Sunday, August 25, 2013

Indian Economic Woes: Clouds in Passing or Storm in Offing?

Business analysts and economic experts, who not so long ago convinced themselves and the rest of the world that India would soon be an economic superpower, are now busy overturning their hypothesis. The global chill that started with the hint by America’s Federal Reserve in May of this year that it would soon start reducing its vast purchases of treasury bonds (thus signaling the end of ultra-cheap money) has shaken up the Indian economy more than any other emerging market economy.  The responses of the Indian government to a speedily depreciating Rupee, be it curbs on consumption of gold or restrictions on overseas investments by Indians and Indian entities, have only led to concerns  about the fickleness of foreign investments and potential capital controls reminding one of the 1991 balance-of-payments crisis.  

There is no doubt that Indian economy and the Indian business are a victim of global economic travails marked by years of flat growth in the US and near-bankruptcies in certain European countries. However, Indian governance has also been a victim of its complacency that followed the confidence with which it handled the 2008 global meltdown, especially in terms of the robustness of the banking system. Lack of expansion in manufacturing output and increase in exports together with stalling of infrastructure projects on one hand and high inflation together with spiraling imports of gold and oil have resulted in a burgeoning current account deficit (CAD) that needs greater  (rather than lower foreign capital as now) flow of foreign capital. The Economist (August 24th-30th 2013) estimates that India needs to attract USD 250 billion of foreign investment next year to support management of CAD and debt servicing, more than any other vulnerable emerging economy.
External prescriptions
External experts attribute the current state in India to the slackened pace of reforms and the obstacles to growth such as power shortages and labor issues affecting industrial productivity, red tape and graft affecting governance, and bad debts and subsidies affecting capital efficiency.  The external prescription is on familiar lines; complete the full float of the Rupee even if it breaks the viability of a few firms and industries, remove all subsidies, fuel and food, even if it affects vulnerable sections of the society, remove sector caps on foreign direct investments even if it affects domestic competitiveness, and stress-test and recapitalize banks and financial institutions even if it means that some such institutions have to break up or such capital injection would widen the deficit.
External experts would also suggest breaking of public monopolies, in coal, power, metals and capital goods, for example and encourage private enterprise in all sectors of the economy including agriculture and retail, and aerospace and defense, for example.  They would also suggest sweeping tax reforms, including GST, to unify and simplify tax regime across the country. The other focus would be on easier exits, including liberalized labor laws. While some, if not all, of the external prescriptions do have economic logic, all of them may not be easily introduced or extended in India. Economic policy has to be not a mere global replica but more importantly a socially sensitive platform. Each country would need to evolve its own economic prescription that meets the country’s social needs.
Indian perspectives
Experts are prone to downplaying the continuing scourge of poverty in India, in the context of the islands of prosperity that are getting built up. They believe that it is not hunger that is the issue but it is nutrition that is the issue in India. They believe that rather than grains which provide calories, which according to them are available in villages, children need nutrients, including proteins, fibers and vitamins. Apparently, this is a misplaced perspective of economic journalism that traverses India in air-conditioned comfort. In reality, both hunger and nutrition continue to be the central issues in India. And the only way in which both the issues can be tackled is through inclusive growth that enables a minimum wage level that enables a reasonable quality of life supported by an accessible and affordable educational and healthcare infrastructure. Neither GM foods nor packaged foods, which would be an outcome of privatization and globalization of agriculture, would meet the superior delivery of inclusive employment.
The other critical issue for India relates to the millions of young people who will enter the employable age group over the next several issues. Apart from the fact that there must be millions of jobs that need to be generated through enhanced economic and industrial activity, there is also a responsibility on the educational institutions and young people for the job seekers to be truly employable. It is enigmatic that each year thousands of seats in various engineering colleges go unfilled even as Indian industry struggles to keep updating the skill levels of its young entrants. There are mismatches between economic needs and job creation, job requirements and skill availability, and skill requirements and educational opportunities. A holistic paradigm is required to expand and upgrade educational infrastructure while expanding and diversifying industrial infrastructure.
Inclusive growth
The incomes in rural areas are made in part by traditional agricultural activities and in part by incomes earned through work in industrial and urban areas. Potential farm workers are not getting displaced in the modern India by industries replacing agriculture but by the workers themselves going in search of more assured wages as migrant labor elsewhere. Clearly, this needs to be reversed by insulating agriculture from the vagaries of nature and uncertainties of earnings, and reestablishing its economic attractiveness. Each rural economy needs to be made self-sufficient by a three tier strategy. The first component must focus on modernizing agriculture through better harvest technologies and implements. The second component must focus on creating cooperatives that take agricultural produce to food processing sector and other consumption points, and eventually engage in value addition themselves, like Amul so successfully did. The third component must focus on developing the infrastructure of roads, electricity, water and sanitation and educational institutions in the rural areas.
An integrated rural development strategy will by itself reduce the pressures on urban settlements. That said, an integrated urban settlement strategy is also equally required. This would potentially require expansion of skills to cater to a wide range of industrial and economic activities. Factory production needs to be supplemented by several supportive activities such as logistics, distribution, sales, service, wholesaling, retailing, safety management, employee centricity and customer connectivity in the overall. Policies of industrial parks and SEZs are now independent of civic and connectivity development strategies. Making industrial and civil development interlinked and simultaneous is a much needed change that needs to be implemented. The loss of productivity that is experienced because of the lag in non-industrial development is enormous. The paradigm needs to be changed from focused industrialization to broader socio-economic development.    
Capital imports or product exports?
To a large extent in the urban inclusion strategy and to a smaller and important extent in the rural inclusion strategy require three inputs capital, technology and skills. If the points discussed above are taken note of the skills gaps would be addressed. That would leave capital and technology to be addressed. The external prescriptions, supported by a section of Indian policy makers and analysts, require that India should depend increasingly on overseas capital and technology. The policy preoccupation in the current situation seems to be on getting more foreign direct investments as a panacea. While foreign investments, especially in equity route, are welcome and would be effective to address external economic stability, the real impetus would arise from product push into the export space. What has been the export mantra of the 1970s and 1980s must be revived to lead a new export wave from out of India. That would ensure that the country is not disparately dependent on foreign investments which may come with their own conditions, and in layered preferences amongst various economies.
The need to focus on product exports is relevant because foreign investments would flow in only when products made out of India are quality-compliant and cost-competitive, and are produced in a safe and efficient manner. India has established a major industrial and retailing infrastructure and rather than re-discover the wheel, it would make eminent economic logic to build upon it to achieve higher levels of performance. It would be appropriate to import technologies and pay royalties rather than import capital, whether through equity or debt, and have long term service obligations. In other words, foreign capital must flow into India on its own merits of producing export-worthy products or to participate in a slice of the huge Indian market. Policies that enhance product competitiveness must be given priority over policies that are aimed at attracting foreign capital only by opening up of the caps of overseas investments in certain sectors. The former would automatically enable the latter, and would be quicker.
There are indeed clouds over the Indian economic landscape. Whether these are passing monsoon clouds or gathering storm clouds depends on our own policy prescriptions, and the level of customization to the Indian context.
Posted by Dr CB Rao on August 25, 2013               

