In my last blog post of 2009, I wrote that India could become a global economic power by 2020 if certain welfare and development plans were to be adopted. These were: (i) a billion homes program, (ii) food security, (iii) universal education, (iv) healthcare for all, (v) multi-modal connectivity, (vi) energy assurance, (vii) global scale of operations, and (viii) innovation within a generic mindset. These are long term strategic journeys with tremendous funding and execution challenges, and it would be too ambitious to expect an immediate thrust.
Positives and concerns
That said, India in 2010 demonstrated some healthy progress and some worrisome constraints. From an overall economy point of view India not only emerged relatively unscathed from the global economic meltdown but also achieved a much stronger rebound in 2010. During the year, important actions have been taken to position education as a universal right and several reforms in the education sector are on the cards. The signing of the Nuclear Energy Bill has opened up new possibilities in the energy space. Indian companies have pursued the vision of global scale operations. Those Indian companies which made ambitious overseas acquisitions (eg., JLR by Tata Motors and Corus by Tata Steel) demonstrated the ability to successfully turnaround the acquisitions and integrate them. Indian firms continue to make overseas investments in the mining, oil and gas and telecommunication fields. Yet, against these few decisive moves, there has been relative inaction on other fronts.
Governments, central and state, are yet to embark upon a massive affordable funding program, which is essential for broader socio-economic vitality. Healthcare continues to be patchy and highly inadequate. Infrastructure continues to be the biggest bottleneck for economic development. While a few companies began turning out innovative indigenous products, India is far from being an electronics product innovator as Korea is or an electronic product manufacturing hub as China is. Agriculture continues to be ravaged by vicissitudes of nature. As an overall phenomenon, innovation is yet to make a mark in terms of competitive efficiency and product differentiation for India in the global markets, commensurate with India’s talent potential.
Potential clearly recognized
Despite the mixed record, India enjoys tremendous goodwill as the economic powerhouse of the future. Reputed journals such as Economist have forecast that India would be amongst the world’s 5 largest economies in the world by 2030. Experts also believe that the gap between China and India would substantially be bridged with greater foreign direct investment into India and more sustained economic growth. Evidently, with China having already built up its industrial and infrastructural strengths to nearly peak levels and India having substantial strides to take on this score, there is clearly a tremendous potential for India to up the ante of development.
While such perceptions of India’s growth are morale-boosting, India cannot be complacent given the fact that the constraints it faces are real and the resources it needs to marshal are enormous. To that, we need to add the fact that the two other BRIC countries, Brazil and Russia, have a new found appetite for rapid growth. India clearly needs to have a more pervasive yet more focused strategic economic plan to achieve the global powerhouse status.
While the eight points mentioned in my last year’s blog post, and recapped in the introduction to this post are valid, the developments of 2010 point to certain new opportunities that should be leveraged aggressively and chronic constraints that need to be eliminated resolutely. For the first time, India has the option and opportunity to leverage its unique democratic institutions and geo-political positioning to reinforce its economic and industrial strength. The future lies in reformist policies to be conceptualized and executed on a wide canvas.
Global collaboration
The first part of the reformist plan must be to leverage the interest and focus that various advanced economics have developed in India. The year 2010 saw the heads of almost all advanced nations, USA, Russia, UK, France, Japan included, visit India and explore a wide range of economic and business ties. This interest opens up several possibilities for widespread industrial and economic collaboration in nuclear power, thermal power, aerospace, defense, rail transportation, airports, and several other investment and technology intensive sectors. India should be keen to convert these proposals into active projects both in public sector and private sector domains. The Government should encourage public sector and private sector enterprises to diversify actively into these new areas, with the added promise of India providing low cost components in exchange for overseas technologies.
Coordinated policies
Much as private sector is destined to play a larger role in economic development, Governments have to exert themselves to draw up more cohesive reforms agenda with strong cross-sector linkages. Though there were no major reforms initiatives in 2008 or 2009, the Indian economy has grown significantly. The growth rates with a proper reforms agenda would be even more incredible. Policies balancing industrial needs and environmental compulsions simultaneously, rather then sequentially, are one important requirement, for example. Without such coordinated policy framework several mega projects that are planned, are failing to really take off.
Public oversight
On a related plane, stable and investor-friendly long term policies on Special Economic Zones which create employment are also required. Policies regulating private operations in an open, transparent and positive manner constitute another important need. India is perhaps not yet ready with the level of perfect market conditions that allow a totally free market economy to operate without a concern of wayward deployment of scarce resources. Even highly free market countries such as US are now veering round to the view that certain economic activities of strategic importance need larger governmental oversight. Banking, finance, healthcare, insurance, and education for example, need public policy oversight as much as private sector participation. Microfinance in India, as an illustration, has ushered in a silent revolution by financing USD 4 billion for empowering millions of indigent households. Yet, lack of regulatory oversight has led to multiple failings in this revolution, setting the clock back. Great private initiatives should not, therefore, be allowed to become exploitative for want of appropriate public oversight.
Skill enhancement
The average age of India of the future will be less than 30 years. This means that educational and skill levels of the Indian population will have a great bearing on the competitiveness of the country. While engineering education is the lead component of India’s industrial growth with a vast network of colleges, thousands of seats are lying unfilled in engineering institutions. Perceptions of inadequate depth, patchy quality and low opportunity for certain educational streams are at the core of this paradox. This concern is accentuated by the fact that factories and infrastructure in India are at peril with the migration of engineering talent to softer areas such as IT, banking and consumer marketing. The position is no different in science and medicine. Despite the acute lack of medical care, the admissions to medical colleges are highly inadequate and regimented. Scientific institutions are unable to marshal resources to specialize in research driven scientific education. India’s educational sector is clearly in the need for a massive opening up with public and private funding.
Global scale funding
Juxtaposed against the massive growth needs, especially in long lead industrial and infrastructural projects, India perhaps is just not resourced adequately to fund the growth. The Indian banking sector is still introverted, for good and proven reasons. However, scales of operation are not commensurate with the global fund raising requirement for the envisaged infrastructural and industrial development. On one hand, infrastructure alone would call for an investment of $ 1200 trillion to get to global standards which the current banking sector is incapable of addressing. On the other hand, the Indian banking system seems to be more comfortable with, and geared towards, financing quick-payback industries, retail, white goods and other consumption sectors. A sea-change in the banking infrastructure would be called for which can only occur with dedicated policy support.
Equitable employment
Economic employment with a human face will be yet another facet requiring policy support. Indian homes are typically constructed by homeless, migrant workers representing a major social and economic paradox. Construction companies and the less literate labor force are continuously seeking cost and location arbitrage. Skill levels in construction and infrastructure development need to be upgraded to global standards which would require completely new vocational education policies for the underserved sectors such as construction, logistics and transportation. These sectors must be choices made by jobseekers out of dignity of labor and primacy of skill rather than resultants of lack of education forcing such low cost job seeking. At the same time, even in globally networked industries such as business process outsourcing, the Indian workforce is facing new challenges from relatively more stable and better educated call centre workforce of other Asian countries. With the Indian population itself touching 1.6 billion by 2020 with a mean age of 29 years, creation of a high level of skill base is essential to retain the competitive edge in both internally focused industries (such as infrastructure) and externally networked industries (such as outsourcing).
Reloading the governmental matrix
Indian governance is highly matrixed, with central and state governments and multiple political systems being in power. Focused identification and elimination of policy constraints is therefore essential for speedy progress. While everyone understands that major projects in highway development, urban decongestion, metro and intercity rail development, airport expansion and sanitation are called for neither inter-state or centre-state collaboration has been forthcoming in the requisite measure. This is often leading to long delays in conceptualizing and executing development projects. Standing committees on centre-state and state-state cooperation with the objective of clearing infrastructural projects on fast track could be one expedient way.
Software lead
India has the potential to surprise the world in a few aspects. Conduct of elections in this vast country with electronic voting machines is no mean task. An advanced country such as US has also been unable to accomplish such task. Soon the Unique Identification Number (UID) project will be another feather in the cap for Indian software sector. These skills can be leveraged to develop global businesses of digitizing governance in various countries of the world. Constantly discovering new processes of working with and around digital machines will be an opportunity for the Indian software and telecom sectors to leverage.
Thrust products
Countries have discovered that while broad based industrial development is vital for overall competitive efficiency, focus on a few selected industrial products often enhances the level of competitive efficiency and takes economic development to a newer level. India itself has discovered this fact with its focus on steel production, defense production and automobile manufacture in the last few decades. Dedicated efforts to develop new design and production hubs in nuclear energy equipment, solar energy panels, wind turbines, bullet trains, aircraft, space equipment, telecommunication equipment and electronics equipment, including mobile phones, tablets, note books and desk top computers could catapult India into global manufacturing league in a big way.
New product segments for the new era
A great trigger for India’s future development is the young age of the population, constantly increasing middle class and the consequent opportunity it affords for a whole new set of consumer items ranging from readymade and processed foods to personal products. Explosive growth may also be seen in future for equipment that automates household routines. The penetration of microwaves, multi-purpose cooking equipment, dish washers and washing machines could catapult, with these equipment becoming a standard feature of each dwelling unit in future. India could indeed see a revolution in the food processing and packaging industries as well as in the over-the-counter nutritional product and pharmaceutical industries. Indian firms need to pursue new business models that are not merely replicas of the past product lines but focus on newer product lines that would cater to the upcoming generation shift and income expansion.
Products for the BOP population
That said, India will never be free from the challenges and requirements of finding economic, low-cost solutions for those living at the bottom of the pyramid. Professor C K Prahalad, in his landmark book on Fortune at the Bottom of the Pyramid (BOP) has described how healthcare products and services could be economically and successfully offered for India’s population. Indian companies need to develop a BOP line for each product segment, be it a household item, a personal product or a consumer good item, all the while emphasizing high utility and low cost. Hindustan Unilever’s and Tata’s low cost water purifiers, Pure It and Swatch, and GE India’s low cost ECG machine are indicative of the potential of this approach. Eventually, large companies may focus on designing and development as well as marketing of such low cost products enabling small and medium business enterprises to manufacture such products as part of an efficient value chain.
Growing capacity, compressing breakeven
From an economic analytics point of view, India’s emergence as a global power in 2020 would depend on a massive capacity expansion in all product and service lines, with highly granulated and suggested offerings to different customer groups. This needs to be accompanied by design, manufacturing and marketing paradigms that bring down the breakeven levels of operation. This would ensure that the economy as a whole remains viable and sustainable in lean times even as it maximizes its potential in good and booming times.
Goodbye 2010 and Welcome 2011!
Posted by Dr CB Rao on December 29, 2010
Wednesday, December 29, 2010
Sunday, December 26, 2010
Indian Microfinance Paradigm of the Future: Credit & Consumption or Investment & Employment?
As I set out to pen this post, I went through the available literature on the microfinance industry; global and Indian. The extent of scholarly articles and expert comments by economists, sociologists, activists and public on microfinance industry is truly amazing and humbling. Central banks of nations, Indian and international banks, rating agencies and the World Bank have been active participants and facilitators of the microfinance industry. India, especially the State of Andhra Pradesh, has been a silent leader in generation and distribution of microfinance. It is, therefore, sad that the Indian microfinance industry should have caused, either by inadvertent design or involuntary default, waves of suicides of indigent borrowers and thus is now itself suffering from the terrible backlash of such suicides.
Experts agree that microfinance has performed and would continue to perform a very useful purpose of reaching credit to the highly indigent and impoverished rural population. In India microfinance registered a meteoric increase from USD 250 milion in 2005 to USD 4 billion in 2010, serving millions of indigent households. Indian banks and financial institutions including subsidiaries of foreign banks have lent USD 3.3 billion to microfinance sector. Seeing the potential multiple other direct and mezzanine funding options became available to the Indian microfinance industry. Securitization of microfinance disbursements became another funding tool. Low delinquency of loans, managed by aggressive recovery methods, ensuring continued fund flow.
Clearly, the rapid and unregulated evolution of the industry led to multiple borrowings, usurious lending rates, and high-handed collection mechanisms to state a few. What ought to be a bank-aided socially purposive activity became a private equity driven business with profits and valuations as the goal. The Government of Andhra Pradesh promulgated an ordinance in October 2010 to regulate the industry while the Reserve Bank of India has constituted an expert committee to examine the industry in its entirety. International reviewers such as Financial Times, Forbes and Wall Street Journal while recognizing and condemning the follies and inadequacies of the microfinance sector have cautioned against mistaking the procedural weakness of the current microfinance industry as proof of the irrelevance of the industry.
Surely, the various efforts would lead to a more regulated microfinance industry that would stop the profitable piggybacking of the microfinance firms on not-for-profit Self Help Groups. The new policy would also hopefully establish a reasonable proportionality between the low-cost priority sector credit from scheduled banks that the microfinance industry is entitled to, and the interest rate that the industry would charge to its indigent and impoverished clientele. Probably, these measures will take some profit and valuation sheen off the microfinance industry but will be welcome for their positive impact of preventing a social disaster - of a new breed of urban bankers profiteering at the expense of the bottom of the rural pyramid.
Microfinance : a workaround road or a new credit highway?
The banks in India have an obligation to direct 40 percent of their credit to priority sector, which includes the indigent customers who constitute the customer base of the microfinance industry. Despite their efforts and establishment of several collateral institutions like cooperative banks, regional rural banks and specialist institutions such as NABARD by the central and state governments, the organized banking sector has trditionally failed to ensure a performing priority sector portfolio. The emergence of microfinance firms has enabled the banking system find an effective intermediary that fulfilled its purpose. The microfinance industry brought a rare on-ground control over micro-credit deployment and collection, and emerged as a preferred alternative to the ruthless moneylenders that held the impoverished people to ransom. Empowerment of women was a key plank of the microfinance movement bringing a higher level of acceptability to the sector.
Probably, the very availability of organized low-cost funds for the microfinance industry and the low bar of performance arising from a benchmark of traditional money lender system have led to the imperfections of the microfinance industry. Some economists characterize the microfinance system as an unfortunate work-around methodology for the failure of the mainstream financial institutions to reach credit to the poor while others predict a schumpeterian dead end for the microfinance industry. An eminent former governor of the Reserve Bank of India who is credited with saving the Indian financial system from the global liquidity meltdown felt that microfinance is a kind of sub-prime lending which is not sustainable in the long run. Others believe that despite the noble objectives, the microfinance industry performs no more than a sustenance role that is far from the transformational aspiration that the industry is charged with. The supporters of the microfinance industry, on the other hand, argue that the low cost structure of microfinance firms provides the much needed competitive advantage vis-à-vis the mainstream firms and the microfinance firms would eventually grow into financial behemoths in future.
Regardless of the arguments, it appears that the microfinance industry is in need of a significant paradigm shift in terms of three key fundamental approaches: (i) from lending to investment, (ii) from consumption to employment, and (iii) from competitive growth to collaborative development, if micro-financing has to be transformational. The industry needs to evaluate whether it is truly equipped to make micro entrepreneurs out of the millions of the poor, less literate people it serves or it would be better of generating more sustainable employment development by focusing on thousands of capable rural entrepreneurs. The governments have to also evaluate if the microfinance industry would serve its social purposes better by getting funded more by public equity funding than by private equity funding. In sum, there are more fundamental issues involved in the reincarnation and rejuvenation of the scalded microfinance industry than procedural regulations, essential though they are.
From lending to investment
The biggest point against the current microfinance model is that it is addressed at survival and consumption needs of the rural customers. Most microfinance customers are indigent individuals who lack ownership of any assets and are therefore incapable of generating additional income streams out of the loans taken. While the end-use details of loan amounts are presumably sought as per the loan clearance processes, clearly the processes are deficient as demonstrated by the multiple loans taken from multiple institutions by the individuals. It is important, therefore, to have a transformational view of the lending process by the microfinance institutions and the individual beneficiaries. The lending process needs to be viewed as an investment process aimed at asset ownership and supplementing asset management for, and by, individuals.
The next important point is whether microfinance institutions can see themselves as micro investors and not as micro lenders. As opposed to lending, the institutions should see themselves as investors in the notional equity of the individuals they lend to. This approach requires a shift from a quantitative view to a qualitative view of lending by the institutions. It also requires the microfinance institutions to view themselves as development institutions rather than lending institutions. If the institutions are benefitted by private or public equity it is incumbent, given the social objectives the sector has, to invest part of the proceeds as risk-bearing investment capital. This, ipso facto, would compel the institutions to be more alert and helpful towards the borrowers from a sustainability point of view.
A sore point against the current microfinance model is the rather uncapped and usurious rates of interest. The institutions need to compete with low cost bank finance providers rather than the high cost traditional moneylenders. In a regime where even high cost credit cards charge monthly flat interest rates of 2.5 to 3 percent it is inappropriate to have uncapped interest rates going up to as high as 5 percent flat, as allegedly charged by certain microfinance companies. Regular auditing of the books would help keep a semblance of control to this essential requirement. More fundamentally, however, the founders of microfinance institutions should stop viewing their operations from a traditional profit-oriented business angle and aggressive revenue/profit optics, and instead see themselves as instruments of social transformation.
