Sunday, September 30, 2012

The Indian Utility Vehicle Segment: Design Creativity for Market Opportunity

From a scenario, two decades ago when Mahindra & Mahindra’s (M&M’s) Jeep was the only utility vehicle of sorts available in India, the Indian utility vehicle (UV) segment has indeed come off age.  Tata Motors began work on this segment in 1989 with its Tatamobile which was followed up with Tata Sierra in 1991 and Tata Estate in 1992. The first real push towards UV acceptance with range expansion and design modernization came with Tata Sumo, introduced by Tata Motors in 1994. This was followed, again by Tata Motors, with Tata Safari which set new standards in design and styling, when it was launched in 1998. Mahindra & Mahindra followed up with its Scorpio and Bolero models, responding to Tata Motors’ success.

Maruti-Suzuki, which was the pioneer that transformed the India passenger car industry in the 1980s, has been trying its bow at family vehicles first with Omni in 1983 and later with Gypsy in 1985 and Wagon R in 1999. The utility vehicle landscape saw the introduction of Qualis by Toyota in 2000 to a disappointed and muted welcome but the segment  got quite a transformation when Toyota launched its replacement, Innova, in 2009. Toyota Innova has since become the king of multi utility vehicles (MUVs) on the Indian roads; it is the favorite of both cab owners and private families alike. M&M continued to build on its UV success with more modern XUV 500 and Xylo vehicles. Not to be left behind, Maruti Suzuki in 2012 introduced a 7 seater utility vehicle specially engineered for Indian families, called Ertiga, and positioned as life utility vehicle,which quickly reached the Top 10 car table within a few months of launch.
The growth in the MUV segment has opened up the market for import of luxury marquees in this class, lately. While Audi Q7 and Q5 as well as BMW X5 and X3 have been the early leaders in this segment, Toyota Prado and Land Cruiser, Mitsubishi Outlander and Pajero, Honda CR-V, Nissan X-Trail, Tata Motors Land Rover and Range Rover as well as Evoque and Mercedes GL have been the major vehicles imported as completely built units (CBUs). BMW has been the first to recognize the attractiveness of SUV profile for young upwardly mobile people and has designed Q3 as its small SUV with big thinking. Renault has not been behind with its Duster while M&M Quanto has been the indigenous answer taking advantage of lower excise duty for sub-4 metre class. The recent explosion of the MPV and sports utility vehicle (SUV) models is thus reflective of a structural change in the Indian automobile market.
Market dynamics
Worldwide, SUVs offer greater pricing and profit advantage, besides growth potential, for the automobile manufacturers, India would be no different. The developed markets have had a tradition of encouraging utility vehicles as vehicles of weekend lifestyle as well as a “drive-free” lifestyle that brings the weekend life to weekends.  Given the way families move in a flexible manner, balancing professional work and personal life, and with gender equality coming to the fore in coping with multiple responsibilities, the  utility vehicles and crossovers  are as near to each other in customer preference as standard sedans are. The rural needs are probably catered to by micro-truck, huge station wagon type vehicles which carry people as well as produce. In the Indian market, where evolutionary trends follow the developed markets, the potential is enhanced by an open acceptance of the utility vehicle concept by the rural population. The success of Tata Sumo as a bridge vehicle across the urban-rural divide has been an interesting development of the Indian market. The inability of Tatamobile, the first station wagon in India, to get positioned as the true rural “people-produce” vehicle is another validation of the need for a well-designed utility vehicle concept.
The cumulative production data for April-March 2012 shows production growth of 13.83 percent over the same period last year. In March 2012 as compared to March 2011, production grew at a single digit rate of 6.83 percent. In 2011-12, the industry produced 20,366,432 vehicles of which the share of two wheelers, passenger vehicles (cars and utility vehicles together), three wheelers and commercial vehicles were 76 percent, 15 percent, 4 percent and 4 percent respectively. With a population exceeding 1,300 million, with rural population within that exceeding 900 million, with increasing “suburbanization” driving urban expansion, with nearly 80 percent of passenger transportation needs being met by two wheelers and three wheelers, with punishing road conditions caused by poor road infrastructure, with joint families rather than just couples being the nuclear family norm, with festivals and family events dominating the social canvas, and with Indians being used to travelling with large baggage utility vehicles could see an explosive growth  in India. Currently, the total passenger car production in India is 3,000,000 per year approximately, of which only  ten percent is in the UV category. Population-wise too the UVs are a small fraction. However, if the trends described herein stoke a change in consumer preferences, the growth rate of the UVs, already double that of passenger cars albeit on a much lower base, could be treble that of the passenger cars.   
More models, less choice
The indigenous UV segment does boast of a plethora of models; Hindustan Motors Trekker,  M&M  Jeep, Marshall, Scorpio, Bolero, XUV 500, Xylo and now Quanto, Force Motors Force One, and Tata Motors Sumo, Safari and Aria, for example. In spite of this, in terms of design package and functionality, the overseas designed models, whether completely imported or partially made in India have a clear consumer appreciation, their sales being inhibited only by the high price of such models. Such models are General Motors Tavera and Captiva, Mitsubishi Motors Outlander and Pajero, Nissan X-Trail, Mercedes R, G, M and ML, Jaguar LR and RR, Hyundai Santa Fe, Ford Endeavor, BMW X1, X3 and X5, Audi Q3, Q5 and Q 7, Renault Duster and Koleos, Honda CRV, Toyota Fortuner, Prado and Land Cruiser and so on.  The price premium on imported/semi-imported models in some cases goes up to as high as 400 to 600 percent. Clearly, this should have provided the opportunity for the indigenous UV manufacturers to come up with products of greater design substance at an intermediate price premium. Tata Motors did make such an attempt with Aria as the first crossover vehicle in India but the vehicle has had a very lackluster reception due to certain design bugs and service inadequacies. On the other hand, Toyota with its significantly indigenized Innova is ruling the India roads, rural or urban.