Sunday, August 18, 2013

Five Competitive Forces of Technology and Three Generic Technology Strategies: A New Theory of Competitive Technology Strategy

Amongst the various management theories, Michael Porter’s Theory of Competitive Forces is one of the most elegant theories ever expounded. It not only is the foundation for the broader theories of competitive strategy and competitive advantage but also provides a template for studying competitiveness in any domain. The author in his blog “Strategy Musings” how the Porter’s framework can be extended as well as supplemented to develop competitive strategies in several enterprise level and functional level approaches. One such extension by the author has been in the domain of talent management.  Reference may be made to the author’s blog post, “Five Competitive Forces in Organizational Talent Arena: Porter’s Competitive Strategy Framework Extended”, Strategy Musings, June 16, 2013, ( which provides how the five forces model enhances the understanding of any domain and in the development of generic domain competitive strategies.

Technology, like talent, is another domain to which the Porter theory can be extended appropriately. Technology is a key driver of the five competitive forces. While it plays itself out directly in a force like the threat of substitute products, it is also a key factor in determining the way the other four competitive forces shape up. For example, the intensity of competition tends to be a result of commoditization of technology which enables several players entering the industry simultaneously.  Suppliers of superior technology could exert higher competitive power if their products have superior technological capability. Buyers can become more discerning and more demanding once they understand the power of technology. This is not to suggest that several other factors such as management and investment do not operate as primary or secondary drivers of competitive forces. However, technology is a key driver of competitiveness which could benefit from the application of the five forces theory for itself.
Technology as a driver
Technology brings new products and processes to fruition, creating markets and jobs. Technology drives competitive forces. Firms which are technologically innovative and competitive outsmart other firms, and inversely firms which are technologically laggards and uncompetitive erode their own markets and destroy employment. In between are firms which are technologically alert and agile; they tend to be fast followers and reasonably competitive. A large number of successful firms tend to be fast followers in technology domain. In the smartphone category, Apple reflects the first class of innovative competitive firms, Palm represents the second class of lagging uncompetitive firms and Samsung represents the third class of competitive fast-follower firms. Interestingly, firms can move between and across the three categories.
On an overall basis, each of the five competitive forces of Porter’s theory is a blend of technology and management, deployed in different proportions by the leadership of each firm. There has been some impressive level of theory and practice as to how management and leadership can be the variables that can be worked on. To the extent that both management and leadership are significantly related to persons and personalities, there is a trainable or developable human element as an influence on the managerial and leadership competitiveness.  Less understood are the forces that determine the competitiveness on the technology dimension. Does education drive technological competitiveness or does laboratory infrastructure drive; and, does experimental culture drive technological competitiveness or does risk-taking culture drive? Probably, these are too generic to explain the competitive forces of technology all by themselves.   
Five forces of technology
Fundamentally, the true and sustainable premise is that new competitive technology makes existing mature technology obsolete. There are five powerful forces that can be harnessed by a firm to develop new technology that could be competitive and rendering the existing technology obsolete.  These are (i) the power of new functionalities (ii) the power of substitute materials, (iii) the power of substitute processes, (iv) the power of operating system, and (v) the power of supportive ecosystem. Competitive forces are forces that need to be generated and harnessed by firms to attack or overcome the attacks of competitors.  Factors like science and technology levels, investment levels, and R&D commitment are underlying enablers but not the manifestations of competitive technology forces. Product functionalities, materials and components, manufacturing processes, operating systems and ecosystems, on the other hand, are the real sources of competitive force.
Product functionality
It is important for a firm to understand where and how the firm could be positioned with respect to each of the forces. The power of new functionalities clearly is the essence of new product and market development. There is an effective 2X2 approach for understanding how product functionalities can be developed. For a broader discussion of how a 2 dimensional matrix can effectively conceptualize and analyze any endeavor, please refer to the author’s blog post “The 2 Dimensional Matrix: A Universal Analytical Tool”, Strategy Musings, July 3, 2011, (   Applying this to product functionality, the first dimension can be partitioned in terms of the first time discovery of a new functionality and the enhancement of an existing functionality. The second dimension can be partitioned in terms of convergence (multiple functionalities available equally) or crossover (amongst multiple functionalities, a few being dominant). The design philosophy as it works through the 2 dimensional product functionality matrix generates unique technological competitive force. 
Materials and components
Materials and components play a significant role in determining the efficiency, durability, reliability, maintainability and elegance of a product, be it industrial or consumer. Two products of similar functionality can be differentiated by the use of materials and components of different technological characteristics. Two cars can be equally well-designed in terms of traction but if one is a solar powered hybrid because of solar overwrap materials, clearly the latter would be a differentiated car. The extent to which a firm understands the material and component technology would determine if the firm would be able to synergize the forces of materials with that of product functionality. Clearly, to the extent that a material or a component is also a product, the five competitive technological forces would be relevant to the material and component firms as well. One of the most striking examples of how material technological force can override product functionality has been evident in the evolution of flat panel televisions, and later in the evolution of flat panel screens themselves in terms of plasma, liquid crystal display, light emitting diode and organic light emitting diode screens.     
Manufacturing processes
The relationship between product industry and manufacturing equipment industry tends to be less integrated than the relationship between product industry and materials/component industry, relatively speaking. Quite commonly, manufacturing process is seen as a derivative of the capability of manufacturing equipment, and as having the objectives of better tolerances and higher productivity.  This may provide operating efficiency and competitive advantage in the normal course but if process is understood and deployed as one of the five important competitive technological processes, the outcomes would be significantly superior. It has been well established, for example, that automobile firms  which have engineers of different domains such as machine tool, electronics and instrumentation technologies (besides core mechanical and automobile engineering) and pharmaceutical firms which have chemical and instrumentation engineers (besides core pharmaceutical scientists) are able to generate and harness the competitive technical force as a competitive advantage.
Operating system
