Coincidence, Connectivity and Correlation: The 3C’s of Perceptive Observation and Research

The other day, a very striking research finding that turned conventional wisdom and generational practice upside down was published widely (http://www.thehindu.com/sci-tech/health/high-milk-intake-tied-to-increased-mortality-risk/article6544831.ece). It said that those who drink more than three glasses of milk (700 ml), instead of facing a lower risk of fractures as believed hitherto, faced instead a risk of higher mortality. This, obviously, is counter to the received wisdom that it is beneficial to drink more milk as it leads to greater calcium intake and thus leads to healthy bones, apart from it being a wholesome food for general human development. The study was carried out by the reputed Uppsala University of Sweden and covered 61,000 women and 45,000 men of certain age groups for more than 20 years. This study caps a series of such studies which question the past precautions, biases and beliefs on a variety of subjects, ranging from eggs and coconuts to salt and cocoa (one such study is that intake of certain types of fat is good for brain health!).

At the end of the milk research summary, however, there was a caveat that the study pointed to an association rather than a link. It suggested more investigations to conclude on the topic. This caveat is not surprising given the diversified nature of human genetics, the multi-factorial nature of human aging and disease affliction. Identification of the core ingredients of prophylactic and therapeutic potency as well as side effects and adverse effects of natural or synthetic ingredients is wrought with great complexity. Potentially, these research journeys would continue, leading one day to more conclusive and more validated hypotheses on what causes what. While the complexities of understanding these bio-chemical challenges at molecular level are understandable, it is intriguing that apparently simpler and more visible aspects of human relationships should threaten the stability of, and cause volatility in, human relationships at family, organizational, social and national levels. This blog post presents certain models of researching and understanding human behaviour as a way of development.    

Individuality and conformity

The evolution of one’s personality over the years is the result of continuous interplay of one’s quest for individuality and the individual’s ecosystem’s norm for conformity. The ecosystem could variously be the family (pre-marriage and post-marriage), the school and college, the organization and the society. At every point of time, the individual is simultaneously advised to be expressive and empowered as well as conformist and compliant. While absorbing this indoctrination, the individual also constantly observes the players and role models he or she encounters in the various ecosystems. The observed behaviours are much like the various items of food that one ingests for biological development; they are the complex ingredients of food for emotional health. Much like the example of milk above, the behavioural inputs that are embedded as features of ecosystems are akin to  inner ingredients like lactose and galactose sugar in milk that are now found to cause oxidative stress and inflammation for individuals. There are more complexities, in addition.

Nations with developing and diversified habitat conditions such as India have multiple and diverse ecosystems at different points in scales of extreme polarities; poor and rich, rural and urban, squalor and luxury, unemployed and unemployed, and so on. Amidst all this diversity, there are two common national cultural trends; aspiration for growth and passion for equity. Each individual develops his or her own personality that expresses individuality and conformity that are not only influenced by the observed behavioural inputs but also the embedded factors of the ecosystems. These influences on individual personality development and collective social motive force are rarely appreciated with the needed perspicacity so much so the pressures get built up to alarming levels. Sudden and volatile expressions of resentment in families, institutions, firms and societies are a result of insensitivity to what could constitute an optimum balance of individuality and conformity on one dimension and economic growth and social equity on the other dimension.

Observation and research

Unfortunately, by the time one gets to recognize the need for personality optimization, much of one’s personality gets formed. The only way one rebalances and optimizes one’s personality is through observation and research. And the start point of one’s observation and research must be revalidation of the hypotheses that have been allowed to embed themselves over the years; like the several food and nutrition examples that have led to contrarian conclusions through more objective and intensive observation and research. Observation is the act or faculty of watching something or someone carefully for a period of time, especially to learn something. Research takes observation to the next level. Research is the careful study of a subject, especially with a view to discover new facts or information about it. Observation and research are an essential component of personality redevelopment that has several facets to it. Observation becomes relevant only with an open state of mind while research becomes helpful only with an analytical bent of mind.

The triggers for an individual to be motivated to observe and research are rooted in relative success of others and one’s own outlook. At a national level, countries aspire to achieve a national comparative advantage to achieve superior economic growth; but a few countries like India tend to be sensitive, rightly so, to social acceptance of economic platforms. At an entity level, firms seek to achieve firm level competitive advantage to achieve superior business growth. At an individual level, people seek to achieve personalized intellectual advantage to achieve superior career development. These are achieved not merely through past achievements but more through contemporary benchmarking and futuristic aspiration. Korea needed to observe and benchmark with Japan to develop itself as an Asian Tiger. India desires to observe and benefit from multiple national models, from China and Singapore to USA and Japan. The US automobile industry observed and learnt from the Japanese automotive industry to rediscover itself. An NITian (a student of National Institute of Technology) observes and wonders why he or she cannot be better than an IITian (a student of the Indian Institute of Technology). The whole group in any typical class wonders why all of its constituents cannot land themselves into plum jobs offered by Google or McKinsey.

Coincidence, connectivity and correlation

The processes of observation and research have three nuances. These are coincidence, connectivity and correlation. Coincidence is the fact of two things happening at the same time by chance, in a surprising way. Life, it is said, is full of coincidences. The occurrence of someone putting in low effort and achieving high success is more a coincidence than a law (possibly related to a more compassionate evaluator rather than anything else). Connectivity is the state of two things being associated together; it is a state of association by which one causes the other. Passive or active smoking and development of cancer are connected events. Make in Japan is, for example, associated with higher quality and high cost. Correlation is a variable state of connectivity where a change in one factor is accompanied by a change in the other factor. The incidence of diabetes in a society is correlated with an increase in consumption of junk food, for example. The processes of observation and research must learn to differentiate between coincidence, connectivity and correlation. In a meritocracy, getting handpicked for performance based on random interactions would be a coincidence while knowledge and experience would more surely get connected with performance and reward. At a micro level, multiple factors like nature of qualification, type of institution, depth of experience, nature of industry etc., get statistically correlated with career advantage.

