Global Recession and Indian Response - 1: The Case of Maruti Suzuki

The global recession has hit the world economies badly. The growth prospects of companies were affected adversely. As companies aimed to survive or remain profitable they instituted severe measures to close down or realign businesses and operations and implement severe cost compression measures. Jobs were lost and savings were wiped out while purchasing power crumbled and confidence wilted.

Indian economy too faced the adverse impact of the global recession with reduced GDP growth and heightened liquidity crisis. The fiscal year 2008-09 represented one of the most excruciating years for Corporate India. Different companies, of course, were affected by the economic recession differently and also responded to the evolving situation differently. 

The author examines in a series of papers, the first of which is this paper, as to how Maruti Suzuki, India’s leading automobile manufacturer responded to the situation.

Maruti Suzuki – the small car titan

Maruti Suzuki India Limited (Maruti Suzuki) requires no introduction. Maruti Suzuki was set up on 14th December 1983, in collaboration with Suzuki Motor Corporation, Japan, which was an innovator in small car technology. Maruti Suzuki revolutionized the Indian automobile industry with its small cars and vans, and provided unprecedented choice to the Indian automobile user, consistently from the 1980s. Set up to produce 100,000 cars a year the company grew by leaps and bounds to reach a production capacity of a million cars a year by 2009. Maruti has become an icon of India’s industrial capability with four plants, nineteen related companies, several hundred dealers, vendors, service entities and business associates.

Despite the entry of several global automobile majors into India and the foray by India’s own leading truck and bus maker, Tata Motors, into the car sector, Maruti continues to hold an impressive market share of  55% in cars and vans. The company has sold over 7 million cars cumulatively and despite the domestic orientation exported over 500,000 cars cumulatively.

Like every other company, Maruti Suzuki was buffeted by the adverse economic developments of 2008 and 2009. Recession hits automobile markets rather instantly and intensively, with sharp curtailment of automobile finance and postponement of automobile purchases by individuals and institutions. The car industry did register a healthy growth of 15% in physical sales during Q1 of FY09 but saw the growth plummet to 0.5% in Q2 and then to a negative growth of 15.5% in Q3. The growth recovered to 1.6% in Q4. In the overall for the year, it was creditable that Maruti’s vehicle sales increased by 1.6% to 792,167 and the total income increased by 14.3% to Rs 214,538 million (USD 4.47 billion; USD 1 = Rs 48).

Yet, given the growth impetus that existed in the company, total expenditure increased faster by 17.6% to Rs 187,610 million,  Earnings before interest, depreciation, tax and amortizations (EBIDTA) reduced by 22.3% to Rs 24,333 million, Profit before tax (PBT) reduced by 33.1% to Rs 16,758 million and  Profit after tax (PAT) reduced by 29.6% to Rs 12,187 million. Three other critical parameters of performance showed interesting trends. Inventories declined by 13.1% to Rs 9,023 million and sundry debtors understandably increased by 40.2% to Rs 9,189 million.

Fixed assets increased by 22.3% to Rs 49,321 million, given the significant capacity creation that was effected. Given that around 75% of the company’s components are outsourced working capital management plays a key role. It is significant that the company’s inventory turnover ratio increased significantly increased from 15.7 in FY08 to 16.7 in FY09 while the average receivables holding period increased only marginally from 12.2 days in FY09 to 12.4 days in FY09.

Sound finances and robust strategies

The manner in which Maruti Suzuki withstood the recession underlines the fact that a cumulative set of virtuous strategies can help a company withstand the volatility of economy and the vicissitudes of business. Being virtually debt free and enjoying healthy cash balances (Rs 44,907 million), the company’s ability to fund growth from internal generations has laid a solid financial foundation for operational resilience. The company consistently followed prudent financial policies whether relating to dealer incentives or vendor payments which helped the company to build strengths in these two vital stake holders. In addition, continuous efforts at cost cutting and productivity improvement, even in good times, helped the company make reasonable profits despite the higher commodity prices and a weaker rupee. The company recorded complete capacity utilization and provided full employment to its workforce despite the recession.

Maruti Suzuki’s strength lies in its emphasis on product-market equity. Continuous expansion of product range (8 new models in 40 months; a new car and a new engine in the year of recession), focus on product quality, service infrastructure and customer connectivity. Maruti’s products continuously rank high in J D Power surveys on excellence in automotive performance as well as in customer satisfaction. The company’s continuously expanding distribution network of 681 sales outlets spread over 454 cities and towns, 315 pre-owned car outlets in 181 cities and towns, and 2767 service workshops across 1314 cities and towns remains the bulwark of a foresighted marketing strategy that the company steadfastly pursued. A network of over 50 driving schools further reinforces customer connectivity.

Maruti is perhaps one of the leading companies with an integrated operational excellence model. The Japanese parentage has, no doubt, helped the company to implement the famous Japanese automobile management systems from the very beginning. Maruti was a pioneer in India in terms of a massive vendor development system covering both tier-I and tier-II, and even tier-III vendors. This has helped the company create a contiguous vendor eco-system and implement a just-in-time inventory system, customized to Indian scenario. In terms of manufacturing too, Maruti Suzuki adopted well the parent’s practices of balancing high throughput and high product variety. An end-to-end optimized supply channel drives Maruti’s business efficiencies.

A robust financial strategy well supported by a strong product-market strategy and an efficient supply chain strategy provided Maruti with strong fundamentals and the capability to withstand the severe recessionary climate. Maruti’s example illustrates that an integrated operational framework that is strategically designed and assiduously reinforced over the years helps companies withstand turbulent times.

Organizing for core competencies 

A forward looking organization innovates in organization design to ensure core competencies for a sustainable future. A competent board that comprises the representatives of Suzuki, the parent, the full time executive directors of Maruti Suzuki and eminent retired CEOs of leading Indian companies as independent directors brings scholastic vision to the company. A business and operations team well honed in the Japanese management techniques provides business and operational efficiency.

Simplicity in organizational design leads to focus, empowerment, responsibility and accountability, and results in superior performance. The latest Maruti organization design comprises five verticals: marketing & sales business vertical, production business vertical, supply chain business vertical, engineering business vertical and administration business vertical. Each is headed by two managing executive officers, one of whom is also a board member. Together with the MD & CEO they constitute the core leadership team. This unique system has enhanced decision speed, execution agility and business performance in the company.

Each business vertical has its task cut out. The marketing & sales business vertical has the task of strengthening the sales and service infrastructure, increasing the reach to rural markets on one hand, and entering relatively untapped urban segments such as taxi and institutional markets on the other. The production business vertical has the task of enhancing manufacturing standards to higher and more exacting levels.  Reducing line change set-up time, which was reduced from 7 days to current 1.5 days, to even lower levels is a key factor for manufacturing flexibility. Balancing automation and human intervention is a particularly relevant factor.

The supply chain business vertical has a major task in terms of enhancing localization and upgrading quality continuously. The engineering business vertical has perhaps the most exacting task of building a total engineering capability to develop new models with granular cost points. The administration business vertical which provides corporate services has the tasks of enhancing human resources base, leveraging information technology, framing financial framework and assuring corporate governance. The combined set of objectives of these five business verticals constitutes Maruti’s quest for future, which Maruti calls as quest unlimited.

Sufficient for today and superior for future?

There is no doubt that by charting through the recessionary waters successfully Maruti Suzuki has demonstrated its strengths and capabilities. These have been a result of the typical hands-on Japanese approach of focusing on fundamentals and continuously enhancing competitiveness through kaizen. Maruti Suzuki brought a new wave of world class industrialization to India, long before the economy was liberalized in the 1990s. Should Maruti Suzuki be content with retaining its exemplar role or play a pioneering role once again? Is Maruti conceptualizing the necessary strategies and building the enabling competencies for such a breakthrough iconic role again? Will Suzuki’s tight ownership and management offer an opportunity or pose a constraint in such an endeavor?

