India has made a mark globally with its software skills. More recently, India has come into global reckoning for its manufacturing capabilities. In future, India will be the hub of infrastructure building. Consolidating the gains in services and products and making new gains in infrastructure, India will keep up its growth momentum. India’s economic growth could be upwards of 10 percent per annum in the years to come which could catapult India as the fourth largest economy in the world by 2030, after USA, Japan and China. In fact, the gap, if any, in terms of gross national product could be small within these four economies.
Indian management and global achievement
Science and technology power the economy as a chip powers the computer. Management drives the economy just as software programs the computer for performance. A unique way of Indian management has emerged over the last few decades of the independent India that is shaping the new economic revolution in India despite all the constraints that exist. The distinctive Indian management paradigm is a result of the multiple ownership and organizational formats, and the diverse organizational eco-systems that evolved over the years in India.
The Indian managerial alchemy is no longer a perception or an aspiration; it is a reality. If global scale is a metric, Indian management has proved itself with several Indian companies joining the Global 2000 Club (Forbes Asia, May 2010, Volume 6, Number 6). If global recognition is a metric, most Indian managed companies have proved themselves by exporting products and services, by becoming chosen partners and in some cases by being courted by global giants to add strength to their value chains. In fields as diverse as traditional arts and culture or modern science and technology, Indian management demonstrated a sure ability for global marksmanship.
The mix of Indian companies in the Forbes list or the Fortune list of the largest publicly traded companies of the world illustrates that it is not merely the Indian factor advantage but also a pan-industry managerial capability that helped India Inc power its way into the global club. The Indian companies in such global lists come from diverse business and industrial domains, to name a few: ACC (cement), Allahabad Bank, Axis Bank, Bank of Baroda, Bank of India, Canara Bank, Central Bank of India, Corporation Bank, HDFC Bank, ICICI Bank, IDBI Bank, Indian Bank, Indian Overseas Bank, Oriental Bank, PNB, State Bank and Syndicate Bank (banking), Bharat Electronics, Bharat Earth Movers and Bharat Heavy Electricals (equipment), Bharat Petroleum, GAIL, Hindustan Petroleum, Indian Oil, ONGC and Oil India (oil and gas), Bharti Airtel, Idea and Reliance Communications (telecommunications), DLF and HDFC (real estate), Grasim and Reliance Industries (diversified), HCL Technologies, Infosys Technologies, Tata Consultancy and Wipro (information technology), Jet Airways (airlines), Ashok Leyland, Bajaj Auto, Hero Honda, Mahindra & Mahindra and Tata Motors (automobiles), Hindalco, National Aluminium, NMDC, SAIL, Sterlite and Tata Steel (metals), ITC (FMCG), JP Industries, Larsen & Toubro and Reliance Infra (infrastructure), NHPC, NTPC, Power Finance, Power Grid, Rural Electrification, Tata Power (power), Cipla, Dr Reddy’s, Piramal, Ranbaxy and Sun Pharmaceuticals (pharmaceuticals) and United Breweries (spirits). In addition, several subsidiaries of multinationals in India, ABB, Siemens, Vodaphone, Hyundai, Unilever, Proctor & Gamble and IBM, to mention a few, have acquired statures of their own.
The high number of Indian banks in the global list illustrates the overall strength of the economy. The fact that no Indian bank failed when several global banks went into a tailspin in the global economic meltdown illustrates the financial management skills of Indian economists and banking managers. Similarly, the growing number and increasing scale of firms in growth sectors such as automobiles, telecommunications, infrastructure, oil and gas and metals illustrates the diversified managerial base. Several Indian subsidiaries of global multinationals such as Unilever, Hyundai, Proctor & Gamble have consistently provided a large Indian anchor to global operations. The ability of large Indian groups such as Tata, Bharti, and Reliance to acquire overseas firms reflects new confidence in globalization. Similarly the growth of large non-resident Indian groups such as the Hindujas and Mittals on a global scale illustrates the global entrepreneurship of Indian business groups. It is also interesting that some of the largest listed companies are government owned while several government owned corporations and departmental undertakings are unlisted but are very large, reflecting the management acumen in India that transcends public-private ownership differences.