The unique aspect of any product in the contemporary digital world is that it is governed by a “brain” of its own, which may be called the operating system. From having mechanical toggles and electronic switches to programming logic controls and computer controls, there had certainly been efforts to govern the functioning of a product in the past too. However, structuring a product uniquely around an operating system and developing operating systems to govern products is the new reality of the contemporary digital world. This trend, however, is unlikely to stop here. Strides in artificial intelligence are likely to develop products that are not merely code controlled but are also speech responsive, gesture reactive, thought guided and intent managed. Strategic alliances for customized operating systems could be the next frontier for managing the competitive technology force.
The traditional technology relationships have been simple; a firm and its customer are connected by a product, and a product and a customer are connected by the match between customer need and product performance. In the contemporary and emerging scenarios, however, just as people are seamlessly connected by social networks, products are connected by technology networks.  The performance of products can go beyond what they are designed for if they are placed in the right ecosystem. The system of technology-driven ecosystems is somewhat akin to a system of technology democracy wherein independent technologists motivate themselves to develop a host of applications for what they believe are virtuous products, thus creating a totalistic ecosystem.  The extent of the ecosystem, or the lack of it could be a significant competitive technology force, positive or negative for firms.
Generic technology strategies
Porter suggested cost leadership, differentiation and niche as the three generic competitive strategies available for a firm to cope with the five competitive forces. In the context of the five competitive technology forces as discussed herein there is a need for formulating generic technology strategies too. It would be tempting to develop mirror generic strategies in terms of technological followership, technological innovation and niche. However, such an approach, besides offering nothing new, does not also address the impact and implications of the five technology forces. A more appropriate model would postulate three generic technology strategies: functional technology, experience technology and customized technology. These three generic technology strategies would manage the competitive technology forces in varying degrees and provide competitive advantage also in varying degrees.
Functional technology strategy
Generic functional technology strategy aims at sticking to functionalities that are essential to deliver performance that users “require”.  These functionalities could, depending on the essential purpose of the product, focus only on some of the five competitive technology forces. A water submersible pump would focus on the highest materials and process technological power to provide failure-proof performance by the pump under the rigorous operating conditions for which it is intended. An on-the-ground pump would, on the other hand, focus on a different set of performance metrics such as high throw and low noise. By focusing on functional technologies, firms are likely, but not necessarily be able, to optimize on investments and cost leadership. Functional technology strategy is thus different from the generic cost leadership strategy. The former, even if functional, could require advanced technologies with high investments and high product costs. Only in some cases of the former, cost leadership could be a correlated strategy. On the other hand, in cost leadership as a strategy, the starting and finishing objectives would focus on cost-competitiveness choosing only relevant technologies. Firms following the generic functional technology strategy are upfront clear about the customers and product needs they seek to serve with top-of-the-flight technologies for the chosen dimensions. Firms following generic functional technology strategies are required to stay focused in terms of technology development and investment commitment to cover target market segments to achieve an optimal investment-revenue-profit relationship.
Experience technology strategy
Generic experience technology strategy aims at providing the broadest set of users with total high-end product performance complete with product elegance. The experience strategy goes beyond the known essential purposes of a product, and in the bargain focus on all the five competitive forces. The generic experience technology leader generates a product leader, from all the dimensions one can possibly consider.  One of the most recent striking examples of experience technology strategy is Sony’s Xperia Z Ultra smartphone-tablet (a segment called phablet). It has the fastest processor (2.2 GHz quad core) in the industry and the largest screen  (6.4” or 16.3 cms diagonal display) in a device that can double up both as a phone and tablet. It incorporates the latest proprietary Sony Triluminos display technology with OptiContrast Full HD 1080p LCD touch screen, an 8 MP rear HD camera with Exmor sensor and a 2 MP front HD camera with virtually all the connectivity options. It also has on offer thousands of songs and movies from Sony’s media empire.
Sony Experia Z Ultra pushes the design envelope further, being the slimmest (at 6.5 mm thickness) and the lightest (at 212 gms) in the tablet category, with an elegant but compact form factor (the only tablet that can be held and operated by one hand).  It also is the only device that has scratch-proof and shatter-proof glass for both the front and rear casings. The construction is almost bezel-less enabling the largest screen in the smallest form factor. To cap it all, it marks a new high for all communication devices with its unique water and dust resistance (IP 58 certified). As the example of Sony Xperia Z Ultra demonstrates, experience technology strategy involves marshalling of all the five technology forces in terms of all the conceivable functionalities at high-end performance levels, state-of-the-art materials, exacting manufacturing process ensuring elegance with water and dust resistance, a full-function latest generation Jelly Bean 4.2 Android Operating System and the expansive Sony media and entertainment ecosystem. Experience strategy requires firms to have scientists and technologists from multiple domains and ensure tightest technology networking to achieve the fastest go-to-market (even beating the nimble Koreans at the game for once) and also invest aggressively to achieve the technology goals. Experience technology strategy as a competitive strategy is more expansive than differentiation as the former seeks and achieves differentiation in all the dimensions, and not just one or two. Firms following experience technology strategies are required to commit large investments to cover multiple market segments to achieve pan-market domination which could be investment-intensive but offer reasonably high market share and high profitability.   
Customized technology strategy
In contrast to both the functional technology and experience technology strategies, generic customized technology strategy seeks to achieve the heights of perfection in any chosen area of operation. The relentless quest of Bose Corporation to develop audio systems that capture, process and deliver real, pure, rich and deep sound is an example. The pioneering initiative of Toyota to develop hybrid and electric cars that meet all the exacting parameters of automobile performance with green technologies of exceptional fuel-efficiency is another fitting example. The decision and determination of Amgen to specialize in new biological drugs when large molecule drugs represented a nascent technology is another example. Customization does not mean that firms need to be reactive to market research; on the other hand they must be responsive to their “inner technology voices” that require products to meet human sensory and life needs. Generic customized technology requires that firms invest in fundamental sciences and technologies to achieve increasing levels of perfection. Firms typically would be required to commit resources to develop laboratories of fundamental research organically or invest in strategic alliances with such laboratories in universities. Firms following customized technology strategies are required to commit large investments in narrow market segments which could be risky but offer premium pricing and returns to firms.  
The model of the five competitive technology strategies and the three generic competitive technology strategies, which to the author’s mind is a first in management literature (as a unique reinterpretation and extension of Porter’s five forces theory) , has the potential to lead a more powerful deployment of technology for superior business performance and enhanced competitive strategy.
Posted by Dr CB Rao on August 18, 2013    

