Two Minds Are Better Than One: The Theory of Twin Leaders

Management processes are developed over time to facilitate, enable and ensure success. Organizations create departments around functions and identify managers to lead. Organizations are also corporations with departments, all headed by CEOs as singular leaders conducting corporate management in the quest for success. Organizational practice, over time, also got concerned about vesting singular powers in individual managers and leaders, and has tried to use departments as mutually critical of each other while requiring them to be collaborative.  Individual managers and leaders are trusted to deliver through such singular power or face consequences later (Google Nest is a recent example). Concerns are delayed recognition of failures has led to organizations being layered vertically and horizontally with departments that oversee each other.

The zig-saw puzzle of ‘trust and verify’ is reflected in several organizational structures. Production produces but Production Planning counts while Quality verifies. Accounting records and Finance tallies. Internal audit checks veracity of all these processes. This has been the traditional structure. It has not stopped some business failures and occasional malfeasance. Investors and regulators became concerned, and new departments such as compliance, risk management and ethics came into organizational mainstream. There is another dimension too. In early days, all departments used to be consolidated into just two broad divisions: technical and commercial. Over time, not merely due to increasing scale but also due to avoid departmental cartelization, every department (almost) started getting a C suite officer. Despite all this, looking at the broad range of business failures one would wonder if the management processes, as they have evolved, provide an infallible solution.

Which two?

The efforts to find the right balance continued to extend, and that too to the higher levels of organizations. The Chief Executive Officer (CEO) or Managing Director (MD) is required to hive off day to day operational responsibility to the Chief Operating Officer (COO). The roles of Chairman and MD are now expected to be different. MD and CEO are expected to operate under the superintendence and guidance of a board of directors with diversity of experience. The Board itself is divided into independent (non-whole-time) directors and non-independent (whole-time) directors, independence being related to material pecuniary relationship with the company of a director over a sufficiently long period of time. In further addition, the Chief Financial Officer (CFO) is expected to report also to the Board. An audit committee of select directors of the Board acts as an independent reviewer of accounts, interacting with external and internal auditors. And, there exist other board committees for investments, risk, compliance, and so on.  

The audit committee also acts the ultimate stop for the whistle blowing mechanism in the company and as an ombudsman of sorts. There are many further nuances, both from regulatory and company perspectives, which are expected to support the endless divisions and superintendence. All these mechanisms expect remediation to be carried out only by the CEO and the other C suite officers who alone have the day to day knowledge and execution capability. The audit committee and the board may go through all the internal audit recommendations but will only have to look at the CFO and CEO to implement the remediation plan. In battles between heads of production and purchase, production and sales, finance and all other departments, only those respective departments have to implement corrective processes. All this discussion leads us to wonder if different functions, departments or responsibilities that are headed individually are the solution (or the problem?) and something else is the problem (or solution?).  

Root cause 

The root cause for bad performance is usually bad decision or bad execution, or both. Without addressing the root cause for bad performance mere structural redefinition would not help. Better processes do help to an extent but essentially, individuals need to be better at decision making and execution. There is one reason other than leadership skills as to why leaders do make bad decisions or do turn bad at execution. That reason is that leaders are also human! We may aim to achieve precise and clinical leadership through various efforts of leadership development. However, leaders as humans are subject to pressures, internal and external as well as biases, internal and external. While it is part of leadership skill set to be confident and objective (which should address issues of pressure and bias, respectively) it is indeed humanly impossible to be extraordinarily virtuous. It is, therefore not uncommon to see even seasoned leaders wilt under pressures of the Street or get mesmerised by their own pet ideas.

When the issue is within the native profile of human behaviour, there is only a limited alleviation that organizational structures and processes can offer to offset the impact of pressures and biases; particularly when such structures are in the nature of dividing responsibilities, and reviewing decisions and actions sequentially.  The key here is that the primary decision or execution is singular by an individual; so is the secondary review of decision or execution. Though review by a board is plural it is also a post-facto delayed quarterly review of singular decisions or actions. It is important to enable challenges, debates and superior outcomes in decisions and actions. This cannot be achieved just through a discussion between the boss and his subordinates as the former eventually displays positional power and the latter eventually succumb to career growth issues. This cannot be through peer level discussions either as peer groups tend to eventually “live and let live” rather than aim at the best outcome.

Two minds

It is often said, “Two minds are better than one”. In fact, the concept of synergy lies in being “One plus One becoming Three, rather than an arithmetical Two”. The first is a typically social adage that implies that two minds can bring to the table viewpoints that would not be obvious to just one person. The second is a typically corporate adage implying that when two minds get together some sort of catalysis takes place. There is a saying related to individual experience that plays spoilsport though: “I am in two minds”! In corporate setting, indecisiveness is frowned upon. This has been one evolutionary reason why singular authority has been encouraged in all organizations. As we have seen in the earlier sections, this concentration of power has the potential to lead to inappropriate decision making or execution. A bold new experiment could be to have two leaders responsible for a single function. For example, key functions such as Finance, Operations and Commercial could have two equally titled top executives lead each of them. All decisions could be taken and executed only by the two together.

The rationale for two minds taking one decision or supervising one execution is clear: two minds are better than one, especially when the function is too complex to decipher or when multiple solutions require multiple viewpoints. Having two equally endowed executives enables each of them to overcome their pressures and biases through the critical thinking of others. Having another powerful co-sharer of decision making and execution enables the two member team take bold decisions which each individually would not probably be taking. There are, of course, risks that the two leaders could form a conveniently colluding cartel rather than critically thinking team. As long as this two member team concept is not limited to just one function but covers a few other important functions besides the CEO role itself, the risks of such cartelisation would be low. There would be higher costs associated with the concept but can be overcome with greater infallibility and greater value building through such pooling of strengths.

