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