From consumption to employment
Closely allied with the investment approach outlined above is the employment approach. The principal macroeconomic objective of microfinance must be to generate sustainable employment. This objective can be fulfilled by focusing on employment generation capability of the village as a whole rather than individuals per se. This requires a study of what the village economy currently has, what it is capable of generating and what it is capable of marketing. The study also requires an evaluation of the training and development needs of the individuals. In other words, there needs to be a strategic employment plan developed by the institution with respect to each village it desires to focus on.
Employment generation is dependent on the ability of people to be self-reliant eventually. Possibly, not all indigent individuals would be capable of being self-employed. It makes sense to create employability in a village as a whole rather than just provide loans to all individuals to be self-reliant. Microfinance would be more than fulfilling its promise if identifies entrepreneurially talented individuals in the village system to set up small and medium businesses that can provide larger scale employment. The focus of microfinance institutions in this approach would be more effective if it provides a learning and development school or enrollment in a vocational school as a means to improve the employability of individuals.
Fundamentally, micro-financing in a rural, or for that matter even in an urban, setting cannot be independent of the sociological trends in a village. Many village social and economic structures and systems are overwhelmed by decades and century old practices. It is important for the microfinance firms to understand the sociological setting of each village it focuses on so that plans of employment generation or produce marketing do not flounder on social barriers. Future organizational and talent structures of microfinance firms must encompass sociologist positions as important components, virtually on par with credit agents and collection agents.
From competitive growth to collaborative development
Microfinance, with all the socio-economic ramifications, is not the appropriate sector for competitive growth of firms. Yet, it seems to be the malady afflicting the industry with examples set by phenomenal profitability and profitability of certain firms. As the industry comes into public scrutiny it would be impossible, besides being inappropriate, to continue the model of competitive growth. In particular, microfinance firms must be open to the criticism that they have unduly benefitted from the prior work done by Self Help Groups (SHGs). One expert commentator has gone to the extent of stating that while the SHGs prepared the meals with great dedication and effort the microfinance firms simply came on to the scene, and enjoyed the meals. The fundamental requirement, going forward, for microfinance firms must be collaborate with not-for-profit and other SHGs.
Secondly, microfinance cannot be independent of socio-political implications. The backlash in Andhra Pradesh is clearly indicative of this. Microfinance firms must deal with this requirement in an open manner rather than through behind the scene arrangements. A model of inclusive development by co-opting political representatives on strategic boards for villages or constituencies could be one solution. Equally, it would be important to integrate the government machinery dedicated to rural development in their extended organizational structures. These requirements, in turn, call for broad-basing their organizational structures and boards by including ex-bureaucrats and social activists in them.
Thirdly, microfinance firms need to collaborate with other firms in their corporate social responsibility activities. In fact, microfinance firms could be the major instruments for carrying out or supplementing corporate social responsibility activities. The collaborative links would be financial, and beyond. For example, collaboration with ITC which has done significant rural development through its path-breaking e-choupal initiative could bring in significant synergies. Such collaborations would help bring technology to the door step of borrowers and make them better equipped to handle the technological requirements of employability. Collaborations with consumer firms which are dedicated to develop low cost products and services for the rural population would also be in order.
Fourthly, education should be the sheet anchor of microfinance movement. Considering that the industry is neither organized nor equipped to handle education as its offering or a core purpose, collaboration with corporate firms engaged in educational initiatives would be in order. Virtually every firm today is committed to supporting education. While some companies have established foundations for the purpose some companies have taken up “Teach India” initiatives involving voluntary participation by socially responsive professionals. As clientele of microfinance institutions become more educated it would trigger a virtuous cycle of microfinance with the ability to cover an ever enlarging canvas of the indigent society.
A positive future beckons
As this blog post demonstrates, notwithstanding the setbacks and controversies, microfinance has an important role in ushering a more inclusive growth of the Indian society with a focus on the bottom of the pyramid. Microfinance in India has a socio-economic role that other sectors of the economy would find difficult to match. This would require the microfinance industry as a whole to be more regulated and structured while redefining itself on the dimensions of investment, employment and collaboration outlined herein. It is incumbent upon the government agencies, political institutions, banks and financial institutions and corporate firms to understand the importance of microfinance and back the sector with appropriate and apolitical policy support. Organizationally, microfinance firms would need to bring on board economists, sociologists and public servants to provide the required socio-economic thrust to this important economic sector.
Posted by Dr CB Rao on December 26, 2010
Experts agree that microfinance has performed and would continue to perform a very useful purpose of reaching credit to the highly indigent and impoverished rural population. In India microfinance registered a meteoric increase from USD 250 milion in 2005 to USD 4 billion in 2010, serving millions of indigent households. Indian banks and financial institutions including subsidiaries of foreign banks have lent USD 3.3 billion to microfinance sector. Seeing the potential multiple other direct and mezzanine funding options became available to the Indian microfinance industry. Securitization of microfinance disbursements became another funding tool. Low delinquency of loans, managed by aggressive recovery methods, ensuring continued fund flow.
Clearly, the rapid and unregulated evolution of the industry led to multiple borrowings, usurious lending rates, and high-handed collection mechanisms to state a few. What ought to be a bank-aided socially purposive activity became a private equity driven business with profits and valuations as the goal. The Government of Andhra Pradesh promulgated an ordinance in October 2010 to regulate the industry while the Reserve Bank of India has constituted an expert committee to examine the industry in its entirety. International reviewers such as Financial Times, Forbes and Wall Street Journal while recognizing and condemning the follies and inadequacies of the microfinance sector have cautioned against mistaking the procedural weakness of the current microfinance industry as proof of the irrelevance of the industry.
Surely, the various efforts would lead to a more regulated microfinance industry that would stop the profitable piggybacking of the microfinance firms on not-for-profit Self Help Groups. The new policy would also hopefully establish a reasonable proportionality between the low-cost priority sector credit from scheduled banks that the microfinance industry is entitled to, and the interest rate that the industry would charge to its indigent and impoverished clientele. Probably, these measures will take some profit and valuation sheen off the microfinance industry but will be welcome for their positive impact of preventing a social disaster - of a new breed of urban bankers profiteering at the expense of the bottom of the rural pyramid.
Microfinance : a workaround road or a new credit highway?
The banks in India have an obligation to direct 40 percent of their credit to priority sector, which includes the indigent customers who constitute the customer base of the microfinance industry. Despite their efforts and establishment of several collateral institutions like cooperative banks, regional rural banks and specialist institutions such as NABARD by the central and state governments, the organized banking sector has trditionally failed to ensure a performing priority sector portfolio. The emergence of microfinance firms has enabled the banking system find an effective intermediary that fulfilled its purpose. The microfinance industry brought a rare on-ground control over micro-credit deployment and collection, and emerged as a preferred alternative to the ruthless moneylenders that held the impoverished people to ransom. Empowerment of women was a key plank of the microfinance movement bringing a higher level of acceptability to the sector.
Probably, the very availability of organized low-cost funds for the microfinance industry and the low bar of performance arising from a benchmark of traditional money lender system have led to the imperfections of the microfinance industry. Some economists characterize the microfinance system as an unfortunate work-around methodology for the failure of the mainstream financial institutions to reach credit to the poor while others predict a schumpeterian dead end for the microfinance industry. An eminent former governor of the Reserve Bank of India who is credited with saving the Indian financial system from the global liquidity meltdown felt that microfinance is a kind of sub-prime lending which is not sustainable in the long run. Others believe that despite the noble objectives, the microfinance industry performs no more than a sustenance role that is far from the transformational aspiration that the industry is charged with. The supporters of the microfinance industry, on the other hand, argue that the low cost structure of microfinance firms provides the much needed competitive advantage vis-à-vis the mainstream firms and the microfinance firms would eventually grow into financial behemoths in future.
Regardless of the arguments, it appears that the microfinance industry is in need of a significant paradigm shift in terms of three key fundamental approaches: (i) from lending to investment, (ii) from consumption to employment, and (iii) from competitive growth to collaborative development, if micro-financing has to be transformational. The industry needs to evaluate whether it is truly equipped to make micro entrepreneurs out of the millions of the poor, less literate people it serves or it would be better of generating more sustainable employment development by focusing on thousands of capable rural entrepreneurs. The governments have to also evaluate if the microfinance industry would serve its social purposes better by getting funded more by public equity funding than by private equity funding. In sum, there are more fundamental issues involved in the reincarnation and rejuvenation of the scalded microfinance industry than procedural regulations, essential though they are.
From lending to investment
The biggest point against the current microfinance model is that it is addressed at survival and consumption needs of the rural customers. Most microfinance customers are indigent individuals who lack ownership of any assets and are therefore incapable of generating additional income streams out of the loans taken. While the end-use details of loan amounts are presumably sought as per the loan clearance processes, clearly the processes are deficient as demonstrated by the multiple loans taken from multiple institutions by the individuals. It is important, therefore, to have a transformational view of the lending process by the microfinance institutions and the individual beneficiaries. The lending process needs to be viewed as an investment process aimed at asset ownership and supplementing asset management for, and by, individuals.
The next important point is whether microfinance institutions can see themselves as micro investors and not as micro lenders. As opposed to lending, the institutions should see themselves as investors in the notional equity of the individuals they lend to. This approach requires a shift from a quantitative view to a qualitative view of lending by the institutions. It also requires the microfinance institutions to view themselves as development institutions rather than lending institutions. If the institutions are benefitted by private or public equity it is incumbent, given the social objectives the sector has, to invest part of the proceeds as risk-bearing investment capital. This, ipso facto, would compel the institutions to be more alert and helpful towards the borrowers from a sustainability point of view.
A sore point against the current microfinance model is the rather uncapped and usurious rates of interest. The institutions need to compete with low cost bank finance providers rather than the high cost traditional moneylenders. In a regime where even high cost credit cards charge monthly flat interest rates of 2.5 to 3 percent it is inappropriate to have uncapped interest rates going up to as high as 5 percent flat, as allegedly charged by certain microfinance companies. Regular auditing of the books would help keep a semblance of control to this essential requirement. More fundamentally, however, the founders of microfinance institutions should stop viewing their operations from a traditional profit-oriented business angle and aggressive revenue/profit optics, and instead see themselves as instruments of social transformation.
From consumption to employment
Closely allied with the investment approach outlined above is the employment approach. The principal macroeconomic objective of microfinance must be to generate sustainable employment. This objective can be fulfilled by focusing on employment generation capability of the village as a whole rather than individuals per se. This requires a study of what the village economy currently has, what it is capable of generating and what it is capable of marketing. The study also requires an evaluation of the training and development needs of the individuals. In other words, there needs to be a strategic employment plan developed by the institution with respect to each village it desires to focus on.
Employment generation is dependent on the ability of people to be self-reliant eventually. Possibly, not all indigent individuals would be capable of being self-employed. It makes sense to create employability in a village as a whole rather than just provide loans to all individuals to be self-reliant. Microfinance would be more than fulfilling its promise if identifies entrepreneurially talented individuals in the village system to set up small and medium businesses that can provide larger scale employment. The focus of microfinance institutions in this approach would be more effective if it provides a learning and development school or enrollment in a vocational school as a means to improve the employability of individuals.
Fundamentally, micro-financing in a rural, or for that matter even in an urban, setting cannot be independent of the sociological trends in a village. Many village social and economic structures and systems are overwhelmed by decades and century old practices. It is important for the microfinance firms to understand the sociological setting of each village it focuses on so that plans of employment generation or produce marketing do not flounder on social barriers. Future organizational and talent structures of microfinance firms must encompass sociologist positions as important components, virtually on par with credit agents and collection agents.
From competitive growth to collaborative development
Microfinance, with all the socio-economic ramifications, is not the appropriate sector for competitive growth of firms. Yet, it seems to be the malady afflicting the industry with examples set by phenomenal profitability and profitability of certain firms. As the industry comes into public scrutiny it would be impossible, besides being inappropriate, to continue the model of competitive growth. In particular, microfinance firms must be open to the criticism that they have unduly benefitted from the prior work done by Self Help Groups (SHGs). One expert commentator has gone to the extent of stating that while the SHGs prepared the meals with great dedication and effort the microfinance firms simply came on to the scene, and enjoyed the meals. The fundamental requirement, going forward, for microfinance firms must be collaborate with not-for-profit and other SHGs.
Secondly, microfinance cannot be independent of socio-political implications. The backlash in Andhra Pradesh is clearly indicative of this. Microfinance firms must deal with this requirement in an open manner rather than through behind the scene arrangements. A model of inclusive development by co-opting political representatives on strategic boards for villages or constituencies could be one solution. Equally, it would be important to integrate the government machinery dedicated to rural development in their extended organizational structures. These requirements, in turn, call for broad-basing their organizational structures and boards by including ex-bureaucrats and social activists in them.
Thirdly, microfinance firms need to collaborate with other firms in their corporate social responsibility activities. In fact, microfinance firms could be the major instruments for carrying out or supplementing corporate social responsibility activities. The collaborative links would be financial, and beyond. For example, collaboration with ITC which has done significant rural development through its path-breaking e-choupal initiative could bring in significant synergies. Such collaborations would help bring technology to the door step of borrowers and make them better equipped to handle the technological requirements of employability. Collaborations with consumer firms which are dedicated to develop low cost products and services for the rural population would also be in order.
Fourthly, education should be the sheet anchor of microfinance movement. Considering that the industry is neither organized nor equipped to handle education as its offering or a core purpose, collaboration with corporate firms engaged in educational initiatives would be in order. Virtually every firm today is committed to supporting education. While some companies have established foundations for the purpose some companies have taken up “Teach India” initiatives involving voluntary participation by socially responsive professionals. As clientele of microfinance institutions become more educated it would trigger a virtuous cycle of microfinance with the ability to cover an ever enlarging canvas of the indigent society.
A positive future beckons
As this blog post demonstrates, notwithstanding the setbacks and controversies, microfinance has an important role in ushering a more inclusive growth of the Indian society with a focus on the bottom of the pyramid. Microfinance in India has a socio-economic role that other sectors of the economy would find difficult to match. This would require the microfinance industry as a whole to be more regulated and structured while redefining itself on the dimensions of investment, employment and collaboration outlined herein. It is incumbent upon the government agencies, political institutions, banks and financial institutions and corporate firms to understand the importance of microfinance and back the sector with appropriate and apolitical policy support. Organizationally, microfinance firms would need to bring on board economists, sociologists and public servants to provide the required socio-economic thrust to this important economic sector.
Posted by Dr CB Rao on December 26, 2010
Thursday, December 23, 2010
Super Fast Moving Consumer Goods Industry: The Cradle of New Management
Established management thought and practice owe much to two major industries: the automobile industry and the fast moving consumer industry. These two industries, more than any other industry, demonstrated how firms could achieve stability and efficiency in design, manufacturing and marketing of products. Management principle rooted in these two industrial sectors epitomized effective ways of conducting businesses. In today’s knowledge economy driven by new modes of technological convergence, a new industrial sector of Super Fast Moving Consumer Goods is fast taking shape rewriting principles of management.
Automobile and FMCG industries
Automobile industry was the cradle of management ever since the design, manufacturing and marketing of automobiles became the leading component of the industrial revolution. The automobile industry contributed several path breaking concepts in functional management and geographic management, with a special focus on operations management, supply chain management and technology management. Specific national and company systems such as 5 S, Toyota Production System and Just-in-Time System became industry standards and management role models globally. The automobile industry was also the leader in globally networked design and manufacture, heralding in the 1970s an era of globalization. In the 1990s, the automobile industry took new strides in integrating electronics and digital technologies.
The automobile industry was, and continues to be, driven by technology to achieve better fuel economy, safety and user satisfaction for the singular, unchanged objective of road transportation. That said, automobile technology has been characterized by incremental improvements, and yearly model changes. The industry became a prototype of a standardized template of management that withstood vicissitudes of time as well as cyclicality of demand, often linked to economic factors. In one sense, the automobile industry by the 2000s could contribute all that it could to the development of management theory and practice. The author’s pioneering work in the application of Porter’s theory of Competitive Strategy to the Indian automobile industry characterized the last of breakthroughs in management theory and practice in the automobile industry.
In parallel, however, a new industry was developing globally and contributing to new managerial paradigms. Organized retail, combined with what are euphemistically called Fast Moving Consumer Goods (FMCG), set the stage for new paradigms for global supply chain management, cost and profit management, production outsourcing, market segmentation and shaping consumer behavior. If the automobile industry shaped its management paradigms out of research laboratories and manufacturing complexes, the FMCG industry shaped its management paradigms out of turning around product manufacture and consumption at a rapid pace. The fact that the FMCG goods represent daily necessities lent a new dimension to management of cost economics and consumer perceptions. Technology was less relevant compared to management of hundreds, if not thousands of, store keeping units (SKUs), related distribution logistics and advertising to perk up demand. As with the automobile industry, the FMCG industry came to be typecast in terms of management ethos of outsourcing economics and perception management, with freshness management becoming the key driver of managerial success.