Left and right

The general approach in a Twin Leader deployment could be to select them based on complementary domain skills. For example, of the two to head the commercial function, one could be a sales oriented leader and another a marketing oriented leader. Of the two, heading the finance function, one could be a growth oriented fund raiser and another precision oriented cost accountant. In the operations domain, one could be a production expert and another quality expert. At the level of CEO itself, one could be conceptual and another analytical or one could be thinker and another implementer. The logic is that by putting together these skills at the leadership level one gets the best domain leadership capability. There is much to support such a skill based approach. There is another approach too that could be very viable that is rooted in neuroscience.

Ever since Roger Sperry, the 1981 Nobel Laurate, brought out the concept, lot of research has focused on lateralization of brain through left brain and right brain functionalities. Right brained individuals are expected to be more intuitive, thoughtful and subjective while the left brained ones to be more logical, analytical and objective. It is not that the two sides of the brain are completely compartmentalized; the brain does work together with the various parts of the brain including the left and the right conversing through the corpus callosum which joins them. The point here is that the twin leader approach has an enormous potential to bring together not only complementary domain skills but also a winning fusion of intuitive and logical, thoughtful and executional, and subjective and objective skills that are so essential to accomplish top-class leadership. If organizations look beyond the immediate costs of twin leadership approach, the organizational value that could accrue would be immense.

Posted by Dr CB Rao on June 5, 2016       

Rich Resources Could Add up to Poor Results: Costly Lessons from Tollywood Movie Disappointment, "Brahmotsavam"

In recent months, two movies of Telugu movie superstars raised huge expectations but failed to live up to them. While Sardar Gabbar Singh, starring Pawan Kalyan in the lead role, and also scripted and pseudo-directed by him released about a month ago disappointed viewers, the even more recent release, Brahmotsavam, starring Mahesh Babu in the lead role, threatens to be an even greater disaster. In fact, Brahmotsavam was a greater shocker because it seemed to have all the right ingredients: the handsome and elegant Mahesh Babu as the central anchor, three glamorous heroines Kajal, Samantha and Praneeta, an ensemble star cast of over 30 veteran stars, soulful and peppy music by Mickey J Meyer, gorgeous sets by Thota Tharani, breath-taking cinematography by Rathnavelu, an editor known for slickness, K Venkateswara Rao, famed choreographers Raju-Sundaram, a production house that splurges, and above all, a director who has track record of successful family entertainers in the past, Srikanth Addala.

Brahmotsavam was also notable for an intense level of promotions starring all the major stars and the music director and director in the 3 week run-up to the release, with clips and talks which underwrote the feel-good value of the movie, driving up viewer expectations sky high. After a great pre-release extravaganza, the movie released in over 900 screens globally. It is remarkable that from the very first show, there was a negative view about the movie across regions and across viewers, most of it centred on a meaningless and meandering second half, and all the songs wasted in the first half in rapid succession. Although the movie team has tried out a rear guard action by chopping off 18 minutes of draggy scenes in the second half and one song, there has been no improvement of the sentiment. The author has held in some of the previous blog posts that movie making is a highly enterprising creative endeavour and offers valuable management lessons, both from successes and failures. Brahmotsavam too offers important lessons, both for movie making and enterprise management.  

Calibrating investments

The general expectation is that if an enterprise is able to commit huge resources, either as investment or expenditure, it will be able to build world class infrastructure and business. While there is some proportionality between resources and outcomes the curve of proportionality tapers off after a stage. In fact, expenditures beyond what may be called ‘functionality’ level tend to be sunk costs with declining levels of returns. The phenomenon may be comparable to what a specific piece of sponge can absorb. Brahmotsavam has a super-gorgeous mounting of a movie but the movie as a visual treat made possible by a lavish budget (by Indian standards) of Rs 750 million but had little meaning without consistent emotional tether (which would have required no investments of such scale).

In business too, luxurious offices and gold plated factories have a visual impact but beyond a functionally utilitarian scale, they add more costs and overheads than value.  Internal value generation at increasing levels, which is hard to come by, is required to cater to increased investments.  Alternatively, investments have to be tailored to the value that can be created.

Synergizing expertise

Expertise is the key to success. The foundation of Brahmotsavam was to have the best expert in each field contribute to his or her department being top class. Indeed, the assumption played out well individually, there being nothing to fault any department in terms of cinematic excellence. However, together it made incoherent sense. Potentially, experts took specialized views rather than a comprehensive view of the movie, and the movie director was more preoccupied in providing each stalwart with a sub-canvas commensurate with his expertise, rather than building a more holistic total canvas with appropriate embellishments from all.

In business organizations too, having too many experts could lead to functional specialization but business sub-optimization. The CEO would more often than not be preoccupied with satisfying the individual domain needs of expert CXOs rather than do what is holistically good for the enterprise.

Roles to drive numbers

Closely allied with having more technician-experts on board, Brahmotsavam had even more stars for the screen. In a movie of 150 minutes having more than 30 plus veterans would only mean not more than 5 minutes of screen time for each star. With the hero Mahesh being required to be in every scene throughout the movie to carry it on his able shoulders, each veteran’s average screen time has been even lower. Rather than tight story telling what emerges in such a scenario is a visual spectacle of all stars vying for screen space. In low cost economies the tendency to over-deploy people is endemic; seen in movies as much as in businesses.