Saturday, August 10, 2013

Indian Economy 2013-18: Expectation Economics or Execution Economics?

Over the last twelve months, India has seen its growth rate halve, from 10 percent to 5 percent, and industrial output contract to as low as 2 percent. Current Account Deficit has widened, Rupee has lost as much as 10 percent in a span of just 10 weeks, with a further 10 percent slide forecast over the next 10 weeks. Foreign direct investments (FDI) have stalled while the Foreign Institutional Investors (FIIs) have pulled out billions from the Indian stock markets. Inflation has been persistent even with liquidity getting squeezed. India, Inc has been reporting lower profits, and in some cases lower revenues too. Some of the aura surrounding India as the potentially the third largest economic power is getting eroded.

Certain industrial sectors are particularly relevant for reading the strength of the Indian economy. Realty, power, capital goods, metals, and oil & gas sectors have fared poorly over the last five years, with the stock market indices relating to the sectors plummeting by 90, 70, 67, 60 and 37 percent respectively. Important sectors such as consumer goods, banking and technology have remained flat. The only sectors that have recorded growth are FMCG, healthcare, automobiles and IT at 182, 103, 80 and 70 percent. Within these, automobiles and information technology have seen fluctuating fortunes in the last three years.  Recent physical numbers of performance indicate a clear deceleration in these sectors while IT’s performance is linked to dollar appreciation vis-à-vis Rupee.
Lagging economics
The laws of industrial and consumer economics typically operate with a lag. The high performance of domestic consumption oriented sectors does not necessarily reflect long term sustainability of domestic demand and consumption. On the other hand, the languishing of realty, capital goods, power, shipping, metals, oil, gas and other infrastructure sectors indicates that sustainable investments are not being made to support a healthy long term supply and consumption profile in the Indian economy. Simultaneously, the inability to keep continuously developing newer bases of competitive manufacture such as electronics, semiconductors, solar panels and systems, telecom gear etc., limits the country from continuously generating domestic investments and drawing foreign investments. China’s massive thrust on infrastructure has been well accompanied by competitive manufacture of all industrial and consumer goods.
The macroeconomic balance of any economy is governed by the positive trade balance, flow of foreign investments, domestic savings and investments, and current account balance.  Looking back, we can identify post-liberalization of 1992, two distinctive five year cycles: 2003-08 and 2008-12 which saw Indian economy climb up to new tracks, despite the striking global liquidity and bankruptcy crisis in 2008. These cycles were marked by high rates of growth, increasing foreign investments, high inflation in parts, high fiscal deficits, steady increases in manufacturing output and volatility in infrastructure development with some highs and lows. One would expect the Rupee-Dollar parity to exhibit volatility under the circumstances over the ten year period; but it did not. The exchange rate (Rupee to Dollar) remained steady at about Rs 45.6 during the ten year period. Some underlying contradictions did exist which are now coming to the fore.
Expectation economics
Reviewing the past decade of 2003-12, one may wonder whether the macroeconomic stability of India was a result of a peculiar phenomenon of expectation economics, globally as well as locally. The last decade, for example, has been an era when the mighty economies of the world, USA, Japan and Europe, and their respective mighty currencies Dollar, Euro and Yen became structurally weak. This was also the period when the concept of BRICS economies (including India) came to the fore as the drivers of a future global economy. There was also a well deserved all-round admiration for the way India managed its banking and liquidity system in sharp contrast to the meltdown in the USA and Europe. Huge expectations had built up as a consequence that India would be the future market for industrial and consumption growth.
It was, therefore, not unnatural that what should have been an intrinsically weak Rupee for the reasons adduced in the previous section above maintained its parity as a stable currency. However, the moment the economies of other nations started perking up and the expectations of India started turning tepid, the fault lines in the Indian economy have begun to show up in recent times, as discussed in the opening paragraphs. The lessons are clear that while India has all the right ingredients for becoming an economic superpower such as its large 1.3 billion population, growing middle class, youthful demographics, increasing literacy and reducing poverty, there must be a growth oriented macro and micro economic regime to harness the resources.
Incremental economics
When macro-economic and micro-economic fundamentals are under threat, incremental measures would hardly suffice. Discouraging consumption of gold (through increase of duties), tightening of domestic liquidity (through bank liquidity ratio controls), curbing conspicuous consumption (through taxing of luxury goods), facilitating foreign investments (through relaxation of certain FDI caps) and buffering against hard landing (through subsidy and security options) can at best be palliative measures. They do not address the basic infirmities or weaknesses of the macroeconomic situation (for example, balance of payments, short term and long term debt and microeconomic situation (for example, industrial costs, prices, output and consumption).
