Sunday, August 23, 2009

Beyond Porter’s Darwinism: The Sixth Competitive Force

Professor Michael Porter of Harvard Business School created an outstanding and enduring stream of management thought when he propounded in 1979, through a Harvard Business Review (HBR) article, the theory of five competitive forces. He defined perceptively five competitive forces that help a company understand the structure of the industry it operates in, and stake out a position that is more profitable and less vulnerable to attack. Since then his theories of competitive strategy have been enriched by his own further contributions and collateral contributions by others. In a recent (January 2008) HBR paper, Porter reaffirmed and expanded his theory with additional examples.

The author of this paper provided a first-in-class quantitative framework to Porter’s qualitative paradigm of competitive strategy through his doctoral dissertation (Indian Institute of Technology Madras). The doctoral thesis which focused on the structure and performance of the Indian automobile industry demonstrated that Porter’s theories of competitive forces and competitive strategy have practical relevance and applicability. Continuing his appreciation for Porter’s creative and utilitarian theories, the author believes that there is now a need for reinforcing Porter’s paradigm with the addition of a sixth competitive force.

The sixth competitive force

The five competitive forces proposed by Porter are: (i) the intensity of rivalry among the existing players in the industry, (ii) the bargaining power of customers (iii) the bargaining power of suppliers (iv) the threat of new entrants, and (v) the threat of substitute products and services. While the level of rivalry largely determines industry structure and profitability, savvy customers can force down prices, dominant suppliers can drive up cost structures, aspirant entrants can create additional competition and new substitute products can lure products away from the company’s offerings. All these five competitive forces together determine the industry structure and profitability as well as the firm’s competitiveness.

The implicit essence of Porter’s theory is that corporate competitiveness play is a “win by some - lose by some” play, where the firms which are competitively agile will alone sustain themselves and grow. In a sense Porter’s theory reflects modern corporate Darwinism where only the fittest would survive. While Porter’s theory is an excellent guidepost in reasonably good times, the theory misses out on one critical dimension that one takes for granted in times of growth. The missing competitive dimension is “economic liquidity” which the author would like to term as the sixth competitive force that deserves to be added to Porter’s theory of competitive forces.

Without distracting from the economic rigor that Porter brought to corporate strategy one may say that true economic growth has to be based on foundations that are more broadly based and sustainable than an approach of survival of the fittest. Sustainable economic growth must envisage equitable growth of all sections of the society and profitable coexistence of different types of firms; from global conglomerates to local micro-enterprises.

The global financial meltdown and economic recession of the last two years has led to evaporation of economic wealth in an unprecedented manner. Deep economic recession and failures of global corporations forced governments to inject trillions of dollars to arrest economic collapse and ease liquidity crisis. The economic meltdown has shaken the advanced countries as well as the emerging countries to the roots. It has demonstrated shockingly that industries and societies can be swept away if economic liquidity is ignored by incumbent firms and regulators while crafting corporate strategies.

Economic (or system) liquidity

Firms exist through their products and services to grow customer needs and fulfill them in an ever increasing fashion. Customers embrace additional and new products on a continuous basis to elevate their quality of life. Governments which are committed to economic growth have a stake in a virtuous growth of this corporate-customer cycle. Firms and customers, however, require finance to carry out their respective obligations of manufacture and consumption. The level and sustainability of economic liquidity in the value chain of a firm constitute an essential competitive force.

The five competitive forces outlined by Porter differentially impact, and are impacted, by the competitive force of system liquidity. When finance becomes scarce, the intensity of rivalry pushes down the availability and pushes up the cost of finance. Customers move away from high cost premium products to low cost functional products while firms are faced with increased receivables. Monopoly suppliers dictate their terms of supply while fragmented suppliers suffer extended working capital cycles and uncertain payments. New product development suffers while new entrants hold back their plans. Greater industry volatility and lower industry profitability characterize the industrial system.

The financial sector, comprising banking, home finance, insurance and refinance firms as well as the private equity, venture capital, mutual fund, pension fund, hedge fund and stock broking firms, faces a quick and inexplicable evaporation of finance in an environment of downturn. The velocity of circulation of finance comes to a screeching halt. Leveraging and derivative instruments with speculative elements collapse as the system adjusts to align a virtual world of escalating financial value to the physical world of excess assets. Capital-output ratios suddenly turn awry and adverse.