Having too many people lumped into a value chain is less productive than their being spread out across the value chain, in a role based manner. When a technical or operational bottleneck occurs it is the qualitative ingenuity of a few rather than quantitative redundancy of a mass that works.

Book rather than chapters

Brahmotsavam is much like a classic case of a book with an inspiring title and having a few chapters that are brilliant and several which are weak. The movie certainly has its beautiful frames and touching moments which reflect the theme in the first half but there are also several frames which run away from the theme as the hero takes off on a rather meaningless pan-Indian journey to connect with some spread out relatives. A book must be interesting to read cover to cover; so must be a movie from start to finish. Continuing emotional connect with the reader or viewer underwrites success in both the cases.

Enterprise is a series of projects but is an unending book or movie. Participants in an enterprise, employees or investors, look to a continuing story that is engaging. The moment a project wanes, and gives the feel of a ‘done chapter’, and in fact has more such disappointments in sequence or in store, enterprise starts becoming an emotionally and economically losing proposition.   

Directorial deficit

All said and done, the director remains the central anchor for a movie. Only he or she holds in his mind a mental picture of how he or she would convert the emotional theme to visual frames. He alone knows why he has engaged the stars and technicians he has engaged and the results expected of them. In Brahmotsavam, the director has failed in his primary role, probably with the misplaced belief that conversion of the concept of his earlier successful family movie set in rural background into an urban setting would provide a similar success. He is also responsible for all the deficiencies listed above, again due to excess of confidence and infallibility. Sometimes, directors are hamstrung by weighty producers and stars which also impacts their delivery on screen.  

The CEO of an enterprise wields a similar powerful role. The growth script or turnaround script can only be in his hands. Those CEOs who do not exercise this right and obligation or are not allowed to exercise such a role by the promoters and boards could lead to sub-optimal, if not disastrous, results for their companies.  

Expectations management

The modern society grows on expectations. Expectations management which is relatively new is different from advertisement management which has been age old. While the latter largely explains what a product or service stands for, and only subtly raises expectations, expectations management through a series of leaks, chats, promos presents an alluring image of great things to come. That said, there must be some link between the delivered reality and promised utopia. The issue with Brahmotsavam is that expectations were driven to crazy heights by focusing only on the good parts of the movie. Those who were exposed to such feel-good promos expected that the entire would pan out like the promos and were highly disappointed when things did not turn out as promised.

Companies are well within their rights to promote their products. In fact, it speaks of the collective confidence of the corporate sector that they are able to openly present futuristic features without concerns of copying by competition. That said, expectations have to be set in realistic zones to be able to deliver on them.

Customer supremacy

Even after the high profile debacle, the stars and the makers of Brahmotsavam must be wondering what hit them and why things went wrong. The reason lies in the possibility that all of them took the viewer for granted, and assumed that flashes of brilliance would suffice to impress the viewers. The fact, however, is that the user has his own way of feeling the experience which develops as one sees the movie. While many reasons for viewer dissatisfaction can be adduced as above there may indeed be no one reason why the viewers reject a movie. It can only be related to rather qualitative phenomenon of user experience.

Enterprises are not immune to failing to gauge user experience. Apple has tasted many successes by providing a great user experience on its iPod, iPhone and iPad products but has failed to provide the same user experience with its Apple watch. The customer continues to be supreme in judging a new product regardless of the past successes of a firm.  

Open to feedback

One can have open-to-sky ambitions with a relentless focus and unremitting faith in the goals and processes.  In fact, such passion is needed to fuel growth ambitions. However, as with many things the dividing lines between healthy ownership of a concept and unhealthy possessiveness, and between positive commitment and blind obsession are indeed thin. When a movie is taken with a few overarching themes (eternal family sentiment, charismatic Mahesh Babu, best-in-class departments, successful director etc.,) everyone believes that the success is assured. The makers must, however, be open and sensitive to feedback, which alone can course-correct disasters in the making.

Enterprises tend to be far less interactive and open-house oriented as movie houses are. Yet, if movie houses themselves suffer from myopic or obscured approach towards open feedback, the asphyxiating situation in tightly run enterprises can only be imagined. The need to facilitate and receive continuous feedback in an open manner and respond to that meaningfully is quite evident.

Result not a sum of parts

We are all aware of the constant exhortation that organizations must aim at synergy, whereby the sum is more than a mere addition of numbers. As this blog post illustrates parts are extremely critical but even the best parts cannot automatically make for even a viable product, let alone the best product. Just as in a mechanical watch all components must be fine-tuned for perfect assembly and perfect operation, every product and a project whether it is moviemaking or product manufacture must have parts that are fine-tuned in a success formula that is, in the overall, cohesive, balanced and integrated. Without coherent, balanced and unified thought as well as execution, the result of an endeavour may not even be a sum of parts!

Hopefully, the lessons of Brahmotsavam will be learnt. There was once a movie, Dil Se, made in 1998 by an ace director (Mani Ratnam ) with a star hero (Shahrukh Khan) and some of the finest technicians ( A R Rahman and Gulzar, for example) which raised huge expectations as a visual and musical masterpiece but turned out to be a huge box-office disappointment. Both the director and actor (and, of course other technicians) picked up the pieces and went on to make great movies, individually and collectively, post-failure. All stakeholders of Brahmotsavam, likewise, would hopefully bring out their collective best in their future movie endeavours.