Super FMCG
The late 2000s, however, saw the emergence of a totally new breed of consumer products which are driven by rapid strides in technology on one hand, and challenges of global supply chain management on the other. These consumer products, such as cellular phones, portable audio and video devices, gaming devices and other consumer electronic products combine leading edge design and manufacturing technologies with rapid-fire management of supply chain. These products, which may be called Super FMCG products, have clearly raised the bar on technology and management. To illustrate, unlike an automobile or a tooth paste, a cellular phone is designed and launched with the objective of making itself obsolete in 3 to 6 months of launch. Unlike an automobile which is segmented on clearly defined user needs (be it carrying capacity, fuel economy, or driving sophistication) or an FMCG item which is segmented on vaguely defined user perceptions (be it savings, esteem or functionality), the Super FMCG creates new markets based on new technologies at an amazing speed. Super FMCG is as tangible as an automobile is in technology and as intangible as an FMCG product is in freshness.
The SFCG product typically has multiple technological dimensions, which is best illustrated by the example of a cellular phone. A cellular phone can typically be based on one of the three operating systems (Symbion, Android or Windows, each of which is updated at least twice a year), RAMs and processor speeds (from 128 MB and 1 GHz to successive higher levels), internal and external memory (up to 64 GB), input technology (hard Querty, touch Querty, handwriting recognition, regular cell input), imaging technology (from 1.3 to 12 MP cameras, with or without flash, and with or without video conferencing and camcorder capabilities), communication technologies (2G, 3G or 4G), panel technologies (LCD, Super LCD, retina display, AMLOED or Super AMLOED), screen size (from 2 to 5 inches), documentation technologies (office document editing), application technologies and a plethora of other options (like radio, music player, organizer and so on). Every manufacturer tends to have scores of models of combing these variations, with challenges of forced technological obsolescence almost every three months.
It is easy to realize therefore that SFCG products pose managerial challenges like no other product. The basic principles of management such as economies of scale and scope, product life cycle, learning curve, globalization, cross-industry integration are challenged by the technological factors that drive innovation in SFMCG. As SFMCG firms break new ground in managing the aforesaid complexities they not only stay ahead of the efficiency curve in their own industries but also offer new managerial insights for the other less complex industries just as the Japanese automobile industry revolutionized the management thought and practice for the industry as a whole.
SFMCG management
There are a few special features of SFMCG management (called from now on, SFMCGM for simplicity) that are clearly contrarian to the established management thought. Fundamentally, SFMCGM continuously accelerates innovation in multiple yet inter-linked facets as a combined trigger for market expansion. Secondly, SFMCGM embraces technological discontinuities to create new markets, accepting product obsolescence as a welcome need. Thirdly, it relies on unconventional marketing to maximize sales and achieve quickest possible paybacks. Fourthly, it relies on globally networked design, manufacturing and supply chain processes with a high mix of outsourcing to optimize investments and push down breakeven points. Fifthly, it creates a sustainable brand loyalty based on customized functionalities and harmonized user experiences. These features can be set out as five essential principles of SFMCG Management.
Principle of seamless innovation
Innovation is not new to industrial development. Where SFMCGM differs from the past experience as well as from other contemporary sectors is the continuous and comprehensive nature of innovation, often backed by creation of intellectual property by SFMCGM firms. As a result, multiple product generations are under parallel processing in an SFMCG firm. SFMCG firms have an ability to innovate on multiple platforms, oftentimes combining multiple products under a single umbrella design platform. This is driven by a clear conceptual clarity on how successive generations of products will be conceptualized within the firm and delivered for the marketplace. SFMCG firms typically do not see innovation in the typical risk-reward lens. On the other hand, they utilize innovation as a survival tool. They believe that if they do not innovate, some other firms would, to the detriment of the incumbents.
SFMCG firms oftentimes adopt a scaled approach in the functionality of individual components to develop several permutations and combinations of end-products. In this endeavor, SFMCG firms generate enormous flexibility for components to work in a range of performance parameters. To revert to the basic example of cellular phone, it would be possible to fit a low-end or a high-end chip in a common configuration. One cannot, however, imagine a light axle to be fitted on a large truck. In other words, SFMCG firms design internal components in a manner that they can function independent of external form factors. From a lowest common multiple (LCM) basic approach to a highest common multiple (HCM) premium approach, SFMCG firms revel in innovating to varied functionalities and user experiences, thus providing another facet of seamless innovation.
Innovation in SFMCG firms typically tries to expand market base through user experience. By making product usage multi-functional yet highly intuitive SFMCG innovation brings knowledge to the consumer. SFMCG products, in one sense, are highly educative products which stimulate intellectual curiosity in the users and expands market base. The success of telecommunication and gaming products in relatively less literate or less affluent sections of emerging markets is attributable to innovative simplicity. This simplicity automatically provides the leverage to raise the bar for high end products. A product such as Kinect which provides for the simplest of movements thus leading to as universal appeal as possible also retains a sophisticated gaming capability to cater to the well-initiated. SFMCG firms thus typically break the ceiling as well as crash the floor to create a seamless expanse of user base.
Principle of disruptive technologies
Unlike traditional industries such as the automobile industry or watch industry which were unwilling to proactively embrace substitute or even complementary technologies until it became inevitable SFMCG firms tend to readily integrate disruptive technologies to create new products and achieve product obsolescence. Apple proactively leveraged touch screen technology to virtually reinvent cellular phone. Samsung stole a march over Sony by pioneering a new generation of televisions based on flat panels. Nintendo pioneered Wii by integrating motion recognition technology in its gaming devices. Amazon simplified digital technology to enable avid readers access books any time, any where. Google saw cloud as a new way of disrupting the established model of physical infrastructure based computing. And the examples would only abound in future.
From incremental innovation in products and processes to disruptive leapfrogging in technological development, SFMCG firms could use either or both the approaches. An SFCG firm which bases itself on the foundation of disruptive technology and seeks incremental innovation is, however, likely to be more successful than firms which are based on a foundation of continuous innovation with only an occasional disruptive development. The benefit (sales turnover) to cost (R&D expenditure) ratio of product development at Apple is several times over that of Samsung or Sony Ericsson, for example. A continuously innovative Samsung, however, fared far better than other giants less inclined towards seamless innovation. Clearly firms are advantageously placed when they pursue original as well as incremental innovation.
To be successful in disruptive technological model firms must be prepared to take bets on such sunrise technologies with “perfection at first attempt” objective. Firms which dabble in disruptive technologies without aiming for maturity are likely to fail rather than succeed. The first generation of tablet computers introduced in 2000 failed because of the imperfect nature of hand-writing recognition technology. Disruptive technologies need to carefully cultivated and imbibed based on observation of technological maturity of internal as well as external technology sources. Many times, an industry as a whole needs to bet on disruptive technologies to be pioneering. For the automobiles global positioning systems (GPS) was one such disruptive technology of the recent past while automated (driverless) driving could be a disruptive technology of the future.
Principle of unconventional marketing
Firms in several industries rely on keeping their products under wraps until they are in a position to launch their products. Automobile industry is a classic example with several other FMCG and white goods firms following a similar philosophy of secrecy until product launch followed, or at best closely preceded, by open advertisement. Possibly, this reflects a philosophy of avoiding signals to competition. On the other hand, SMFCG firms follow an entirely different and largely unconventional marketing model. SFMCG firms follow a model based on three approaches of (i) expectation marketing, (ii) technology marketing, and (iii) saturation marketing, which together present a wholly new and challenging marketing model.
SFMCG firms typically indicate the profiles of their futuristic products almost at the same time as that of new product launches. Consumer expectations are built up as the products go through their development phases, are offered in their beta versions and are finally showcased in industry conferences and exhibitions. In a sense, expectation marketing of SFMCG firms is akin to the marketing of a celluloid movie, expectations on which are built up right from the launch date of the movie through several phases of casting, information release on shoots, music launch and finally screening of trailers. SFMCG firms believe that current products will continue to be purchased because of compulsive needs even as expectations of future products will lead to future compulsive buying. Experience indicates that expectation marketing helps SFMCG firms retain and broaden their customer base.
Technology marketing is unique to SFMCG firms. While other industries such as white goods industries also seek to market products based on their novel technological platforms (for example, filtration efficiency or cooling efficacy by air conditioners), SFMCG firms take technological marketing to an entirely new level. Additionally, the technological impact of each component of the SFMCG product is felt more tangibly than in the case of a white goods product which makes technological marketing a veritable tool. The flip side to technological marketing is the need for the design to live up to the value propositions. Whether it is signal response or screen clarity technology has to speak with performance. The positive side to technological marketing is the build-up of virtuous opinion base on technological performance.
The third component of SFMCG marketing is based on saturation marketing. The SFMCG marketing model does not follow the conventional product life cycle marketing model which prescribes almost equal phases of introduction, growth, plateau and decline. On the other hand, SFMCG marketing considers an urgent and rapid growth phase, immediately upon launch with little concern for plateau or decline phases both of which are treated as bonuses, if at all. This helps SFMCG firms recover their investments with saturation sales before the new expected products reduce the impact. This model requires SFMCG firms to adopt an aggressive multi-chain and multi-store format with maximal exploitation of all trade channels, including online options. Online marketing including access to critical review portals helps in saturation marketing in a big way.
Principle of integrated outsourcing
SFMCG firms share with their FMCG counterparts a reliance on global networking and outsourcing to enhance their manufacturing efficiencies and achieve cost and price competitiveness. The role played by several mainline vendors (such as Acer) in multi-brand computer development or more recently by HTC in supporting many leading mobile phone products and the pivotal role of global workshops like Foxcon to deliver millions of products are reflective of the approach to optimize global manufacturing for maximal supply efficiency.
SFMCG firms, however, differ from FMCG firms in that they consider manufacturing advantage as a source of firm-level competitive advantage which must be preserved internally. This is reflected in the efforts by end product makers to internalize some of the advantage by establishing manufacturing bases in countries providing such efficiencies. The bases established in China by global electronics firms and in India by global auto makers are clear examples. They have helped such global firms to align demand and supply points for least cost factor supply and product distribution solutions. They have, more importantly, enabled global firms overcome the vicissitudes of exchange rate variations and other macroeconomic factors.
SFMCG firms, however, are more unique in their internalization of key technologies (as is practiced by established firms) which is in contrast to the philosophies of FMCG firms which could totally outsource both design and manufacture. The efforts made by SLR camera makers to develop in-house their image processing engines, the note book computer makers to develop o develop solid state devices, the cellular phone makers to develop capacitative or super bright screen technologies are indicative of the need for SFMCG firms to retain core competencies within their in-house industrial systems.
Principle of sustainable loyalty
SFMCG firms need a constant and ever increasing customer base to give effect to, and derive benefit, from the SFMCG business model discussed above. Brand switching as a concept accepted in other industrial sectors acts to the detriment of SFMCG firms. The principles of loyalty in SFMCG sector are more challenging than in other sectors where a generic strategy such as cost position (eg.,Wal-Mart for budget products) or product differentiation (eg., Mercedes for esteem and quality) build long lasting brand loyalty. The user of SFMCG products evaluates at least three facets before developing loyalty. Typically, SFMCG firms build lifelong loyalty around one or more of the following factors: technology markers, usage versatility and esteem value.
A user of automobile is less likely to be impressed with the use of fuel injection system than with the fuel economy or acceleration that it provides. On the other hand, the user of an SFMCG product would tend to be fascinated by specific technology markers such as the operating system, screen technology or application repository. Technology has thus a standalone appeal for users which provides a feel of customized preference. The power of choice that is embedded in a typical SFMCG product is an extremely important lever to play for the SFMCG firms.
Unlike several other products which are mono-functional delivering one usage functionality (a detergent just cleans, an automobile just drives and a microwave oven just cooks, for example), SFMCG products tend to be convergence products delivering multiple functionality, and at least multiple options within a single functionality. As a result, the versatility of functions provides the second most important lever to build loyalty with SFMCG products.
SFMCG products, however, share with other products the lever of esteem as a driver of customer loyalty. A premium automobile user would any day love to drive a car with Mercedes Tristar, BMW logo or Toyota brand. An electronics equipment user would always consider a Sony or a Bose to represent higher senses of listening pleasure. In a similar manner, SFMCG firms have the ability to convert their products into products of esteem. When technology of design, manufacture and usage provides a unique experience and feel, SFMCG products tend to assume a cult phenomenon. Apple has emerged as the most skilful in leveraging esteem as a driver of sustainable customer loyalty.
Others: Quo vadis?
The above discussion has led to an interesting profile of what defines an SFMCG product and the five essential principles that shape the evolution and sustainability of an SFMCG product. Yet, it would be facile to assume that the other sectors and products would, for ever, be molded in conventional laws of development, manufacture and marketing. The rate of technological change would in the coming years be even more intense and comprehensive. The new laws of SFMCG would need to be studied and adapted by all firms which believe in product reinvention and competitive rejuvenation as strategies to dominate future industrial evolution.
Posted by Dr CB Rao on December 24, 2010
Automobile and FMCG industries
Automobile industry was the cradle of management ever since the design, manufacturing and marketing of automobiles became the leading component of the industrial revolution. The automobile industry contributed several path breaking concepts in functional management and geographic management, with a special focus on operations management, supply chain management and technology management. Specific national and company systems such as 5 S, Toyota Production System and Just-in-Time System became industry standards and management role models globally. The automobile industry was also the leader in globally networked design and manufacture, heralding in the 1970s an era of globalization. In the 1990s, the automobile industry took new strides in integrating electronics and digital technologies.
The automobile industry was, and continues to be, driven by technology to achieve better fuel economy, safety and user satisfaction for the singular, unchanged objective of road transportation. That said, automobile technology has been characterized by incremental improvements, and yearly model changes. The industry became a prototype of a standardized template of management that withstood vicissitudes of time as well as cyclicality of demand, often linked to economic factors. In one sense, the automobile industry by the 2000s could contribute all that it could to the development of management theory and practice. The author’s pioneering work in the application of Porter’s theory of Competitive Strategy to the Indian automobile industry characterized the last of breakthroughs in management theory and practice in the automobile industry.
In parallel, however, a new industry was developing globally and contributing to new managerial paradigms. Organized retail, combined with what are euphemistically called Fast Moving Consumer Goods (FMCG), set the stage for new paradigms for global supply chain management, cost and profit management, production outsourcing, market segmentation and shaping consumer behavior. If the automobile industry shaped its management paradigms out of research laboratories and manufacturing complexes, the FMCG industry shaped its management paradigms out of turning around product manufacture and consumption at a rapid pace. The fact that the FMCG goods represent daily necessities lent a new dimension to management of cost economics and consumer perceptions. Technology was less relevant compared to management of hundreds, if not thousands of, store keeping units (SKUs), related distribution logistics and advertising to perk up demand. As with the automobile industry, the FMCG industry came to be typecast in terms of management ethos of outsourcing economics and perception management, with freshness management becoming the key driver of managerial success.
Super FMCG
The late 2000s, however, saw the emergence of a totally new breed of consumer products which are driven by rapid strides in technology on one hand, and challenges of global supply chain management on the other. These consumer products, such as cellular phones, portable audio and video devices, gaming devices and other consumer electronic products combine leading edge design and manufacturing technologies with rapid-fire management of supply chain. These products, which may be called Super FMCG products, have clearly raised the bar on technology and management. To illustrate, unlike an automobile or a tooth paste, a cellular phone is designed and launched with the objective of making itself obsolete in 3 to 6 months of launch. Unlike an automobile which is segmented on clearly defined user needs (be it carrying capacity, fuel economy, or driving sophistication) or an FMCG item which is segmented on vaguely defined user perceptions (be it savings, esteem or functionality), the Super FMCG creates new markets based on new technologies at an amazing speed. Super FMCG is as tangible as an automobile is in technology and as intangible as an FMCG product is in freshness.
The SFCG product typically has multiple technological dimensions, which is best illustrated by the example of a cellular phone. A cellular phone can typically be based on one of the three operating systems (Symbion, Android or Windows, each of which is updated at least twice a year), RAMs and processor speeds (from 128 MB and 1 GHz to successive higher levels), internal and external memory (up to 64 GB), input technology (hard Querty, touch Querty, handwriting recognition, regular cell input), imaging technology (from 1.3 to 12 MP cameras, with or without flash, and with or without video conferencing and camcorder capabilities), communication technologies (2G, 3G or 4G), panel technologies (LCD, Super LCD, retina display, AMLOED or Super AMLOED), screen size (from 2 to 5 inches), documentation technologies (office document editing), application technologies and a plethora of other options (like radio, music player, organizer and so on). Every manufacturer tends to have scores of models of combing these variations, with challenges of forced technological obsolescence almost every three months.
It is easy to realize therefore that SFCG products pose managerial challenges like no other product. The basic principles of management such as economies of scale and scope, product life cycle, learning curve, globalization, cross-industry integration are challenged by the technological factors that drive innovation in SFMCG. As SFMCG firms break new ground in managing the aforesaid complexities they not only stay ahead of the efficiency curve in their own industries but also offer new managerial insights for the other less complex industries just as the Japanese automobile industry revolutionized the management thought and practice for the industry as a whole.
