Sunday, April 24, 2011

Science, Technology, Entrepreneurship, Management, and Studentship (STEMS): The Five- Component Transformational Paradigm for India

A nation’s competitive advantage is built by its scientific and technological innovation on one hand and its managerial and entrepreneurial ethic on the other. As India aspires to become the third largest economy in the globe by 2035, the above four factors, enhanced by the new graduate stock, would need to be the key drivers of the transformation. In the past, India has been losing its brightest scientists and engineers to greener pastures abroad. With India poised to become the third largest economy in the world, this trend should logically be reversed, with more overseas citizens trying to contribute to the Indian economic transformation. More particularly, it will be the commitment of bright scientists and engineers of India to stay in India, or return to India after their post-graduation and research studies abroad, that would make India an industrial and economic superpower.

India is no longer only the world’s back-office. The country is fast moving into the arena of global manufacturing and design. In fact, smart science and frugal engineering are the new buzz words that are gaining acceptance as concepts that are typically Indian. The ability of the Indian scientists to invent new processes and discover new drug candidates at fractional time and cost has already drawn the interest of global pharmaceutical industry. The ability of the country’s engineers to design and establish projects in the shortest possible time with low investment costs and their creativity to design functional products with different value points is getting recognized globally. Scientists and engineers, therefore, have a great opportunity with the kind of transformation and expectation anchored around India.

Science and Technology

Science and technology (or engineering) are the twin pillars on which a nation’s economic progress and social development are built. All the developed nations owe their progress to the fundamental contributions of their scientists and engineers whose inventions and discoveries led to creation of new product and business lines. Science is a systematic study of the behavior of the physical world with discovery, theorization and experimentation constantly expanding the envelope of knowledge. Engineering is the domain of applying science to design, develop, build and maintain equipment, facilities and infrastructure as well as operate production systems to deliver products and services. Both science and engineering are inspired by a spirit of enquiry, a philosophy of detail and an ethic of commitment. These great disciplines teach a student to be data based and yet innovative and creative. Emphasis on quality and safety are an integral part of science and technology.

Indian science and technology have traditionally focused on followership. While several institutions in new cutting edge domains are set up and new projects of national importance taken up in India, results have been less than satisfactory due to non-fostering of a culture of innovation. The problem is accentuated by lack of funding and low compensation and incentive structures in the research field. Even institutes of national importance such as the Indian Institutes of Technology and Indian Institute of Science as well as laboratories of Council of Scientific and Industrial Research have not been able to come up with commercially viable patented new technologies. For example, according to statistics released by the World Intellectual Property Organization (WIPO), India filed in 2009 only 761 patent applications compared to China’s 7946, most of them in 16 high technology sectors. The good news, however, is that the infrastructure and talent pool for a greater intellectual thrust exists in India. The challenge is one of sparking the research interest with strategic direction, performance management and incentive development.

Entrepreneurship and management

Science and technology constitute the core of a nation but entrepreneurship and management are the catalysts for application of science and technology for human endeavor. A great nation can be built only by entrepreneurship, which creates new lines of activity, new areas of business, new enterprises and even new industries based on entrepreneurial ideas and passion. Entrepreneurship is typically based on new, innovative products and services as well as processes, improved and more efficient manufacturing or novel and creative delivery of products and services to customers. Whatever be the domain of value chain which houses entrepreneurship, innovative use of science and technology lies at the core of entrepreneurship. The wide canvas where entrepreneurship can make its mark has no limits at all. Established and new product lines as well as sunset and sunrise product lines all qualify for entrepreneurial development. More often than not, the start-up entrepreneurial effort is individual or small group driven.

Management has long been realized as the interdisciplinary and interfaculty approach that applies and utilizes all forms of capital, human, machine and financial to generate value for the firms, investors, society and the nation through products and services. The growth and value creation of successful organizations, even of entrepreneurial organizations after their initial success, is clearly attributable to good management. The decline and value erosion of failed organizations is similarly attributable to bad management. While good management is a part of successful entrepreneurship, management, in one sense, takes over where entrepreneurship leaves; from initial local success to sustainable global scale-up and from the first specialization to eventual integration or diversification. One of the important tasks and great challenges of management is finding the right blend of technical and human factors. Successful management is also one of evolving its own model, contextually relevant to the company, society and nation.

India’s opportunities and challenges

India has tremendous strengths with its vast pool of scientists and technologists, and a fast developing managerial and entrepreneurial base ought to have been a major industrial and economic power by now. However, economic and industrial policies of post-independence India, close to a very long period of 45 years between 1947 and 1992, followed a socialistic pattern. Most decisions to create capacity, whether in education or industry, were limited by resource availability rather than revenue generation and by demand control rather than market expansion. While a great measure of self-reliance, economic independence and scientific and technological maturity was achieved as a result, India lagged behind in economic and innovation indices. The initial stirrings became evident from the 1980s when Indian industrialists began to become externally oriented and from the 1990s when the government embarked upon economic liberalization. The economic growth rate has in the past few years doubled to an average of 9 percent per annum, from the previous historical long term, multi-decade average of 4.5 percent.

While there has been a quantitative expansion of capacities in India, post-liberalization, with a flood of new products and services, from automobiles to aircraft and from flat panel televisions to cellular phones, most of it is consumption driven. The internal processors and operating systems of most products and the smarter of the new products in totality are still based on imports from more advanced nations. The Indian automobile industry may have absorbed the imported product technologies and manufacturing processes but most of the sophisticated equipment from machining centers to robotic welders as well as sophisticated equipment are still imported. The Indian pharmaceutical industry could be the largest exporter of medicines to the most advanced countries but the laboratory and manufacturing equipment are of imported pedigree in such lines. India excels in software but has not yet produced a search engine or social network. Science, technology, entrepreneurship and management have to share equal responsibility for the current state of sub-optimization of India’s potential.

Back to basics, a leap into future

India’s IT and manufacturing outsourcing consumption would sustain a consumption driven market expansion and entry of several new products which are indigenously manufactured, assembled through completely knocked down (CKD) and semi knocked (SKD) route or even as imported completely built units (CBU). However, India as the world’s third largest economy cannot afford to rest with a linear scale-up of current capabilities and approaches. There is a need for transformational shift. This shift must have two approaches. The first relates to a focus on fundamentals in science and technology and the second relates to a qualitative boost to the Indian managerial and entrepreneurial capabilities.

