Monday, April 20, 2009

Cubic Leadership Model and Iconic Business Leaders

Management literature is filled with several leadership models which capture multiple skills and styles that are required of a leader. Yet there is a gap in the understanding of the uniquely contextual nature as well as certain common facets of leadership that are expected at the apex level of organizations, say as a Chief Executive Officer (CEO). This paper proposes a cubic leadership model relevant for the CEOs and illustrates its relevance and applicability through three iconic business leaders.

Leadership Cubes and Sub-cubes

The cubic model of leadership at CEO level is three dimensional, covering operating results, management processes and intellectual competencies. Each of the three primary dimensions has, in turn, three critical components. The resultant combinations uniquely differentiate a CEO’s overall leadership model.

On the result-orientation dimension, a CEO has three typical profiles: revenue driver, profit maker and value builder. A revenue driving CEO often seeks to develop and manage large businesses, driving primarily turnover. He or she is scale and scope oriented. Although, often profitability is seen as a function of revenue, some CEOs emerge as predominantly profit makers rather than revenue drivers. A profit oriented CEO achieves this by taking the right strategic decisions, timing the strategic decisions right, establishing market positions, striking remunerative alliances, creating and licensing intellectual property and swinging lucrative financial deals. Less visible, but equally important is a smaller but important set of CEOs who build institutions for future value. A value building CEO aggressively diversifies into newer business horizons periodically.

In respect of the process dimension, three facets of a CEO emerge: the visionary, the strategist and the implementer. The visionary CEO continually drives his organization towards newer horizons. The strategist CEO extends the vision into a strategy which can convert aspirations into achievements. Implementer CEO tends to be extremely task oriented. An implementer CEO is highly sensitive to the fact that even an indifferent vision or strategy gets enhanced by effective execution while a superior vision and strategy can become sub-optimal if execution is poor.

The intellectual dimension of a CEO encompasses three sub-dimensions, the Mentor, the Communicator and the Networker. A CEO’s domain knowledge, expertise and years of achievement naturally positions him well as a coach and mentor. The mentor CEO thus plays a major role in competency development in his organization. A CEO has also to be a communicator who articulates vision and strategy and emphasizes execution across the organisation. An articulate CEO when externally focused becomes a networker, connecting his organization with a host of customer and collaborator organizations.

Leadership cubes of different hues

The nine sub-dimensions discussed above occur in different combinations shaping the CEO leadership profiles in several synergistic and differentiated ways. For example, implementation, execution, communication and revenue driving facets particularly go well together. Aspects such as communication, networking, alliance building, competency leveraging and profit making synergize well. Mentoring and articulation of a vision, strategy development and organizational communication also have natural mutuality.

Strategy development and execution would be required for good communication and execution skills to convey the requirements across the organization and drive organizational performance. A visionary and strategist CEO would also be a value builder as he would recognize the importance of building organizational infrastructure for the future. Several meaningful and synergistic leadership cubes could thus emerge.

Each CEO would eventually develop his own balance of performance, leadership and competency dimensions. Profiling of successful CEOs could reflect a normal distribution, with a peak area of about 70 percent for driving revenue and profit growth. The outlying areas, on either side, of about 15 percent each could deal with value building and smart delivery. Variations to this distribution usually relate to the evolutionary stage of an organization. A firm in its early growth phase would require the CEO to focus in a preponderant manner on infrastructure and value building. A firm in its mid-growth phase would require the CEO to focus on revenue and profit generation. A mature corporation, on the other hand, would require the CEO to leverage the organisational capabilities to take the company to the a higher growth trajectory by building the next level of value and mentoring the employees for change management.

Certain unique global leaders, however, reflect an all-encompassing coverage of the multiple dimensions and sub-dimensions of the leadership cube. Three legendary leaders bring out the relevance of the cubic model, with common characteristics and subtle variations depending on the CEO, the industry and the firm.

Three cubic legends

Three iconic leaders, Jack Welch, Bill Gates and Carlos Ghosn epitomize the diverse yet integrated facets of a global CEO. Each leader represents an entirely different industrial or business setting; Jack Welch as the head of the largest multi-product global conglomerate, Bill Gates as the head of world’s most powerful software firm and Carlos Ghosn as the turnaround czar of the global auto industry. Yet, the model of leadership cubes comprehensively and meaningfully describes each of these three exemplary CEOs, in pertinent dimensions and their combinations.

