Strategy, Structure and Execution: The Essential Leadership Trilogy

Leadership is all about delivering results. It could be through capital assets and human resources; it could be through business for profit or service for non-profit. Leader may have qualities that fit exactly the requirements of an entity; he or she could possess generic leadership capabilities applicable for diverse entities. Much research has focused on what makes a leader deliver superior performance; there is an even greater level of research and hypotheses on generic and specific leadership qualities. There is thus a surfeit of pronouncements on what makes leaders performers and what makes leadership tick. As with everything else in management, leadership is about a process; a process that makes ideas take shape as plans and get executed to deliver results.

This blog post considers the trilogy of leadership in terms of strategy, structure and execution. These are probably sequential steps in startups but in most other cases, they are continuously iterative and mutually adaptive. There is research that establishes that structure follows strategy, and also that results are more about execution than about strategy or structure. While this may be true, a perfectly optimized leadership process requires that strategy, structure and execution are well aligned. This blog post addresses a few issues: (i) achieving alignment between strategy, structure and execution, (ii) adaptive adjustment amongst the three components and (iii) leader influencers on the leadership process trilogy, and vice versa. This theory is important because no leadership challenge or no leader is akin to each other, and it would be helpful to have a process that is both personality and context neutral.

Crafting a strategy

Strategy, simply put, is defined as a plan that is intended to achieve a specific purpose. In management jargon, strategy has assumed a larger connotation of a process or an outcome that involves an overall corporate plan, duly supported by functional plans, to achieve a long term goal over a period, usually of three to five year duration. Strategy formulation is considered as a process that brings all key personnel of an entity aligned on to certain objectives. Strategy is also considered to incorporate several methodologies such as integration, diversification, merger, acquisition, cost leadership, differentiation, niche, all at the corporate level, backed by functional level strategies such as market share building, product portfolio development, operational excellence and so on.

Strategy, whether seen as a plan or a comprehensive process, is the foundation of all developmental actions for a firm. A leader has the opportunity and responsibility to put his stamp on the strategy or strategy development process. The Tata Group under the previous chairman, Ratan Tata, had a strategy of development in industrial sectors such as automobiles, steel, telecommunications, beverages, power and airlines, backed by a strategy of globalization. The same group under the current chairman, Cyrus Mistry, has a new strategy of operating in several infrastructure sectors. Many times, strategy formulation has a context based on the growth or profit position of the company. Although the process itself is complex, strategy becomes referred to in simple phrases of turnaround, revival, expansion or diversification. The leader must continuously evaluate the best strategic options while ensuring change with continuity.

Establishing a structure

Structure is one of the fundamental means available for leaders to deliver the results. Structure means the organizational structure encompassing the processes of coordination and talent management as well. There are different organizational structures that are available for a leader but structure must follow the strategy. A focused mono-product startup would require a simple functional structure while a global multisite network would call for a complex organization structure. No single organization structure has the capability to provide complete solutions, particularly if business is constantly evolving. There exist many choices in designing an organizational structure, several of which also present paradoxes. Concepts such as centralization and decentralization, empowerment and accountability, formal and informal reporting on one hand and flat or multilayered, functional or product, project or matrix, and regional or global engage the attention of organization leaders. The main concern, however, should be on another important factor.

An organization structure is an important aid not only for execution of strategy but also for developing leaders. There tends to be an alignment between these two purposes on the face of it; good talent leads to good execution while good executors qualify themselves to be good leaders. The real alignment, however, comes only when a profit and loss (P&L) responsibility is integrated into the organization structure. For example, it is easy for a business leader to splurge resources on projects when he has no responsibility for the revenues and profits accruing out of the projects (in a functional organization these are largely driven by marketing and finance departments). Similarly, a business leader may not ever get to understand the total nuances of organizational management if he or she has no linkage with profit and loss management. The apex leader’s biggest challenge lies in designing an organizational structure and establishing management processes that ensure functional efficiency as well as business effectiveness.

Ensuring execution

The third part of the leadership trilogy relates to execution. Strategy can be spoken about, structure can be seen around but it is execution that institutionalizes a business. Execution is often seen as undertaking a set of activities within budgeted resources and timelines. Effective execution, however, is more than that; it involves continuous calibration against strategy, being aware of developments in the competitive landscape and developing leaders who have execution doggedness and environmental resilience. The leader has the primal responsibility to ensure end-to-end execution. A well executed factory, a well designed product and a well executed launch may not necessarily get translated into a well executed business. Tata Nano car is a striking example of the well executed functional parts failing to make for effective business execution.

The leader’s responsibility lies in calibrating functional execution against a backdrop of business execution. That is where a well developed strategic plan which is extended into functional strategic and execution plans counts. In most organizations, however, strategy is seen as an annual mechanism independent of execution while budgets (that flow out of strategy) and execution (that is authorized by budgets) are seen as more aligned. In some organizations, strategic investments are considered as sunk costs rather than as investments that can be repurposed. Viewing execution in a strategic perspective is a leadership skill larger than evaluating execution against budgets. Wise leaders ensure that execution provides for flexibility for strategic flexibility or course changes even while executing. Reliance Communications has, for example, ensured that its strategy and execution of CDMA based plans have not prevented them from moving on to GSM bandwagon at a later stage.

Effective trilogy

The foregoing establishes that strategy, structure and execution are equally and simultaneously important for effective leadership. An effective leader is one who, for each objective he or she chooses, visualizes an end-to-end picture of strategy, structure and execution. The Malaysian low cost airliner AirAsia’s decision to enter Indian domestic airline sector reflects such leadership trilogy approach. Way back in October 2012, the firm decided to enter the Indian domestic airspace with a truly low cost (not promotional fare) model, stimulating traffic in virgin routes on the planks of both cost and quality. The strategy was followed up with a new hub in Chennai, and a scaling-up business model, including hedging of fuel costs for three years. The strategy involved tying up a joint venture with the reputed Tata Group which had an interest in civil aviation historically.

Even as AirAsia awaited various government approvals from February 2013 onwards, the  parent company started establishing a structure in India. An Indian subsidiary was set up, and a board was constituted. A chief executive officer and a chief commercial officer were promptly recruited who in turn started setting up the operating organization. The firm took on board Ratan Tata, who has a passion for flying and civil aviation, as the Chief Advisor and S Ramadorai, former Chief of TCS as the Chairman. Tony Fernandes, the founder-CEO of AirAsia himself joined the Indian board as the Chairman reflecting the importance attached to the Indian operation. The firm also started executing by signing up travel agents and booking agents for the network, and ordering the aircraft, having applied for and received in-principle approval to import 10 A320-200 aircraft. AirAsia, as a brand, has also started becoming visible in India by extending and advertising its international routes to India.  

Coping with surprises

If the crux of leadership is the strategy-structure-execution trilogy, the essence of success lies in how well aligned and integrated these three components are. The above brief account of AirAsia India, a case study in the making, demonstrates how these three are to be aligned and integrated from a forward thinking. It involves proactive risk-taking, and also a belief in the model to overcome all competitive opposition. Despite the well laid plans, there could always be surprises; for example, AirAsia did not imagine that the Tata Group would form its own joint venture with Singapore Airlines for the Indian civil aviation market. Only when strategy, structure and execution are aligned with due flexibility and continuous calibration, firms can cope successfully with surprises. 

The ability to cope with surprises comes with flexibility in trilogy components rather than making them risk-proof. There will always be internal and external variables that cannot be forecast which could impact the starting assumptions of any venture, organic or inorganic. Depending on the nature of the surprise, one or more of the three elements of strategy, structure and execution would need to be differentially emphasized to manage the surprises. Rather than an elaborate organizational bureaucracy, a small leadership group often provides the drive for a successful trilogy. Tata Motors’ success in achieving a successful bid and an even more successful turnaround of the JLR infrastructure is a case study in itself of strategy-structure-execution operating in impactful alignment.

Posted by Dr CB Rao on April 19, 2014

Nano to Mega Entrepreneurial Spectrum: Need for Financial Entrepreneurs

Enterprises emerge from entrepreneurial energy. Entrepreneurs fight against odds to create entities that can convert ideas into products or services. An entrepreneurial journey involves several challenges including, but not limited to, the conceptualization of the entrepreneurial initiative, arrangement of finances, assembling of the team, establishment of the project, delivery the product or service and finally earning of reasonable returns to please the shareholders. These core, critical steps in the journey of an entrepreneurial enterprise also need to be consistent with the capabilities and potential of the entrepreneur. There is little clarity on when and how the challenge for entrepreneurial journey ends and the quest for enterprise sustainability commences.