The perils of incremental economics are that governments end up undertaking corrective measures too little and too late. As a result, problems become crises. The near bankruptcy India faced in 1991 is an example of delayed transformational moves. While everyone considers 1992 as the year of inflexion in terms of transformational economic liberalization in India, there can be no denying that India has been taking partial measures of liberalization even from the 1980s but they were just not enough. A large complex economy like India needs transformational economics when faced with problems that could turn into crises; it is true now as much as it was in 1990s. India traditionally had a strong consensus for weak reforms. In the context of the several years of liberalization further dramatic liberalization policy changes as in China could be a challenge for India.
Competitiveness economics
India has its contradictions; fundamentally the people want to grow and prosper but at the same time, people are patient and tolerant of low or even no growth. The larger base of population, at the base and the middle of the economic pyramid, is less knowledgeable about the benefits of further liberalization versus any other way of economic management. In fact, there continue to be many misconceptions about liberalization which is equated to the opening of the Indian economy to “foreign domination”. As long as Indian polity is fractured it is unlikely that total liberalization as a concept will have open advocates.  It is critical that the importance of competitiveness, as opposed to liberalization per se, is taken up as the primary economic concept. The purpose of liberalization, after all, is competitiveness.
India must focus on sector competitiveness as a panacea for economic ills. For example, if India becomes a global leader in design and manufacture of jewels for global markets and becomes a net foreign exchange earner, it would probably not make a difference even if the country imports gold and diamonds. The same would apply to other sectors as well; if import of certain technologies makes India globally competitive it is a path worth taking. Competitiveness, however, requires an enlightened mindset on the part of employers and employees. The best intentions can go awry if competitiveness is equated only with shop floor productivity as painfully brought out by the unfortunate incidents at Maruti Manesar plant. Competitiveness must create new jobs, enable better living conditions and ensure greater prosperity for all stakeholders.
Execution economics
Competitiveness is a function of design as well as execution. The Indian Finance Minister is on record that China’s execution capabilities are indeed enviable. Timely and rightful execution of policies and strategies, whether liberalized or not, adds more to competitiveness than a perfect liberalization policy or strategy. In formulating policies, the end point of economic growth with social equity cannot be lost sight off. It matters less whether bullet trains are set up in India with indigenous technology or imported technology and domestic or foreign investments, or a combination thereof compared to whether the bullet trains would be set up at all. Not ensuring exceptional connectivity with such transformative transport option that is also capable of generating several thousands of new jobs is poor execution economics, and denies the country the benefit of competitiveness economics.
The above is not to imply any preferential statements in favor or against dependence on foreign capital and technology flows vis-à-vis self-reliance through domestic investments and indigenous technologies. Amongst the Asian Tigers, Singapore has succeeded immensely based on the former while Korea became a leader based on the latter. For a large country such as India with several natural resources and intrinsic capabilities, the Korean model of development of its own fast-follower and pioneering technologies as the foundation for creating globally competitive industrial superstructure is probably more relevant. Korea represents an impressive model of execution economics. India would have much to gain if investments are directed into the infrastructure sectors which have seen de-growth and competitiveness is enabled through technological competencies and execution promptitude.
Posted by Dr CB Rao on August 10, 2013          

Sunday, August 4, 2013

Engagement and Focus in a Digital World: Need to Retain the Evolutionary Learnings

The growth of civilization is traceable to a single minded pursuit of an avocation, discovery or innovation. From the times of caveman who never relented till the art of making fire was discovered through the times of agriculturists who pursued farming as a life avocation to the times of scientists, technologists, and industrialists  who invented and refined products and processes and finally to the overarching times of administrators and businessman who pursued social and economic progress diligently, there has been one and only one factor that drove success - the relentless and singular pursuit of an objective. While nature, chance and serendipity could have played certain roles in all of these activities, and their successful outcomes, there is no denying that engagement and focus had been the success drivers.