Scientists and technologists of India need to direct a portion of their intellectual efforts to drive fundamental innovations. One model could be to differentiate between organizations dedicated to fundamental innovation and those focused on followership or application of innovation. This is best accomplished in certain industries such as pharmaceuticals and in research space. Most other industries, however, require co-development of fundamental innovation and applied innovation. For example, it would be impractical for an architectural firm to design only green and novel buildings or for an automobile firm to manufacture only electric cars. Commencing fundamental innovations in niche areas and mass customizing them is a challenge for scientists, technologists, managers and entrepreneurs.

Any level of science and technology planning cannot be actualized without matching resources. There could be three ways to support this endeavor, one through wholly public investments, second through wholly private investments and the third through public-private partnerships. The aggregate investment on fundamental research should be at least 10 percent of gross domestic product, whether coming through public, private or joint methodologies. As one is aware, innovation-led companies devote 15 to 20 percent of their turnover to research and development as a whole. Governments and industry associations need to chalk out a strategic plan for fundamental research as guidance for the industry and governments.

Similarly, there must be a focus on the fundamentals of robust management and creative entrepreneurship. Indian management has of late been gaining international recognition for its end-to-end conceptualization, risk-integrated decision making, creative multitasking, and speedy execution. The model, however, needs to be more deepened and broad-based to cover every enterprise and agency. Management institutions would need to take the lead by dedicating at least one semester of the typical two year management courses to Indian management. It is time that Indian management is translated from an abstract approach realized by only a few to a tangible construct accessible to all.

And most certainly, entrepreneurship needs a major boost to support the transformation of the Indian industry and economy. Entrepreneurship could occur at any level and at any age. While young graduates are often encouraged to become entrepreneurs rather than job seekers the whole employment and retirement system should have flexibility and fluidity to encourage entrepreneurship at any point of time in one’s career, including post-retirement. For example, working managers and leaders could be encouraged to take up parts of industrial value chain as entrepreneurial ventures. Corporate entities need to establish entrepreneurship endowment funds and corpuses to support such entrepreneurial forays. Yet another mode could be to offer additional retirement funds to high performance executives linked solely to their commitment to set up entrepreneurial firms.

From ‘STEM’ to ‘STEMS’

Clearly, Science, Technology, Entrepreneurship and Management (STEM) model is the basic foundation of a nation’s economic and industrial progress. India, however, has as its forte a fifth dimension as it seeks to be transformative over the next 25 years. This relates to India’s very young demographic profile (30 percent of population aged below 15 years) and the vast educational infrastructure that could be quantitatively and qualitatively expanded. While the early Indian governments laid the foundations of a highly capacity regulated higher educational system, entry of private sector into the engineering and science college system in the 1980s has revolutionized the education scenario in terms of quantitative easing.

India has presently a uniquely large educational base out of Tier 1 and Tier 2 cities, which needs to be upgraded and diversified into rural satellite centers. In spite of a relatively low overall literacy score at primary level (which itself needs further improvement from the current 74 percent), India has one of the largest talent pools in the world, which needs to be leveraged more fully. India has, for example, more than 2.3 million graduates passing out every year, of which more than 700,000 are science and mathematics graduates, 750,000 are post-graduates, and 800,000 are engineers. India with its vast network of over 400 universities, 14000 colleges and 1500 research institutions has contributed to the development of the second largest pool of scientists and engineers (of over 60 million) in the world.

As students are taught to become scientists, engineers and managers, the right experiential learning structures and inputs on creativity, innovation, management and entrepreneurship would build capabilities and confidence in them to take up entrepreneurship. If even 10% of the scientists and engineers graduating each year in India choose to become entrepreneurs with unique ideas in the chosen field, the student force would be really transforming India. This is not to say that entrepreneurship is the only route to fulfillment of a larger purpose in life. The key here is being entrepreneurial. Whatever the avocation chosen by a student, whether as a laboratory scientist, shop floor engineer, product developer, information technologist or even a business analyst, the focus should be on being entrepreneurial in thinking and execution.

For student entrepreneurship to succeed, research and manufacturing establishments as well as businesses must be more open to accepting and trusting students as interns and providing them with challenging projects of long duration rather than paper studies of short duration. The highly successful model of medical internship must be made mandatory in engineering education as well, with industries required to take on board students as co-workers with or understudies to scientists, technologists and managers. This will strengthen the ability of students to cope with real world industrial complexities. When this happens, STEMS, the science, technology, entrepreneurship, management and studentship framework, would be a well balanced five component transformative model for India.

STEMS as a collaborative paradigm

Today’s globalized world is highly competitive. India, despite the global attention and adulation it is receiving, has some way to go to attain the super economic power status. The good news is that a fast growing market and a highly youthful society are geared to make the transformation happen. India needs to innovate for its own new products and services, besides constantly enhancing the value of all current products and services. India should lead the world in upholding quality, protecting safety, reducing costs and eliminating waste. At the same time, once in few years Indian industry and business may have to reinvent themselves with completely new way of doing things to achieve new levels in global competitiveness.

Such a transformative journey cannot happen by the individual efforts of scientists, technologists, managers or entrepreneurs. India needs to move towards an ideal national system of mutually collaborative science, technology, entrepreneurship and management, each of them progressing with vertical and horizontal linkages, all the way from student days. For example, in a collaborative framework innovations in material sciences lead to better engineering of components, better designs of equipment and tooling lead to better components from designs, managers plan the component changes as part of model makeovers strategically and entrepreneurs lead such transformative inflexions in science, technology and management on a continuous basis. From the current diffused and random resort to science, technology, entrepreneurship and management, a more holistic and integrated emphasis on the five component model of building a great new student educational system on science, technology, entrepreneurship and management is well merited for India in its transformative journey as an economic superpower.