SFMCG management
There are a few special features of SFMCG management (called from now on, SFMCGM for simplicity) that are clearly contrarian to the established management thought. Fundamentally, SFMCGM continuously accelerates innovation in multiple yet inter-linked facets as a combined trigger for market expansion. Secondly, SFMCGM embraces technological discontinuities to create new markets, accepting product obsolescence as a welcome need. Thirdly, it relies on unconventional marketing to maximize sales and achieve quickest possible paybacks. Fourthly, it relies on globally networked design, manufacturing and supply chain processes with a high mix of outsourcing to optimize investments and push down breakeven points. Fifthly, it creates a sustainable brand loyalty based on customized functionalities and harmonized user experiences. These features can be set out as five essential principles of SFMCG Management.
Principle of seamless innovation
Innovation is not new to industrial development. Where SFMCGM differs from the past experience as well as from other contemporary sectors is the continuous and comprehensive nature of innovation, often backed by creation of intellectual property by SFMCGM firms. As a result, multiple product generations are under parallel processing in an SFMCG firm. SFMCG firms have an ability to innovate on multiple platforms, oftentimes combining multiple products under a single umbrella design platform. This is driven by a clear conceptual clarity on how successive generations of products will be conceptualized within the firm and delivered for the marketplace. SFMCG firms typically do not see innovation in the typical risk-reward lens. On the other hand, they utilize innovation as a survival tool. They believe that if they do not innovate, some other firms would, to the detriment of the incumbents.
SFMCG firms oftentimes adopt a scaled approach in the functionality of individual components to develop several permutations and combinations of end-products. In this endeavor, SFMCG firms generate enormous flexibility for components to work in a range of performance parameters. To revert to the basic example of cellular phone, it would be possible to fit a low-end or a high-end chip in a common configuration. One cannot, however, imagine a light axle to be fitted on a large truck. In other words, SFMCG firms design internal components in a manner that they can function independent of external form factors. From a lowest common multiple (LCM) basic approach to a highest common multiple (HCM) premium approach, SFMCG firms revel in innovating to varied functionalities and user experiences, thus providing another facet of seamless innovation.
Innovation in SFMCG firms typically tries to expand market base through user experience. By making product usage multi-functional yet highly intuitive SFMCG innovation brings knowledge to the consumer. SFMCG products, in one sense, are highly educative products which stimulate intellectual curiosity in the users and expands market base. The success of telecommunication and gaming products in relatively less literate or less affluent sections of emerging markets is attributable to innovative simplicity. This simplicity automatically provides the leverage to raise the bar for high end products. A product such as Kinect which provides for the simplest of movements thus leading to as universal appeal as possible also retains a sophisticated gaming capability to cater to the well-initiated. SFMCG firms thus typically break the ceiling as well as crash the floor to create a seamless expanse of user base.
Principle of disruptive technologies
Unlike traditional industries such as the automobile industry or watch industry which were unwilling to proactively embrace substitute or even complementary technologies until it became inevitable SFMCG firms tend to readily integrate disruptive technologies to create new products and achieve product obsolescence. Apple proactively leveraged touch screen technology to virtually reinvent cellular phone. Samsung stole a march over Sony by pioneering a new generation of televisions based on flat panels. Nintendo pioneered Wii by integrating motion recognition technology in its gaming devices. Amazon simplified digital technology to enable avid readers access books any time, any where. Google saw cloud as a new way of disrupting the established model of physical infrastructure based computing. And the examples would only abound in future.
From incremental innovation in products and processes to disruptive leapfrogging in technological development, SFMCG firms could use either or both the approaches. An SFCG firm which bases itself on the foundation of disruptive technology and seeks incremental innovation is, however, likely to be more successful than firms which are based on a foundation of continuous innovation with only an occasional disruptive development. The benefit (sales turnover) to cost (R&D expenditure) ratio of product development at Apple is several times over that of Samsung or Sony Ericsson, for example. A continuously innovative Samsung, however, fared far better than other giants less inclined towards seamless innovation. Clearly firms are advantageously placed when they pursue original as well as incremental innovation.
To be successful in disruptive technological model firms must be prepared to take bets on such sunrise technologies with “perfection at first attempt” objective. Firms which dabble in disruptive technologies without aiming for maturity are likely to fail rather than succeed. The first generation of tablet computers introduced in 2000 failed because of the imperfect nature of hand-writing recognition technology. Disruptive technologies need to carefully cultivated and imbibed based on observation of technological maturity of internal as well as external technology sources. Many times, an industry as a whole needs to bet on disruptive technologies to be pioneering. For the automobiles global positioning systems (GPS) was one such disruptive technology of the recent past while automated (driverless) driving could be a disruptive technology of the future.
Principle of unconventional marketing
Firms in several industries rely on keeping their products under wraps until they are in a position to launch their products. Automobile industry is a classic example with several other FMCG and white goods firms following a similar philosophy of secrecy until product launch followed, or at best closely preceded, by open advertisement. Possibly, this reflects a philosophy of avoiding signals to competition. On the other hand, SMFCG firms follow an entirely different and largely unconventional marketing model. SFMCG firms follow a model based on three approaches of (i) expectation marketing, (ii) technology marketing, and (iii) saturation marketing, which together present a wholly new and challenging marketing model.
SFMCG firms typically indicate the profiles of their futuristic products almost at the same time as that of new product launches. Consumer expectations are built up as the products go through their development phases, are offered in their beta versions and are finally showcased in industry conferences and exhibitions. In a sense, expectation marketing of SFMCG firms is akin to the marketing of a celluloid movie, expectations on which are built up right from the launch date of the movie through several phases of casting, information release on shoots, music launch and finally screening of trailers. SFMCG firms believe that current products will continue to be purchased because of compulsive needs even as expectations of future products will lead to future compulsive buying. Experience indicates that expectation marketing helps SFMCG firms retain and broaden their customer base.
Technology marketing is unique to SFMCG firms. While other industries such as white goods industries also seek to market products based on their novel technological platforms (for example, filtration efficiency or cooling efficacy by air conditioners), SFMCG firms take technological marketing to an entirely new level. Additionally, the technological impact of each component of the SFMCG product is felt more tangibly than in the case of a white goods product which makes technological marketing a veritable tool. The flip side to technological marketing is the need for the design to live up to the value propositions. Whether it is signal response or screen clarity technology has to speak with performance. The positive side to technological marketing is the build-up of virtuous opinion base on technological performance.
The third component of SFMCG marketing is based on saturation marketing. The SFMCG marketing model does not follow the conventional product life cycle marketing model which prescribes almost equal phases of introduction, growth, plateau and decline. On the other hand, SFMCG marketing considers an urgent and rapid growth phase, immediately upon launch with little concern for plateau or decline phases both of which are treated as bonuses, if at all. This helps SFMCG firms recover their investments with saturation sales before the new expected products reduce the impact. This model requires SFMCG firms to adopt an aggressive multi-chain and multi-store format with maximal exploitation of all trade channels, including online options. Online marketing including access to critical review portals helps in saturation marketing in a big way.
Principle of integrated outsourcing
SFMCG firms share with their FMCG counterparts a reliance on global networking and outsourcing to enhance their manufacturing efficiencies and achieve cost and price competitiveness. The role played by several mainline vendors (such as Acer) in multi-brand computer development or more recently by HTC in supporting many leading mobile phone products and the pivotal role of global workshops like Foxcon to deliver millions of products are reflective of the approach to optimize global manufacturing for maximal supply efficiency.
SFMCG firms, however, differ from FMCG firms in that they consider manufacturing advantage as a source of firm-level competitive advantage which must be preserved internally. This is reflected in the efforts by end product makers to internalize some of the advantage by establishing manufacturing bases in countries providing such efficiencies. The bases established in China by global electronics firms and in India by global auto makers are clear examples. They have helped such global firms to align demand and supply points for least cost factor supply and product distribution solutions. They have, more importantly, enabled global firms overcome the vicissitudes of exchange rate variations and other macroeconomic factors.
SFMCG firms, however, are more unique in their internalization of key technologies (as is practiced by established firms) which is in contrast to the philosophies of FMCG firms which could totally outsource both design and manufacture. The efforts made by SLR camera makers to develop in-house their image processing engines, the note book computer makers to develop o develop solid state devices, the cellular phone makers to develop capacitative or super bright screen technologies are indicative of the need for SFMCG firms to retain core competencies within their in-house industrial systems.
Principle of sustainable loyalty
SFMCG firms need a constant and ever increasing customer base to give effect to, and derive benefit, from the SFMCG business model discussed above. Brand switching as a concept accepted in other industrial sectors acts to the detriment of SFMCG firms. The principles of loyalty in SFMCG sector are more challenging than in other sectors where a generic strategy such as cost position (eg.,Wal-Mart for budget products) or product differentiation (eg., Mercedes for esteem and quality) build long lasting brand loyalty. The user of SFMCG products evaluates at least three facets before developing loyalty. Typically, SFMCG firms build lifelong loyalty around one or more of the following factors: technology markers, usage versatility and esteem value.
A user of automobile is less likely to be impressed with the use of fuel injection system than with the fuel economy or acceleration that it provides. On the other hand, the user of an SFMCG product would tend to be fascinated by specific technology markers such as the operating system, screen technology or application repository. Technology has thus a standalone appeal for users which provides a feel of customized preference. The power of choice that is embedded in a typical SFMCG product is an extremely important lever to play for the SFMCG firms.
Unlike several other products which are mono-functional delivering one usage functionality (a detergent just cleans, an automobile just drives and a microwave oven just cooks, for example), SFMCG products tend to be convergence products delivering multiple functionality, and at least multiple options within a single functionality. As a result, the versatility of functions provides the second most important lever to build loyalty with SFMCG products.
SFMCG products, however, share with other products the lever of esteem as a driver of customer loyalty. A premium automobile user would any day love to drive a car with Mercedes Tristar, BMW logo or Toyota brand. An electronics equipment user would always consider a Sony or a Bose to represent higher senses of listening pleasure. In a similar manner, SFMCG firms have the ability to convert their products into products of esteem. When technology of design, manufacture and usage provides a unique experience and feel, SFMCG products tend to assume a cult phenomenon. Apple has emerged as the most skilful in leveraging esteem as a driver of sustainable customer loyalty.
Others: Quo vadis?
The above discussion has led to an interesting profile of what defines an SFMCG product and the five essential principles that shape the evolution and sustainability of an SFMCG product. Yet, it would be facile to assume that the other sectors and products would, for ever, be molded in conventional laws of development, manufacture and marketing. The rate of technological change would in the coming years be even more intense and comprehensive. The new laws of SFMCG would need to be studied and adapted by all firms which believe in product reinvention and competitive rejuvenation as strategies to dominate future industrial evolution.
Posted by Dr CB Rao on December 24, 2010
Saturday, November 6, 2010
Leadership Qualities and Skills: Opportunities, Challenges and Enigmas
In the lively Twitter world there was an effort in June 2010 by Padmasree Warrior, Chief Technology Officer of Cisco Systems to compile one-word descriptions of what leadership meant to the members of Twitter community. What emerged was a fascinating collection of over one hundred pithy words that purport to reflect what leadership meant to the Twitter community. Interestingly, the listing displayed very high level of expectations of sublime human qualities from a leader, making a leader almost a super-human. Quite probably, scores of management articles attributing exceptional heroic qualities to a leader would have influenced common persons to deify leadership. That said, leadership does require some exceptional human qualities and skill-sets which makes it all the more intriguing as to why most leaders tend to lead defined domains.
Trust, empathy, passion, courage, integrity, mentorship, empowerment, reflection, aggression and commitment are ten sublime leadership qualities while skills of knowledge, vision, strategy, execution, performance management, intuition, analytics, decision-making, networking, and statesmanship are ten leadership skills that are widely recommended. Any leader who possesses these exceptional twenty leadership qualities and skills ought not to fail ever. Yet the best of leadership also encounters failures, some of the failures putting their businesses to serious jeopardy while most leaders stop seeking challenges after tasting initial successes. The answer to the puzzle lies in the possibility that the very same qualities and skills that provide leadership strength also create operational comfort zones and organizational weak spots when leveraged beyond high percentile general human endowments.
Most management theories teach entrepreneurs and companies to stick to basics and focus on core competencies. Most leaders take the advice all too seriously it would appear. Entrepreneurs and founders after setting up and growing an enterprise prefer to manage the enterprise collectively rather than rediscover their entrepreneurial capabilities in new domains. Professional leaders prefer to take established companies to greater heights based on proven economic and business principles rather than venture into unproven and economically unviable domains. Leaders exceptional skills utilize their skills to become unchallenged in their leadership cocoons than enable alternate models challenge the established paradigms. Leadership Darwinism works to inhibit broader economic and industrial development relative to potential and possibilities. Given the tremendous power of the twenty leadership qualities and skills as discussed below, leadership models should inspire leaders to seek new opportunities from harsh challenges on a continuous basis.
Qualitative dimensions
Leadership qualities typically set high expectations and require authenticity and sustainability. Most of the leadership qualities are also expected to become organizational credos. As an organization becomes larger and multinational, however, interpretation of qualities becomes increasingly complex with individual and business activities focusing on quantitative rather than qualitative aspects. In addition, cultural and societal factors of different countries respond differently to a globally standardized set of leadership qualities. As an extreme example, certain leadership qualities may have different interpretations in Japan and America, or between India and China. Some multinational enterprises address this by having co-CEOs or sharing leadership responsibilities between leaders of different nationalities who while sharing common corporate leadership qualities are also equipped to relate them to local cultural ethos.
Dynamics of corporate competitive advantage influence, or get influenced by, regular business transactions and strategies between firms, and how different managers approach competitive strategy within a firm. A fundamental question, for example, is whether the firm is the core viable entity in a nation or the industry or the economy constitutes the core. The level of trust a firm displays with its co-players in the industry depends on how important it is for the industry to survive and grow as a national comparative advantage. The openness and transparency with which a firm operates in a competitive environment are often dependent on how the industry or the economy defines the rules of competition. While certain qualities such as ethics have to be simply non-negotiable as an essential component of exemplary leadership, competitive industrial dynamics and comparative national dynamics often dictate multiple hues for the other qualitative factors.
The more homogenous or balanced the industry is the less would be the competitive dynamics within an industry but greater would be the comparative dynamics across the nations. Typically, in such situations the competitive intensity between firms within the industry tends to be lower and collaborative propensity between the firm and its vendors on one hand and distributors on the other hand tends to be higher. Leadership qualities such as trust and empathy enable the leaders forge collaborative relationships with all in-country stakeholders for shared competitive advantage. Even amongst competitors, a base level competitive excellence that exists as a national comparative advantage helps industry level collaboration. The Japanese automobile industry that is knit together by JAMA, a Japanese industry association and the Indian software industry that is represented by NASSCOM, an Indian software industry body are examples of national collaborative dynamics for global comparative advantage.
Leadership qualities become organizational credos only when they are institutionalized. One way of institutionalization is to advocate the qualities as guiding principles for developing leaders. Sustainable institutionalization would occur when business processes and operational practices emphasize the qualitative dimensions. For example, firms often forecast their input requirements on the higher side to cater to possible slippages in supplies. Suppliers, on the other hand, factor in such excess forecasting and try to deliver what they can. Collaborative supply chain planning, in contrast, considers that the objectives of the firm and the vendors are, in fact, aligned and both parties should discuss requirements and capacities collaboratively and transparently to maximize business opportunities. Technological development in Japan is comparatively effective because of component suppliers and end-product manufacturers collaborate from the drawing board stage itself. Trust as a leadership quality fosters collaboration within a firm and in inter-firm relationships.
Some leadership qualities are mutually reinforcing as in the case of trust and empathy, passion and commitment, and mentorship and empowerment. On the other hand, a couple of the factors could be somewhat contrarian as in the case of reflection and aggression. There would be perpetual synergy between empowerment and mentorship. Leaders need to empower their subordinates and mentor them simultaneously. It leads to virtuous leadership development in organizations. In contrast, aggression and reflection are counter-intuitive to coexist in a leader but wise leadership requires a leader to reflect upon his aggression to achieve optimal resource allocation and revenue generation. Moreover, the leadership qualities are applicable as per situations. While collaborative planning requires a firm to be empathetic to its vendors, a firm cannot allow its empathy towards a handicapped vendor go beyond justifiable limits and affect the business results. Similarly, trust in business has its limits, especially when proprietary information determines a firm’s competitive advantage.
Quantitative dimensions
While qualitative leadership factors tend to label successful leaders differentially, it is the underlying skill-set that drives leadership success. It is, of course, well established that skill-sets required for leadership success could vary across industries and even within firms in an industry. While knowledge is the foremost driver of leadership success there is no defined base of knowledge that is either contextual or prescriptive. Clearly, industry knowledge is more important than domain knowledge within an industry to become a successful leader. It is generally felt that industry knowledge does give an edge in terms of quick assimilation and contribution. Successful cross-movement of leaders across industries, though less frequent, is not unusual. In fact, in times requiring resetting of objectives or turnaround of declining businesses, leaders from other industries are known to have brought fresh thinking and successful growth. Knowledge, from a leadership angle, has to be interpreted in terms of understanding the core products and processes of the firm as well as the industry, the value chain from design to delivery and the critical success factors for competitive advantage.