On a different but allied plane, for over five decades, Indian academic scholors enriched the global technology and management scenario. In the US alone, more than 8000 professors are said to be making important contributions to the academic life. In the management and economics areas of reputed business schools, not limited to Harvard, Stanford, Kellogg, LBS and Wharton, Professors CK Prahalad, Sumantra Ghoshal, Marti Subrahmanyam, Bala Balachandran, Krishna Palepu, Pankaj Ghemawat, Raj Varadarajan, Nitin Nohria, Amartya Sen, Jagdish Bhagwati, Kasturi Rangan, and Jagmohan Raju made a mark as eminent exponents of management. In the global consulting firms such as McKinsey, BCG, Bain and PRTM as well, Indian management consultants have become an increasingly impactful fraternity.
In a dramatic change, even the multinational corporations known for their fiercely US or European headquarter-centric structures and talent management models are beginning to engage Indian management talent in localized corporate roles. While Indian Americans have been occupying high positions in the global headquarters, global multinational corporations in diversified fields are now choosing to build new regionalized centers of excellence and corporate divisions around Indian, and on a broader base around Asian talent. This represents a paradigm shift in the MNC way of thinking on globalization of talent. The new paradigm is that true globalization extends beyond seeking wider markets or factor inputs and focuses on building global centers of excellence around proven local talent.
What do these results and trends, at both corporate and individual professional levels, portray? While modern management no doubt has its origins in the Western schools, Indian companies and managers have developed their own indigenized management alchemy based on the specific characteristics of the Indian situation.
Indian management evolution
Indian organizations typically reflect one of the three types: the government civil organizations, including the Indian Administrative Services (IAS), the government owned public sector undertakings, including those set up to own the commanding heights of economy, some of which are listed in the stock exchanges (PSUs), and the private sector companies, most of them publicly listed in stock exchanges (PSCs). The IAS typically attracted top talent that was service oriented. The PSUs attracted talent that liked industrialization with scale and scope. PSCs attracted talent that believed in capitalistic growth despite constraints. Different ownership formats and organizational templates typically created different managerial dynamics and led to multiple managerial genres.
Five major forces silently shaped Indian management to a global top spot over the decades. The first is the coexistence of, and osmosis between, the three genres of management styles: the IAS, the PSU and the PSC styles. The second is the induction of multiple technologies and with them related management concepts, from different countries as part of the industrialization from 1947; British, European, American, Japanese and Korean, to name a few. The third is the unique Indian social psyche that adapts to imposition as much as it demands independence, and that encourages creative chaos as much as it respects rigid compliance. The fourth is the motivation to do better and match the best; starting with fierce competition from the school days. The fifth is the proliferation of engineering and management education in India, with a strong influx of engineers into management. These five forces have created a unique Indian managerial alchemy.
Capable administrators from the IAS moved through public sector to private sector to leverage their skills for unfettered growth of institutions. Public and private sector managers learnt the art of positioning corporate strategies in alignment with national needs and bureaucratic challenges. This facilitated a multi-pronged osmosis of managerial aspirations, thoughts and styles. The multiplicity of behavioral approaches was sharpened with engineered precision of a liberal managerial culture. The resultant Indian management style is a unique one that combines administrative efficiency, national passion and material pursuit.
Some of the above are practical hypotheses that are built upon the proven and highly visible successes of the Indian industrial scenario. The author had personal experiences with several such leaders. Stalwarts such as V Krishnamurthy, a PSU technocrat and SVS Raghavan, an IAS bureaucrat built Bharat Heavy Electricals as a leader in power equipment. Again, V Krishnamurthy and later RC Bhargava and Jagdish Khattar, both IAS professionals built Maruti Suzuki as an automobile firm of global repute, even outshining the Japanese parent in certain aspects. S Soundararajan who turned around a sick Garden Reach and TS Kannan who repositioned NSIDC were other IAS professionals. Government-owned insurance giant, Life Insurance Corporation of India had leaders like R Narayanan who built huge strengths in the institution. The list of Indian leaders who built PSU and PSC behemoths and ran departmental undertakings with great vision and success is indeed large.