While life does have a fair share of coincidences, in so far as performance is concerned, it is best to assume that there can be no coincidence. Many people confuse opportunities with coincidences. An aspirant job-hopper travelling by plane for a scheduled interview may happen to be seated next to a CEO of a different organization in a plane; this “coincidence” may lead to a conversation and a job offer if the CEO is impressed. The opportunity may seem to be a coincidence or a matter of luck but underlying the opportunity lies the ability of the individual to network and impress, the openness of the CEO to be inquisitive, and the willingness of both to make a considered choice. Life may be full of incidents and occurrences like the one mentioned but it is the connectivity between ability and accomplishment that matters. Oftentimes, a simple two factor connectivity may not suffice. In the case of a firm, for example, a firm’s performance may be correlated to its product diversity, geographic diversity, capital expenditure premium talent pool, export share etc., different firms may have different equations of correlation for the same independent variables. Right optics and smart analytics are required to ensure that the processes of observation and research are effective.

Discrimination, differentiation

As an individual observes his or her role model or as an organization observes its industry leader, it is important to develop the right optic (the right sense of sight) to observe, and the right analytics to differentiate between coincidence, connectivity and correlation. Fortunately, both right optic and smart analytics have one faculty in common - discrimination. Discrimination is the ability to recognize differences, and more importantly, the ability to judge the good quality of anything or anyone. Discrimination comes in multiple hues. One set of hues relates to an ability to discriminate between data and information, information and knowledge, and knowledge and wisdom. Another set of hues relates to an ability to discriminate between revenue and profitability, growth and sustainability, market share and revenue share, focus and specialization, and enterprise value and market capitalization. National set of hues relates to an ability to discriminate between economic growth and per capita economic growth, employment and inflation, and economic equality and social equity. Even regulators have the needs to discriminate; for example between monopoly and monopsony, premium and predatory, private weal and public good, and proprietary protection and corporate veil.

The moment an individual, entity or nation decides to become superior, association (and correlation) between enablers and outcomes needs to be established. The correlating variables and the factors of association or connectivity need to be established. The observation and research may lead from the macro to micro as in the case of the Uppsala University’s milk and mortality study wherein the connection between higher milk consumption and higher mortality was first established and then probable contributory causes such as lactose and galactose sugar were later drilled down. In the study of leaders, an association between the leadership styles and firm performance may be first established at a macro level and the more impacting correlations established later. Firms may identify an association between operational excellence and firm performance at a macro level and seek multiple correlations thereafter. The blog post has proposed observation and research, enhanced by right optics and smart analytics and bound together by discrimination as the fundamental tool kit to think beyond coincidence, and establish connectivity and collaboration for development of individuals, entities, societies, and nations.

Posted by Dr CB Rao on November 9, 2014   

     

Economic Independence of India: Need for Multiple Regulators, Three Missions and Three Objectives

As India celebrates the season of sixty seventh anniversary of Indian Independence, there is a new hope and aspiration, which is reflected by the President Shri Pranab Mukherjee who said in his customary pre-Independence Day speech, that the twenty first century belongs to India. The Prime Minister, Shri Narendra Modi, reinforced the message while unfurling the national flag at the Red Fort on the Independence Day with a call to make India strong with economic growth and social equity. A cornerstone of the new aspirations will need to be economic independence for the country. This has a connotation greater than non-independence on economies of other nations. True economic independence means the emergence of a policy structure that rests on the logic of economic growth and social equity than on dogmas like self-reliance or maximizing foreign direct investment (FDI).

True economic independence happens when every adult in every family has a productive and earning job, whether through agriculture, manufacturing or services. The Prime Minister has given a number of inspirational slogans ever since he took office; these could verily serve as credos of development for a New India. Some of these are; ‘Skills, Scale and Speed’, ‘Per Drop, More Crop’, ‘Minimum Government, Maximum Governance’, ‘Come, Make in India’, ‘Zero Defects, Made in India’, ‘Reduce Imports, Maximize Exports’, ‘Zero Defect (of Product), Zero Effect (on Environment), and other exhortations are reflective of Modiji’s passion to develop India as an economic power. To these, if ‘Zero Unemployment, Productive Deployment’ gets added as the exhortation that is translated gainful realization through tangible action it could lead to micro level wealth creation. The issue with economic development is that there tend to be no easy solutions. A holistic approach is needed to make things work for true economic independence.

From licensor to regulator

One of the first tenets of economic liberalization of the 1990s was that licensing stymies industrial and economic development. The two decades of liberalization has demonstrated how unshackling of industries and businesses can lead to unleashing of growth. Two caveats are, however, necessary.  Firstly, growth cannot be fuelled only by continuous removal of licenses or liberalization of investment caps. All said and done, there would continue to exist sectors of strategic importance where licensing or investment controls would be in play. Barring a few such strategic sectors (defence, multi brand retail, railways, insurance and banking, oil and gas, mining, for example), all the rest are probably free of licensing and investment controls but are still anemic in growth for various reasons. Secondly, free market economy does not by itself guarantee non-cartelization nor does it by itself prevent exploitative economics (real estate, for example). There must be an oversight role for the governments, particularly in a huge democracy like India where the disparities in wealth, education and health are three of the most galling pain points.     

At a conceptual level, the governments must move from being licensors to regulators. Regulation commonly is seen as taking care of customer interests through good business practices including pricing. Truly effective regulation goes deeper, with an approach and guidance that ensures quality, innovation and competitiveness. Each of this is an important parameter that must be defining in its essence. National regulatory bodies should have expertise to monitor how various industrial and business sectors are performing in terms of the three parameters and periodically issue guidelines, rules and regulations to course-correct the erring or sub-optimized industries. Regulators, who will be industry specific need to matrix with three pan-industry commissions on each of the three parameters mentioned above; quality, innovation and competitiveness. Three national expert commissions can be conceptualized as discussed below.

Three national missions

Quality, of the product and process, is the key to make India global manufacturing hub. From a situation where the quality standards are derived from the developed world, India must be able to set global quality standards. Looks unbelievable? In the 1950s, setting global quality standards appeared infeasible for Japan and in the 1970s for Korea. Yet, today Japan and Korea lead in quality. Why not, therefore, India? If the Indian industry and talent pool is seen to deliver quality, India would automatically become a global manufacturing hub. For that, the existing base must be developed to reach and set higher standards of quality. A National Quality Mission would be well in order.