Jack Welch : Jack and master of all

Jack Welch, a brilliant doctoral chemical engineer, was a veteran of General Electric (GE), having joined GE in 1960. He quickly rose in the hierarchy, becoming GE’s youngest Chairman and CEO in 1981. He was at the helm of GE for two decades, transforming it into an outstanding global company. Jack Welch’s legendary leadership qualities are well-documented. Jack is a fascinating personification of the leadership cube.

On the competency dimension, Jack Welch was an outstanding intellectual, communicator and networker, all rolled into one. He transformed GE into a competency based organization. He was a communicator par excellence, who effectively communicated his key ideas to rest of the organization, not only by delivering messages but also by persistently repeating them over and over, and ultimately securing the buy-in across the organization. More importantly, he created and institutionalized a learning environment in GE, including by setting up the famed leadership development institute at Crontonville. He networked globally, representing the collaborative and energetic face of GE to other firms and other nations. For example, he has been an early pioneer in spotting the capability of India as a futuristic base for R&D and business process outsourcing.

On the leadership dimension, Jack was a visionary who dreamt big, strategised to the finest detail and implemented for precise outcomes. His vision was that GE as a global player should have nothing less than the No. 1 or No. 2 status in whatever product or service it operates in. Such a vision set the tone for an aggressive strategy and effective execution. Fusing his envisioning and communication capabilities, he motivated the entire organization to own his vision. On the strategy front, he adopted a straight-to-action, street-smart format which focused on business viability and growth, with aggressive divestment and acquisition moves. The vision and strategy were seamlessly rolled into execution by focusing on effective project implementation and operational excellence, including the famous six-sigma practice.

As a result of the unique synergy between the competence and leadership dimensions, GE under Jack Welch delivered significant shareholder value. Revenues and Profits grew dramatically. Non-value adding businesses were divested, value adding facilities were established and business productivity enhanced across the organization. GE’s market capitalisation increased from USD 12 billion in 1981, the year of his taking over as the CEO, to USD 280 billion in 2001 when he passed on the baton. The rise of GE to the status of the most admired company under Jack Welch clearly points to the relevance of the cubic model of a CEO.

Bill Gates : Gateway to software leadership

Bill Gates, the chairman (and until recently the chief software architect) of Microsoft Corporation is yet another personification of the leadership cube. Microsoft, established by Bill Gates and Paul Allen as a two-man enterprise in 1975, has grown to revenues of USD 44 billion, employing more than 55,000 people in 85 countries. The technology-savvy manner in which Gates amalgamated competence and leadership into business deliverables has been largely responsible for the astounding growth and competitive stamina of Microsoft.

Domain knowledge and technology vision enabled Gates drive the software revolution and weave a virtual monopolistic global business around it for over twenty five years. Gates’ vision of user-friendly personal computing has been central to the success of not only Microsoft but the entire software industry. Though not as passionate on communication as Jack Welch, Gates has been eminently successful in propagating his mission to continually advance and improve software technology and to make it easier, more effective and more enjoyable for people to use. By establishing unique mission-critical projects and domain-dominant technologies, he catapulted Microsoft into a leadership position globally.

Gates may be seen to differ from Jack Welch in that he has chosen to play a lead role only in certain critical facets of the CEO cube. He has, for example, co-opted a powerful leader in Steve Ballmer to drive the strategy, execution and networking aspects of his business. This brings out that the cubic model would work equally well with a synergistic combination of two chief executives, complementing the skills of each other to deliver greater value for the company.

The deliverables of the cubic model of leadership for Microsoft are evident in terms of an ability to grow its software business despite hostile regulation and intense competition (from open source and Internet initiatives), a capacity to build value through new convergence platforms and a smartness to leverage technology and market dominance for customer value.

It is a moot point if an excessive focus on revenue and profit generation by Gates has also resulted in the organization becoming a trifle smug and unprepared for competitive changes such as the Internet. It is however to Gates’ credit that he has recently redefined his own role and nurtured a new generation of technology experts in the context of the shift to the Internet as the core of new age communication and computing. He also laid out a new path for leadership by extending his visionary leadership skills for the benefit of global healthcare. These moves by Bill Gates only reinforce the model of a global CEO being a truly multifaceted, innovative and adaptive personality in terms of a leadership cube that is based on responsibility, leadership and competence.

Carlos Ghosn : From lows to highs, always

The third icon in the context of the cubic model, Carlos Ghosn, represents an entirely different CEO personality, but encompasses the same underlying cubic dimensions. Every company Ghosn has been associated with, be it Michelin of South America, Michelin of North America, Renault of France or Nissan of Japan has been a case study in corporate misdirection, strategic confusion or operational erosion, until he has taken over the company. He brought all these companies, each with a different national and cultural milieu, onto impressive growth tracks.