The popular appreciation of entrepreneurial effort tends to be limited to first generation enterprises which have achieved scale and scope, with high visibility in media. Despite such enterprises achieving a significant success relative to the starting milestones, the pressures are ever higher on them to grow beyond boundaries, in a virtually limitless process. In this endeavor, the true creative spirit of an entrepreneurial venture gets overwhelmed by the clinical intellect and aggressive force of such companies pursuing scale and scope. Pursuit of scale and scope no doubt transforms the entrepreneurs heading such firms into global business leaders but also limits them from institutionalizing their intellectual talent on a wider entrepreneurial base, as a national comparative advantage.

Infosys insight; foresight for growth


A brief study of Infosys Technologies Limited, India’s leading information technology corporation, and their founders offers certain unique insights and possibilities in this complex interplay of enterprise and entrepreneurship. Infosys was founded in 1981 with a very modest capital of USD 250 by a team of seven software engineers, led by the founder N R Narayana Murthy. The company was in many ways a pioneer in leveraging Indian software talent for providing global information technology solutions. With a singular focus and a creative global delivery model, Infosys never had to look back in its growth journey. Today, Infosys is a NASDAQ listed global IT and Consulting Services corporation with 105,000 employees, revenues of US$ 4 billion and market capitalization of approximately US$ 27 billion.

Of the seven founders, N S Raghavan retired from the services of Infosys in 1999 as its joint managing director and went on to become a mentor for several entrepreneurs. N R Narayana Murthy continued to nurture Infosys into a global corporation as its chairman, and more recently as its chief mentor. Logically, a large global corporation such as Infosys with excellent revenue and profitability would have the ability to encourage entrepreneurial entities all across its value chain, and possibly would have created platforms for various entrepreneurs dock in with the company. Yet, N R Narayana Murthy has recently set up a Rs 6 billion (USD 133 million) venture capital fund called Catamaran Investment Pvt Limited, headed by him to encourage entrepreneurial venture, across sectors.

The establishment of the Murthy-Catamaran venture implies that even a global company cannot do more than encourage ancillary entity development in its own value chain, while an entrepreneur who grew such a company can possibly contribute to more broad-based entrepreneurial development as an entrepreneur rather than as a corporate honcho. Indications are that Catamaran would be sector and scale agnostic while investing, which is an encouraging sign. Going beyond Infosys and N R Narayana Murthy, however, one needs to recognize that entrepreneurial development could occur in different configurations and formats. Entrepreneurs who tasted success have now the opportunity and option to provide a discrete institutional structure, distinct from the firms that they founded and grew, to provide a genuine and powerful thrust to entrepreneurial development in the country.

Scaling and scoping; pathway to growth

Any enterprise emerges and grows on only two fundamental dimensions: product (service included) and market (geography or customer segment included). Depending on the product range and market spread enterprises get positioned in terms of scale and scope. The modernization of the corporation on a number of collateral and enabling factors such as technology and organization has to only serve these two fundamentals. While the entrepreneurial spirit of discovery of product and market niche has always been an integral part of social and economic development, the emergence of the modern corporation has sought to substitute that spirit with systematic quest.

It is imperative that entrepreneurial effort is viewed independent of scale and scope as the overwhelming factors on one hand, and technology and organization as the differentiating factors on the other. India has traditionally given considerable importance to the development of cottage and small scale industries, essentially through investment and tax incentives. Evolution of large scale industry has been seen as a logical pull for further development of such smaller enterprises. Yet, the whole cottage and small scale enterprise movement has got grounded over the years due to the enterprises failing to appreciate the product-market interplay. There is a need to redefine the enterprise hierarchy to identify where and how different generations of entrepreneurial effort fit best.

From nano to mega; a wide enterprise spectrum

Entities which cater to one product group and one small homogenous market segment are best termed as nano enterprises. We see nano enterprises all around us but fail to appreciate how the entrepreneurial effort is surviving despite lack of attention to it by the formal economic system. The vegetable cart vendor who serves the neighborhood homes, the tailor who meets the clothing needs of the location and the corner grocery shop which provides the food and family items, for example, constitute nano enterprises. A nano enterprise is usually operated by only one individual, the founder or the owner.

A printer who prints multiple products for multiple clients with a printing machine and a small team of assistants, a restaurant which provides multiple cuisines for a multi-ethnic population, a boutique which caters to multiple clothing styles constitute the next level of micro enterprises. When these are upgraded to a network in each case with better technology and logistics support for larger multi-location coverage they become small scale firms; a desktop networked printer, a chain of restaurants and a designer clothing studio cum boutique, for example.

A publishing cum printing house, a pan-Indian fast foods restaurant and an apparel manufacturing company all of which in modern times require modern technologies, trained work force and capable management represent medium scale enterprises. All listed national companies with highly organized research, manufacturing and marketing capabilities are the typical large companies; for example, a multimedia corporation with core competencies in print or television media, a ready-to-eat foods company and an end-to-end textile and apparel company. Blue chip companies and giant corporations in diverse industrial segments corporations, with global scale and scope, constitute mega corporations.

The efficiency with which each enterprise operates (for example, the number of households the vegetable vendor can cater to in a day) and the speed with which a firm can morph from one stage to the next higher stages (for example, leap from being a cart vendor, grocery shop and tailor to becoming a retail chain) is a function of entrepreneurial energy, duly supported by finance and management. The indigent nano entrepreneur, if equipped with a semi-motorized cart, can cover more neighborhoods. Finance and management can make an aggressive local retailer become a national multi-brand retail chain.

Idea to enterprise; passion to performance

From the yesteryears’ business magazine idea to yesterday’s direct-to-home television, true entrepreneurial effort is not one of a product or service whose time has come but of an idea which has been thought of ahead of its time. With the explosion in knowledge levels and the implosion in customer needs there exist today far more product and service ideas than at any point of history. Mentorship and financing are two critical inputs which can help the nano, micro and small enterprises get established first, and later become medium, large and mega enterprises. While large firms have the necessary track record and competencies to raise resources for new entrepreneurial ventures in their quest for growth, nano, micro and small firms need explicit, dedicated and empathetic support.

India does not have angel investors. The financing and investment eco-system in India is not specifically geared to spot entrepreneurs and help them translate their ideas into enterprises or organized activities. Established venture capital firms and private equity funds cater to large firms, and only occasionally to medium firms. In India, nano, micro and small firms can emerge and survive only based on conservative bank priority funding. India therefore needs a wholly new genre of entrepreneurial financing, whether it is a uniquely Indian type or an established Western type. There is a need for a new breed of financial entrepreneurs to emerge to lead a whole new entrepreneurial revolution in India. Several alternative models, all of them, relevant to different types of entrepreneurial initiatives need to be simultaneously considered.

(a) Individual financing model

The ability to finance nano entrepreneurial ventures exists among all earning members of the society, especially the high net worth individuals (HNIs). The investment required for a vegetable vendor to acquire a modern cart, for a tailor to add a multi-purpose sewing machine and the corner grocery shop to have its own brand of home foods would not exceed Rs 10,000 in each case, which amount is entirely within the means of any earning individual with high savings potential. HNIs more particularly could keep a target of creating a nano-entrepreneurial venture each year and leave their stamp on the history of entrepreneurial development. Even retired personnel can reinvest a small part of their retirement proceedings to set up their own nano enterprises, be it a corner shop or a core service for the community.

Extending the concept further, gated communities and apartment associations which would have a larger access to collective resources and provide a captive user need basket can help establish nano-entrepreneurial ventures that meet the community needs effectively. From a security service to a mechanized laundry and from a library service to a documentation service, opportunities for creation of nano ventures by residential communities are indeed plenty. As these gated communities develop into new suburbs and mini-cities the nano and micro foundations of business can indeed grow over time.

(b) Corporate catalyst model


Major corporations, given their organizational infrastructure and market reach as well as their financial capability can contribute impressively to the entrepreneurial movement directly and indirectly. The logical way, as discussed in an earlier post, is to convert or let go fragments of their value chain or operational spectrum as nano- or micro-entrepreneurial ventures. This is a natural and economical way of creating entrepreneurial value while enhancing cost-competitive position of the company. Each function or domain of a firm, for example, research, manufacturing, marketing, supply chain, human resources, accounting, information technology and clinical trials offers scope for creating entrepreneurial outfits for outsourcing of fragments of such domains.