Innovation, of the product and process, is the engine of growth. Innovation leads to new products and processes as well as continuous improvement in existing ones. Innovation is commonly seen as a result of research. However, innovation, as with quality, is a matter of mindset. An inventive mindset is required to foster innovation as much as laboratories are required to convert ideation into innovation. For a resource scarce country like India, innovation lies in doing more with less; for example, more crop per drop. The ability to identify sources, uses and forms of innovation is a characteristic of successful nations such as Japan and Korea. India requires a continuous scan of product and process landscape to drive innovation; a National Innovation Mission would help.   

Many times, competition is misconstrued as competitiveness. Competition is simply presence of more players in the industry, which it is hoped will lead to each firm excelling over one another offering improved products or services to customers (it is a hope, not a given!) . Competitiveness, on the other hand, is the ability of a company to excel over the others in the industry in terms of products or services to the customers (it is a demonstrated competency, not a hope!). Mere competition, however high it is, does not guarantee competitiveness; in fact, excessive fragmentation affects viability. Indian airline industry and domestic pharmaceutical industry are examples. Competitiveness builds on quality and innovation with management and leadership processes that assure business growth and sustainability. A National Competitiveness Mission would identify appropriate technical and managerial perspectives.

Three national objectives

There are three beliefs that inhibit the genuine embedding of the three principles of quality, innovation and competitiveness in emerging economies, and these need to be countered by the three expert missions. The first is a sense of false correlation between the product level and quality level. It may be presumed, for example, that a Mercedes Benz E series car is one of higher quality than a lower end popular car. Such thinking leads manufacturers and consumers equate specifications with quality, which is not necessarily right. Each product needs to be designed, manufactured and delivered with a purpose in mind, and quality represents fitness for the purpose as expressed through specifications. The functionality, design principles and quality levels form a total ecosystem, which must be continuously elevated. Whatever be the level of product, the level of quality cannot be compromised. A smart phone and a feature phone are both bound by respective quality parameters as would a blacktopped road and concrete road would need to be. The National Quality Mission would need to embed Quality as a national mindset.    

The second is a belief in generational lag, in products and processes, and in social and industrial infrastructure, almost as if it is a matter of destiny for emerging economies. Domestic governments and consumers as well as foreign investors and corporations believe that the latest technologies must first get embedded in the advanced countries before they can be offered, developed or manufactured in an emerging nation. As a result of this belief, which is driven by technological protectionism of innovating countries and the economic weakness of follower countries, emerging nations tend to be in a perpetual catch-up game in respect of innovation. The National Innovation Mission must continuously explore where, why and how India should leapfrog in innovation rather than be just content with followership.

The third is a belief that competitiveness is a firm level concept, and government has only fiscal policies to improve or reduce competitiveness. As Porter’s study on comparative advantage of nations showed (Michael E Porter, The Competitive Advantage of Nations), certain nations tend to become good, and internationally competitive, in certain industries or businesses relative to others. Governments in India, Centre and States, can integrate infrastructure developmental initiatives with industrial development initiatives as well as social development initiatives to generate competitive advantage at firm level and comparative advantage at national level. The freight corridors that are being developed with Japanese investment could be combined with Indo-Japanese industrial clusters and social communities that provide free flow of technologies and goods and services between India and Japan. The same could be accomplished in multiple manners with multiple nations, in diverse product lines. The National Competitiveness Mission must analyze and integrate the several public, private initiatives to generate national comparative advantage.

Challenges as opportunities

Modiji has exhorted to minimize imports and maximize exports. India imports 80 percent of its crude requirements. India also imports gold, and most of the sophisticated plant and machinery for a wide range of industries. It may therefore look impossible to minimize imports. However, if value added export platform is adopted as the basis, all imports can be exported as value added products; for example, gold as ornaments, and even crude as diesel and petrol, at least to the neighboring nations. Sophisticated plant and machinery may be assembled at site with local content rather than imported as complete built units. This, in turn, requires confidence that the Indian industry is at its pinnacle on quality, innovation and competitiveness.

Skill, Scale and Speed have helped China achieve exactly this, as Shri Narendra Modi aptly observed. China’s acquired expertise in telecom gear, smart phones, fermentation and bullet trains are striking examples. For India to be up to speed on this platform, governments and industries should backward integrate to the fullest extent, in a complete sense. There is certainly utility in indigenously producing new generation products even if in imported equipment, compared to import of the products. However, the full utility accrues when the equipment is also indigenously produced. India, a nation of 1.3 billion people, has now global scale demand levels for a range of products and, therefore, for plant & machinery for such products. It requires holistic planning and execution to recalibrate India on a global scale. The paradigm of industry specific national regulators, and quality, innovation and competitiveness specific national missions have the potential to help translate all of the Prime Minister’s powerful principles into national wealth with social equity.

Posted by Dr CB Rao on August 17, 2014

A New Approach to Competitive Advantage: The Strategically Balanced Corporation

Corporations are established and developed based on a combination of vision, strategy and execution. Amongst these three, strategy sets the pathway to accomplish the vision through execution. Strategy differentiates one firm from the other, not necessarily in terms of performance but more in terms how it seeks to achieve its vision. Firms are commonly viewed as specialized, diversified, integrated, local, global, and so on. Strategy, in its core elements, has not altered much over the years but the environmental information and internal awareness that sets the tone for strategy has not only become more complex but also volatile. The number of players has also significantly increased in any industry. The corporations are finding it increasingly difficult to develop unique strategies. Strategy, in this context, is not about which industry or business to operate in but is about how to achieve competitive advantage in any chosen business or industry.