Industrial scenario in India is significantly different from what existed in the early 1980s when Maruti Suzuki entered the country. At that time Maruti with the technological  backing of Suzuki and a creative leadership team led a technological and business revolution in the automobile industry, virtually single handed. Today, however, industrial competencies are resident in a much wider spectrum of companies and the competitive dynamics are far more complex. Launch of an indigenously designed micro car, Nano, by the very Indian Tata Motors reflects the maturing of skills in the Indian industry.

Maruti’s FY09 Annual Report discusses the enhanced design and engineering competencies the company now has. There is no evidence, however, in the report that the company is geared to design and develop a whole new automobile by itself. Maruti’s R&D expenditure at 0.42% of the sales turnover is hardly sufficient to design and launch a new car. While it is commendable that the engineering talent base has been virtually doubled to 730 people in just one year (FY09) and would be increased to 1000 people by 2011, the potential to further harness Indian engineering talent to design new cars and vans needs to be more comprehensively leveraged. Higher levels of capital and revenue expenditure in the R&D domain are called for.

Clearly, India is emerging as a global hub for small car production, an initiative ironically is being led by Hyundai Motor, which never believed in small cars until it entered India. In contrast Suzuki Motor was a pioneer in small car design and manufacture for decades. Perhaps, Maruti Suzuki India Limited and Suzuki Motor Corporation need to develop a new global strategic plan for small car design and manufacture for global needs. The plan could also focus on the van segment which could lead a new revolution in intra-city movement of goods and passengers.

It is clear that a focused business model with technological strengths and management efficiencies has assured market and financial leadership for Maruti Suzuki, even in the toughest of the times. Strong fundamentals should therefore continue to ensure a vibrant future for the company.

Posted by Dr CB Rao on September 21, 2009

The Perpetual Corporation: The Leadership Role

The concept of corporation is perhaps the most innovative and enduring byproducts of human civilization and economic development. Corporations are organizations of individuals, be it the founders, managers, leaders or professionals, set up to deliver products and services to the society. Individuals would have to retire but institutions have in them the capability to endure in perpetuity. Companies and businesses may be merged, acquired, de-merged or divested but the corporation survives in its own original form or as a morphed entity.

Some perpetual corporations

Pfizer which was founded in 1849 remains strong as the world’s largest pharmaceutical company. Ford founded in 1903, Mercedes Benz that became operational in 1901, Daihatsu established in 1907, Datsun (now, Nissan) formed in 1914 and Toyota founded in 1934 continue to dominate the global automobile industry. AT&T, founded by Alexander Graham Bell, the inventor of telephone, in 1876 is USA’s leading telecommunications carrier despite the government engineered split into 8 companies in 1984. Ericsson, also founded in 1876, continues to be a leading European telecommunications player. Matsushita (now, Panasonic) founded in 1927 and Sony founded in 1946 are clearly two other global perpetual corporations. Indian Railways, founded in 1849 as one of the oldest railways continues to serve and thrive.

Some companies may partially divest while some may morph but their core character continues to enrich the new corporation. Merck KGgA, founded in 1668 as a pharmacy, evolved as an integrated pharmaceutical corporation, and despite certain divestments and mergers remains as a noted global pharmaceutical company. Tanabe founded in 1678 and Fujisawa founded in 1894 as two of the oldest pharmaceutical companies in Japan may have morphed into Mitsubishi Tanabe and Astellas respectively but their core capabilities continue to dominate. While IBM continues to endure the rapid changes in the technology domain, Microsoft, Google, Oracle, Samsung, TCS, Infosys could be a few other perpetual corporations in technology and electronics fields. What then makes corporations, and their core characters, perpetual?

Institutionalization of competencies

Any of the above examples mentioned above as well as several others not mentioned here point out that technology and management are the basic foundations of perpetual corporations. Continuously innovative automotive technology is an institutionalized core competence in Benz and Toyota. Just-in-time production management system is institutionalized in Toyota. Leadership development, both in businesses and individuals, is institutionalized in GE. In these firms, leaders and individuals may have invented the core technologies or core management processes but it is the capability of the leadership to institutionalize the inventive capability has been the hallmark of such acclaimed ‘best practice’ companies. How can a leader institutionalize core competencies and contribute to a company becoming a perpetual corporation?

Leaders, who look beyond

Leaders must not only grow their companies but also imbue their companies with the strength and resilience to successfully withstand the ravages of the time. This is the only true legacy that the leaders of the companies can leave behind. At first sight, a statement that leaders should look beyond the immediate would appear to be an oxymoron. Leadership is all about envisioning something which others, even managers, cannot see and creating the framework to turn the vision into reality. This definition of leadership unfortunately fits well only on select leaders even in a global context.

The widespread corporate failures, bankruptcies and frauds can be traced invariably to leadership values and styles that fail to put the interests of the companies ahead of the interests of the leaders. The fundamental covenant of all leadership must therefore be to ensure strength, solidity and strategic ability for the firm to exist in perpetuity. Leadership strategies must not only expend cash to build a rosy future but also pool cash to outlast a nasty future. How does this come about?

Leadership is about sustainability

Very often leadership is seen in terms of businesses, products and markets, and strategies to execute them. These are, however, subject to competitive dynamics. The true capability of a leader comes out when he or she develops and implements business strategies that provide sustainable competitive advantage. This arises from a clear understanding, on the part of leaders, of the forces that shape an economy, industry and the firm and creating products that the customer needs.

Successful leaders refuse to be typecast into trademark templates of strategy. Carlos Ghosn, despite his image as a ruthless cost leader, emphasized product innovation and diversification to revive Renault and Nissan. By judiciously combining strategies of innovation and diversification, specialization and customization, and integration and disintegration, product-market combinations that will stand the test of time can be created. Sustainability does not, however, get created only by clever product-market strategies.

Competencies ensure sustainability

Leadership is more about people and processes than about products and markets or even about science and technology. Products and markets, science and technology are the end products of people competencies harnessed through organizational processes. The legacy that a true leader aims to build is the spectrum of competencies in an organization. Sony, Apple and Samsung, for example, are committed to building organizational teams that constantly develop new technologies and practices.

All successful global firms understand the competency lever of sustainability not merely in terms of technology but in respect of management too. Firms in food and technology sector, for example, are able to straddle even conventional product-market segments characterized by low entry barriers with superior management. These organizations also are able to create pools of talent that ensure smooth leadership succession. Competencies should be continuously adaptive to ensure continued sustainability in the face of environmental opportunities and challenges.

Adaptive resilience

Competencies if they are not calibrated and benchmarked on a continuing basis could result in a level of corporate nonchalance that hurts sustainability. This has occurred in respect of Hindustan Lever in the detergents domain. It has happened in respect of Microsoft with respect to operating systems and search businesses. Sony was a loser for some time due to non-recognition of new technologies in the television domain. These and other firms regained competitive strengths by adapting new platforms. IBM, for example, moved away from mainframes to desktops and servers as well as consulting, thus redefining its core competencies.

The ability of a company to continuously modify or reinforce its core competencies to changing competitive dynamics strengthens its resilience. Very often, professional egos that maintain a “we-are-the- the-best” syndrome end up clouding leadership clarity on the emerging changes in competitive landscape. Leaders must therefore make professional competitiveness and open competitive architecture key ingredients of organizational culture.

Competing for career growth

The American university system is an organizational role model that calibrates professional competencies on a continuous basis. The fundamental barrier to cross over from entry level to the tenure professorial cadre through publications, patents (where applicable) and teaching record inculcates early on the motto that the aspirant has to be competent to be a successful careerist. Thereafter the opportunities and challenges of recognition through thought leadership and fundamental research continue to ignite the active minds in the university system.

