential to bring together not only complementary domain skills but also a winning fusion of intuitive and logical, thoughtful and executional, and subjective and objective skills that are so essential to accomplish top-class leadership. If organizations look beyond the immediate costs of twin leadership approach, the organizational value that could accrue would be immense.

Posted by Dr CB Rao on June 5, 2016       

Friday, June 3, 2016

On the Competition Highway: The Perspectives of Two Bahns

Business highway is a theoretical concept of businesses traveling over time towards their destinations on certain pathways. While each company has its own goals, more often than not several companies, constituting an industry, tend to travel together along the same business highway. The reasons are simple: every company in an industry faces the same huge market that appears bountiful on the distant horizon and every company has only a defined set of prime movers to take them towards the destination. The nuances we speak of in terms of product positioning, market segmentation and so on are efforts to define motels and hotels on the highway to rest in the quest for market dominance. Those who take their rest as the endpoint in journey risk becoming marginal players in a subset of the large market.

When a company starts as a monopoly, the cruise seems to be smooth and unchallenged. Companies take their time to build up speed, and after certain periods of acceleration and deceleration, could stay on their chosen speed level.  In certain industrial situations of perfect duopoly, two players tend to travel together in a certain equilibrium without upsetting each other unduly. In most industrial situations, however, competition starts coming up. Dots in the rear view mirror become, new speeding competitive businesses zipping past the monopoly or the duopoly businesses. Academic gurus and practical leaders dedicate their lifetime understanding the dynamics of competition and developing constructs to stay ahead of competition. The fallacy in competitive strategy is that everyone has the same access to theories of competitive strategy and can operate in similar ways to meet their strategic objectives. Much like automobiles, businesses drive through rear view and front view.

Rear view

The essence of rear view in driving is to be watchful about vehicles overtaking us. The rear view strategy in business also works much the same way. As in safe driving, it requires the driver to focus largely on the way ahead while casting darting glances at the rear view mirrors. Each car has two rear view mirrors; the right one near the driver (in right hand drive vehicles) is the primary one to be watchful about overtaking vehicles (competitors, in a business context). The left side rear view mirror is helpful to be watchful of those who seek to overtake from the wrong lane and also help the driver assess how he is pulling ahead of competition as he overtakes. To make effective use of the rear view mirrors and not to be blind to relative speeds, it is important, without doubt, for the driver not to have glaucoma (and for businessmen not to have tunnel vision).

The highway cruise is a game of lead and lag. Over time, drivers in autobahns learn to maintain a distance in equilibrium or get used to an iterative lead and lag in disciplined lanes. They also confirm to lane discipline, by and large. While the destination remains the goal, the preoccupation of the driver’s mind is in preserving a competitive but collectively safe ecosystem. The leads and lags do help in arriving at the goals but miss the larger picture of if one is on the right lane. In business too, when one is preoccupied with competitive leads and lags, the businessmen tend to lose track of the broader picture. Much attention is paid on watching the rear view to take care of the zooming competition, and ensuring the lead. Business race is not one in which a few market share points matter (as seconds matter in a car race). What matters more is an unfettered view of the spaces ahead for businesses to continue racing ahead.  
Front view

It goes without saying that the front view is far more critical than rear view in driving. The purpose of front view is to seek a clear road, be mindful of signages, and avoid safety risks. In business too, front view ride is critical but cannot be curtailed like in road cruise. It is important to look far ahead and visualize the path. Verdant spaces to drive in are important. The trap, however, is that business managements very quickly convert the long term visions (strategies) into short run journeys (budgets), and become watchful drivers. Agility, if at all, is shown in overtaking the vehicle (business) in front rather than in considering a quantum jump to a distant destination. As with rear view, soon the drivers in front view too get into a comfortable equilibrium with the road ecosystem.