A Masters degree holder and an intellectual initially inclined to pursue a doctoral study, Ghosn joined the troubled Michelin South America in 1978 and became a chief operating officer in 1985 when he was just thirty. Since then there has been no looking back for him as he turned around companies; slashing costs, streamlining operations and enhancing revenues and profits. In 1999, he moved to Nissan as its chief operating officer from the position of executive vice president in Renault, the French auto major which took a 44 percent stake in Nissan. At that point of time, Nissan was in dire straits. It had a staggering USD 22 billion in debt and slid to a low domestic market share of 19 percent from the peak of 34 percent it achieved in 1974. Its global market share declined from 6.6 percent in 1991 to 4.9 percent in 1999. During that eight year period, Nissan made losses in all the years, except one.

While Carlos had a clear revival plan that turned around Nissan, it was his leadership model that worked as the underlying growth engine. He came to Nissan with complete automobile domain knowledge but was prepared to construct a customized plan for Nissan from a zero base, learning all he could of Nissan. In this process, he communicated intensely with employees at all levels and in all locations, networked with vendors, dealers and customers and developed strategies and execution plans which had solid ownership at all levels of the organization. He institutionalized domain expertise, communication and networking in the organization through cross-functional teams.

Carlos had a lucid and transparent vision which was backed by clear strategy and effective execution. His three-year Nissan Revival Plan which started in 2000, achieved dramatic reductions in debt and operational costs while boosting sales and profits, a year ahead of schedule. Given the unique cultural factors of Japan, Carlos had to network with government leaders, industry insiders, media professionals and opinion makers to effectively communicate his revival plan and win their acceptance. Equally important was the need to network with vendors to slash costs and to communicate with employees to accept plant closures and job cuts. At the same time, he used his technical and managerial skills to encourage the design of new leading edge products, simplification of complex manufacturing structures and building of new brand identity, thus dramatically repositioning Nissan in the marketplace.

The results were dramatic; he took the company from a USD 5.6 billion loss in fiscal 2000 to a USD 2.5 billion profit in the very first year of his revival plan. He followed up the Nissan Revival Plan with the Nissan 180 Plan and Nissan Value Up Plan, each equally successful. Prior to the economic meltdown which hit all companies, including the legendary Toyota, Nissan had an operating margin of 10 percent, higher than Toyota’s 9 percent and BMW’s 7 percent. It was not surprising, therefore, that Carlos was chosen to head the USD 55 billion Renault while retaining the CEO position at the USD 88 billion Nissan, thus running simultaneously two globe-spanning giant auto makers, an altogether industry first. The subsequent move to rope in Nissan and Renault in a trans-border rescue attempt for the beleaguered General Motors (GM) was driven essentially by the desire of the investors to access Carlos’ legendary turnaround skills for the benefit of GM. Had this happened, probably GM would not have been in the beleaguered state that it is now. The saga of Carlos Ghosn underlines the integrating power of the global CEO model.

Summing Up

There is an instructive lesson that arises from the study of leadership cubes and certain exemplary leaders. One person at the helm, the CEO, can make all the difference to an organization. Each of these iconic CEOs discussed here reflects the leadership cube that integrated competency profile, leadership styles and responsibility foci, albeit in subtle variations, but in a synergistic industry leading performance template.


1. Gates, Bill with Collins Hemingway (1999), “Business@ the Speed of Thought:. Using a Digital Nervous System”, Warner Books, New York.

2. Magee, David (2003), “Turnaround: How Carlos Ghosn Rescued Nissan”, Harper Collins Publishers, New York.

3. Slater, Robert (2000), “The GE Way Field Book” McGraw-Hill, New York.

4. Welch, Jack with Suzy Welch (2005), “Winning”, HarperCollins Publishers, London

Posted by Dr CB Rao on April 20, 2009

Sunday, April 19, 2009

Competitive Innovation : A Supplement to Porter’s Strategy Paradigm

Porter’s contributions in the field of strategy by way of his path-breaking books Competitive Strategy (Porter, 1980) and Competitive Advantage (Porter, 1985) are unmatched. While the former deals with strategy in the context of an industry, the latter discusses how firms can build competitive advantage. Though there have been important contributions to the field of strategy from other scholars, for example, Prahalad (1990, 1994), Hamel (1989) and Hammer (1993) there is, perhaps, no work which is as integrated and solid as Porter’s in approaching the myriad complexities of strategy. Together, Porter’s treatises on competitive strategy and competitive advantage provide a powerful array of concepts and analytical techniques that can help craft meaningful business strategies.