The Indian customers in the UV segment are a varied and demanding lot. They demand of their preferred model the ability to seat seven or eight people and carry luggage too if it can be helped! Despite the largeness it entails, they expect the vehicle to navigate the crowded and narrow Indian streets comfortably. They expect the vehicle to straddle both the urban and rural roads safely, and be able to be comfortable on both long and short hauls. To the users, the vehicle must look elegant and also be rugged.  And not to be missed, the vehicles must be economical both on the acquisition price and running costs. The government also adds its own weight to the design criteria by insisting on Bharat IV norms (broadly Euro IV equivalents) in respect of emission controls. It is for no reason that Carlos Ghosn, the chairman and chief executive officer of Renault-Nissan termed the Indian automobile market one of the most challenging in the world.  While the Indian automobile industry has a huge UV opportunity, its ability to harness the potential would depend on design creativity.
Innovation of Innova
The form that design creativity can take for market leadership in India is well illustrated by Toyota’s Innova. As the name suggests, it is indeed a unique vehicle even in the global automobile industry. Despite retaining the same dimensional features as a 5 seater sedan car, Corolla (which has dimensions of 4540, 1760 and 1480 mm in length, width and height),  Innova as a utility vehicle (4585, 1760 and 1850 mm in length, width and height) has been engineered to accommodate 7 to 8 people with the requisite boot space as well as seating and cargo flexibility. As a result, it meets both the urban and rural needs, as well as intercity and intra-city traffic and drive conditionsof India nicely. By offering, in addition, diesel engine as a standard feature from early days of Innova’s introduction Toyota made sure that Innova also emerged as a vehicle particularly low on driving costs. The product profile backed by an impeccable service backup of Toyota ensured that Innova became the choice vehicle in the UV market, with a pricing that is attractively pitched between the homegrown MPVs (like Tata Safari and M&M Bolero) and the imported MPVs such as (Honda CRV and Mitsubishi Outlander). If smart dimensional packaging alone could deliver such differential positioning to Toyota Innova, more fundamental innovations  which are customized to the multi-purpose India user needs could lead to additional successes (Toyota sells around 80,000 Innovas ranking higher than any other UV in India and sharing the space as one among the Top 10 cars in India).  
Fundamentally, the ability to enhance the wheel base (for example, 2750 mm of Innova compared to 2600 mm of Corolla Altis) while reducing the front track and enhancing the rear track with comparable road handling and safety would be a vital benchmark of spatial engineering. There could be other innovations too, such as a switchable all-wheel drive option to make on-road off-road traction easy or a transverse mounted engine with front wheel drive to further economize on dimensions. Whatever be the innovations “less is more” needs to be the design mantra for UVs in the Indian market. It is important to maintain a minimum seating capability of  at least 7 passengers, with adequate luggage space, to make the UV a truly family vehicle in India, while optimizing all other performance characteristics like ground clearance, turning radius, gradient management, cruising speed, ride quality, road handling, vehicle and passenger safety, easy navigation, and interior comfort. This requires companies to adopt a three tiered approach to design innovation that optimizes exteriors, interiors and performance in one India-centric package. The Indian automobile manufacturers would need to consider if they will be governed by current market size and offer many “apparent variants” or a few “real options” customized for multiple needs. The former may succeed with a “mix and match” or “cut and re-form” approach which would be economical (as with Quanto) but would not drive the UV segment to its full potential. In contrast, a design strategy of developing the right form, comfort and performance combination on entirely different and discrete platforms like Toyota does (RAV4, Innova, Fortuner, Prado and Land Cruiser) could open up the UV segment in India to unforeseen growth
Future beckons
The Utility Vehicle segment in India, though growing at double the rate of passenger cars is still relatively small in India. As against 3,000,000 passenger cars produced in India, only 400,000 utility vehicles are produced. The UV segment, however, has the potential to outdo even the passenger car segment, given all the reasons discussed in this blog post. And the world statistics clearly lead the way too. The demand for UVs trebled over the last two consecutive decades, worldwide. Over 30 percent of the cars sold in the USA are UVs. Europe, a longstanding sedan market, is seeing a rapid market push for UVs. Indian automakers have, therefore, an unprecedented market opportunity in the utility vehicle segment, by whatever name it is called (aka, multi-purpose vehicle, multi-utility vehicle, sports utility vehicle, crossover vehicle, or even light utility vehicle). All that is required is design creativity, manufacturing versatility and marketing acumen on the part of the Indian auto makers that could reshape the Indian passenger transportation scenario, and also transform themselves into truly global players.    
Posted by Dr CB Rao on September 30, 2012  

Wednesday, September 19, 2012

The Strategist’s Challenge: Managing Choices and Options

The strategy of a firm is, by and large, collectively shaped. However, the strategist of a company, usually the chief strategy officer or in some cases the chief executive officer has the primary responsibility to develop and drive the strategy of the company. With the environment becoming more complex and more volatile, the job of a strategist, which essentially involves taking bets on the future, has become more challenging. Fortunately, however, the complexity of strategy formulation also lends itself to certain simplicity of choices for each strategic direction a firm could take. To put differently, unlike in a scientific or engineering experiment which may have infinitely variable experimental conditions, strategy lends itself to fewer options and sharper selectivity.