Posted by Dr CB Rao on April 24, 2011

Sunday, April 17, 2011

Cementing the BRICS : Strategy, Structure and Execution

The world's five largest emerging economies, Brazil, Russia, India, China, and, for the first time, South Africa came together in the week of April 11 in Sanya, Southern China to form an expanded five-member bloc known as the BRICS. The heads of state and government of BRICS, Brazilian President Dilma Rousseff, Russian President Dmitry Medvedev, Indian Prime Minister Dr Manmohan Singh , Chinese President Hu Jintao, and South African President Jacob Zuma gathered for what definitely has been a watershed moment in the quest of the five nations for a bigger say in the global economic and financial architecture, and delivered the Sanya Declaration of BRICS partnership. Political and economic analysts have placed significant emphasis on the new grouping that is set to emerge, despite the cultural, geographic, political and economic differences the countries have. They see the growth of the BRICS as an important attempt to create new centers of influence and prevent domination of the world economic order by one or two major players.
The five countries are loosely joined by their common status as major fast-growing economies that have been traditionally underrepresented in world economic bodies, such as the IMF and the World Bank. With the G-20 group of major economies, dominated by the current most developed nations, seeking to remake parts of the global financial architecture to stabilize their own skewed economic systems, it is time for the BRICS group to test whether they can overcome internal differences and act as a bloc pursuing common interests. Though largely an ad-hoc grouping at present, BRICS has the potential to emerge as a new force in world affairs on the back of the massive share of the block in global population and economic growth. With the inclusion of South Africa, the group accounts for 40 percent of the world's people, 18 percent of global trade and about 45 percent of current growth, giving BRICS formidable heft when dealing with the developed economies. The success of this endeavor would, however, depend on the strategy-structure-execution mechanisms that can reinforce the strengths, overcome the differences and create synergy.

Differences and commonalities

Each nation of the BRICS block has its own geographic uniqueness, cultural ethos, political systems, economic profiles and social moorings with great diversity caused by centuries of independent and colonial evolution. All the countries broadly support free trade and oppose protectionism, although China in particular has been accused of erecting barriers to foreign competition. In foreign affairs, they tend toward nonintervention and oppose the use of force: Of the five, only South Africa voted in favor of the Libyan no-fly zone. While the economies of Brazil, Russia and South Africa are driven largely by raw material exports, India - poised to be the world’s third largest economy - and China - already the world's second-largest economy - are oriented more toward manufacturing and services. Brazil and India are also concerned over large trade deficits with China that critics say are supported by a deliberately undervalued Yuan. Politically, Brazil, India and South Africa are functioning democracies, while China, and to a lesser extent, Russia, are authoritarian states characterized by heavy government control over the economy and civil society.

In today’s world, however, resource capability, economic policy and social aspirations have emerged as the major factors of comparative advantage circumventing the other differences. BRICS nations view the subtle and not so subtle campaigns of excessive consumption against their development efforts by the developed nations as palpably unfair. The very lack of a common cultural, political or geographical identity positions BRICS as a new type of grouping forged by nontraditional concerns such as trade barriers and monetary policy. A key concern for BRICS now will be stemming inflation and pushing back against debt-fueled expansionary monetary policies being pursued by developed nations that now suffer from negative or anemic growth. With about 40 percent of world reserves, led by China with USD 2 trillion, and the relatively recent unfolding of manufacturing and economic power by India and Brazil, the BRICS countries share a concern over exchange rate volatility and macroeconomic instability in the developed world. Other priorities include reducing economic imbalances and volatility in commodity prices, pushing for even greater influence in the United Nations, World Bank, IMF and other international bodies, and gaining a say in the potential introduction of new reserve currencies, possibly including the Chinese Yuan in the near term, and presumably the Indian Rupee in the medium term.

Development profiles

The BRICS countries vary significantly in their economic profiles (data courtesy World Fact Book). China leads the pack with GDP (PPP) of USD 10 trillion, with India following at USD 4 trillion, Brazil and Russia at USD 2.2 trillion each, and South Africa at USD 0.5 trillion. There is, therefore a 20X factor between the different ends. In global rankings of GDP, China ranks high at 3, Russia at 7, India at 12, Brazil at 18, and South Africa at 123. In population too, China leads at 1,336 million, followed by India at 1,210 million, Brazil at 203 million, Russia 139 million and South Africa at 49 million. In terms of per capita GDP (PPP), however, Russia leads the BRICS block at USD 15,900 followed by Brazil at USD 10,900, South Africa at USD 10,700, China at USD 7,400 and India at USD 3,400, reflecting the different levels of income inequities that exist within the block and in each country (and also, therefore, the growth potential of India in particular). It is, however, forecast that India would not only overtake China in population by 2025 to become the most populous country of the world but also overtake several other counties to become the third largest economy by 2035, behind only the USA and China. The only threat could be a high rate of inflation in India which hovers around a recent average of 12 percent, compared to 5 to 7 percent of other countries.

The demographic advantage favors the larger BRICS countries. China leads the world with a labor force of 780 million, followed by India at 478 million while Brazil, Russia and South Africa have labor forces of 104, 76 and 17 million respectively. The biggest demographic advantage, however, lies with India with the claim to having the world’s youngest population base. India leads the world with the highest percentage of population below 15 years of 30 percent, followed by South Africa at 28, Brazil at 26, China at 18 and Russia at 15 percent. The median ages of these countries are 26, 25, 29, 36 and 39 respectively. Clearly, there is a significant potential in each of the BRICS economies to power economic growth with greater production and consumption capabilities of population. China with the highest gross fixed investment of 48 percent of GDP has demonstrated how investments in infrastructure can boost economic growth. India follows at 32 percent while the other three countries are around 19 percent. In fact, it is considered that China’s investment and liquidity policies in the global meltdown of 2008 and 2009 stabilized the world financial and trade systems to an extent. India also stayed strong with prudent fiscal and liquidity policies. Yet, the high level of public debt (as a percentage of GDP) could be a spoiler for India and Brazil at 56 and 61 percent respectively while Russia, China, and South Africa fare better at 10, 18 and 33 percent respectively. There is no doubt in the overall that BRICS countries not only weathered the economic crisis that originated in the developed world and spread contagiously but also led the global recovery with their economic growth.