Successful leaders have a complete grip over their own leadership value chain that involves vision setting, strategizing, execution, and performance management. Leaders who emphasize all the four aspects equally, and in addition recognize the interconnected and iterative nature of the four components tend to be more impactful than others. While these processes are in one sense team efforts the leadership role in integrating efforts across domains and directing efforts along hierarchies cannot be overemphasized. Traditionally vision setting is viewed as a relatively one time action while strategizing is accepted as an annual activity; execution is recognized as a continuous but delegated activity but performance management is considered as an annual or bi-annual activity utmost. Fast changing industrial dynamics suggest an accelerated paradigm in which vision is reviewed annually, strategic opportunities and challenges are analyzed even within a year, execution is elevated for leadership attention through benchmarks and metrics, and performance management is integrated as a continuous mentoring activity.
For leaders as well as the led, decision making is the most important vehicle and the most visible symbol of executive effectiveness. While decision making methodologies vary with leaders, there is no denying that successful leaders deploy a highly individualistic mix of intuition and analytics in decision making. Dependence on intuition tends to be higher when the leader has deep industry and domain experience. Resort to analytics would be worthwhile when reliable or predictable data sets relating to various causative factors are available. Despite significant enhancements in algorithmic and heuristic capabilities, mathematical modeling and simulation, analytics which are more easily verified with real time observations and logic remain as the preferred ones.
A successful leader networks with outside world as much as within the organization. An ability to represent the firm in the industry, an industry in the economy, an economy in the nation and a nation in the world represents a leadership ability to represent multifarious development needs. At another level, an ability to connect with internal team members formally and authoritatively as well as informally and unobtrusively is an essential component of leadership. There are three underlying dimensions to successful networking. Firstly, a willingness to think beyond the firm enables a leader to connect with competing firms and economic stake holders with equanimity. Secondly, an ability to seek, appreciate and where appropriate improve each other’s points of view helps leaders to forge a broad spectrum of relationships with leaders with similar quality and skill levels. Thirdly, an ability to connect with simplicity and mesmerize with thought leadership helps leaders to gain spontaneous acceptability with both internal and external stake holders.
Statesmanship is the hallmark of a successful leader. Particularly with a second tier leadership team with high talent levels ability to exert stature internally and externally becomes important for leadership sustainability. Leadership is not about winning arguments and debates or enforcing business cases. Internally, it is about amalgamating a heterogeneous organizational team with articulation of inspirational vision and strategy. It is also about securing consensus and endorsement for a collective organizational way forward in uncertain environments marked by plurality of options. Externally, it is about establishing optimal competitive dynamics in the industry, maximal comparative dynamics in the economy and equitable distributive dynamics for the society. Statesmanship is the skill of leveraging on each of the leadership qualities and skills to achieve a positively influential role in all matters requiring leadership guidance and intervention.
Opportunities, challenges and enigmas
Like the management theories referred to earlier this piece also deifies leaders and leadership and leaders with superhuman qualities and extraordinary objectives; however, the leadership treatise does not end here. Leadership has its opportunities, challenges and enigmas.
Leaders by definition seek challenge. It is surprising as to why a large majority of leaders seek their careers in relatively easy to operate, product and market specific enterprises. It is also surprising as to why leaders tend to stymie alternate leadership development by perpetuating themselves in well managed enterprises. Leaders tend to leverage on some of their exceptional skills, be it communication skills or negotiating skills, to secure dominance over their organizations. Creative and socially responsive and responsible leaders, however, always seek new challenges that test their established qualities and skills as well as motivate them to acquire new ones.
Leadership has great opportunities in creating ideas for growth, marshalling human and capital resources to convert ideas into realities and generate wealth. Generation and distribution of wealth in an economically stable and socially equitable manner is a great leadership responsibility in any country. Leaders, perhaps, ought to follow different ways to achieve this objective depending on the diversity of industrial and national cultures they operate in. Countries differ significantly in their social, industrial and economic needs at different points of time. Leaders must apply their leadership skills in the manner that enhances the national wealth in the most productive manner. That is the greatest opportunity that a leader has.
Rapidly growing emerging markets require leadership in all sectors of the economy and industry. Yet, some sectors such as economic and social infrastructure, and industries which support such infrastructure, require top quality leadership talent. Power plants and power equipment makers, roads and commercial vehicle makers, builders and construction materials makers, rail utilities and bullet train makers, airlines and aircraft makers, and alternate energy technologies, to name a few, require high caliber leadership which can meet the challenges of such sectors. Managing regulatory pathways and meeting social expectations with beneficial user value propositions constitute one pair of challenges while generating mega resources and establishing viable projects with long lead times for affordable services constitute the other pair of challenges. The few successful firms in infrastructure sector have indeed benefitted from top class leadership. The leadership need for India is for greater depth and spread in these sectors.
In free market or liberalized economies, leadership needs appropriate incentives to move to the needy areas. Unfortunately, incentives for entrepreneurs and professional managers exist in established industries or industries with viable market potential rather than in industries which face distant economic viability. Turnover and profit maximization, market capitalization and shareholder returns are parameters that entrepreneurs and professional leaders seek because incentives in terms of bonuses, commissions and stock options are often linked to such parameters. If, in spite of lack of or skewed incentives, India has made some progress in infrastructure development, the leadership credit must go to the large band of officers from the Indian Administrative Services (IAS) who set up and managed infrastructure projects and a few entrepreneurial leaders who loved nation building or the few professional managers who saw early a futuristic opportunity in infrastructure building. Massive development of infrastructure and cutting edge technologies require equally significant incentives to attract top class leadership talent.
While governments and investors need to create appropriate regulatory policies and investment avenues for such developments, leaders would also need to be creative and develop paradigms that harness the opportunities that lie in such challenging sectors. The twenty leadership qualities and skills that have been discussed in this post would need to be put to test in infrastructure and sunrise sectors than the tried and tested established industrial structures.
Posted by Dr CB Rao on November 6, 2010
Trust, empathy, passion, courage, integrity, mentorship, empowerment, reflection, aggression and commitment are ten sublime leadership qualities while skills of knowledge, vision, strategy, execution, performance management, intuition, analytics, decision-making, networking, and statesmanship are ten leadership skills that are widely recommended. Any leader who possesses these exceptional twenty leadership qualities and skills ought not to fail ever. Yet the best of leadership also encounters failures, some of the failures putting their businesses to serious jeopardy while most leaders stop seeking challenges after tasting initial successes. The answer to the puzzle lies in the possibility that the very same qualities and skills that provide leadership strength also create operational comfort zones and organizational weak spots when leveraged beyond high percentile general human endowments.
Most management theories teach entrepreneurs and companies to stick to basics and focus on core competencies. Most leaders take the advice all too seriously it would appear. Entrepreneurs and founders after setting up and growing an enterprise prefer to manage the enterprise collectively rather than rediscover their entrepreneurial capabilities in new domains. Professional leaders prefer to take established companies to greater heights based on proven economic and business principles rather than venture into unproven and economically unviable domains. Leaders exceptional skills utilize their skills to become unchallenged in their leadership cocoons than enable alternate models challenge the established paradigms. Leadership Darwinism works to inhibit broader economic and industrial development relative to potential and possibilities. Given the tremendous power of the twenty leadership qualities and skills as discussed below, leadership models should inspire leaders to seek new opportunities from harsh challenges on a continuous basis.
Qualitative dimensions
Leadership qualities typically set high expectations and require authenticity and sustainability. Most of the leadership qualities are also expected to become organizational credos. As an organization becomes larger and multinational, however, interpretation of qualities becomes increasingly complex with individual and business activities focusing on quantitative rather than qualitative aspects. In addition, cultural and societal factors of different countries respond differently to a globally standardized set of leadership qualities. As an extreme example, certain leadership qualities may have different interpretations in Japan and America, or between India and China. Some multinational enterprises address this by having co-CEOs or sharing leadership responsibilities between leaders of different nationalities who while sharing common corporate leadership qualities are also equipped to relate them to local cultural ethos.
Dynamics of corporate competitive advantage influence, or get influenced by, regular business transactions and strategies between firms, and how different managers approach competitive strategy within a firm. A fundamental question, for example, is whether the firm is the core viable entity in a nation or the industry or the economy constitutes the core. The level of trust a firm displays with its co-players in the industry depends on how important it is for the industry to survive and grow as a national comparative advantage. The openness and transparency with which a firm operates in a competitive environment are often dependent on how the industry or the economy defines the rules of competition. While certain qualities such as ethics have to be simply non-negotiable as an essential component of exemplary leadership, competitive industrial dynamics and comparative national dynamics often dictate multiple hues for the other qualitative factors.
The more homogenous or balanced the industry is the less would be the competitive dynamics within an industry but greater would be the comparative dynamics across the nations. Typically, in such situations the competitive intensity between firms within the industry tends to be lower and collaborative propensity between the firm and its vendors on one hand and distributors on the other hand tends to be higher. Leadership qualities such as trust and empathy enable the leaders forge collaborative relationships with all in-country stakeholders for shared competitive advantage. Even amongst competitors, a base level competitive excellence that exists as a national comparative advantage helps industry level collaboration. The Japanese automobile industry that is knit together by JAMA, a Japanese industry association and the Indian software industry that is represented by NASSCOM, an Indian software industry body are examples of national collaborative dynamics for global comparative advantage.
Leadership qualities become organizational credos only when they are institutionalized. One way of institutionalization is to advocate the qualities as guiding principles for developing leaders. Sustainable institutionalization would occur when business processes and operational practices emphasize the qualitative dimensions. For example, firms often forecast their input requirements on the higher side to cater to possible slippages in supplies. Suppliers, on the other hand, factor in such excess forecasting and try to deliver what they can. Collaborative supply chain planning, in contrast, considers that the objectives of the firm and the vendors are, in fact, aligned and both parties should discuss requirements and capacities collaboratively and transparently to maximize business opportunities. Technological development in Japan is comparatively effective because of component suppliers and end-product manufacturers collaborate from the drawing board stage itself. Trust as a leadership quality fosters collaboration within a firm and in inter-firm relationships.
Some leadership qualities are mutually reinforcing as in the case of trust and empathy, passion and commitment, and mentorship and empowerment. On the other hand, a couple of the factors could be somewhat contrarian as in the case of reflection and aggression. There would be perpetual synergy between empowerment and mentorship. Leaders need to empower their subordinates and mentor them simultaneously. It leads to virtuous leadership development in organizations. In contrast, aggression and reflection are counter-intuitive to coexist in a leader but wise leadership requires a leader to reflect upon his aggression to achieve optimal resource allocation and revenue generation. Moreover, the leadership qualities are applicable as per situations. While collaborative planning requires a firm to be empathetic to its vendors, a firm cannot allow its empathy towards a handicapped vendor go beyond justifiable limits and affect the business results. Similarly, trust in business has its limits, especially when proprietary information determines a firm’s competitive advantage.
Quantitative dimensions
While qualitative leadership factors tend to label successful leaders differentially, it is the underlying skill-set that drives leadership success. It is, of course, well established that skill-sets required for leadership success could vary across industries and even within firms in an industry. While knowledge is the foremost driver of leadership success there is no defined base of knowledge that is either contextual or prescriptive. Clearly, industry knowledge is more important than domain knowledge within an industry to become a successful leader. It is generally felt that industry knowledge does give an edge in terms of quick assimilation and contribution. Successful cross-movement of leaders across industries, though less frequent, is not unusual. In fact, in times requiring resetting of objectives or turnaround of declining businesses, leaders from other industries are known to have brought fresh thinking and successful growth. Knowledge, from a leadership angle, has to be interpreted in terms of understanding the core products and processes of the firm as well as the industry, the value chain from design to delivery and the critical success factors for competitive advantage.
Successful leaders have a complete grip over their own leadership value chain that involves vision setting, strategizing, execution, and performance management. Leaders who emphasize all the four aspects equally, and in addition recognize the interconnected and iterative nature of the four components tend to be more impactful than others. While these processes are in one sense team efforts the leadership role in integrating efforts across domains and directing efforts along hierarchies cannot be overemphasized. Traditionally vision setting is viewed as a relatively one time action while strategizing is accepted as an annual activity; execution is recognized as a continuous but delegated activity but performance management is considered as an annual or bi-annual activity utmost. Fast changing industrial dynamics suggest an accelerated paradigm in which vision is reviewed annually, strategic opportunities and challenges are analyzed even within a year, execution is elevated for leadership attention through benchmarks and metrics, and performance management is integrated as a continuous mentoring activity.
For leaders as well as the led, decision making is the most important vehicle and the most visible symbol of executive effectiveness. While decision making methodologies vary with leaders, there is no denying that successful leaders deploy a highly individualistic mix of intuition and analytics in decision making. Dependence on intuition tends to be higher when the leader has deep industry and domain experience. Resort to analytics would be worthwhile when reliable or predictable data sets relating to various causative factors are available. Despite significant enhancements in algorithmic and heuristic capabilities, mathematical modeling and simulation, analytics which are more easily verified with real time observations and logic remain as the preferred ones.
A successful leader networks with outside world as much as within the organization. An ability to represent the firm in the industry, an industry in the economy, an economy in the nation and a nation in the world represents a leadership ability to represent multifarious development needs. At another level, an ability to connect with internal team members formally and authoritatively as well as informally and unobtrusively is an essential component of leadership. There are three underlying dimensions to successful networking. Firstly, a willingness to think beyond the firm enables a leader to connect with competing firms and economic stake holders with equanimity. Secondly, an ability to seek, appreciate and where appropriate improve each other’s points of view helps leaders to forge a broad spectrum of relationships with leaders with similar quality and skill levels. Thirdly, an ability to connect with simplicity and mesmerize with thought leadership helps leaders to gain spontaneous acceptability with both internal and external stake holders.
Statesmanship is the hallmark of a successful leader. Particularly with a second tier leadership team with high talent levels ability to exert stature internally and externally becomes important for leadership sustainability. Leadership is not about winning arguments and debates or enforcing business cases. Internally, it is about amalgamating a heterogeneous organizational team with articulation of inspirational vision and strategy. It is also about securing consensus and endorsement for a collective organizational way forward in uncertain environments marked by plurality of options. Externally, it is about establishing optimal competitive dynamics in the industry, maximal comparative dynamics in the economy and equitable distributive dynamics for the society. Statesmanship is the skill of leveraging on each of the leadership qualities and skills to achieve a positively influential role in all matters requiring leadership guidance and intervention.
Opportunities, challenges and enigmas
Like the management theories referred to earlier this piece also deifies leaders and leadership and leaders with superhuman qualities and extraordinary objectives; however, the leadership treatise does not end here. Leadership has its opportunities, challenges and enigmas.
Leaders by definition seek challenge. It is surprising as to why a large majority of leaders seek their careers in relatively easy to operate, product and market specific enterprises. It is also surprising as to why leaders tend to stymie alternate leadership development by perpetuating themselves in well managed enterprises. Leaders tend to leverage on some of their exceptional skills, be it communication skills or negotiating skills, to secure dominance over their organizations. Creative and socially responsive and responsible leaders, however, always seek new challenges that test their established qualities and skills as well as motivate them to acquire new ones.
Leadership has great opportunities in creating ideas for growth, marshalling human and capital resources to convert ideas into realities and generate wealth. Generation and distribution of wealth in an economically stable and socially equitable manner is a great leadership responsibility in any country. Leaders, perhaps, ought to follow different ways to achieve this objective depending on the diversity of industrial and national cultures they operate in. Countries differ significantly in their social, industrial and economic needs at different points of time. Leaders must apply their leadership skills in the manner that enhances the national wealth in the most productive manner. That is the greatest opportunity that a leader has.
Rapidly growing emerging markets require leadership in all sectors of the economy and industry. Yet, some sectors such as economic and social infrastructure, and industries which support such infrastructure, require top quality leadership talent. Power plants and power equipment makers, roads and commercial vehicle makers, builders and construction materials makers, rail utilities and bullet train makers, airlines and aircraft makers, and alternate energy technologies, to name a few, require high caliber leadership which can meet the challenges of such sectors. Managing regulatory pathways and meeting social expectations with beneficial user value propositions constitute one pair of challenges while generating mega resources and establishing viable projects with long lead times for affordable services constitute the other pair of challenges. The few successful firms in infrastructure sector have indeed benefitted from top class leadership. The leadership need for India is for greater depth and spread in these sectors.
In free market or liberalized economies, leadership needs appropriate incentives to move to the needy areas. Unfortunately, incentives for entrepreneurs and professional managers exist in established industries or industries with viable market potential rather than in industries which face distant economic viability. Turnover and profit maximization, market capitalization and shareholder returns are parameters that entrepreneurs and professional leaders seek because incentives in terms of bonuses, commissions and stock options are often linked to such parameters. If, in spite of lack of or skewed incentives, India has made some progress in infrastructure development, the leadership credit must go to the large band of officers from the Indian Administrative Services (IAS) who set up and managed infrastructure projects and a few entrepreneurial leaders who loved nation building or the few professional managers who saw early a futuristic opportunity in infrastructure building. Massive development of infrastructure and cutting edge technologies require equally significant incentives to attract top class leadership talent.