India’s private sector benefitted from the leadership of several enterprising visionaries. N Vaghul and KV Kamath who built ICICI Bank into a first class private sector bank, Deepak Parekh who built HDFC as a role model in housing finance, Dhirubhai Ambani who built India’s new generation conglomerate, the Reliance Group, JRD Tata and Ratan Tata who revved up and reshaped the Tata group, S Moolgaokar who made Tata Motors (then Telco) the first visible sign of indigenous technological capability, RJ Shahaney and R Seshasayee who unlocked value of a slow-grown British subsidiary, Ashok Leyland, Rahul Bajaj who provided an Indian techno-marketing paradigm in two-wheeler industry with Bajaj Auto, Subir Raha who globalized ONGC, Kurien who made Amul the largest milk cooperative in the world, Anand Mahindra who transformed Mahindra & Mahindra, a tractor and Jeep company into a diversified group, Kishore Biyani who built a hugely successful Indian model of retail business, Pantaloons and Big Bazaar, NS Narayana Murthy and Azim Premzi who built India’s famous global IT companies, Infosys and Wipro respectively, Anji Reddy who demonstrated to the world a new Indian pharmaceutical paradigm, Pratap Reddy who built a world-class hospitals network and K Raghavendra Rao who became a rare-in-class first generation entrepreneur in global pharmaceuticals business reflect the myriad hues of the uniquely Indian management paradigm. There are also several brilliant scientists, technologists and strategists who provided the core competencies for Indian firms and supported the leaders in their global visions; like V Sumatran who helped Tata Motors realize the first indigenous small car dream, leading the multi-faceted Indica passenger car design team, and RS Prasad who helped Anji Reddy and K Raghavendra Rao realize their global generics dreams, building world-class pharmaceutical research and manufacturing infrastructure with first-to-file capabilities. Each of the leaders mentioned above, and not mentioned above brought a uniquely Indian perspective as to how from highly modest and severely resource constrained beginnings world-class corporations could be built in India, irrespective of the ownership.
(Author’s note: In fact, this blog feels humble that it is too inadequate to accommodate the list of top leaders of the IAS, PSU and PSC streams which is so large, running into thousands. Omissions, therefore, are inevitable but are certainly neither intentional nor reflective of any priority.)
The Indian management alchemy
What do these several named, and unnamed, Indian managerial stalwarts have in common? They have, in fact, a lot in common, even if they pursued diverse business and operational models. First, as leaders all of them sought to grow their companies as the best-in-class companies. Second, they believed in Indian talent and indigenization, even if they had to rely on certain imported technologies from time to time. Third, they possessed exceptional personal and professional attributes combining intellect, grasp, memory, speed, passion and accuracy for unique managerial delivery. Fourth, they combined leadership with mentorship, building successive generations of leaders to keep up growth momentum. Fifth, they believed in empowerment of people and teams to drive into new growth horizons. Sixth, they combined global aspiration with Indian patriotism. As a result, each of the leaders could establish or grow companies which held, and continue to hold, Indian flag high.