Yet another way is to leverage a corporation’s resources to reach out to wider population, create awareness and harness passion, in association with Non-Governmental Organizations (NGOs) and Not for Profit Organizations (NPOs). The success of the Teach India 2009 campaign organized by the Times of India media group in association with select NGOs in bringing together educated experts to teach underprivileged children is proof enough. Corporations can undertake equal aplomb entrepreneurial initiatives utilizing their resources. In addition to individual corporations industry associations such as FICCI, CII and ASSOCHAM can play a catalyst role by creating divisions for entrepreneurial projects.

(c) Not-for-profit organization model

Not-for-profit organizations (NPOs) headed by passionate leaders can spur and support entrepreneurial initiatives. Bharat Yuva Shakti Trust (BYST) is a trend setting model in this context. BYST is a non-profit organization headed by Lakshmi Venkatesan and set up for providing end-to-end support for disadvantaged micro-entrepreneurs in the form of loans, mentoring, networking and marketing. The young micro-entrepreneurs are nurtured until they reach a level where they are not only self-sufficient, but they in turn make a valuable contribution to the society through creating wealth and employment.

Nationally, BYST has supported 1900 micro-entrepreneurial ventures, employing over 20,000 people and providing training to over 75,000 people. BYST has both rural and urban training programs covering six major regions of India. The Confederation of India provides the infrastructure and administrative support to BYST. BYST is also networked with international organizations that are aligned to similar objectives. A high point of BYST is its ability to bring business and industry experts into its programs of mentorship for the micro-entrepreneurs. This “beyond the financing” strategy provides the requisites competencies to the micro-entrepreneurs and enables sustainability to their ventures. For a country as large as India, there is potential for many more NPOs organized on the model of BYST to support nano and micro enterprises.

(d) Microfinance corporation model

The Grameen Bank was founded by Muhammad Yunus in Bangla Desh to provide tiny loans for the poor to enable self-employment. The success of the Grameen Bank and the global recognition it secured is reflective of the potential of directed micro credit. Over a period of 12 years, the Bank created over 6 million active borrowers disbursing over 900 million in tiny loans. The pioneering work in employment generation touching the lives of the poorest of the poor fetched for Yunus and the Grameen Bank the Nobel Peace Prize in 2006. Today the Grameen Bank has become more diversified in its product offerings, leading to greater generation of wealth for its customers.

Extending the concept further, a bank dedicated for creation of micro-entrepreneurial enterprises can lead to creation of millions of micro enterprises in India. Potentially, banks and specialized institutions such as Small Industries Development Bank of India can lead this micro-enterprise initiative by transforming their respective priority banking arms into divisions of nano finance and micro finance for appropriately scaled entrepreneurial enterprises, with a new direction. While rural banks did get set up in India even decades ago, their inability to lead an entrepreneurial revolution is related to adoption of policy driven big bank mores rather than entrepreneurial risk taking approaches. A new format and approach for micro finance corporations is called for in India.

(e) The Murthy-Catamaran model

The Catamaran Venture Capital fund was set up by Infosys founder, NR Narayana Murthy and his wife Sudha Murthy by selling their shares constituting a small part of their shareholding in Infosys to raise Rs 6 billion (USD 133 million). This amounted to 0.43 percent of the total capital of Infosys. The move by Narayana Murthy is a trend setter for successful entrepreneurs to share their wealth and expertise to reinvest in others’ entrepreneurial ideas and create wealth for others and the society. The companies listed in the National Stock Exchange of India have a combined market capitalization of over USD 1 trillion. A sale of even 0.5 percent of the capital could lead to a massive USD 5 billion fund that could be set up to several Catamaran style venture capital funds.

Assuming that promoters have on average over 25 percent of the overall capital structure of the listed companies, successful entrepreneur heads of Indian corporations have in their hands a huge funding potential to support millions of micro, small and medium scale entrepreneurial enterprises. It is hoped that the entrepreneur-heads of all listed companies, including public sector undertakings would dedicate at least 0.5 percent of their respective companies’ shareholding to support entrepreneurial ventures. When this scale of finance is coupled with their personal commitment to mentor budding entrepreneurs a sea change would occur on the entrepreneurial scene. It is to be hoped that several other successful entrepreneurs as well as corporate group heads would replicate or improve upon the Catamaran model.

(f) Western venture capital model

Venture capital firms entered the Indian industrial scene in the 1990s in a big way along with the economic policy liberalization. Their entry was pursuant to a decision of the Government of India to allow foreign finance companies take stakes in the Indian companies. Taking small stakes of 10 to 25 percent in the capital structure of new as well as fast growing companies, venture capital firms enabled a number of first generation enterprises strengthen their equity structures and also list themselves on the bourses. Venture capital funds enable companies achieve the crucial leap from a modest beginning to a modern era, accessing technologies or markets through their financing. As companies are not typically listed at that stage, venture capital firms take stake based on stock pricing negotiated with the promoters.

While venture capital firms serve a valuable purpose their emphasis on growth and exit at attractive valuations, through listing or further sale to other strategic investors tends to distort orderly growth of companies. Typically, venture capital firms help establish medium scale enterprises with their investments ranging between USD 10 to 50 million. Venture capital firms tend to be sector-savvy, betting on sunrise and entrepreneurially driven sectors. India’s IT and pharmaceutical sectors in the 2000s benefitted from venture capital investments. Potentially, venture capital can support India’s drive into sunrise sectors such as biotechnology, nanotechnology, healthcare, education, alternative fuels and clean technologies, providing confidence to entrepreneurs move into such sectors. That said, unless the Western venture capital funds tie up with Indian groups the ability to take risks relevant to the Indian scenario could be weak.

(g) Global private equity model

While venture capital and private equity funding is seen to be synonymous, private equity funds tend to favor listed companies for their investments. Most private equity firms enter established firms through preferential allotment of new shares to themselves at prices that reflect market valuations or reflect specific premiums based on their insights into business plans. While venture capital firms provide growth capital, private equity players provide funding for a variety of purposes including growth capital, capital for retiring debt, mezzanine funding and acquisition war chest. With investment ranges from USD 50 to 200 million, private equity firms can truly shape medium scale enterprises become large corporations. However, the global economic downturn of 2008 and 2009 saw the weak foundations of organized venture capital and private equity industries.

The established private equity industry has global investors. Their investments are subject to returns to their investors, some of them extremely large and powerful ones such as global pension funds. In good times these private equity players are nation, and sector agnostic, seek a diversified investment portfolio and display a penchant for globalization of their portfolio firms. In difficult times, however, they tend to be extremely cautious. It is time that Indian financial institutions, gratuity and pension funds, mutual funds and provident funds as well as large public and private sector groups created India’s own private equity behemoths.

(h) State as super equity player

As large firms grow larger, many grow beyond the reach of even large private equity players. Large firms and private equity players manage the situation be creating subsidiaries for newer activities and channeling equity flows. In countries such as India where government owned public sector undertakings (PSUs) occupy commanding heights of the economy State has to assume the role of a super public equity player or venture capital player, with respect to the PSUs. Several corporations in infrastructure sector have emerged due to such public investments by the Government of India. These, in turn, have led to creation of new strengths in the economy, which the private sector or the overseas players would have considered to be either beyond their means or their risk profile.

While a school of thought questions the efficiency and appropriateness of a large PSU sector, there is no denying that but for such investments many mega corporations in oil, gas, refining, power, power equipment, locomotives and other investment intensive sectors would not have been established. The induction of new technologies and establishment of new industries with uncertain commercialization opportunities requires massive investments which only governments are willing to make. The Government of India’s disinvestment plans could unlock e easily USD 10 to 20 billion depending on the PSUs chosen for disinvestment and stake sale levels. Though the Government plans to dedicate the proceeds to social service programs it would be equally logical to channel at least 50 percent of the proceeds to setting up new PSUs in long gestation, high technology sunrise sectors. Such an approach would provide technological assurance and employment security to the nation. An alternative could be for the listed PSUs to issue additional shares at premium to strategic investors and initiate such new generation enterprises.