Many times, the best of views is disrupted by inclement environment; while the vehicle or business may have the best of navigation aids, prudence demands slowing down till the weather clears up. A road warrior understands the physical limitations of an inclement environment but a business warrior takes really a long time to feel the impact. All of these do not matter as much in a crowded bumper to bumper traffic condition or in a fragmented industry environment because speed is controlled by default. That said, it would be somewhat facile to assume that a leader who is well tuned to disciplined yet agile driving on the road would be equally so in a business highway. On the contrary, there are critical differences in how leaders conduct themselves in the two bahns of roads and businesses.

Two bahns

While both automobile travels and business travels are physical, the latter gives a vicarious feeling of virtual state. As a result, the business leaders who drive on the business highway tend to be far more freewheeling than the driver on autobahn. The results in an autobahn are instantaneous and physically experienced, whether positive or negative. In business bahn, however, the results take time to deliver and the careless driver is insulated from the likely impact. This fundamental difference makes well-groomed and disciplined leaders to be casual, careless and even undisciplined on a business bahn. Leaders who would be deeply aghast at liberties taken in physical driving would not only wink at liberties taken nonchalantly on business bahn but also be unmindful of the damage being inflicted on the business ecosystem. Leadership exhortations such as ‘making one’s own path’ can be easily twisted out of perspective to go berserk on business highway. Unfortunately, the impact of reckless driving on business highways gets known only after the drive is nearing to a serious crash.

A vehicle needs fuel to cruise on the autobahn. The faster you drive and the longer you drive the greater is the fuel consumption. The best bet lies in having a vehicle with a larger fuel tank and better fuel consumption; such an envelope only postpones the limitations but never eliminates them or avoids the need for refuelling. Like automobiles, businesses need the fuel of profits to run; so does everyone believe. In reality, businesses need cash to run. Profits are virtual fuel, an accounting fuel in a manner of speaking, that lets businesses keep on running despite losses (and even cash losses) through a variety of props of diverse financial instruments. It is important that businesses appreciate the importance of cash as the only fuel that can sustain deviant or careless drive on business highway. The processes of management have put in place a number of checks to ensure appropriate governance (much like speed governors, ABS and safety checks) but the way bankruptcies and stressed assets blow up in India and elsewhere indicate that the drives on business highways need a different perspective for future.

Autonomous driving

The automobile industry, nay the road transportation sector, is set to be transformed with the experimentation and eventual maturation of autonomous driving. An autonomous car (also driverless car, self-driving car or robotic car) is a vehicle that is capable of sensing its environment and navigating without human input.  Autonomous vehicles detect the surroundings through radar, lidar, GPS, odometry, computer vision and soon with artificial intelligence. They are equipped with advanced systems that interpret sensory information (including reading signages) and navigate the paths towards destinations, overcoming obstacles. What this implies is that man-machine interface through breaking systems, speed governors and safety devices is considered inferior to a completely machine controlled drive. Autonomous driving is both a tantalizing misnomer and a perfect descriptor, in parts. Conceptually, giving an automobile complete autonomy from the free thinking human being is considered to lead to better navigation, safety and efficiency for the vehicle and its passengers (besides accommodating one additional person in place of the driver)!

Well for businesses too, all the wisdom from the stakeholders to advocate prudential norms and all the efforts from the regulators to put in place governance standards are akin to the meters and governors, with all their bells and whistles, embedded by the designers to enable smooth and safe functioning of an automobile in the hands of its driver. Just as these have been found wanting and autonomous driving is the new goal for safe autobahns it appears that businesses that are algorithmically driven and are autonomous from the inducements, aberrations and compulsions of human enterprise could be the new norm for safe driving on business bahns. Conceptually, a machine controlled business would appear to be completely antithetical to the idea of free enterprise but with the strides being made in artificial intelligence businesses may be run faster and safer as well as more profitably and more prudentially by machine controlled algorithms! The advantages could lie in terms of better regulated investments and expenditures with greater business assurance!!