It is paradoxical that despite the availability of such a powerful repository of concepts and tools for achieving competitive advantage, firms tend to develop strategies based on followership rather than differentiation. It could be natural and over tempting for most firms to follow the pioneers to exploit emerging market potential. At the firm level, however, there is ample scope to innovate even while following such paths of pioneers - provided the CEOs and planners focus on developing differentiated strategies. In this context, this paper conceptualizes “competitive innovation" as a differentiator of corporate strategy in industries. This concept is a relevant supplement to Porter’s framework of competitive strategy and competitive advantage, taking into account the accelerating pace of technological innovation. Fundamental to this is an understanding of competitive innovation as distinct from corporate followership.

Corporate followership

Corporate followership can be defined as the phenomenon of several firms in an industry following simultaneously a set of corporate strategies to address a market opportunity same as or similar to that of the pioneer in the industry.

This is best illustrated with the help of two examples. The strategies followed by a host of new passenger car manufacturers in India such as GM, Ford, Honda and Mitsubishi to address the mid-size sedan market with an import-led assembly strategy represent corporate followership. Another example relates to similar strategies being adopted by a host of Indian pharmaceutical companies to enter the US generics markets. The drivers for corporate followership almost invariably are the opening up of a huge market on one hand and the initial success of a pioneer company in the market space on the other.

In practice, corporate followership leads to less than optimal results. Deployment of undifferentiated strategies often forces companies to compete on price rather than on product offering. The follower companies merely trail the pioneer in its path, and end up competing in a limited market space. Fragmentation of market and drive-down of industry returns characterize the aftermath. Over a period of time, mindless pursuit of corporate followership leads to painful consolidation of a sub-optimal industry structure through exits, partial or full divestitures, acquisitions and mergers of companies.

Competitive innovation

Competitive innovation, on the other hand, considers the pioneer’s success as a directional trend rather than as a strategic template or a winning formula. This is again illustrated with examples from the Indian industrial scene. The first ever introduction of small car by Maruti-Suzuki in the 1990s has been a pioneer’s action. Introduction of a “tall boy” small car, Santro, by Hyundai in the 1990s, a good many years thereafter, has been an example of competitive innovation. Without doubt, the development of a highly affordable small car, Nano, by Tata Motors is a masterpiece of competitive innovation, even at a global level. Similarly, Toyota’s unwillingness to follow the others who were preoccupied with the mid-size car segment and its deliberate choice to go in for a multi-utility vehicle, Qualis, has been an example of competitive innovation. Similarly, in the frenzied race for the US pharmaceuticals generics market, if an Indian firm treads a path of biologics boldly, it would be a competitive innovation.

Firms seeking to follow competitive innovation must spend considerable time analyzing the product-market space and the factors influencing evolution of the industry, as opposed to adopting a quick-fix solution of replicating the pioneer’s strategy. While the initial triggers for competitive innovation tend to be the same as the drivers for corporate followership viz., market space and pioneer’s success, the core drivers for competitive innovation are entirely different.

In practice, competitive innovation when followed by a large spectrum of players leads to highly beneficial results for the overall industry. Deployment of differentiated strategies enables companies achieve growth based on intrinsic positive features of their products and their market positioning rather than on price. As innovative followers lay out their own distinctive paths they contribute to opening up of a number of new product-market segments. Competitive innovation results in expansion of market space and healthy industry returns, in the overall.

In general, firms pursuing competitive innovation out-perform firms pursuing only corporate followership. An innovative firm has not only the advantages of strategic differentiation which are unique only to the innovator but also the benefit of a freedom to deploy any and all tactical moves that are used by follower firms.

The differentiation advantage

The paradigms of corporate followership and competitive innovation are compared in terms of five core attributes below:

1. Core concept
Corporate followership: Mimic the pioneer in product-market positioning
Competitive innovation: Emulate the pioneer in opening up product-market space; Develop novel product-market segments

2. Key generic strategy
Corporate followership: Cost leadership
Competitive innovation: Differentiation

3. Key success factor(s)
Corporate followership: Excel by execution superiority
Competitive innovation: Excel by product-market differentiation as well as by execution superiority

4. Key functional drivers
Corporate followership: Sales and production
Competitive innovation: Research and business development

5. Envisaged end-play
Corporate followership: Fragmented market, with low returns
Competitive innovation: Diversified market, with healthy returns

