Saturday, December 31, 2011

Leaders as Pioneers, Followers as Leaders: A Transformation Wish for 2012

In a few minutes, 2011 will pass into history and 2012 will usher in a new chapter at the stroke of the midnight of December 31. The human race as usual will put aside its worries and concerns of 2011 and rejoice for a moment, hoping that 2012 would bring better tiding. Also, everyone has typically a New Year Wish for oneself and for others. As a technical and managerial professional, I have some unique wishes for fellow executives, managers and leaders of various domains. I feel happy to share these expectations in my blog "Strategy Musings", for which this is the 52nd post for the year 2011, and the 121st post since I started blogging on strategy and management topics in 2008.

This blog post attempts to map certain contrasts in human thinking and behavior which if managed well could make us a better society, at least a corporate society to start with. One may not admit it, the human race is one of contrasts and contradictions. Polar extremes of behavior coexist in human life. At a stark level, the human being as a child is utterly dependent on the parents and caretakers but as the child progresses through all the stages of growing up, the evolved human being believes that he or she has moved to a state of apparent independence. Yet, as a senior citizen he or she realizes the fact of inescapable dependence, whether on the family or the State and caretakers. In essence, the human being is always as dependent as independent. Human life is one of dependent independence. Many other conflicts can be seen in individual human psyche; rich and impoverished, liked and disliked, praising and criticizing, awarding and awarded, and sublime and ridiculous, all simultaneously. At the core of relevance to management is the contrasting desire of a human being to lead and also be led.

Leaders and followers

The greatest of leaders also happen to be the greatest of admirers, fans or followers. They tend to derive their strength and recharge themselves through associations that do not necessarily correlate with their leadership that gets reflected in all that see and survey. The meekest of followers also turn out to be the greatest of leaders when circumstances demand. The humble common man could become an awesome manager when a crisis hits the society. Even a commonplace group of entertainers on a stadium could be cheer leaders. The raw talent and viral innovation of a limited visibility leader could catapult him to global acclaim as demonstrated by actor Dhanush's Kolaveri Di video!

The human organization, from chaos to orderliness, and from survival to growth has been governed by one singular concept of a few leaders and a mass of followers. Civilization has seen how just a few leaders with vastly varying characteristics could sway millions of people; to independence through non-violence as in the case of Mahatma Gandhi or Nelson Mandela, or to near disaster through warfare as in the case of Alexander or Adolf Hitler. As the industrial society took shape, the organizational model, be it of any domain - politics, government, administration, education, business, charity, art and media, for example -became the most symbolic platform for leaders and followers.

As all of these activities became more competitive the concept of singular leaders who can sway large organizations to remarkable results (a la Jack Welsh and Steve Jobs) has come to the fore. Simultaneously, however, the concepts of institutionalization of leadership processes and grass-roots leadership have also come to the fore. Leadership models have grown in multiplicity and complexity as theoreticians and practitioners started discovering that there is nothing linear or replicative in leadership. Leadership is seen to be intensely personal but organizationally contextual. Yet, as 2012 poses new threats to economies and industries, we may examine if there is a case for adjusting our corporate leadership models by evaluating and learning from models available in other domains as well as from what has been happening in society.

Elective, collective, collageal, rotational and singular

Leadership in corporate or industrial sector is quite different from what exists in other walks of society. Whether it is a totalitarian state or a democratic state, there tends to be a system of elective leadership or collective leadership. In an educational institution or a not-for-profit setting, there tends to be a system of collageal leadership or rotational leadership. It is not unusual for the heads of educational institutions to step down after completion of their tenure and become senior professors. The sports arena too offers interesting examples of captains reverting to positions of team players. To view in a perspective, practices and contexts in several non-business sectors offer potential for flexible and dynamic leadership models which equilibrate with not only leadership performance but also organizational flexibility. Leadership journey in these settings tends to be multi-role and also flexible and reversible, with several stake holders participating in leadership selection and movement.

In contrast, the leadership journey in industrial and business sectors tends to be a journey on a steep, slippery, tough-to-climb pyramid, which favours singular choice, and little scope for re-adjustment or retraction. Business culture has its success metrics clearly laid out almost as a "go-no go" gauge. Elevation and exit are strongly correlated with performance or non-performance of leadership. Leadership cannot find new homes in an existing organization and cannot, even if willing, continue to offer talent that is residual in relevance. This is a given cultural context which is seemingly getting more rigid than flexible in corporate and business organizations. This implies that corporate and business sectors are highly vulnerable or sensitive to the correctness or otherwise of leadership bets.

Leadership bets

That said, there have also been instances of erstwhile leaders returning to active leadership arena and reviving the fortunes of companies beyond expectations. The return of Steve Jobs to Apple is the most profound example of companies, rather than leaders, being the prodigal ones! The return of Michael Dell to Dell Computers, Larry Page to Google in terms of resumption of active leadership are examples.

Given the nature of leadership journey, leadership selections in corporate sector tend to be futuristic bets, which are as critical as bets taken on technologies, products and markets. Some organizations take what may be seen to be incredible and adventurous bets but succeed enormously. The unbelievable turnaround and growth of Fiat and Chrysler under Sergio Marchionne or the dramatic transformation of GE under Jack Welsh are striking examples of how leadership bets can pay off. On the other hand, there are examples of bets going awry too.

Many companies, therefore, plan calibrated multi-year transitions which are less of speculative bets and more of orderly leadership steps. The movement of Jeff Immelt into Jack Welsh's role at GE,and Andrew Witty into GSK CEO role are few examples of planned leadership transitions, either through internal pathways or external talent pools. In all such cases, however, the results have been impressive but not necessarily dramatic. The reasons are not far to seek. Each such elevation or induction of a singular leader through the calibrated selection process has been accompanied by movement of the other contenders from the company. Secondly, the calibrated selection process lays a premium on continuity and compliance. The leadership personality may not therefore support dramatic transformations.

Social trends

As with any other year, the society's destiny will be governed both by the leaders and the led. Yet, if one reviews the broad trends of 2011 (from global social networking to local street uprising), one may discover a potential for subtle but impacting tweak. There is a strong underlying current that suggests that the trend of extremely limited leadership qualifiers is under question by the broader civil society. There is an unfulfilled expression that leaders should not merely extrapolate the past but must necessarily do something innovative to realize India's potential.

The social commotion also suggests that the masses are leading new expressions. Probably each citizen is examining if he or she is likely to follow a beaten path or lead onto a new path. Collectively, the question is if we as a human race write a new chapter in history by ourselves or pass meekly into a chapter written by a few others? The solution to this does not lie in uncoordinated, and often disruptive, mass actions. The solution could be more in terms of busting the traditional leader and follower models.

Leaders as pioneers, followers as leaders

Leadership is often seen in terms of controlling the destiny of an organization, with business performance serving as the key metric. A leader is expected to be a visionary and not necessarily a pioneer. If leadership is seen in terms of futuristic outlook and innovation, a leader who has the highest futuristic and innovative outlook would qualify to be a pioneer. While visionaries often succeed even with current business models or modifications thereof, a pioneer would chart out into new products or new businesses on a first-to-market basis. The more pioneers exist as leaders or as more leaders evolve into pioneers the greater is the potential of continuous and sustainable business growth.

Leaders are enabled to be pioneers when followers assume leadership. When strategic planning and operational execution are pushed down the hierarchy followers become progressively leaders. On a companion thought when freedom of expression and execution are enabled at ground level, followers become capable of exercising their innate faculties. The reason for good science and technology getting made by the young as much as by the old is related to this subtlety of free thinking that permeates hallowed research and development laboratories. The social activism being shown by the masses is indicative of the yearning for grassroots leadership. Business and industry can thrive by converting the grassroots energy into accelerated performance by providing greater leadership avenues.

Utopian or practical?
As with many concepts of the posts in this blog, the concept of leaders becoming pioneers and followers becoming leaders would appear utopian; nice to say but difficult to implement. Probably, the corporate world which views management and leadership in the twin lenses of hierarchy and beauracracy would find it impractical. The truth, however, is that alternative leadership models in governance, public service, research and education have shown how leadership could exist at front line or operating levels. Certain other domains such as media have demonstrated as to how pioneering is an integral part of leadership. These institutions have also led to viral entrepreneurship with people starting at the bottom of the ladder becoming leaders in their own right. Journalists becoming media CEOs or media barons and light boys becoming movie directors is not uncommon.

As organizations become conscious of the constraints they are subjecting themselves both at leadership and follower levels by setting expectations of mandated "lead-led" behavior, the industry would continue to have scores of leaders who are just content to follow the beaten path, and not take the challenging paths of pioneership as well as masses of followers who would not even dream of testing whether they have any leadership abilities. The key for corporations, businesses and industries as 2012 poses even more challenges, economic and business, is to unleash a bit of freedom and creativity in the organizations, and induce both leaders and followers to explore paths of higher challenges for leaders and followers, of pioneers and leaders respectively. This alone will ensure supremacy of optimism and growth over pessimism and stagnation.

Posted by Dr CB Rao on December 31, 2011

Sunday, December 18, 2011

Leadership Succession: Nexus as Success Factor?