Resource endowments

The BRICS countries represent a significant land mass and natural resource bank. The aggregate land area of BRICS is 39.72 million square kilometers, with Russia leading the block at 17.10 million square kilometers, followed by China at 9.60, Brazil at 8.51, India at 3.29 and 1.22 million square kilometers respectively. The natural resources that are discovered and utilized in the huge land mass of BRICS is perhaps insignificant compared to the intrinsic, and latent availability. BRICS countries enjoy relatively complementary resource profiles, which paves the way for even more cooperation. Russia is verily the world's energy reservoir with rich oil and gas resources. Brazil is probably the world's largest raw material base abounding in agricultural commodities and select metals, led by iron ore. China is not merely the world's workshop with a strong manufacturing sector but also has rich coal and rare earth resources. India is billed as the world's back office for its highly professional employees in IT and service sectors but is now developing into a major manufacturing base backed by agricultural, mineral, metal and energy resources, which are getting to be known for their development potential only now. South Africa is most well known for its platinum, gold, diamond and chromium resources but has several other mineral and metal resources. The BRICS countries are also famous for their respective major hotspots of biodiversity.

Traditionally, resource rich economies have built economies around agriculture and mining. This has posed its own challenges in terms of adverse environmental impact and narrow definition of economic activity. The natural resources are strategic resources and need to be exploited for economic development but also need to be renewed for environmental sustainability. It is but natural for each country of the BRICS block to try to reverse such trends and diversify the economic base, including by forward integration or backward integration as applicable. Some such trends are already visible. China, for example, has imposed controls on export of its rare earths and is possibly seeking to build value through own manufacture of electronic and other sophisticated products incorporating rare earths. South Africa has deemphasized gold mining rather than apply technology to develop the resources further in a people and environment friendly manner. India is keenly attempting industrial expansion through access to, and exploitation of energy resources. Brazil has also built its industrial base around its natural resources rather than other externally available inputs. China has been an exception with massive export-oriented and outsourcing-driven manufacturing operations for the entire globe.

Battling inflation, reigning deficit

The liberal monetary policy adopted by the world's major economies during the financial crisis has largely increased global liquidity, leading to asset bubbles, budget deficits and imported inflation. BRICS countries have been no expansion with their expansive monetary and fiscal policies which have also pushed up inflation and fiscal deficit. The latest political unrest in Middle East and North Africa as well as Japan's earthquake and the subsequent nuclear crisis have also pushed the prices of large commodities such as oil to high levels. To avoid hard-landing of the economy, the BRICS countries are gradually withdrawing from their stimulus policies and starting to take measures to curb inflation and reduce fiscal deficit. The global financial crisis has also triggered widespread reflection on the former economic development mode not only in developed countries, but also among BRICS countries. BRICS countries probably now realize the non-sustainability of the past development paths, and have started to restructure their economies. China for instance, is entering a new phase in its development: a structural shift from an export- and investment-led economy to one driven by domestic consumption. Property tightening measures, healthcare reforms, low-cost housing programs and continued transportation spending are key to the government's efforts. In addition, weak global demand and rising wage demands are pushing the country to move away from the export-driven model that features low added value.

In Russia, heavy reliance on energy and raw material exports makes its economy vulnerable to outside risks. The Russian government is speeding up structural reforms and investing heavily on high-tech and innovative programs such as energy-saving, aerospace, nuclear energy and medicine to cultivate new industries to drive economic growth. India benefits from the flourishing IT and service sectors, yet poor hardware and infrastructure hamper its further development. The wide rich-poor gap and erosion of resources are also the government's pressing concerns. The Indian government has been introducing a series of supportive measures to make better use of its demographic dividend to further develop manufacturing, and is planning to introduce more favorable polices for foreign investment in a wide range of sectors, including infrastructure. Brazil's economy has been relying heavily on bulk commodities, but now it is trying to shift its focus on exports of commodities and services with high added value. The government is pushing the speeding-up of industrial technological innovation, opening up the market, encouraging competition, and improving infrastructure. South Africa puts manufacturing, infrastructure and clean energy as the focus of development, and expects to increase employment through a more equal and reasonable growth. In addition, all the BRICS countries are taking policy measures to reduce inflation and tone down budget deficits. These measures, though are welcome and appropriate in each country context, may not fully optimize the potential of the BRICS block as a whole. The Sanya Summit of the BRICS leaders hopefully has been the first step in that direction.

BRICS, strategy and structure for execution

BRICS as a block needs to go beyond conventional country-specific economic strategies. The fundamental premise should be to take advantage of complementary strengths and overcome individual country weaknesses. The foundation for such a strategy would be in terms of developing a complete inventory of natural resources in each of the BRICS countries. This should be followed by, or even simultaneous with, a perspective plan for the use of resources within the BRICS block based on a strategic industrialization plan. Once the industrial development cum resource consumption plan is finalized, the countries should implement exchange of technologies and people to fully optimize the mutual capabilities in natural resource development and utilization. Complementary resource strategy should be accompanied by a dovetailed industrial strategy whereby each country would supplement each other’s strengths instead of using them as competitive weapons against each other. It is appropriate, for example, for any BRICS country other than India and China not to develop and manufacture pharmaceuticals, and instead rely on India and China for the entire needs of pharmaceuticals for BRICS. Within that framework, China may choose to rely on India for pharmaceutical formulations and India may choose to rely on China for biopharmaceutical APIs. India may help Brazil and South Africa in building local automobile industries in a more cost-effective manner than the developed world would do. China could help India and other countries with bullet trains and other infrastructure projects. Russia could make available its vast oil and gas reserves to BRICS countries and also help the others in oil and gas exploration. Civilian uses for the Russian defense technologies could be another area of great relevance. South Africa could provide its mining and food processing capabilities to other nations. In essence, each country should offer its national comparative advantage to the other countries in the BRICS block.

An elevated strategy such as this would need a permanent administrative structure and robust execution methodology to succeed. While leadership summits are important, they are not sufficient. A standing BRICS strategic council with its own administrative secretariat needs to be created. The strategic council should have a virtual location (with summits taking place in all countries) while the administrative secretariat should have a central location with regional headquarters. The strategic council should have senior ministerial representation (including prime ministers and presidents) from all the countries while the secretariat must have administrative and business leaders from all the countries. Like the top-ranking international bodies, the councils should have charters, budgets and full complement of employees from the BRICS block. The principal objectives of the secretariat and council should be to draw up charters, strategies and plans, develop enabling policies and monitor implementation. Supplemental institutions such as an economic policy institute, an intellectual property council, an apex financial institution and an integrated trade body for BRICS would provide the needed institutional support. The economic policy institute could determine appropriate inter-linkages in economic policies within BRICS, including setting of central bank rates and exchange rate mechanisms. Exchange programs in science, technology and education under the aegis of intellectual property council could accelerate research and education. An apex financial institution could start with a corpus and direct the available liquidity within the BRICS countries, and from outside to facilitate infrastructure projects in the needy BRICS countries. The integrated trade body could help duty-free or duty-balanced movement of raw materials, components and finished goods within the BRICS block to ensure competitive manufacture for domestic as well as international consumption. It could also enable intra-BRICS technology transfer arrangements.