A firm following the strategy of competitive innovation tends to emulate the pioneer more in terms of its pioneering spirit rather than in terms of the nuts and bolts of its strategy. An innovative firm may follow the overall market direction but will develop its own innovative product-market positioning. In contrast to follower firms which rely on cost competitiveness to penetrate and grow, an innovative firm focuses on differentiation to break into the market space. Needless to say, cost leadership provides the added edge to such innovative firms. The key success factors for a follower firm are purely in terms of execution capability, by which the strategies of a pioneer and other players are executed better or faster. On the other hand, an innovative firm’s success lies in its capability to differentiate itself by fulfilling a new customer need. This does not, of course, exclude a shared competence for execution superiority with the follower firms. An innovative firm is likely to be driven by strong research and business development orientation while a follower firm is likely to be highly production and sales driven. The end-play for an industry characterized by innovative firms is one of a diversified market with healthy returns while the end-play of an industry dominated by followers is one of a fragmented market with low returns.

Sources of competitive innovation

Given the premium on corporate innovation, firms must consciously seek sources of competitive innovation. While these sources would seemingly be the same as the sources of sustainable competitive advantage, the qualitative depth of the factors and the timing of access to the sources vary. Firms seeking to achieve competitive differentiation from the very start, however, look at these sources very innovatively compared to firms that build competitive advantage over a period.

The essential sources of competitive innovation are varied and impact each constituent of a firm’s value chain. Broadly, these can be viewed under two categories: specific levers of innovation and generic enablers of innovation.

Following Porter (1985) with some modifications, the core functions of a firm are viewed in terms of logistics, product development, materials procurement, manufacturing and marketing (including sales and service). Each of these five core functions can benefit from two distinctive types of levers of competitive innovation (i) specific levers of innovation and (ii) generic levers of innovation.

Specific levers of innovation

The specific levers of innovation can be viewed in terms of (i) technology convergence (ii) alternative materials (iii) flexible manufacturing systems (iv) customer relationship management and (iv) supply chain management.

A company’s prime foundation of business is its product range. Technology convergence in product development is fast emerging as the prime lever of competitive innovation. Value-added cellular phones with multi-media and imaging capabilities are examples of such convergence-driven new product innovation. Similarly, laptop computers with wireless connectivity and handwriting, speech recognition and imaging capabilities represent the new dimensions of technological convergence. By adding new features to existing products and refashioning existing products into new gizmos, innovative firms often outperform pioneers even while tracing the overall product path opened up by the pioneers. The competence in technology convergence will be dependent on the ability of a firm to fuse a wide variety of technologies to achieve a dramatically superior product range. This attribute will increasingly influence competitive innovation in future.

A company’s ability to achieve technological convergence and competitive innovation is often dictated by its innovative capabilities in materials and manufacturing. Alternative materials are the key to innovation. Miniaturization, weight-effectiveness, cost- competitiveness and life cycle assurance are essentially rooted in the nature and quality of materials used. Firms which focus their resources on researching into basic materials or which network with specialized institutes of materials research are likely to achieve competitive innovation relative to users of traditional materials.

Manufacturing is the key differentiator of firms which are able to successfully translate exciting technological concepts into viable product offerings. Utilizing a broad array of technologies including information technology, industrial electronics and robotics, firms can build innovative foundations of flexible manufacturing systems which can cope with shorter product life cycles, higher product varieties and larger asset costs successfully.

In firms that follow competitive innovation, marketing has also experienced a paradigm shift, from a predominantly communicative function to an entrepreneurial discovery function. Today’s successful marketer is one who phases out his own brand with a novel enhancement. By continuously discovering latent consumer needs and product application potential, today’s entrepreneurial marketer enthuses a firm to be on the virtuous cycle of product innovation on an ongoing basis. The new-age marketer creates value for the company in terms of customer connectivity, customer relationship and broader brand equity of the corporation. In this context, customer relationship management has emerged as an important lever for driving innovation in the sales and marketing functions of an innovative firm.

Logistics, both in-bound and out-bound, constitute the backbone of competitive innovation for the firms. Ability to seamlessly and efficiently integrate a firm with vendors at the back-end and customers at the front-end of the value chain helps the firm to continuously discover new sources of competitive advantage. Judicious deployment of supply chain management as an integrating concept from materials procurement to product delivery has helped firms achieve greater degree of control and efficiency in their logistics operations.