Posted by Dr CB Rao on June 3, 2016

Tuesday, May 31, 2016

Advertising as Association: Warranty as an Open Card

Every wakeful moment of ours there are two things that keep happening invariably. The first is that we continue to be ever so unaware of our real internal selves. The second is that we become constantly ever so aware of external things which are not necessarily real. The first is related to the ego that we grow with. The first is not the focus of this blog post. The second is related to a ubiquitous phenomenon called advertising. What began as a management process to provide information to those who need has become a managerial process or profession by itself. When we see a newspaper today we see more advertisements than news. When we view electronic media, we see already broken stories that are further fractured by advertisements. When we go through any event, we encounter directed self-promotion rather than genuine public purpose. Everything in life, including organizational life, seems to be anchored around mutual advertisements.

Advertising may be defined as the non-personal communication of information, usually paid for and usually persuasive in nature, about products, services, events or ideas by their sponsors through various media and channels intended for consumers. Professional advertisement, however, has gone far beyond the classic definition. Persuasion had long ago become competitive persuasion but has not stopped there. It has now become visually overwhelming demonstration even against natural instinct and personal space. The day newspapers started having full page advertisements as their cover pages, the day popup advertisements began clouding any information in social media and the day self-promotion became a surrogate to performance, truth has started becoming a casualty in some manner or the other, and to some extent or the other. Like technology, advertisement is a product of modernity that needs to be utilized for the good it offers rather than the distortions it creates.   

Creative but crafty

Advertising is a process that is considered creative. Similar products and services are presented in different ways by advertisers solely because of creativity. Like fine arts, advertising requires creativity while staying within the prudential limits of decency, integrity and realism. Even global products need be presented to reflect local tastes and preferences, embedding cultural ethos in presentations. Advertising happens through multiple channels such as hoardings, posters, print, radio, television, cable network, television and social media popups, besides word of mouth. It is considered the essence of one of the four essential ‘Ps’ of marketing, product, price, positioning and promotion. Advertising can be subtle or gross; it can just provide cues or mandate action. Over time, advertisement has become a specialized science of consumer psychology, seeking to understand, influence, and shape consumer mind.

Viewing in a very objective way the deluge of advertisements that impact our senses day in and day out, one can easily understand that advertisement is not only creative but also crafty. Crafty is a fairly broad word, ranging in definition from artful to deceitful but in essence implies a clever way of achieving objectives by artful and deceitful methods.  Advertisement unfortunately is made most on products that are either injurious to health or those whose health claims are plain exaggerated. Massive advertisements for sugared drinks and processed foods typify the former while intensively child focused advertisements for growth and memory exemplify the latter. Advertisements do expand demand and help companies create more supply side wealth. Advertisements which are paid for by companies create huge employment and also help media subsidise their services. Advertisements also can be great tools of responsibility messaging and social engineering. That should not limit us from exploring betterment of the art.

Style rather than substance

Advertisements are fundamentally supposed to be persuasive based on facts, rather than perceptions. The more technical and functional a product is the more important such factual explanation becomes. The more lifestyle and personal a product is the greater is the reliance on perceptions and imagery. However, advertising has strayed from mainstream objectives so much that these two propositions are not followed faithfully. Where products are technical, company rather than product is the base of advertisement. Advertisements have moved from building product equity or brand equity to building corporate equity. Measures to promote Google, Microsoft, Cisco rather than their products stands out as an example. Also, advertisements have started focusing on scale and pomp rather than facts to impress. The ever increasing garish advertisements in realty space as well as full page advertisements in India are a classic example.   

Apple iPhone advertisements in India are another example of condescending approach that brand and corporate driven advertisements can take. The advertisements expect the users to be psyched further into product supremacy with overwhelming product imagery, and some minor price concessions. When advertisements go long on style truth suffers. Airtel is presently running a very engaging creative advertisement series on its 4G network and nationwide data, and voice connectivity therefrom. The advertisement mesmerises people over the daily call drops they suffer in their core cities. The Indian advertisement scenario is replete with several suggestions of style without substance; the several campaigns by jewellery houses on gaudy ornaments is just another example. There is no correlation between the ornaments pf crores of rupees they advertise and the actual simple jewels that crores of Indian population can really afford.   