For a truly professional strategist, the choice is never between doing something and doing nothing. Status quo is not an option for a strategist who loves his or her domain. The choice, on the other hand, is often between two or more options which can shape the future positioning of the firm in a more distinctive manner. For example, a decision between growth and profitability is a complex strategic choice. A decision between consolidation and growth is a more obvious choice. Again, the choices are not to be interpreted in generic terms. As an example, defining whether a firm should collaborate or compete in the industry is unlikely to provide any clear solution for the future. The options must be business and firm specific so that the impact can be perceived relative to the other players in the industry. Strategic choices are available as a generic tool kit; the strategist has to customize the tool box to the firm’s specific needs.

Simple words, significant impact

The strategist’s complex choices are often couched in very simple words and/or seemingly straight questions. Organic or inorganic in development, regional or global in expansion, specialization or diversification in business, penetration or diffusion for market share, equity or debt to drive investments, functional or business in organization structure, growth or profitability for dominance, generic or proprietary in technology, cost or value as niche, leader or follower in the marketplace, reinvestment or divestment for sunset businesses, integration or outsourcing in value chain, labor or automation in operations, private or public in constitution, and so on. Each strategic choice sets the company on a customized path of investment and growth which determines how the firm is positioned vis-à-vis other firms in the industry.

While all strategic choices are theoretically reversible or changeable, some choices are much more rigid in terms of investment, asset and organizational commitments compared to others. For example, for a computer maker, backward integration into chip manufacture could be a move that is virtually irreversible except at a great cost. For an Indian developer and manufacturer of products, global marketing could be a highly investment-intensive gamble that may accommodate little chance of error. On the other hand, for a tablet computer manufacturer, reliance on one of the operating system vis-à-vis another good one may not raise huge stakes. For a firm, a spin-off of an acquired entity may be easier than that of an organically built entity. The history of strategy is replete with examples of strategic choices delivering envisaged value as much as distorting established fundamentals.

Strategy: an outcome or a process?

Many a time, strategy is seen as an outcome; firms refer to expansion strategy, diversification strategy and acquisition strategy, for example. There would be explicit outcomes in each case. It is, however, incorrect to assume that strategy is all about outcomes. The outcomes are just strategic objectives; the route to achieve the objectives is, in fact, the core of the strategy. Except in the case of inorganic developments, outcomes rarely tend to constitute the total strategy. Even in such cases, the way the objective is described determines the central theme of strategy. If Tata Motors had the strategic objective of just becoming a global player in automobiles, its acquisition of Jaguar-Land Rover (JLR) as a good acquisition strategy in terms of an outcome. However, if the strategic objective of Tata Motors is described as building a sustainable global business in automobiles, acquisition of the ailing JLR was nothing but a first step in the strategy of building viable global automobile business.
Strategists have to therefore view each of the strategies in terms of not only immediately visible short term outcomes but also continuing strategic processes that deliver the envisaged long term value to the corporation.

Reverting to the example of Tata Motors-JLR, it is clear that without a clear turnaround strategy in mind for the acquired JLR entity and a synergy plan for the group as a whole, the acquisition strategy would not have been a complete strategy at all. In hindsight, it appears that Tata Motors, in fact, had a total strategy laid out before them. Given such a perspective, the acquisition price that was seen to be high and the risk assumed that was seen to be bordering on adventurism are actually well measured and successful strategic bets to redefine Tata Motors as a sustainable global player. Probably, the same may not be said to the same extent of Tata Steel-Corus acquisition in the steel industry, though belonging to the same group. Several overseas acquisitions by Indian pharmaceutical companies, in fact, failed to live up to the value generation objectives.

Extensibility and reversibility

Like the theory of mobility barriers and switching costs that is formulated with reference to strategic groups in competitive strategy, the domain of strategy formulation has to consider two important concepts: extensibility and reversibility. The concept of extensibility deals with the degrees of forward freedom built into the strategy to not only convert the first outcome into the first lap of a transformation process but also have enough flexible joints to integrate new pieces of strategy, which are not foreseen at the time of strategy formulation. GE’s strategy of first entry into India with business process outsourcing and medical equipment joint ventures had enough flexible joints to foray into Indian R&D and manufacture and also diversify into many market facing verticals. The same applies to the Korean groups of Samsung and LG and several other Japanese corporations which built their India strategies aggressively on the concept of extensibility.