While governments and investors need to create appropriate regulatory policies and investment avenues for such developments, leaders would also need to be creative and develop paradigms that harness the opportunities that lie in such challenging sectors. The twenty leadership qualities and skills that have been discussed in this post would need to be put to test in infrastructure and sunrise sectors than the tried and tested established industrial structures.
Posted by Dr CB Rao on November 6, 2010
Labels:
General Management,
Leadership,
Strategic Management
Sunday, October 31, 2010
The Mind of the Pioneer: Triads of Strategic Thinking
Kenichi Ohmae in his landmark book “The Mind of the Strategist” (first published in Japan in 1975, and republished in 1982 by McGraw Hill) provided several useful insights on strategic thinking. Though the book sought to provide a specific strategic perspective of doing business in Japan, the takeaways from the book have had universal appeal. The important insight was that the strategist should identify the key success factors related to the industry as well as the key strengths of the firm and then proceed to cause events that favor the firm’s strengths. The other insights related to differentiation of winners from losers in terms of specific attributes and distinguishing businesses from products. A relentless focus on customers and their needs was expected to consolidate the business base while an entrepreneurial thinking was hypothesized to drive growth. And typical of the Japanese thinking, Ohmae advocated addressing of the problem rather than the symptoms.
Several strategy gurus who came up with subsequent works presented multiple approaches for becoming winners rather than losers in the business arena. Whether Porter’s competitive advantage, Prahalad’s core competence or Hammer’s reengineering, such works focused on identifying the attributes and methodologies that would help companies gain advantage over the competitors. Most of these hypotheses, however, become relevant only in the context of emerging or established industrial structures. Typically, in such established industrial structures the forces of competition and the sources of competitive advantage can be well-identified enabling the strategy prescriptions work well. On the other hand, such strategy prescriptions fail to be less relevant in first-to-lead kind of business ventures. Save Prahalad’s later day classic “Fortune at the Bottom of the Pyramid” there have been very few prescriptions of how strategists need to think and act in pioneering businesses or with sunrise technologies.
Pioneering or sunrise sectors are like no other; they have no established business models, they have inviting but unclear regulatory framework, products incorporate experimental technologies, manufacturing requires multi-pronged collaboration, proven talent tends to be scarce, funding becomes difficult, customers tend to be cautious and even venture investors are prone to be risk-averse. In other words, all the classic strengths recommended for firms in established industries would be conspicuous by their absence for a pioneering firm. The only strength is that of being the first in terms of business ideation and technological commercialization. Even this strength is eroded by the likely competition from follow-on technologies which are likely to be more effective and more efficient, and catch-up players who are likely to have the benefit of knowing a priori the pioneer’s right and wrong moves. Yet, we have countless examples of how pioneers, from Sony and Microsoft to Google and Facebook built new industries around their first-to-think ventures. How then is the mind of a pioneering strategist different from that of an established strategist?
Triad of pioneering strategies
Pioneering has three facets: product, process and business. These three factors can be present in an enterprise independent of each other or all together as a combination.
A self-charging note book computer which uses its own heat to charge its batteries could be a product innovation. However, the notebook computer could be manufactured as per established processes and delivered in established business models. A cellular phone or a note book computer which also is capable of projection would be a product innovation but could share manufacturing processes of electronic devices and get delivered in the marketplace through established business models.
An automobile of established design could be manufactured out of just two monocoque (single shell) pressings (upper and lower) to deliver unique strength and lower cost. Conventional automobiles manufactured through such unconventional processes could still be marketed in conventional business models. An established drug which is chemically synthesized can be produced through a novel enzymatic process, or a known naturally fermented drug can be chemically synthesized as a novel route but neither case would alter the basic product characteristic or the business the concerned drug caters to.
On the other hand, conventional products, manufactured through conventional processes, could be delivered through pioneering business models, as Amazon did by marketing and distributing a whole breed of books and other items through the Web, leveraging electronically physical infrastructure. Disbursal of classic loan products to underprivileged sections of the population through microfinance business models represents a business innovation. If mobile telecommunication services take on the responsibility of being a platform for all online payments it would be a novel business model for such companies.
Similarly, there could be product and process innovations that are delivered through established business models. A biopharmaceutical product that is produced through mammalian cell culture represents a combination of product and process innovation that is ultimately sold in the established pharmaceutical business process. An established product such as computer was assembled through custom build process and delivered direct to customer by Dell in a novel combination of global customer-driven assembly process and business management.
Logically, an enterprise which has product, process and business pioneering rolled into one would taste success beyond anticipation. Google is a remarkable example. Its product offering of web search engine was unique and pioneering. The way it was “manufactured” was also pioneering, through a complex network of servers and nodes which could bring out millions of search products for billions of information seekers in milliseconds simultaneously. The business model which offered the web search service for free, earning revenues through web based advertising was also pioneering, integrating a huge market place and a large supplier network seamlessly. Companies which had two or more pioneering dimensions could create whole new industries effortlessly, or could reinvent themselves completely.
Triad of enabling attributes
While product, process and business are the fundamental drivers of a pioneering enterprise, establishment of a pioneering enterprise requires an enabling triad comprising intuition, passion and focus on the part of the founding team or management team. Pioneering enterprises are based on an unflinching faith of the founding members in their product, process and business concepts.
Intuition on the future rather than experience of the past counts as most pioneering enterprises are based on products, processes and business models that have not been fully tested. A keen observation of technological evolution, need fulfillment, customer segmentation and likely product appreciation in the marketplace together create an intuitive force that reinforces the pioneering spirit. This does not mean that experience is not required in setting up pioneer enterprises. Intuition borne out of experience helps pioneers tread new paths with confidence and innovation. JRD Tata, Chairman of India’s truck and bus giant Tata Motors (then Telco), while taking over a die and tool making shop in the 1960s stated that the acquisition would play a major role in shaping Telco as a major automobile corporation. As several subsequent events would prove, the tool and die infrastructure gave Telco a unique capability to design and manufacture cabs for trucks and later car bodies, making Telco lead the indigenous revolution in the Indian automobile industry that was hopelessly dependent on imported designs, tools, dies and pressings.
Passion is the second leg of the enabling triad. Passion has no limits. It is verily the fuel that provides the energy to the founding team to conquer the challenges and vicissitudes of a first-to-lead journey. The founders of Bell Labs, Sony, Panasonic, Apple, Microsoft, Google, Twitter and a host of pioneering companies powered by pioneering ideas had passionate founders and CEOs. The pre-independence industrialists of India, the Tatas and the Birlas, the license raj industrialists of India, the Bajajs, Godrejs, Mahindras, Ambanis, Jindals and Munjals and the post-liberalization entrepreneurs of India, Murthys, Reddys, Rajus and Raos , all of whom pursued completely different product, process and manufacturing approaches had only passion in common. The passion enabled all the pioneers, whatever the ilk or vintage, to keep pressing their innovative ideas to commercial fruition.
Focus typically characterizes all successful pioneering leaders, and is the third leg of the enabling triad. Exploration of the unexplored requires an ability to identify the precise directions which could lead to maximal discovery and commercialization opportunities. Products such as Ford’s Model T car , Sony’s Walkman, Microsoft’s Windows, Intel’s chip, Google’s search engine, Apple’s Mac and later iPod came with the ability to identify the right product niche and user functionality amongst several potential directions that could be possible in each case. Pioneering minds are creative but commercially pioneering minds are also focused. The focus typically also comes with the intuition that such leaders possess, and the passion that drives a single minded pursuit.
Triad of pioneering business strategies
The two triads we discussed, namely the pioneering triad of product, process and business, and enabling triad of intuition, passion and commitment often merge in different shades to result in three distinct models of pioneering strategy. These are inventive-pioneering, adaptive-pioneering and execution-pioneering models.
Inventive-pioneering strategy
Typically, the most successful business models are those set up by inventors who pioneered product, process or business discoveries. Ability to convert laboratory inventions of others into practical successes also pioneered growth of business houses. Sony was perhaps not the first to invent transistor radio but certainly was the first to pioneer commercialization of a practically ubiquitous transistor radio. It was also the harbinger of the iPod generation with the development of Walkman as a miniaturized rendering of tape recorder-player. Daimler-Benz created the first commercial automobile and a whole new industry around it. Bell Labs saw the invention of Graham Bell take shape as a commercial telecommunications reality. Ford’s innovation of standardized assembly line manufacturing process of cars helped Ford take his automobile company to a new trajectory. Microsoft grew based on the invention of commercial operating system for desktop personal computers by Gates and Allen.
Many companies make pioneering their strategic DNA by which inventions, either from their internal laboratories or external licenses, are constantly utilized to create new product lines and businesses. Popular perceptions of some companies such as DuPont, 3M, Google, Sony and a host of industrial leaders reflect the fact that such companies constantly look for pioneering ideas to drive new commercial successes. In fact, the ranking of top patent applicants by World Intellectual Patents Organization correlates with industrial leadership by companies. The largest and best-known companies such as Panasonic, Sony, NEC, Sharp, Toyota, Honda, Asahi, Fujitsu, Konika, NTN and Mitsubishi from Japan, Samsung and LG from Korea, Bosch, BASF, Philips, Siemens, Ericsson, Nokia, Unilever and Alcatel from Europe, Microsoft, HP, Proctor & Gamble, Intel, Lucent, Caterpillar, and Kimberly-Clark from US and Qualcomm from Canada rank high in PCT filings. Such patents usually cover product, component, process and usage innovations.
Loss of innovative edge leads to business decline and even structural atrophy of industries. Companies in the innovative pharmaceutical industry, in particular, survive and grow entirely on product patents. Lower ranking of pharmaceutical firms in global PCT ranking, declines in new drug approvals and reverse entry by innovator pharmaceutical companies into the generics industry are symptomatic of loss of pioneering as a theme in an important industrial sector. Strategists need to conceptualize alternative strategies to revive pioneering spirit in innovation strapped organizations. One such recent move has been by GSK to spin off its R&D organization into a number of discovery oriented venture teams. The other is a general realization in the pharmaceutical industry that creativity is better fostered in smaller organizations and larger organizations could benefit by either outsourcing research or in-licensing proven developments.
Adaptive-pioneering strategy
Not all pioneering ventures are based on discoveries and inventions. Thinkers who observe the innovative developments in different products or regions around the world adaptively weave such observations into pioneering ventures in other products and other regions. Apple’s iPod and iPhone brought touch screen technology from industrial sectors to a hand held product platform in a revolutionary form. Japanese automobile manufacturers were the pioneers in light, mini and micro truck technologies. However, it was an observant Indian truck manufacturer, Tata Motors, rather than any other Indo-Japanese automobile manufacturer or Indian manufacturer who walked away with laurels with an indigenously designed and manufactured mini truck, Ace. It was a perfect case of adaptive pioneering, successfully transplanting a proven concept to highly different regions and diverse user conditions.
Designs and processes that deliver new products with localized features and pricing have enabled many companies to pioneer new products for established and emerging markets. Brazil’s Marcopolo bus trains, Haier’s compact refrigerator with computer table, Tata Motors’ Nano car, Hindustan Unilever’s Pureit water purifier, and GE India’s VScan portable ultrasound machine and MACi, a portable ECG machine, Samsung’s and Nokia’s ultra low cost mobile phones for India are a few examples of corporations acting locally to pioneer revolutionary new products. Pioneer strategists of this ilk have a sharp sense of local user needs and market eco systems, besides a grasp of technological adaptation that could deliver new cost-effective utilitarian products.
Leveraging of technology for better enablement of consumer behavior and enhanced need fulfillment also lead to outstanding adaptive-pioneering models. Facebook has less of technology and more of social behavior as its bedrock. Digitization of people’s yearning to communicate and network with each other characterizes its initiation, evolution and ramp-up. So is twitter which leverages the concept that in an environment of information overload it is sufficient to have core thoughts not exceeding 140 letters as a requirement to create a universe of interconnected community. Differentiating themselves from Google’s question-answer and data mining model, Facebook and Twitter evolved a new information society based on social networking.
Critical observation and creative application of native practices and local cultures could also lead to pioneering ventures. Biodiversity has been a source of innovation for entrepreneurs with pioneering thinking, not necessarily pioneering inventions. Himalaya Drug Company of India pioneered traditional ayurvedic medicine for mass markets by applying modern characterization and manufacturing approaches even as global pharmaceutical firms with much greater resources remained diffident to the opportunity. Similarly, global giants such as Unilever and Colgate had been in India for decades but it was the innovation of Indian companies such as Dabur and Vicco that helped them to utilize Indian herbs, spices and plants to develop novel tooth pastes, hair oils and nutrition products. Traditional products such as honey and Indian foods have seen new products through technological translation. Adaptive-pioneering models are potentially the optimal models with a reasonable risk-reward ratio.
Execution-pioneering strategy
Mirroring more of business pioneering, execution-pioneering strategy combines firm level competitive advantage with national comparative advantage to pioneer effective business models in a globally competitive manner. The global delivery model of software services pioneered by the Indian software industry, the India-centric, fast-track and low-cost development of bulk drugs and generic formulations for global markets by the Indian pharmaceutical industry, the cost-efficient but curatively efficient medical tourism industry pioneered by the Indian corporate hospitals, the family oriented retail chains established by the Indian business houses are but a few examples of high caliber execution creating models of global comparative excellence. Execution pioneering is not necessarily dependent on scale; neither is it the preserve of large corporations. Accomplished teachers from India, individually for example, pioneered electronic tuitions to a global community of students.
Execution-pioneering creates centers of excellence in specific industrial and business sectors. India and China have executed successful models of global back office and global workshop respectively. Within broad industrial-country segments, some firms excel more than others by pioneering execution. A few Indian pharmaceutical companies have pioneered their entry over five decades ago but new entrepreneurial companies, despite much later start, achieved global leadership through their choice of niche therapeutic areas and efficient execution of research and manufacturing processes. Execution pioneering relies more on the enabling triad of intuition, focus and passion. These act as a synergistic winning combination motivating higher levels of performance.
An execution-pioneer usually happens to be a unique combination of reflective thinker and quick silver implementer. The strategist in him needs to understand the available windows to gain competitive advantage over others, whether in an emerging industry or established industry. Leaders in execution pioneer models typically have to choose one generic strategy or a combination of generic strategies from among scale leadership, cost leadership, differentiation and niche to achieve execution efficiency. Parallel processing of multiple activities and critical-path resolution skills enable a company become a pioneer in execution. Technology adds additional edge to execution capabilities. A construction firm can deploy novel foundation, column and slab laying technologies to execute projects in a pioneering fashion. Clearly, execution-pioneer depends on a high level of management capabilities to achieve innovative resource assembly and deployment.
Summary
A pioneering venture, as any of the successful corporations mentioned herein, is necessarily a resultant of one unique factor, or a combination of several unique factors that constitute the three triads of pioneering (of product, process or business), of enabling (intuition, passion and focus) and of establishing (inventive, adaptive and execution). A combination of pioneering and enabling triads, with all the six factors in full play, would help a company be at once an inventive, adaptive and execution pioneer with an outstanding success potential. Typically, most firms coast to success on a few factors, with product and process pioneering leading the way and passion and focus reinforcing grit and tenacity in the face of adversities that a pioneer has to necessarily face. At the same time successful pioneers tend to lose the edge on some of the core factors even as new pioneers begin to compete successfully with the established pioneers on the very same pioneering strengths. The mind of the pioneer verily works to institutionalize product, process and business creativity as well as stand by intuition, passion and focus in the organization for sustainable success.
Posted by Dr CB Rao on October 31, 2010
Several strategy gurus who came up with subsequent works presented multiple approaches for becoming winners rather than losers in the business arena. Whether Porter’s competitive advantage, Prahalad’s core competence or Hammer’s reengineering, such works focused on identifying the attributes and methodologies that would help companies gain advantage over the competitors. Most of these hypotheses, however, become relevant only in the context of emerging or established industrial structures. Typically, in such established industrial structures the forces of competition and the sources of competitive advantage can be well-identified enabling the strategy prescriptions work well. On the other hand, such strategy prescriptions fail to be less relevant in first-to-lead kind of business ventures. Save Prahalad’s later day classic “Fortune at the Bottom of the Pyramid” there have been very few prescriptions of how strategists need to think and act in pioneering businesses or with sunrise technologies.
Pioneering or sunrise sectors are like no other; they have no established business models, they have inviting but unclear regulatory framework, products incorporate experimental technologies, manufacturing requires multi-pronged collaboration, proven talent tends to be scarce, funding becomes difficult, customers tend to be cautious and even venture investors are prone to be risk-averse. In other words, all the classic strengths recommended for firms in established industries would be conspicuous by their absence for a pioneering firm. The only strength is that of being the first in terms of business ideation and technological commercialization. Even this strength is eroded by the likely competition from follow-on technologies which are likely to be more effective and more efficient, and catch-up players who are likely to have the benefit of knowing a priori the pioneer’s right and wrong moves. Yet, we have countless examples of how pioneers, from Sony and Microsoft to Google and Facebook built new industries around their first-to-think ventures. How then is the mind of a pioneering strategist different from that of an established strategist?