Experiencing system liquidity

Liquidity for a customer exists essentially through the cash he or she has and the credit he or she can generate. The great American housing bubble has demonstrated how a credit-driven market exponentially expands until an economic downturn leads to institutional collapse and with it the total market collapse. The global consumer is today more appreciative of the need to lead a life that is meaningfully de-leveraged and sufficiently savings driven. This implies that in times to come, the bargaining power of the customers would be strong.

For a firm, which constitutes a part of, or contributes to, the balance four components of the five forces theory, liquidity exists in terms of not only equity and debt financing but also in terms of the various assets it holds, from research and manufacturing assets to process and goodwill assets. The manner in which, and the values at which these assets are acquired and nurtured and the speed with which, and the effectiveness with which these assets are commercialized or monetized determine the system liquidity that a firm faces.

In a growth economy, liquidity tends to be a factor of least concern. Entrepreneurs riding on aspirations and financiers splurging capital on ideas provide an intoxicating feel to the economy. Firms and conglomerates spend to grow. The growth thesis in such circumstances, unfortunately, is based on external funding (whether equity or debt) rather than the firm’s own cash generations. The principle of productivity gets erroneously applied with firms seeking to do far more than what they can achieve through their internal generations. Models of corporate strategy such as Porter’s Five Forces model need to be expanded to factor in system liquidity as an overarching sixth competitive force.

The Six Forces Model

The fundamental limitation, if one may say so, of Porter’s Five Forces model is that it considers all the participants in the industry, viz., the firms, customers, suppliers and new entrants as competitors with conflict of interest (relative to the goal of individual profit maximization). It also considers the creativity of new products as a disruptive force. This model and the underlying assumption may be valid purely from a firm’s short run competitive purpose but is inadequate from a long term industrial or economic purpose.

Porter cites the continued success of Paccar in the heavy duty trucking industry as an illustration of how a firm can achieve sustained long term profitability by analyzing the industry as per the Five Forces strategy and building a competitive position. The example limited to only one firm in an industry, in fact, reinforces the limitation of the Five Forces model. Firms and governments need models of strategy that achieve the maximal diffusion of economic prosperity.

The Six Forces model factors in system liquidity as the central core of the model, which includes the standard five competitive forces of Porter’s Five Forces model, viz., rivalry, customers, suppliers, entrants and new products as forces that are networked to each other and to system liquidity. The model considers system liquidity as the aggregate financial capability of all the four players in the industry, viz., firms, customers, suppliers and entrants. System liquidity, fed not only by the industry but also by the larger economic and financial system, influences and gets influenced by the strategies of the firms, customers and suppliers.

Factoring system liquidity

It would be insufficient and even erroneous to consider the profitability of individual industries in a standalone perspective. As Porter rightly observes, industry structure drives competition and profitability, not whether an industry is emerging or mature, high tech or low tech, regulated or unregulated. Moving beyond this, however, firms in the mode of strategy formulation have to consider the front-end market dynamics and the back-end supply dynamics as collaborative factors. By focusing on system liquidity the Six Forces model brings in an essential value chain perspective and a desirable economic perspective to firm level strategy formulation. Several examples can be thought of.

Reverting to the US Paccar example of the heavy duty truck industry, the concept of system liquidity, if applied by all the firms in the industry, integrates the profitability of the total value chain including the material and component suppliers and the goods transporters. This would enable different players come up with different strategies in collaborative combinations.

The Indian bus makers have languished for decades with low growth rates in bus production volumes, despite the near doubling of Indian population, because they have traditionally followed a firm level competitive strategy (firm against firm) rather than an economy level systemic strategy (firm as a part of the total system). If a firm in the bus industry develops a strategic methodology to enhance the system liquidity, taking the suppliers and customers (passenger transport corporations) in tow, the strategy would be more enduring and profitable in the long run.

The Big Three of the US automobile industry have singularly as well as collectively failed several times over the last few decades not because of the lack of application of the five forces model but more because of a lack of value chain understanding of a complex industry that includes suppliers, dealers and customers as well as oil economics. In contrast, companies such as Toyota as well as several of its competitors of the Japanese automobile industry have turned out superior global performance by viewing themselves as collaborators with their component makers (through concurrent engineering and just-in-time) and customers ( through economic and efficient, yet elegant designs) in a total economic structure.

The US retail and distribution companies, in diverse sectors such as consumer items and pharmaceuticals, which tweaked sourcing strategies for competitive advantage paid dearly with compromised product quality while some US food and beverage makers prospered by taking the farm sector as part of their strategic planning processes. Despite advance fleet planning and proactive partnerships for aircraft sourcing, global airline firms as well as the two aircraft makers and their suppliers face repeated crises due to a lack of concern for system liquidity. On the other hand power projects which have positive relationships with power equipment makers, power distributors and regulators achieve better financial closures and timely project execution.