That said, why should anyone, movie makers or enterprise leaders, fail at all when success can be assured with some sensibility and sensitivity as well as some reflection and introspection?

Posted by Dr CB Rao on May 27, 2016

A Theory of Business Relationships: Five Principles for Success and Sustainability

Relationship is at the core of social evolution. Relationship is the way in which two or more people or things are connected with each other. While relationships are usually interpreted in terms of family ties and friendly moorings, relationships extend far beyond family cocoons or friendship circles. In a broader perspective, relationship is the way in which two or more people or groups regard and behave towards each other.  Many such relationships that are beyond the family system are experienced by us; for example, the teacher-student relationship, the doctor-patient relationship, the employer-employee relationship, the landlord-tenant relationship, the people-government relationship, the buyer-seller relationship, the multiple stakeholder relationships, and so on. In fact, virtually everyone has a relationship with someone else he or she deals with, in one way or the other.

At the very basic level, awareness of one another results in just a cognitive relationship. As it evolves into an acquaintance, a reciprocating relationship develops. Reciprocation could just be in the form of exchange of greetings or could extend to exchange of information or other material factors. While one could experience hundreds of reciprocal relationships, only a few would evolve into sustainable relationships. For a relationship to be sustainable, the relationship must traverse through three stages. The first is rapport, the second is credibility and the third is trust. Rapport exists when two people or agencies have a close and harmonious relationship, understanding each other’s feelings and ideas, and communicating well. Credibility exists when one stands convincing, believable and capable of fulfilling the promise, in a consistent manner. Repeated demonstration of credibility leads to a firm belief in the truth, reliability and ability of someone or something. Trust has, in most cases, a material fiduciary responsibility and accountability.

Business relationships

Business relations are varied; from one-off casual interactions to legally binding business contracts, there are many ways in which business relations evolve. Some are business to business (B2B) while some are business to consumer (B2C). There are others like business to government which are legal and regulatory, and certain others such as business to society that are more qualitative and abstract. Whatever be the nature of relationship, the three step process defined above, and comprising ‘rapport, credibility and trust’ is a must. Even in respect of one-off transactional relationships, the process builds value for the present or for the future. Business managements have traditionally seen financial ownership and/or commercial partnership, with legal structuring, as the predominant basis to form and protect relationships, but there is more to it.

Relationships are also subject to competitive dynamics. Exclusive dealerships have, in the past, been the preferred relationships for sales and marketing. Over a period, multi-brand dealerships have started appearing (whether in the same dealer format or co-owned dealer format). Simultaneously, companies started setting up their own selling plazas (for example, Maruti Nexa). Just as social relationships are disturbed by dynamics of families and friends, business relations are also disturbed by competitive dynamics. Any amount of legal mandating may not help when competitive dynamics disturb. These influences could be for cost and price advantages or growth compulsions. These could also be due to lack of relationship between the people who manage the relationships.

Interpersonal complexities

Business relationships are far more complex than usually imagined. It is not as simple as measuring performance or profits as generally thought to be. Each business relation is, in fact, a complex maze of interpersonal relationships.  There are three such principal complexities.

The first is generational complexity. When first set up, later managed or eventually terminated, it is people who interpret and endorse or negate a business relationship. A business relationship has four distinct phases; commercial discovery, legal templating, operational performance, and performance review. All the phases are carried out by individuals on either side of the relationship. As individuals change, not only the dynamics change but the initial perspectives tend to get lost.

The second is horizontal complexity. Although a transaction is fulfilled at one end of a business value chain the actual utility could be far out in the value chain. A typical example is a vendor relationship which could impact manufacturing. If persons leading or operating at different points of value chain cannot communicate holistically and meaningfully, even simple performance issues could lead to enormous noise in the system and destabilize relationships.

The third is vertical complexity. Certain business relationships are initiated, structured and signed off at the top between senior leaders, and handed over to operating teams below to execute. While the jobs may be handed down, the perspectives and the subtleties may never be cascaded down. In certain other cases, a business relationship may be established at the operating level but could come to the notice of, and review by, senior leaders at a later stage. The juniors may not be able to explain appropriately, or even lack the strategic approach the senior leadership now takes. This could also create noise in the system.  

Given that business relationships are built on interpersonal foundations, the need for a systemic yet a people oriented approach to business relationships is self-evident. Five principles for successful and sustainable business relationships are discussed below.

Five principles

There are five principles of trustworthy and trusting business relationships that can be built with interpersonal trust model. 

Strategic

Not every business relationship is, or needs to be, made at the CEO or CXO levels. Consistent with the nature of business relationship, the highest leader must, however, be involved. A new green field expansion by a component supplier needs certainly CEO to CEO partnership. However, an arrangement for housekeeping will not require such intervention; yet, within the boundary at least the functional managers must be involved from either side. The involvement of senior managers and leaders helps in the avoidance of ‘penny-wise and pound-foolish’ approaches and instead focus on long term value creation. Involvement of strategic leaders ensures that operating executives are not threatened by self-perceived need to save the pennies at the cost of long term value.   

Risk based

All relations aim at rewards. It would be fallacious, however, to assume that there are risk-free approaches to business relationships. The more novel a business relationship is, the risk profile could be higher even as its competitive advantage could be higher. If the relation follows a beaten or established path, it suffers from another type of risk of eroding margins. No amount of legally binding contractual language can identify and provide for all current and future risks. Interpersonal rapport, credibility and trust help in addressing risk professionally. One may have a perfectly collaborative relationship with a competitor (like Apple and Samsung have) when the risk and reward tracks are not intermixed, and respective leaders are allowed to deal with competitive and collaborative aspects separately.

