Sunday, February 19, 2012

Technological Obduracy and Commercial Obscurity: Lessons From Giants of Innovation

The history of modern enterprise is built on innovative products and services that offer new features to consumers in a more competitive manner. Competitiveness is defined by not only the performance of the product in terms of meeting the functional needs of the consumer in a more exceptional manner but also the looks and appeal of the product satisfying the esteem needs of the consumer in a more elegant manner. The first time a product is invented and commercialized, it tends to get absolute acceptance regardless of the level of competitiveness. However, as follow-on products are developed and introduced, competitiveness becomes a matter of enhanced cost leadership and product/service differentiation. The ability of a firm to remain in the lead depends on the capability to keep developing technologies organically within its core industry, and to keep absorbing technologies from other related and unrelated industries inorganically.

In certain product groups, the basic product performance parameters remain unchanged over years. For example, from the time of the invention of the first automobile by Ford or Daimler, the fundamental parameters of the automobile continue to be the speed and fuel consumption. Over time, however, a whole series of additional parameters such as shape, looks, aerodynamics, safety, reliability, maintainability, automatic transmission systems, off-road drivability characteristics, entertainment and communication systems, global positioning systems, lighting systems, and such other innovative features have started to define the competitive profile of an automobile for different usage characteristics, and user profiles. Each of these has been stimulated by advancements in related sciences and technologies. The bottom line in this and other cases, be it a watch, camera or television, is that the basic product and function remain but the product configuration and the functional delivery are significantly different.

Functions remain, products exit and enter

There are, however, certain cases in which even though the function remains the product gets substituted by a new product or gets supplemented by other products due to technological and competitive forces. For example, the large transistor based radio has given way to miniaturized electronics based radio. The dot matrix printer has given way to ink jet and laser jet printers. The conventional gramophone record and box type television sets have been phased out by compact disc and flat panel televisions respectively. On the other hand, manual watches have been supplemented by digital watches. Several other products fall in this category of supplementation; fixed telephones by cellular phones; desktop computers by laptop, net-book and tablet computers; photo stands by digital photo stands; incandescent bulbs by fluorescent lamps, compact fluorescent bulbs and LED lights; fountain pens by ball point and roller point pens; tea leaves by instant tea bags; and bottled drinks by canned drinks, to quote just a few examples.

In a related manner, products that are supplemented, and hence are under the threat of losing product hegemony, attempt to modernize and reinvent themselves. A classic case is one of the mechanical watch industry, which reinvented the mechanical watches through superior craftsmanship. So has been the case of the fountain pen industry with a focus on premium craftsmanship. A more recent case is that of the camera industry which has been facing competition from mobile phones which enable quick upload of photos through wireless network. The camera industry has initially attempted to retain its competitive edge through more sophisticated lens and shooting options. With the availability of high quality cameras in cell phones, the camera industry has now begun to introduce cameras with wireless capability to enable users upload pictures and films to the Net or share with friends.

Technological obduracy

At times innovative firms tend to be prisoners of their innovation and the resultant market domination. Not many firms undertake a systematic review of their competitive strategy based on the Porter Five Forces model, in which the threat of substitute products, the threat of new entrants and the industry rivalry are three of the five important competitive forces. An analysis of these forces should dictate the formulation of the competitive strategy of a firm, resulting in the three generic strategies of cost leadership, product differentiation and niche. Probably, even in the companies that have a robust long range planning process, the analysis tends to be more introverted than extraverted, preventing an objective analysis of the impending competition. The ability of the company to listen to the vendors and customers, and watch the competitive moves of the other players is a vital ingredient of such proactive approach. This is one reason for Porter suggesting competitor analysis and market signals as critical components of a long range planning exercise.

Many times, however, the rigid viewpoints of the leadership on the superiority and sustainability of its core technologies leads to a casual approach towards the impending competitive threats. This factor may be called the technological obduracy of a firm. The intransigence of the firm’s scientific and technical leadership of the firm, enhanced by the unwillingness of corporate leadership to invest the company’s top dollars in genuine innovation, contribute to technological obduracy. The early gains of market expansion and penetration due to greater sales and marketing efforts provides an unreal estimate of the product’s life cycle to such firms. While an extended product life cycle is possible with annual and semi-annual model changes and other strategies of lifecycle management, each such strategy may only be temporarily insulating against competition and masking the vulnerability of the firm’s core technologies to more innovative and intuitive technologies.