In many ways, this blog post is a sequel to the earlier post by the author on leadership succession, also set in the context of Tata Group leadership succession (“Successful CEO Transition: Model of Continuity with Change”, Strategy Musings, August 9, 2011). Together, both the posts develop a wealth of practical insights into leadership succession relevant for the Indian industrial and business context.

The saga of identifying a successor to the extraordinarily famous Ratan Tata, the Chairman of the USD 83 billion Tata Group of India has ended with the selection of Cyrus Pallonji Mistry of Shapoorji Pallonji Group as the successor. Cyrus would be under the care of Ratan for just over a year as Deputy Chairman and take over as the Chairman when Ratan steps down in December 2012. As one is aware, the Shapoorji family, holding 18.4 percent stake, is one of the largest shareholders of Tata Sons, the holding company of the Tata Group. The selection of Cyrus after months of global search begs the question if some kind of prior ties are essential for high profile leadership successions. Clearly, the Tata Group has its evolved over the years as a conglomerate of solid institutions, and therefore, independent of the choice of a new steward the Group could still make itself proud on the strength of the leadership at Tata Sons, the holding company as well as in the individual companies.

The succession saga, however, brings forth several important questions. The first relates to the value proposition, either of the conglomerate or of the candidates that could influence the succession process. The second relates to whether an Indian conglomerate could ever seek to have a rank outsider, even an expatriate, as a Group leader. The third relates to whether an Indian conglomerate could seek to have an executive head who is completely unconnected with the founder family. If the answer to the preceding two questions is in the negative, the fourth question is how a conglomerate would develop internal leadership talent that could take over the stewardship. The fifth question is whether the singular leadership model loses its relevance at some point and a format of collective responsibility becomes expedient, if not imperative. The sixth question is how intimately would the Board or the outgoing chairman need to be associated with the selection process. This post discusses some of the above issues while welcoming the apex selection at the Tata Group.

Thematic proposition

The starting point for any recruitment effort is the value proposition. In terms of apex leadership succession, crafting of a value proposition could be challenging. While one cannot be a privy to the value proposition that the Tata Group would have laid out, one could postulate that leadership at that level requires a thematic proposition rather than a job description. For example, having made respectable strides in globalization with acquisitions such as Tetley Tea, Daewoo Commercial Vehicles, Corus Steel and Jaguar-Land Rover automobiles, the Group could have looked at a more aggressive globalization as its next trajectory. The Group also could be looking at additional sunrise sectors to enter and grow. This could have been a reason for the Group to look for a global executive, among others, to take over the reins.

Conglomerates and corporations alike need a strategic vision to inspire succession. While the new incumbent would certainly be capable, and even expected to develop a new vision and strategy, a thematic direction is clearly needed as the first step. For a group like Reliance it could be a theme of becoming a globally dominant oil and gas player or even in a broader sense an energy behemoth. For a group like GMR it could be a theme of become a global infrastructure developer. Yet, it could be open to debate if a single thematic proposition could be developed for a conglomerate having companies with widely varying product lines and business models. The thematic proposition (or propositions depending on the plurality of purpose in a conglomerate) would be the essential platform to discuss and debate the fit between the competencies and aspirations of the corporation (or the conglomerate) and the prospective leaders.

Cultural differentiation

One can presume that the Tata Group would have had a value proposition, if not a thematic proposition, that was inspirational and exciting. Yet, it has not been possible to secure a global leader from outside the extended Group or from outside the country. The Group's inability to get one such candidate makes one doubt if national and cultural factors have a strong play. Potentially, each potential successor from the external world would have been a successful player in his or her culture, or even in multi-cultural environments. That said, unless the home country culture is a strong component of the multi-cultural background it is likely that both the corporation and the candidate would be reluctant to make the switch.

That said, successful leaders could look beyond national cultures in their career journeys. The culture of the corporation could itself be distinctive and be adding an overlay to the national cultural factors. The challenge is whether value systems would be seen as a sufficient indicator of the culture or past performance record and whether the espoused plans would be a sufficient indicator of corporate and conglomerate culture. Whether a firm has been a revenue driven or profit driven company, whether it has been an innovation driven or imitation driven company and whether it has been risk averse or risk taking company could all be seen by potential leaders in making their assessments. However, if the succession itself is planned as a tool to change the cultural dynamics the corporation would need to articulate that as a component of the thematic proposition.

Promoter connectivity

Many large corporations and conglomerates in the Asian economies, including India, China, Japan and Korea have strong promoters and entrepreneurs as the founding members. In many such companies, family succession is taken for granted. When a Group such as Tata, Birla, Murugappa or Reliance deliberately initiates a global search, perceptions on whether the lack of promoter roots would be a positive or negative factor could be a major influencer. When at the end of an extensive global search the Tata Group fell back upon the scion of the major shareholding family there indeed developed a clear perception in the Indian analysts that promoter connectivity could tip the balance in selection.

As a corollary, it is open to debate if for heavily promoter influenced corporations or conglomerates, external professional leaders would be willing to take the bow. In successful promoter driven Indian corporations, while the promoters do build a large professional leadership bench very often that leadership team would prefer to work for the promoter than for another professional leader. The Indian corporations and conglomerates have probably to look for internal talent from the group rather than embark upon external search as the Tata group has done somewhat futilely. The pointer for the other Indian groups is clear; develop leadership that combines professional competencies and entrepreneurial spirit through customized programs.

Developing internal leadership

Development of internal leadership is neither a simple task nor a complex endeavor for today's Indian enterprises. Most firms are sufficiently globalized and have varied operating environments that could make them on par with any multinational corporation in terms of diversity and global challenge. The career pathway for any aspiring CEO should comprise the following essentials. Fundamentally, he or she should have led growth or turnaround in any enterprise through multi-functional expertise. He should have led global foray of businesses through overseas entity formation or growth. He should have led strategic transformation of the enterprise by identifying and establishing new businesses. He should have played a notable part in recruiting and nurturing top level talent.

Some companies have tried to integrate expatriate leaders into the Indian organizational system. Examples are Kim as the CEO in Videocon and Forster as the Group CEO in Tata Motors. Though such leaders accomplished much in their stints with the Indian companies, their personal and other considerations could not let them grow to the highest levels within the Indian companies. There seems to be, therefore, a case for focusing on internal development of leaders who would not have or perceive cultural barriers or founder barriers. As Hindustan Unilever demonstrated it would be possible for Indian leaders to assume global positions. There is no reason why Indian multinational corporations cannot develop Indian leaders to manage their global operations. It could be quite a simple process of passing them through targeted domestic and overseas assignments.

Singular versus collective leadership

It would be of interest to speculate or hypothesize what the Tata Group would have done if it had no Cyrus Mistry to fall back upon. Would the Group have considered a model of collective leadership? The experiences of having co-CEOs have not validated the hypothesis that two brains are better than one. Neither the Indian Wipro nor the Canadian Research in Motion have been able to fight competition despite having two CEOs. On the other hand, European firms, especially the German ones, have routinely co-CEOs. How should the Indian groups respond to any failures in getting singular leaders in succession searches? The answer may lie in stretching the available organizational structures and talent pools.

Typically, even the current structures provide for at least five positions at the top which could lead to certain collective leadership. These are the positions of Chairman, Vice Chairman or Deputy Chairman, Managing Director or CEO, Joint Managing Director, and Deputy Managing Director. In the event Groups fail to get a potential stalwart to succeed another stalwart, they could attempt to split the responsibilities amongst the above five positions and proceed to put in place a format of collective leadership. Under the model, there could be several options to delineating responsibilities. These could range from allocating companies in the case of conglomerates (and businesses in the case of companies) to different leaders to allocating individual stretch tasks and projects such as startup, turnaround, M&A and global assignments to individual leaders, both approaches involving significant rotation. As the collective leadership, with sequential experience, hones and institutionalizes itself there could also be a possibility of singular leadership emerging out of the process.

Leadership engagement

An important question in leadership succession is who gets engaged to the process of selection. In the case of Tata Group it has been a committee specially constituted by the Tata Sons Board and comprising Tata Group stalwarts, including ironically Cyrus himself. There are usually alternatives with the outgoing Chairman himself being actively engaged as in the case of GE and GSK or an independent search committee of the Board being engaged in CEO succession efforts. The level of engagement is relevant in terms of the ability to trace the past and present, and lay out a future. At the same time, the rapport that an outgoing leader and an incoming leader would develop is an equally determinant of the selection.

It is quite conceivable that an independent search committee which does not involve the outgoing leader could be objective and clinical but fail to be emotionally connected while selecting the new leader. On the other hand, the outgoing leader could be emotionally connected not only in terms of continuity of values but also in terms of protecting his team. The body that selects the new leader may therefore have to be constituted in the context of the break or continuity with the past that is envisaged, in terms of both the business model and the leadership team. The period and intensity of overlap between the outgoing and the new leader could also be dependent on the nature and extent of change that is sought after.