For good measure, we do have a few strategic templates from management gurus; the principal ones being the theory of generic competitive strategy by Michael Porter and the theory of core competence by C K Prahalad. There are also several theories for firms and organizations to become effective and competitive, for example, the model of balanced scorecard by Robert Kaplan and David Norton, the theory of constraints by Eliyahu Goldratt and the theory of reengineering by Michael Hammer. All these theories, developed in the 1980s and 1990s, do not take into account the perfect spread of information and options that is now available for strategists and firms. Every leader, for example, is aware of the generic strategies of cost leadership and differentiation, and even the sub-strategies to achieve them. What strategy officers must now focus is on developing an elegant balance amongst multiple strategic options. This blog post proposes a paradigm of strategically balanced corporation.

Strategic balance

An optimal strategy is one that is open to environmental opportunities but also one that hedges against environmental uncertainties. It also plans execution based on available resources or resources that can be acquired to execute the strategy. This requires that the strategy must always balance rewards and risks on one hand and aspiration and attainability on the other. Seeking this balance is a delicate and complex process; with strategists requiring to be both conservative and aggressive as the situation demands. The concept of strategic balance is relevant for mono-product firms as well as for multi-product and multi-business firms. The concept is also not necessarily limited to only products or services but covers all the essential parts of a firm’s value chain such as products and services that are delivered, the manufacturing or delivery process used, the customer outreach methods, the human resources deployed, and so on.   

Research has focused on firms adopting certain extreme strategies. For example, it has been well researched if market share and profitability are correlated. It has also been researched if specialized and conglomerated businesses have unique sustainability characteristics. There is, however, practically negligible research on what constitutes a strategic balance and whether strategic balance leads to superior performance. In this context, this blog post creates a fundamental platform to understand and analyze strategic balance. We may define strategic balance as a firm-specific balance that exists by design amongst various key components of a firm’s value chain and between strategic options that exist in respect of each component of the value chain. Strategic balance must not be misconstrued as striking a middle ground; rather it should be seen as a quest for optimality of a firm. The concept of strategic balance is amplified below.

Value balance

There is a concept, in some schools, that it is not important for a firm to operate across all segments of the value chain. This school of thought argues that a firm could just develop and stick to a core competence and stick to it. An analogy could be that a firm could be a design house but could manufacture and market products with external alliances as successfully as a fully integrated firm. Such outsourcing hypothesis could be true to an extent but not to a sustainable extent. Corporate history has enough chapters of firms which mimicked a full value chain operation on certain basic internal strengths and a large extent of external support but withered away when the alliance partners denied support or failed to respond to growth opportunity because of lack of internal capabilities. As a matter of fundamental principle, a firm which does not ensure value chain balance with appropriate attention to key components such as R&D, manufacturing, supply chain, marketing, human resources and information technology would be suboptimal and sub-sustainable in a competitive world. By no means, this is an all-inclusive listing of value chain components.    

Portfolio balance

Every firm exists and grows based on products and services in a particular business, be it hospitals or healthcare business and automobiles or transportation business. The notion that portfolio concepts are valid for only diversified businesses is archaic. Even a business of coffee chains can apply and benefit from portfolio balance concepts. Once a business is defined, and however narrowly the business is defined, there would be creative ways to in-build a portfolio into the products or services. A portfolio approach is based on the strategic truism that a service or a product offers more than the product or service functionality to the customer. A restaurant may serve only food but it can provide umpteen choices in terms of culinary streams to its customers. Even Starbucks, known for its pioneering coffee line of business, has multiple beverages, hot and cold, besides several eats and food accessories as its portfolio. The strategic challenge lies in developing the right balance between specialization and diversification. Any business provides the opportunity of strategic portfolio balance;  a company manufacturing only heavy trucks can offer a wide portfolio from bare chassis to fully built custom application vehicles on one hand and from civilian to defence vehicles. Strategic portfolio balance ensures an optimal exploitation of environmental opportunity and appropriate hedging against volatility.

 Manufacturing balance

Manufacturing represents a part of value chain which converts a proven design into a saleable product or service. Manufacturing can vary between complete integration and complete outsourcing. The former is highly resource intensive with high fixed overheads that could be highly catastrophic in the event of a precipitous demand downturn. The latter is certainly resource-lean with low overheads but could be highly vulnerable in the event of a sharp and sudden demand uptick. Each industry offers a paradigm of optimal manufacturing balance. A highly evolved industry where each component or material has also evolved into its own industrial structure provides several solutions for manufacturing optimality. On the other hand, a newly developing industry has fewer degrees of freedom to offer. The former implies an established quality and cost base that could afford higher outsourcing. The latter could have doubtful engineering and quality fundamentals that could demand greater control over manufacture through integration. An automobile manufacturer outsourcing differing components based on differentiated internal capabilities is an example of the former. On the other hand, a coffee chain seeking control over coffee plantations, roasting technologies and coffee making is an example of the latter. Strategic manufacturing balance ensures optimal quality, cost and delivery capabilities for a firm.

Marketing balance

The best of design and manufacturing optimality could come to naught with strategic marketing imbalance. Marketing balance is not about regional marketing effort allocations or domestic-export balance. It is about striking the right balance between the product and the sales channel, between different marketing channels and between sales and service.  Some of the technical marvels, Tata Nano car to quote an example, have failed to fulfill the potential of design and manufacturing brilliance due to marketing sub-optimality. Had Tata Nano been marketed through an exclusive car dealer network, with appropriate emphasis between different marketing approaches and a special after-sales package, potentially Nano would have caught the imagination of the target market segments. By way of another example, the best of marketing cannot make up for strategic imbalances in either design or manufacturing. Godrej Interio comes across as a prime example of lack of strategic portfolio balance (dependence on all-steel design and manufacture, as is Godrej wont) adversely influencing the final low-business outcome, despite some great strategic market balance. These examples also illustrate how a strategic balance amongst the various components of a value chain is also extremely important for a firm to achieve sustainable successful performance. 

Talent balance

Firms are a complex cascading network of leaders, managers and executives on one hand, and another equally complex network of organization, teams and individuals. Adding further complexity is the network of businesses, functions and processes. Across all this complexity, two components stand out:  individuals and teams. Organizations are often unable to comprehend and convey whether it is the individual performance or the team performance that determines performance. Talent management thought keeps swinging between the typical Western practice of individual superstar performance and the equally typical Oriental practice of consensual team performance. This leads to somewhat strange positions taken by leadership experts wholly deprecating either ‘we’ or ‘I’ in performance management. The concept of strategic talent balance requires that individual performance be treated as important as team performance. For organizations to be successful, meritocracy based on individual performance (and individual recognition) and organizational harmony based on team performance (and team recognition) must co-exist. Without overwhelming each other, ‘I’ as well as ‘We’ are equally important for strategic talent balance.