Reversibility is a more challenging and complex concept to incorporate in strategy formulation. Both professionally and emotionally, no strategist builds a strategy to slide back in time. That said, reversibility need not necessarily have only a negative connotation. Unanticipated and more attractive new opportunities could encourage reversibility to generate revenues for investment. GE’s exit from what is seen as a pioneering Indian BPO operation enabled the firm (Genpact) specialize as an insurance against future captivity in a rapidly commoditizing domain space besides generating revenue and space for new businesses by GE. L&T’s move out of the cement business despite the firm’ deep involvement in construction as a core business reflects a revised thinking on cement as a vital adjunct to construction. Most times, however, reversibility could be triggered by basic faults in the initial strategy, including lack of end-to-end strategic think-through, inexplicable failures in execution, and surprising adversities of competition and environment. Sahara and Deccan demonstrated reversibility and semi-reversibility by exiting unviable low cost air carrier options in the airliner industry.

Solidity with adaptability

The strategic choice is as good as the execution to achieve the intended final outcome with the end-to-end enabling process. It is important that the strategist is involved and provided co-ownership in the strategy execution phases so that the outcomes and processes are either assured or modified to respond to any dynamic changes. Typically, the strategy is formulated by a rarefied team while the execution is carried out by a number of other stakeholders, who may have collateral objectives that are either complementary or contradictory to the basic outcomes. Co-ownership of the execution phase by the strategist ensures that the primary objectives are not overturned by an expanded team. For example, in the case of Tata Motors-JLR while it may be appropriate for the Aria (cross-over vehicle) design team to derive synergy from the Range Rover team, it would be inappropriate for the Nano design team to try to derive synergy from the Jaguar team! The more solid the strategy remains to its fundamentals the greater would be its chances of success.

That said, responsiveness to a dynamic internal and external environment is also crucial to the success of a strategic choice. This requires that the strategy must have appropriate avenues for adaptability. L&T’s move out of the cement business and GE’s move out of the BPO business, though they were strategies in reverse, actually represented firm level response to commoditization at industry level. Definition of what is core and non-core in strategy is a feature of adaptability. Adaptability in terms of switching options would be feasible in all the typical strategic choices enumerated earlier in domains as varied as business development, market expansion, portfolio selection, market share, growth financing, organizational structuring, turnover-profitability balance , technology direction, value and cost drivers, entry and exit, value chain management, operations management and corporate constitution. The net switching costs or benefits (ie., the difference in the NPVs of the current and future substitute strategies) would need to be mapped out along with other qualitative organizational issues prior to embarking on adaptive and reversal strategies.

Managing strategic change

Managing strategic change on the lines of extensibility, reversibility, solidity and adaptability discussed herein certain organizational wherewithal and resilience. The approaches would be covered in another blog post.

Posted by Dr CB Rao on September 19, 2012

Sunday, September 16, 2012

The Designer’s Innovation Dilemma: How Many Increments Need or Make a Breakthrough?

Finally, Apple has unveiled the much awaited iPhone 5 on September 12, 2012. The phone has a larger screen, better construction, sleeker form factor, lighter weight, faster processor, and more advanced operating system. Simultaneously several functionalities have been upgraded, including SIRI, the voice assistant. Accessories have also taken a leap in design with earpods becoming a new benchmark for earphones and a new sleeker connector pin emerging for charging the battery. Apple maintains that its device may appear numerically challenged in specifications but the device will easily outperform its counterparts in terms of its smooth user experience and near-perfect functionality. Yet, probably for the first time, analysts and critics have started voicing an opinion that the incremental innovations of iPhone are merely offering catch-up options against the strides taken by other smartphone makers.

IPhone 5 represents the sixth generation of the iconic phone that Steve Jobs launched in January 2007. From then onwards, he and the Apple team launched successive generations of iPhones, each with incremental capabilities and functionalities. iPhone 3G that was launched in July 2008, iPhone 3GS in June 2009, iPhone 4 in June 2010, iPhone 4S in October 2011 and iPhone 5S in September 2012 reflect the annual transformation that has been the norm of design innovation and operational excellence at Apple each year. The changes were not minor either; from video camera calling to voice assistance, and from iTunes integration to iCloud integration, successive generations of iPhones provided each year a major scale-up in performance and functionalities. While Apple may believe that it still has a clear winner in its hands (as indicated by the fast building up pre-order pitch) and hence needs only incremental innovations (as could well be proven by performance), iPhone 5 has laid the base for a debate on a classic innovation dilemma of the product designer.

Defining a lifecycle

Defining the lifecycle of a product is the cornerstone of viable product strategy, and hence the determinant of the business strategy of a firm. No firm, Apple included, would be in a position to formulate a priori a fixed time horizon for a product to be on the market. Given a choice each firm, Apple included, would be keen to continue the basic product configuration almost perpetually while adding to functionalities as long as the market response continues to be robust for successive generations of a product. This is one reason why iPhone could successfully retain the basic screen size (3.5 inches) with the same form and weight factors from the first generation iPhone to the fifth generation iPhone 4S. Many times, however, design teams fall into the trap of lifecycle management with incremental innovations and fail to see the major breakthrough innovation that could be coming their way, transforming the product-market space, and hence the firm’s business viability, radically.

The concept of product lifecycle is rooted in three basic concepts; the first is the product category, the second is the technology backbone and the third is the brand equity. The product category is defined by the most dominant product characteristic; for example, communication of a phone versus photography of a camera. The technology backbone is defined by the most dominant technology deployed; for example, liquid crystal display versus plasma in televisions. The brand equity is defined by a brand longevity that makes consumers see the brand as the product itself; for example, Corolla as a brand defining what a sedan is. Different products of different firms face diverse combinations of the three basic dimensions in the definition of product lifecycle. That said, to determine a product lifecycle effectively, at least during its evolution, one would need to appreciate the broader industrial design ecosystem in its totality.