Change with, or sans, continuity

Selection of a new leader is always a momentous opportunity to script a new path for a corporation or conglomerate. Many organizations gain by leadership stability and internal succession. Marriott Hotels, for example, only now has the current Founder-Chairman who has been at the helm for 40 years handing over the baton to the Chief Operating Officer who has been in the firm for the last several years driving global expansion. On the other hand, a global IT major has suffered because of mercurial changes in not only executive leadership but also the board of directors itself. Planning for succession and executing for succession are extremely important for corporations and conglomerates to revalidate, rejuvenate, retool and regrow themselves from time to time. In the ultimate analysis, there is no substitute for the leadership to be always at the edge of futuristic and competitive business development with a well prepared leadership team to ensure seamless change with continuity.

The successful nexus in terms of leadership selection in such a context could only be in terms of an ability to develop and execute a thematic vision, in alignment with cultural factors and in cognizance of stakeholder interests (and promoter proclivities). A visible mark of potential backed by a proven record of success could strengthen the new leader's ability to put his stamp on the corporation’s growth path. The concept of change with continuity is balanced by a concept of nexus with the leadership ecosystem appears to be the leading lesson from the Tata Group's leadership selection saga. A strong internal leadership pipeline and a collaborative collective leadership could act as appropriate supplements and substitutes for the Tata model. The composition of, and the role played by the selection committee, could shape the focus and the forces of change in leadership succession in an influential manner which the outside world may not be able to perceive.

Posted by Dr CB Rao on December 18, 2011

Wednesday, December 14, 2011

Foreign Direct Investment (FDI) in Indian Retail: A Necessity or Luxury?

Perhaps no policy decision has evoked so much controversy in the liberalized India as the decision by the Government of India (GoI) to allow foreign direct investment in multi-brand retail. Parliamentary uproar has forced the GoI to put the decision on hold. Along with that a whole series of measures to allow FDI in other sectors such as aviation also could be put on hold. Given that India had implemented several other economic liberalization measures without even a whimper of protest earlier, the backlash against the FDI in retail is surprising. As with any issue that is laced with emotional polemics, the issue of FDI in retail has perhaps been more of optics than analytics.

Part of the resistance could be due to the fact that the decision appeared to have been taken unilaterally by the GoI without sufficient consultations with various political parties or with the State Governments. The effort to address this shortcoming by providing a significant say to the States in the approval processes or by requiring localized purchases has failed to address the local concerns on one hand and raised doubts in the minds of foreign retail houses on the other hand. Against this background, this blog post attempts to develop an analytical framework for addressing the issues and deriving a solution.

Pros and cons

The matter of FDI in retail has evoked arguments, both for and against. The proponents believe that retailing in the overseas developed countries is characterized by robust supply chain systems and customer-centric management which require dedicated know-how. They believe that large format retailing requires huge investments which only FDI can provide. They believe also that FDI would, in fact, provide better and larger avenues to the farmers and small suppliers. And they do not believe that the corner retailers and the mom and pop stores would be snuffed out by the large retailers.

Needless to say, the antagonists of FDI cite exactly the opposite arguments. They question if retailing is such esoteric science that it would require foreign technology. They point out that many of the supply chain solutions probably have only the Indian software supporting them. They also believe that given the scale of large Indian corporations and business houses raising of funds for large format retail houses should not be an issue at all. And, the opponents are passionate in their belief that multinational retailers would squeeze out the Indian suppliers with their bargaining power while overwhelming the corner shops with their mighty stores.

Retailing, infrastructure or mindset?

Both the proponents and opponents miss the point that retailing in overseas countries has a dominant customer-centric characteristic and a unique sensory flavor that makes shopping a pleasure. At one extreme is Japan where product quality, packaging elegance and customer service make shopping a truly elegant and pleasurable event. At the other extreme is the USA where scale, scope, bundled offers and product choice make shopping a demand stimulating phenomenon. Multiple formats like Akihabara electronics district or Shinjiku shopping district in Japan, seasonal shopping in Dubai and Singapore and multi-tier stores (from COSTCO and WalMart to Sears and Target) in USA have blazed new trails in retail management. It would be great for the Indian consumer to experience all that in India.

Bringing world-class retailing experience to India is, however, not merely an issue of investments or management. It is a function of mindset change in respect of both the retailer and the consumer. The retailer needs foot-falls and purchases to sustain the investments. The consumer needs a broad shopping experience and a focused need fulfillment. Indian retailers and consumers see a conflict in that. Retailers are not able to judge if focus or breadth is the right answer. Reliance has, for example, a different shopping format/entity for each product basket (textiles, footwear, electronics etc.,) while Pantaloons and Big Bazar are the WalMarts of India offering most things under one roof.

Similarly, customers are not able to make the graduation in the shopping mindset from a functional, cheap product approach to a value-added, right-priced approach. As a result, the retail scene is marked by a co-existence of multiple shopping approaches, from stand-alone, single brand formats to all-in-one, multi-brand formats. The scene is also augmented by a trend of major manufacturers (especially in consumer electronics and white goods industries) setting up their own direct sales centers. Despite the advent of shopping mall and multiplex culture, there does not, therefore, seem to be a fundamental transformation in how products are retailed in India. To be able to achieve the transformation the behavioral dynamics of retailing and shopping need to better understood by both the retailers and consumers.

Transparency in transactions

Tracing back to the early economic theories, the modern day retailing is more than a transaction; it is one of needs and wants, matching them with products and services and providing fulfillment. A certain level of transparency is required between the retailer and the shopper to be able to make purchasing and usage judgments that are mutually beneficial, based on customer satisfaction and customer loyalty. The significant weakness in the Indian retail system relates to the inability of the customer to define what he really wants and the reluctance of the retailer to explain what he really has in terms of choice. The overseas retail houses overcome this by a combination of measures such as dedicated sale personnel, clear display of products with key product features, return and exchange programs, online shopping services, seasonal promotions and loyalty programs.

Among these, the return and exchange programs serve as a powerful tool for the retailer and the shopper to trust each other and discipline themselves to make educated selling offers and purchasing decisions. It also requires a level of trust on the part of the customer to avoid misuse of the program. India has a long way to go before such programs can take root. Typically, this requires establishment of a large format store concept to be able to manage the return and exchange logistics effectively, and in collaboration with the manufacturers. This feature is essential to keep the selling machine operating during the times when major model upgrades could occur. The willingness and the ability of Apple retail system to discount the phased out product while launching the newer generation product helped in seamless transition in the i series. Integration of the supply chain on an end-to-end basis is a key enabler for such flexibility.

Four pillars

Synthesizing the above, four pillars of modern successful retailing emerge. These are display management, supply chain management, information technology management and customer relationship management.

Display management

Display management is both a science and art. A retail house must have a clear product plan, spatial plan and layout plan to ensure that the customer is afforded accessible visual appreciation of the products with clear definition of key product characteristics and is able to exercise an informed choice. The store format of a worldclass retailing system is like planning a manufacturing or research facility, including not only shelf space but also people space, differentiated incoming and outgoing material movements and adequate parking spaces. The foreign retailing houses can be expected to think and execute big in this area.

Supply chain management

Supply chain management (SCM) is the crucial determinant of modern retail economics. Decisions on global versus local sourcing, quality assurance, inventory turnover, cost competitiveness, supply alliances, cost and price determinations, collaborative forecasting, cold chain management, track and trace systems constitute some of the critical components of SCM. The expertise of some overseas retail chains is said to be in the systemic, and often ruthless, approach to procurement which lock in capacities and deliveries to lower pricing on an upfront basis and future higher volumes on a contngent basis.

IT Management

At the core of inventory-carrying and distribution-dependent fast moving retail management lies information technology. A complex web of analytics and IT systems ensure that the inherently low margin-high volume retail business models with potentially fluctuating demand, sales and inventory requirements are assessed and provided for in the most efficient manner. Algorithms and analytical models, accentuated by good IT, help in retail efficiency.

Customer relationship management

The overseas retail experience is significantly based on enhancing customer experience and loyalty. Those who shop in Japan cannot forget the wafts of "Simasen" greetings that envelope the customers. Good retail customer relationship arises from emotional connectivity in the store through empathetic personnel, systemic connectivity through understanding purchase preferences and sharing of higher sale through loyalty programs.

Expertise and resources

The above discussion leads us to conclude that the overseas retail model succeds on systemic, technology, behavioral and investment parameters. The advantage of FDI lies in terms of ready roll-out of globally standardized proven systems and beneficial access to huge resources required to establish large format stores nationally. It is debatable if the urge for economics in this fiercely competitive industry would make the foreign chains squeeze out indigent and indigenous suppliers or would expand the markets and create more jobs. Whatever be the likely situation, world class retailing is not a rocket science which the Indian business houses and conglomerates cannot master should they put their heart to it. One would therefore be surprised by the eagerness of the established Indian retail chains to court the FDI policy in retail.