In contrast to a university system, corporations tend to be introverted, with inbreeding of silo talent and rejection of superior talent from outside. The leadership has to continuously keep the organization in a state of internal and external competition on the talent dimension. A competent, competitive and collaborative talent pool makes a virtuous organization. GE under Jack Welsh not only mastered the ability to provide direct feedback to week leaders by calling a spade a spade but also ensured due equity by providing the infrastructure for leadership training for the aspirants. When leadership becomes a grassroots capability organizations achieve virtuosity in strategies as well as operations.

Strategic virtuosity

Companies look for simplistic choices in strategy, hoping that quick strategic decisions influence early positive outcomes. Inflexible decisions choosing between inventive leaps and incremental improvements, acquisitive growth and organic development, product specialization and product diversification, manufacturing integration and input outsourcing, and equity financing and debt financing, for example, are made hoping for outcomes that meet preset expectations. Many times singular strategic choices fail to ensure engineered outcomes.


Realistically however strategy is a continuous, and at times iterative and corrective, set of actions (not decisions) – a complex process that integrates shades of multiple strategies and technologies under a dominant strategic theme. A virtuous organization therefore does not look at strategy as a departmental preserve but as a mandatory qualification for the leadership team to be known by that name. Leaders in a virtuous organizations would be willing to be evaluated on their own competencies in an objective framework that combines strategic virtuosity with operational excellence and making the company ‘future perfect’.

Operational productivity

Profligate and unproductive firms lack the ability to generate cash that can help implement futuristic strategies. On the other hand, productive firms build the financial capability to implement virtuous strategies. Productivity is an all-encompassing concept covering development to delivery. By spending less for earning more and by balancing long gestation projects with short gestation earners companies establish a virtuous cash cycle.

Industry leading productivity combines efficiency with creativity, which is a complex task. Creativity is driven by knowledge, passion and serendipity. Productivity is driven by simplification, repetitiveness and learning improvements. Creativity is difficult to measure but the steps that are encompassed by creativity can be measured. Continuous value engineering and project management approaches can help firms discover the synergy of productivity and creativity.

Future perfect

By combining strategic virtuosity with operational productivity leaders can set a winning combination for firms. True leadership competencies are not confined to delivering results in the current performance horizon; rather they are determined also by a passion and ability to plan and execute for uncharted territories. Conglomerates and diversified companies have typically grown by having leaders who could conceptualize and establish projects in new business horizons. Such leaders have an open mindscape that accepts new skill sets and updates native talent.

Leaders need to have a pioneering spirit because they need to not only lead their companies into newer technologies but also manage change in a continuous manner. An ability to appreciate new technologies and bet on them, in research, manufacturing and logistics is a critical attribute of future perfect leaders. Leadership requires taking calculated bets on future while consolidating the present for supporting future investments.

Institutionalization of the several leadership traits discussed in this paper would help corporations become institutions for perpetuity.

Posted by Dr CB Rao on September 13, 2009

Management by Metrics: From Organizational Escapism to Corporate Competitiveness

What cannot be measured cannot be designed; nor can its performance be monitored. So is the case with organizations which are the instruments of corporate performance. Yet, it is paradoxical to see many managers and leaders who believe that not all of organizational performance can be quantitatively measured due to the preponderant human element and its emotional component that are involved. This view represents a mode of organizational escapism that erodes corporate competitiveness. On the contrary, leaders and managers need to accept management by metrics (MbM) as a core value as a means to enhance corporate competitiveness.

Defining MbM

Management by Metrics, or MbM for short, is the author’s prescription of a managerial approach that believes that the science of metrology can be applied to the practice of management. If weather around our planet can be forecast with precision or satellites can be landed with perfection on distant planets there is no reason why human behavior in organizations cannot be forecast and managed for optimal performance.

Employees and managers need to understand that they come together in organizations to achieve corporate wealth as a corollary of which individual prosperity is also assured. Once this common understanding is in place in an organization, the perspective for measurement, be it of talent, skill or performance of each and every human resource in an organization, is well set. It is the responsibility of the chief executive officer and chief talent officer of an organization to institutionalize such a perspective.

Metrology establishes specification when an unknown material is characterized. It also compares the profile of a designed product with respect to its specification. The setting of specifications, the sophistication of the instrument, the cleanliness of the product and the integrity of the measurement process determine the accuracy of measurement. In organizations, the definition of metrics, the digitization of information, the transparency of transaction and the equity of performance analysis determine the perfection of management.

Infinite ambition; finite vision

MbM starts from the top. Every corporation needs a vision and a leader to articulate the vision. Over time, however, the task of developing a vision has become a play of strategic gamesmanship or philosophical meandering. A vision that is so individualistic that it ignores all competitive dynamics or a vision that is so general that it fits every company in the industry can hardly qualify as a meaningful vision. Neither a global Toyota nor a local Reliance became what each of them is today by envisioning international or national leadership when each was a fledgling entity. They became what they are today by defining successive horizons of growth based on measured commitments and measurable achievements.

Leadership has a major role in encapsulating its vision in quantitative parameters that are sensible, logical and achievable. An Indian software company may motivate itself by declaring that it would be the next Microsoft. If, however, it understands that the only way it can become a new Microsoft is by developing and commercializing a new operating system that beats Windows 7 or its upgrade by, say, 2015 it may discover how stiff the challenges of translating a dream into a reality would be. The system of metrics imposes sanity, discipline and accountability on leadership, which is the starting point of any constructive endeavour.

Metrics which are not backed by methodological rigor are self-defeating and counter-productive. MbM requires computational leaders who understand goal setting in the context of what it takes to achieve a metric. Indian government may find it politically inspiring to say that its goal is to make India a larger economic power than China. If, however, the government seeks to define the intent with well planned numbers, it may discover that the Indian economy has to grow at twice the pace of China’s growth rate consistently over the next twenty years to make that intent achievable.

MbM therefore requires that the language of metrics is logical and universal within an organizational setting and its environmental context, with a conceptual discipline that flows from the top and a computational rigor that springs from the bottom. Prior to expressing the vision in the form of a metric a significant amount of work needs to be carried out by the leaders and the managers to play out different scenarios, with applicable inputs and outputs in each case and arrive at the visionary quantitative expression. It may be expedient but certainly not ephemeral to articulate a vision without appropriate groundwork which can stand the test of time.

Metrics in structure, strategy and execution

A vision needs a structure and strategy to execute. Structure is a finite form of an organization with a finite number of managerial points, each with an applicable finite span of control to execute the strategy. Strategy itself is a sequential and parallel cluster of projects to achieve end goals with applicable resources. Setting out to achieve a vision without quantification of strategy, structure and execution is bound to end in failure, or at best in mixed results. Achievement of vision therefore must start with a complete listing of strategic metrics and structural metrics that are essential to support execution.

Aspirations set in just a few domains, such as a product plan or a sales plan cannot constitute a total strategic plan. Strategy has to be multi-component, covering not only the three core functions of research, manufacturing and also the enabling functions of materials, quality, information technology, finance, project engineering and maintenance, to quote a few. A count of all the organizational domains that play a role in strategy formulation and execution is the starting point in the strategic planning process, and integrating such domains in the strategic plan is the essential requirement for coordinated resource allocation and execution. A typical five year strategic plan that is inclusive would take at least six months to formulate. A company would need to start work in October to unveil a strategic plan from the April of the next year.

Linearity in structural design is the bugbear of corporations. Strategic metrics evolve and change over time. Year over year increases in manpower counts are rarely called for but are usually resorted to. Talent and skill metrics vary with strategy and time which means that human resources have to be retooled and redeployed to deliver changing metrics. Organizational design that is contemporaneous with changing needs is a key metric of successful corporations. Here again, an ossified leadership structure is an impediment for flexible and dynamic organizational metrics. Leadership structure has to constantly change to lead business variation and maximization.