(i) Government policy liberalization

Indian Government has helped the growth of medium and large scale sector by the policies of economic liberalization initiated in 1992. Despite continued prevarication over the last few years, further liberalization is expected with a special focus on infrastructure sectors, supporting high capacity entrepreneurial investment by Indian and foreign corporations. Yet, liberalization policies in projects of social infrastructure continue to be bureaucratically governed with the objectives of supervising quality, eliminating exploitation and protecting public safety. Projects in sectors such as education, transport, healthcare, banking and retail are singularly affected by such policies. There is a need to find new liberalization formats that support entrepreneurial spread.

The new Companies Bill is expected to give a fillip to entrepreneurial activity with the One Person company provisions. This laudable reform in company law may not result in the desired boost to entrepreneurial activity if social infrastructure sectors are rigidly governed by bureaucratic barriers to entry. Much of the liberalization responsibility in this sphere rests on the State Governments as well. The governments need to establish single windows to facilitate setting up of One Person companies in a host of fields. The objectives of ensuring quality and safety are better served by establishing technology bodies to supervise quality and safety rather than by controlling entry.

Summary

Entrepreneurial energy can take shape in terms of entities with highly variable scale and scope. From nano to mega, enterprises can be positioned and grown depending on the applicable product-market scope in each case. While there are several financing models available to finance varied types of entrepreneurial ventures, the new Catamaran venture capital model being pioneered by N R Narayana Murthy, the founder of Infosys is of great significance. This model involves successful investors raising money by selling a small portion of their holdings to set up venture capital entities which will offer not only finance but mentorship by the successful entrepreneurs. Individuals and corporations can also play catalytic roles in enabling entrepreneurial ventures in different capacities. Also relevant are financing models of not-for-profit type and microfinance corporation type. At the other points of spectrum established venture capital funds and private equity players have to rework their models and become more entrepreneurial by themselves. Indian mutual funds, pension funds and provident fund organizations as well as corporate groups have to set up India’s own venture capital and private sector funds. At the apex level the Government has to rediscover its role as a super venture capital investor, gaining additional financial capability from the envisaged PSU disinvestment program. Financial entrepreneurship has to be seen as the trigger for emergence of a full spectrum of nano, micro, small, medium, large and mega entrepreneurial entities in India.


Posted by Dr CB Rao on January 14, 2010

The Challenge of Leadership Development: From Disablement to Enablement

Leadership is not merely about creating vision, strategy and action plans but more specifically about translating them into tangible corporate accomplishments. Much has been written about what constitutes the right leadership competency for an organization. Despite companies having leaders who fulfill broad parameters of leadership capabilities the collective competency is rarely translated to corporate performance to the fullest extent. This article discusses the parameters of leadership processes that sub-optimize leadership delivery in most corporations and lays out certain methodologies to enable top-notch leadership performance.

Leaders and leadership

The author in his blogpost “The Cubic Model of Leadership” (Strategy Musings:April 20, 2009) outlined a three dimensional model of leadership which focuses on results, processes and competencies as the three primary dimensions on which leadership gets identified. There being no single universal metric of leadership, the post also discussed three sub-dimensions on each of the primary dimensions. Revenue driving, profit driving and value driving on the dimension of results, envisioning, strategizing and execution on the dimension of processes, and mentorship, communication and networking on the dimension of competencies exemplify leadership variances. The post also highlighted how three iconic leaders, Jack Welch, Bill Gates and Carlos Ghosn, each highly successful in different backgrounds, represented unique combinations of the multiple leadership dimensions.

General Electric continued to post continued stability and growth even after Jack Welch retired. Microsoft revitalized itself even though Bill Gates moved into a passive oversight role. Renault-Nissan continues to be steered exceptionally well under the most trying market conditions for automobiles globally. Leadership in such companies is an institutionalized phenomenon rather than a uniquely personal identity. This lesson is evident from a review of several other well run companies internationally and in India. For example, Toyota, Pepsico, Kellog, Apple and McKinsey internationally and Hindustan Unilever, Tata Steel, Tata Motors, Infosys and L&T in India illustrate how such corporations prospered through successive leadership transitions. Clearly, the ability of a leader to nurture several potential leaders is the primary enabler for companies to benefit from total leadership potential. 

Business canvas and leader count

Leadership occurs at functional, business or corporate level depending on the scale and scope of the corporation. It is almost axiomatic that the linear growth or diversification of a corporation tends to be a function of the number of leaders in the corporation. Leaders typically seek excellence and recognition by developing their functions, businesses and the companies they head to ever higher levels. Many management experts therefore recommend organizing a company in terms of clear and focused functions or businesses so that leaders can own them and drive their performance. The organizations that are listed above for continued performance excellence across several generations of leaders have benefited from such structural and strategic clarity.

That said, it is difficult to a priori determine the optimal number of leaders for a company. In an integrated, functionally organized company true leaders who can optimally head a company tend to be few. This is because leaders in a functionally organized company are often not provided the requisite business exposure. An integrated company which is organized under a strategic business unit concept has better potential to develop potential leaders. On the other hand a corporation that is a diversified conglomerate is naturally better disposed to throw up a larger number of leaders with overall corporate potential. Clearly, this is a Catch 22 situation with business growth requiring leaders and leadership development requiring business canvas.

Leadership and corporate context

When companies benefit from broader economic growth rather than competitive positioning leaders fail to see the need for robust leadership teams that can manage economic vicissitudes. Smug with economic prosperity, such organizations and leaders alike often fail to look beyond the current leadership challenges. Boards, internal organizational experts and potential leaders often fail to address squarely the issue of leadership development, let alone succession. This problem is more pronounced in functional organizations and is relatively infrequent in diversified conglomerates. It requires leaders to be as visionary about their own successors as they tend to be about the businesses they seek to grow. A review of worst-performing US corporations such as AIG, Fannie Mae, Freddie Mac, General Motors, Citigroup, Merrill Lynch, ConocoPhillips, Ford Motor, Time Warner and CBS does reveal that a fatal combination of strategic misdirection, operational failure and leadership vacuum contributed to the horrific performance of such corporations in recent times.

On the other hand, the most admired corporations such as Apple, Berckshire, Toyota, Google, Johnson & Johnson, Proctor & Gamble, FedEX , General Electric, Microsoft and Wal-Mart reflect an ability to handle economic vicissitudes through leadership depth. It is instructive that these corporations are essentially driven by innovation, competitiveness and globalization which require, as well as provide, perfect opportunity for leadership development. These corporations typically put forth leadership talent ahead of business development and thus institutionalized a virtuous cycle of corporate growth and leadership development. In this process, diversified companies, for example General Electric, had an even better edge with structured business evaluation processes and leadership development institutions. On the other hand, integrated companies, for example Microsoft, had to rely on external talent to an extent to top up leadership talent to handle the impact of the Internet and Cloud Computing.

Ageing and leadership development 

Clearly, there is no substitute prescription for leadership development. The process of leadership development, in fact, needs to be as assiduously instituted in integrated corporations as it is naturally experienced in diversified conglomerates. This requires the leader to look beyond him or her to power future growth. Leadership perpetuation, often built on the past or present successes of the leaders, is a fallacious concept and constitutes a disabling threat to sustainable growth of a corporation. Progressive companies such as Tata Group in India have tackled this problem by establishing transparent and objective criteria for leadership succession. The policy requires that all executive directors retire by 65 years of age and non-executive directors by 75 years of age. Typically, executive directors move into non-executive director positions for the same company or for other companies within the group after the prescribed age. Companies such as Infosys have followed a policy of creating leadership vacuum by design to transit other highly capable leaders move into apex leadership positions.

While it is ideal to have structured retirement policies as in the case of Tata group or Infosys it is not always possible for companies to be time-titrated in leadership development. Voluntary and proactive efforts of the apex leaders and the boards should be channeled to develop a talent pool which not only drives the business but also exerts pressure to identify appropriate channels to utilize the leadership energy. Leadership development has fuelled the growth of several companies into new geographies and product lines. Monolithic companies have established structures such as leadership councils, management committees and executive boards to provide exposure to, and experience in, strategic business management to functional leaders. Some companies have also encouraged functional leaders to become entrepreneurs by letting them establish ancillary companies. Whatever the policies adopted, proactive development and timely utilization of leadership talent has differentiated the firms that have grown more aggressively than others even in single industry situations. 