Posted by Dr CB Rao on December 14, 2011

Tuesday, December 13, 2011

MIDAS (Momentum-Inertia Differential As Strategy): A Mechanistic-Behavioral model for Organizational Agility

Corporate leaders and organizational experts are, more often than not, concerned about the speed and responsiveness of organizational mechanisms. Be it product development, manufacturing innovation, technology renewal or go-to-market, the speed, the nimbleness, and the agility with which a corporation pioneers or responds is a determinant of its share and sustenance in the market place. There are often valid reasons as to why some firms are reluctant to work at top speeds. Mostly it is due to a risk perception that speed could be at the cost of quality in planning and execution and the possibility that shorter cycles could lead to greater investments. The bottom line, however, is that those firms which combine speed with quality would emerge as the leaders in industry battles.

The Indian market, one of the largest markets of the world, has many examples of how speed could influence profitable wins but could also lead to severe losses. The classic example is the differential speed of the Japanese consumer electronics majors (say, Sony and Panasonic) and the Korean consumer electronics majors (say, Samsung and LG) in addressing the emerging Indian market needs. The Koreans who were very agile and nimble in decision making and execution became the market leaders in India. Often, organizational speed is hypothesized to be influenced by the risk propensity of the organization. While not ignoring the connectivity between these two factors, this blog post examines a novel mechanistic or structural model of organizational speed and efficiency.

Momentum-inertia model

Every organization can be considered to be a machine of moving parts; with departments acting as machine sub-systems and people acting as machine components. As with any machine, an organization is programmed to perform certain repetitive tasks, with the components and systems (ie., people and departments) interacting and moving synchronously in the process. As a characteristic corollary, every organization also exhibits its own momentum and inertia as any machine would. The leadership of the organization may be considered the software of the machine that directs the sequence of machine operations. Treating leadership as a controlled variable, the momentum and inertia factors follow certain hypotheses as below.

The more repetitive the organizational tasks and processes are the more momentum the organization generates. Conversely, the more variable and unpredictable the organizational tasks and processes are the more fluctuating the momentum becomes. The leaner and more compact an organizational department is the less is its inherent efficiency. The larger and more expansive a department is it takes that much larger effort to build consensus and overcome the inertia. Clearly, organizations with high momentum and low inertia have the greatest possibility to be speedy, agile and nimble.

The goal of organizational design must therefore be to design the overall structure and departmentation on a model of standardized processes and lean structures to maximize the momentum-inertia differential. The essence of the Toyota Production System very much traces itself to these two design principles. That said, the essence of competitive industrial scenario is periodic, if not continuous, changes in products and processes to achieve competitive superiority in the marketplace. Momentum is, therefore, a compelling market necessity while inertia is an inevitable structural reality. Organizational design needs to come up with new paradigms to manage the momentum-inertia differential.

Maximizing momentum

A nimble organization develops its momentum by building on its successes and benefiting from its learning curve. The momentum of success is a function of the data base and analytics it builds in its operational model. The nimble organization always analyzes areas of waste and entropy loss in its planning, execution and monitoring processes and seeks to eliminate them. This again is a success factor for Toyota and several other Japanese manufacturers who constantly eliminate layers of waste through continuous observation and continuous improvement. The success of momentum also accrues through working with all the stake holders, such as vendors and distributors, to enhance their own momentum.

The momentum that arises from learning curve is the intrinsic ability of a person or department to do its act better each time out of experience. This had its roots in the early industrial engineering, Taylorisms and incentive systems. Over time, this has proved to be a pain point for the workforce with allegations of robotization. A view of the Maruti unrest in India links the workforce discontent to its inability to continuously ramp up production. It is important for the managements to identify the theoretical limits to learning so that employees have scientific benchmarks to rely on and own. Also, the learning curve has to be juxtaposed with two other curves, the quality curve and the value curve, to determine the optimal level of momentum.

Minimizing inertia

Human beings, and consequently human organizations, are genetically programmed to seek comfort in status quo. Even higher order entrepreneurs who revel and excel in nimbleness and speed are seen to find their zones of comfort and status quo at some stage. The status of normal employees is even more inertia-prone. However, from an organizational viewpoint, inertia starts from the reluctance of leadership to embrace change. This is usually typified by an unwillingness to redefine the vision and mission, despite transformational changes in the environment and also by an unwillingness to recognize that the core competencies, be it technologies or practices, need to be rejuvenated.

Inertia tends to be lower when more power and accountability is placed in one's hands. It also tends to be lower when change does not require a huge consensus to be built. Inertia is typically pared to the minimum when organizational culture promotes openness to ideas and incentivizes positive changes. Compact organizations which face the market opportunities and challenges directly tend to recognize the penalty of inertia far more intuitively than large organizations which are distanced from market dynamics.

MIDAS, and the leadership role

The foregoing leads us to a rather simplistic paradigm of maximizing momentum-inertia differential as a strategy (MIDAS) for corporate efficiency. It fits rather nicely into a 2X2 prescription grid of maximizing momentum through waste elimination and learning curve and minimizing inertia through change management and lean structures. While mechanistically, the model is viable, there is a leadership component that makes it sustainable. The leadership component has a strategic element to it. As earlier mentioned, leadership is to the mechanistic model of organization what software is to a machine system.

The leadership software for the mechanistic model comprises a fusion of change management and risk management. Change management requires a fundamental mindset of recognizing the possibility of environmental discontinuities and the potentiality of disruptive technologies, a faculty in which Steve Jobs excelled. Companies which held on to rapidly aging technologies, be it dot matrix printers or cathode ray tube televisions, paid the price irrespective of their scale. On the other hand, companies which have forced obsolescence onto their products consciously have prospered. Continuous investments for product and process renewals and new technologies is a critical requirement of change management.

Risk management is the other side of the change management coin. An ability to take risks comes naturally to some but risk taking can be nurtured as an organizational culture by leadership actions. An ideal way would be to encourage established managers and emerging leaders to take up certain risky pilot projects so that they get a hands-on experience of risk management. Such approach provides the visibility to the organization that a proactive risk-taking culture is a cultural DNA. A positive but balanced risk management culture minimizes organizational inertia, optimizes change management and enhances performance momentum.

Metrics for MIDAS

The suggested MIDAS model of momentum-inertia differential is structurally mechanistic with an overlay of leadership behavior. Key metrics for momentum-inertia differential could be go-to-market speed, product development time, service down-time, manufacturing setup changeover time, competitor response time, strategic re-orientation lead time and so on. Leadership has the responsibility to program the organization to put in place optimized systems of change management and risk management culture that can keep the mechanistic model of momentum-inertia differential in top gear.

Posted by Dr CB Rao on December 13, 2011


Monday, December 12, 2011

Strategic National Development: A Much Needed Paradigm Shift For India

Economic management has often been seen to be a four factor grid, comprising demand and supply factors as well as money supply and investment factors. Public and economic policies have focused on management of these four factors to optimize economic development. This traditional analytical framework has largely ignored what people stock could do to positively for nation building and transforming the economic fundamentals. Three decades ago, every policy maker wrote off people as a burden and liability rather than view them as a competence or asset for national development. Today, the paradigm is shaping to be different; the more people you have, and that too in the younger age group, the greater is the opportunity for economic resurgence and national reinforcement.

India is a classic example of the changed paradigm. Whatever is the supply side performance delivery or demand side potential opportunities that the advanced world sees in India, the people of India have made it happen. The intriguing thing, of course, is whether the potential of the people or the relative poverty of the people that made it happen. A condescending view is that the prosperity differential that India had to bridge is so vast that India has no option but to grow economically. A more realistic view is that the potential to grow is harnessed in an optimal manner only when public policy sets the right goals and enablers. This blog post proposes that an execution framework of strategic national development is indeed necessary to enlarge the country's potential and also convert the enlarged potential into enhanced economic performance.

Top 10 development triggers

It would be wise for the Indian policy makers to identify and focus on the development triggers that would have a cascading effect on the entire economy. The author believes that India's future economic superstructure can only be as robust as the foundations of its social and economic infrastructure. Creation of islands of excellence, be it a few manufacturing plants, software houses, starry villas or exclusive malls, is no substitute for an orderly development of a whole national infrastructure that can truly broad-base development. In the past, these islands of excellence used to be created around a few national competencies while the rest of the sectors and infrastructure struggled to support or keep pace; more often than not the rest of the sectors constrained the islands of excellence! For example, a computer can be made from order to plant delivery in less than three days in India but could require more than treble the time to inward and stack up the components and to ship out the finished product.

The Top 10 triggers for India's rapid economic growth in the author's view are the following: Evening education, universal healthcare, high speed bullet trains, express roadways, mega seaports and airports, slum redevelopment, Innovation parks, natural energy systems, river water grids, and political unity in diversity. These Top 10 triggers can be achieved only through an exclusive integrated, prioritized national development management framework that is strategic and long term, and is different from a departmental budgeting that emerges out of India's central and state government five year and annual budgeting processes. To set that distinctive process through, policy makers and people must understand the benefits of the Top 10 triggers and the need for the new strategic development management framework.

Top 10, the canvas

The Top 10 triggers are not mere standalone development islands; each of them would have cascading developmental impact for the Indian society and economy. The outlines of each of the Top 10 programs are etched below.