Language of metrics

MbM is not about plain numbers or descriptive statistics. The core of MbM is a system of time-scaled and indexed metrics. In human endeavor everything except time can be augmented or recreated. Adding a timeline to every project, initiative and activity and even every statement is the core foundation of MbM. A fundamental change in organizational and professional culture which ensures that timelines are well thought-out in discussions, planning and are well respected in execution is the sine qua non of successful MbM.

Plans usually are annual and budgets monthly. Not all strategies are, however, appropriately planned or monitored in such standard lengthy time units. MbM requires that organizations pursue multiple time units to plan and monitor different activities. Daily production, sales and cash generation are, for example, extremely time sensitive metrics which need to be compiled and reviewed at applicable levels without fail. Similarly all non-repetitive initiatives should be treated as projects and monitored as per relevant milestones. Monthly budgets and annual plans help assess directional progress but time-sensitive reviews matter more for assured growth.

Metrics can be absolute or relative. Absolute metrics rarely are helpful; they can be often misleading. All metrics have to be indexed to be meaningful. Energy consumption, for example, has to be linked to production output to be reflective of efficiency in energy usage. Employee costs have to be indexed to cost of production to establish efficiency of value addition. Process yields have to be benchmarked with maximal theoretical yields. In sales force related businesses sales rather than per person sales productivity would be more relevant. Time series analysis has to deploy base year indexation.

Metrics can be physical or financial. Both have their applicability. Although common wisdom is that financial results are more relevant as financials often drive sustainability, physical metrics which are more reflective of efforts and outcomes are as important as financial metrics which are reflective of viability. Generation and analysis of financial metrics have to differentiate intrinsic performance from external implications. For example, global companies have to view the metrics with and without the impact of external variables such as foreign exchange rates. Similarly, each revenue or profit variance has to be judged in terms of volume related variance and price related variance.

Information technology can play a major role with Finance to generate information systems which are incisive and extensive. Corporations would need to supplement monthly reporting of absolute income and expenditure statement and balance sheet items with a comprehensive book of indexed metrics. Transparent analysis of problems and rewards of performance helps in more sustainable growth.

Universality of metrics

Many companies believe that there exist qualitative aspects of human behavior and management that cannot be quantified. Nothing can be further from truth. Can there be an index for talent in an organization? Can there be individual metrics when cross-functional performance is involved? How does one identify value addition across levels of hierarchy? How does one quantify the culture of an organization? The answer to all these, and such other questions can be found in the affirmative with adaptive analysis.

Well designed tests of knowledge can index the talent pool in an organization not only at the levels of entry but also reassess as the talent pool progresses in an organization. Designs of cross-functional teams with clarity in domain activities as well as service level agreements between domains will help capture individual metrics even in team context. Letting professionals at different levels of hierarchy make individual presentations and enabling 360 degree feedback would crystallize value addition across hierarchy. Periodic surveys of organizational culture can quantify the culture as well as morale of an organization. Various collateral markers like suggestions for improvement, intellectual property applications, employee attrition and referral indexes can reflect on the culture of an organization.

In an organization, decisions are as important as transactions. Management processes are as vital as operational systems. Quite often, measurements are directed only at transactional and operational matters. Decision making efficiency and effectiveness of managerial processes are rarely covered in metrics. MbM requires that vested interests in organizations are eliminated by a universal coverage with metrics of all activities of an organization.

Leaders and managers must be willing to subject their leadership and managerial effectiveness to a transparent system of management by metrics as much as they would like their businesses, operations and subordinates to be subject to quantitative analysis of gross revenue and net profitability. In addition, all metrics must be in terms of ratio analysis or indexation, with applicable time scales, as discussed herein to develop meaningful insights. Leaders should institutionalize a collaborative digital information highway in their organizations by enabling key departments such as cost accounting, information technology, industrial engineering, internal audit and strategic planning to develop the science and practice of metrics relevant for the organizations.

Posted by Dr CB Rao on September 6, 2009

Beyond Porter’s Darwinism: The Sixth Competitive Force

Professor Michael Porter of Harvard Business School created an outstanding and enduring stream of management thought when he propounded in 1979, through a Harvard Business Review (HBR) article, the theory of five competitive forces. He defined perceptively five competitive forces that help a company understand the structure of the industry it operates in, and stake out a position that is more profitable and less vulnerable to attack. Since then his theories of competitive strategy have been enriched by his own further contributions and collateral contributions by others. In a recent (January 2008) HBR paper, Porter reaffirmed and expanded his theory with additional examples.

The author of this paper provided a first-in-class quantitative framework to Porter’s qualitative paradigm of competitive strategy through his doctoral dissertation (Indian Institute of Technology Madras). The doctoral thesis which focused on the structure and performance of the Indian automobile industry demonstrated that Porter’s theories of competitive forces and competitive strategy have practical relevance and applicability. Continuing his appreciation for Porter’s creative and utilitarian theories, the author believes that there is now a need for reinforcing Porter’s paradigm with the addition of a sixth competitive force.

The sixth competitive force

The five competitive forces proposed by Porter are: (i) the intensity of rivalry among the existing players in the industry, (ii) the bargaining power of customers (iii) the bargaining power of suppliers (iv) the threat of new entrants, and (v) the threat of substitute products and services. While the level of rivalry largely determines industry structure and profitability, savvy customers can force down prices, dominant suppliers can drive up cost structures, aspirant entrants can create additional competition and new substitute products can lure products away from the company’s offerings. All these five competitive forces together determine the industry structure and profitability as well as the firm’s competitiveness.

The implicit essence of Porter’s theory is that corporate competitiveness play is a “win by some - lose by some” play, where the firms which are competitively agile will alone sustain themselves and grow. In a sense Porter’s theory reflects modern corporate Darwinism where only the fittest would survive. While Porter’s theory is an excellent guidepost in reasonably good times, the theory misses out on one critical dimension that one takes for granted in times of growth. The missing competitive dimension is “economic liquidity” which the author would like to term as the sixth competitive force that deserves to be added to Porter’s theory of competitive forces.

Without distracting from the economic rigor that Porter brought to corporate strategy one may say that true economic growth has to be based on foundations that are more broadly based and sustainable than an approach of survival of the fittest. Sustainable economic growth must envisage equitable growth of all sections of the society and profitable coexistence of different types of firms; from global conglomerates to local micro-enterprises.

The global financial meltdown and economic recession of the last two years has led to evaporation of economic wealth in an unprecedented manner. Deep economic recession and failures of global corporations forced governments to inject trillions of dollars to arrest economic collapse and ease liquidity crisis. The economic meltdown has shaken the advanced countries as well as the emerging countries to the roots. It has demonstrated shockingly that industries and societies can be swept away if economic liquidity is ignored by incumbent firms and regulators while crafting corporate strategies.

Economic (or system) liquidity

Firms exist through their products and services to grow customer needs and fulfill them in an ever increasing fashion. Customers embrace additional and new products on a continuous basis to elevate their quality of life. Governments which are committed to economic growth have a stake in a virtuous growth of this corporate-customer cycle. Firms and customers, however, require finance to carry out their respective obligations of manufacture and consumption. The level and sustainability of economic liquidity in the value chain of a firm constitute an essential competitive force.

The five competitive forces outlined by Porter differentially impact, and are impacted, by the competitive force of system liquidity. When finance becomes scarce, the intensity of rivalry pushes down the availability and pushes up the cost of finance. Customers move away from high cost premium products to low cost functional products while firms are faced with increased receivables. Monopoly suppliers dictate their terms of supply while fragmented suppliers suffer extended working capital cycles and uncertain payments. New product development suffers while new entrants hold back their plans. Greater industry volatility and lower industry profitability characterize the industrial system.