As firms become huge national assets, the need to recognize system liquidity as an essential competitive force becomes even more intense. The battle between the two Ambani brothers (Reliance Industries and Reliance Natural Resources) in its essence is not a battle over price of the gas; it is on the other hand an ugly concomitant of corporate strategies formulated without an appreciation of economic liquidity encompassing gas using utilities, industrial customers and regulators.

Sanitizing the business models

Lack of appreciation of systemic liquidity as the sixth competitive force leads companies to develop aggressive strategies that build scale and scope, erect entry barriers, counter suppliers and distributors (at times through integration) and acquisition of businesses and products. These strategies, all of which are investment intensive, are conceptualized and executed typically during boom times. These are also oftentimes financed out of external debt and equity financing. Several Indian companies acquired overseas businesses as a result of such competitive strategies.

Dr Reddy’s Laboratories, a leading Indian pharmaceutical major acquired Betapharm of Germany to achieve leadership in the European generics space. Inadequate appreciation of economic liquidity in the European generic markets and a high business valuation of the acquisition which was feebly supported by internal profitability and generously aided by debt led to severe operating pressures on Dr Reddy’s. Acquisition of JLR and Rover brands from Ford by Tata Motors all but plunged the cost-efficient Indian automobile leader into a deep financial crisis. Tata Steel’s Corus acquisition strategy was perhaps better titrated because of the homogeneity and synergy of technological, product and customer base. Global generics leader Actavis continues to face the pressures of debt funded expansion and acquisition spree.

Corporate strategists no doubt consider enhanced investments and operational synergies while working out business models which enhance competitive stakes based on the five Forces model. There is, however, a need to consider system liquidity of the combined value chain as a sanitizer for the profitability model. If an expansion or acquisition is debt financed or if the expansion or acquisition takes the company into cost-intensive zones it would be necessary to downgrade profitability projections significantly. The elasticity of system liquidity to economic downturn would be a critical parameter.

Regulators have a role in ensuring that models of corporate growth are not hijacked by strategic adventurism. The institutional failures that triggered the global meltdown are proof enough of the perils of a totally unregulated play with external funding, whether of debt or equity variety. Like banking institutions, listed companies should be expected to operate as per prudential financial norms and capital adequacy norms relevant for different industries. In addition, listed companies should be subject to ‘stress tests’ on an annual basis by independent specialist organizations. In the ultimate analysis, firms need to exist and grow not merely to fulfill leadership aspirations but more significantly for wider economic growth.

The author believes that the Six Forces model which integrates the competitive force of system liquidity with Porter’s classic five competitive forces of intensity of rivalry, bargaining power of customers, bargaining power of suppliers, the threat of substitute products and the threat of new entrants would elevate firm level corporate strategy into a highly beneficial macro-economic endeavor.

Posted by Dr CB Rao on August 23, 2009

Sunday, August 16, 2009

Basic Instincts and Sublime Solutions: Pathways for Innovation

Firms and industries as well as individuals and societies are driven by two basic instincts: survival and growth. Growth is predicated upon survival but survival cannot assure growth. The solutions to the compulsions of both survival and growth stem from innovation.

Survival-growth matrix

Survival and growth instincts can reside in firms at low and high levels in each case; constituting a 2 x 2 matrix. Firms with low survival and low growth instincts will be washed away by the waves of competition in the industry. Firms with low survival but high growth aspirations overreach themselves on a fragile base and will run the risk of collapse. Firms with high survival instincts but low growth aspirations will remain as profitable niche players. Firms with high survival as well as high growth aspirations will emerge as virtuous yet aggressive firms which are destined to lead their respective industries.

Typically an industry comprises all the four types of firms. Whether they exist in equal measure or in skewed proportion would depend upon the products and services the industry operates in, the ownership patterns of incumbent firms, environmental opportunities and risks affecting the industry, and the nation’s comparative advantage in science and technology relevant to the industry. When innovation becomes a national comparative advantage it also translates itself into a firm level competitive advantage, and fills the industrial landscape with virtuous, competitive firms that rank high in both survival and growth instincts.