Stage-gated

Business relationships should not be founded on expectations of immediate miraculous results. Adequate time should be allowed for operational teams to strike rapport, prove credibility and establish trust. Leaders have a particular responsibility in selecting lead managers who have positive interpersonal approaches and sound fundamentals. Many times, conceptually sound partnerships flounder due to cantankerous managers who are self-obsessed rather than focused on mutual value creation. If the first stage of rapport does not take place, the sponsor-leaders have a responsibility to either counsel the lead managers or replace them with more harmonious ones. Similarly, if credibility is not established with repetitive consistent performance, the processes must be relooked.  Normally, a quarter of rapport building and another quarter of credibility establishment, at the maximum, may be allowed to assess the precursors to trust. And, transparency is the key to assessment of trust.

Transparency

Transparency starts from the initiation of a business relationship. Mature leaders realize that placing mutual expectations, strengths, weaknesses and resource capabilities on discussion table help establish the fundamental rules of transparency in a business relationship. Many do not realize that understanding the weaknesses of partners helps build greater strengths in the relationship as a whole. For example, when an Indian outsourcing partner does not have global sourcing strength, and discloses that weakness upfront the sponsoring client would be able to leverage its own global sourcing network to meet the gaps.   This transparency may cost the outsourcing partner a pricing advantage, and the sponsoring company an overhead burden but will provide to both greater business value. Transparency helps in win-win alliances as well as in developing trust to handle risks and share rewards equitably.

Codification

There are two ways to handle interpersonal complexities, whether generational, horizontal or vertical. One way is to have the same people handle the business relation, longitudinally in time, horizontally in value chain, and vertically in hierarchy. In this case, institutionalized knowledge and practice keeps building on established relationships. However, ‘people-perpetuity’ is hardly possible. People have to be moved in and out of positions, and careers; and even if they stay static, changes in business environment with new competitive dynamics induce changes in people. The only insulation can be through codification of perspectives, processes and expectations with which a relationship is set up, and the implicit and explicit value from the relationship. Partnership codification must be a living document, enriched with progressive setbacks and accomplishments.

Partnership as relationship

Partnership, in a legal meaning, is an association between persons or entities which involves pooling of all resources and sharing of all assets and liabilities, usually in the ratio in which respective resources are brought in by the parties. Partnership, in practice, is the consummate form of a relationship which brings in the concepts of sharing equally and equitably. Relationship is a generic way of two entities connecting with each other while partnership is a customized definition of equitable relationship. Partnership signifies a shared future. There are times when partnership itself has to move an even more sublime relationship.

Partnerships are challenged when one of the partners is beset by serious business troubles for extended periods of time. Imagine the relationship between a truck maker who makes only trucks and is hit by recession and a component maker who caters to all types of automobiles, some of them growing in demand. If the component maker agrees to price reductions to support the truck maker and stays on through the cycle of recession collaboratively without shifting capacity, it goes beyond partnership; it will be companionship. Strange it may seem in a hardnosed business context, companionship is the sublime form of business relationship, as in personal relationships.

Posted by Dr CB Rao on May 14, 2016        

A Theory of Successful Startups: Ten Principles of Sustainable Success

The flavour of the past few decades has been entrepreneurial ventures as the core of new business generation, and the most visible form of not only self-employment but also generating employment for scores of people. However, over the last few years, the word startup has been in increasing circulation in business and social media. The last decade and this decade clearly belong to startup as the more profound form of entrepreneurship. Strictly from a dictionary point of view, a startup company or a startup is an entrepreneurial venture or a new business in the form of a company, partnership or temporary organization designed to search for a scalable and repeatable business model. This definition hardly provides a distinctive or differentiating colour to startups. A more practical and true-to-the-ground definition of startup provides a different and relevant perspective.

From a real life point of view, a startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed. This is the fundamental characteristic of a startup, as differentiated from any other venture that may be established by normal entrepreneurs or existing companies. An example or two would make the concept clear. The concept of exclusive retirement homes for senior citizens, usually located in outer suburbs as gated communities, is gaining ground. An entrepreneur may set up such a project in a new city or in the same city in a different format. A startup, however, would try to find a way in which such senior citizen services could be offered in the current mixed neighbourhoods, without moving senior citizens out of their current homes. The former, while it has its entrepreneurial risk, largely works on a proven business model. The latter, a true startup, seeks to create a new business model out of the idea of serving senior citizens creatively.

More fuzzy, more valued

Startups usually have a fuzzy or unclear texture. One can certainly make out the shape of a fuzzy object but would find the edges hard to describe. A startup is also like that; it is indeed easy to synchronize with the startup idea but difficult to understand the details. It is this fuzziness that makes startups attractive for investors looking for the next breakthrough business opportunity to cash in on. In fact, the more fuzzy a start-up is the more attractive the valuation could be, provided that the fundamental basis of the idea has been validated in a pilot. Another example could make things clearer. Providing microfinance to the underprivileged is by now a proven concept. However, providing microfinance exclusively for drinking water and sanitation purposes could be an idea that connects current governmental missions with focussed needs of rural population. The concept could be understandable but the business model by which the concept could be workable and viable is fuzzy.  