Evening education

A major deterrent for the below-the-poverty-line (BOPL) households in India to educate their children is their need to use them to augment the family earnings. No amount of public legislation or social counseling would make the BOPL households forsake the present for the future. The only way to ensure universal education would be a combination of banning of child labor and enabling of universal evening education for school and college education. The teachers, faculty and the course work for the evening education should be completely on par with the day institutions to ensure academic delivery. Also, to ensure that the BOPL households are motivated to accept college education as a goal for their wards, most such courses must have a strong, industry specific vocational component making the graduates immediately employable in the industry or business.

Universal healthcare

This is one area where the Indian governments, central and state, as well as the Indian corporate sector must do distinctly better. The horrendous AMRI hospital tragedy of the last week in which over ninety lives have been lost and several others rendered critical must open the eyes of the society and the stake holders to the dire need for drastic reforms in the Indian healthcare sector. Many more community clinics and hospitals need to be set up in each city and town for universal inclusiveness. The quality, affordability and safety of healthcare as well as the safety and upkeep of the clinics and hospitals must be made dramatically better. As opposed to any other investment and subsidy, healthcare investment and subsidy must rank the highest on the governmental and corporate agendas. A healthy nation will be a wealthy nation too eventually.

High speed bullet trains

The fuel efficiency of transportation of passengers and goods by rail is well established. India has not progressed beyond the rail network laid decades ago. India needs to have a parallel high speed rail infrastructure that is adequately elevated, fenced and multi-modally connected. All cities and towns above the population of 5 million should qualify for bullet train connectivity (In Europe bullet trains connect countries with population levels of even 1 million). As per the latest 2011 census there are several 5 million plus habitats in India which are also industrial and business centers in their own right. The leg-up to social mobility and industrial productivity that the bullet trains would provide would be remarkable. While the Government of India (GoI) has taken the first step by initiating feasibility studies with global high speed train corporations, it would be necessary to plan and execute quickly the high speed train infrastructure on a much larger canvas.

Express roadways

While the rail system is generally preferable to road transport for speed, energy efficiency and safety, road transport significantly scores on the grounds of door to door delivery, employment generation and flexibility to reach anywhere in India, given the thousands of rural and urban habitats in India. However, national highways and the golden quadrilateral expressways are less than 2 percent of India's total road length which itself is woefully short of the requisite level. A national expressway system complete with city entry and exit systems and plentiful grade separators is an urgent necessity. Land acquisition which has been a major barrier to road development needs to be squarely addressed by providing ownership of road amenity complexes to the displayed urban and rural landowners. A new land acquisition act for expressway development would be in order.

Mega seaports and airports

Successful and productive globalization requires India having large and accessible entry and exit points for movement into and out of India, for people and products. India's seaports and airports are rather infamously congested and each expansion typically takes years to complete. More often than not, the upgraded facilities become grossly inadequate to cater to the expanded demand levels that arise by the time of completion. If India would be the third largest economic power by 2035 there is a need today to plan for the likes of Singapore seaport and airport. Such a futuristic infrastructure would need to be integrated with the bullet train and expressway network that was referred to earlier to ensure efficient end-to-end rapid flow. India could take a different approach in this futuristic global bridging by co-locating the futuristic mega seaports and airports, typically in an area of 1000 to 2000 acres each. The co-location would provide significant logistics, freight forwarding and customs infrastructure benefits to exporters, importers and travelers.

Slum redevelopment

A slum is an unplanned chaotic habitation with practically no access to civic services. Slums exist both in urban and rural contexts in India and are considered disruptive to progressive development of land assets. Universal education and healthcare or creation of glitzy infrastructure development would not by itself eradicate the attitudes that perpetuate and expand slums. The spatial and behavioral issues that cause and perpetuate slums need to be addressed. The attempts by the governments to remove slums and rehabilitate slum dwellers have so far failed to make a tangible impact as the rehabilitation has been to far off locations. Slum development would be successful when the slum dwellers are rehabilitated in the redeveloped land. An appropriate spatial planning model which provides a small piece of land for vertical rehabilitation while leaving the larger parcel for redevelopment for other commercial purposes would be beneficial. In fact, slum redevelopment could be a very lucrative option for the Indian real estate sector.

Innovation Parks

India must target innovation as the foundation of future growth. Indian scientists and technologists can do wonders in their domains if their start-up costs, especially on land and facility shell are taken care of. Establishment of science and technology parks by the governments where such laboratories and pilot plants could be offered free of charge up to a reasonable period, say 5 years, would be very helpful for supporting innovation. The innovation parks could, over a period, nurture an innovation-led entrepreneurial ecosystem on the lines of such parks that are successful in Sweden. Eventually, such parks would also attract higher academic institutions to either participate or network. Interestingly, the Indian Institute of Technology Madras (IITM) has taken the reverse initiative by setting up its own IITM Research Park, albeit on commercial lines.

Natural energy systems

If India has something in plenty it is the natural energy, be it in the form of solar energy, ocean energy or wind energy. Of the three modes, solar energy has the most potential for ready exploitation. The concept of solar cell farms is already tested. In addition, every skin or surface of a product or facility which is exposed to the Sun has the potential to become a solar power house. Toyota's pioneering hybrid car has, for example, come up with a solar roof top to further generate power. In India, with intelligent planning, all residential energy requirements as well as street lighting needs may be met through solar systems. The governments must extend major incentives to popularize the solar energy systems followed by wind and ocean energy systems. Though the latter two are less flexible compared to the solar systems they too have their utility. Some areas are particularly suitable for wind energy while some are well suited for ocean energy.

River water grids

Despite over 60 years of independence, disputes on river water usage continue to dominate the inter-State relationships. The latest unrest in the States of Tamilnadu and Kerala on Mullaperiyar dam issue is a stark example of the conflicts that could occur on river waters. The only solution could be to develop river water grids which could provide equitable solutions to all the states. In the past, such efforts could not make progress because of lack of technological tools and investment vehicles. By making a calibrated beginning and extending the concepts progressively better impact may be achieved. For example, Andhra Pradesh and Maharashtra could collaborate on linking up Krishna and Godavari rivers to start with. Once the regional projects are successful they may be connected with each other for muti-regional, and eventually, national river grids.

Political unity in diversity

At the core of Indian democracy lies the freedom of expression enshrined in the constitution. The society's freedom of expression is channeled through the political institutions. The democratic urge of the people and the constitutional provisions of the nation have led to a very high degree of political plurality. While this by itself is not bad, the ideological positioning and posturing that accompanies such plurality and the powers legislators have to stall and veto parliamentary proceedings have taken a toll on the productivity and efficiency of the Indian governance systems. India as a country is held out as an example of unity in diversity. Some degree of political alignment on broad economic parameters while ensuring political plurality would go a long way in ensuring India's competitiveness as a nation. From an earlier era of single party rule India has come a long way in terms of coalition politics. The sooner the next step of achieving all-party consensus on key issues is taken the better it would be for the Indian economy.

Development management

The Top 10 programs as listed above require a different management paradigm. Each would require an administrative vehicle that has the ability to plan, resource and execute each of the mega programs. In the past, establishment of the National Highways Authority of India and the Airports Authority of India had enabled fast track development of specific projects. The Top 10 programs are multi-ministerial and pan-Indian requiring tremendous collaboration and coordination between the different states and centre and their ministries. For their success, there needs to be a phenomenal gearing up of resources, which has to be carefully planned for in advance through capacity augmentation and technological upgradation.

Principally, for example, the programs would require multi-fold increases in the output of iron and steel, and their value added products as well as a wide range of construction materials. There would be a tremendous upsurge in the demand for various types of capital goods. The Top 10 program would require a total mapping out of scientific, technical, financial and manpower requirements on a 10 to 20 year horizon and a clear articulation of imported and indigenous inputs. In some cases foreign technologies and management know-how as well as foreign aid would be required. On the lines of the UID Authority, a high power intellectual leadership organization, comprising the best of public sector and private sector leaders, with exceptional empowerment and accountability needs to be created to execute the Top 10 program.

Paradigm shift

India as a nation cannot become economically big without thinking big on the developmental perspectives. India is at the cusp of a new growth wave. If the growth agenda is not conceptualized in its entirety the growth potential would be sub-optimized. The classic ministerial and departmental five year planning process needs to be replaced by a more strategic multi- ministerial and multi-departmental development management process. A paradigm shift towards mega development planning and a willingness to create mega execution authorities is vitally required to harness India's full development potential.

Posted by Dr CB Rao on December 12, 2011

Sunday, November 27, 2011

De-globalization and Re-localization: Towards One Economic World

The growth of all developed countries had been in a large measure due to such countries driving their industrial and economic growth based on not only strong internal consumption but also aggressive overseas exports. The exports from developed countries typically comprised technologies, capital goods, raw materials, components and finished goods to other countries. In recent years, the developed economies have started to support their faltering economies by outsourcing their production to low cost emerging economies while the emerging economies started adopting the developed countries' model of export led growth. In the meanwhile, the global financial volatility of the last several years continues unabated. In fact, it is spiked up by the growing public debt of several developed countries and collapse of domestic demand-supply bases in such countries coupled with unpredictability of exchange rate regimes. This has, in turn, cast a serious shadow on the relevance of export led growth models that are sought to be pursued by the emerging economies.