Generic enablers of innovation

If the above core activities are specific levers of corporate innovation, a firm also needs generic enablers which make these specific levers of competitive innovation a feasible proposition. These generic enablers relate to the overall infrastructural capabilities of a firm. These are (i) depth and scope of the firm’s physical infrastructure, (ii) the strength and resilience of its financial infrastructure, (iii) the vintage and solidity of its IT infrastructure and, most importantly, (iv) the spark and creativity of its talent pool. An organization needs to have these four service areas organized such that specific levers of innovation consistent with the goals of the firm can be appropriately deployed.

In today’s business environment, a firm has to be proactive in laying the economic, technical and human foundations of business. With increased liberalization, locational choices for the firm have become varied, even as environmental considerations force firms to adopt locations and technologies which are the least harmful to the environment and most beneficial to the society. A firm should have, ab initio, a total vision of the scale of its operations so that appropriate location and facility choices are made consistent with the need to ramp up operations in harmony with the community and environment. If due attention is not provided to this important factor, the entire value chain of the company will be constrained by the physical infrastructure and the technologies deployed in the site.

Secondly, a firm needs to devote sufficient attention to prudent but proactive financial management. Means of funding and corporate structuring are important facets of overall financial strategy. A company which has a strategy-led business structure and is well supported by a robust financial infrastructure is likely to remain flexible and resilient in the face of growing resource commitment that innovation demands. The recent and unprecedented economic meltdown has demonstrated the importance of robust financial management as a foundation for business sustainability.

Thirdly, the firm needs to deploy an information technology architecture that is modern and flexible. The IT capability of a firm particularly influences the ability of the firm to deploy and utilize specific levers of innovation such as supply chain management, flexible manufacturing systems and customer relationship management.

Finally, considerable management attention must be devoted to building a high-energy and high performance organization with top-class talent. As market opportunities and innovative alternatives explode exponentially and when financial and other markets are precariously perched, firms face a challenging task in retaining the talent pool and supplementing it. HR policies of the firm have to be increasingly driven by business strategy considerations. HR development initiatives with external institutional networking have to be always operational to ensure continuous development of talent in-house.


Porter’s combined paradigm of competitive strategy and competitive advantage is a historic contribution to the field of strategic management. The application of these strategic concepts in practice by individual firms has, however, been inadequate resulting in corporate followership rather than competitive differentiation as a dominant corporate strategy. By adopting competitive innovation as a proactive driver of corporate strategy, chief executive officers and business planners can chart the growth plans for their organizations in a differentiated manner. The concept of competitive innovation has to be integrated with the concept of a firm’s value chain and specific levers of innovation adopted to drive innovation. Corporate level strategies must simultaneously focus on establishing an appropriate physical, financial, technological and human infrastructure that supports innovation.


Hamel, Gary and C K Prahalad “ Do you really Have a Global Strategy ?” Harvard Business Review 68, No 4 (1985): 139-148

Hamel, Gary and C K Prahalad. “Strategic Intent”. Harvard Business Review, 67, No.3 (1989): 63-76

Hamel, Gary and C K Prahalad. “Competing for the future” Harvard Business Review, 72, No.4 (1994): 122-128

Hammer, Michael, and James Champy. Re-engineering the Corporation: A Manifesto for Business Revolution. New York: Harper Business, 1993

Hofer, Charles W., and Dan Schendel. Strategy Formulation: Analytical Concepts. St Paul: West Publishing, 1998

Kanter, Rosabeth Moss. The Change Masters: Innovation for productivity in the American Corporation. New York: Simon & Schuster, 1983

Porter, Michael E. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: The Free Press, 1980.

Porter, Michael E. Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press, 1985

Porter, Michael E. The Competitive Advantage of Nations. New York: The Free Press, 1990

Porter, Michael E. “What is strategy?” Harvard Business Review, November-December 1996

Prahalad, C K and Gary Hamel. “The core competence of the Corporation”. Harvard Business Review, 68, No. 3 ( 1990): 79-91.

Posted by Dr CB Rao on April 19, 2009

Sunday, April 12, 2009

Business Competitiveness and Industrial Engineering

Industrial Engineering (IE) discipline has played an admirable role in enhancing productivity and efficiency at shop floor level for the last several decades. With the rapid changes in market dynamics and enhancements in competitive pressures, emphasis has shifted to more comprehensive and sustainable models of continuous business improvement. If the 1970s constituted the decade of industrial engineering, 1980s the decade of corporate planning and 1990s the decade of globalization, 2000s started off as a decade of investment-led growth. However, the global meltdown that started in 2008 brought business competitiveness as an essential strategy to cope with recession. In this context, industrial engineering can re-discover its niche in a corporate perspective as a tool for total business improvement.