Courting young and counting right

The process of leadership development starts with catching potential leaders young. Many blue chip companies in India have over the decades institutionalized the process of inducting graduate, post-graduate and management trainees through campus requirements. More progressive companies within the blue chip group have, in addition, established in-house leadership training institutes to hone the leadership skills of potential leaders. These measures, coupled with processes of job rotation and entrustment of challenging assignments, have led to an appropriate recognition for leadership talent. Promising officers of several reputed public and private sector undertakings in India have started as such trainees and moved into chief executive positions in their companies or other companies. For example, AM Naik of L&T, S Ramadorai and N Chandrasekaran of TCS, SK Roongta of SAIL and 01 B Muthuraman of Tata Steel all joined their respective companies as engineers and rose to CEO positions. It may be hypothesized, at least in the Indian context, that such structured recruitment procedures could serve as an enabler for high quality leadership development even as their absence could act as a major disabler.

Having the right count of the potential leaders is yet another challenge of leadership development. Like the macro organization, leadership hierarchy is reflective of a pyramid that is broad at the base and sharp at the top. The progress across levels in competitive organizations happens in a deliberate manner, surmounting challenges, demonstrating performance and benefiting from well-planned selective leadership initiatives. Infosys, India’s leading IT corporation, has created a compelling norm in this process. For one CEO, the company has at any time four full time directors who are completely capable of becoming CEOs and four hundred potential leaders across the company, covering various hierarchy levels. The “1-4-400” principle, covering a multi-geographic, multi-service global corporation is certainly a trendsetter for corporations seeking orderly leadership development. The ability of companies such as Hindustan Unilever, Infosys and Tata Steel to retain equals at the top in anticipation of, and despite, leadership selection is a unique attribute that deserves to be imbibed by aspiring blue chip corporations. 

Differentiating while integrating  

Leadership is all about achievement and differentiation. Business or functional leaders in competitively positioned corporations often exert to demonstrate superior performance. While functional performance is rather easily judged performance of business units is harder to judge. The lead times involved in successful commercialization of novel technologies, for example, makes it difficult to differentiate the performance of sunrise sectors vis-à-vis mature segments. The judgments could, in fact, move either ways depending on the biases that evaluators bring. Adding to the complexity are aspects like interdependencies of functions or businesses, and the expedient business practices that could spur or depress performance in certain markets. For example, it is hard to complain against a business leader if the performance of his business is constrained by the inability of corporate human resources department to recruit the right talent. Similarly, it is inappropriate to praise a business that has been built around ingratiation to opinion makers.

It therefore emerges that while differentiation is important it is also critical to assess performance independent of factors that unnaturally spike or depress performance. In this context, integration of a value-driven ethical platform in the conceptualization and operation of business models assumes importance. Progressive companies lay significant emphasis on ethical business practices as a cornerstone of doing business. Progressive companies also believe in constituting leadership councils and bringing issues of business performance into open discussion. Integration of distinct functions or businesses with transparent policies and objective metrics helps proper assessment of differentiated performance. Groups like Tatas, Proctor & Gamble and Unilever have established global business metrics, including robust financial oversight, to ensure value based performance. Irrespective of scale and scope, companies should institutionalize value-filtered performance management systems from the very inception.   

Decision Rights with outcome responsibilities

Leadership is often exemplified and enabled by the clarity, intensity and correctness of decision making. Clearly, a true leader should have the ability to seek and utilize decision making space. Many companies and even leaders fail to appreciate the need for genuine decision making space. Some companies attempt to address the problem through a rigorous budgeting process whereby businesses are allocated budgets as per potential. That is, however, only a partial solution. The real pathway for establishing and enabling leadership potential lies in defining clearly the decision rights of a leader. A business leader should have clarity about the extent to which he can use the levers of operational and business management. A leader who has aggressive business enhancement goals should, for example, be free to take material sourcing, product licensing and inorganic growth decisions to be able to jumpstart the growth. Decision rights are a synergistic combination of strategic paths and budget allocations placed at the disposal of a business leader.

Decision rights, however, have to coexist with outcome responsibilities. A business or functional leader who earns his degrees of freedom through well defined decision rights must also assume responsibility for the outcomes of his decisions. In talent-scarce economies it is not uncommon to see aspirant leaders who assume positions seeking decision rights, making random decisions and exiting for other positions when decisions go awry. Responsible leaders, on the other hand, make balanced decisions and in addition subject themselves to objective evaluation of outcomes. Leaders who make ambitious decisions of divestitures, mergers and acquisitions, in particular, must last long enough in corporations to either make a success of their decisions or bear the cross for their faulty decisions, or ineffective execution. Leadership longevity is an essential prerequisite for responsible leadership.

In summary, successful leadership development is an institutional process which places high responsibility on the leaders as well as aspirants. It is contextual as well as contributory to the business canvas. Poorly led corporations tend to be careless about the process deficiencies that disable leadership development through perpetuation of faulty leadership. Well-led corporations, on the other hand, tend to be respectful about the six critical factors of positive leadership development viz., capturing leadership talent at young age and preparing requisite aspirants early on, differentiating based on performance while integrating based on value systems, and enabling leadership through decision rights while holding it accountable with outcome responsibilities. 

Posted by Dr CB Rao on January 8, 2010

The Japanese Business Mindset: Enigmatic but Efficient and Effective

The prolonged recession of over a decade cast a deep shadow on the Japanese economy.  The emergence of nimble corporations from countries such as Korea and Taiwan has posed new threats to Japan.  Yet, Japan continues to lead the world in industrial innovation and business leadership.  Despite the four-fold adverse movement in Yen-Dollar parity over three decades, Japan continues to retain a global market share for its products.  Despite not following the Western management concepts, Japan continues to be effective in global competition.  Japan amazingly defies the aging characteristics of a mature economy and continues to be youthful and vigorous in terms of technological and business leadership.

Japan’s unprecedented industrial success is often traced to the culture, homogeneity, discipline and hard working nature of the Japanese society. The inscrutability of the typical Japanese businessmen and the invisibility of the Japanese industrial system are often cited as barriers to competitors trying to replicate the Japanese success. 

The Japanese enigma, however, cannot be explained by a simple cultural or behavior paradigm.  The Japanese performance model is a national phenomenon that transcends industrial or business classification. It has its roots in a thoughtfully seeded and carefully nurtured mindset that seeks perfection and practicality in all the activities.  This paper distills the over three decade experience of the author with reputed Japanese corporations and distinguished Japanese professionals to analyse the Japanese mind-set in terms of five essentials of (i) design mindset, (ii) manufacturing mindset, (iii) marketing mindset, (iv) collaboration mindset and (v) individual mindset.  All of these reflect a simple but exacting, and uniquely Japanese, philosophy of fusing quality with elegance in whatever is done under the brand of Japan.

(i)  Design mindset

Product design is the key driver for the success of any industrial operation.  The Japanese design philosophy can be viewed in terms of five key facets which reinforce each other mutually and result in a product that is differentiated for performance, quality, reliability, usability and elegance, providing a total product life cycle experience for the users.  These five aspects are reviewed below. 

Incremental innovation-pioneering inventiveness

Japan has been a leader in Kaizen that embodies the concept of continuous improvement.  The Japanese believe that a product platform has to be basically robust but intrinsically adaptable for continuous enhancement.  The Japanese design philosophy emphasizes incremental improvements as a cost-effective yet value building route to enhance product life cycle.  The Japanese also believe that quality can be enhanced and costs reduced simultaneously.  Typically, a product design is characterized by several basic performance characteristics which when individually leveraged provide successive phrases of product enhancement.

Alongside incremental innovation, Japan has been a pioneer in breakthrough design concepts which help create whole new markets.   From the time Japan pioneered the design of robots to replace manual operations (for example, robots for welding) to the more recent development of the world’s first commercially viable humanoid robot(for example, Honda’s Asimo robot) or Toyota’s hybrid car (Prius), the country has demonstrated an uncanny capability to leapfrog ahead of the technology development curve.  If the rest of the world is focused on integrating cameras with cellular phones, Japan would be ahead integrating camcorders with cellular phones.  If the world is focusing on moving from LCD technology to LED technology, Japan is focusing on moving imaging from 2D to 3D. Except for one or two slips (for example, flat panel technology a few years ago), the Japanese industry has been a step ahead of the rest of the countries in terms of breakthrough inventions that could be commercialized.