Japan is one nation which has a high proportion of virtuous firms in all the industries it has in its national canvas. A uniformly high rate of innovation drives the firms to continuously invent and commercialize new products and services, extend market boundaries, enhance market depth and strengthen the sustainability and growth vectors of their businesses. Mature industries covering steel to automobiles as well as growth industries comprising electronics and electronics have leveraged innovation to keep Japan ahead in the global race of survival and growth.

Tailoring innovation

In order to effectively leverage innovation, each firm needs to understand the diverse typologies of innovation and choose the typology that best meets its needs. Innovation needs intellect; intellect resides in talented people; talented people need modern laboratories and facilities to work and such advanced infrastructure needs investments. Often, firm level decisions are telescoped into national resource capabilities as well.

Emerging countries have options of either limiting innovation to the frugal private or public resources they can marshal or harnessing massive resources through public effort. Smaller countries remain constrained on investment and innovation while China has pumped in massive public funding of infrastructure and research to catch up with the innovation curve. India, in contrast, has followed a unique model of public-private participation which provided a midway path, whereby investment trails requirement, and achievement arguably remains well below potential.

It would however be foolhardy to imagine that resources alone provide the requisite base, let alone an automatic boost, to innovation. Innovation exists in a total eco-system where government, universities, industries, firms, people and consumers encourage innovation in an entrepreneurial spirit. The need to understand innovation typologies is therefore relevant.

Innovation typologies

Innovation can be seen in terms of five basic typologies based on the process that drives innovation and the end points of innovation. These are: fundamental, analogue, integrative, adaptive and substitutive types of innovation.

Fundamental innovation represents the first time discovery of a new apparatus, device or instrument in a field. Automobile, telephone, railway engine, aircraft or ship represent certain fundamental innovations in the transportation field. Telephone, radio and television similarly represent fundamental innovations in the communications field. Penicillin and aspirin represent first-time medicinal discoveries. Fundamental innovations, like the ones above as well as the more recent robotics and artificial intelligence, typically simulate natural bodies and phenomena with the added edge of industrial productivity or commercial reach. Fundamental innovation obviously creates technological leadership for nations and firms, and is rarer to fund, find and sustain.

Analogue innovation, on the other hand, is at the other end of spectrum, being the more popular and affordable type of innovation, which is easier to achieve. Creation of an LCD television represents a fundamental invention. Successive discoveries of LCD televisions with 50, 100, 200 MHz resolution capabilities and higher contrast ratios represent multiple analogue innovations. A first-in-class new drug is a fundamental innovation while follow-on medicines which have a similar structural configuration but superior therapeutic profile represent analogue inventions. Analogue innovation is the breadwinner for the larger gamut of innovation oriented firms.

Integrative innovation aims to combine multiple technologies into a singular device. Bringing together multiple technologies helps the inventor offer multiple functionalities to the consumer. This is not a new approach either. While in the yesteryears a radio cum tape cum CD player represented such convergence, in today’s world a cellular phone which also plays music and captures images represents the new wave of convergence. As long as fundamental and analogue inventions grow, integrative invention also would grow. Tomorrow’s laptop may have the ability to project the presentations, and the cell phone may have physically expandable screen, for example. A futuristic glucose meter may measure glucose and also dispense insulin based on the measurement. Integration invention or convergence invention is the current hope for market expansion.

Adaptive innovation is a type of innovation that relies on a common or similar technology substrate to define and power multiple applications. Application of nanotechnology to as diverse fields such as engineering and pharmaceuticals is a prime example. Leveraging of imaging technologies for diagnostics and entertainment is another example. Robotics has already brought in revolution in engineering and medicine. Tire technology, for example, could determine how automobile chassis are configured, from low floor to high floor applications. Touch screen technologies would lead to new interactive user interfaces on wider variety of devices.

Substitutive innovation is the new hope for a cleaner and greener planet. From recycling technologies to renewable technologies, substitutive innovation would enable the planet to conserve its resources. Potentially, substitutive innovation would represent the final horizon which would combine the nuances of fundamental, integrative and adaptive innovation approaches. If integrative innovation blurs the distinction between products through convergence, substitutive innovation would dismantle the borders between industries. Agriculture could power the automobiles while days could power the nights in future.

Innovation and India

India is aiming to be an economic superpower in the years to come. It has a large consumer base of 1 billion plus population and one of the largest scientific and technical talent bases of the world. All these, however, have not led India on a genuinely innovation led development pathway. The collective responsibility for this rests on the firms, industries and governments.