Triad of pioneering strategies
Pioneering has three facets: product, process and business. These three factors can be present in an enterprise independent of each other or all together as a combination.
A self-charging note book computer which uses its own heat to charge its batteries could be a product innovation. However, the notebook computer could be manufactured as per established processes and delivered in established business models. A cellular phone or a note book computer which also is capable of projection would be a product innovation but could share manufacturing processes of electronic devices and get delivered in the marketplace through established business models.
An automobile of established design could be manufactured out of just two monocoque (single shell) pressings (upper and lower) to deliver unique strength and lower cost. Conventional automobiles manufactured through such unconventional processes could still be marketed in conventional business models. An established drug which is chemically synthesized can be produced through a novel enzymatic process, or a known naturally fermented drug can be chemically synthesized as a novel route but neither case would alter the basic product characteristic or the business the concerned drug caters to.
On the other hand, conventional products, manufactured through conventional processes, could be delivered through pioneering business models, as Amazon did by marketing and distributing a whole breed of books and other items through the Web, leveraging electronically physical infrastructure. Disbursal of classic loan products to underprivileged sections of the population through microfinance business models represents a business innovation. If mobile telecommunication services take on the responsibility of being a platform for all online payments it would be a novel business model for such companies.
Similarly, there could be product and process innovations that are delivered through established business models. A biopharmaceutical product that is produced through mammalian cell culture represents a combination of product and process innovation that is ultimately sold in the established pharmaceutical business process. An established product such as computer was assembled through custom build process and delivered direct to customer by Dell in a novel combination of global customer-driven assembly process and business management.
Logically, an enterprise which has product, process and business pioneering rolled into one would taste success beyond anticipation. Google is a remarkable example. Its product offering of web search engine was unique and pioneering. The way it was “manufactured” was also pioneering, through a complex network of servers and nodes which could bring out millions of search products for billions of information seekers in milliseconds simultaneously. The business model which offered the web search service for free, earning revenues through web based advertising was also pioneering, integrating a huge market place and a large supplier network seamlessly. Companies which had two or more pioneering dimensions could create whole new industries effortlessly, or could reinvent themselves completely.
Triad of enabling attributes
While product, process and business are the fundamental drivers of a pioneering enterprise, establishment of a pioneering enterprise requires an enabling triad comprising intuition, passion and focus on the part of the founding team or management team. Pioneering enterprises are based on an unflinching faith of the founding members in their product, process and business concepts.
Intuition on the future rather than experience of the past counts as most pioneering enterprises are based on products, processes and business models that have not been fully tested. A keen observation of technological evolution, need fulfillment, customer segmentation and likely product appreciation in the marketplace together create an intuitive force that reinforces the pioneering spirit. This does not mean that experience is not required in setting up pioneer enterprises. Intuition borne out of experience helps pioneers tread new paths with confidence and innovation. JRD Tata, Chairman of India’s truck and bus giant Tata Motors (then Telco), while taking over a die and tool making shop in the 1960s stated that the acquisition would play a major role in shaping Telco as a major automobile corporation. As several subsequent events would prove, the tool and die infrastructure gave Telco a unique capability to design and manufacture cabs for trucks and later car bodies, making Telco lead the indigenous revolution in the Indian automobile industry that was hopelessly dependent on imported designs, tools, dies and pressings.
Passion is the second leg of the enabling triad. Passion has no limits. It is verily the fuel that provides the energy to the founding team to conquer the challenges and vicissitudes of a first-to-lead journey. The founders of Bell Labs, Sony, Panasonic, Apple, Microsoft, Google, Twitter and a host of pioneering companies powered by pioneering ideas had passionate founders and CEOs. The pre-independence industrialists of India, the Tatas and the Birlas, the license raj industrialists of India, the Bajajs, Godrejs, Mahindras, Ambanis, Jindals and Munjals and the post-liberalization entrepreneurs of India, Murthys, Reddys, Rajus and Raos , all of whom pursued completely different product, process and manufacturing approaches had only passion in common. The passion enabled all the pioneers, whatever the ilk or vintage, to keep pressing their innovative ideas to commercial fruition.
Focus typically characterizes all successful pioneering leaders, and is the third leg of the enabling triad. Exploration of the unexplored requires an ability to identify the precise directions which could lead to maximal discovery and commercialization opportunities. Products such as Ford’s Model T car , Sony’s Walkman, Microsoft’s Windows, Intel’s chip, Google’s search engine, Apple’s Mac and later iPod came with the ability to identify the right product niche and user functionality amongst several potential directions that could be possible in each case. Pioneering minds are creative but commercially pioneering minds are also focused. The focus typically also comes with the intuition that such leaders possess, and the passion that drives a single minded pursuit.
Triad of pioneering business strategies
The two triads we discussed, namely the pioneering triad of product, process and business, and enabling triad of intuition, passion and commitment often merge in different shades to result in three distinct models of pioneering strategy. These are inventive-pioneering, adaptive-pioneering and execution-pioneering models.
Inventive-pioneering strategy
Typically, the most successful business models are those set up by inventors who pioneered product, process or business discoveries. Ability to convert laboratory inventions of others into practical successes also pioneered growth of business houses. Sony was perhaps not the first to invent transistor radio but certainly was the first to pioneer commercialization of a practically ubiquitous transistor radio. It was also the harbinger of the iPod generation with the development of Walkman as a miniaturized rendering of tape recorder-player. Daimler-Benz created the first commercial automobile and a whole new industry around it. Bell Labs saw the invention of Graham Bell take shape as a commercial telecommunications reality. Ford’s innovation of standardized assembly line manufacturing process of cars helped Ford take his automobile company to a new trajectory. Microsoft grew based on the invention of commercial operating system for desktop personal computers by Gates and Allen.
Many companies make pioneering their strategic DNA by which inventions, either from their internal laboratories or external licenses, are constantly utilized to create new product lines and businesses. Popular perceptions of some companies such as DuPont, 3M, Google, Sony and a host of industrial leaders reflect the fact that such companies constantly look for pioneering ideas to drive new commercial successes. In fact, the ranking of top patent applicants by World Intellectual Patents Organization correlates with industrial leadership by companies. The largest and best-known companies such as Panasonic, Sony, NEC, Sharp, Toyota, Honda, Asahi, Fujitsu, Konika, NTN and Mitsubishi from Japan, Samsung and LG from Korea, Bosch, BASF, Philips, Siemens, Ericsson, Nokia, Unilever and Alcatel from Europe, Microsoft, HP, Proctor & Gamble, Intel, Lucent, Caterpillar, and Kimberly-Clark from US and Qualcomm from Canada rank high in PCT filings. Such patents usually cover product, component, process and usage innovations.
Loss of innovative edge leads to business decline and even structural atrophy of industries. Companies in the innovative pharmaceutical industry, in particular, survive and grow entirely on product patents. Lower ranking of pharmaceutical firms in global PCT ranking, declines in new drug approvals and reverse entry by innovator pharmaceutical companies into the generics industry are symptomatic of loss of pioneering as a theme in an important industrial sector. Strategists need to conceptualize alternative strategies to revive pioneering spirit in innovation strapped organizations. One such recent move has been by GSK to spin off its R&D organization into a number of discovery oriented venture teams. The other is a general realization in the pharmaceutical industry that creativity is better fostered in smaller organizations and larger organizations could benefit by either outsourcing research or in-licensing proven developments.
Adaptive-pioneering strategy
Not all pioneering ventures are based on discoveries and inventions. Thinkers who observe the innovative developments in different products or regions around the world adaptively weave such observations into pioneering ventures in other products and other regions. Apple’s iPod and iPhone brought touch screen technology from industrial sectors to a hand held product platform in a revolutionary form. Japanese automobile manufacturers were the pioneers in light, mini and micro truck technologies. However, it was an observant Indian truck manufacturer, Tata Motors, rather than any other Indo-Japanese automobile manufacturer or Indian manufacturer who walked away with laurels with an indigenously designed and manufactured mini truck, Ace. It was a perfect case of adaptive pioneering, successfully transplanting a proven concept to highly different regions and diverse user conditions.
Designs and processes that deliver new products with localized features and pricing have enabled many companies to pioneer new products for established and emerging markets. Brazil’s Marcopolo bus trains, Haier’s compact refrigerator with computer table, Tata Motors’ Nano car, Hindustan Unilever’s Pureit water purifier, and GE India’s VScan portable ultrasound machine and MACi, a portable ECG machine, Samsung’s and Nokia’s ultra low cost mobile phones for India are a few examples of corporations acting locally to pioneer revolutionary new products. Pioneer strategists of this ilk have a sharp sense of local user needs and market eco systems, besides a grasp of technological adaptation that could deliver new cost-effective utilitarian products.
Leveraging of technology for better enablement of consumer behavior and enhanced need fulfillment also lead to outstanding adaptive-pioneering models. Facebook has less of technology and more of social behavior as its bedrock. Digitization of people’s yearning to communicate and network with each other characterizes its initiation, evolution and ramp-up. So is twitter which leverages the concept that in an environment of information overload it is sufficient to have core thoughts not exceeding 140 letters as a requirement to create a universe of interconnected community. Differentiating themselves from Google’s question-answer and data mining model, Facebook and Twitter evolved a new information society based on social networking.
Critical observation and creative application of native practices and local cultures could also lead to pioneering ventures. Biodiversity has been a source of innovation for entrepreneurs with pioneering thinking, not necessarily pioneering inventions. Himalaya Drug Company of India pioneered traditional ayurvedic medicine for mass markets by applying modern characterization and manufacturing approaches even as global pharmaceutical firms with much greater resources remained diffident to the opportunity. Similarly, global giants such as Unilever and Colgate had been in India for decades but it was the innovation of Indian companies such as Dabur and Vicco that helped them to utilize Indian herbs, spices and plants to develop novel tooth pastes, hair oils and nutrition products. Traditional products such as honey and Indian foods have seen new products through technological translation. Adaptive-pioneering models are potentially the optimal models with a reasonable risk-reward ratio.
Execution-pioneering strategy
Mirroring more of business pioneering, execution-pioneering strategy combines firm level competitive advantage with national comparative advantage to pioneer effective business models in a globally competitive manner. The global delivery model of software services pioneered by the Indian software industry, the India-centric, fast-track and low-cost development of bulk drugs and generic formulations for global markets by the Indian pharmaceutical industry, the cost-efficient but curatively efficient medical tourism industry pioneered by the Indian corporate hospitals, the family oriented retail chains established by the Indian business houses are but a few examples of high caliber execution creating models of global comparative excellence. Execution pioneering is not necessarily dependent on scale; neither is it the preserve of large corporations. Accomplished teachers from India, individually for example, pioneered electronic tuitions to a global community of students.
Execution-pioneering creates centers of excellence in specific industrial and business sectors. India and China have executed successful models of global back office and global workshop respectively. Within broad industrial-country segments, some firms excel more than others by pioneering execution. A few Indian pharmaceutical companies have pioneered their entry over five decades ago but new entrepreneurial companies, despite much later start, achieved global leadership through their choice of niche therapeutic areas and efficient execution of research and manufacturing processes. Execution pioneering relies more on the enabling triad of intuition, focus and passion. These act as a synergistic winning combination motivating higher levels of performance.
An execution-pioneer usually happens to be a unique combination of reflective thinker and quick silver implementer. The strategist in him needs to understand the available windows to gain competitive advantage over others, whether in an emerging industry or established industry. Leaders in execution pioneer models typically have to choose one generic strategy or a combination of generic strategies from among scale leadership, cost leadership, differentiation and niche to achieve execution efficiency. Parallel processing of multiple activities and critical-path resolution skills enable a company become a pioneer in execution. Technology adds additional edge to execution capabilities. A construction firm can deploy novel foundation, column and slab laying technologies to execute projects in a pioneering fashion. Clearly, execution-pioneer depends on a high level of management capabilities to achieve innovative resource assembly and deployment.
Summary
A pioneering venture, as any of the successful corporations mentioned herein, is necessarily a resultant of one unique factor, or a combination of several unique factors that constitute the three triads of pioneering (of product, process or business), of enabling (intuition, passion and focus) and of establishing (inventive, adaptive and execution). A combination of pioneering and enabling triads, with all the six factors in full play, would help a company be at once an inventive, adaptive and execution pioneer with an outstanding success potential. Typically, most firms coast to success on a few factors, with product and process pioneering leading the way and passion and focus reinforcing grit and tenacity in the face of adversities that a pioneer has to necessarily face. At the same time successful pioneers tend to lose the edge on some of the core factors even as new pioneers begin to compete successfully with the established pioneers on the very same pioneering strengths. The mind of the pioneer verily works to institutionalize product, process and business creativity as well as stand by intuition, passion and focus in the organization for sustainable success.
Posted by Dr CB Rao on October 31, 2010
Saturday, October 16, 2010
NextGen Professionals: Back to Fundamentals?
Technology evolves so rapidly that many conventional living tools and processes seem redundant time to time. We are in an age where computers have reduced the effort of human thinking, and algorithms have taken over the art of decision making. Many of the human faculties which in earlier generations used to be developed through challenged human effort from childhood are now automated through a plethora of electronic devices. A whole new generation is growing up with Google which answers every question through an instantaneous web of information, and with Facebook which connects millions in a borderless global society.
The world is moving into a counterintuitive phase where higher levels of technology which require greater levels of skill are also rendering larger numbers of people less skillful. Progressively, at a very basic level slide rules were replaced by calculators and calculators by computers in engineering education; switches of brain neurons got replaced by mere taps of fingers. From pilotless planes to driverless cars, and from synthetic music to combinatorial chemistry the future of automation is clear.
The relentless progress of science and technology is, without notice and awareness, creating an intellectual skew. While a few elite educational and research institutions will keep developing experts who can develop such controlling technologies the broader universe of educational institutions are likely to churn out multitudes of professionals who are induced to subordinate conventional braininess to the more convenient electronic guidance. Increasing technological intensity also makes individuals introverted and impersonal, depriving them of social skills.
The technological trends and educational mores raise serious questions. Will the Next Generation Professional be any longer an original thinker or guided doer? Addicted as he or she is to smart devices and virtual networks would the professional of the future be able to connect with the society as the previous generation professionals were? Do we need to consciously reinvent the process of professionalization to restore the human element of an increasingly overwhelming techno-economic system? Will the new generation focus only on economic prosperity to the detriment of social equity? The answer lies in reeducating the new generation through a mix of rational and emotional skills.
Rational and emotional skills
As long as society remains an agglomeration of human beings, and not robots and not even humanoids, human being has a great responsibility to retain the essential skills that characterize fundamental human capabilities. From a viewpoint of an economic society or a business organization from the plethora of human capabilities and attributes, a prioritized set of rational and emotional skills can be identified that must be nurtured through generations.
The five rational skills are Optimal Reading, Manual Writing, Mental Calculation, Extended Memory, and Physical Artistry. The five emotional skills are Dynamic Self-worth, Collaborative Competition, Respectful Independence, Ethical Compliance and Social Trusteeship. The rational skills are so named because of the need to steer the learning generation, through conscious efforts, away from electronic dependence of minds to rediscovery of original thinking and natural performance. The emotional skills are so named because of the need to combine the very many emotions a human being has into synergistic combinations that enhance human personality and social relatedness.
These ten rational and emotional skills ensure that the generations regain their intuitive and intrinsic ability for (i) multi-faculty development, (ii) synchronization of the mind and the limbs, (iii) alignment of the head and the heart, (iv) complementing of the gut and the soul, and (v) harmonization of the individual and the society. Development and utilization of these skills will ensure that technology makes life lively than lifeless. Science, technology and business will have humanization theme as the core of development. Every turn of technological development must be utilized to reinforce these rational and emotional skills.
Rational skill development
The hypothesis of this Blog Post may be counter to the beliefs of the new techno-generation which believes that simplification, virtualization and even elimination of established practices is inevitable and irreversible. The reality, however, is that such technology buffs are losing their mental and intellectual acumen because of dependence on electronic gadgets and software tools. Without attempting to reverse technological evolution there is a great potential to combine new technologies and past practices to enhance the intellectual capabilities in the overall. Mercifully, technological evolution is so diverse that the essentials of life and living, seen to be under extinction, come back to life, albeit reinvented with greater sophistication. As discussed below, this exciting nature of technological evolution is the core of human skill development too.
Optimal reading
Dr Samuel Johnson, the British author par excellence stated “Books, like friends must be few and well-chosen”. John Ruskin, the great literary expert stated “All books are divisible into two classes: the books of the hour, and the books of all time”. Digitization of print and writing, and emergence of electronic readers have placed in our hands unimaginable bytes of reading material. The new generation must, however, learn to be discerning and focused even as it is enabled to be diversified and unbounded in its quest for knowledge. Digital libraries are a highly portable boon which can be effectively utilized to scan the world of writings. However, every reader must have his own physical book shelf which stores for him the “well-chosen books of all time”. An optimal mix of digital and physical book reading keeps a person better informed and better equipped.