The skill and passion as well as the diligence and determination of a startup founder make such fuzzy ideas work. To be realistic, while they may work in most cases, they could also fail in certain cases. Once the fuzzy idea is workable the market opportunity could be enormous. Unlike an entrepreneurial venture which relies on a superior competitive strategy or execution, the startup, once successful as an idea writes its own rules and develops its own industry structure. The incentives to investors and employees, in a successful start-up, are therefore more exciting compared to a normal entrepreneurial venture. The incentives are compounded because a start-up tends to pass on its ownership from time to time based on scale up investment requirements and investor appetite opening up opportunities for founders and employees (who have been issued stock options) to cash out periodically.

Ten Sustainable Principles

While the theory of start-ups is, no doubt, exciting there tends to be many a slip between the cup and the lip. The margin for error in a startup is low while the temptation to err is high. This blog post summarizes ten principles which could help start-ups be successful, and in a sustainable manner.

Ideas from environment

Startups do not necessarily require product discoveries or process innovations.  Startups, however, surely require an inventive mind to understand the latent needs of socio-economic environment and provide creative products and services. This has been accomplished through either digital aggregation or disintermediation until recently but could entail artificial intelligence and internet of things in future. Startups succeed when they understand creative use of new technologies.

Strength through partnership

Startups are usually based on certain singular ideas and unique core competencies of founders; competencies are, no doubt, critical in converting ideas into reality. However, converting an inventive idea into a successful business requires more than technical competence, organization building or external interface, for example. Co-founders who work together, share and synergize responsibilities have tasted higher levels of success.

Differentiated employees

Just as founders of startups are different, employees of startups are also different. They are not solely motivated by monthly salaries or career progressions as understood in large organizations. They are also willing to commit their efforts and time in advance to see the success of the startup ideas. Heart of heart, some of them could be nurturing the idea of becoming founders of future startups too. Selection of the first employees for a startup with this zeal rather than with the comfort of prior association is important to create the right startup culture in the organization.

Funding needs to be humbling

The high point of startup ecosystem is the excitement of exponentially escalating serial funding. Responsible startups view such funding as a humbling reminder and positive reinforcement of their commitment to the ideas, investors and consumers. There are, however, some not so responsible startups which, carried away by such funding, expand operations adventurously; some even splurge irresponsibly. Such startups fold up sooner than later. Recent experience suggests that ‘down-rounds’ (current valuations being lower than earlier valuations) would increase if spending out of funding is not prudent.

Capitalism through socialism

Startup is, in essence, capitalism in intellectual form. The objective of making money is certainly a visible trigger for all startups. However, they also need to have a socialistic fabric in that founders and employees should be willing to put their ideas, efforts and time in advance with low remuneration and are willing to wait for future wealth. The system encourages sharing of wealth (or, the pain of lack of it) until at least a particular stage is reached. Some startup founders also live a relatively spartan life as their co-founders or their employees lead. Although the startup system is capitalistic, the pathway is a trifle socialistic; to that extent it is appropriate for emerging economies such as India.

More sunrises than sunsets

Startup ecosystem is inherently optimistic. It tends to take failures in its stride and move on. Established businesses are influenced by analytical data of successes and failures while startups believe in the success potential of their ideas rather than the failures encountered by their peers. What is unique is that entry into the startup ecosystem is not governed by conventional strategic analysis of entry and exit barriers. It would, therefore, be somewhat antithetical for a startup to work on a business plan of classical mode; rather it needs a business plan that is idea-execution centric, with no frills.

Sustainability, rather than shareholding

Startups founder mindsets tend to be somewhat paradoxical; they are at one level extremely passionate about their creative ideas but at the same time they are willing to let go of their firms if sustainability is better assured in new better endowed and more powerful hands. While cashing out is, no doubt, a driver, startups have a more practical, and if one may say so wiser, approach to sustainability than typical large scale entrepreneurs. The ability of a startup founder to manage the paradox is a vital ingredient.

Self-promotion is vital   

Self-promotion is seen often as a narcissistic trend in structured organizations, and even in broader social interface. For a start-up, however, self-promotion is critical as usually there is none other than the startup who believes in the story of the startup. An ability to conceptualize and articulate the startup value proposition and the competencies of the founders is an essential requirement for startup success. If a startup founder is introvert and unlikely to enjoy such self- promotion, partnership with a co-founder who is an extrovert and a persuasive communicator could be a way of overcoming the limitation.

A sense of urgency

Startups, unlike more structured entrepreneurial ventures, do not have all the time in the world to bring their ideas to fruition. Cash burnout is one issue in the initial stages; and even after the first success the need to generate surplus cash is another. In a market waiting for ideas, if an idea takes time to become feasible and commercial, there could be superior ideas floating in with superior execution. A sense of urgency is vital; however, it is not to be confused with a sense of recklessness or doing things without thinking through.

Serialization

A startup is never a startup for ever; it fades or blooms. Successful startups who stay on have a responsibility to steer themselves seamlessly into a structured corporation. Those who cash out have an even more primal responsibility to keep utilizing their core competences to establish new startups serially. In both the cases, managements have a responsibility to encourage startups in domains or activities that can be outsourced.

Disruption but not self-disruption

One of the important factors for start-up success is their ability to disrupt existing products and services as well as industry structures. In this quest, start-ups also go in for maverick leaders and leadership styles. The urge to be different and disruptive should not be allowed to result in self-disruption. There are unfortunately many examples of brilliant ideas and emerging models getting derailed by disruption. A positive mix of the above ten principles could be a robust insurance against such trends.