Peaks of obduracy

After 120 years of life Eastman Kodak, the greatest imaging company ever, became a faded memory this year, filing for bankruptcy. Over time, the company rested on its ones pioneering technologies and failed to come up with new versions of its products that will fend off competition from the new innovators such as Sony and several others. Kodak further failed to leverage its core competences and capabilities in photography chemistry to expand into emerging industries, as other late 19th century American companies did. More importantly, it failed to recognize in time the advent of digital photography and its role in, and gain from, the Internet revolution. The technological obduracy coupled with the ebbing of the entrepreneurial spirit of Kodak led to the demise of the company. While not in all cases technological obduracy leads to corporate demise, it does bruise segments of the business and impacts the growth potential of the overall company.

One of the classic cases of such bruise has been that of Sony in the television arena. Sony was the uncrowned king of televisions with its patented Trinitron cathode ray tube (CRT) technology, introduced in 1966. Trinitron picture tube has been the most innovative CRT technology introduced in televisions since the 1950s. With successive improvements, the Trinitron technology provided Sony with a perception of invincibility in the television domain. The obsession with CRT televisions made Sony somewhat blasé about the imminent threat from flat panel televisions, yielding the pride of place to Samsung. The first commercial LCD was introduced by Sharp Corporation in 1988 and the Korean manufacturers Samsung and LG began to drive the flat panel television market from the 1990s. Sony eventually withdrew Trinitron based CRT televisions in 2008. Sony had to buy the flat panels from Samsung, and also enter into a joint venture with Samsung to ensure for itself a constant access to flat panels and flat panel technologies.

The technology space has several other cases like Sony’s. Microsoft’s Zune music system failed to make its mark due to it being a standalone product, without an appropriate music distribution ecosystem. The earlier versions of tablets launched in early 2000s failed because of lack of appropriate tablet-friendly operating system. Nokia failed to see, at first, the emergence of smart phone market and later the importance of an appropriate operating system for an efficient smart phone. Nokia’s obduracy in staying with Symbion for several years has, in no small measure, led to the further decline of its smart phone franchise. This is also validated by the resurgence of its Lumia smart phone series with smart phone friendly Windows mobile operating system. Failures are also not necessarily related only to single corporation actions; even collective participation of technological giants offers little protection against failures triggered by obduracy. For example, around 2001, a Sony led consortium and a Toshiba led consortium proposed their respective Blu-ray DVD and HD DVD formats and fought a bitter war for over seven years, which saw swaying loyalties of the consortium partners, each either a technology giant or media mogul. Toshiba’s technological obduracy was no small factor in prolonging the war of formats with several millions of dollars wasted until the Toshiba consortium called off its format in 2008.

Irrationality of obduracy

Despite the threat of commercial obscurity, it is surprising how technological obduracy prevails in organizations. The reasons are many; fundamentally, it requires an entrepreneurial and innovative mindset at the leadership level to establish and nurture an organization that is ahead in technology. It also requires an ability to integrate inputs and skill sets from different domains, including vendor base and marketplace to create new products and services that are refreshingly fresh and tantalizingly competitive. It requires an organizational culture and mindset that encourages patenting and publications by scientific and technical personnel, with due intellectual property protection of course, of state-of-the-art developments. It also requires an introspective, objective ability on the part of the company to analyze its products and services and abort ill-fated missions early on. Not many organizations are equipped to think and execute this way.

The irrationality of obduracy has also a strong behavioral component. The typical human unwillingness to admit failure, which extends often to even corporate behavior, is a key factor. At another end, being sold on one’s own success beyond contemporaneous relevance is another. The typical managerial fallibility of not wanting to give the best to the consumer until the consumer or regulator demands or the competition provides a more impressive experience acts as a behavioral speed breaker. A general lack of culture of innovation, accentuated by an authoritarian and unforgiving style of leadership also makes an organization become averse to experimentation. Non-availability of processes in the organization to analyze the risk-reward aspects of new product developments makes an organization risk-averse, with a resultant propensity to stay in the comfort zone. Probably, the behavioral aspects of obduracy would need to be addressed first by the leadership on an organization-wide basis prior to launch of major projects of technological innovation in a top-down manner.

The rationality of innovation

Innovation has a rationality that primes the organization for continuous and sustainable growth. Innovation works on reinforcing core competencies, leveraging them to enter into adjacencies and seeking new core competencies in a virtuous cycle. Corning, for instance, survived and thrived by leveraging its core capabilities, the processing of glass substances, to develop a string of blockbuster products, the glass for Edison’s electric lamp, the traditional TV tubes, the heat-resistant glass for missiles and kitchen ware, the fiber-optic cables that power the Internet, and the glass for flat panel TVs. Procter & Gamble has also survived and prospered by constantly replenishing and expanding its product portfolio to address emerging consumer needs. Toyota has absorbed alternative drive and energy technologies to develop the world’s leading hybrid vehicle, Prius.