Organizations have been the first instrument of providing institutional framework to single minded pursuit.  As organizations and businesses became complex, strategy became the route for firms to pursue success on many dimensions. Organizations then had to be recast to provide single minded pursuit through appropriate structures and cascades of objectives (“Structure Follows Strategy”: Alfred Chandler). Still, complexity remained to be surmounted effectively.  Management theories, not illogically, began to advocate specialization, focus, core competence and competitive strategy as the key tenets of success, in any avocation or domain. The 20th century concluded thus with an organizational and strategic construct of focus and specialization as the mantra for success in any type of organization; single business or multiple business. The new digital world, however, seeks to upturn all of individual and organizational evolutionary facets, partly for the good and partly disabling in the process.
Connected disruption
Electronics had transformed mechanical, electrical and electro-mechanical devices over the last fifty years. Communication and computing have further diversified personal devices and enhanced mutual connectivity over the last twenty years. But along with the strides in the ability to archive and process terabytes of data and the flexibility to connect and communicate with anyone virtually across the globe, the pursuit of digital efficiency at work and beyond work has become the new single minded pursuit. With the advent of smart phones and tablets over the last five years, devices have become the eternal companions of individuals. The net result of all the digital developments is the opening up of globe with a touch or click.
The ability to communicate in a viral fashion with huge global social communities has brought about a sea change in social living. Facebook posts have reportedly been instrumental in reuniting a family member lost eleven years ago with his family recently. Concerts and music shows are now not averse to audience keeping their cell phones on so that they could snap and send the snippets to global communities. One need not have lifetime guilt of missing an important family wedding as the event can be easily webcast now. Facetime brings generations across miles closer home. For the working executive as well as the home maker, perpetual connectivity through a variety of devices is assured. In short, one can always have instant and perpetual touch with the digital community he or she is part of.   
Much as digitization has led to manifold increases in productivity, it has also become a disruptive force in human life. From birth, a child is exposed to digital power and dominance. As one grows up, the reliance on digital devices increases exponentially. At work and home, the ratio of devices to an individual has increased significantly. It is not uncommon to see individuals possessing multiple electronic devices; televisions and music systems in a house, and  desktops, laptops, tablets and smartphones in an office. While technology allows all of these to be seamlessly synchronized, deriving convergence from out of diversity, what is alarming is the influence of digital devices on the human mindset. The influence has indeed been disruptive already.
Portends of change
The way human race conducts itself in the increasingly digital world is set for a profound change. Over the centuries, the human race came to be divided, in common viewpoints, between ‘haves’ and ‘have-nots’ or ‘urban’ and ‘rural’ or even between states and nations. Similarly, organizations came to be divided between ‘profitable’ and ‘unprofitable’ or “specialized and diversified’ or even as national and multinational firms. Today, the human race seems to be set to be divided between ‘engaged’ and ‘distracted’ people and organizations between ‘focused’ and ‘diffused’.  At the heart of this divide lies the way the human brain is getting rewired with access to multiple devices and functionalities. Whether it is advanced countries or emerging markets, it is evident that the ecosystems are digitally geared to disengage individuals and diffuse organizations.
The human brain has the ability to store and process millions of data bytes but is wired to execute sequentially because of the need to coordinate the brain and the parts of the body. If a person is walking, the brain and body are equipped to conduct the activity of walking alone with the best assurance and safety, with brain processing the traffic and road conditions and body walking in a trained fashion with occasional course corrections from the brain. The moment the person starts walking while simultaneously talking on the cell phone or reading a book, the neurological and physical activities become distracted with serious disservice to both the activities and even more fatal disservice to the person’s life itself. The temptation of multi-tasking is probably the biggest bane of the new generation of digital life. However, the impact in terms of adversely rewiring the human brain could cast a shadow for generations to come.
Easy living, changing genetics
People who are aware of the course of evolution understand that the several ways in which the human race conducts itself have solidified through compulsions of preservation first and actualizations of achievements. This involved exposing and training all of human faculties from motor skills and sensory acuities to emotional connects and intellectual capabilities. The devices that the current generation is addicted to are designed to make life easier to this generation of human race which has mercifully acquired the skills and acuities the hard way. To the extent that the very same devices are being deployed for use by the just-born and just-growing generation, the new array of digital devices carry a huge risk of rewiring the human brain to the detriment of intrinsic faculties honed over generations of tough living and consistent learning.
Let us review a few examples. When a baby or a child listens to lullabies, stories and songs  rendered by alien voices and people through electronic media rather than through the mother’s voice, the emotional connectivity between the mother and the child, which used to be the bedrock of wellbeing and assurance is permanently eroded. When the child is encouraged to play with a robotic pup than a real pug, the million ways in which a devoted companion will respond to care and love will never be embedded in the child. When students, in schools and colleges or employees, in offices and factories, are asked to browse their lessons from computer tutorials, not only the teacher-taught relationship vanishes but also the learning processes of spontaneous questions and contextual explanations become scarce. When people at work or at home communicate through devices rather than looks and words, that true communication is all about personal feel is never understood. The list can go on, but clearly if the device-influenced lifestyles snowball as happening now it is likely that the future generations will be rewired to be intrinsically less self-sufficient. New generations may then most likely require a new set of digital devices that help them get their skills and acuities back!    
What applies to individuals applies to organizations as well. From the long lost direct emotional connectivity to the end-customer in the marketplace to the replacement of human thought processes by heuristic algorithms and computer simulations, the ‘brain’ of a typical organization is replaced by a ‘CPU’ geared to generate and process metrics than appreciate the drivers and implications of the metrics. Increasingly, organizations are compelled to operate in all of the product-market spaces; even the mighty Apple which made maximal impact through minimal products is no longer an exception. Despite the concepts of vertical specialization and horizontal collaboration, organizations are more diffused and dispersed than ever. The power of computing, connection and collaboration provided by the digital technologies have made the organizations lose their customized survival and growth skills that were imbibed the hard way through competitive learning processes. 
Human and organizational implications
The need for regaining the balance in the new digital world is clear; individuals need to be engaged to be effective and successful. Organizations need to be focused to be competitive and profitable. Individuals who continue to demonstrate a continuous high performance learning ability and firms which continue to thrive or rejuvenate themselves in the digital world validate the several hypotheses of this blog post. In the interests of larger social and economic good, however, engagement and focus need to be more universal phenomena.  
In respect of individuals, the fundamentals of genetically primed and neurologically wired learning methodologies that have provided skills and acuities to successive generations must be insulated from the onslaught of digital devices. The mother to a baby, the parents to a child, the teacher to a student, the boss to a subordinate and the mentor to a disciple are essential instruments of human learning which provide the needed emotional connectivity, ethical guidance, creative learning, practical knowledge and leadership evolution to a human being. In a similar manner, exposure to ethereal nature, endurance under physical work and empowerment with mental acumen are essential to develop a well-rounded personality. As an individual grows, he or she needs to be singularly engaged with the fundamental task at hand than dabbling in multiple activities.
In respect of organizations, the fundamentals of competitively learnt and institutionally embedded management methodologies that have provided competencies and adaptabilities to successive corporations must be reinforced with a prudent combination of human ingenuity and technological perfection. Organizational strategy and structure must remain the prime vehicles for firms to pursue diverse businesses and multiple priorities equally successfully. Firms would increasingly need to be diversified but cannot afford to be diffused. Firms also need to be focused but cannot afford to remain narrowly specialized. The optimal balance at the enterprise level is achieved when firms develop organizational structures that bring operational simplicity and focus to address business complexity and diversity. Focused organizational structures, within the ambit of a product-market agglomeration coupled with singularly engaged human talent, within the ambit of a competency-specialty network would ensure competitive success.   
Posted by Dr CB Rao on August 4, 2013


