Friday, June 3, 2016

On the Competition Highway: The Perspectives of Two Bahns

Business highway is a theoretical concept of businesses traveling over time towards their destinations on certain pathways. While each company has its own goals, more often than not several companies, constituting an industry, tend to travel together along the same business highway. The reasons are simple: every company in an industry faces the same huge market that appears bountiful on the distant horizon and every company has only a defined set of prime movers to take them towards the destination. The nuances we speak of in terms of product positioning, market segmentation and so on are efforts to define motels and hotels on the highway to rest in the quest for market dominance. Those who take their rest as the endpoint in journey risk becoming marginal players in a subset of the large market.

When a company starts as a monopoly, the cruise seems to be smooth and unchallenged. Companies take their time to build up speed, and after certain periods of acceleration and deceleration, could stay on their chosen speed level.  In certain industrial situations of perfect duopoly, two players tend to travel together in a certain equilibrium without upsetting each other unduly. In most industrial situations, however, competition starts coming up. Dots in the rear view mirror become, new speeding competitive businesses zipping past the monopoly or the duopoly businesses. Academic gurus and practical leaders dedicate their lifetime understanding the dynamics of competition and developing constructs to stay ahead of competition. The fallacy in competitive strategy is that everyone has the same access to theories of competitive strategy and can operate in similar ways to meet their strategic objectives. Much like automobiles, businesses drive through rear view and front view.

Rear view

The essence of rear view in driving is to be watchful about vehicles overtaking us. The rear view strategy in business also works much the same way. As in safe driving, it requires the driver to focus largely on the way ahead while casting darting glances at the rear view mirrors. Each car has two rear view mirrors; the right one near the driver (in right hand drive vehicles) is the primary one to be watchful about overtaking vehicles (competitors, in a business context). The left side rear view mirror is helpful to be watchful of those who seek to overtake from the wrong lane and also help the driver assess how he is pulling ahead of competition as he overtakes. To make effective use of the rear view mirrors and not to be blind to relative speeds, it is important, without doubt, for the driver not to have glaucoma (and for businessmen not to have tunnel vision).

The highway cruise is a game of lead and lag. Over time, drivers in autobahns learn to maintain a distance in equilibrium or get used to an iterative lead and lag in disciplined lanes. They also confirm to lane discipline, by and large. While the destination remains the goal, the preoccupation of the driver’s mind is in preserving a competitive but collectively safe ecosystem. The leads and lags do help in arriving at the goals but miss the larger picture of if one is on the right lane. In business too, when one is preoccupied with competitive leads and lags, the businessmen tend to lose track of the broader picture. Much attention is paid on watching the rear view to take care of the zooming competition, and ensuring the lead. Business race is not one in which a few market share points matter (as seconds matter in a car race). What matters more is an unfettered view of the spaces ahead for businesses to continue racing ahead.  
Front view

It goes without saying that the front view is far more critical than rear view in driving. The purpose of front view is to seek a clear road, be mindful of signages, and avoid safety risks. In business too, front view ride is critical but cannot be curtailed like in road cruise. It is important to look far ahead and visualize the path. Verdant spaces to drive in are important. The trap, however, is that business managements very quickly convert the long term visions (strategies) into short run journeys (budgets), and become watchful drivers. Agility, if at all, is shown in overtaking the vehicle (business) in front rather than in considering a quantum jump to a distant destination. As with rear view, soon the drivers in front view too get into a comfortable equilibrium with the road ecosystem.

Many times, the best of views is disrupted by inclement environment; while the vehicle or business may have the best of navigation aids, prudence demands slowing down till the weather clears up. A road warrior understands the physical limitations of an inclement environment but a business warrior takes really a long time to feel the impact. All of these do not matter as much in a crowded bumper to bumper traffic condition or in a fragmented industry environment because speed is controlled by default. That said, it would be somewhat facile to assume that a leader who is well tuned to disciplined yet agile driving on the road would be equally so in a business highway. On the contrary, there are critical differences in how leaders conduct themselves in the two bahns of roads and businesses.

Two bahns

While both automobile travels and business travels are physical, the latter gives a vicarious feeling of virtual state. As a result, the business leaders who drive on the business highway tend to be far more freewheeling than the driver on autobahn. The results in an autobahn are instantaneous and physically experienced, whether positive or negative. In business bahn, however, the results take time to deliver and the careless driver is insulated from the likely impact. This fundamental difference makes well-groomed and disciplined leaders to be casual, careless and even undisciplined on a business bahn. Leaders who would be deeply aghast at liberties taken in physical driving would not only wink at liberties taken nonchalantly on business bahn but also be unmindful of the damage being inflicted on the business ecosystem. Leadership exhortations such as ‘making one’s own path’ can be easily twisted out of perspective to go berserk on business highway. Unfortunately, the impact of reckless driving on business highways gets known only after the drive is nearing to a serious crash.

A vehicle needs fuel to cruise on the autobahn. The faster you drive and the longer you drive the greater is the fuel consumption. The best bet lies in having a vehicle with a larger fuel tank and better fuel consumption; such an envelope only postpones the limitations but never eliminates them or avoids the need for refuelling. Like automobiles, businesses need the fuel of profits to run; so does everyone believe. In reality, businesses need cash to run. Profits are virtual fuel, an accounting fuel in a manner of speaking, that lets businesses keep on running despite losses (and even cash losses) through a variety of props of diverse financial instruments. It is important that businesses appreciate the importance of cash as the only fuel that can sustain deviant or careless drive on business highway. The processes of management have put in place a number of checks to ensure appropriate governance (much like speed governors, ABS and safety checks) but the way bankruptcies and stressed assets blow up in India and elsewhere indicate that the drives on business highways need a different perspective for future.

Autonomous driving

The automobile industry, nay the road transportation sector, is set to be transformed with the experimentation and eventual maturation of autonomous driving. An autonomous car (also driverless car, self-driving car or robotic car) is a vehicle that is capable of sensing its environment and navigating without human input.  Autonomous vehicles detect the surroundings through radar, lidar, GPS, odometry, computer vision and soon with artificial intelligence. They are equipped with advanced systems that interpret sensory information (including reading signages) and navigate the paths towards destinations, overcoming obstacles. What this implies is that man-machine interface through breaking systems, speed governors and safety devices is considered inferior to a completely machine controlled drive. Autonomous driving is both a tantalizing misnomer and a perfect descriptor, in parts. Conceptually, giving an automobile complete autonomy from the free thinking human being is considered to lead to better navigation, safety and efficiency for the vehicle and its passengers (besides accommodating one additional person in place of the driver)!

Well for businesses too, all the wisdom from the stakeholders to advocate prudential norms and all the efforts from the regulators to put in place governance standards are akin to the meters and governors, with all their bells and whistles, embedded by the designers to enable smooth and safe functioning of an automobile in the hands of its driver. Just as these have been found wanting and autonomous driving is the new goal for safe autobahns it appears that businesses that are algorithmically driven and are autonomous from the inducements, aberrations and compulsions of human enterprise could be the new norm for safe driving on business bahns. Conceptually, a machine controlled business would appear to be completely antithetical to the idea of free enterprise but with the strides being made in artificial intelligence businesses may be run faster and safer as well as more profitably and more prudentially by machine controlled algorithms! The advantages could lie in terms of better regulated investments and expenditures with greater business assurance!!

Posted by Dr CB Rao on June 3, 2016

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