Innovation comes bundled with fallibility, and risk of failure. Innovation rests on research and experimentation as much as on hypothesizing and serendipity. It is not that all of Apple products have been roaring successes; neither have all the successive versions of Windows software have been equal or increasing successes. Innovative organizations, besides possessing the requisite scientific and technological skills have the intuitive ability to spot failures early and use them as stepping stones for future successes. But for this ability, Sony would not have been able to come back into the game with the Bravia series of flat panel televisions nor Microsoft would have been able to innovate a new hardware success in Xbox series of gaming devices. If technological obduracy causes commercial obscurity, conversely technological innovation leads to commercial sustainability.

Posted by Dr CB Rao on February 19, 2012

Tuesday, February 14, 2012

Give Me The Space; Get You The Living

In the realms of human living, space and time are two inexorable points of differentiation. Space is given by destiny, in that the first place of living is not by choice but by birth. Thereafter, of course, it is a huge expedition for an individual or a family to seek space for living wherever appropriate and possible. In that sense, it is destiny's way conferring an initial advantage or disadvantage, and the human being's ability to manage the advantage or disadvantage. Time, on the other hand, differentiates no one, initially or at any point in ones living. It is entirely up to the aptitude, enterprise and will of the individual how he or she manages the finite and priceless resource of time. The place one has the capability to provide certain advantages of time and cost.

Not surprisingly, in the realms of corporate living too, space and time emerge as the two most critical factors of destiny. Depending on where the entrepreneur is borne or where the first enterprise is set up, each company secures certain basic competitive advantage or disadvantage. It is up to the corporation as it grows older to manage its location specific opportunities and constraints. Similarly, the company needs to understand how it utilizes the factor of time to its advantage. For corporations, as much as for individuals, time and timeliness are two sides of the same coin but have completely different impact. Doing things slow is not generally a good thing for corporations in the competitive world of business while doing things fast but at inappropriate times is not necessarily good either!

Space-location-time-cost linkages

Industrial and business society has for long viewed space as the essential asset to start an industry or business. Governments and companies have imbued or sought greater value from space through location (developed or underdeveloped) and location related incentives. Advanced countries as well as emerging countries have traditionally adopted similar strategies for industrial and business development. Central to such strategies has been provision of large tracts of land for setting up industrial plants or business parks, coupled with fiscal and tax subsidies and incentives. Emerging countries, more specifically India, followed a policy of prohibiting major industries in and around cities and inducing them instead to move into backward areas.

In recent years, however, the importance of social infrastructure in attracting talent to industries in backward areas has been recognized. Companies which set up industries in backward areas struggled with the adverse time and cost effects of establishing housing, healthcare and educational infrastructure in such areas. That said, certain industries have to be set up nearer to natural resources and where population levels are thin while information technology and back-office firms are inclined to be nearer cities. However, the distinct preference for larger and larger tracts of land, whether in rural or urban areas seems to be causing significant agrarian and tribal unrest and leading to skews in real estate costs. As a result, even the apparent beneficiaries of modern development are questioning if the development is not inducing also a huge cost push in terms of housing and other social infrastructure costs. This trend does not seem to abate.

GDP-land index

Probably, the time has come to examine the concept of productivity of land. Historically, there has been no correlation at the country level between the land area and the gross domestic product. An analysis of the top 20 countries ranked by GDP shows that the index of GDP to land area shows a scattered pattern. Japan, despite being a very small country, has an index of 15 while the US has an index of only 1.5, China 0.61, Australia 0.16 and Russia 0.09. Even India has a higher index of 5.5. Several European countries such as the UK, France, Italy and Germany as well as South Korea approximate the axiom of lower land mass positively correlating with higher GDP. Clearly, having a large land mass or even being home to natural resources (eg., Australia or Russia) provides no assurance that such countries would automatically be wealthy or rank higher in GDP.

A review of countries with favorable GDP-land index shows that factors other than land area play a major role in the GDP levels. Firstly, it is technology that enables a country derive its true and optimal gross product from industrial or business investments. Secondly, it is the ability of the country to manage its import-export flows that determines the level and sustainability of its gross product. Thirdly, it is the talent stock of the people that enables the nation to generate value and wealth. In all these cases, smaller countries such as Japan and South Korea as well as Israel and Germany have demonstrated that the above three factors, rather than the size of the nation determine the national productivity and competitiveness. The keenness shown by the industries and governments to seek and provide hundreds and thousands of acres for industrial and business activity needs some discussion and debate, given the opportunity cost of the finite resource that land is.