A contemporary business model

In today’s context, a company is an amalgam of several core and supportive functions. While product development, manufacturing and marketing remain the core functions in an organization, an increasing number of domains such as information technology, human resources, quality assurance, environment, safety & health and intellectual property management are playing an important role in enhancing the specifications and quality of a product or service.

Today’s business faces heightened competitive pressures which are peculiar to each industry and which are related to suppliers, markets, technologies and other factor inputs. Traditional industrial engineering techniques have focused on optimization of individual activities in functional domains while today’s challenge is more pervasive in terms of an overall corporate value chain.

Viewed in a macro perspective, a company is no longer a stand-alone entity in the supply side or market side. A company has to view itself as part of a larger supply chain spanning the basic material to end product user stages. This has resulted in concepts of supply chain management (SCM) or customer relationship management (CRM) as two key drivers of competitive advantage. At an elevated level, one company’s SCM could be its vendor’s CRM. The inter-linkages between markets, manufacturers and vendors are as varied and complex as they are obvious.

Over the years, operationally as well, there has been a significant change of the context in which industrial engineering finds applications. A typical factory or office system has moved from being a predominantly man-dominated machine system in the 1960s or 1970s to a machine-dominated human system from the 1990s. The rate of technological change itself has moved from a stable, steady-state situation to a state of rapid change. Consequently, product life cycles which used to be predictable with extended spans of 10 years or more have become volatile, with compressed spans of 3 years or less. As a result, the competitive scenario has become intensely market-driven in addition to being supply driven, with heightened rivalry among firms.

Given the above changing dynamics, while individual and isolated efficiency improvements in discrete operations or functions continue to be important, it becomes necessary to bring a wider business perspective for industrial engineering to contribute effectively to corporate development.

An IE model for total business improvement

Given the fact that business development and corporate management have become extremely challenging with multi-domain, multi-entity and multi-location interactions, the need for overall system efficiency in an end-to-end connected value chain becomes obvious. In order to address this imperative industrial engineering needs to evolve itself into a new corporate level paradigm.

The proposed business driven model for industrial engineering views the entire spectrum of corporate actions as a total value chain where every entity and every domain has a specific role to play in improving a business in totality. Maximization of efficiency within and across each and every stage of the value chain becomes important as a potential strategy to optimize the overall system efficiency. At the same time, given the complexity of task, a conceptually elegant model is required to manage the complexity in an easily comprehensible fashion.

The proposed IE model for total business improvement has four essential components; two of which are internally focused and two externally oriented. Together, the four components can be synergised to deliver a powerful, positive impact on a company’s operations and overall business.

The proposed model is simple in that its rests on two fundamental concepts of ‘optimizing’ and ‘connecting’ which are applied on two relevant dimensions of ‘internal business processes’ on one hand and ‘external corporate transactions’ on the other. The business driven IE model is thus a 2x2 concept-application matrix which can be deployed in totality to the contemporary business configuration discussed earlier. This model will be relevant regardless of the number of internal or external domains or entities involved in a company’s value chain. The combinations are as follows:

Optimization of Internal processes : Value engineering
Optimization of External transactions : Supply chain management
Connectivity of Internal processes : Value chain management
Connectivity of External transactions: Collaborative networking

The model integrates four levers for industrial engineering to play a major role.

1. Value engineering

Value engineering has been by far the longest existing branch of industrial engineering that re-engineers products, services and operations to eliminate waste and enhance efficiency. Whether it is simplified components, optimized materials or minimalist manufacture, value engineering plays a vital role in re-engineering not only product, process and production systems but also any operational activity to enhance productivity and efficiency.

In today’s context, value engineering takes newer dimensions with application of computer aided design and manufacture which help designers and production engineers achieve unparalleled results in design and manufacturing simplification. Similarly, at operational level, information technology helps optimise man-machine interface through simulation of data and enhanced quantitative techniques in a manner that was not within the analytical reach of an industrial engineer in earlier years.

Modular design platforms and common internal components can help product designers achieve higher variety of end products with minimal proliferation of components and aggregates. Similarly flexible manufacturing systems and versatile dies, moulds and tool settings which can handle diverse component sizes and different production batch sizes can redefine manufacturing efficiencies. Value engineering has the capability to move from a focus of component and operational level improvement to a broader perspective of an overall engineering philosophy that simplifies design and manufacture at product family level. Value engineering then becomes a powerful tool for enhancing competitive advantage in the business as a whole.