The ability to simultaneously follow the twin strategies of incremental innovation and pioneering inventions helps the Japanese companies expand and diversify the market segments on one hand and create totally new markets on the other.  It also helps the Japanese industry to straddle multiple price points and value points with effective product-market segmentation.

Lighter in weight but higher in strength

The success of the Japanese design philosophy is rooted in its reversal of historic engineering principles.  Even as the Western designers tried to equate higher weight with higher strength, Japanese designers consciously strove to explore light weight designs as a means of saving materials and costs while enhancing performance.  A study of various automobile designs of the world would reveal that for comparable specifications and performance, the Japanese products are at least 10% to 20% lighter.  The feature of lower tare weight directly translates into the benefits of lower manufacturing costs, higher operational productivity and better life cycle economics.

Clearly, use of newer material and component technologies and a perceptive understanding of the likely usage conditions drives the low weight-high strength philosophy.  Customization of designs to different countries and user conditions also helps the Japanese designers optimize their product characteristics with relevant design parameters. The cost impact of product weight is well appreciated by the Japanese companies.  When hit by recession, all Japanese automobile makers targeted to take off a certain percentage in the weight of the automobiles to enable meaningful cost savings.  That such weight and cost savings could be achieved with concomitant increases in strength is a reflection of the Japanese design ingenuity.

Smaller in size but greater in functionality

The Japanese design philosophy emphasizes miniaturization far more extensively than is attempted anywhere else.  Miniaturization is both an art and science.  The constraints of space that govern life in Japan could have, over generations, established a mindset which aims at space optimization.  Yet, transfer of such space-efficient approach into an organized industrial design mindset requires fusion of engineering and art.

The Japanese highway system is the most visible icon of the Japanese designers’ skill in optimizing space.  All the elevated highways are of single centre pillar design and enable free and full flow of traffic both on the ground and elevated tracks.  Industrial products with multi-functionality convergence represent a contemporary and amazing wave of new product innovations that combine smaller form factor with more ubiquitous functional performance.

Co-design with suppliers

The Japanese design philosophy is a comprehensive, end-to-end system that integrates material and component design with the end-product design.  Typically, each new product creation or new product upgrade commences with the end-product designers unveiling the total design concept to the suppliers and vendors and encouraging them to come up with their suggestions.  This collaborative process creates new products with seamless integration of multiple technologies.

In several cases, new product developments are led by the suppliers and vendors.  Globally, we have a few examples like chip manufacturers (such as Intel) constantly driving up the processing capability of devices.  This capability, however, is so diversified and deep rooted in Japan that usually every supplier or vendor has the capability to take its material or component technologies to newer levels and thus initiate fundamental changes in the end-product itself.

Product elegance for user delight

Japanese society is known for its harmony with nature.  A green, flowery ambience permeates the general landscape.  The innate sense of aesthetics prompts Japanese designers to combine product elegance with user friendliness.  Whether it is a simple product such as an instant tea sachet or a complex product such as a camera, the ability to reach higher levels of product elegance and user delight is a characteristically Japanese feature.

The Japanese design philosophy combining aesthetics with ease is an affirmation that in contemporary design style has, in fact, technological substance (see the author’s blog “Style is Substance: Management of Product Design and Manufacture” in cbrao2008.blogspot.com).  For example, a sachet which tears off in the right manner with the right effort requires a wrapper of special quality and crimping with exacting tolerance.  The approach of using technology for elegance extends to a range of products that cover industrial and domestic applications.

(ii)  Manufacturing Mindset

While innovative product design is the driver of the unique Japanese mindset, manufacturing creativity is a core facet of the Japanese industrial ingenuity.  Japan’s unique manufacturing mindset is revealed in several distinctive approaches as below.

Simplification with standardization

Manufacturing philosophy in Japan emphasizes modular manufacture with simple, standard equipment.  Japan has been a pioneer in development of flexible manufacturing systems and transfer presses.  Japan has also been a leader in quick die change systems.  Complete balancing of a production line from start to finish with careful definition of tact time is an essential feature of work flow design in Japan covering the main assembly lines, as well as the supportive sub-assembly and machining lines.  The concept of quick die and tool change is based on perfect matching of multiple sets of tools and dies to basic equipment beds.  Together such concepts ensure that a vast shop floor operates in perfect synchronization.

Unitized manufacture is yet another hallmark of the Japanese manufacturing system.  Amazing flexibility is achieved by understanding the essential core of any seemingly complex manufacturing operation and then designing operations (whether machining, casting, forming or assembling) around the core unitized operations.  For example, in the manufacture of an automobile engine, capability to handle the machining of one cylinder bore is all that is required to develop a flexible, unitized machining system that can handle a wide variety of automobile engines, from single bore to multiple bore configurations. Uniquely Japanese innovations in tool and die design and the mounting arrangements can make it possible for standard machines to undertake non-standard, variable operations, Competencies in manufacturing tools and dies of different designs is yet another capability that adds flexibility to the manufacturing system.  The quality of a manufactured product is  related to the accuracy and the detail that is ingrained in a typical tool or die.

Digitized upgrade

It is one of the enigmas of the Japanese manufacturing mindset that some of the most gleaming and tight-tolerance products are produced out of even old and seemingly obsolete machinery.  While modern Japanese plants have mirror finishes and complete automation, aged plants are also well utilized to produce contemporaneously acceptable products.

Digitization of the older equipment is extensively used by the Japanese to enhance process integrity and achieve tight manufacturing tolerances that are comparable to the ones that can be achieved by newer machinery.  Mechatronics and robotics represent the powerful face of digitization in Japan.  Even transportation and storage are highly automated using digital technologies.  Japan being the home to the electronics industry it is not surprising that digital upgrade is extensively used in the Japanese manufacturing system.

Predictive variability

Japanese understand that controlling the variability is the key to manufacturing perfection.  Control of variability is achieved in two ways.  The first is by total transparency and connectivity of information across the entire manufacturing value chain.  Japanese resort to visual communication of process flows, material flows, product machining and assembly characteristics to ensure that all participants in the manufacturing system are harmonized with a clear understanding of the requirements.

The second way of achieving predictive variability is through a resort to real time, continuous statistical process control (SPC) systems and periodic process capability studies, supported by a systematic maintenance approach.  The SPC charts not only enable strict control of quality but also provide early warning signs of any creeping process variability, enabling proactive corrective actions.  Japanese have indeed been pioneers in the use of statistics in the fields of quality control and quality assurance.

Just-in-time inventory system

The famed Kanban, Just-in-time (JIT) inventory system of the Japanese needs no introduction.  JIT is integrated from the very foundations of building a manufacturing system by eliminating spaces for inventory.  The geographical limitation of space in the country which acts as a constraint and the collaborative expansion of supply chain that includes component and material suppliers are harmoniously used by the Japanese to eliminate idle inventories.  The Japanese are clear that inventories lead to inefficiency in the manufacturing system.  If a breakdown or slippage occurs in any part of the manufacturing line, the line as a whole is stopped instead of allowing stage-wise inventories to be built up.

Adoption of pull-type manufacturing planning helps the Japanese plan production to match demand.  The pull-type system enables synchronizing of the material system and manufacturing system to the sales system through a fine-tuned logistics system.  Just-in-time inventory system synergizes with the pull-type manufacturing system as the whole system operates in a perspective of demand certainty.  The Japanese philosophy of pursuing profitability rather than chasing market share also harmonizes with the pull-type manufacturing and Just-in-time inventory systems.  Together, the continuous flow and the pull-type planning ensure that the Japanese manufacturing system operates with the lowest inventories and highest efficiencies.

5Ss, 3Ms and PY/RC approaches

The Japanese manufacturing philosophy is rooted in designing efficiency and effectiveness into the workplace.  Lean manufacturing is a way of life in Japan.  It is exemplified by the 5S and 3M concepts.  The system of 5S helps in efficient workplace organization for high productivity.  Seiri (sorting), Seiton (set in order), Seiso (cleanliness), Seiketsu (standardization) and Shitsuke (sustaining) go far beyond housekeeping to ensure workplace efficiency and safety.