Innovation can help firms survive and grow. Not all types of innovation will, however, suit all types of firms. Firms with low survival and low or high growth instincts can go no better than relying on analogue innovation to move them to a better growth quadrant. Firms with high survival and low growth instincts will need to deploy their cash in either integrative or adaptive innovation to build on available core competencies. Companies which score high on both survival and growth instincts can consider the full spectrum of innovative approaches, including fundamental, analogue, integrative, adaptive and substitutive.

Firms which desire to master innovation need to focus as much on fundamental sciences as on application technologies. Strategic tie-ups with universities and specialized research laboratories would help application oriented firms in-license fundamental sciences and technologies on a cost competitive basis. Success of American, Japanese and Korean firms in innovation is in no small measure due to the support they provide to, and receive from, universities and research entities.

Indian governments, central and state, scientific laboratories, universities, and firms need to consider bolder and futuristic strategies to create new paradigms of innovation. The central government, and its ministries and departments (such as science and technology and biotechnology) are no doubt taking up several national science and technology missions, many of them as government-industry-academic partnerships. Unfortunately, most of these projects and missions are set up, relative to the needs of the substrates, with meager funds, fuzzy deliverables and indifferent participation, with an almost exclusive focus on analogue research.

India has now world-class and world-scale infrastructure in pharmaceuticals, vaccines, automobiles, telecommunications, textiles, chemicals, information technology and a host of other sectors. These sectors qualify for establishing national centers of collaborative innovation to achieve fundamental innovation as well as substitutive innovation. The task of analogue, integrative and adaptive research may, in contrast, be left to the capabilities of individual firms. Only a concerted effort such as the above, duly backed by an upgraded and expanded university research infrastructure, can place India firmly on the global innovation map.

Posted by Dr CB Rao on August 16, 2009

Saturday, August 15, 2009

Mentorship: Beyond Leadership

Firms are aggregations of people who are positioned in the framework of an organization and are enabled to progress over time, horizontally and vertically. Workmen, executives, managers, leaders and directors constitute the organization. This paper discusses why the concept of an organization should add mentors to the inventory of the human resource asset base in an organization.

Workmen, executives, managers, leaders and directors

Workmen are direct employees working on the physical production and production support processes in a firm. Lower level educational qualifications and experiential limitations often make the adage “once a workman, always a workman” unfortunately true. While a few workmen do cross the barriers through supervisory roles within the shop floor environment, organizations are typically designed to accord mobility only to those personnel who are inducted into executive cadres on the basis of professional qualifications. This situation needs innovative organizational and educational paradigms to break the mould, which probably is the subject of another discussion.

Executives, though well educated, are operating professionals who learn and perform largely as per directions. Executives who display an exceptional flair for conceptualizing, analyzing and executing become managers early on in corporate life. The brightest of the managers grow as general managers of sites or functions. Most also become leaders of businesses or corporations. Some will be whole-time directors on the boards, which also comprise outside experts as part-time independent directors. Very few, however, end up becoming mentors.

The journey of a professional, from the time he or she starts his or career as an executive to the time he or she becomes a mentor, is an unpredictable and rollercoaster ride. During this journey, spanning decades of professional life, intrinsic leadership traits in an individual at the grassroots level as well as corporate leadership proclivities at the apex level are equally important.

Executives are competent professionals who keep the day-to-day operations moving. Managers are competent executives who plan, and get the budgets implemented optimally as per plans. Leaders are competent managers who envision a new future, craft an enabling strategy, and create a performing organization that converts the vision into a reality. Directors are leaders who are willing to take business, legal and governance responsibilities. Who then are mentors?


Mentors are competent leaders who nurture the organizations to have the right mix of competent executives, managers, leaders and directors, all of whom play a role in building the business of a firm and enhancing shareholder value. Mentor is a leader who cares for the organization and its people to build their value through a competency cum governance framework. A mentor, having been a leader and a director knows the business well enough to position the firm positively in the industry and the economy.

The transformation of a manager into a leader is often performance driven. However, the transformation of a leader into a mentor is as contextual and environmental as it is personal and professional. The transformational challenges and opportunities are also uniquely determined. A manager tends to be an executive in his own right for most part. A leader ceases to be a true leader when he starts managing. A mentor may in contrast never be able to separate leadership from mentorship.

While it is well accepted that a firm should have a leadership team for day to day execution and a board of directors for governance and mentorship, the concept of having a fulltime mentor in the company has not been established in the corporate practice. Towering leaders of Indian conglomerate groups such as JRD Tata and GD Birla did serve as mentors to their group leadership teams, but in informal capacities. It is only in the 2000s that the concept of a leader turning a mentor for the organization came to be recognized when Mr Narayana Murthy the founder-CEO of Infosys Technologies became its Chief Mentor. His was the first formal and bold attempt by a successful leader to transit into a mentorship role, even ahead of time. While there is a clear need to have more such initiatives at leadership and firm levels, his example did not initiate a new wave of organizational redesign in Indian corporations.