The financial sector, comprising banking, home finance, insurance and refinance firms as well as the private equity, venture capital, mutual fund, pension fund, hedge fund and stock broking firms, faces a quick and inexplicable evaporation of finance in an environment of downturn. The velocity of circulation of finance comes to a screeching halt. Leveraging and derivative instruments with speculative elements collapse as the system adjusts to align a virtual world of escalating financial value to the physical world of excess assets. Capital-output ratios suddenly turn awry and adverse.

Experiencing system liquidity

Liquidity for a customer exists essentially through the cash he or she has and the credit he or she can generate. The great American housing bubble has demonstrated how a credit-driven market exponentially expands until an economic downturn leads to institutional collapse and with it the total market collapse. The global consumer is today more appreciative of the need to lead a life that is meaningfully de-leveraged and sufficiently savings driven. This implies that in times to come, the bargaining power of the customers would be strong.

For a firm, which constitutes a part of, or contributes to, the balance four components of the five forces theory, liquidity exists in terms of not only equity and debt financing but also in terms of the various assets it holds, from research and manufacturing assets to process and goodwill assets. The manner in which, and the values at which these assets are acquired and nurtured and the speed with which, and the effectiveness with which these assets are commercialized or monetized determine the system liquidity that a firm faces.

In a growth economy, liquidity tends to be a factor of least concern. Entrepreneurs riding on aspirations and financiers splurging capital on ideas provide an intoxicating feel to the economy. Firms and conglomerates spend to grow. The growth thesis in such circumstances, unfortunately, is based on external funding (whether equity or debt) rather than the firm’s own cash generations. The principle of productivity gets erroneously applied with firms seeking to do far more than what they can achieve through their internal generations. Models of corporate strategy such as Porter’s Five Forces model need to be expanded to factor in system liquidity as an overarching sixth competitive force.

The Six Forces Model

The fundamental limitation, if one may say so, of Porter’s Five Forces model is that it considers all the participants in the industry, viz., the firms, customers, suppliers and new entrants as competitors with conflict of interest (relative to the goal of individual profit maximization). It also considers the creativity of new products as a disruptive force. This model and the underlying assumption may be valid purely from a firm’s short run competitive purpose but is inadequate from a long term industrial or economic purpose.

Porter cites the continued success of Paccar in the heavy duty trucking industry as an illustration of how a firm can achieve sustained long term profitability by analyzing the industry as per the Five Forces strategy and building a competitive position. The example limited to only one firm in an industry, in fact, reinforces the limitation of the Five Forces model. Firms and governments need models of strategy that achieve the maximal diffusion of economic prosperity.

The Six Forces model factors in system liquidity as the central core of the model, which includes the standard five competitive forces of Porter’s Five Forces model, viz., rivalry, customers, suppliers, entrants and new products as forces that are networked to each other and to system liquidity. The model considers system liquidity as the aggregate financial capability of all the four players in the industry, viz., firms, customers, suppliers and entrants. System liquidity, fed not only by the industry but also by the larger economic and financial system, influences and gets influenced by the strategies of the firms, customers and suppliers.

Factoring system liquidity

It would be insufficient and even erroneous to consider the profitability of individual industries in a standalone perspective. As Porter rightly observes, industry structure drives competition and profitability, not whether an industry is emerging or mature, high tech or low tech, regulated or unregulated. Moving beyond this, however, firms in the mode of strategy formulation have to consider the front-end market dynamics and the back-end supply dynamics as collaborative factors. By focusing on system liquidity the Six Forces model brings in an essential value chain perspective and a desirable economic perspective to firm level strategy formulation. Several examples can be thought of.

Reverting to the US Paccar example of the heavy duty truck industry, the concept of system liquidity, if applied by all the firms in the industry, integrates the profitability of the total value chain including the material and component suppliers and the goods transporters. This would enable different players come up with different strategies in collaborative combinations.

The Indian bus makers have languished for decades with low growth rates in bus production volumes, despite the near doubling of Indian population, because they have traditionally followed a firm level competitive strategy (firm against firm) rather than an economy level systemic strategy (firm as a part of the total system). If a firm in the bus industry develops a strategic methodology to enhance the system liquidity, taking the suppliers and customers (passenger transport corporations) in tow, the strategy would be more enduring and profitable in the long run.

The Big Three of the US automobile industry have singularly as well as collectively failed several times over the last few decades not because of the lack of application of the five forces model but more because of a lack of value chain understanding of a complex industry that includes suppliers, dealers and customers as well as oil economics. In contrast, companies such as Toyota as well as several of its competitors of the Japanese automobile industry have turned out superior global performance by viewing themselves as collaborators with their component makers (through concurrent engineering and just-in-time) and customers ( through economic and efficient, yet elegant designs) in a total economic structure.

The US retail and distribution companies, in diverse sectors such as consumer items and pharmaceuticals, which tweaked sourcing strategies for competitive advantage paid dearly with compromised product quality while some US food and beverage makers prospered by taking the farm sector as part of their strategic planning processes. Despite advance fleet planning and proactive partnerships for aircraft sourcing, global airline firms as well as the two aircraft makers and their suppliers face repeated crises due to a lack of concern for system liquidity. On the other hand power projects which have positive relationships with power equipment makers, power distributors and regulators achieve better financial closures and timely project execution.

As firms become huge national assets, the need to recognize system liquidity as an essential competitive force becomes even more intense. The battle between the two Ambani brothers (Reliance Industries and Reliance Natural Resources) in its essence is not a battle over price of the gas; it is on the other hand an ugly concomitant of corporate strategies formulated without an appreciation of economic liquidity encompassing gas using utilities, industrial customers and regulators.

Sanitizing the business models

Lack of appreciation of systemic liquidity as the sixth competitive force leads companies to develop aggressive strategies that build scale and scope, erect entry barriers, counter suppliers and distributors (at times through integration) and acquisition of businesses and products. These strategies, all of which are investment intensive, are conceptualized and executed typically during boom times. These are also oftentimes financed out of external debt and equity financing. Several Indian companies acquired overseas businesses as a result of such competitive strategies.

Dr Reddy’s Laboratories, a leading Indian pharmaceutical major acquired Betapharm of Germany to achieve leadership in the European generics space. Inadequate appreciation of economic liquidity in the European generic markets and a high business valuation of the acquisition which was feebly supported by internal profitability and generously aided by debt led to severe operating pressures on Dr Reddy’s. Acquisition of JLR and Rover brands from Ford by Tata Motors all but plunged the cost-efficient Indian automobile leader into a deep financial crisis. Tata Steel’s Corus acquisition strategy was perhaps better titrated because of the homogeneity and synergy of technological, product and customer base. Global generics leader Actavis continues to face the pressures of debt funded expansion and acquisition spree.

Corporate strategists no doubt consider enhanced investments and operational synergies while working out business models which enhance competitive stakes based on the five Forces model. There is, however, a need to consider system liquidity of the combined value chain as a sanitizer for the profitability model. If an expansion or acquisition is debt financed or if the expansion or acquisition takes the company into cost-intensive zones it would be necessary to downgrade profitability projections significantly. The elasticity of system liquidity to economic downturn would be a critical parameter.

Regulators have a role in ensuring that models of corporate growth are not hijacked by strategic adventurism. The institutional failures that triggered the global meltdown are proof enough of the perils of a totally unregulated play with external funding, whether of debt or equity variety. Like banking institutions, listed companies should be expected to operate as per prudential financial norms and capital adequacy norms relevant for different industries. In addition, listed companies should be subject to ‘stress tests’ on an annual basis by independent specialist organizations. In the ultimate analysis, firms need to exist and grow not merely to fulfill leadership aspirations but more significantly for wider economic growth.

The author believes that the Six Forces model which integrates the competitive force of system liquidity with Porter’s classic five competitive forces of intensity of rivalry, bargaining power of customers, bargaining power of suppliers, the threat of substitute products and the threat of new entrants would elevate firm level corporate strategy into a highly beneficial macro-economic endeavor.