Saturday, August 3, 2013

Bajaj Quadricycle RE 60 and Tata Nano: Lessons of Technology-Business Nexus

Bajaj Auto Limited (Bajaj), India’s largest two-wheeler manufacturer, has secured limited Government approvals for its quadricycle, code named RE 60. The four-wheeler RE 60 vehicle is powered by a water-cooled, 216-cc, single-cylinder engine which can develop 20 HP. This is about 40 percent more than the power generated by 175 cc powered three-wheeler and about the same in power as 200 cc powered three-wheeler, historically manufactured by Bajaj in India for domestic and export markets. RE 60 sports a metal-polymer monocoque body and weighs 400 kg, has a turning radius of 3.5 meter and can reach a top speed of 70 kmph. It can seat the driver and three passengers and run 35 kilometers on a liter of petrol. Lest RE 60 should be misunderstood as a mini-car like Tata Nano, it is not so as it is just half as powered as Nano. Tata Nano is powered by an air-cooled two-cylinder engine which produces 37 HP. It has an all-metal body and weighs 635 Kg.

Bajaj has positioned RE60 quadricycle as an alternative to its three-wheeler. RE 60 has four wheels instead of three wheels that Bajaj’s all-pervasive three wheeler of India has. RE 60 is intended by Bajaj to eat into Bajaj’s own market for three wheelers, of which Bajaj is, undoubtedly, the world’s largest manufacturer. The company sells approximately 225,000 three-wheelers per annum and records growth rate of around 11 to 12 percent on a compounded basis, according to the statistics of Society of Indian Automobile Manufacturers (SIAM). Analysts expect Bajaj’s quadricycle to be priced anywhere between Rs 1.5 lakh (USD 2500) and Rs 2 lakh (USD 3300) while a Bajaj three-wheeler auto rickshaw’s ex-showroom price in Delhi is Rs 1.35 lakh (USD 2250). Having invested Rs 550 crore (USD 92 million) in developing the platform and creating the capacity to produce 5,000 of the vehicles every month, the price is nearly that of India’s cheapest and proper mini-car, Nano at Rs 2 lakhs (USD 3300).
Industry response
The Indian car and other two-wheeler manufacturers have taken up cudgels against RE 60 quadricycle on the grounds that it is unsafe compared to a passenger car. They want the Indian government to lay down norms as stringent as those applicable to cars. Bajaj, on the other hand, maintains that the RE 60 is not a car and would not compete in the car market. Bajaj has been seeking less stringent safety standards for the vehicle on the basis that the quadricycle with doors and seat belts, et al, is a safer and more stable alternative to three-wheeler. It has a seating capacity of four passengers, with owner-chauffeur possibility as opposed to three wheeler carrying capacity of only three passengers (that too tightly packed) with sole chauffeur mode. RE 60 has also a better ground clearance compared to the three-wheeler. It is noteworthy that RE 60 has the lowest carbon emissions, better than a three-wheeler or a Nano.  
To be sure, the concept of a quadricycle is not new. It has always been there in the European Union; however, only 23,800 quadricycles were sold in Europe in 2011. The three main traditional markets for quadricycles, France, Italy and Spain, have seen their sales fall from a high of 29,000 in 2007 to just 18,000 in 2011. The vehicles are used either by the elderly or those not old enough to qualify for regular driving licenses. They are also used as golf carts and recreation vehicles. That said, such use which may be well suited to the European road conditions, regulated traffic intensity, and driving discipline may not be appropriate in India given that those factors are much worse in India. Just because quadricycle is a convenient mode for select applications in Europe it need not be so in India.   
European regulations
Quadricycles are European categories of four-wheeled microcars defined by limitations in terms of weight, power and speed. Two categories are defined: (a) Light quadricycles, category L6e and (b) Heavy quadricycles, category L7e.  Light quadricycles (L6e) are defined by Framework Directive 2002/24/EC as: "motor vehicles with four wheels (...) whose unladen mass is not more than 350 kg, not including the mass of the batteries in case of electric vehicles, whose maximum design speed is
not more than 45 km/h, and (1)whose engine cylinder capacity does not exceed 50 cm3 for spark (positive) ignition engines, or (2)whose maximum net power output does not exceed 4 kW in the case of other (e.g. diesel fuelled) internal combustion engines, or (3) whose maximum continuous rated power does not exceed 4 kW in the case of an electric motor.

These vehicles shall fulfill the technical requirements applicable to three-wheel mopeds of category L2e unless specified differently in any of the separate directives. Therefore, in many European countries such as France, Italy, Belgium and the Netherlands, light quadricycles can be driven without a full motor car (category B) or motorcycle (category A) driver’s license, and in some countries without any license at all (being vehicules sans permis). However, in more recent years there has usually been at least a requirement to obtain a basic road safety certificate (e.g. BSR and ASSR1 in France, analogous to CBT in the UK) along with at least a provisional A1/B1 class license, meaning only older drivers (typically those who came of legal driving age before 1998) retain permission to literally drive such vehicles "without a licence".