Are leaders against the concept of mentorship, both in terms of their own transformation into mentors, and acceptance of mentors in their midst?

Always a leader, and never a mentor?

The position of mentor does not reflect a popular practice in corporate structuring, organizational design or legal framework. The examples set by Narayana Murthy in Infosys and Bill Gates in Microsoft are exceptions rather than rules. The mentorship concept therefore needs passionate advocacy as well as objective evaluation as an instrument of larger organizational benefit.

Leadership provides a singular opportunity for outstanding professionals to guide the destiny of a firm. It provides the power to perform and the canvas to achieve. Chief executive officers (CEOs) are often buffeted by performance compulsions and obsessed with themselves as singular drivers of performance. Many are unable to accord a due role to even legally mandated board of directors. It is therefore not unnatural that CEOs are reluctant to debate the concept of mentorship as a discrete senior level position, let alone accept a mentor at the helm. As a corollary, CEOs who have been at the pinnacles of power in the organizations are also reluctant to move over to an apparently sinecure position of chief mentor.

The ownership context of a firm possibly provides some basis for a more delineated determination of managerial, leadership and mentorship roles. Family owned and patriarchal firms have a greater flexibility to move their family CEOs informally into mentorship positions while non-family owned professional firms have no greater flexibility than providing non-executive chairmanship positions to potential mentors. However, the concept of mentorship deserves a more formal and popular positioning in the corporate landscape.

Potential of mentorship

Mentors, typically, are successful leaders who have perspectives larger and wider than the perspectives of the firms they have led. They are intellectual achievers who have built their businesses competitively and placed their firms on sustainable growth trajectories. They are well known nationally and globally and are capable of acting as brand ambassadors not only for their firms but also the industries they operate in and their countries. Potential mentors exude high ethical values and have passion for communicating them. They would have built leadership talent in their organizations that can take on larger responsibilities seamlessly from them.

True mentors are those who move away from executive leadership positions and focus on fulfilling certain qualitative aspects of business which only they can focus on. Having been consummate leaders, they are aware of the pitfalls and potentialities of leadership. By continuing full time in the organizations but taking up mentorship roles such leaders can add strength to the new leadership teams. Fundamentally, leaders who move as mentors create a positive leadership vacuum that elevates potential leaders into performing leadership roles.

There are two keys to ensure success of mentorship. The keys serve to distinguish the mentors from executive leaders on one hand and boards on the other. Such role differentiation will promote synergy and eliminate conflict.

At the executive level, mentors, for example, can focus on means as the leaders focus on ends; mentors can focus on risk management while the leaders focus on taking risks to achieve goals; mentors can build grassroots leadership in the organization while the leaders focus on building their next levels of leadership; and most importantly mentors can promote deeper organizational values even as the leaders are engaged in enhancing value of their businesses.

At the board level, mentors, being full time executive leaders can fulfill a role that is different from the ones performed by independent directors (including chairmen) on the boards. Directors bring sagacity and caution to the board and corporate matters. They hardly have the ability and resources as full-time leaders could have to convert their sagacious advice into effective execution. Mentors can provide the continuity and act as the bridge between executive leadership and non-executive board.

Institutionalizing mentorship

Given the normal corporate dynamics neither leaders nor directors could be expected to proactively and wholeheartedly welcome mentors in their midst. A regulatory framework which provides for a full time chief mentor in an organization could help. Every CEO who crosses the age of 60 years should have the choice between the ages of 60 and 65 years and compulsion by the age of 65 years to transform into a mentorship role, which could continue until he attains a final superannuation age of 75 years. Appointment of chief mentor would need to be a Clause 49 corporate governance stipulation.

The mentor of an organization should have the freedom under the corporate governance umbrella to interact with all functions, participate in all leadership meetings at his discretion and address town hall meetings which the leadership team could attend at its discretion. Certain key governance functions such as risk management, corporate governance and management audit (not internal audit) should be required to be formally established and made directly accountable to the chief mentor. The chief mentor need not be the chairman of the board. In fact, combining the positions would negate the benefits of this key supplemental position of mentorship.