Startups also must be cognizant of the fact that disruption could be a competitive tool in the hands of other competitors, startup or established. Although not comparable, the manner in which tablets have disrupted the laptop market but are now finding potential disruption from convertibles illustrates that disruption is a good entry strategy for a start-up but it also needs to guard against complacency, an in fact develop competitive shields to protect itself through the proof-of-concept and growth phases.

Posted by Dr CB Rao on May 11, 2016

Lessons from Indian Utility Vehicle Segment: Five Principles of Market and Market Share Growth

India, from just 30000 passenger cars and utility vehicles about 30 years ago, currently absorbs over 2.8 million passenger cars, utility vehicles and vans; a number set to increase steadily, say, around 10 percent. In 2015-16, the total sales of passenger cars, utility vehicles and vans increased by 7.24 percent to 2,789,678. Sales of passenger cars increased by 7.87 percent to 2,025,479 units while the sales of utility vehicles rose by 6.25 percent to 586,664 units and of vans by 3.58 percent to 177,535. The share of utility vehicles in total passenger cars, utility vehicles and vans has reached a record 21 percent.  The utility vehicle segment has become diversified with multi utility vehicles (MUVs), sports utility vehicles (SUVs) and crossover vehicles (COVs). With certain excise duty concessions for utility vehicles less than 4 meter length, a new breed of compact SUVs has also emerged. Typically MUVs are 7 to 8 seaters while compact SUVs are 5 seaters. UVs are offered in both petrol and diesel versions; with diesel being the preferred mode in this segment. However, the Delhi developments on emissions and particulates, diesel has lost some sheen as the preferred option in this segment.

In the utility vehicle segment, Toyota with its Innova MUV remains a segment choice (against other MUVs such as Mahindra Scorpio and Bolero, Ford Endeavour, Tata Safari and Chevrolet Captiva)  although a number of other car manufacturers such as Renault, Nissan, Hyundai, Honda and Maruti have succeeded in building new franchises around their sleeker and more compact SUVs. Renault Duster and Nissan Terrano helped popularize this segment a few years ago but Hyundai Cresta and Maruti S Cross and Vitara Brezza have represented the recent challengers. The battle of utility vehicles is far from over. In the space of a few days this month, Toyota has introduced Innova Crysta as a new generation of MUV, phasing out the decade plus old Innova while Honda has just introduced its new compact SUV titled BRV. With these two introductions, and more in the offing from other manufacturers, the utility vehicle segment will keep growing strong. Notwithstanding the Delhi troubles for diesel vehicles, the utility vehicle segment will continue to grow. The Indian utility vehicle segment offers five interesting and relevant principles to drive market growth and market share growth, as discussed below.

New products make new markets

The first ever (and the only) utility vehicle ever known to the Indian market was Mahindra Jeep which was sold in a few numbers from the 1940s. Bajaj Tempo (now, Force Motors) introduced a desi version of Jeep, Tempo Trax, in 1998 which was not a great success. The first ignition in the utility vehicles market came when Tata Motors introduced the elegantly designed (by the 1990s standards) Tata Safari in 1998. Thereafter, Mahindra introduced its own designs such as Balero (2000) and Scorpio (2002). The real impetus to the Indian vehicle market came when Toyota introduced Innova, in 2004, as its successor to its first entry in 1998, a boxy Qualis. The next revolution took place when Renault introduced its sporty Duster in 2012 which caught people’s fancy as an urban SUV, an image fortified by Nissan Terrano further. Thereafter, other manufacturers jumped into the fray with sleek looking urban SUVs, including a steadfastly small car and sedan oriented Maruti doing so (with Ertiga in 2012. S Cross in 2015 and Vitara Brezza in 2016). Today, the utility vehicle, whether MUV or SUV, has become the preferred family car or second car option.

The Indian utility vehicle market which has grown from 2 percent of the passenger vehicle market to 21 percent of the market is another endorsement of the business truth that it is only new products that make new markets. The initial trepidation that existing players have when a competitor launches a new product is actually misplaced; as they themselves follow up the launches with their own similar or new products, new market segments will be created and expanded. This is true of utility vehicles as proven above, and would be true for any other segment or business too. In fact, the more aggressive such new product entry is the better it would be for market growth. Patanjali’s aggressive Ayurvedic product foray in India, long considered the home of Ayurveda but traditionally dependent on Western personal hygiene products, is bound to create a totally new market of AFMCG (Ayrvedic Fast Moving Consumer Goods Industry). The Indian automobile industry should logically look forward to utility vehicles more than doubling in sales every five years, until they reach an equilibrium with sedan sales.

New themes make new products

Newly introduced products will be perceived as new products only when they have novelty. Thematic novelty is one of the brig drivers of new product acceptance. In a utility vehicle scenario monopolized by World War vintage Jeep designs, Tata Safari offered a fresh thematic breeze. In a utility vehicle design space that was characterized by boxy exteriors and cramped interiors with low regard to finish, Innova brought car-like comfort and quality to the space. In a segment which catered to large families, Duster brought urbanism with easy navigation of crowded urban drive as a new theme. Ford Ecosport (2013), Hyundai Creta (2015), Maruti S Cross (2015) and Vitara Brezza (2016) and Mahindra TUV (2015), KUV (2016) and Nuvo Sport (2016) brought youthfulness and sharpness to utility space integrating more carlike features. At each turn of design philosophy, thematic novelty helps establish new designs as new products.