Design ecosystem

The design ecosystem of a product is a combination of organic, proprietary, inorganic and licensable technological developments. The design ecosystem is rooted in the aggregate intellectual property of individual technologies of individual components as well as the integration of such technologies as a singular product. In iPhone the chipset, the operating system, the unique accessories, and the system design as well as the use and feel enablers are perhaps the organic, proprietary features. The camera, the glass, the voice recognition system as well as the assembly are perhaps the outsourced items. A different smartphone which is more open could have much higher level of outsourcing including the chipset and the operating system. At the same time, it may establish an additional differentiation by accessing external technological developments such as wireless charging as is proposed by Nokia in its upcoming Lumia 920.

The brands are increasingly getting both reflected in and reinforced by the flagship products. Just as Apple’s iPhone has become an iconic representation of a seamless consumer experience in smartphones, Galaxy for Samsung, One for HTC, Xperia for Sony, Razr for Motorola and Lumia for Nokia became flagship brands for the respective companies. Even internal technologies such as Bravia technology of Sony’s flat panel televisions got supplemented as a new benchmark in imaging and viewing system of its smartphone range. Theoretically, it is possible to run products through successive generations to sustain and extend the product lifecycles. Individual brands of cameras, for example, can continue to be market leaders based on continuous improvements in sensor, lens and aperture technologies. This seemingly endless possibility could lead to sub-optimization unless the design teams are able to grasp the inflection points in the development of design ecosystems.

The game changers

Game changers are certain technological innovations that could completely change how a device is configured. Science and technology by their very nature move towards game changing developments. It is often the business and corporate considerations that impede the inexorable move of technology, in the name of concepts such as market segmentation, customer skimming and value for money as well as return on investment. There was, for example, never a justification for huge desktops with oversized monitors and briefcase sized CPUs to coexist with laptops of fractional size and weight but imbued with higher specifications and superior performance. If science and technology were not titrated by business considerations, desktops would have been obsolete decades ago. But for the business need to keep the Mac line of computers going Apple would have displayed enough technological savvy to make iPods both media-friendly and business-friendly, with high powerchips, standard USBs and the like. Probably, Microsoft could be the new game changer with its Surface tablet that would meet both the needs.

The game changing mindset is just the reverse of the incremental mindset. A game changing Nokia could, for example, choose to make its 41 megapixel pure view imaging technology the standard in all its upcoming Lumia range of Windows 8 run smartphones. A game changing Toyota could decide to convert half of its products to hybrid drive. A game changing Microsoft could offer Windows 8 basic free and keep Windows 8 Professional on chargeable basis. A pump manufacturer may choose to make all its pumps, not merely its submergible pumps, waterproof. The game changing mindset is, however, not merely one of offering the highest end technology at the lowest end or mean affordable price point. It is more of visualizing the next big jump in consumer needs and the next big enhancement in consumer experience and deploying the right science and technology to fulfill them through breakthrough products.

The designer’s dilemma

Left to himself or herself, every bright designer, and left to themselves every bright design team would have the classic challenge of deciding between incremental innovation and breakthrough innovation. But for Steve Jobs making “touch and feel” the deciding game changer over mechanical querty key board, the iPhone would not have been a differentiated product. How long should Apple increment the iPhone in terms of technological improvements vis-à-vis making a breakthrough transformation could be the current challenge for Apple. Possibly, non-touch based gesture control of computers, tablets and iPhones, or even thought reading control mechanisms could be technically feasible and economically possible even now. Development of pumps which combine the features of both reciprocating and rotary mechanisms could be a near term reality. Cameras which send the images with oral or written messages of friends could drive a new generation of communicative cameras.

The designer’s dilemma, and at another level the corresponding corporate dilemma, is how often the consumer must be enabled to experience the ‘wow factor”. iPhone 5 could still be a runaway success with its global sales surpassing the previous records. Yet, the absence of wow factor in the recent smartphone launches, Apple and Samsung included, indicates that a period of five to ten years is probably the optimal period to try a breakthrough, transformative innovation to completely reengineer and redevelop a product. Put slightly differently, after every five to ten cycles of annual incremental innovations would come the need for one breakthrough transformative product. Certain industries which are stylistically oriented to update models each year at considerable costs (for example, the automobile industry) could explore an alternative of conserving investment and technological power by making stylistic changes only once in two years, and introducing breakthrough products every four or eight years.

Separate streams

Given the distinction in the design thought, experimentation, development, investment and commercialization approaches between incremental innovation and breakthrough innovation, firms would be well advised to establish distinct organizations for both the streams of innovation. Design institutes of fundamental or basic science and technology would go a long way in enabling larger firms play the rightful role of transformative agents in the industrial milieu. Clearly, the scientific and technological leadership required for breakthrough product transformation would be gutsy, visionary, consumer-centric and even iconoclastic. The right industrial leader, Apple and Samsung included, would never be averse to creating a new icon that challenges or obsoletes its own icon. As a thumb rule, targeting a breakthrough innovation from such groups for every five to ten annual incremental innovation cycles of the normal research groups (depending on the nature of industry) would be empirically and theoretically appropriate.