Life of style or lifestyle?

Advertisements in India have induced a lifestyle that is consumption oriented rather than consumer oriented. They have impacted the attention span and processing ability of individuals on matters that are more central or crucial to life. One is exposed to several advertisements that talk about offbeat products; like special rice for diabetics, health insurance for elderly, attractive mutual funds etc. However, not one advertisement would care to expand on the theme to advise how the products actually are offbeat. In some advertisements, thanks to the regulators, risk factors are provided but in such small print and with such disclaimers that no one can decipher any contextual meaning.  The objective of advertisement has been to encourage people to resort to additional or excessive consumption to achieve a life of style rather than a lifestyle that is truly consumer friendly. It is not surprising, therefore, that the expenditure on advertisement as a percentage of sales tends to be higher than expenditure on product development itself!

Despite lack of information or even information that brings out the downside, companies continue to be blasé about their claims even as consumers continue to get swayed by advertisements. For example, despite the indictment in a judicial court in USA that a talcum powder of a leading company had cancer causing potential, the products of that company continue to be advertised as the safest even for the most tender skins without any reference or disassociation with such developments. When a food giant reintroduces its product that has been withdrawn, no explanation is offered in the relaunch advertisements on how the reformulation is different. The reason is that advertisements create a strong sense of association between consumers and their dream lifestyle through their products, and companies are indeed loathe to impact such positive associations with any negative association, even if it is established under certain circumstances.

Association, the key

Association is the relationship between two data items that is established through feeling, expectation or through memory. Creative and crafty advertisements seek to establish a positive and desired association and position their products as the providers or enablers of such association. Soaps, for example, seek to establish a clear association with skincare while some specialized soaps with hygiene. Ayurvedic products bring out association with natural cure, bereft of chemicals. Electronic products focus on specific attributes such as picture clarity to promote real life visual experience. Not all associations of advertisements are positive, however. The advertisements of yesteryears on cigarettes associated smoking with heroism and cowboy style, and in hindsight had been extremely negative for life and living. Advertisers continue to be crafty; even though advertisements for alcoholic drinks are banned they continue use surrogates and brands. Even more harmful are some advertisements which are sexist, crass and titillating. While there have been mechanisms like advertisement council to legislate standards and handle deviations, such mechanisms have been post-facto, and hardly serve to undo the damage.

There is a need to put in place alternative templates of advertising. This blog post suggests that all advertisements must have two sections; one the visual and descriptive part as now and the other a technical part which provides technical details of claims in a manner intelligible to common persons even. When an ayurvedic product advertises itself as having 21 herbs, the least that must be done has two components. The first is the theoretical aspect of what each herb is purported to do as per ancient texts. The second is the practical aspect of how the company has, in its view, succeeded in bringing those benefits to the product by virtue of material isolation, product quality and validated clinical trials. Similarly, the maker of a fan/air conditioner could speak of comparative strengths in terms of airflow, noise levels, motor/compressor durability etc. True and authentic advertisement is the one which can make an open commitment to consumers on product quality based on specifications, manufacture and usage with expected benefits. Each advertisement for any product or service needs to be an open warranty card more than anything else.  

Posted by Dr CB Rao on May 31, 2016

Sunday, May 29, 2016

Electronics as Bare Necessities in India: A New Sectoral ‘Innovate in India’ Paradigm

Fitbit is the hugely popular global manufacturer of fitness band and activity trackers. It has recently launched through Amazon in India its fitness watch Fitbit Blaze at Rs 20000 (USD 300). In US it is sold at a maximum of USD 200, with deals in shops like Best Buy dipping the price lower. Fitbit Charge HR is retailed at USD 225 (Rs 15000) in India, compared to USD 125 in US, promotional pricing being USD 100. Microsoft Surface Pro 4 in its mid-range specification (i5, 4GB, 128 GB) costs Rs 90000 (USD 1400) on Amazon India which is the price in US of the top rated Surface 4 Pro (i7, 16 GB, 256 GB) model. Similar is the case with all other electronic products, from smart phones to flat televisions and from washing machines to refrigerators, whether they are wholly imported or made in India.