There are, of course, significant differences in the characteristics of the developed and developing economies. The developed countries are characterized by flagging demand and low job creation, especially in the manufacturing sector, in a demographic shift towards the aged and an economic mix dominated by services. The developing countries are characterized by surging demand and high job creation, boosted by a demographic shift towards the young but constrained, however, by poor quality of infrastructure and huge urban-rural and rich-poor divides. The export led and foreign investment led models of growth of emerging markets are threatened by the economic uncertainties faced by the developed economies. This has depressed demand and increased the global financial volatility which has, in turn, affected investment flows. There, however, seems to be little appreciation by policy makers and industry leaders of the emerging markets on the risks to their growth models. The emerging markets seem to be chasing the overseas chimera while ignoring the domestic growth needs. There is a need for both developed and developed countries to re-prioritize the globalization and localization models.

Viability motive in developed countries

As the Eurozone crisis demonstrates, developed countries are committed to sustaining current living standards affected by lower incomes and lower savings with lower costs of products and services. Their emphasis is on searching globally for the least cost sources even while continuing the approaches to develop new products and new markets. While product development has no doubt accelerated in the last two decades in the developed economies the acceleration has not been a determinant of greater gross incomes. The impact of enhanced innovation is reduced by the shorter product life cycle. New products typically substitute the previous generation products rather than co-exist. With the consumption driven society facing incomes crisis, the strategic mindset of the developed markets is focused on sustaining viability through cost competitiveness rather than through value enhancement.

The strategic mindset of viability at any cost (actually at the lowest cost possible!) reduces the innovation levels due to reduced investments on research and asset modernization. At times, the unceasing quest for the lowest cost also impacts quality as demonstrated by the problems faced by certain product categories due to imports from certain countries. The financial orientation is compounded by an analyst and investor mindset which relentlessly focuses on quarterly results, especially corporate profitability and shareholder returns. This emphasis, no doubt, trains the managements to conserve resources and minimize waste but it also makes them risk, investment and innovation averse while driving them to globalize to outsource and reduce costs. It requires significant leadership strength to fight against the dominant trends and reinvest for growth. It is a moot point if the state of frozen growth faced by the developed countries needs to be thawed by government incentives, industry actions or firm level competitive moves. In all probability all are required in unison.

Growth motive in developing economies

The emerging markets, especially China and India, have been notching up high rates of economic growth for the last several years. In fact, it is said that the unrelenting infrastructure development and competitive manufacture have made China the most important partner for several developed economies. India has also been treading a similar path, albeit with a lag. However, global adversities and local inflation are slowing down growth in emerging economies. The impact has been two fold; reduced investments from developed countries serve to reduce new project formations in emerging markets while increased inflation in emerging economies affects the cost-competitiveness of products and services. There is, however, no predictable outcome of the changing equations given the unpredictable movement in exchange rates. As corporations in emerging markets are buffeted by these several adverse trends, export-led growth becomes a somewhat shaky model.

The emerging countries seek to bolster their competitive position in the changing scenario by opening up the economies even more. India, which has gained significantly from the opening up of the economy to foreign investments, has been facing some criticism for not opening up the economy even further to make India an even more favored destination for foreign investments. There is, however, equally a pushback from certain quarters based on concerns arising out of land use, import-led project creation, squeeze of small and micro enterprises, exploitation of indigent farmers, and so on. In the absence of an objective discussion, the subject of further economic reforms is tending to be more polemical than technical. Some examples such as the current foreign direct investment policy for pharmaceuticals, sale of Cairn oil business or new policy on foreign direct investments in multi-brand and single-brand retail are indicative of the controversies relating to quick policy fixes devised from time to time to keep the emerging economies growing at a fast clip.

Market-led or factor-led?

Emerging markets have to rethink their development and growth strategies. For India, in particular, although opening up of the economy brought in excellent benefits of outsourcing in the past, a similar strategy may not provide similar results in future, at least on the same scale. If the first phase of reforms brought to the fore the relevance of India’s factor inputs (technical and managerial talent; human and corporate side of free enterprise), the second phase could provide a much larger menu of options based on a switch to market based growth. This is because factor-led growth focuses on making global products cheaper using India’s low cost factor inputs and conversion economics. Many times this could be only for captive consumption through directed development. Depending on the standing of the sponsors, the factor suppliers or the conversion specialists would prosper. Even then, most production in the factor-led model enables viability to global developed markets rather than to the domestic markets.

Market-led growth on the other hand focuses on the huge domestic demand of the emerging economies that remains untapped. It would provide additional product scope and manufacturing scale to the base levels of the factor-led model. The domestic market would have additional products at appropriate value points, often developed through creative science and frugal engineering. The additional scale and scope thus obtained would also have collateral positive impact on the basic global products of the sponsor. The policy regime of India (whether of 100% EOUs or SEZs), however, provided incentives and tax breaks only to export production and sale. Any domestic sale by such companies would draw equalization of duties and taxes, hiking up the pricing of products for the domestic tariff area. In one sense, penalizing the domestic market with higher prices is inequitable, and deserves correction in the current phase of reforms.

De-globalization, re-localization

At the core of the new paradigm for balanced growth of the Indian economy must be a balanced emphasis on globalization and localization on a 50:50 ratio, as a general guidance. This means that every enterprise must seek to cater to global markets and local markets equally. The advantages of this mindset shift for the Indian enterprises and economy would be enormous. Those firms that are steeped in antiquated products and sheltered under low value points with 100% local market oriented production will start understanding and absorbing global technologies, in terms of products, processes and quality. Apart from achieving better revenue status through the newfound export orientation, such enterprises would also be integrating the new technologies for the local market, achieving better competitiveness in the local markets. The economy would obviously benefit through additional export revenues from the hitherto wholly domestic oriented units and the expansion of the local market with better products by such firms.

The 100% export oriented units would conversely dedicate 50% of their capacity for serving the local market. This would enable such firms access the vast and growing Indian market and achieve business stability, even if accompanied by a pricing compromise required for the domestic market. Such a move to allocate 50% of the capacity for the domestic market would benefit the enterprises in terms of a capability to develop and manufacturing products that suit the challenging Indian market. It would also enable the enterprises be better equipped to cater to other emerging markets. The economy would significantly benefit from the availability of global product range in the country without resort to costly imports. On an overall basis the 50-50 approach would also address the concerns of the developed world that outsourcing to emerging markets is all about low cost production; they would appreciate that the new approach secures market access too.

As a corollary to the 50:50 approach, emerging countries should also insist on at least 50% localization as a target, whatever be the product. This would enable the development of the industry even in high technology segments. For example, import of luxury cars on a completely built-up (CBU) basis would be modified to partial import and local assembly based on semi-knocked down unit (SKU) basis. While such approaches were there in the past, notably until the 1990s, they did not result in any significant gain as the demand did not exist for such high end products in India. The demand profile in the liberalized India is significantly different, and has its place for high end products. This would provide the requisite base for local component and manufacturing support for high end products too.

Policy regime, paradigm shift

The more balanced globalization-localization paradigm advocated herein offers multiple benefits as outlined. It brings economic development on to a more balanced platform globally, and provides stability to all economies. The emerging markets, however, need to put in place certain policy prescriptions to usher in this change on a sustainable basis. For example, the 100% EOU and SEZ policies may have to be modified to provide for allocation of 50% of capacity for the domestic markets as a target. Correspondingly, such production should not also be levied additional duties in the event of sale to domestic tariff areas. In order to ensure greater transparency and stability, a new 50-50 export-local policy regime should be brought in. The policy would help the Indian industry far more than individual sector reforms could help. There is also no need to be concerned that 100% EOUs and SEZs would have greater tariff advantage as a level playing field would be created for the hitherto wholly domestic units too.

Along with the intellectual property protection regime that is now in place in India, the new 50-50 policy regime should induce innovator firms in all industries to locate the production of their patented products also in India. This would enable the Indian public have access to patented products, especially in the healthcare sector and obviate the need for measures such as compulsory licensing. The innovator firms as well as the global consumers would have the benefit of lower cost development and production of generic as well as innovator products in India. While at first look the suggested 50-50 policy prescription may look threatening both to overseas firms and domestic enterprises, the principles of equality, technology and market access and level playing field that support the new policy prescription would provide tangible and sustainable benefits.

One economic world

Eventually, economic development would seek a global equilibrium. The developed world has seen limits to growth and profligacy. The emerging world which is tasting the first fruits of liberalization and prosperity would soon discover its limits to growth due to gradual erosion of competitive advantage. An ability to cater to domestic as well as overseas markets equally, and a capability to contribute at least 50% of local value addition would enable the Indian enterprise stay stable and competitive. The approach would enable the foreign enterprises be equal corporate citizens in the local markets providing global products competitively to local markets while benefiting from the talent and cost arbitrage that India offers. The de-globalization cum re-localization paradigm would lead to an equitable One Economic World, providing a rightful competitive position to emerging countries such as India.