Posted by Dr CB Rao on September 16, 2012

Sunday, September 9, 2012

India’s Global Industries: Three Horizons of Growth

There has been a time when India was unlikely to be a global player in any industry or service. From the 1980s, thanks to software services and information technology, India came to be recognized as a global software powerhouse. Still, industry was seen as an unlikely arena for global play by India. The 1990s saw the first breakthrough with the pharmaceuticals sector, led first by bulk drugs and later by formulations, becoming the global generics powerhouse. Doubts remained, however, if India would ever be player in the broader industrial spectrum. The turn of the century, however, saw India become a major producer of components and finished products in a number of industries, including electronics and telecommunication products.

Quietly, India has been undertaking certain strides in multiple industrial horizons. But for that, several developments of Indian products being in global arena would not have been feasible. For example, Nokia has its Asha range of global mobile phones manufactured out of India. Toyota, the world leader in automobiles has recently announced that India would be a new hub for certain of its global component requirements. India has today launched its 100th space mission (the Polar Satellite Launch Vehicle, PSLV, C21), with satellites from the developed world to be put in orbits on a commercial basis. Tata Motors turned around Jaguar-Land Rover operations, and began making profits and adding jobs in the developed world. Impressive as these are, they are more a result of individual initiatives in private and public sectors. There is a need to identify a concerted strategy for globalization of the broader Indian industrial spectrum.

Public-private collaboration

Given that India is yet to attain global scales in research and development, manufacture or marketing, one of the fundamental planks of gaining better global competitiveness is through the pooling of public and private resources. This could be firm level and industry level collaboration or academic and research (largely public) collaboration with private and public sector firms, or even manufacture in private sector and marketplace in the public sector (and vice versa). The disallowance of private sector into defense production, for example, has been counterintuitive and counterproductive given the maturity the Indian automobile industry has achieved. Similarly, given the huge increase in the Indian civil aviation sector should Hindustan Aeronautics not have been tapped for manufacture of India’s own dream-liners?

Public-private collaboration could take a systems approach as well. In the airports arena, the Airports Authority of India as the airports builder and maintainer, Air India as the cargo handler and various airlines including Air India (all of them except Air India being private) could view their interdependencies and mutual services in terms of enhancing user experience rather than their own transactional requirements. Academic and industrial collaboration also takes on a similar hue. Certain private sector undertakings with overseas infrastructure can help manufacturing enterprises, of both the private and public sectors. Competition need not act against collaboration. Mahindra Group, which has its own automobile franchise, for example, is the second largest financier of India’s largest automobile manufacturer, Maruti Suzuki.

Higher objectives

Diffidence needs to be replaced by optimism. It was probably never envisaged that India, given its investment constraints and poor pay scales in public sector, could have its own space program that can one day turn commercial. The truth is that the impossible has been made possible with the successful launch of PSLV today. Eventually, India would have its own missions to the Moon and Mars. The need, therefore, is for the broader industry to have higher objectives of attaining global scale and competitiveness, dreaming to make the impossible possible. The higher objectives must go beyond choice of certain firms or sectors for export competitiveness or setting up of Special Economic Zones (SEZs) or Export Oriented Units (EoUs) for export production. The objectives must be to ensure sustainability of global scale R&D, manufacture and marketing, without undue reliance on fiscal incentives.

India needs global scale and local prosperity in order to achieve the objective of economic growth with social equity. For this to happen, India needs to set up new institutional structures, turning some of the concepts borrowed from the West upside down. For example, the Planning Commission must be broad-based to provide equal participation and impetus to both public and private sectors. The Competition Commission needs to be supplemented by Collaboration Commission. Special agencies such as National Manufacturing Mission must be reinforced by new entities such as Global Competitiveness Mission. Industry bodies must transform themselves from being mere lobbying houses or advisory bodies to global policy developers and global competitiveness monitors. The industry as a whole must be responsive to indicators of adverse movements in global competitiveness for India. Against the background of such a perspective of globally oriented institutional enablers, the right horizons of growth need to be chosen.

Horizons of growth

Growth happens in horizons. The three horizons usually are the current growth makers, emerging growth drivers and future growth triggers. It is tempting to characterize the several industries in the three horizons and seek to maximize global competitiveness individually. For example, one of the more export-intensive sectors like pharmaceuticals could be placed in the current global horizon, a scale-friendly automobile industry in the emerging global horizon and a technology-intensive space industry in the future global horizon. Such an approach could have its merits and even support better globalization for the chosen industries. The disadvantage or limitation is that such classification is based on current factors of performance rather than on intrinsic enablers for the complete spectrum as a whole.

An alternate, and more systemic, approach would be to view the three horizons in terms of core competencies required. The first horizon could be one of cost-competitiveness, the second could be one of development-competitiveness and the third one could be one of innovation-competitiveness. Classifying in the three horizons enables global forays based on competencies that India possesses or can develop in a phased manner. That India could be cost-competitive in a number of industries is given; equally it is clear that India could undertake incremental developments as a matter of routine. What is not probably clear is how soon and how effectively India can transit to a paradigm of innovation; that obviously needs special focus and effort.