A UHD curved television costs Rs 300000 (USD 4500) in India while in the US a comparable model costs USD 2500. The usurious pricing of Apple electronic products in India is well known.  It cannot be said that the rather high pricing that prevails in India is only due to import duties, if any. Customs duties on different types of products range from 6 percent to 28 percent, duties on parts being on the lower side. Samsung claims to make its latest range of Galaxy S7 smart phones in India; but they are priced no less with prices upwards of USD 800, a near 50 percent premium on corresponding unlocked models in US. Clearly, whether imported into India or made in India, electronic products seem to have their own premium pricing logic. The economics of electronic products need greater research, it appears.

Bare necessities

Someone must really put their pencil and pen to paper to understand the economic travesty of electronics in India. A pencil in India is probably 10 percent of the cost in US and a pen is probably 20 percent of the cost. There is no reason why we should not aim at cheaper pricing for electronics products in India, in terms of purchase power parity. Given that the exchange parity between US and India is 66 to 1, the impact of high pricing of electronic products on the consumer surplus in terms of broader ability to purchase more necessary products is evident. The price premium (over above the basic benchmark price) that is embedded in one electronic product such as a smart phone (which may be say, Rs 25000) sucks away the money that could be spent on 333 rice packs of 1 kg, 100 knowledge books of Rs 250 each, 12500 A4 white sheets, 2500 ball pens of Rs10 each, subscription for 5000 issues of daily newspaper, or an angiogram, in a manner of speaking.

The comparison is not to suggest that people of India should shun electronics. A nation, in contemporary and futuristic times, can only grow when it is electronics-oriented. However, it must just not be through only consumption of electronic products (that too imported ones); it must be through design and manufacturing of electronics products, from multiple base chips to a range of products in India. A review of history of developed nations suggests that only those nations which balanced competencies in electronics and non-electronics could become
 leaders in industrial development. The point is that electronic products must also be designed, manufactured and sold in India in a manner as natural as any of the bare necessity products. Electronics is no longer a luxury class of products; it is a class of bare necessities!

No more monopolies

There was a time in the 1980s when the semiconductor industry was dominated by Japanese manufacturers such as NEC, Toshiba, Hitachi, Fujitsu, Mitsubishi, Matsushita, Sony and Panasonic. From the 1990s, however, Intel began to dominate the chip industry, partly abetted by Japan’s strengthening Yen. In the 2000s, it came to be believed that Intel and to an extent AMD only can dominate the chip industry. India, apart from failing to see the importance of a domestic electronics base, lacked the confidence to establish such an industry for want of basic research base in semiconductors. However, other manufacturers in US such as Qualcomm, Micron, Broadcom, SanDisk and Nvidia and manufacturers from Korea such as Samsung and SK Hynix began researching for newer chips and started dominating the chip manufacture. Part of the decline came from a dip in personal computer chips but the more significant decline was because of Intel’s misjudgement on the growth of mobile devices and the need for customized mobile chips.

At another level, monopolies in manufacture of electronic products got dismantled more decisively even earlier. Korea, followed by Taiwan and China started manufacturing a range of electronics equipment, including more lately tablets and smart phones. Japan, of course, maintained its pioneering dominance in electronics while European countries which were early pioneers recovered and kept making progress with renewed technologies. Throughout all this, China has emerged as the world’s chosen base for electronics manufacture, irrespective of the brand, so much so they have by now established their own status independent electronics producers (Lenovo, Haier, Huawei, TCL, ZTE etc.,). That a Chinese company (Foxconn) has become a white knight for a Japanese company in deep trouble (Sharp) shows the extent to which China has matured in electronics.  India has missed the boat during this period.