Ease of management versus productivity of land

It is understood that in India information technology companies seek anywhere between 50 and 250 acres for new green-field IT projects while automobile companies seek 1000 and 3000 acres for new green-field automobile projects. These numbers compare with more humble spatial needs that prevail abroad. Managements seek large parcels of land at the initial stage itself to address the expansion needs of the future, to avoid cost escalation impact of incremental land acquisitions, and to retain a common management and technical team for expanding scale of operations. These valid reasons have to be juxtaposed against the broader public good that could accrue by seeking and providing land, just in time for expansion. More often than not, limits on business scale-up keep substantial parts of land unutilized. In several instances, managements themselves desire to move to new sites to reduce operational concentration and single site risk and also facilitate induction of new technologies and new practices.

If land were not to be a finite resource and the cost of land were not proving to be prohibitive, the whole concept of vertical development would not have occurred in real estate field. The government- mandated largesse of land for industrial and business purposes circumvents the market economics and artificially enhances ease of management and reduces productivity of land. If one were to leapfrog into the coming decades, lockup of land by individual corporations could act to the detriment of public good in the decades to come. While industrial units could have some limits in terms of vertical growth, back-offices need to be proactive in terms of land use optimization through high rise offices, with adequate safeguards against any hazards, including earthquake proof construction. It is forecast that urban skew is an inevitable global trend with 75 percent of population living in cities by 2050. Captive retention of thousands of acres of land would only accentuate urban living pressures.

Urban sprawl and vertical leap

Given the inevitable urban sprawl, some governments and corporations have resorted to unprecedented innovations in technology and engineering to build super-skyscrapers. Shard in London Shanghai Tower in China, Burj Khalifa in Dubai, Marina Sands Bay in Singapore and the new WTC blocks in the USA are examples of the new trend. The builders and the sponsors of such super-skyscrapers believe that these new edifices do not merely represent office space but represent ‘vertical villages’ and ‘lifestyle communities’, which are as good as sprawling horizontal urban communities. There are also trends of reclaiming land and rebuilding habitats to create new mini-cities or urban cities. The rebuilding of industrial land into civic residents and urban malls is indicative of the urban churn that could go on.

Urban land use planning requires addressing of the issue of urban slums, which are almost inevitably the first step for the rural migrants. Urban slums are also the first stops for construction and industrial workforce. Unless sustainable and affordable design and construction principles are adopted to enable affordable habitats to replace urban slums (with proportionate land allocation for such projects), the provision of hundreds or thousands of acres of land for projects could worsen the social skew even further. In the horizontal office expansion cum vertical residential growth model currently being deployed in India industrial and business land allocations and residential land allocations are typically made by different governmental agencies. It needs to be debated if this model is the right one going forward or needs to be replaced by an integrated township model where multi-purpose land allocations are made for industrial and business purposes as well as residential and civic purposes.

Fast forward to 2050 AD

If the current trends of industrialization and urbanization continue with locking up of large parcels of land, sustainability of growth could be threatened. Given that global population could reach 9 billion mark by then (from the current 7 billion), there could be significant consequences of continuance of the current land use trends. Governments may, in such a scenario, mandate return of all unused land allocations. Whether by public action or private pressure, struggling industrial facilities could be pulled down, the refurbished industrial areas could face rationalization, and the concept of township development could return to weigh on industrial and business sponsors. There could be a total urban renewal with IT enabled ecologically sensitive cities being built in the place of current haphazardly developed habitats. As the current wave of sponsors face scrutiny on the extent to which they have fulfilled their land utilization promises, additional perspectives could emerge.

The governments, central and state, formulate and implement several policies that impact land use patterns. These include policies to expand the metropolitan cities into megacities, upgrade tier 2 cities into metros, disperse industrial development, dovetail industrial and residential developments, eliminate urban slums, create new industrial corridors, promote special economic zones, establish new manufacturing zones, provide road, rail and air infrastructure, enable urban-rural balance, provide social infrastructure of education and healthcare, and provide access to water and power, among others. These policies impact how the available land is allocated and utilized. Optimal development would occur when an integrated approach is taken at national and state levels covering all the above policies, with the policies individually and collectively being synergistic in terms of value enhancement and cost minimization. Optimization of speed and time of travel would need to be a key goal of the integrated policy so that the society and economy remain productive.