All industries, all horizons

The elegance of the cost-development-innovation horizon construct is that it enables a play for all the industries simultaneously in all the three horizons. For example, within the automobile industry sub-compacts, compacts and sedans may be placed in the cost horizon; luxury vehicles, sports utility vehicles, multi utility vehicles and crossovers in the development horizon; and hybrid and electric vehicles in the innovation horizon. This construct helps the automobile industry seek and achieve globalization without any lapse of time and also with utmost effectiveness. Similar examples would abound in terms of various industries. In the computer industry, desktops and laptops as well as tablets would figure in the cost horizon, supercomputers in the development horizon and the artificial intelligent computers and robots in the innovation horizon.

When the detailed paradigms of research, development, manufacture and marketing are drawn up for each industry across the three horizons, it would be evident how, rather than sector-specific tactical plans, horizon-specific strategies would be relevant and helpful for the industry as a whole for global competitive advantage. This construct has lessons for firm level strategy as well. Firms should not view globalization as a single product or convenience led effort. Rather, it should be seen as an overall competency reinforcing effort across the total product range. Although as of now clear examples do not exist of Indian firms having demonstrated the multi-horizon success organically, both Tata Motors and Mahindra & Mahindra effectively demonstrate how they could achieve multi-product, multi-horizon competencies through a fusion of organic and inorganic initiatives.

Horizons of competence

The three horizons of global competitiveness of cost, development and innovation correspond to three core competencies which successful global firms must possess. These correspondingly are operational excellence, development creativity and absolute innovation. Regardless of product differentiation, cost leadership is a good position to be in for all Indian global firms. This would be reinforced when product development capability enables the firm to also develop differentiated products. An Indian crossover vehicle is thus a first for an Indian car maker. Complete multi-horizon capability occurs when the firm makes innovation its passion and develops breakthrough products. Most Indian firms are yet to focus on the third horizon but the sunrise technologies such as nanotechnology and alternate energy provide potential for research institutions and industries to make common cause; this requires scientific and technological leadership as well as cutting edge laboratory infrastructure.

Indian experience suggests that induction of experienced professionals skilled in each of the horizons, whether from Indian industry or overseas helps the firms master the three horizons appropriately. In terms of operational excellence we have multiple examples of leadership from efficient Indian companies such as Reliance Industries. Development excellence in Tata Motors and Mahindra & Mahindra was catalyzed by Dr V Sumatran and Pawan Goenka respectively. Even in the mysterious and challenging domain of drug discovery, some Indian firms have relied on proven scientific leaders and state-of-the-art laboratories to achieve considerable traction. This is indicative of the fact that the base talent for all the three horizons is appropriately and abundantly available in India and catalytic leadership, and modern infrastructure, with the three horizon approach enunciated herein, is all that is required for India, Inc to deliver on the promise of globalization.

Posted by Dr CB Rao on September 9, 2012

Sunday, September 2, 2012

Principles of Balanced Management and Leadership

Balance is the crux of human survival as well as growth. Nature’s ecology, as we all know, is held in a delicate and structured balance in terms of various ecological factors that operate. Human body, as per the ancient Ayurveda as well as the modern medicine, is held in an equally delicate balance by the internal factors of metabolism. Balance thus is crucial to orderly living and development. While the balance of the environmental system or the living system tends to get affected by accentuation or attenuation of one or more factors, eventually the systems return to a state of balance. A system in a state of perpetual imbalance ultimately destroys itself while a system that succeeds in maintaining a balance tends to be successful.

Corporations and organizations, which are the creations of the human being, are no exception to the essentiality of the balance. Corporations and organizations are created, operated and modified by management and leadership. Both management and leadership are vital ingredients of corporate development. These two practices, which at one level tend to be individual competencies and at another level emerge as institutional attributes, also need balance to be efficient and effective. It is important that managers and leaders appreciate how balance can be a great stabilizer as well as a growth driver. This blog post postulates ten significant principles of balance in management and leadership in this context, but not necessarily in any order of priority.

1. Leadership-Management Balance

Both leadership and management are vital for corporate development. All effective leaders would need to be efficient managers while all efficient managers may not become effective managers. Leaders are commonly thought to be required to envision, strategize and transform, but their role and responsibility in efficient execution cannot be underplayed. Managers are commonly thought to be required to plan, execute and monitor but their role and responsibility in effective strategizing, and becoming future leaders, cannot be overemphasized. Leaders being cognizant of the continuing managerial responsibilities and managers being aware of the leadership challenges provides for optimized leadership-management paradigm for an organization.

2. Change-Continuity Balance

As is said somewhat rhetorically, change is the only constant in today’s world. This is more so in the case of corporations which face organized competition to develop and manufacture new products or offer new services on a continuing basis to garner increased business. However, for each point of breakthrough innovation, which could take a few years, there would be years of continuous product life cycle management. Achieving efficiencies with current products, services, processes, technologies, people, assets and structures continuously is as important as aspiring for game-changing products and services and other factors of business on a periodic basis. Leaders and managers who optimize change with continuity help organizations and companies manage competitive forces with surefootedness. The orderly and yearlong succession rollout by Ratan Tata for Cyrus Mistry is a remarkable example of the maturity of the Indian conglomerate in ensuring change with continuity.