BRICS, a new paradigm of high potential

Rarely, a configuration of countries has been formed which is not bound together by geographical proximity or economic vintage or even by considerations of hegemony. It is remarkable that the BRICS country-comity platform has mirrored the economic growth potential of the five of the leading emerging market economies of the world, namely China, India, Russia, Brazil and South Africa. With appropriate strategy, structure and execution mechanisms as outlined in this blog post, each constituent country of the BRICKS block and BRICS as a block would be well poised to exceed the growth potential that they have, both individually and collectively.

Posted by Dr CB Rao on April 17, 2011

Wednesday, April 13, 2011

Transformational Entrepreneurship: First Success and Beyond

India would be the USD 10,500 billion Real GDP economy by 2035, becoming the third largest in the world in another 25 years, according to projections by Goldman Sachs. This transformation would be powered by high growth rates of around 10 percent over the next few years. Such growth would require something beyond the normal economic activity. Experts who study qualitative transformations would hypothesize that a large burst of entrepreneurism in India would be the factor that would drive the extraordinary economic transformation. Government policies and individual aspirations should therefore focus on better understanding entrepreneurship as a driver so that the future economic potential is realized in full.

Entrepreneurship has several hues. Each has its context, relative to the industry and the entrepreneur. A study of the possible types and typologies of entrepreneurship would help the nation channel its entrepreneurial energies in a positive manner. Choosing the right mix of entrepreneurship would create new industries faster, and reinforce the established industries better. While ideally there is no one best entrepreneurial type, it would make sense to rank order different entrepreneurial types in terms of relative context and potential. Prior to such an exercise, however, we would need to define who is an entrepreneur in terms of certain basic profile. While the basic definition of an entrepreneur remains as someone who creates an enterprise out of gutsy ideas, minimal resources and maximal passion, there are other perspectives too.

Defining the entrepreneur

Besides the above characteristics, an entrepreneur can be viewed from two perspectives. The first is the attribute perspective. An entrepreneur is one who has competencies that are deployed with confidence and are sustained by conviction. This contrasts with the profile of a professional who could have competencies but not have the confidence to deploy them or the conviction to sustain them. A manager or leader, for example, may have access to the competencies of other professionals, and even run the enterprise play more as a call of duty despite having less of confidence and conviction. An entrepreneur, on the other hand, needs core competencies, confidence and conviction as a combination that drives entrepreneurial passion.

The other view of entrepreneur is that he or she is a professional, manager, leader and humanist, all rolled into one. An entrepreneur, like a professional, is always ready to roll up the sleeves and put the shoulder to the wheel. From making own coffee to drawing own designs, nothing is infra dig for an entrepreneur. An entrepreneur is also a manager, but more so a leader. He can inspire confidence by his vision and by walking the talk. The other essential role of an entrepreneur is that of humanist. An entrepreneur needs to have a larger purpose than just making money; he needs to convince his team, especially in the startup period that the mission he has embarked upon is of national or social importance. Only by being a humanist can an entrepreneur integrate a larger purpose into his endeavor.

Entrepreneurial typologies

There are also two basic entrepreneurial typologies, both of which are technology-dependent. In fact, there can be no entrepreneurship without technology. No entrepreneurial venture has ever prospered with only management, and without technology. The first type, then, is based on organic technology; technology that is developed and owned by the entrepreneur. All successful entrepreneurial ventures which became industry making or industry leading companies have been based on unique technologies of their founding entrepreneurs. Clearly, the greater the influx of scientists, engineers and technologists into entrepreneurial mainstream the greater would be the value creation in the economy.

The second type is based on inorganic technology. In this model, a non-technical entrepreneur makes a deal with a technical professional or in-licenses appropriate technologies, nationally or internationally, to overcome the lack of organic technologies. Needless to say, the inorganic technology route is less certain and more expensive than the organic technology route. There are, however, circumstances when combination of organic commercial enterprise and inorganic technical expertise also makes for a winning combination. Possibly, the increasing orientation of non-technical post graduates from premier management institutes towards the entrepreneurial mainstream would help the entrepreneurial movement in the country equally well.

Scoring the initial success

India’s success with entrepreneurial efforts, especially those of first generation enterprise, has been patchy. For one highly successful Orchid Pharma or Gitanjali that made the mark in their respective global markets, or a few other food services ventures that scored successes in the local markets, there have been several others which floundered along the way. A study of such failures indicates lack of a clear strategy and an inadequacy of execution as the two primary reasons. Strategy for an entrepreneurial company must address a clear short term market need that can be fulfilled and monetized. Long term mega strategies would fit ill in a startup entrepreneurial format. By choosing any one of three generic strategies of cost leadership, product differentiation and niche, but certainly not all, the entrepreneur can score the much required initial success. This strategy selection needs to be fortified with execution leadership.

Orchid Pharma, for example, succeeded by focusing on the niche format from the inception; a niche of relative exclusivity in product space, and a clear understanding of the drivers for such exclusivity such as technology, quality, investment, global orientation and people. Once the initial success was posted, the company was able not only to replicate and extend the niche strategy but also experiment with product diversification, with more investible resources and cost leadership becoming available to drive scale. On the other hand, a few other entrepreneurial companies in the pharmaceutical field and BPO space failed to consolidate their early gains because of an attempt to follow a medley of strategies, made worse by indifferent execution, from the beginning. Initial success of entrepreneurship, therefore, needs a carefully calibrated “limited gains – solid foundations” strategy for sustainability.