Posted by Dr CB Rao on February 14, 2012

Monday, February 6, 2012

Public Policy and Industry Structure: Challenges and Opportunities

There is a considerable degree of misunderstanding on the scope and role of public policy in a global economy that is liberalized and provides the pride of place to free enterprise. Emerging economies such as India are prone to an even greater level of confusion on this, particularly in the context of controversies in the formulation and execution of various public policy initiatives. However, the role of positive and proactive public policy that guards the interests of society and spurs triggers development cannot be ignored. In many instances, public policy has been in the vanguard of changes that protect consumer interests. In the early years of India’s industrialization the ISI marking on industrial and consumer products and in the later years the Bharat fuel economy certifications for the automobiles are two examples of the Indian government mandatorily influencing the development of higher quality and performance norms on industries.

Governments, central and state, could, and need to, do much more to drive industrial change in India. There is, for example, a dire need to display prominently and scientifically, the ingredients, serving sizes and the nutrition values of all food products, whether they are manufactured by large companies or small and medium enterprises. This would enable a concerted move to curb the uneducated and uncontrolled drift of the population from nutrition to taste. In a similar fashion, mandatory development of easy-to-read pharmaceutical packages and introduction of package inserts for all pharmaceutical preparations could be steps that would ensure better patient safety. Public policy is vital to ensure that private enterprise in its quest for sales maximization and cost minimization does not lose track of consumer interests. Publication of data on carbon credits and other disclosure items by the companies also fall under the category of investor protection.

Transformative policy

At times, however, public policy can be transformative in its impact on social and industry structure. For example, the governments can decide that in the interests of passenger safety (protection against deep vein thrombosis) and comfort (for the young and the old alike), all airlines must provide flat-bed seats, irrespective of the class of travel, whenever travel time exceeds say, five hours. With thousands of planes flying on long distance travel and with bulk of the seats being for the economy class with constrained leg space, the drastic impact of such a policy prescription on aircraft configuration and capacity, and on air travel economics can be imagined. Such a policy prescription can affect the constituents of the broader air transportation industry in different ways. The aircraft manufacturers may face demand buoyancy as airliners may seek to order new aircraft to fulfill the new requirement. They may also be induced in the long run to develop new aircraft configurations that could provide flat-bed capacity throughout the aircraft without reducing seating capacity too much. The manufacturers may also experience a spurt in demand for larger aircraft such as Airbus A 380 or Boeing Dreamliner.

The policy prescription would impact the other constituents of the airline industry in different ways. The aircraft interior makers and seat developers would benefit from a huge demand spurt. Logistics and transportation consulting firms would have a major demand for analytics that optimize seating configurations between short haul and long haul flights as well as pricing and differentiation models. The airliners may face huge dis-economics of the policy change in terms of what the economy market segment could bear for the enhanced passenger comfort on one hand, and the possibilities of demand flux and migration across the economy class, business class and first class user segments. The society and the intellectual groups, especially in emerging markets, may react in a totally different way questioning the priority of the governments in ensuring passenger comfort in air travel when other transportation services such as road and rail are grossly inadequate. It is quite likely that emerging economies may have a positive backlash of similar structural reforms in other transportation sectors such as high speed bullet trains, full scale sleeper compartments and fully air-conditioned train and bus services.

Services, infrastructure and resources

As governments the world over quit manufacturing and ease the controls on the sector, they would focus more on services and infrastructure as well as physical resources. Policies on these sectors need to be positively disruptive to catalyze growth. In India, in particular, what are considered subsidies and election sops today could be essential social needs, in the years to come. From providing subsidized rice, governments may move towards low cost production of rice through better farming methods and yields. From providing laptops as an election promise, the governments may see the laptops and tablets as an essential investment in students to enhance the quality of students. As already contemplated, governments may enhance the duration of the medical course by one year to accommodate a one year rural stint. Governments may take upon universal medical care, universal housing and universal education as their responsibilities. Access to affordable and comfortable public transport may be seen as essential to ensure social and economic productivity. Road development may become a priority item. While all these may be seen to be taking away tax revenues, the overall economic benefit may outweigh the short term impact.

At the same time, societies and governments are likely to be vocal and interventionist in terms of natural resource utilization. Mining of coal and metals would be a contentious issue as industrialists and environmentalists seek to balance the conflicting imperatives of growth and conservation. Pricing of these resources may no longer be a matter between the private exploiters and the governments; rather it could be a matter of public interest with the courts also coming into play from time to time. Equally contentious would be matters relating to quality of air, matters of pollution, and utilization of scarce vital resources of land and water. Public policy in matters of resource utilization needs to be proactive to enable fair generation and optimal utilization of resources, rather than be ignorant of it for long spells of time, and then take draconian measures. Policies on fuel consumption and plastic and electronic waste are a few examples of the need for continuous and calibrated monitoring. While corporations may overcome domestic natural resource constraints through overseas acquisitions, governments cannot be oblivious to the geo-political impact of overseas acquisitions.