Ways to go

India has the promise to be the next hub for electronics manufacture as China has been a couple of decades ago, notwithstanding the missteps even on the few first steps such as Nokia Park. Notwithstanding this, Foxconn has signed an agreement with Government of Maharashtra to set up a USD 5 billion electronics manufacturing park. There are two routes to spur electronics manufacture in India. One is to encourage contract electronics manufacturers such as Foxconn to set up their manufacturing bases in India. The parallel step is to encourage electronics giants such as Sony, Panasonic, Samsung, LG and Apple to set up their own manufacturing bases in India. Both these strategies are likely to lead to a good multiplier effect on the industrial economy of India with newer component bases, newer manufacturing processes, and large number of jobs. What happened in automobile industry can be foreseen in electronics too in India. That may not be the whole story, however. 

The key to developing an electronics base lies in research into new materials, and new processors. Samsung has over 500 patents on graphene, the new material for a host of futuristic technologies. Similarly, global giants have patents on other materials belonging to classes of metals, polymers and biomaterials as well as wearables, sensors and other futuristic gadgets. Water and dust resistant smart phones use materials that conduct signals but do not allow water in their openings. Now, Apple would like to use a material that makes antenna holes invisible. It is difficult to conceive of developing new electronic products without developing new materials. For example, a new development in wearables envisages wearable skin-like polymer. Manufacturing of new electronic products under contract or captive use is one great leap for India but development and manufacture of new materials and new components would be an even greater leap.

100% research

China and India achieved major milestones in manufacture through 100 percent special economic zones for manufacturing. China has, however, gone forward by facilitating exclusive zones for innovation research and demonstration. There are 14 such zones in China now. China has also promised minimal governmental intervention in such zones and research endeavours.  In 2006 itself, China identified lack of indigenous technology intellectual property and indigenous innovation as two major national problems. A nationalistic Chinese government declared in 2006 that without independent innovation, China would be unable to claim an equal place in the world or achieve national honour. Apart from providing financial grants and incentives to encourage R&D, Chinese government openly traded access to the vast Chinese market for technology transfer by MNCs. In fact, as many as 400 of Fortune 500 firms have their R&D centres in China.

Interestingly, China has provided targeted support to key emerging industries over the last decade. These are electronics, supercomputing, semiconductors, digital machine tools, robotics, and more recently nanotechnology and rare earth materials. China has also relied on overseas Chinese diaspora in the fields of science and technology to lead such innovation efforts. India needs to develop a completely novel innovation strategy which has path-breaking elements. The following are suggested: (i) complete electronics value chain, from chips and semiconductors to electronic devices and electronics in other devices, (ii) Internet of Things, (iii) new materials (iii) nanotechnologies (iv) wearable technologies, and (vi) autonomous devices and equipment. The current strengths in information technology, heavy industries, capital goods and other industries must, of course, be continuously reinforced with new innovations.

100% research will happen with 100% support from public and private sectors, and all scientific and technical personnel in India and abroad. Governments in India are pooling or providing thousands of acres for airports, seaports, roads and conventional industries, and even financial cities and capital cities which support construction activity and provide direct employment generation. A few thousand acres must be allocated for National Innovation Centres for setting up world-class laboratories in the above areas, and provided free of charge in exchange with equity ownership, with returns expected from commercialized technologies through equity ownership. Governments, public sector corporations and private sector companies must also start making bold moves by acquiring stakes in overseas technology companies developing leading edge technologies. Electronics and electronic products in their various hues are the basic necessities of life, and require dedicated focus, investments and nurturing by all stakeholders in India. Otherwise, Indian economy will continue to fork out huge premiums on imports, and more importantly will not be able to fulfil its true scientific and technical potential.

Posted by Dr CB Rao on May 29, 2016