The 3M concept is focused on eliminating waste in the manufacturing place.  Toyota Motor Corporation, as part of its famous Toyota Production System, defined three broad types of waste:  Muda (non-value adding work), Muri (unreasonable work) and Mura (fluctuating work). By eliminating these three broad categories of waste, the Japanese manufacturing system benefits from enhanced productivity.  These concepts are strengthened by the poka-yoke principles of fool-proofing facility design.  In the unlikely event of errors occurring, the Japanese adopt root cause analysis (with fishbone diagrams, why charts and FMEA analysis) to identify the fundamental causes of errors rather than stop at correcting the symptoms.  This process is also carried out straight at the source of the problem (Genchi Genbutsu) rather than in offices.

(iii)  Marketing mindset

Japanese marketing mindset is quite differentiated from that of other countries.  While the Japanese companies utilize the essential elements of sales and marketing as any other company, be it in terms of market research, customer segmentation, brand promotion, point of sale service and after-sales service, the Japanese marketing mindset is notable for five differentiated characteristics.

Quality as price builder

Japanese corporations aim at what they perceive as an optimal mix of market share and profitability.  The marketing mindset emphasizes the Japanese brand of functionality and quality as an enabler for seeking price premium.  Whether due to the intrinsic cost premium of superior design and superior build, the external impact of adverse Yen-exchange rate (Yen 90 to a dollar in 2009, compared to Yen 360 to a dollar in 1974!) or the deliberate premium sought for the Japanese brand, Japanese corporations price themselves at least 10 to 20% higher than comparable Korean or Taiwanese brands.  The Japanese believe that pursuit of excessive market share has an adverse profitability impact.

The fundamental premise of Japanese marketing is that higher quality provides better product feel and longer usage besides ensuring lower after sales costs.  In addition, the strong association of Japanese brand image with robust quality helps to position the users in the society as a class appreciative of a superior brand.  Whether Japanese would have achieved market dominance in each and every product segment had they pursued a strategy of price parity (if not price competitiveness) vis-à-vis their competitors is a debatable point.  As an overall system, however, long term stability and profitability of the system are perhaps better balanced with the Japanese conservative price and market policies.

Brand segmentation for market segmentation

Products with multiple functionalities are the new driving force of market segmentation.  The Japanese industrial system focuses on creativity of product design as a driver of market segmentation. In respect of a cellular phone, for example, combinations of mega pixels, optical zoom, picture capture capability, connectivity options, multi-media flexibility, battery life, display screen size are creatively combined to develop multiple product-market segments leveraging contemporaneous technologies. Gaming console companies have created new brand statements based on innovative functionalities of real time activities.

Japanese, in addition, have perfected the art of using brand segmentation as a tool for market segmentation.  Sony Ericsson’s Walkman and Cybershot branding of music and camera oriented mobile phones, respectively, is an example.  Similarly, development of concepts such as an urban off-road utility vehicle  or small family small car has been uniquely Japanese. Creation of unique brands such as Lexus and Infinity s has helped the Japanese automobile giants Toyota and Nissan make green-field positioning statements against established luxury marquees such as Mercedes and BMW.

Packaging as differentiator

Japanese retail stores have a knack of using packaging for providing customers with enhanced shopping experience.  From the smallest piece of purchase to the priciest piece of acquisition, packaging gets an integral and elegant treatment from the Japanese retail stores.  As a result product functionality, whether the product is a perishable item or long term usage item, gets preserved till the time of commissioning, and is further protected in subsequent phases of transportation.

Japanese provide an emphasis on packaging that is equal to that laid on design and manufacture.  Packaging itself has three layers; the first being the primary packaging that occurs with product delivery at the manufacturer’s end.  This ensures a perfect fit of the product and all its accessories in a creative packaging unit.  The second is the secondary package that distributes the product to different parts of the globe without any untoward mishandling or breakage.  The third, and most important, is the way the product is unpacked and repacked at retail end while providing factory-fresh delivery to the customer.  In the Japanese system, the packaging value chain is total, robust, elegant and user- friendly.  Packaging design is a fundamental part of product design in Japanese hands.

Global customization

The global success of the Japanese brands is due to a marketing mindset that is adaptive to different user requirements and usage conditions in different parts of the globe.  The phenomenal success of the Japanese automobiles across the globe is linked to the companies’ ability to identify the core characteristics of consumer demand in each country.  In the case of an automobile, for example, these are fuel efficiency, ground clearance and turning circle as far as India is concerned.  Automobile design for USA, on the other hand, emphasizes power, robustness and interior trim.  Design for Europe is focused on styling, external trim and internal trim.

Japanese companies believe that products have to be developed, manufactured and positioned in the host country markets in alignment with core country characteristics.  As a result, portability of brands across the regions is relatively limited, compared to that on offer by the Korean, US or European competitors.  Japanese cellular phone markers for example, have developed designs with user feel essentially aimed at the Japanese users as a result of which some great phone designs are yet to move beyond the Japanese shores.  This certainly is a disappointing result of the Japanese marketing conservatism.

That said, global production has been taken up aggressively by the Japanese companies in select fields to integrate their design, manufacturing and marketing philosophies with local needs.  The ability of Japan to withstand the volatility of global current markets and economic conditions is related to development of multiple manufacturing bases across the world.  Japan has thus been proactive in letting technology and operations lead the way on the marketing path.

‘Hared’ tortoise

Japanese marketing mindset is highly deliberative and rarely opportunistic.  With increased competition from other developed nations, especially the Asian Tigers such as Korea, Taiwan and China, the Japanese marketing philosophy of hastening slowly has perhaps inhibited the Japanese companies from achieving a market penetration that is proportionate to their technological superiority.  For example, though the Japanese have been first off the block in terms of light emitting diode technologies, it is the Koreans that have introduced the first products into the markets.  The hesitation of the Japanese to translate the technologies pioneered in the laboratories and shop floors as first mover products into the market place is surprising on the face of it.

The Japanese marketing philosophy may remind one of hare and tortoise.  The Japanese corporations deliberately play the tortoise in the marketplace despite developing superior or comparable technologies ahead of competitors.  Presumably they use the time to read the customer needs in a more thorough manner and also let the faster, first mover competitors open up the markets for the superior but costlier Japanese products.  It is instructive that despite the history of continuous follow-on introductions, the Japanese remain market leaders in terms of customer appreciation and brand recall.  Their brand resilience and technological virtuosity perhaps would make the Japanese proverbial tortoise in the global marketing race.

(iv)  Collaborative mindset

In today’s globalised conditions, collaborations and alliances are the essential components of globalization.  Japanese companies are a major focal point of the wave of alliances and collaborations.  This is only natural, given the needs of other countries for the Japanese technological resources on one hand and the Japanese need for global markets and cost-effective material and component supplies on the other.  Yet, the Japanese mindset on collaborations and alliances is quite unique and hesitant.  The collaborative mindset of the Japanese is expressed in five key different ways.

Cautious consideration

The typical Japanese approach to collaboration is marked by cautious consideration.  Unlike the Western counterparts, the Japanese are neither hurried nor opportunistic in trying to sew up collaborations despite the existence of market or partner opportunities.  Perhaps a perception of being adequate as a nation in revenues and profits leads to a rather smug Japanese view towards collaborations.  More importantly, the Japanese commitment to the long term and the preference to make only the winning moves influences the typical Japanese corporation to consider a host of factors prior to even deciding to start the process.

Also, the Japanese mindset is typically concerned about governmental and environmental factors that could promote or inhibit a free play. The Japanese appear reluctant to manage a restrictive bureaucratic regimen.  The flexibility and cost-competitiveness of the country as a sourcing base of the market rather than the scale of the market seem to dictate the Japanese decision to take up any market for evaluation.

Diligent evaluation

Even after the Japanese decide that a particular host country’s industrial and economic environment is aligned to their interests rarely does a Japanese corporation move into a market without extensive due diligence.  Whether the move is in the form of an investment in advanced countries such as US and Europe or a collaboration in emerging markets such as India or China, complete feasibility studies are an essential part of the exploratory process.  Typically,  the Japanese prefer to conduct their due diligence processes in alliance with local partners. Such studies, however, provide no assurance that the Japanese company would eventually tie up with the diligence partner.

The system of Japanese diligence is so rigid and unique that new facts discovered in the process of diligence hardly motivate the Japanese to make course corrections.  The Japanese tend to stick to sequential phases of diligence even if early diligence points out the need to advance certain entry steps or re-jig product and manufacturing plans.  The Japanese also are typically unwilling to share their inner perspectives with the partners, thus losing the benefit of their local insight.  While the Japanese lay solid and robust foundations for their business moves with their detailed diligence, very often they pass up major market opportunities due to the inbuilt rigidities in the diligence processes.