Strategically balanced corporation

The aspects discussed above are illustrative and not comprehensive. The value chain of a firm varies significantly, multi-functionally, depending on the industry. It is important for a firm to understand and map out its value chain in its entirety and then select the components that are critical for performance. The next step would be option mapping for each function and establishing the optimum strategic balance in each case. Exercises of long range planning which seek certain goals and develops strategies to execute towards the goals would not be effective unless they are set in the perspective of strategic balance. Strategists (whether they are chief executive officers, chief functional officers or chief strategic officers) must also be balanced professionals without any biases as to what constitutes the appropriate strategies; for example, some tend to seek diversification and some seek specialization preferentially as a pre-experienced panacea for success. Such biases limit the openness and effectiveness in developing true strategic balances.

A strategically balanced corporation is able to move through the economic and business cycles successfully while exploiting opportunities with agility. The journey of a small-cap startup through the phase of mid-cap company to the goal of a blue-chip company is based on strategic balance adding strength and resilience to exploit opportunities and withstand uncertainties. A strategically balanced mid-cap or blue chip firm leads to the evolution of a conglomerate. While a conglomerate provides much flexibility to define varied businesses under its fold (for example, salt to software and chips to ships), it is essential that each business or firm under the conglomerate umbrella is a strategically balanced corporation. The seeding, screening and weeding of individual businesses adopted by big conglomerates, from time to time, is proof enough of the need for the individual firms to be strategically balanced and sustainably effective. If research were to be undertaken on the performance of strategically balanced corporations, the results would surely support superior performance by, and superior competitive advantage for, such firms.

Posted by Dr CB Rao on November 24, 2013   

 

Five Competitive Forces in Organizational Talent Arena: Porter’s Competitive Strategy Framework Extended

Michael Porter had in 1980 formulated a landmark framework for generic competitive strategies. Central to Porter’s theory of competitive strategy is the framework of five competitive forces. These five forces are the bargaining power of suppliers, the bargaining power of customers, the threat of new entrants, the threat of substitute products and the competitive rivalry within the industry. These represent five important external competitive forces that influence competitive intensity in an industry. Each of the competitive forces typically has several components to it. A good understanding of the five competitive forces enables a firm to respond with appropriate generic competitive strategies. The ability of the firm to leverage or address the competitive forces leads to firm-level competitive strategies in terms of cost leadership, differentiation or niche, as postulated by Porter.

My blog, “Strategy Musings” featured several posts by me that address certain weaknesses of Porter’s framework or tweak the framework to be in step with the contemporary environment. Some of these are: “Beyond Porter’s Darwinism: The Sixth Competitive Force”, http://cbrao2008.blogspot.in/2009/08/beyond-porters-darwinism-sixth.html, Generic Competitive Strategy and Specific Competitive Advantage: Viable Paradigm or Visible Paradox?” http://cbrao2008.blogspot.in/2011/07/generic-competitive-strategy-and.html, and “From Competition to Collaboration: Porter’s Five Forces Theory Revisited”, http://cbrao2008.blogspot.in/2012/05/from-competition-to-collaboration.html. Though several other aspects of Porter’s generic competitive strategy have also been addressed by the author, the above cited posts have a direct treatment of the five forces framework. The blog posts point to the solidity and the adaptability of the five forces framework to a changing environment.

From macro to micro

Porter’s strategy is essentially aimed at a macro level understanding of the firm and its environment. However, the framework can be applied at functional and micro levels as well. At each functional level (be it manufacturing, research, supply chain or human resources, for example), there could be relevant competitive forces that can be captured in terms of the Porter framework. One of the important applications could be addressing the industry’s war for talent. In emerging markets such as India which are aiming at faster economic and industrial development, talent is a scarce factor that is hotly competed. Three macro factors dictate the talent competition. Firstly, the pace of foreign direct investments in India would only go up with global firms increasingly looking to Indian operations to provide products and services for their global needs. Secondly, there would be a renewed interest to capture the burgeoning Indian market as India promises to become the most populous country of the world, overtaking China by 2028. Thirdly, Indian companies would globalize more aggressively to achieve market access and geographic diversity.

At a micro level, the talent wars would place a premium on readily deployable talent as more companies vie for the Indian pie and more Indian companies vie for the global pie. With business models being limited and competition relatively unlimited, the availability of ready-to-use skills would be a key factor. As companies realize the challenge, there would be a greater emphasis on operational excellence and product or service level innovation to achieve differentiation. The micro level strategies of the firms are bound to accentuate the pressures on talent. With universities churning out candidates with only generic skills, availability of candidates with customized, industry specific skills becomes a key requirement for firms seeking competitive advantage. Corporate human resources leaders need to understand the five competitive forces that govern the talent scenario and influence firm level competency to attract talent. The five forces of talent are:  bargaining power of candidates, bargaining power of service providers, threat of competitors, threat of new knowledge, and competitive rivalry in talent pool. These are considered below.

Bargaining power of candidates

While at a gross level there are more candidates than available jobs, when it comes to skills that are required for effective job performance highly competent candidates do wield considerable bargaining power. In India particularly, a combination of technical and commercial knowledge, operating and strategic skills, and communication and collaboration skills is hard to get in candidates, particularly as one considers middle and tiers of management. It is not surprising, therefore, that the limited talent pool of this particular combination of candidates exercises considerable bargaining power. HR leaders are required to balance the premium that is required to be paid for such talented candidates with the value that such candidates would be able to bring about in the particular organizational settings. In certain cases, this requires a broader review of organizational culture; organizations that are home to multi-faceted talent tend to have an equally potent value proposition for such multifaceted candidates. Recruiters need to focus as much on creating a star organization as on recruiting star performers. Neither should they baulk away from the costs of building high performance organizations and recruiting high performing talent.    