There is never an end of the road for novelty. Just as the customers would think that the choice is between a 5 seater urban SUV and a 7 seater family MUV (if spaciousness is desired in both options), Honda through its latest launch of BRV brought in the concept of a relatively spacious 7 seater urban SUV to commercialization. Through Innova Crysta, Toyota has tried to provide higher power and torque as well as advanced features and finishes with additional safety to family users. The challenge is to combine improvements in such a manner that they stand out together for thematic novelty. The next level of challenge is to bring in such novelty that would make an SUV, the first car rather than the second car. For example, cars that have inbuilt arrangements for child safety, including child car seats could be the next evolution to cater to urban couples with small families.

Global style with local substance 

Indian automobile industry is unique because of the strong presence of both Indian and foreign players. Companies such as Tata Motors and Mahindra & Mahindra have gone global with JLR and Ssangyong acquisitions (2008 and 2011, respectively). They have also continued their indigenous development efforts. Companies such as Maruti, Hyundai, Ford, Honda and Toyota have been essentially global companies with Indian presence; however, having seen the potential of Indian market, they have started designing products for India with Indian engineers. Despite having formidable global automotive engineering capability through JLR, Tata Motors just went through a completely ‘lost decade’ by not accessing modern global design thinking from its JLR engineering centres and persisting with dated approaches from its Indian development centres. Despite having strong global executive controls, Maruti, Hyundai and Honda have been able to engineer India specific but globally stylish designs that have found quick resonance with Indian customers.  On the other hand, some of the world’s largest automotive makers present in India such as GM and VW failed to make the grade in the Indian market due to reluctance to customize.

Indian requirements are stringent as acknowledged by Renault Nissan global chief Carlos Ghosn. In terms of durability, life expectation is almost perpetual while in terms of style, expectations are contemporary. The real differentiators for India are the requirements for high ground clearance and low turning circle, coupled with spaciousness to meet Indian body configurations. India also places considerable emphasis on fuel economy and low lifecycle costs. What adds competitiveness is localization. An Indian made car could cost a fraction of a similar imported car. Going forward, those manufacturers who can combine global contemporary styling with Indian cost competitiveness by working with Indian engineering teams would have a significant competitive advantage. It is indeed gratifying that Renault Kwid, Maruti Brezza, Hyundai Cresta and Honda BRV have been products of Indian engineering, albeit with global guidance. After a decade long hiatus, it appears that Tata Motors is also finding the right fusion of global and Indian engineering as demonstrated by Zest and Tiago cars.

Segmentation drives share

The traditional theory of market segmentation continues hold relevance in market share play. The more a company is able to segment its markets perceptively, the more dominant it can become in the overall market. From a time when utility vehicle category itself was seen as one segment of the passenger car market, today the utility vehicle category itself is seen as a total market with a few sub-segments of its own.  As a result, there has been a complete rejig of the market share pecking order. In the early days of the utility vehicle product expansion days, Tata led the duopoly with Mahindra. Later it was Toyota with Innova that led the market share charts. Today, the top five players are as follows (with market share percentages in the brackets): Mahindra & Mahindra (38), Maruti Suzuki (16), Toyota (12), Hyundai (11) and Ford (7). These five manufacturers have captured an overwhelming 94 percent of the utility vehicle market, elbowing out the once market leader, Tata and pushing down the subsequent leader, Toyota.

The above statistics also illustrate how the SUVs of M&M and Ford (assumed at 70 percent of their UV sales), Hyundai and Maruti captured close to 70 percent of the total UV market. More importantly, market segmentation and product engineering geared to segmentation has propelled Maruti Suzuki and Hyundai, both predominantly small car players, as the second and fourth largest players in the utility vehicles market at 16 percent and 11 percent market shares respectively. Segmentation and product introductions helped a traditional player like M&M retain its market dominance. By the same token, it is also evident how Toyota lost the game to an extent by refusing to play in the SUV segment despite the existence of a sprightly RAV4 in its product range and several others in the associated Daihatsu range. Interestingly, in the total UV space, M&M have 5 products, Maruti Suzuki 3, Toyota 2, Hyundai 2 and Ford 2 (overall, there are over 60 SUV models, past and present!). Clearly, with others such as Honda noticing the importance of thematic segmentation, there is still huge potential for market share growth for late stage entrants.

It is never too late

The Indian utility vehicle market provides a few important insights for leadership which has the responsibility for corporate strategy, marketing and product decisions of a company, usually the CXOs, CEO and boards of companies. Some insights are evident from the above discussion and are not repeated. A few additional insights are as follows. The larger and more global a company is, the greater is the risk of skirting opportunities. Several companies that were covered in this blog post would have triggered better market expansion and achieved better market share for themselves had they made proactive and region-specific decisions in a timely manner. Only two companies, M&M (in utility vehicle segment) and Hyundai (in sedan segment) have demonstrated such decision making capability. Secondly, customisation to local needs is not a concept that can be taken back to global boards and executed in overseas design centres. Rather it is a concept that needs local decision making, and local execution with local engineers and with local validation.

While timeliness makes a significant difference, it is never too late to make an entry and score success and sustainability. While Toyota would have been so high in the pecking order had it entered India along with Maruti such delayed entry has not prevented the company from creating a niche for itself years later. Similarly, Maruti would have had a great presence in the utility vehicles segment had it entered in the segment along with Toyota but the delay has not stopped it becoming the second largest player in the utility vehicles segment even after a highly belated entry with the highly acclaimed Ertiga, S Cross and Brezza. The same has been true of Hyundai Creta, and is likely to be true with Honda BRV. Delayed market entry can be offset by innovative product engineering. It is never too late to dominate markets with creative positioning of high quality products with thematic novelty.

Posted by Dr CB Rao on May 07, 2015