Public policy and industrial restructuring

Public policy leads to industrial restructuring from time to time. The US government’s fuel economy and EPA norms of the 1970s, promulgated in the wake of the first oil crisis, have caused complete restructuring of the global automobile industry, providing an opportunity to the Japanese automobile industry to leverage its unique fuel-efficient compact car technologies to achieve global dominance. It is not that public policy always constrains and restructures the industry. But for the support of the US government, General Motors would have ceased to exist after the global economic meltdown in 2008 and 2009. The private sector as well as public sector airlines in India are facing a situation of needing governmental support for bailout. However, it is a matter of debate if public policy should in the first place cause distress through either excessive freedom or excessive control, and then seek to remedy later. What constitutes proactive and prudent industrial management or reactive and casual industrial management in the face of unpredictable public policy has always been a grey area. Corporations have to necessarily structure their strategies anticipating volatile public policy shifts, especially in emerging economies.

In contrast, where public safety and health, resource conservation and environmental protection are concerned it would pay for the businesses to be ahead of the public policy curve. Many times, public policy comes up with requirements that challenge the industry. The pharmaceutical industry has instances of ePedigree solutions (required by the US government) or the 2D barcoding (required by the Indian government) adding new packaging and distribution requirements. Whether it is first PVC and now BPA free food grade materials or lead free fuels, those companies which are proactive in developing superior products ahead of public policy not only serve the society better but also secure competitive advantage. To be able to do so, firms must first consider public policy as a competitive input rather than collaborative enabler. The author of this blog post argued earlier that the theory of Five Competitive Forces propounded by Michael Porter needs to be expanded to include global liquidity as the sixth competitive force. It would be appropriate to consider the competitive pressure of public policy as the seventh competitive force.

Technology as a differentiator

Public policy does not of course happen in thin air. Many times it is developed based on technological developments that happen in different sectors, and in different countries. The way the pharmaceutical industry controls its aseptic manufacture stringently could prompt the governments to require hospitals to establish similar aseptic standards in their operation theatres and intensive care units. The technologies that are generated in research laboratories, many of which are either funded by the governments or owned by the governments, could trigger the governments to mandate the commercial application of such technologies. Elimination of cancer causing materials is one such example. As the seismic activity in different regions becomes unpredictable, governments may mandate that all builders must follow Japanese-type earthquake proof construction. Similarly, deployment of green building technologies or alternative energy concepts could become the rules rather than exceptions.

Firms must, as a corollary, never accept technological status quo as a strategy. Those firms which constantly examine the linkages between their products and services on one hand and the consumer and environment protection needs, and develop appropriate technological solutions on the other could be ahead of the public policy curve. Yet, it is amazing how industries get trapped within the technological, operational and business templates that have proved successful, and lose sight of the impending game changing public policy directives. Reverting to the earlier example of the aircraft and airline industries, it is surprising why the industry refuses to recognize leg space, let alone, sleeping comfort as the essence of futuristic aviation design. The automobile industry took several long years to discover the needs of the society for low-floor buses and hybrid vehicles. There is no reason why other industries should fail to see the wave of egalitarian design becoming an edgy public policy.

Opportunities, rather than challenges

Public policy provides to the industry as many opportunities as challenges. In fact, proactive firms may see more opportunities than challenges. To institutionally respond to this paradigm, firms must go beyond the strategy of higher allocations to R&D. Emphasis must be placed on channeling a certain portion of R&D expenditure towards more consumer and environment friendly technologies which could serve public policy more effectively. The attempt to develop Aakash tablet computer by India as an extremely low cost computer for school children is a perfect example. The tablet computer industry could, instead of trying an unending desperate attempt to compete with Apple, view the billions of school and college going students as the universe to serve. Agricultural scientists and food processing industries could align themselves to the needs of the public policy to provide low cost food grains through better technologies and farming practices. Those participants in education, healthcare, and housing sectors may examine how parts of their services portfolio could be aligned to public policy imperatives of universalization. Anticipating and proactively catering to public policy changes could vest in firms virtually unlimited market opportunities and significant competitive advantage.