Bargaining power of service providers

Certain skills lend themselves for outsourcing. Service providers in technical and management fields often emerge as short term and medium term alternatives to regular talent that seeks in-house employment. This alternative becomes particularly relevant for one-time burst activities and for specialized skill sets. Certain advanced geographies and certain global corporate houses tend to rely on service providers as a matter of course even as such service providers tend to be available in abundance thereon. In emerging markets and domestic companies the reliance on service providers is much less even as such service providers tend to be relatively scarce. From an organization’s viewpoint, however, it is a choice between two types of power rather than reduction of overall external power on the organization system per se. Progressive organizations may seek to strike a prudent balance between premium in-house talent (that could be both a perpetual cost and institutionalized value) and specialized external vendor support (which could offer specialized support at high cost but with a discretionary tenure). The resort to service providers as an alternative to in-house talent must be a carefully thought out strategy.      

Threat of competitors

The talent paradigm adopted by competitors has a bearing on the competitive forces exerted in the talent scenario. At the very basic level the more companies seek a particular level of talent the more demanding and choosy the premium candidates become. At a more involved level, however, as companies innovate or begin to follow innovators they become competitors to incumbents and monopolists. Firms which are forced to defend their positions and firms seeking to dethrone them equally become hunting grounds for talent. In addition, during certain phases of industry evolution certain discrete skills tend to be sought after by all companies fiercely. For example, leaders with expertise in global selling and customer development became the highly sought after skills of Indian IT majors in the 1990s. For the Indian pharmaceutical industry in hot pursuit of Hatch-Waxman generic exclusivity opportunities, intellectual property expertise became highly sought after. As competitors follow successful business and operational models of industry leaders, the threat of competitors in terms of poaching talent or proactively attracting talent enhances the competitive intensity.    

Threat of new knowledge

Managements are aware how technologies make laboratory and manufacturing assets obsolete. As new measuring technologies emerge metrology equipment pass through successive generations of obsolescence. As new machining technologies emerge machine tools become lighter and more flexible. Less realized, however, is the impact of new knowledge on the talent scenario. In the 1980s and 1990s, a new generation of computer savvy executives overtook more conventionally trained established manpower. In the 2000s and 2010s, a new generation of Internet savvy and highly networked executives is tending to dominate global executive scenario, overtaking standalone executives. Scientific and technology domains are, often, reinvented by new innovations. Firms which lay store on the talent trained years ago would find themselves obsolete as new knowledge shapes new business models. Construction firms which rely on conventional excavating, piling and stuttering practices may find themselves overtaken by firms which deploy mechanized excavation, ready-mix concreting and mechanized stuttering, for example.    

Competitive rivalry in talent pool

Quite apart from the above four factors, firms and industries are affected by the competitive rivalry in the talent pool. By logic, firms and industries that are in an aggressive growth mode tend to experience competitive rivalry within the talent pool. If corporations are unable to clearly explain the individual talent - employee career - corporate growth paradigm with visible nexus between individual performance, career development and business results, individuals tend to jostle for visibility, enhancing rivalry. Firms and industries that have enjoyed rapid growth but are slated to slow down also are subject to competitive rivalry as talent seeks new avenues to satisfy its growth passion. Departure of successful key executives from firms encountering growth-plateau to companies desperate for reinvention leads to higher competitive rivalry in the industry in the overall as leaders seek to build their growth teams. Firms need to understand that their own internal career policies and external hiring policies could elevate the competitive rivalry in an industry and even create a talent bubble wherein competitive intensity for talent zooms far ahead of competency growth of the talent, leading to an unsustainable demand-supply balance.

Generic talent strategies

Porter suggested cost leadership, differentiation and niche as three generic strategies that are available to firms to cope with the five competitive forces that an industry faces. To manage the five competitive forces of the talent paradigm discussed herein, the author suggests three relevant generic talent strategies that firms can adopt. These are compensation leadership, career differentiation and niche. Each of these will have unique ways of talent management that offer alternative approaches for coping with the five competitive forces in the talent arena and optimizing organizational and business performance. A framework of such generic talent strategies would be the subject of a later day sequel to this blog post.

Posted by Dr CB Rao on June 16, 2013

           

 

From Prodigal to Savior: The Evolution of a Trainee as a Leader

In recent business times of India, no event has triggered so much surprise and debate as the return of NR Narayana Murthy from retirement as the Executive Chairman of Infosys, the Indian information technology iconic bellwether struggling to remain on a growth path (please also see: http://cbrao2008.blogspot.in/2013/06/the-return-of-narayana-murthy-fast.html). There have been positive and negative angles to the news of Murthy’s comeback. On the positive side, many have held that there is nothing wrong, and everything to support, in such a towering personality returning to bring back to health the company he founded and grew with his co-promoters. On the negative side, many also have held the return to be a reflection of the inadequacy of the past leadership development, and hence a prognosis of future insufficiency of leadership development.  After the initial swell of the welcome notes, analysts believe that only future events can judge if the return would be a positive or a negative for the long term future of Infosys and the overall gamut of business leadership development in India, including strengths and weaknesses of a possible dynastic succession.

For the larger body of students of technology and management as well as other professions, aspiring entrants to corporations and budding leaders, the return of Narayana Murthy must signify an entirely different aspect of corporate life and career development. It is not uncommon for scores of employees at all levels of an organization to leave, and for some of them to return to their alma mater. The twist here is that such returns are often seen as the return of the prodigal rather than the return of the savior as is the case with the return of towering leaders such as Murthy. Given that every unit of work in a corporation has its importance, the return of the employees at whatever level should qualify to be deemed as the return of the savior. That, however, hardly is the case except in certain truly high level leadership positions. As youngsters watch the unwinding of the Murthy2.0 story in Infosys3.0 saga, apart from the lessons to learn, a key self-learning objective must be how the young aspirants would be seen as saviors rather than prodigals, should such exit and return episodes occur to them.