2. Value chain management

If value engineering optimizes design, manufacture and operations, value chain management interconnects each functional domain of an organization to ensure overall delivery of a product or service in the most efficient manner. For any business to be competitive, it is not only essential to do each functional activity right but also integrate all the functional activities smartly with the right connectivities.

In today’s business environment wherein information is a widely accessible asset it is the execution that marks the difference between successful and not so successful firms. It is no longer sufficient to aspire for a product portfolio or market turnover. It is, on other hand, incumbent to plan out the entire value chain of activities starting from product conceptualization and ending with market launch, in terms of clear activities and resource deployment. Structured and end-to-end connected execution enables a company generate maximum value due to timely and precise deployment of resources across the organization for high quality results. Time tested project management techniques of PERT / CPM which are now further enhanced by the customized computer programmes should be deployed for various long term, multi-functional or multi-centric projects to ensure effective execution with the least resources or time slack. As an approach, concurrent design and manufacture, whereby all functions connected with product development, manufacture and market launch collaborate from the very beginning, is an ideal approach to institutionalize value chain management in a company.

3. Supply chain management

Business efficiency today verily rests on the manner in which a provider of a product or service manages its inventory not only within the company system but also covering the entire supply and distribution chain comprising multi-level vendors on the supply side to multi-tier distributors, retailers and customers on the market side. From an initial enthusiasm of minimal inventories within the company, the accent now is on optimizing inventories across the value chain. Various quantitative and simulation methodologies which the industrial engineers have in their tool kits are helpful in smoothening the inventories across the supply chain.

More fundamentally, the critical approaches of the industrial engineer in defining and streamlining work flows and eliminating redundancies as well as idle times are extremely relevant in developing a supply chain structure that supports efficiency. Disintermediation or elimination of superfluous layers leads to significant procurement and distribution economies. Modular packaging and foolproof, secure packaging could help movement of SKUs across the chain without the hassles of unpacking and repacking across the tiers.

Industrial engineers need to also integrate technology in a significant manner for optimal supply chain management. Contemporary telecommunication technologies and global positioning systems enable tracking of unit products or cartons anywhere in the world. Radio Frequency Identification (RFID) and related software solutions need to be deployed by industrial engineers to achieve technology-led efficiencies in supply chain management.

4. Collaborative networking

Even the best of supply chain management would perform below potential, if true partnership and collaboration are not integrated into the relationships. Quite apart from tools and techniques, industrial engineers would need to also focus on behavioral dynamics that result in adversarial or play-safe practices among various entities in a supply chain. For example, as long as the goals (at a strategic level) and the forecasting processes (at an operational level) of a manufacturer and its vendor are not truly aligned in a collaborative fashion, any degree of supply chain optimization, whether through quantitative analysis or technological development, would not be effective.

At the core of collaborative networking lies the premise that any two entities engaged in a relationship will derive greater value by having common objectives of business development. Toyota for example, is continuing to make strides over and above its famed Toyota Production System by adopting collaborative networking. Toyota’s CCC21 (Construction of Cost Competitiveness for the 21st century) initiative has helped Toyota double its annual consolidated cost savings from 100 billion yen (which itself is a formidable figure) to 200 billion yen. Collaboration helps Toyota and its suppliers find ingenious ways of feeding cost improvements back into products to raise their value.

Collaborative forecasting of demand and supply profiles has helped retail giants like Proctor & Gamble and Henkel achieve improved shelf presence of their products and enhanced customer satisfaction while ensuring dramatic reductions in inventory and other costs of retailing.

In order to succeed in collaborative networking, industrial engineers would need to develop a total business perspective of the industry structure, supply chain dynamics (both vendor side and customer side) and process linkages between entities. Key drivers of business optimization need to be identified and skills of collaborative networking and management mastered. More than anything else, industrial engineers would need to be members of cross-entity and cross-functional teams that facilitate collaborative management.


The business challenges that a firm faces in today’s recession environment are a complex combination of strategic and operational issues, with every industry becoming intensely volatile and competitive. As Indian industry globalizes, business opportunities as well as competitive pressures enhance.

Industrial engineers can make a useful contribution to India’s global business development by creating a new skill-set for total business improvement. The 2x2 model discussed in this paper of focuses on ‘optimizing’ and ‘connecting’ as the thematic tools to be deployed across ‘internal business processes’ and ‘external corporate relationships’. The proposed business improvement model provides to industrial engineering a relevant and highly productive play in a wider business canvas.

Posted by Dr CB Rao on April 12, 2009