Posted by Dr CB Rao on August 23, 2009

Basic Instincts and Sublime Solutions: Pathways for Innovation

Firms and industries as well as individuals and societies are driven by two basic instincts: survival and growth. Growth is predicated upon survival but survival cannot assure growth. The solutions to the compulsions of both survival and growth stem from innovation.

Survival-growth matrix

Survival and growth instincts can reside in firms at low and high levels in each case; constituting a 2 x 2 matrix. Firms with low survival and low growth instincts will be washed away by the waves of competition in the industry. Firms with low survival but high growth aspirations overreach themselves on a fragile base and will run the risk of collapse. Firms with high survival instincts but low growth aspirations will remain as profitable niche players. Firms with high survival as well as high growth aspirations will emerge as virtuous yet aggressive firms which are destined to lead their respective industries.

Typically an industry comprises all the four types of firms. Whether they exist in equal measure or in skewed proportion would depend upon the products and services the industry operates in, the ownership patterns of incumbent firms, environmental opportunities and risks affecting the industry, and the nation’s comparative advantage in science and technology relevant to the industry. When innovation becomes a national comparative advantage it also translates itself into a firm level competitive advantage, and fills the industrial landscape with virtuous, competitive firms that rank high in both survival and growth instincts.

Japan is one nation which has a high proportion of virtuous firms in all the industries it has in its national canvas. A uniformly high rate of innovation drives the firms to continuously invent and commercialize new products and services, extend market boundaries, enhance market depth and strengthen the sustainability and growth vectors of their businesses. Mature industries covering steel to automobiles as well as growth industries comprising electronics and electronics have leveraged innovation to keep Japan ahead in the global race of survival and growth.

Tailoring innovation

In order to effectively leverage innovation, each firm needs to understand the diverse typologies of innovation and choose the typology that best meets its needs. Innovation needs intellect; intellect resides in talented people; talented people need modern laboratories and facilities to work and such advanced infrastructure needs investments. Often, firm level decisions are telescoped into national resource capabilities as well.

Emerging countries have options of either limiting innovation to the frugal private or public resources they can marshal or harnessing massive resources through public effort. Smaller countries remain constrained on investment and innovation while China has pumped in massive public funding of infrastructure and research to catch up with the innovation curve. India, in contrast, has followed a unique model of public-private participation which provided a midway path, whereby investment trails requirement, and achievement arguably remains well below potential.

It would however be foolhardy to imagine that resources alone provide the requisite base, let alone an automatic boost, to innovation. Innovation exists in a total eco-system where government, universities, industries, firms, people and consumers encourage innovation in an entrepreneurial spirit. The need to understand innovation typologies is therefore relevant.

Innovation typologies

Innovation can be seen in terms of five basic typologies based on the process that drives innovation and the end points of innovation. These are: fundamental, analogue, integrative, adaptive and substitutive types of innovation.

Fundamental innovation represents the first time discovery of a new apparatus, device or instrument in a field. Automobile, telephone, railway engine, aircraft or ship represent certain fundamental innovations in the transportation field. Telephone, radio and television similarly represent fundamental innovations in the communications field. Penicillin and aspirin represent first-time medicinal discoveries. Fundamental innovations, like the ones above as well as the more recent robotics and artificial intelligence, typically simulate natural bodies and phenomena with the added edge of industrial productivity or commercial reach. Fundamental innovation obviously creates technological leadership for nations and firms, and is rarer to fund, find and sustain.

Analogue innovation, on the other hand, is at the other end of spectrum, being the more popular and affordable type of innovation, which is easier to achieve. Creation of an LCD television represents a fundamental invention. Successive discoveries of LCD televisions with 50, 100, 200 MHz resolution capabilities and higher contrast ratios represent multiple analogue innovations. A first-in-class new drug is a fundamental innovation while follow-on medicines which have a similar structural configuration but superior therapeutic profile represent analogue inventions. Analogue innovation is the breadwinner for the larger gamut of innovation oriented firms.

Integrative innovation aims to combine multiple technologies into a singular device. Bringing together multiple technologies helps the inventor offer multiple functionalities to the consumer. This is not a new approach either. While in the yesteryears a radio cum tape cum CD player represented such convergence, in today’s world a cellular phone which also plays music and captures images represents the new wave of convergence. As long as fundamental and analogue inventions grow, integrative invention also would grow. Tomorrow’s laptop may have the ability to project the presentations, and the cell phone may have physically expandable screen, for example. A futuristic glucose meter may measure glucose and also dispense insulin based on the measurement. Integration invention or convergence invention is the current hope for market expansion.

Adaptive innovation is a type of innovation that relies on a common or similar technology substrate to define and power multiple applications. Application of nanotechnology to as diverse fields such as engineering and pharmaceuticals is a prime example. Leveraging of imaging technologies for diagnostics and entertainment is another example. Robotics has already brought in revolution in engineering and medicine. Tire technology, for example, could determine how automobile chassis are configured, from low floor to high floor applications. Touch screen technologies would lead to new interactive user interfaces on wider variety of devices.

Substitutive innovation is the new hope for a cleaner and greener planet. From recycling technologies to renewable technologies, substitutive innovation would enable the planet to conserve its resources. Potentially, substitutive innovation would represent the final horizon which would combine the nuances of fundamental, integrative and adaptive innovation approaches. If integrative innovation blurs the distinction between products through convergence, substitutive innovation would dismantle the borders between industries. Agriculture could power the automobiles while days could power the nights in future.

Innovation and India

India is aiming to be an economic superpower in the years to come. It has a large consumer base of 1 billion plus population and one of the largest scientific and technical talent bases of the world. All these, however, have not led India on a genuinely innovation led development pathway. The collective responsibility for this rests on the firms, industries and governments.

Innovation can help firms survive and grow. Not all types of innovation will, however, suit all types of firms. Firms with low survival and low or high growth instincts can go no better than relying on analogue innovation to move them to a better growth quadrant. Firms with high survival and low growth instincts will need to deploy their cash in either integrative or adaptive innovation to build on available core competencies. Companies which score high on both survival and growth instincts can consider the full spectrum of innovative approaches, including fundamental, analogue, integrative, adaptive and substitutive.

Firms which desire to master innovation need to focus as much on fundamental sciences as on application technologies. Strategic tie-ups with universities and specialized research laboratories would help application oriented firms in-license fundamental sciences and technologies on a cost competitive basis. Success of American, Japanese and Korean firms in innovation is in no small measure due to the support they provide to, and receive from, universities and research entities.

Indian governments, central and state, scientific laboratories, universities, and firms need to consider bolder and futuristic strategies to create new paradigms of innovation. The central government, and its ministries and departments (such as science and technology and biotechnology) are no doubt taking up several national science and technology missions, many of them as government-industry-academic partnerships. Unfortunately, most of these projects and missions are set up, relative to the needs of the substrates, with meager funds, fuzzy deliverables and indifferent participation, with an almost exclusive focus on analogue research.

India has now world-class and world-scale infrastructure in pharmaceuticals, vaccines, automobiles, telecommunications, textiles, chemicals, information technology and a host of other sectors. These sectors qualify for establishing national centers of collaborative innovation to achieve fundamental innovation as well as substitutive innovation. The task of analogue, integrative and adaptive research may, in contrast, be left to the capabilities of individual firms. Only a concerted effort such as the above, duly backed by an upgraded and expanded university research infrastructure, can place India firmly on the global innovation map.


Posted by Dr CB Rao on August 16, 2009

Mentorship: Beyond Leadership

Firms are aggregations of people who are positioned in the framework of an organization and are enabled to progress over time, horizontally and vertically. Workmen, executives, managers, leaders and directors constitute the organization. This paper discusses why the concept of an organization should add mentors to the inventory of the human resource asset base in an organization.