The office of the chief mentor should be fully budgeted and resourced with compensation levels not less than those enjoyed by him prior to his becoming a chief mentor. Inbreeding of mentors and potential cozy relationships or conflicts between the chief mentor and the leadership teams are likely issues that could erode the effectiveness of this institution. In-sourcing of mentors from other organizations is not necessarily a solution. In-sourcing would in fact be an erroneous approach. The fundamental purpose of transiting to mentorship is to enable the leader address add additional perspectives while leveraging the past full time capabilities.

Mentors would be effective largely on the basis of their established acceptability, intellect and statesmanship. Initial institutionalization through a Clause 49 mechanism provides faster and wider spread of the concept, and is unlikely to be a necessary requirement for the success of the mentorship concept. The author hopes that more leaders and corporations would follow the Infosys model in successful mentorship.

Posted by Dr CB Rao on August 15, 2009

Saturday, August 8, 2009

Style is Substance: Management of Product Design and Manufacture

One of the fallacies of popular thinking is that consumers are conned into repetitive purchases based on mere stylistic changes in products which do not offer any material differences in product functionality. This paper argues that stylistic changes, on the other hand, are the key drivers for innovation in product design and manufacture.

Style demands substance

Style is a distinctive and differentiated presentation of a literary piece, an art form or a product. Style is visual and appeals to the senses. It also creates a craving in the beholder for ownership and usage of a stylistically elegant device. This, by itself, does not mean that styling is mere superficial embodiment. A well-styled product is also fundamentally a well-endowed product. A stylistically elegant product has a creative form which not only has visual appeal but also offers handling ease.

A novel form factor that is smaller in size but packs greater performance and versatility is an essential component of any stylistic approach. Yet, styling does not end with appeal and handling either. Style sets ownership and usage expectations higher, driving fundamental innovations on how products are designed for wider and stronger performance. Style is also not merely physical; a digital experience adds a significant additional dimension to style. Sony Walkman, Apple iPod and iPhone are the best examples to date of style revolutionizing product profiles and creating new businesses, if not industries. Modern day automobiles which integrate new stylistic designs with greater safety, comfort and digital controls are another example.

Style often influences, if not enables, new paradigms of convergence. Bringing a variety of functions such as music, camera, maps, organizer and radio into a telephone is a styling challenge as well as opportunity. Emotional harmonization and functional alignment are helping laptops to be distinctively styled and repositioned as net books. Each stylistically distinctive product is thus integrated with differentiated performance to provide sustainable, and nor superficial, value for the consumer.

Style boosts efficiency

Style brings in its wake efficiency as well. Examples such as a well-styled car which has a low coefficient of drag, an ergonomically designed chair which enables healthy sitting posture, a high definition lap top screen that provides visual clarity, a thin flat panel screen which conserves materials in manufacture and space in usage, and a green building which is not only contemporary in design but also harmonious with nature
illustrate the efficiency side of style.

A few design factors drive the efficiency trigger in stylistic design. Style demands miniaturization on one hand and multi-functionality on the other. Style requires materials and components that enable better visual feel and physical handling. These factors are at the base of a relentless drive for advances in design and manufacturing technologies that offer better style with greater performance.

A favorable input-output ratio (lower input and higher output) is the hallmark of a well-styled product. Contrary to the perception that frequent stylistic changes promote repetitive and conspicuous consumption, style puts pressure on companies to design and manufacture products more efficiently. This, coupled with the greater emphasis on material recycling and environmental waste ensure that style leads to efficiency.

Style encourages creativity

Modern styling is not merely an art of shaping a product. It is a science of creating a hybrid substance that withstands the rigors of usage and environmental damage. A floor tile should not only be marble-like but also be skid-proof. A new cement blend has to not only create an elegant feel but also retain its appeal for a longer period of time. A new touch screen should not only click and display well but also has to be scratch proof. A speaker system in a flat panel TV has to be ingenuously designed to be invisible yet powerful. A medicinal tablet must be more potent to cure but smaller to swallow. Often, therefore, designers have to merge contradictory requirements to develop novel harmonized products. Conceptualization of such hybrid designs requires creativity in design of a higher order.

New technologies are often required to enable hybridization of designs. Polymer technologies helped design of better pharmaceuticals. From plasma to liquid crystal to light emitting designs, new signal conversion technologies helped newer flat panel displays. Wireless technologies unwired and uncluttered computer devices with better and non-intrusive connectivity. Nanotechnology promises to usher in a revolution in surface preparation, material efficacy and functional usage.