Manual writing
With the ubiquitous growth of the personal and laptop computers and their typewriting style key boards it looked as if the new generations would be completely oblivious of handwriting. For those generations of teachers and taught that started their education on slate and chalk the key board threatened to be the greatest disconnect with the fundamentals of learning. With tablets (thank Apple, once again) coming onto center stage vigorously a human hand and an electronic slate can coexist harmoniously, and even productively. Manual writing provides for free flow of thought and calibrated conversion of thoughts into letters. The beauty and the orderliness with which one’s letters are formed constitute the positive reflections of one’s personality. Unlike the rigidity of a key board typing, the flexibility of hand written scribbles is often the fountainhead of spontaneous creativity. One should never lose the touch and feel of manual writing to be able to stay innovative.
Mental calculation
Ever since the discovery of numbers took place, human life became dependent on the mastery of numbers. Such mastery has two components: an ability to form the numbers, and an ability to interpret numbers. Calculative abilities in the past distinguished one over the other in sizing up and scaling up challenges and opportunities. With the advent of calculators, people lost the ability to make quick mental calculations. The adverse impact of this sadly goes beyond the obvious; it impacts the spatial ability of a person. While there may be no educational need in today’s world to practice multiplications and divisions of double digit numbers, a grip on number manipulation and computation provides a significant strength to tactical transaction and strategic investment perspectives of social and economic life.
Extended memory
Open book examinations and multiple choice questions have served to reduce mindless cramming and to make solution development a guided activity for students. However, technology has taken over the minds of people making the human race virtually memory-averse. This is a great risk for human genetics and the evolution of the intellectual part of the DNA. Today’s student or citizen has ceased to memorize and is instead tempted to “googlize” himself or herself. It is the Cloud that feeds instant information and solutions to any questions and problems. Considering that the human brain has an enormous capability to store and process data, the addiction and resort to search engines on the Web rather than the processing capabilities in the brain is quite capable of causing human atrophy. We should encourage ourselves to memorize in competition to Google, using the search engine to extend our memory to digital depths and expanses previously not capable of being handled. As one googles by habit as well as temptation, it pays to recreate questions, inter-relate answers, and acquire scan-and-store memorizing capabilities.
Physical artistry
Many things may change in life with technology but physical activity and artistic expression tend to be fundamentally unchanged at the core. Sports and arts are the best expressions of learning effort and execution perfection. They signify the core of mind-body coordination that can provide unchanged levels of physico-mental challenge. As a corollary, sports and arts are best suited to restore the eroding capabilities of the human race. Extra-curricular activities in academic and business settings will go a long way in enabling a human being function at his or her maximal capabilities. The strength of public performance, testing the limits of physical and mental endurance, is often a great influence on the performers as well as the spectators. Activity and artistry come naturally to human life; the new generation should get over synthetic technology and sedentary living to realize the natural potential of hard sports and fine arts.
Emotional skill development
If rational skills enable performance at a fundamental level, emotional skills accentuate or attenuate performance. Performance often takes place in a team setting, within a company, an industry, a country, and even globally. An ability to relate oneself to the individual and group dynamics, and in a broader sense to the larger society, is essential to complement rational skills. However singular emotions are less relevant than specific combinations of emotions if the rational skills are to be meaningfully reinforced. A conceptual framework of emotional skillsis presented below.
Dynamic self-worth
Every human being has some worth as every activity he or she is capable of performing has some value. It is important for individuals therefore to be constructively aware of the value they can bring to the table. The greater the rational skill level one has, the greater will be the value that one can bring to one’s organization. The greater the extent to which one is self-reliant, the greater is also the worth that one has. A heightened awareness of self-worth on the part of each team member is essential for healthy team dynamics. At the same time, the concept of self-worth has to be tested dynamically with the changing needs and contemporary skill availability. If a person fails to update skills in dynamic equilibrium with the environment self-worth that was justifiable at an earlier point of time would simply become an egoistic state of mind.
Collaborative competition
A techno-savvy generation tends be confident of its ability to manage challenges through technology. A high level of skill inventory is desirable but not always possible. This applies to individuals as much as to organizations or corporations. Individuals and companies that place excessive emphasis on self-reliance and are aggressive in competing with all others are likely to be uncompetitive in the end. An ability to leverage on each other’s skills and assets helps individuals and corporations to optimize on costs and efforts. The ability of Sony and Samsung to collaborate on flat panels helped both organizations enhance scale and competitiveness. Automobile makers and component makers have succeeded in continuous product value addition through working as competitive partners rather than wielders of buyer or supplier power. For-profit and not-for-profit organizations can collaborate for greater economic and social synergy. An ability to collaborate with apparently competing or contesting team members, departments or domains requires high strategic maturity.
Respectful independence
The new generation is independent, emotionally and economically. Even in countries that traditionally believed in joint family system proximity rather than togetherness seems to be gaining ground. Certain advanced countries which inculcate independence from the very early years probably promote a culture of independence far too aggressively. Such culture could potentially fail to take advantage of the wisdom that comes with experience and the maturity that comes with age. Generational gaps have been a reality of human evolution, with each successive generation believing that it knew better than the previous generation. History, however, is replete with examples of how heeding to seasoned advice would have led to more favorable outcomes. Regardless of integration of such cultural hues in the family and educational systems, professionals should make special efforts to balance the urge for independence with the desirability of gaining from the seasoned and experienced seniors.
Ethical compliance
Ethics are what differentiate a true professional from an opportunistic player. Ethics are easy to espouse but hard to live by. Ethical compliance comes from a value system that is ingrained deep within the psyche of each individual. Lasting recognition follows ethical compliance. Ethical compliance often demands sacrifices that go beyond the call of normal work and a level of transparency that builds trust all around. Mahatma Gandhi epitomized ethical living through a noble cause, beyond compare. In each person’s life there would be opportunities to demonstrate through diligence and dutifulness, candor and collaboration, as well as concern and caring how personal and professional lives can be role models for others.
Social trusteeship
Pursuit of materialism is a concomitant of economic capitalism. As economic affluence grows and purchasing power increases the new generation understands the success of prosperity rather than the tribulations of poverty. On the other hand, professionals have an important role in influencing how wealth is generated and deployed for the good of the society. These extend from choice of product lines, business spaces, product development, and manufacturing efficiencies to customer service and corporate social responsibility. The new generation should utilize science and technology to develop products and services for the bottom of the social pyramid.
NextGen: Skill matrix
Human life is paradoxical. One (either individual or organization) needs to score over the others to remain competitive and generate wealth. Yet, one needs to live for others to lend equity and stability to social and economic systems. Both the objectives are essential and complementary. The former needs rational skills and the latter emotional skills. As new generations raise immersed in new technologies it is likely that they miss out on their intrinsic physic-mental faculties and relationship human skills. Only by committing to combine rational skills with emotional skills the new generation can make the society a better place.
Posted by Dr CB Rao on October 16, 2010
The world is moving into a counterintuitive phase where higher levels of technology which require greater levels of skill are also rendering larger numbers of people less skillful. Progressively, at a very basic level slide rules were replaced by calculators and calculators by computers in engineering education; switches of brain neurons got replaced by mere taps of fingers. From pilotless planes to driverless cars, and from synthetic music to combinatorial chemistry the future of automation is clear.
The relentless progress of science and technology is, without notice and awareness, creating an intellectual skew. While a few elite educational and research institutions will keep developing experts who can develop such controlling technologies the broader universe of educational institutions are likely to churn out multitudes of professionals who are induced to subordinate conventional braininess to the more convenient electronic guidance. Increasing technological intensity also makes individuals introverted and impersonal, depriving them of social skills.
The technological trends and educational mores raise serious questions. Will the Next Generation Professional be any longer an original thinker or guided doer? Addicted as he or she is to smart devices and virtual networks would the professional of the future be able to connect with the society as the previous generation professionals were? Do we need to consciously reinvent the process of professionalization to restore the human element of an increasingly overwhelming techno-economic system? Will the new generation focus only on economic prosperity to the detriment of social equity? The answer lies in reeducating the new generation through a mix of rational and emotional skills.
Rational and emotional skills
As long as society remains an agglomeration of human beings, and not robots and not even humanoids, human being has a great responsibility to retain the essential skills that characterize fundamental human capabilities. From a viewpoint of an economic society or a business organization from the plethora of human capabilities and attributes, a prioritized set of rational and emotional skills can be identified that must be nurtured through generations.
The five rational skills are Optimal Reading, Manual Writing, Mental Calculation, Extended Memory, and Physical Artistry. The five emotional skills are Dynamic Self-worth, Collaborative Competition, Respectful Independence, Ethical Compliance and Social Trusteeship. The rational skills are so named because of the need to steer the learning generation, through conscious efforts, away from electronic dependence of minds to rediscovery of original thinking and natural performance. The emotional skills are so named because of the need to combine the very many emotions a human being has into synergistic combinations that enhance human personality and social relatedness.
These ten rational and emotional skills ensure that the generations regain their intuitive and intrinsic ability for (i) multi-faculty development, (ii) synchronization of the mind and the limbs, (iii) alignment of the head and the heart, (iv) complementing of the gut and the soul, and (v) harmonization of the individual and the society. Development and utilization of these skills will ensure that technology makes life lively than lifeless. Science, technology and business will have humanization theme as the core of development. Every turn of technological development must be utilized to reinforce these rational and emotional skills.
Rational skill development
The hypothesis of this Blog Post may be counter to the beliefs of the new techno-generation which believes that simplification, virtualization and even elimination of established practices is inevitable and irreversible. The reality, however, is that such technology buffs are losing their mental and intellectual acumen because of dependence on electronic gadgets and software tools. Without attempting to reverse technological evolution there is a great potential to combine new technologies and past practices to enhance the intellectual capabilities in the overall. Mercifully, technological evolution is so diverse that the essentials of life and living, seen to be under extinction, come back to life, albeit reinvented with greater sophistication. As discussed below, this exciting nature of technological evolution is the core of human skill development too.
Optimal reading
Dr Samuel Johnson, the British author par excellence stated “Books, like friends must be few and well-chosen”. John Ruskin, the great literary expert stated “All books are divisible into two classes: the books of the hour, and the books of all time”. Digitization of print and writing, and emergence of electronic readers have placed in our hands unimaginable bytes of reading material. The new generation must, however, learn to be discerning and focused even as it is enabled to be diversified and unbounded in its quest for knowledge. Digital libraries are a highly portable boon which can be effectively utilized to scan the world of writings. However, every reader must have his own physical book shelf which stores for him the “well-chosen books of all time”. An optimal mix of digital and physical book reading keeps a person better informed and better equipped.
Manual writing
With the ubiquitous growth of the personal and laptop computers and their typewriting style key boards it looked as if the new generations would be completely oblivious of handwriting. For those generations of teachers and taught that started their education on slate and chalk the key board threatened to be the greatest disconnect with the fundamentals of learning. With tablets (thank Apple, once again) coming onto center stage vigorously a human hand and an electronic slate can coexist harmoniously, and even productively. Manual writing provides for free flow of thought and calibrated conversion of thoughts into letters. The beauty and the orderliness with which one’s letters are formed constitute the positive reflections of one’s personality. Unlike the rigidity of a key board typing, the flexibility of hand written scribbles is often the fountainhead of spontaneous creativity. One should never lose the touch and feel of manual writing to be able to stay innovative.
Mental calculation
Ever since the discovery of numbers took place, human life became dependent on the mastery of numbers. Such mastery has two components: an ability to form the numbers, and an ability to interpret numbers. Calculative abilities in the past distinguished one over the other in sizing up and scaling up challenges and opportunities. With the advent of calculators, people lost the ability to make quick mental calculations. The adverse impact of this sadly goes beyond the obvious; it impacts the spatial ability of a person. While there may be no educational need in today’s world to practice multiplications and divisions of double digit numbers, a grip on number manipulation and computation provides a significant strength to tactical transaction and strategic investment perspectives of social and economic life.
Extended memory
Open book examinations and multiple choice questions have served to reduce mindless cramming and to make solution development a guided activity for students. However, technology has taken over the minds of people making the human race virtually memory-averse. This is a great risk for human genetics and the evolution of the intellectual part of the DNA. Today’s student or citizen has ceased to memorize and is instead tempted to “googlize” himself or herself. It is the Cloud that feeds instant information and solutions to any questions and problems. Considering that the human brain has an enormous capability to store and process data, the addiction and resort to search engines on the Web rather than the processing capabilities in the brain is quite capable of causing human atrophy. We should encourage ourselves to memorize in competition to Google, using the search engine to extend our memory to digital depths and expanses previously not capable of being handled. As one googles by habit as well as temptation, it pays to recreate questions, inter-relate answers, and acquire scan-and-store memorizing capabilities.
Physical artistry
Many things may change in life with technology but physical activity and artistic expression tend to be fundamentally unchanged at the core. Sports and arts are the best expressions of learning effort and execution perfection. They signify the core of mind-body coordination that can provide unchanged levels of physico-mental challenge. As a corollary, sports and arts are best suited to restore the eroding capabilities of the human race. Extra-curricular activities in academic and business settings will go a long way in enabling a human being function at his or her maximal capabilities. The strength of public performance, testing the limits of physical and mental endurance, is often a great influence on the performers as well as the spectators. Activity and artistry come naturally to human life; the new generation should get over synthetic technology and sedentary living to realize the natural potential of hard sports and fine arts.
Emotional skill development
If rational skills enable performance at a fundamental level, emotional skills accentuate or attenuate performance. Performance often takes place in a team setting, within a company, an industry, a country, and even globally. An ability to relate oneself to the individual and group dynamics, and in a broader sense to the larger society, is essential to complement rational skills. However singular emotions are less relevant than specific combinations of emotions if the rational skills are to be meaningfully reinforced. A conceptual framework of emotional skillsis presented below.
Dynamic self-worth
Every human being has some worth as every activity he or she is capable of performing has some value. It is important for individuals therefore to be constructively aware of the value they can bring to the table. The greater the rational skill level one has, the greater will be the value that one can bring to one’s organization. The greater the extent to which one is self-reliant, the greater is also the worth that one has. A heightened awareness of self-worth on the part of each team member is essential for healthy team dynamics. At the same time, the concept of self-worth has to be tested dynamically with the changing needs and contemporary skill availability. If a person fails to update skills in dynamic equilibrium with the environment self-worth that was justifiable at an earlier point of time would simply become an egoistic state of mind.
Collaborative competition
A techno-savvy generation tends be confident of its ability to manage challenges through technology. A high level of skill inventory is desirable but not always possible. This applies to individuals as much as to organizations or corporations. Individuals and companies that place excessive emphasis on self-reliance and are aggressive in competing with all others are likely to be uncompetitive in the end. An ability to leverage on each other’s skills and assets helps individuals and corporations to optimize on costs and efforts. The ability of Sony and Samsung to collaborate on flat panels helped both organizations enhance scale and competitiveness. Automobile makers and component makers have succeeded in continuous product value addition through working as competitive partners rather than wielders of buyer or supplier power. For-profit and not-for-profit organizations can collaborate for greater economic and social synergy. An ability to collaborate with apparently competing or contesting team members, departments or domains requires high strategic maturity.
Respectful independence
The new generation is independent, emotionally and economically. Even in countries that traditionally believed in joint family system proximity rather than togetherness seems to be gaining ground. Certain advanced countries which inculcate independence from the very early years probably promote a culture of independence far too aggressively. Such culture could potentially fail to take advantage of the wisdom that comes with experience and the maturity that comes with age. Generational gaps have been a reality of human evolution, with each successive generation believing that it knew better than the previous generation. History, however, is replete with examples of how heeding to seasoned advice would have led to more favorable outcomes. Regardless of integration of such cultural hues in the family and educational systems, professionals should make special efforts to balance the urge for independence with the desirability of gaining from the seasoned and experienced seniors.
Ethical compliance
Ethics are what differentiate a true professional from an opportunistic player. Ethics are easy to espouse but hard to live by. Ethical compliance comes from a value system that is ingrained deep within the psyche of each individual. Lasting recognition follows ethical compliance. Ethical compliance often demands sacrifices that go beyond the call of normal work and a level of transparency that builds trust all around. Mahatma Gandhi epitomized ethical living through a noble cause, beyond compare. In each person’s life there would be opportunities to demonstrate through diligence and dutifulness, candor and collaboration, as well as concern and caring how personal and professional lives can be role models for others.
Social trusteeship
Pursuit of materialism is a concomitant of economic capitalism. As economic affluence grows and purchasing power increases the new generation understands the success of prosperity rather than the tribulations of poverty. On the other hand, professionals have an important role in influencing how wealth is generated and deployed for the good of the society. These extend from choice of product lines, business spaces, product development, and manufacturing efficiencies to customer service and corporate social responsibility. The new generation should utilize science and technology to develop products and services for the bottom of the social pyramid.
NextGen: Skill matrix
Human life is paradoxical. One (either individual or organization) needs to score over the others to remain competitive and generate wealth. Yet, one needs to live for others to lend equity and stability to social and economic systems. Both the objectives are essential and complementary. The former needs rational skills and the latter emotional skills. As new generations raise immersed in new technologies it is likely that they miss out on their intrinsic physic-mental faculties and relationship human skills. Only by committing to combine rational skills with emotional skills the new generation can make the society a better place.
Posted by Dr CB Rao on October 16, 2010
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