3. Authority-Responsibility Balance

Classical organization theory has spelt out the two fundamental factors of effective management of activities. These are authority (or power) and responsibility (or accountability). Power without accountability would be intoxicating and disruptive while responsibility without authority would be constraining and frustrating for people. Authority-responsibility balance needs a case by case application. In some cases, accountability precedes empowerment and in some cases the reverse is true. The use of power-accountability balance by leaders is like deriving mechanical advantage from a plank mounted on a fulcrum. The intelligent leader must know where the fulcrum must be situated, closer to authority or accountability, to derive maximal performance advantage from his or her people.

4. Structure-Process Balance

Some organizations and people tend to place extraordinary emphasis on organizational structures and reporting relationships to manage activities for results. Yet some others consider organizational systems and processes to be primary enablers of activities and results. All, however, probably recognize that each organizational structure solves certain problems but also creates new ones. Similarly, it is good to be bureaucratic, multi-layered and sequential occasionally (to add value and minimize risk) and also simplistic, flat-structured and simultaneous at other times (to gain speed and expand footprint). Effective leaders and managers realize that structures and processes must be designed and tuned to synergize, rather than impede, each other.

5. Market share-Manufacturing share Balance

Established research teaches us that market share is a virtuous objective to pursue for organizations, given the positive profit impact of high market share. Experts are, however, not united on whether marketing investments (for the pull impact of brand building) or manufacturing investments (for the push impact of scale and scope) impacts market share more profoundly. Undoubtedly, mind share of the customer is essential to ensure brand recall and greater purchase. Similarly, having higher scale relative to competitors helps achieve better economics as well as higher shelf-visibility. Finding the optimal balance between the pull and push systems in end-to-end supply chain planning is the key to manage demand and supply volatilities without losing the handle on growth.

6. Technology-Business Balance

The recent Apple-Samsung court battles on smart phone technologies have brought to the fore the importance of intellectual property and patent estate (reflecting broadly the innovative technological capability of the firm) to secure competitive advantage and even shut out competition in some cases. That said, technological virtuosity without business sensitivity or business smartness without technological foundations would both be sub-optimal. Leaders must focus on developing technologies that enable new business development. In a super-saturated tablet market of today for example, the right thinking leaders would not merely be thinking of the next generation of tablets but would be conceptualizing the next generation of devices that would be equally effective in professional and personal lives, for example.

7. Man-Machine Balance

Toyota Production System (TPS) exemplifies the optimum balance that can be struck between the men and machines. TPS does not advocate lavish investments in high-end and massive infrastructure nor does it advocate excessive use of labor. It combines the simplicity of unit operations, perfection of robotic operations, flexibility of human intervention and stringency of takt time to develop an integrated man-machine system that reflects both efficiency and effectiveness. The simple division of low cost and high cost labor countries to determine relative man-machine interface hardy does justice to the challenge of manufacturing competitiveness. Actualization of labor force to higher competencies through balanced deployment of men and machines holds the key to competitive manufacture in both developed and emerging countries. Application of Japanese manufacturing approaches has taken the Indian automobile industry several notches up over the last three decades, as a validation of this approach.

8. Effort-Result Balance

Managers and leaders have an eternal enigma: should we manage by results (and goals) or by efforts (and activities). There has been no convincing conclusion to the debate. Results are certain and well measured but are post-facto. Timely efforts are crucial to gainful results but current efforts, even if successful, provide no assurance that future efforts would be as successful. Should one measure competencies instead or micro-schedule the activities? Successful management is based not complicating the planning and monitoring processes to the detriment of human creativity but on bringing transparency and functionality by establishing the right linkages between efforts and results. It is important for leaders to distinguish between outcomes and results; all efforts lead to outcomes but not necessarily results. It is also important to follow the right processes and deploy right efforts; oftentimes right results follow right processes.

9. Convergence-Divergence Balance

The world has taken an unprecedented move towards convergence over the last two decades; whether through globalization as a very high level macro trend or products with multiple functionalities as a very fundamental level focus trend. That said, not all future opportunities would arise from globalization or from product convergence. Regional and country markets would demand customized products and services while markets would see new segmentations on functionalities and price points. The success of leaders would lie in achieving globally networked product development and manufacture while providing regionally distributed product and service offerings. In this model of balanced convergence-divergence, products found appropriate for one segment in one region could be found suitable to higher or lower segments in another region. The success of JLR as part of the larger family of Tata Motors illustrates the balance of a network that is appropriately convergent and divergent.

10. Present-Future Balance

Balancing the earnings and complexities of the present with the growth and the uncertainties of the future is the most profound leadership challenge. Companies which continue to invest in assets and add talent in difficult, and even in recessionary times, are better placed than firms which let their investment cycles mimic growth cycles. Not getting unduly discouraged by current challenges or future risks, and not feeling unduly encouraged by current stability or future potential provides the needed equanimity to leaders in balancing the present and the future. The recipe is not a split of initiatives and businesses in terms of a 2X2 grid; the formula is one of placing the right bets both on the present and the future in the context of organizational competencies and environmental opportunities.

Balance versus Disruption

The concept of balance cannot, and should not, be used to justify status quo or be allowed to result in slow growth. Leaders and managers have the right and responsibility to inject a level of disruptive thinking in organizations and manage consequent organized chaos for organizations to reach up to the next level of competitive advantage. The leadership skill lies in restoring the balance once the objective of taking the firm to the next superior trajectory is achieved. The ten principles discussed in this blog post are critical to such a virtuous balance.

Posted by Dr CB Rao on September 2, 2012