Quadricycles (L7e), also referred to as Heavy quadricycles, are defined by Framework Directive 2002/24/EC as motor vehicles with four wheels other than those referred to (as light quadricycles), whose unladen mass is not more than 400 kg (category L7e) (550 kg for vehicles intended for carrying goods), not including the mass of batteries in the case of electric vehicles, with a design payload not more than 200 kg (passenger) or 1000 kg (goods), and whose maximum net engine power does not exceed 15 kW. These vehicles shall be considered to be motor tricycles and shall fulfill the technical requirements applicable to motor tricycles of category L5e unless specified differently in any of the separate Directives. Bajaj RE 60 quadricycle falls under this category. The European regulations also illustrate the tenuousness of quadricycle definition and compliance requirements.

France was the first country to define technical standards and traffic rules for quadricycles. The French ministerial decree of May 29, 1986 legally defined the quadricycle as a vehicle included in the moped category, equipped with four wheels and a body. In 1992, the European Union published Directive 92/61/EEC which considered that quadricycles fell into the same category as mopeds. Framework Directive 2002/24/EC then refined this definition by distinguishing between light and heavy quadricycles (L6e and L7e categories). The European Commission  was set to revise this 2002/24EC directive in order to simplify legislation, to improve road safety and to set new standards for gaseous emissions. Furthermore, Directive 2006/126 (3rd Driving Licence Directive) establishes a common framework for light quadricycles driving licences. It imposes the same requirements for light quadricycles as for mopeds, including the driving age, for which it recommends 16 years as a minimum. The transposition deadline of the directive was 19 January 2011.

Unlearning Nano?

As we consider Bajaj Auto’s initiative to indigenously design, develop, manufacture and commercialize its RE 60 quadricycle, several issues of strategic technical and business considerations arise. The first and foremost is whether the lessons of Nano have been learnt by Bajaj. As we know, Nano was a socially relevant innovative design initiative by Ratan Tata to replace the risky family travel on two-wheelers by a relatively safer, elegant and affordable small car full family travel through Nano small car. Unfortunately, the technical sensation and social initiative that Nano represented did not translate itself into enthusiastic acceptance by the target customer-families. The reason, probably, has been that the typical two-wheeler user nurtured a dream, and even esteem value, in terms of catapulting to a full-fledged “middle class” car than graduating to a specially designed low-end transport solution that Nano represented.   

Bajaj must keep in mind that the auto-rickshaw owner/driver of India may similarly consider catapulting into a full-fledged taxi through an Indica or sedan (or even a Nano) as his dream and of greater esteem value than just graduating into the quadricycle of a boxy design that could be as costly as a Nano but not as safe and powerful as a passenger car. This threat is indeed real, given that the Indian market is flooded by several attractive models of entry and mid level small cars, hatchbacks and sedans. The design concept of RE 60 which probably originated seven to eight years ago is now far less relevant in the rapidly maturing Indian automobile market and rapidly upgrading social stratification. This example points to the need for business strategists to continuously validate what originally start out as innovative design concepts in terms of market relevance in rapidly changing environments.
Enduring design innovation

One way to insulate a company’s efforts from environmental volatility is by developing designs that are enduringly innovative. In the context of contemporary designs that are prevalent and are on the anvil in the Indian automobile industry, RE 60 is spookily designed to say the least. A three-wheeler loyalist may find the well-tested three-wheeler design more elegant compared to RE 60 to which the term contraption more appropriately fits. One may compare RE 60 design effort with the new Nissan Datsun entry level car, also designed and developed in India, and conclude that the latter is miles ahead in terms of design elegance and integrity. Design innovation must be durable and sustainable, capable of successfully piloting through at least the full design-manufacturing-commercialization cycle, besides offering the basic platform for launching successive generational improvements.

The other approach of design innovation involves an integrated value proposition rather than a hotchpotch of incremental benefits in different performance components. Seat belts and doors, addition of a wheel,  marginal improvements in torque and horse power, and increased ground clearance need not necessarily add up to becoming a radically new value proposition for the Indian automobile user, as a Maruti 800 car or a Toyota Innova multi-utility vehicle represented at their respective times of entry into the market. Bajaj must really reevaluate whether RE 60 offers such a value upgrade. Even as a low cost safe mini-public transport solution, other options such as Tata Ace and Magic passenger variants are available for the three-wheeler operators and users alike.

Strategy-technology nexus

There are several strategic pointers that could arise from RE 60 strategy of Bajaj, when fully executed (based on the author’s analysis of possible future outcomes as well). Fundamentally, technological innovation and business inventiveness must go hand in hand for strategic success. Secondly, it would be impossible to create new markets without a deft combination of product innovation and market positioning. Thirdly, incremental product enhancement may help in life cycle management but certainly not enable new product entry and market growth. Fourthly, product innovations should be sufficiently innovative to form the market and create a product family base. Fifthly, strategic plans of business must integrate technology plans that enable sustainable and durable product innovation. Sixthly, new product introductions must aim at creating a total value proposition of distinctive functionality. Seventhly, any product introductions which are based on tenuous regulatory options could face the risks of policy vagaries and industry collectivism.

Business strategists would do well to keep the above perspectives in mind as they develop business plans that are dependent on product enhancements and new product introductions. Product functionality and market segmentation would carry a nexus that would be difficult to perceive at the time of product conceptualization but could become patent as products and markets evolve. Repositioning of products could even be an option to consider as a retrospective strategy relevant for a new product-market equation. For example, Tata Nano mini-car could well turn out to be a better upgrade option vis-à-vis a three-wheeler than RE 60 as a quadricycle would. Probably, the marketers of Nano would find a final winning proposition from a stuck-in-the-middle RE 60 quadricycle, with Nano emerging as an effective, flexible and safe family transport solution!    

Posted by Dr CB Rao on August 3, 2013