Beyond the first success

While the first success is in itself a formidable challenge, growing beyond the first success is also an equally tough challenge for the entrepreneur. For the new generation Indian economy, past entrepreneurial success is no indicator for future entrepreneurial path. This is majorly because of the structural changes that are taking place in the Indian economy. The new Indian economy is not merely one of cost leadership, import substitution or export competitiveness. Not many, for example, predicted even a couple of years that there would be a larger number of smart phone introductions than low cost phones each year or that mobile phones would ever be manufactured in India. These and several other high end products offer enormous potential to develop high technology hardware and software for the new generation of techno-commercial entrepreneurs. At the same time, there are areas of the economy which are crying for attention such as genuine micro finance, low income health solutions, universal primary education, nutritious packaged food, multimedia in education and so on which make a perfect canvas for the new breed of techno-savvy social entrepreneurs.

Entrepreneurs now seeking fresh successes beyond the first need not, and should not, repeat or replicate the past models that were operationally relevant in the old Indian economy. Even if necessary, entrepreneurs should be prepared for changing their canvas after the initial success and adopting a different strategic direction. Many successful entrepreneurs baulk at that challenge; strange as it may seem many entrepreneurs are not keen to restart their entrepreneurial base from a zero base, albeit in a different field, after the first success. Several successful entrepreneurs would prefer to build future successes on their first successes. While this is not an incorrect strategy, and is certainly full of economic logic, entrepreneurs also must realize that they would be missing on great opportunities due to their diffidence to reinvent themselves.

Dilemmas of entrepreneurship

Transformational entrepreneurship is easier aspired for than actually achieved. Entrepreneurs typically face dilemmas on paths to follow after the first success, each with its pros and cons. There are at least four ways the paths can be deciphered. Entrepreneurs can be stay-on or move-on entrepreneurs; they can be deep divers or wave surfers. In their approaches they can be either scalar or vector. They can be serial entrepreneurs or stable entrepreneurs. They can be industry specialists or conglomerate seekers. The unique and distinctive entrepreneurs in the entrepreneurial class would have a mix of all these approaches. Transformational entrepreneurship indeed requires much more creativity, effort, diligence and effort than the first entrepreneurial venture.

Stay-on entrepreneurs stay committed to being entrepreneurial in thinking all through their life. Move-on entrepreneurs see being entrepreneurial merely as a transitory phase in life. While initial or subsequent failures could make some entrepreneurs move-on entrepreneurs, whether being a stay-on or move-on entrepreneur has to do more with the combination of competencies, confidence, conviction and passion that one possesses as alluded to earlier. Typically, stay-on entrepreneurs tend to be not only more tenacious in their entrepreneurial mission and more successful in their first ventures but also have an enabling family environment that has greater sustainability in the face of entrepreneurial risks.

Deep-dive entrepreneurs are those who challenge the classic limits on industry definition. An entrepreneur manufacturing alternators, for example, would not see the product as only one entrepreneurial opportunity, rather he would see each sub-component, be it shell, the wiring, the contact points, or the electronics of the alternator, as an entrepreneurial opportunity providing value enhancing scope for business expansion. Typically, such entrepreneurs utilize points of inflection in product and process technologies to deepen their understanding of new entrepreneurial opportunities. The wave-surf entrepreneurs, on the other hand, adopt a different approach of broader coverage. The manufacturer of alternators, for example, would move on to other electrical and electronics systems, and would avoid deeper integration into any one product.

Scalar entrepreneurs are typically scale driven. Vector entrepreneurs are conscious of the direction they take as well as the scale they reach. Scalar entrepreneurs tend to take on any opportunity as long as it provides scale; emphasis tends to be on magnitude rather than on a cohesive thread of strategy. The approach of Sahara group to take on anything from airlines and media houses to townships and consumer products on a grand scale is an example. In one way, scalar entrepreneurs tend to develop conglomerates randomly, with high risk, associated also with a need to exit some. Vector entrepreneurs are clear that scale needs to be sensible from the point of view of product, process or customer. Sahara group’s exit from airlines business and Jet group’s acquisition of Sahara Airlines brings out the scalar-vector differentiation clearly.

Serial entrepreneurs are classic wealth creators, usually for themselves, with no emotional attachment to their ventures or domains. A typically modern Western phenomenon, serial entrepreneurship has started influencing the Indian entrepreneurial psyche too. True serial entrepreneurship is based on the premise that a venture that has been successful up to a particular level in the hands of an entrepreneur would be more competent in the hands of a larger player who can take it to full potential. Serial entrepreneurship which is based on opportunistic exit as in the case of Ranbaxy in India shakes the investor and employee confidence in the long term sustainability of vector entrepreneurship in an emerging economy. Stable entrepreneurs, on the other hand, tend to be vector entrepreneurs driving logical integration or related diversification through measured steps.

Domain entrepreneurs are the most common breed of entrepreneurs. They stand specialized in their chosen or starting field and build scale and scope in that field despite the several other domains that may emerge from time to time. The growth of such enterprises therefore tends to be economy or market linked. The domain entrepreneurs need to be technologically savvy to survive and grow. Conglomerate entrepreneurs, on the other hand, pursue a deliberate strategy of entry into each domain that opens up with the times and growth of economy. In the past, conglomerate entrepreneurs tended to move into all the licensed domains as they came to be opened up, and thus register success after success. With only a few domains remaining to be opened up, today’s conglomerate entrepreneurs would need to possess better capabilities to read technological and market signs.

‘Mix and grow’ entrepreneurship

Given that entrepreneurship is in itself an artful science of coping with uncertainty, it would be inappropriate to postulate that any particular model or combination of models would drive India’s economic transformation. Clearly, however, no single model of entrepreneurship helps entrepreneurs post sustained successes beyond the first success. The most successful model could be to become a vector entrepreneur in a chosen field, and build scale and scope with the help of entrepreneurially oriented professional managers. The entrepreneurs should then ideally move on to new fields of diversification, replicating in each field the vector entrepreneurial strategy. This is the model successfully established by India’s major entrepreneurial groups such as Tata, Birla, Murugappa and Ambani groups. In contrast, entrepreneurs such as Bajaj chose to stay focused as domain specific vector entrepreneurs. The mix of domain-vector and conglomerate entrepreneurial strategies, however, provides the maximum potential for larger market presence, faster growth and more dominant contribution to the larger society.