Workmen, executives, managers, leaders and directors

Workmen are direct employees working on the physical production and production support processes in a firm. Lower level educational qualifications and experiential limitations often make the adage “once a workman, always a workman” unfortunately true. While a few workmen do cross the barriers through supervisory roles within the shop floor environment, organizations are typically designed to accord mobility only to those personnel who are inducted into executive cadres on the basis of professional qualifications. This situation needs innovative organizational and educational paradigms to break the mould, which probably is the subject of another discussion.

Executives, though well educated, are operating professionals who learn and perform largely as per directions. Executives who display an exceptional flair for conceptualizing, analyzing and executing become managers early on in corporate life. The brightest of the managers grow as general managers of sites or functions. Most also become leaders of businesses or corporations. Some will be whole-time directors on the boards, which also comprise outside experts as part-time independent directors. Very few, however, end up becoming mentors.

The journey of a professional, from the time he or she starts his or career as an executive to the time he or she becomes a mentor, is an unpredictable and rollercoaster ride. During this journey, spanning decades of professional life, intrinsic leadership traits in an individual at the grassroots level as well as corporate leadership proclivities at the apex level are equally important.

Executives are competent professionals who keep the day-to-day operations moving. Managers are competent executives who plan, and get the budgets implemented optimally as per plans. Leaders are competent managers who envision a new future, craft an enabling strategy, and create a performing organization that converts the vision into a reality. Directors are leaders who are willing to take business, legal and governance responsibilities. Who then are mentors?

Mentors

Mentors are competent leaders who nurture the organizations to have the right mix of competent executives, managers, leaders and directors, all of whom play a role in building the business of a firm and enhancing shareholder value. Mentor is a leader who cares for the organization and its people to build their value through a competency cum governance framework. A mentor, having been a leader and a director knows the business well enough to position the firm positively in the industry and the economy.

The transformation of a manager into a leader is often performance driven. However, the transformation of a leader into a mentor is as contextual and environmental as it is personal and professional. The transformational challenges and opportunities are also uniquely determined. A manager tends to be an executive in his own right for most part. A leader ceases to be a true leader when he starts managing. A mentor may in contrast never be able to separate leadership from mentorship.

While it is well accepted that a firm should have a leadership team for day to day execution and a board of directors for governance and mentorship, the concept of having a fulltime mentor in the company has not been established in the corporate practice. Towering leaders of Indian conglomerate groups such as JRD Tata and GD Birla did serve as mentors to their group leadership teams, but in informal capacities. It is only in the 2000s that the concept of a leader turning a mentor for the organization came to be recognized when Mr Narayana Murthy the founder-CEO of Infosys Technologies became its Chief Mentor. His was the first formal and bold attempt by a successful leader to transit into a mentorship role, even ahead of time. While there is a clear need to have more such initiatives at leadership and firm levels, his example did not initiate a new wave of organizational redesign in Indian corporations.

Are leaders against the concept of mentorship, both in terms of their own transformation into mentors, and acceptance of mentors in their midst?

Always a leader, and never a mentor?

The position of mentor does not reflect a popular practice in corporate structuring, organizational design or legal framework. The examples set by Narayana Murthy in Infosys and Bill Gates in Microsoft are exceptions rather than rules. The mentorship concept therefore needs passionate advocacy as well as objective evaluation as an instrument of larger organizational benefit.

Leadership provides a singular opportunity for outstanding professionals to guide the destiny of a firm. It provides the power to perform and the canvas to achieve. Chief executive officers (CEOs) are often buffeted by performance compulsions and obsessed with themselves as singular drivers of performance. Many are unable to accord a due role to even legally mandated board of directors. It is therefore not unnatural that CEOs are reluctant to debate the concept of mentorship as a discrete senior level position, let alone accept a mentor at the helm. As a corollary, CEOs who have been at the pinnacles of power in the organizations are also reluctant to move over to an apparently sinecure position of chief mentor.

The ownership context of a firm possibly provides some basis for a more delineated determination of managerial, leadership and mentorship roles. Family owned and patriarchal firms have a greater flexibility to move their family CEOs informally into mentorship positions while non-family owned professional firms have no greater flexibility than providing non-executive chairmanship positions to potential mentors. However, the concept of mentorship deserves a more formal and popular positioning in the corporate landscape.

Potential of mentorship

Mentors, typically, are successful leaders who have perspectives larger and wider than the perspectives of the firms they have led. They are intellectual achievers who have built their businesses competitively and placed their firms on sustainable growth trajectories. They are well known nationally and globally and are capable of acting as brand ambassadors not only for their firms but also the industries they operate in and their countries. Potential mentors exude high ethical values and have passion for communicating them. They would have built leadership talent in their organizations that can take on larger responsibilities seamlessly from them.

True mentors are those who move away from executive leadership positions and focus on fulfilling certain qualitative aspects of business which only they can focus on. Having been consummate leaders, they are aware of the pitfalls and potentialities of leadership. By continuing full time in the organizations but taking up mentorship roles such leaders can add strength to the new leadership teams. Fundamentally, leaders who move as mentors create a positive leadership vacuum that elevates potential leaders into performing leadership roles.

There are two keys to ensure success of mentorship. The keys serve to distinguish the mentors from executive leaders on one hand and boards on the other. Such role differentiation will promote synergy and eliminate conflict.

At the executive level, mentors, for example, can focus on means as the leaders focus on ends; mentors can focus on risk management while the leaders focus on taking risks to achieve goals; mentors can build grassroots leadership in the organization while the leaders focus on building their next levels of leadership; and most importantly mentors can promote deeper organizational values even as the leaders are engaged in enhancing value of their businesses.

At the board level, mentors, being full time executive leaders can fulfill a role that is different from the ones performed by independent directors (including chairmen) on the boards. Directors bring sagacity and caution to the board and corporate matters. They hardly have the ability and resources as full-time leaders could have to convert their sagacious advice into effective execution. Mentors can provide the continuity and act as the bridge between executive leadership and non-executive board.


Institutionalizing mentorship

Given the normal corporate dynamics neither leaders nor directors could be expected to proactively and wholeheartedly welcome mentors in their midst. A regulatory framework which provides for a full time chief mentor in an organization could help. Every CEO who crosses the age of 60 years should have the choice between the ages of 60 and 65 years and compulsion by the age of 65 years to transform into a mentorship role, which could continue until he attains a final superannuation age of 75 years. Appointment of chief mentor would need to be a Clause 49 corporate governance stipulation.

The mentor of an organization should have the freedom under the corporate governance umbrella to interact with all functions, participate in all leadership meetings at his discretion and address town hall meetings which the leadership team could attend at its discretion. Certain key governance functions such as risk management, corporate governance and management audit (not internal audit) should be required to be formally established and made directly accountable to the chief mentor. The chief mentor need not be the chairman of the board. In fact, combining the positions would negate the benefits of this key supplemental position of mentorship.

The office of the chief mentor should be fully budgeted and resourced with compensation levels not less than those enjoyed by him prior to his becoming a chief mentor. Inbreeding of mentors and potential cozy relationships or conflicts between the chief mentor and the leadership teams are likely issues that could erode the effectiveness of this institution. In-sourcing of mentors from other organizations is not necessarily a solution. In-sourcing would in fact be an erroneous approach. The fundamental purpose of transiting to mentorship is to enable the leader address add additional perspectives while leveraging the past full time capabilities.

Mentors would be effective largely on the basis of their established acceptability, intellect and statesmanship. Initial institutionalization through a Clause 49 mechanism provides faster and wider spread of the concept, and is unlikely to be a necessary requirement for the success of the mentorship concept. The author hopes that more leaders and corporations would follow the Infosys model in successful mentorship.


Posted by Dr CB Rao on August 15, 2009

Style is Substance: Management of Product Design and Manufacture

One of the fallacies of popular thinking is that consumers are conned into repetitive purchases based on mere stylistic changes in products which do not offer any material differences in product functionality. This paper argues that stylistic changes, on the other hand, are the key drivers for innovation in product design and manufacture.