Posted by Dr CB Rao on September 27, 2011

Friday, November 25, 2011

Space, Time and Effort Management (STEM): A Paradigm for Resource and Performance Optimization

Maximization of performance is a goal avidly pursued by administrators, leaders and managers. Eventually, they discover that maximization tends to bring in other costs that erode the apparent benefits of resource utilization and performance maximization. For example, addictive workaholic behavior without any life balance dimineshes a person's energy levels eventually. All-night studies sap the energy and creativity of aspiring students. Pursuit of revenue maximization per se at any cost has landed many corporations suffer in terms of profitability and even quality. Clearly, unidirectional pursuit of singular objectives in today's multidimensional world leads to suboptimal results.

The world has occasionally discovered, but also has consistently sought to ignore, from time to time, that the earth's resources are finite. Building high for more dwelling accommodation per unit area has been as unhelpful as drilling deep for more massive fuels per unit of industrial and social activity. While concepts such as carbon credits and green building have helped focus attention on newer avenues of conservation, the world continues to splurge money and exploit resources. As a result, several campaigns have been launched by several corporations to confirm their sustainability standing. However, we need to incorporate the essentials of meaningful conservation and true optimization, both as bottom-up and top-down approaches.

Base, apex

The base of conservation lies in an understanding of the principle of finiteness. Expansion of wants and desires from the very young age characterizes a madly consumption society. While consumption is necessary to expand economic activity and drive growth, extravagance and waste are wholly deleterious to the society, diverting scarce resources to redundant production and consumption. The principle of "one need-one item" was the basis of a frugal society of the past. While it would be anachronistic to expect a slip-back to caveman days, there is clearly a need to avoid "buffet spread" culture that seems to dominate all activities and across all sections of the society. Potentially, it would commence from the very early schooling days with lean backpacks but with weighty knowledge.

The leadership pendulum swings between enviable and unenviable positions. In good times, the leadership has the luxury of high living to attract talent while in bad times it squeezes itself and the organization dry. In some cases, leadership focuses on visible cost reductions but ignores the relevance of strategic value additions and plays down the impact of invisible time and effort losses. Responsible leadership views space, time and energy in a stable fashion, in good times as well as difficult times. Large airlines like Kingfisher would not have faced the current crisis had the leadership been appreciative of the fundamental drivers of competitiveness in the volatile airlines industry.

Pull to optimize

The success of the famous Toyota Production System in particular, and the Japanese National System in general, is based on conservation. Compact buildings, single column flyovers, underground cities, over-the-ground bullet trains, avoidance of car transportation in weekdays characterize the national space management ethos. Night time construction, upgrade of machinery, pull-type demand and production planning, just-in-time deliveries and stocking, low inter-machine spacing, multi-level layouts typify wise use of space, time and effort. Interestingly, the Japanese system teaches us that if we plan our space prudently, we will automatically be enabling an optimal use of our time and effort.

To be able to effectively utilize the pull system, several hackneyed concepts such as large shells for future growth, build to inventory, stock to saturate, produce to drive share, and high work-in-process need to be jettisoned. The financial cost of profligacy in industrial infrastructure strikes at the very roots of industrial competitiveness. There may not be one-glove-fits-all solution though. In some cases, vertical planning of space would be ideal while in other cases horizontal expansion could be the solution. To be able to achieve optimal results, however, optimal planning of space, time and effort would need to be the foundation of all industrial and service design.

Conserve more, utilize more

There are essentially two options of space conservation; either compress the space to match optimal utility or expand the space available to generate optimal value. The tablet computer is a great example of the note book computer real estate being cut by half without affecting the functionality. As an extension, if the note book computer has to be better utilized in the space department, at the minimum three displays can be incorporated; the frontal large screening and the base key pad could have two small screens on either side of the touch pad. Or, the bottom base can also be converted into a touch display cum querty screen. Even automobile makers are now rethinking their design paradigms, combining compactness with luxury features. The latest advertisement of Audi, famous for its large, luxury cars, extols the virtues of smallness stating that small spaces need big thinking!

At the core of conservation lies the strategic thinking on the needs. Apple has demonstrated how few models with minimalist designs could achieve market dominance which multiple models with extravagant designs were not able to achieve. This is not to suggest that we need to return to the days of Henry Ford's single automobile or that every product can be multi-functional like an Apple product. Beneath all the extravagance, however, lies the fallibility of chief product designers that attempts overlaying buffers and modules in a please-all effort.

'Operanomics', beyond ergonomics

Extending the example of automobile industry further, it can be seen that the Japanese simple and lean thinking has achieved massive operational flexibility without affecting production scale or productivity. In the 1970s, the popular Western concept for machining of an automobile engine was the machining centre which performed customized multiple operations on the cylinder block and cylinder head with the help of dedicated jigs and fixtures and tools, rotating the two components around vertical axes of the machining centres. This, however, meant that different machining centres had to be designed for different blocks and heads depending on the number of cylinders, bore and stroke and the external dimensions. Apart from the huge dedicated investments such approach entailed, it also made low volume production unviable.

The Japanese hit upon a simple but ingenuous idea of unit operations to tackle this issue. Under the unit operations concept, the machine tool would only do one operation, for example honing of the cylinder bore. While apparently the unit operations approach may seem to ask for more machine tools, the inherent flexibility to turn out cylinder blocks of multiple dimensions and sizes enhances the investment efficiency and competitive advantage of the unit operations approach enormously. Adopting this Japanese approach, a leading Indian automotive manufacturer could manufacture four different series of diesel engines, having wide dimensional disparity and cubic variation from 4 to 10 litre capacity, in one simple machining line.

The Japanese concepts of optimal space, time and effort usage also led to replacement of long lines of sequential machining with one operator per machine to compact horse shoe lines of unitized balanced operations with one operator manning many machines. The skill in this approach lies in splitting the total cycle into unit operations and also balancing the unitized operations to synchronize movement of the workman from machine to machine within the overall line and individual machine cycle times. Examples of other operational economics involve creation of conveyor lines and work spaces around human ergonomics, use of gravity to move parts, color clustering of parts per model, error proofing of components and assemblies, and rapid changeover of giant press tools and fixtures. In addition, the Japanese system never fights shy of stopping a line if it has problems. Here again, the Japanese have an underlying concept of space; the line problems are not to be solved in distant offices but are actually solved closest to the problem area - on the line itself!

STEM, an optimization paradigm

The fundamental building block of all engineering knowledge is the concept of space. An ability to visualize and dimension in space needs to be a virtual intuitive forte of a good engineer or a designer. Over the years, however, the dimension of space rather than the functionality of space started taking control of engineering perspectives. The Japanese society, cramped as it is for space, has given a new meaning to functionality of space. Along with optimal spatial planning came the benefits of optimizing time and effort as a virtual corollary. A well planned facility, which is compactly designed, will be a natural enabler of good ergonomics.

Spatial planning is not all about squeezing things in. Where required, as in the case of highways, roadways, transit points, ports and certain other infrastructure projects spatial planning is all about expansiveness to accommodate future throughput and sustain productivity. It is also about holistic spatial development of core residential or business districts with all amenities and support services built in. USA is a great example of expansive, futuristic spatial development triggering and sustaining orderly growth for decades. The aim of spatial planning must be to optimize transaction times and costs through accessibility.

In order to give a fillip to such thinking, architecture needs to be incorporated as a core course of all engineering curricula. Ergonomics must be expanded to encompass whole lines and facilities as opposed to limited study of optimized man-machine interfaces at individual man and machine levels. Forecasting techniques must focus not merely on demand outcomes but also on activity and churn levels. For example, malls must be designed to offer choice with contiguity, shelf space with footfall estate and display splendor with spatial optimality. Process design must integrate technical elements with ergonomic optimality and productivity efficiency. Machine tools and accessories must be developed to support versatile manufacture with rapid changeovers. Complexity of whole systems must be addressed with simplicity of unit operations.

Human engineering through STEM

Engineering must go beyond providing brilliant technical solutions. Engineering must merge the machine factor with human form and facility infrastructure with social sustainability. Emerging markets such as India and China have traditionally played on the liberal land factor to attract investments. Land, however, is finite. There are already pressures related to extravagant land allocations to developers and miniscule land utilization by them. Understanding of STEM as a paradigm would enable administrators, managers and leaders seek a balance in land allocation and usage. In a larger perspective, STEM leads to resource conservation as a guiding principle all design and development work.

Toyota Prius hybrid car is a great example of human engineering and environmental sustainability where energy and motion are mutually substitutional and synergistic. The value of such pioneering development is being emulated years later by car manufacturers such as Hyundai who swore only by fuel driven cars and debunked hybrids (see their admission while launching Sonata Hybrid car recently). Space compaction, time compression and effort saving when they happen together go beyond conservation of resources; the phenomenon leads to energy recycling. The first step to spur the thinking of young engineers and wise leaders towards sustainable resource conservation is STEM as outlined in this post.