Demand-supply perspectives

As with every aspect of human endeavor, factors of demand and supply determine the relative importance of any material or non-material resource. At a gross level, from a human resource perspective, in a company or in an industry there would only be few leaders of a comparable caliber while there could be hundreds of executives and managers at lower levels with comparable caliber. At a gross level, from a business growth perspective, there could be only a few corporations that are willing to introspect and take radical measures to revert to their growth path as Infosys has boldly done. At a gross level, therefore, the demand-supply gap determines whether the return of any individual professional is deemed to be the return of a prodigal or a savior. The phenomenon of surplus-scarcity can, however, be addressed efficiently by individuals and corporations equally by deploying the concept of substitutability appropriately.

The relationship between the organization and its human resources is a paradoxical one. Organizations benefit if the available skill sets are both standardized and unique. Standardized skills enable the companies lower the bargaining power of candidates and reduce the attrition pressure of employees.  At the same time, unique skills enable the companies enhance their competitive advantage in an industry and enhance the ability to reward and retain their employees. For employees, unique skills need not only continuous self-development but also an organizational ecosystem that facilitates development and deployment of unique skills. If an organization’s human resource base comprises only generic and standardized skill sets, it is unlikely that such an organization would become highly competitive. On the other hand, if an organization seeks only highly unique skills, conventional organizational systems would fail to cope with the need for heightened reward systems. The paradox needs resolution.

Prodigal minds and savior skills

Aspirations need to be matched by achievements. What we see in some organizations is a constant unrest in young operators, officers and executives to grow in their careers at a fast clip. Many times such young employees imagine a superior work opportunity and career package in other companies. When employees move far too quickly out of an organization in pursuit of short term career boost, such decisions, more often than not, result in later day distress. The foundations of such fast moving careers, instead of being reinforced by industry or skill distinction, tend to be brittle with disconnected skills and inadequate depth and breadth. At times, the best way to address the gaps is to retrace the steps and return to the base organization as a prodigal. In some cases, organizations also make mistakes in judging employees and release them too soon. Both organizations and employees need to be prodigal in such occasions. While this may cause some emotional distress, correcting the missteps, and more importantly rebuilding the stronger skill base, provides longer term solidity to the employee careers and organizational strength. Eventually, employees and organizations may benefit from the phenomenon of prodigal minds.

Renunciation must take place only after actualization. Leaders too face their share of needlessly fast moves, albeit into sunset. Leaders play a crucial role in not only growing their corporations but also preparing them for sustainability. Actualization for a leader is not complete until he or she is able to execute a business model and build a leadership team that can take the execution forward, until the firm is under a need, or in preparedness, for a new business model with an appropriate leadership model. When Narayana Murthy moved out of Infosys, it was probably actualization that was incomplete and renunciation that came on too soon. In retrospect, it would appear to be more of governance redistribution rather than undertaking the right change at the right time (please also see: http://cbrao2008.blogspot.in/2011/05/infosys-board-rejig-crowded-at-top.html ).  Saviors possess leadership skills that have built and grown companies with achievements that are industry acclaimed. Saviors typically have stature and charisma that can rebuild confidence in internal and external stakeholders, and turn situations around for stalled corporations.

Prodigals as saviors

It is not that prodigals need to be at the bottom of the organizational pyramid and saviors at the top of the pyramid. Youngsters need to have the skills and the stamina that can make unique contributions in the domains in which they operate in their organizations, however small such domains may be. A product designer, a market researcher, a process engineer, a project executive, a quality officer and a salesperson all have their respective opportunities to be distinctive and become much sought after executives in their domains. The early development of savior skills in a youngster is a good augury for organizational competitiveness. Youngsters need to complement their subject specialization with practical expertise and a breadth of outlook. An automobile component designer, for example, would need to be conscious of the challenges of material technologies on one hand and the complexities of manufacturing on the other. The more end-to-end connected a specialized youngster’s thinking is, and the more broad-spectral his or her aptitude is, the more he or she would be able to add value to his or her functional competencies.  Such talent at the bottom of the pyramid is often hard to find, and that is the reason it is so valuable to build a cadre of saviors at the bottom of the pyramid.

This requires that organizations should focus on all-round skill integration in youngsters. The need for ready to use talent is so high in organizations that fewer organizations are willing to commit the lead time and effort to train youngsters in all the departments of an organization prior to their getting absorbed in their core functions. Early departmental rotation provides a broad perspective of a corporation’s value chain without compromising the core competence. If entrepreneurs such as Murthy emerge as saviors it is not necessarily only because of any superior skills and attributes but also because of their intimate association with the total value chain of the organizations as they establish and build their organizations. Professional organizations which compartmentalize functions as organizational silos in the name of specialization need to consciously adapt policies of all round development of skills in their youngsters. The greater the commitment to graduate and post-graduate rotational training and development programs for youngsters the corporation has, the greater will be the development of savior skills in the organization.

From prodigal to savior

Too much of functional specialization with too much of an emphasis on assigned task delivery but without an understanding of the total value chain contribution on the part of youngsters gives them a needlessly elevated view of their contribution.  Organizations-in-silos which are aware of the gap between the due requirements of organizational competitiveness and undue expectations arising from tiny contributions in narrow niches struggle to explain and retain talent consummately. Organizations that are unbounded in thinking and creative in execution tend to be conscious of the need to leverage young talent as much as possible to develop deep knowledge, broad perspectives and futuristic vision in them. Such organizations do not fight shy of nurturing and rewarding saviors from the early years of their careers. Youngsters who join organizations must understand the responsibilities and nuances of developing savior skills from the early years, and keep reinforcing the savior skills as they move up the managerial and leadership hierarchy. Such leveraged talent provides sustainable competitive advantage to corporations.

Posted by Dr CB Rao on June 9, 2013    

Synergy of Innovation and Perfection: Towards the Ultimate Competitive Advantage

Apple is reportedly working on a smart watch, called as iWatch by the media.  Will this be a successful product? Probably yes, if one were to consider Apple’s string of successful products such as iPod, iPhone and iPad; need not necessarily be, if one were to take into account its occasional failures such as its early generation gaming devices and portable computers.  Apple’s recent successes have, in large measure, been due to its ability to design, manufacture and deliver an innovatively perfect product for the market. From the looks and objectives, iWatch seems to have the innovative specifications and the perfect form factor that are in keeping with Apple’s core competence of innovation coupled with perfection. Apple’s track record does suggest that the combination of innovation and perfection is a pathway to success.