Style demands substance

Style is a distinctive and differentiated presentation of a literary piece, an art form or a product. Style is visual and appeals to the senses. It also creates a craving in the beholder for ownership and usage of a stylistically elegant device. This, by itself, does not mean that styling is mere superficial embodiment. A well-styled product is also fundamentally a well-endowed product. A stylistically elegant product has a creative form which not only has visual appeal but also offers handling ease.

A novel form factor that is smaller in size but packs greater performance and versatility is an essential component of any stylistic approach. Yet, styling does not end with appeal and handling either. Style sets ownership and usage expectations higher, driving fundamental innovations on how products are designed for wider and stronger performance. Style is also not merely physical; a digital experience adds a significant additional dimension to style. Sony Walkman, Apple iPod and iPhone are the best examples to date of style revolutionizing product profiles and creating new businesses, if not industries. Modern day automobiles which integrate new stylistic designs with greater safety, comfort and digital controls are another example.

Style often influences, if not enables, new paradigms of convergence. Bringing a variety of functions such as music, camera, maps, organizer and radio into a telephone is a styling challenge as well as opportunity. Emotional harmonization and functional alignment are helping laptops to be distinctively styled and repositioned as net books. Each stylistically distinctive product is thus integrated with differentiated performance to provide sustainable, and nor superficial, value for the consumer.

Style boosts efficiency

Style brings in its wake efficiency as well. Examples such as a well-styled car which has a low coefficient of drag, an ergonomically designed chair which enables healthy sitting posture, a high definition lap top screen that provides visual clarity, a thin flat panel screen which conserves materials in manufacture and space in usage, and a green building which is not only contemporary in design but also harmonious with nature
illustrate the efficiency side of style.

A few design factors drive the efficiency trigger in stylistic design. Style demands miniaturization on one hand and multi-functionality on the other. Style requires materials and components that enable better visual feel and physical handling. These factors are at the base of a relentless drive for advances in design and manufacturing technologies that offer better style with greater performance.

A favorable input-output ratio (lower input and higher output) is the hallmark of a well-styled product. Contrary to the perception that frequent stylistic changes promote repetitive and conspicuous consumption, style puts pressure on companies to design and manufacture products more efficiently. This, coupled with the greater emphasis on material recycling and environmental waste ensure that style leads to efficiency.

Style encourages creativity

Modern styling is not merely an art of shaping a product. It is a science of creating a hybrid substance that withstands the rigors of usage and environmental damage. A floor tile should not only be marble-like but also be skid-proof. A new cement blend has to not only create an elegant feel but also retain its appeal for a longer period of time. A new touch screen should not only click and display well but also has to be scratch proof. A speaker system in a flat panel TV has to be ingenuously designed to be invisible yet powerful. A medicinal tablet must be more potent to cure but smaller to swallow. Often, therefore, designers have to merge contradictory requirements to develop novel harmonized products. Conceptualization of such hybrid designs requires creativity in design of a higher order.

New technologies are often required to enable hybridization of designs. Polymer technologies helped design of better pharmaceuticals. From plasma to liquid crystal to light emitting designs, new signal conversion technologies helped newer flat panel displays. Wireless technologies unwired and uncluttered computer devices with better and non-intrusive connectivity. Nanotechnology promises to usher in a revolution in surface preparation, material efficacy and functional usage.

Style is also not necessarily limited to consumer interface. Industrial goods also benefit from style driven design. Introduction of “semi-forward cab” truck design, wherein the cab was partially mounted over the engine to provide a stylistic superiority over the conventional “engine outside the cab” designs is a case in point. This design catered to the driver’s preference for a hooded design (ostensibly for safety) while enabling maximum usable chassis space. Similarly, all components have to shrink in form but expand in performance as an automobile aims to become lighter, sleeker and yet more powerful and fuel-efficient.

Style promotes flexibility

Style can integrate or diversify product design. It can simplify or complicate need fulfillment. A single activity such as display of time can be accomplished by timepieces of myriad designs, shapes and colors. A wristwatch can also be converted into a diagnostic marvel by converting into a measure of relevant body parameters such as temperature, blood pressure, pulse rate and so on. The twin platforms of integrative design and diversified applications mirror the fusion of style and substance in product design.

Style enables a sharper focus on a latent user need and a greater alignment between the customer and developer. A paint development technology that enables a house-owner choose a novel combination by fusion of base colors ensures that the style reflects individuality. Dell’s marketing and supply chain innovation that enables users choose and assemble a computer configuration which meets their needs is an innovative anti-thesis of mass production of standard functional devices. Apart from functionality, style defines the personality of a user too. Ranges of products can be stylized to cater to generations of users.

Today’s consumer has a singular need but multiple desires. This need-desire matrix can be fulfilled by a combination of core and collateral functionalities that can be stylistically integrated. A dual time zone watch or radio controlled watch would provide greater satisfaction to a global traveler than a traditional watch would. A shock-proof and water-proof chronograph integrated watch would serve a sportsman better. Yet, styling innovations which integrate shades of peripheral time functionalities with core needs provide even greater flexibility to the user.

Style drives growth

The economic ramifications of stylistic changes in product design are rarely understood in perspective. At best, styling is seen as a demand generator, segmenting the market as it does in terms of multiple likes and preferences of customers. While the impact of customer segmentation, product diversification and market expansion are easy to see, not so visible is the underlying impact in industrial transformation.

At one level, style has driven the conception and growth of whole new streams of industries in personal effects and fast moving consumer goods space, from textiles, fashion apparel and personal accessories to soaps, cosmetics and daily care products. Styling and packaging have given a new life to the food processing industry and entire food value chain. Industries such as cellular phone industry which had no more than a single offering at the start today signify a style-driven litany of products.

Style not only creates new industries; it helps the established and mature industries to reinvent themselves and stay competitive. It renews the value chain and creates the need for new skills and new jobs. As an automobile, or for that matter any product, gets redesigned it triggers a cascade of new developmental and manufacturing activities across the value chain. From hundreds of designers who play with computer and clay models to thousands of engineers and technicians who create new tools, dies, materials, components, processes, assemblies, finishes, packages and deliveries in each firm, restyling stirs up a beehive of activities. The positive cascading impact on the host of economic, industrial, business and social activities is indeed the driver of growth.

Style needs management

Style drives not only economic growth but also enhances management complexity. The need to design, manufacture, supply and manage multiple SKUs, the need to service products of diverse generations and designs and the need to balance the cost push of product variety with the cost-attractiveness of manufacturing simplicity pose new challenges for managers. Many of these challenges can be met by enhanced process automation and use of information technology. Yet, each firm has to dynamically set its tipping points in determining the rate and pace of stylistic innovation.

Style is an amalgamation of the art of human behavior and science of product design. Successful designers are those who read consumer mind as perceptively as they understand the challenges of concurrent engineering of a new design, manufacturing and supply chain. They should have a 360 degree of the firm as a provider, with a competitive value chain, of innovative and differentiated products that meet human needs in an increasingly satisfactory fashion. Stretching the horizons of innovation with the practicality of utilitarian inventions, the stylist almost always accomplishes the seemingly impossible of giving to the consumer more for less. Nothing reflects the success of the amalgam of style and substance as Tata’s Nano micro-car does.

Designers, manufacturers and managers involved in the process have to view style and substance as an inseparable duo, representing the two sides of an innovation coin. Courses in industrial and product design and value chain management must treat styling as more than a cosmetic or emotive exercise, with a marketing endpoint. Styling is the essence of the progress of the society and economy, for tomorrow can, and should, never be the same as today in a developmental perspective. The quest for greater elegance, differentiation and efficiency as embodied by a constantly evolving fusion of style and substance defines the mankind’s progress.


Posted by Dr CB Rao on August 8, 2009.