Planning for perfect execution

Inevitably, planning by the Japanese corporations tends to be extremely detailed aiming for perfect execution.  Several departments are simultaneously roped in with shared vision, strategy and programs of collaboration. Detailed program management plans are drawn up with all micro level issues fully considered, prior to commencement of physical activities.

The success of the several Japanese ventures in rather divergently aligned business environments of different countries (China to India, or Europe to USA) could be traced to the detail and rigor they bring to the execution plans.  The success of the Japanese automobile ventures in India is certainly attributable to such diligent planning for effective execution.

Collaboration with commitment

A typical Japanese corporation is reluctant to enter into expansive or open-sky collaborations, which could provide unlimited access to their technologies or which could demand major commitments on the part of the Japanese partners to the markets.  Collaborations usually are highly product specific and focused on a few deliverables.  This approach is prompted by a desire to understand the potential for partnership success in phases and also take up only a scope that could be successful. That said, expansion of collaboration is a challenge, but not insurmountable as demonstrated by several case studies of Japanese collaborations in India. 

Once a collaboration is taken up, the Japanese partner could be expected to provide the needed inputs to make a success of the collaboration.  In execution, commitment remains focused on the collaboration rather than the broader company issues.  Japanese companies stay committed to their collaborations and alliances even if they encounter unanticipated surprises, as evidenced by Daiichi Sankyo-Ranbaxy alliance.  The same characteristic may not be held true of Western collaborations.  The Western companies could be opportunistic in entry into as well as exit from collaborations.

Respect for partner

An industrial enterprise needs continuous induction of resources for long term play.  Even if a local partnership starts off with a majority or 50:50 equity share eventually the local partner would need to dilute its equity to bring in resources which only the cash-rich Japanese collaborator can bring in.  The Western approach seeks to assume 100% ownership and management control at the earliest and nominate its own management structure. Japanese partners on the other hand tend to be extremely respectful for the local partners, regardless of the shareholding level the local partners are reduced to.

The respect for global partner is exemplified by the Japanese in many ways.  India’s Maruti-Suzuki and Kirloskar-Toyota reflect the respectful manner in which the Japanese treat the local sentiments, from retaining the Indian names on the company marquee to continued representation of the partners in key decision making structures regardless of the equity percentage.

(v) Individual mindset

The Japanese society is as much plural as it is singular in its behavior. Anyone walking into a Japanese shopping district or shopping mall will find the sales persons extremely chirpy with pleasant greetings (“simasens” and “arigatos”) all the time. A keenness on the part of the sales people to connect with the customer will be palpable. On the other hand, a Japanese business professional tends to be cautious and careful, virtually reflecting an unwillingness to commit in any manner.

The professional approach of the individual Japanese businessman or corporate professional is marked as much by politeness and friendliness as by reticence and hesitation. As a group, however, the Japanese are amazingly focused, cohesive, analytical and achievement-oriented. The transformation from the individual to the group has a unique alchemy at work. Far from any mystical group catalyst, it is the Japanese individual’s unique underlying mindset that drives the visible group performance.

Superior role of the institution

The fundamental governing principle, either of the Japanese society or the Japanese corporation, is that every individual subordinates himself or herself to the institution he or she represents. Whatever be the inner individual preferences and predilections the individual expresses only those points of view that reflect the institutional position. The individual takes pride as a representative of the institution that has corporate achievements than as a person with personal or professional skills.

The amalgamation of the individual personality with the institutional personality starts from the time a professional joins a Japanese organization as a trainee. The training programs provide a complete exposure to the company’s business, products and processes, inculcating proficiency and generating pride in the individuals (for example, the famous Toyota Way program of Toyota Motor Corporation for its new joiners). This coupled with the system of mentoring the newcomers with identified mentors (sensei) helps the newcomers develop a total identification with the institution and its work groups.

  

Creativity of standardization

Nothing is more striking in the Japanese corporate system than the strong streak of standardization that pans across all industries and corporations, be they be small, medium or large enterprises. From the way data is captured and tabulated to the way data is analyzed and presented, there is only one unique way for the Japanese that is common across Japan. The Japanese have a time tested way of summarizing tremendous amounts of information in terms of simple bullets, graphs, schematics and tables with high visual impact. The standardization of information management across the nation in Japan is creative, and contrasts sharply with the diversity and plurality of information management which is often encountered even within an organization in other countries.

Even more amazing, however, is the very unique and creative manner in which the Japanese professionals are trained to capture, analyze and deliver solutions using a ubiquitous A3 sheet of paper. The A3 sheet has typically 6 sections comprising background, current conditions, goals and targets, analysis, proposals and the execution plan.  Sequentially, problems are comprehensively analyzed and solutions perceptively found using the A3 sheet.  Readers who are interested to learn more of this are referred to “Toyota’s Secret: The A3 Report” in MIT Sloan Management Review, Summer 2009, Volume 50, No. 4.

Management for technology

The typical Japanese, even as he grows in career, stays with technology rather than opt for general management as is practiced in the West. Management systems in Japan have a strong operational and technological orientation. There is far less importance accorded to perceptions and claims and far greater emphasis laid on facts and figures in the typical Japanese presentations. Individuals absorb and present only the corporate view of the organization. They are trained to understand and articulate operations as a system rather than as individual activities. Even at the CEO level the focus in a typical Japanese corporation is more on technology and less on management. There is thus an ambience of individualized as well as collective technological quest in all Japanese organizations. The overwhelming emphasis on technology and operations at the individual level to the detriment of managerial faculties has its own pluses and minuses perhaps.

Acceptance for job rotation is high at individual level in the Japanese corporations. It is not untypical for R&D engineers to move into marketing and operations. It is also not untypical for legal people to do stints in assembly lines. Cross-movement of engineering talent to commercial domains and commercial professionals to quasi-technical domains is commonplace. Shared understanding of corporate issues develops as job rotation helps individuals enrich their core competencies with feedback loops from the markets and peer functions, and eventually become multi-skilled.

Small groups for big decisions

The Japanese organizational system is unique for the importance accorded to the middle tier (comprising managers, senior managers and general managers) in information analysis and decision making. The nuclear decision making groups are typically small, organized vertically within domains and horizontally across domains, providing ample space and scope for individuals to express, debate and conclude on their viewpoints. These nuclear groups are, however, networked across the organization forming a rather large discussion forum. The compact yet widespread organizational grouping helps in building the consensus system of decision making for which Japanese organizations are famous for.

With Japanese, formal meetings in office settings are a great method to share information and exchange viewpoints. However, formal meetings in Japan rarely serve the objective of generating a decision, contrary to the expectations in the West or other oriental counties. The Japanese believe that each meeting provides additional information which needs to be evaluated internally before any final decisions are communicated. Meetings, visits and interactions therefore end in polite handshakes rather than in collaborative hugs. It often takes several meetings before the decisions are crystallized and relationships solidified.

Velvet hands in iron gloves

The typical Japanese professional often gives the impression of being a very polite but somewhat impersonal partner. In the process of developing a collaborative arrangement as well as implementing it the Japanese operate behind a corporate veil that limits the amount of information that is provided. In fact, for a nation that prides itself for its technological depth and perfection, the information that is made available for partnerships is rather limited in a formal sense.

That said, it is more common in the Japanese scenario for professionals to develop deep and abiding relationships with their counterparts in the partner companies. Once a relation develops, the typical Japanese professional brings out all his experience and expertise to make the collaboration work smoothly and deliver effective results. On this dimension of establishing a lifelong relationship and rapport, Japanese professionals reflect an oriental culture of working from the heart. 

The Japanese business mindset in totality

The Japanese business mindset which has helped the nation achieve technological and industrial dominance globally is complex and unique with multiple facets that reinforce the total value chain. On one hand, a unique alchemy of high-end design, manufacturing and marketing deliver world-class products and services through a global network while on the other hand carefully titrated corporate and individual approaches towards business and professional collaborations somewhat limit the market dominance the Japanese companies could have enjoyed. For proponents of technological and operational virtuosity there is indeed a lot that can be learnt from the Japanese mindset.  It is enigmatic but hugely efficient and effective!

Posted by Dr CB Rao on October 21, 2009