Style is also not necessarily limited to consumer interface. Industrial goods also benefit from style driven design. Introduction of “semi-forward cab” truck design, wherein the cab was partially mounted over the engine to provide a stylistic superiority over the conventional “engine outside the cab” designs is a case in point. This design catered to the driver’s preference for a hooded design (ostensibly for safety) while enabling maximum usable chassis space. Similarly, all components have to shrink in form but expand in performance as an automobile aims to become lighter, sleeker and yet more powerful and fuel-efficient.

Style promotes flexibility

Style can integrate or diversify product design. It can simplify or complicate need fulfillment. A single activity such as display of time can be accomplished by timepieces of myriad designs, shapes and colors. A wristwatch can also be converted into a diagnostic marvel by converting into a measure of relevant body parameters such as temperature, blood pressure, pulse rate and so on. The twin platforms of integrative design and diversified applications mirror the fusion of style and substance in product design.

Style enables a sharper focus on a latent user need and a greater alignment between the customer and developer. A paint development technology that enables a house-owner choose a novel combination by fusion of base colors ensures that the style reflects individuality. Dell’s marketing and supply chain innovation that enables users choose and assemble a computer configuration which meets their needs is an innovative anti-thesis of mass production of standard functional devices. Apart from functionality, style defines the personality of a user too. Ranges of products can be stylized to cater to generations of users.

Today’s consumer has a singular need but multiple desires. This need-desire matrix can be fulfilled by a combination of core and collateral functionalities that can be stylistically integrated. A dual time zone watch or radio controlled watch would provide greater satisfaction to a global traveler than a traditional watch would. A shock-proof and water-proof chronograph integrated watch would serve a sportsman better. Yet, styling innovations which integrate shades of peripheral time functionalities with core needs provide even greater flexibility to the user.

Style drives growth

The economic ramifications of stylistic changes in product design are rarely understood in perspective. At best, styling is seen as a demand generator, segmenting the market as it does in terms of multiple likes and preferences of customers. While the impact of customer segmentation, product diversification and market expansion are easy to see, not so visible is the underlying impact in industrial transformation.

At one level, style has driven the conception and growth of whole new streams of industries in personal effects and fast moving consumer goods space, from textiles, fashion apparel and personal accessories to soaps, cosmetics and daily care products. Styling and packaging have given a new life to the food processing industry and entire food value chain. Industries such as cellular phone industry which had no more than a single offering at the start today signify a style-driven litany of products.

Style not only creates new industries; it helps the established and mature industries to reinvent themselves and stay competitive. It renews the value chain and creates the need for new skills and new jobs. As an automobile, or for that matter any product, gets redesigned it triggers a cascade of new developmental and manufacturing activities across the value chain. From hundreds of designers who play with computer and clay models to thousands of engineers and technicians who create new tools, dies, materials, components, processes, assemblies, finishes, packages and deliveries in each firm, restyling stirs up a beehive of activities. The positive cascading impact on the host of economic, industrial, business and social activities is indeed the driver of growth.

Style needs management

Style drives not only economic growth but also enhances management complexity. The need to design, manufacture, supply and manage multiple SKUs, the need to service products of diverse generations and designs and the need to balance the cost push of product variety with the cost-attractiveness of manufacturing simplicity pose new challenges for managers. Many of these challenges can be met by enhanced process automation and use of information technology. Yet, each firm has to dynamically set its tipping points in determining the rate and pace of stylistic innovation.

Style is an amalgamation of the art of human behavior and science of product design. Successful designers are those who read consumer mind as perceptively as they understand the challenges of concurrent engineering of a new design, manufacturing and supply chain. They should have a 360 degree of the firm as a provider, with a competitive value chain, of innovative and differentiated products that meet human needs in an increasingly satisfactory fashion. Stretching the horizons of innovation with the practicality of utilitarian inventions, the stylist almost always accomplishes the seemingly impossible of giving to the consumer more for less. Nothing reflects the success of the amalgam of style and substance as Tata’s Nano micro-car does.

Designers, manufacturers and managers involved in the process have to view style and substance as an inseparable duo, representing the two sides of an innovation coin. Courses in industrial and product design and value chain management must treat styling as more than a cosmetic or emotive exercise, with a marketing endpoint. Styling is the essence of the progress of the society and economy, for tomorrow can, and should, never be the same as today in a developmental perspective. The quest for greater elegance, differentiation and efficiency as embodied by a constantly evolving fusion of style and substance defines the mankind’s progress.

Posted by Dr CB Rao on August 8, 2009.