A study of several successful firms suggests that introduction of new products or services on a systematic basis is a key factor of success, but only if such products and services are delivered with perfection, that is, without any faults or weaknesses, and in a completely correct and exact manner. The relative importance of innovation and perfection in the combination has, however, been a matter of subjectivity. Companies that sparkle with innovation but fail to deliver it with panache have been far less successful than companies which have been merely followers but delivered products and services of impeccable quality. It would, therefore, appear that companies need to not only ensure both innovation and perfection but also get the right balance of innovation and perfection that makes economic sense.

Innovation

Innovation has no end. What appears to be an innovative product at the time of innovation or commercialization is soon rendered obsolete by a more innovative product or by a clone that is designed and manufactured more perfectly. Smart phones, for example, led a wave of innovation in mobile phones and convergence devices. The current experimental trend of iWatch and Google Glasses indicates that certain products, be they computers, smart phones or cameras, can be rendered obsolete by the trend of wearable or communicable computers that these smart watches and smart goggles signify. Companies which recognized the cycle of innovation and obsolescence, and have in addition made their own products obsolete by more innovative products have enjoyed consistent success. 

Innovation has no limits. What appears to be beyond the reach of a first innovation becomes a facile task for the subsequent innovations.  Having 256 MB RAM was once a design feat for computers. Today, a smart phone is designed with 2 GB RAM and quad-core processors. HD screen was unthinkable in a cellular phone not too long ago. HD screen capability of 1080p is now passé in contemporary mobile phones. iWatch with Bluetooth and wireless connectivity could lead to remote connectivity between the wearer and his or her devices easy. With development of needleless diagnostics, Apple may develop its iWatch into an iDoctor next. The more innovatively hardware and software are designed, and more importantly they are integrated, the more innovative a product would be.

Innovation has no boundaries. What appears to be a partial innovation in a component of a product can be a dominant driver of total product innovation. Samsung may be a follower in smart phones but its innovative edge in touch screens, ranging up to the latest large format Organic Light Emitting Diode (OLED) screens as well as bendable and extendable OLED screens has driven innovation in its smart phones. Ordinary components can be assembled into an extraordinary product through software innovation as Apple has demonstrated. As firms systematically specialize in innovation, they also acquire core competence in certain categories of innovation, as exemplified by Toyota in hybrid vehicles, Intel in computer chips, Qualcomm in mobile chips, Nintendo in gaming devices, BD in needles and so on. Continuous and systematic innovation leads to product specialization on one hand and erects entry barriers on the other.

Perfection

Like innovation, perfection has no end. As nano measurement technologies emerge, tolerances can be defined more tightly, for example. Perfection, however, tends to be comparative and contextual. Perfection is measured against the specifications set by the designer. Companies committed to high quality go in for high specifications to set the design tone for perfection. Each successive generation of products sets higher standards for perfection. In an automobile engine, spark plugs, for example, have become 30 percent thinner while moving parts like pistons, connecting rods and crankshafts have seen reductions in weights ranging from 30 to 50 percent. Perfection in measurement technologies has enabled such improvements.

Unlike innovation, perfection has a limit, a limit that is Zero in defects of manufacture and another limit that is infinity in “meantime between failures (MTBF)” of a product in service.  These limits are not easy to achieve, though. They are dependent on the sophistication, consistency and reliability of the manufacturing equipment and the manufacturing process as well as the quality of materials of manufacture on the other.  Continuous improvements have led automobile component makers to specifying defects from defective parts per  thousand that was in vogue years ago to defective parts per million that is the standard more recently. Six Sigma is another approach that tightens the limits for process variability. The term Six Sigma originated from statistical modeling of manufacturing processes and denotes 99.99966% of the products manufactured are statistically expected to be free of defects (3.4 defects per million).

Like innovation, perfection has no boundaries. It is not confined to products and services or product and process technologies. It is equally related to people and processes. Quality and avoidance of defects needs to be a credo, right from construction of language to manufacture of products, and from understanding consumer needs to fulfilling them. This assumes great importance given that consumers are more demanding, regulators are more watchful and competition is unrelenting. Over the last few years, millions of cars have been recalled by marquee companies such as Toyota, BMW and a few others, indicating that not being perfect has a significant cost attached to it. Perfection does not necessarily mean getting things right first time. There are enough practices in the design and manufacturing processes such as simulation and piloting to ensure that all defect-prone systems, causes and interventions are identified and addressed.

 

 Synergy

If innovation drives the boundary of user experience, perfection establishes the quality of user experience. Innovation has onetime design costs while perfection has recurring manufacturing costs. The combination of innovation and perfection thus determines the lifecycle costs for the company and the lifecycle value for the company. Depending upon their strategies, individual companies choose that combination which best suits their business position and market standing. The synergy of innovation and perfection comes from a combination of technology and people, a competitive and proactive mindset being the underlying behavioral foundation. Without innovation, perfection has little space while without perfection, innovation can go awry. This is best illustrated by the story of the modern day spark plug (first engineered in 1860  with the engineering of the internal combustion engine) which demonstrates how innovation and perfection are synergistic.

Spark plug is the heart of the internal combustion engine which in turn is the core of the petrol-powered automobile.  Spark plugs have seen a leapfrog in sparking efficiency and maintainability over the last several decades due to a combination of the use of more advanced materials (innovation in materials sciences) and the deployment of tighter tolerances in each of the components, not limited to the electrodes (perfection in design and manufacture). Use of exotic iridium and platinum materials for central electrode and ground electrode respectively, and tight ultra-fine tapering and gap setting promote not only high efficiency sparking but also long life and more effective self-cleaning characteristics. The synergy of materials innovation and manufacturing perfection that the modern day spark plug represents is also illustrative of how innovation and perfection can be synergistic to achieve ultimate competitive advantage for firms.

Posted by Dr CB Rao on February 17, 2013