Posted by Dr CB Rao on November 25, 2011

Tuesday, November 22, 2011

From Social Networking to Nation Building: Five Points of Positive Transformation

The last decade has been an epoch making decade for social networking. Initial e mail chat and messenger platforms got soon overwhelmed with more powerful and people-savvy social network sites such as Facebook, Orkut, Twitter and more lately Google+. The power of these new social networking platforms is enormous. There are at present over two hundred social media sites. Amongst these, the Top 15 account for over 1.3 billion estimated unique monthly visitors as per the surveys. Facebook alone has reportedly over 700 million user traffic per month while Twitter has 200 million user traffic per month. The newly launched Google+ has signed up 32 million user traffic in just 4 months of launch. With the ownership and use of moblile and smart phones growing rapidly, with tablets taking on new media connectivity roles, and with the social media sites directly linked onto smart phones and tablet devices, it is easy to imagine that social networking would have nothing but an exponential growth rate in the years to come.

In addition, these social media networks have become wonderful vehicles to connect with and follow leaders from all walks of life. Equally significantly, Facebook and Twitter have become platforms for business communication and marketing too, with virtually every big corporation having a Facebook or Twitter account. Given their enormous potential for instant and expanding connectivity, these sites have been carriers of landmark events and happenings around the world. They have also been the triggers and propagators for certain unique political and social movements that have swayed the world in recent times. Though there have been privacy and other concerns relating to some of the sites, it appears that social networking has come to be established as an irreversible phenomenon of this decade, and probably of the several decades to come as well.

Underlying motivators

The enormous popularity of these social networking sites has been due to five basic behavioral underpinnings of the new age intellectuals. The new generation has an unprecedented urge to connect and communicate, and the social media, devices and sites have been perfect platforms for that. The author of this blog post has identified five essential drivers of individual dispositions and behaviors. These are: See the Face, Share the Past, Explore the Uncertain, Bridge the Distance and Form the Community. Each of these five trends has significant implications.

See the Face

The new Gen-X individual is neither shy nor discrete. He or she loves to be seen and heard. He or she has few privacy concerns, if at all, and revels in disclosures that profile him or her on multiple dimensions. This enables a level of trust and transparency that leads to virtual friendship in most cases, despite the real threats of misuse of privacy data that exist.

Share the Past

While past is no predictor of future, one's past is a great builder of future bonds. The social networking sites, especially Facebook, have as their unique proposition an ability to mine the past to suggest connectivity. Equally, the social enthusiasts post their past experiences and photographs on their walls, providing a solid foundation of shared experiences and evolutions on which new superstructures can be built.

Explore the Uncertain

While the adage goes that face is the index of the mind, any entrant to social networks is essentially an adventurist. He or she would be connecting with persons whose real antecedents and motivations can rarely be accurately verified. That said, what the patrons of the social networking sites bring to the table is a willingness to explore the uncertain, an essential requirement of the quest for progress.

Bridge the Distance

With the growth of social networking, distance has ceased to be a separator. In fact, one may hypothesize that the farther one is the closer one becomes. The ability of the hardware technologies and the power of the operating systems of the modern connectivity devices and platforms have together made audio-visual meetings a common place happening. Text the Talk is the new mantra that keeps the new generation connect seamlessly across boundaries and oceans.

Form the Community

All these behavioral trends naturally help the users of social networking sites become communities based on certain dimensions of their choice. The power of these communities lies in their common diaspora as much as in their diversity. These communities, therefore, tend to be philosophically robust with cross-cultural and cross-functional enrichments. In many ways, these communities tend to be modern age icons of unity in diversity.

Social moorings, national perspectives

Given that the social networking phenomenon has unleashed such a massive transformation in global connectivity it is apt and opportune to explore what else can be done with the enormous "social energy" that is created. No doubt, this phenomenon has led to the individual participants discover more meaning in their lives and the business participants achieve greater reach in the social base. At the same time, like the energy of the mighty oceans, the energy of the formidable social networks is often idled, if not wasted, through non-value adding activities. Social scientists even hold that these have become obsessive diversions from other productive activities while some medical specialists hold that the Internet addiction to be a clinical disorder. That said, neither the march of technology nor progress of connectivity can be undone; rather creative ways must be found to channel the enormous social energy on the Internet that is the order of the day.

One very relevant channel to direct the social energy would be national missions initially, followed up with global visions. As some of the recent social campaigns have shown, the young and the intelligent have a huge stake in how societies, economies and nations would shape up. This requirement can only be more profound in India than in any nation given that India would have the youngest and largest demographic profile globally for the next several decades. The vision of India racing to be the third largest global economic power by 2035 is tempered by the multitudes of social, economic and industrial inequities and constraints that India has to grapple with.

Rational thoughts, national missions

One can think of several national missions which the social networking communities can contribute to. Enhancing online education, including support systems for parents and educational institutions, especially at primary and secondary levels could be one important, in fact the first and foremost, national mission. Providing market and technology outreach for micro and small enterprises could be a second critical mission that could promote self-reliance and entrepreneurship. Development of national policy initiatives and programs based on community experiences could be a third important mission. Open source collaboration for upgradation of industrial products and business services could be a fourth mission. Cultural transformation to attain the highest levels of national comparative advantage in terms of innovation, quality and productivity, on the lines of Japan, could be a fifth vital mission.

Making India an equitable, safe, ecologically conscious welfare state could be the sixth important national mission. Women empowerment in all walks of life and enabling them to assume leadership roles in the business and industry could be the seventh mission. Agrarian uplift, enabling the indigent farmer, manage a positive rural economy is the eight mission. Geriatric care with healthcare taken up by voluntary and government contributions is very much a need of the hour. And finally, balanced child nutrition, including, free food for all indigent day care babies and school going children would boost the nation's health and literacy levels even further.

Five points of transformation

The ten national missions may seem overwhelming at first sight but can be tackled by mass voluntary drive of the educated and employed population, which characterizes the core of the social networking movement. This, however, requires a paradigm shift in the approach to, and use of, social networking. We have considered that the current social networking phenomenon is driven by five individual behavioral patterns: See the Face, Explore the Uncertain, Share the Past, Bridge the Distance and Form the Community. While these would continue to drive the social networking phenomenon, expansion of the network to create even greater levels of social energy and focused channeling of the social energy to national missions would require five additional behavioral underpinnings. These are: Absorb the Mission, Share the Passion, Innovate the Future, Bridge the Divide and Institutionalize the Change.

Absorb the Mission

It is important that socially conscious and nationally driven social citizens of the Net give wide exposure to national missions. The Times Group of India launched a Teach India awareness and voluntary participation campaign to a considerable degree of success. The above ten national missions with further detailing could become significant value propositions. Collaborating with the social networking sites for additional infrastructure and visibility support can help the social netizens see and absorb the national missions.

Share the Passion

If the current social networking is driven by an enthusiasm to connect and belong, the national missions can be fulfilled only by a passion to contribute to national upliftment. This would require that the networked citizens understand and analyze their own competencies and capabilities and are fired by a passion to share these with the needy country men and women. Such passion should be shared by the discrete communities so that the ability to contribute is reinforced.

Innovate the Future

Visibility and passion need to be supplemented with innovation to fulfill the missions. Conventional thinking and traditional structures as well as existing products and services are unlikely to be either time-efficient or cost-effective for social netizens to contribute. Creation of dedicated portals, tie-ups with device makers, development of customized products, dissemination of case studies could all add up to a powerful impact. In addition, more open source technology platforms could provide a great fillip to national innovation.

Bridge the Divide

National missions ought to fulfill two important purposes. Firstly, they must enable, empower, and enrich the downtrodden and needy members of the society, strengthening the social firmament. Secondly, they must reinforce the competitive and comparative advantages of the nation on par with the best in the world. The first objective to a large measure would support the second objective but the second objective would also require a much larger spread in the industry and the economy. Clearly, network communities must channel themselves into dedicated missions as well as target groups to achieve optimal impact.

Institutionalize the Change

Nation building cannot be a onetime initiative in time. Given the global coupling and given also the endeavors by other BRICS and MINT nations to compete in the global arena even while the developed blocks of USA, Canada, Europe, Australia and Japan seek to retain their edge, nation building has to be a continuous movement. Also, each positive change must be institutionalized and new changes systemically integrated. Korea is a fine example of fulfillment of national missions and their institutionalization thereof.

Finite time, infinite options

One of the striking features of the modern day globally networked world is the myriad number of industrial, business, social and economic options that arise each day. The world is also characterized by an increasing emphasis on entertainment, media and services. As a result, manufacturing and agriculture seem to be losing their share in the economy. At the same time, a greater proportion of the young and mobile population is getting increasingly obsessed with lifestyle activities and entertainment technologies. While even such leisure time activities require and generate their own cascades of industrial and economic activities, it is important that a nation maintains a balanced mix of all sectors. The socially networked youth also requires to develop its own balance of aptitude for multiple technologies and avocations.

Under the paradigm suggested herein, the social netizens would need to display an innovation, quality and productivity driven mind-set of nation building through fulfillment of critical national missions. Rather than merely be overawed by the time consuming and entertaining nature of the social networking technologies and sites, the young generation should, at the minimum, use a certain part of their 'facebook' time for nationally productive activities and at the optimum question themselves as to why the smart, cyber-navigating generation of India cannot have their own Facebooks, Twitters and Google+s for national competitiveness.

Posted by Dr CB Rao on November 22, 2011.