Posted by Dr CB Rao on February 6, 2012

Friday, February 3, 2012

Skill Development as Corporate Social Responsibility (CSR): The Example of Maruti-Suzuki

Many shareholders of Maruti Suzuki India Limited (MSIL) recently received a proposal from the company relating to establishment by the company of an Automotive Skill Development Institute (AMDI) with the following objectives: (a) Impart technical training to school pass-outs to make them employable on the shop floor as well as in service workshops; (b) Besides technical training, train the students in proper value systems of work culture and team work; and (c) On successful completion of the course, absorb the students at service networks of the company and also at its manufacturing facilities depending on the manpower requirements. An interesting aspect of the proposal is that the students would be free to join any other organization that could decide to recruit them. Equally interesting is the resolve of the company to treat this project as a Corporate Social Responsibility (CSR) activity. Hopefully, the proposal will receive an overwhelming support from MSIL’s shareholders.

The above proposal is not only novel but is also germane to the Indian society. The Indian society is characterized by significant dropouts after school education. Not all interested in college education are able to move into colleges due to family pressures to earn a living. Certain jobs, for example automobile servicing, product selling, transport services and hospitality services are, in contrast, are not considered suitable avocations by college graduates. Given the peculiar social structure, school pass-outs as well as dropouts, who could not get the necessary educational background, occupy certain jobs which require technical finesse as well as business acumen while the graduates and post-graduates seek predominantly technical supervisory and white collar jobs. Although the Industrial Technical Institutes (ITIs) were set up in the 1950s as a vocational training via media between inadequate school education and higher technical education, there remain a large number of jobs which require a more practical and socially acceptable option. The AMDI model of skill development initiated by MSIL offers a great new option.

Skills at the bottom of the pyramid

Skills of the organization are at the core of business success. MSIL itself has been a striking proof of the proposition. In the 1980s, a major argument of status quo advocates against technological modernization in the Indian automobile industry was that it would be impossible to service a modern vehicle such as Suzuki car in the country which was accustomed only to urban and semi-urban use of cars of dated designs such as Ambassador. Rather than be baulked by such arguments, MSIL pioneered the concept of authorized service stations with factory trained service personnel, with well-stocked spare parts, to ensure that the modern cars are maintained with thorough product knowledge. This has enabled the service and longevity oriented Indian customers to welcome the new car technologies. The MSIL model has since been replicated by other automobile manufacturers, with similar success. Over a period of time, the ability to have such skill based service infrastructure has become an entry barrier too. Dissemination of skills to the bottom of the organizational pyramid is clearly a matter of core competence for organizations.

Skill development need not be limited to service. Ashok Leyland and MRF, the noted commercial vehicle and tyre manufacturers respectively have focused on driver training institutes as a methodology to reduce the shortage of trained drivers and enable better transportation services. Certain engineering giants such as L&T are reported to have set up training institutes to train construction workers in good construction practices. Certain corporate groups have been quick to realize the need for trained front-line customer facing manpower and have established specialized institutions for the purpose. NIS Sparta Education and Learning Technologies Pvt. Ltd., which has started in 1991 as an institute for salesman’s training, has rapidly grown to become Asia's leading training, education and learning solutions provider. It is now a part of the Reliance ADA Group. NIS Sparta today offers training solutions to organizations and employability linked, skill based programs to individuals. More recently, the concept of finishing schools has also come into play to enhance the employability of individuals at various levels, and not merely at workforce and salesman levels.

Unskilled as an archaic concept

While the above sounds good, it is ironic and paradoxical that even large corporations still suffer from the syndrome of unskilled and skilled differentiation as an institutionalized concept in the bottom rungs of the organization. In a new world which seeks equality and dignity of labor, besides perfection and productivity in products and services delivered, the institutionalized concept of unskilled and skilled differentiation is completely archaic and even counterproductive. One has to observe the poor artisans who mold clay into works of art or the indigent masons who provide impeccable finish to buildings to realize that skills are an integral part of any job. There could be arguments that all workmen who undertake predominantly manual labor can be classified as manual labor, and that no trained or educated workman would in fact accept to do such “unskilled” jobs. This again is a specious argument. Even in the so called unskilled categories a level of skill exists. For example, a so called unskilled workman who clears the sludge in a reactor of a bulk drugs company needs to know the right way of removing the sludge besides the material and process safety specifications and the correct sequence of carrying out various activities. As a paradox, whenever a so called unskilled or manual work gets substituted by robots, it is technology at the highest level that replaces such unskilled work!

Organizations have tried to reduce the proportion of the unskilled workforce within the permanent rolls by outsourcing such unskilled jobs to third party service providers. Services such as janitor services, civil construction services or maintenance services come to mind. As an apparent truism, the differences in skill levels of the in-house personnel and contracted personnel tend to be visible, with the former working on jobs that require higher levels of skills and education. Unfortunately, this may perpetuate a system by which such service providers due to their financial and other considerations could perpetuate an “unskilled” environment for their personnel. As a result, progressive organizations are forced to undertake special programs for the contract workforce to enhance the skill levels. Fortunately, most progressive organizations now realize that contracting jobs out has nothing to do with jobs being manual or otherwise but has everything to do with how specialization could enhance the skill level and delivery efficiency regardless of the type of the job outsourced.