The ability of an entrepreneur to adopt the vector-conglomerate model clearly depends on the entrepreneurialism that he is able to develop in his professional team. Vertical integration in the vector entrepreneurial phase and related or unrelated diversification in the conglomerate entrepreneurial phase are proportionate to the entrepreneurial energy of professionals. Each Tata group company, for example, has had at least five to ten senior leaders with demonstrated capability and track record in taking entrepreneurial decisions for new products and new facilities or acquisitions. The stay-on entrepreneur should, as part of the first success, develop his leaders as professional entrepreneurs with the space to take decisions on new businesses. Similarly, success in the conglomerate phase would depend on the ability to co-opt proven entrepreneurial leaders. Reliance groups’ successes in conglomerate diversification in new fields such as petro-chemicals, oil refining, oil and gas exploration, telecom services, power sector, infrastructure, media, financial services and retail space are as much due to the Ambani brothers’ reinventing their entrepreneurial energies as due to their successes in getting the right kind of entrepreneurial leaders. More Indian entrepreneurs need to take note of these successful approaches to help India become the third largest economic power by 2035 as forecast.

Posted by Dr CB Rao on March 13, 2011

Sunday, April 3, 2011

Humanoid Organizations: Robotic Efficiency with Human Empathy

The human body is an exquisite example of organization that has been so well designed by the Almighty; with each limb of the body performing assigned functions remarkably consistently for decades as ordained. The robot is a marvelous example of organization so well designed by the human being; with the machine being programmed to perform designed functions in assigned operating conditions. It is, however, paradoxical that organizations that are brought together by human beings to manage themselves as groups aspiring for certain goals should suffer from serious shortcomings. Perhaps, organizational experts have to take an entirely new look at the way organizations are designed and managed. This may require a cultural catalyst rather than a structural lens or process filter.

2D structures

The conventional organization structures are two dimensional. The two dimensional organizations (2D organizations) typically organize themselves on certain easy to relate dimensions; functions and deliveries. Functions could be line or field functions such as research, procurement, logistics, production, quality, sales and service, and staff or corporate functions such as personnel, planning, information technology, finance and strategy. Deliveries could be in terms of products, services, businesses and geographies. Many times, larger 2D organizations house a number of smaller 2D organizations, like a manufacturing site housing several line functions and a few staff functions. The 2D organizations are governed by lines of reporting vertically and lines of collaboration horizontally.

As a result of the 2D format, different types of organizations have been developed; from a simple functional organization to a focused product organization, an integrated business organization, a project organization and finally a complex matrix organization. Organization pundits may agree or disagree on the relative merits or demerits of different organization structures but are unanimous that each organizational format has its own merits but also generates its own problems. None produces a completely holistic and harmonious solution. As an organization grows in scale and scope, and adds more products and geographies these problems become more acute. As headquarter organizations grapple with the challenges of controlling and coordinating while empowering and enabling growth, organization design becomes a catalyst as well as a constraint.

Design principles

Organization designs are based on certain two dimensional sets of thinking. For example, the principles of span of control and line of command determine the basic departmental unitization that is the core of any organization structure. The principles of specialization and diversification determine the basic design principles that govern redesign of an organization to support competitiveness or growth. The principles of line and staff determine who executes and delivers and who plans or supports. The principles of direct and indirect reporting or functional and administrative reporting enable multiple individuals and departments to interact with each other. Despite such principles which delineate organizations neatly on paper, organizations in practice tend to be in constant search of operational stability and harmony, let alone synergy.

Conventional organizational performance is monitored based on linearity and latency. It is expected that organizational units strive for linearity in performance, constantly seeking improvements with time. It is also expected that there is always a hidden capability in an individual that could be harnessed with opportunity. By adding scalable modules of organizational units and enhancing talent realization through development and motivation, organizations seek to grow and compete. The entire process, however, gets impacted by human behavior in organizations that operates, at times collaboratively, at times disruptively and most times unpredictably, in completely different manners than envisaged. The discourse on whether people make the organization or the organization moulds the people is incomplete.

Human and robotic models

An individual is designed by nature to constantly evolve. God has designed the various parts of the body not only to perform certain functions but also to excel in those functions with age and experience. He has set visible and invisible limits to performance but with great degrees of latitude. He has also designed the body to set error alarms through pain or sickness for adverse developments. The human body can accept a lot of environmental adversity and process astonishing levels of toxicity. Many times, however, the intangible parts of the human being, the heart, mind and soul, have significant influence on the human being. The human body is a great example of a single organ with unfathomed capability, the brain, regulating the various limbs voluntarily and involuntarily.

A robot is designed by the human being to perform programmed tasks. The degrees of freedom and the limits of performance are well set by the capabilities of the mechanical parts and the electronic parts, including the computer, installed in the robot. The robot can surely and certainly perform all the tasks it is designed for, but no more. There is no capability for evolution, influence, linearity or latency in a robot. The robot excels in repetitive and hazardous tasks that a human being would be incapable of doing. A robot supplements in some cases and substitutes in other cases its own creator. The robot is a great example of multiple components with defined capability performing even humanly impossible tasks based on built-in capabilities and programmed thinking.

Fallible organizations

In contrast to either an individual or a robot, the typical organization which is also a created entity is a visible enigma. As it is made up of several persons with different types of personal and professional backgrounds and different levels of education and experience an organization tends to be pluralistic. Pluralism has its merits but works disadvantageously when an organization needs to function with a single minded focus. Worse still, pluralism becomes a liability if individualism dominates the functional style. As a result, it would appear that the structure of an organization is less important than the process of managing an organization and the absolute levels of individual talent are less important than an ability to evolve in a competitive environment.

Organizational fallibility is tragic when compared with genetic background of the other two comparators, the individual or the robot; fallibility here is defined in a broad sense of failure to live up to its own potential or the external opportunity. Individuals have no control over as to how they come into this world and therefore they come in with an extremely high level of external dependency. Robots are programmed to perfection by design and the objectives and boundaries of performance are preset. Unlike these two comparators, organizations are set up based on specific plans, appropriate resourcing, validation by investors or lenders and finally with leadership. Organizations pursue specific opportunities for a planned play rather than resort to a random play. An individual has only his or her brain to depend on, and a robot has no brain of its own. Organizations, on the other hand, have multiple brains of their members and hence immense potential for physical and intellectual scalability. By concept, therefore, organizations need to be infallible.