Skills as sinews of strength

The visible part of any job hides the need for latent skills. In fact, latent skills serve as the sinews of strength. The job of an airhostess or a flight attendant may appear to be one of receiving the passengers and serving them food with a smile. However, when a crisis confronts, be it a suddenly sick passenger or a flight malfunction latent skills are expected to come forth to save the flight and the passengers. A janitor in the hospital may not be, in the ordinary course of work, expected to know anything more than wiping the floor and other accessories clean. Awareness of the nature of the infectious bugs and microorganisms that affect the human safety and how the job of cleaning has to be performed to protect safety represents the inner skill that is required. Every job, however naturally simple or manually heavy would have its own undertone of skill requirements. Skill development involves anticipating all the ordinary and extraordinary situations that a workman could encounter routinely or sporadically and equip him or her with such skills. It is the robustness of the underlying skills that enables the seemingly most ordinary personnel exceed expectations and avert crises, as the case may be.

Once the premise that every job has its own battery of skills is accepted, it is easy to see how a progression of skills could enable individuals to progress in their careers and achieve self-actualization. Organizations must move away from unskilled-skilled classification which creates increasing pools of disgruntled unskilled workers. On the other hand, organizations must define the jobs from the lowest level upwards in terms of a hierarchy of skills that are required in all natures of operations and business. The reserve skill levels of a job and the innate skill levels of an individual help employees progress from the lower levels of careers to the higher levels. There have been cases in India of individuals becoming entrepreneurs from what were seen to be ordinary avocations, be it product distribution, product selling, household plumbing or restaurant food-making. Only when individuals recognize the skill-sets as innate sinews of strength can such career progression be possible.

Developing skills

One’s skill-sets come from a combination of inputs; comprising formal and informal education at school and/or college levels, vocational and skill development institutions, and on-the job training. However, all these inputs can go only as far as the individuals are capable, eager and motivated to absorb skills. Particularly, skills come from keen observation, sustained practice and perfection for quality. Preparing the individual’s mind to the challenges of skill development through practice requires behavioral coaching. A willingness to work with hands and without inhibitions of blue collar work are the other two essential requirements. Unlike broader education, skill development in any vocation requires certain specific preferences and aptitudes on the part of the individuals. The challenge of skill development is one of customized practice and selection.

It is fascinating to watch and conceptualize how skill development takes place in a practical setting. Received skills, observed skills and practiced skills combine to form a progressively enhancing skill-set. Continuing practice remains the key however. It is in this context that specialized skill development institutes such as AMDI with openness to allow the products of the institute to join other companies is a welcome initiative. If leading companies in all other industries reinforce the initiative by setting up similar skill development institutes, the Indian economy would be the best in the world. Skill development cannot be an end in itself. At appropriate stages, it should be possible to supplement the skill epitomes with higher education, so that individuals can graduate from operational excellence to strategic exposure.

Skill development as a corporate social responsibility

Skill development on the lines envisaged by MSIL AMDI is an enlightened move to expand the talent base of the country while ensuring a somewhat captive skill base for the sponsoring firm. That said, the format offers enormous scope to provide education to indigent sections of the society in partnership with government and non-government organizations. NIS Sparta has partnered with the government in that direction, for example. Ministry of Rural Development’s (MoRD) Special Projects for Placement Linked Skill Development of Rural Below Poverty Line (BPL) Youth under Swarnjayanti Gram Swarozgar Yojana (SGSY), is designed to equip the unemployed rural youth from the BPL Households with marketable skills, with an objective to ensure a time-bound training and capacity building programme for bringing a specific number of Rural BPL families above the poverty line through placement ensuring regular wage employment.

Without specialized skill development institutions like NIS Sparta such social uplift through skill development would not be possible with optimal efficacy. When education-for-fee institutions such as NIS Sparta are able and willing to participate in such CSR programs, industry sponsored institutes can be even more effective. The new Companies Bill requires that public corporations spend at least 5 percent of their net profits on activities of corporate social responsibility. It also requires that the Board of a company is obligated to explain the reasons if the company is not able to invest in CSR. The skill development initiatives outlined herein provide a perfect vehicle with appropriate business and social rationale to fulfill the mandate voluntarily. It is hoped that all corporations would be able to follow Maruti-Suzuki example, and create a multiplier effect in the economy.

Posted by Dr CB Rao on February 2, 2012