Fallibility by design

Often, entrepreneurial organizations tend to be highly successful despite resource constraints and lack of designated organization experts. Many voluntary service organizations tend to be successful without elaborate formats. As the former become larger, post-success and as the latter seek to corporatize themselves, organizations suddenly become fallible, as if by design. The reasons are not far to seek. The entrepreneurial and service organizations tend to be characterized by a strong sense of purpose, a high level of passion and a do-or-die approach. As organizations become larger, purpose gets to be discovered through elaborate planning exercises, passion gets substituted by process and the do-or-die determination gets replaced by get-appraised-right approach. Organizations tend to overcome these by job descriptions, morphing of organization structures, vision-strategy exercises and learning and development inputs.

Unfortunately, the design infallibilities of a conventional organization tend to mutate and negate the corrective actions. Planning exercises suffer from top-down approaches, with an assumed view that broader participation delays planning. The inadequacy is compounded by the reluctance of the larger organization to participate, with a misplaced opinion that planning is inferior to execution. The larger the organization, the scarcer becomes the passion, often getting viewed as a preserve of senior leaders. Instant feedback that marks the entrepreneurial organizations gets staggered by annual performance management processes. The methodologies of corrective actions that are usually adopted also do not match up to the needs. Job descriptions tend to be static and in any case get overtaken by the metrics. This contrasts with an operating level requirement that if the standard operating procedures are followed the output would be consistent and compliant. Each structural change brings in its wake new problems while not necessarily solving the old problems. Vision-strategy exercises rarely substitute for passion while effective learning and development needs sustainable on the job reinforcement.

Humanoid organizations

Humanoid is an automation that resembles a human being. Robotics experts believe that in the coming years humanoids would be designed and developed to mimic targeted human thinking and operations pushing the boundaries as much as possible. In the context of the current organizational discussion, a humanoid organization would be one which combines the best of the features of an individual and a robot. Creativity, enterprise, independence, empowerment and intellectualism that are the hallmarks of human existence need to be fused with the precision, perfection, clarity, compliance and reliability of a robot. Humanoid organizations need to reflect dedicated humanism that works with laser like focus towards its goals. This is neither an esoteric nor infeasible concept.

The Japanese society (not merely the corporate society) emerges as the archetype of a humanoid organization. The manner in which Japan, Inc goes about institutionalizing design creativity, production efficiency, quality excellence and customer service on a platform of a tightly run and diligently compliant planning and execution system is legendary. The stoic and resilient yet compassionate and collaborative manner in which the entire Japanese society went through the unprecedented ferocity of earthquake, tsunami and nuclear crisis over the last several weeks illustrates the remarkable human organization that Japan is. Clearly, the concept of humanoid organization is relevant and impactful. There is, however, a strong factor of cultural homogeneity that provides the right eco-system for the humanoid organizations.

Managing paradoxes

To be a successful humanoid organization, the firm or the entity has to recognize and manage paradoxes, individually and collectively. This needs to be a cultural capability rather than a structural or process competency. Creativity and compliance, for example are seen to be contradictory. It is, however, necessary to be compliant to current procedures and plans but creative to develop new products and processes. In a sense, professionals of a successful organization must comply with the need to be creative while understanding how compliance to values such as safety, quality and productivity generates the profitability to sustain creativity. Similarly, the paradox between diversity of thoughts and unity of purpose is something an aspiring humanoid organization must aim for.

Paradoxes are often generated in, and amplified through, day to day operations as well. The paradoxes relate to perceived inconsistencies between macro strategies and micro execution, disconnects between global needs and local deliveries, firm level value chain and department level activity set, and finally between public posturing and private engagement of team members. Comprehensive awareness of corporate goals and strategies, timed execution agenda and end-to-end value chain mapping as well as a clear articulation of the basic principles by which an organization lives by also eliminates paradoxes. For example, the policy of the Toyota Production System policy that stops assembly line production even for a small defect serves to send out a strong quality message across the organization.

Humanoid transformation

For an organization to become a humanoid organization, cultural homogeneity is an essential requirement. The humanoid organization excels in institutionalizing apparently paradoxical concepts as its harmonized core values. Creative compliance, robotic humanism, programmed perfection, responsible empowerment, integrated diversity, focused pluralism, standardized innovation, controlled aggression, and many such teaser phrases can be coined to describe the personality of a humanoid organization. At the core, however, is the ability of the firm as well as individuals to look beyond conventional structures and processes, and target cultural homogenization as the core competency of a humanoid organization.

The culture of a humanoid organization emphasizes core values that can take a society and nation forward. These are innovation, creativity, enterprise, discipline, responsibility, efficiency, quality, safety, humanism, and integrity, not necessarily in any order of importance. Each member of the organization needs to be homogenized in terms of these core cultural tenets, at the time of entry and on every relevant occasion thereafter. Cultural homogenization requires each individual member of the organization to follow a standardized code of conduct and method of working to address the several issues an organization faces in an efficient and effective manner.

Humanoid spectrum

If human variability or creativity and robotic standardization or efficiency were to be seen as the two ends of a spectrum in developing a humanoid organization, the relative share of the human and robotic factors could determine the nature of the humanoid organization. The typical Japanese organization emerges as the ideal humanoid organization with the human elements and robotic elements having a 50:50 mix. In certain cultures such as China and Korea the robotic emphasis could be heavier, at say 80 percent and 70 percent respectively. Western companies could range anywhere between 60 to 80 percent in terms of robotic emphasis. On the other hand, an Indian organization could display a higher share of human components at say 75 percent.

It would be incorrect to assume that a greater than 50 percent emphasis on any one aspect would provide a more enduring advantage on that factor. An organization which has an 80:20 mix of robotic and human factors need not necessarily be more efficient than an organization with 20:80 or 50:50 mix. On the other hand, the contrary could be true. The success of a humanoid organization lies in its equal and equitable dependence on the human and robotic factors. When vested in equal proportions, these factors are mutually reinforcing and synergistic. Organizations aspiring to achieving the unique humanoid capability of robotic efficiency with human empathy would do well to follow the Japanese organizational model of 50:50 mix of human competencies and robotic capabilities.

Posted by Dr CB Rao on April 3, 2011