If the above are the common characteristics of Indian leaders, what then are the common features of Indian management that helped the firms make a global mark? First, Indian management is not deterred by resource constraints. Dreaming big despite a small resource base brings out the best stretch in Indian firms, from strategic innovation to operational excellence. Second, Indian management is sensitive to national imperatives. As a result, Indian firms built unique business models on twin pillars of catering to domestic consumption and generating export revenues. Third, Indian management is a multi-tasking paradigm with low respect for robotic sequencing of events and high passion for simultaneous pursuit of activities. This helps Indian firms cut down development cycles and time to market. Fourth, Indian management looks for delivery leaders rather than deliberative teams. As a result, Indian companies have fairly simple organizational structures that have as little clutter as possible and as many single point responsibilities as can be reasonable. Fifth, Indian management is reflective of the Indian society in terms of frugality and conservation. This naturally induces Indian engineers to come up with functional and utilitarian plant designs that are cost-competitive. Sixth, Indian management is conscious of the need to build and retain reputation. This motivates employees to work on the safe side to meet future quality and regulatory requirements. Seventh, Indian management is impatient, functioning almost from thought to action, skirting elaborate planning rituals. This helps Indian firms beat the competition on speed of delivery, even on a global scale. Eighth, Indian management protects jobs as much as it can. Indian organizations typically stay together in bad times retaining the flexibility to take off when good times return. Ninth, Indian management focuses on organizational and career growth as a base motivator. This provides leaders with multiple avenues for talent management. Tenth, Indian management is intrinsically entrepreneurial and opportunistic. As a result, Indian firms are quick to capitalize on market opportunities. Evidently, some of the above characteristics have contradictory potentialities; the success of Indian management lies in its ability to harmonize the multifarious tendencies for synergy.
Probably, not all aspects of Indian management are flawless. Things possibly could be even better with stronger internal and external collaboration, clearer communication and negotiation, broader application of analytics, stronger grassroots leadership, closer alignment of aspirations and resources, greater openness to indigenous consolidation, higher belief in innovation, lower emphasis on followership, and so on. Several top rung companies not only hire the best talent from leading institutes but also have elaborate in-house leadership development programs to address the residual concerns. The forecast tripling of top-notch engineering and management institutes in India such as the Indian Institutes of Technology and the Indian Institutes of Management in the next few years would provide further reinforcement to the Indian talent pool. As Indian management globalizes and absorbs some of the finer nuances of competitive global management, and appreciates the need for innovation, scale and scope to stay on top globally, the fundamental strengths of “value with vision” and “speed with passion” that uniquely characterize Indian management would be reinforced to an even greater extent.
Posted by Dr CB Rao on May 31, 2010
Sunday, May 30, 2010
Sunday, May 9, 2010
From Start-up to Maturity: Indian Entrepreneurial Challenge
Indian psyche is unique in that it follows an icon as much as it chooses independence. Indian corporate saga is an equally unique amalgam of followership and independence. The growth of Indian enterprise is founded on an entrepreneurial rush into an activity that is opened up. The evolution of industrial structure in India is based on a continuous expansion in the number of firms in the fray rather than a structural consolidation at any point of time. The Indian corporate sector therefore faces a challenge as firms struggle to transform themselves from start-up stage to maturity state, some passing successfully through a growth phase, and some failing to. The challenge if left unaddressed could affect entrepreneurial development, and eventually the competitiveness of the Indian corporate sector.
The Indian industrial evolution
The Indian industrial start-up model, as elsewhere, was fuelled by entrepreneurial energy. Even when India was under foreign occupation, in the 1800s and the early 1900s, Indian industrial start-ups were established by the Tatas and Birlas, with their enterprises becoming large industrial groups over the years. Post-independence, successive government policies enabled and encouraged establishment of scores of cottage and small scale enterprises in India. Some of these served larger firms as suppliers and vendors of materials and components while several other start-ups sought a direct go-to-market strategy, with varying degrees of success.
An introverted India, even post-independence in 1947, rarely encouraged free entry and exit, expansion of scale and induction of technology in its industrial and economic policies. As a result, companies stagnated and became less competitive, relative to global trends. At the same time, licensing regulations inhibited global corporations from entering into or expanding in India. On a helpful side, process patent policies (as in some other countries) ensured freedom for domestic companies to reverse-engineer global products for Indian markets. The Indian automobile and pharmaceutical industries became, for example, the epitome of low-scale, domestic-oriented direct to market fragmented industrial structures of the 1960s and 1970s.
There emerged a new Indian entrepreneurial wave from the 1970s (Ambani founded Reliance, for example). Technology induction and assimilation blazed new paths from the 1980s (Indo-Japanese automobile collaborations such as Maruti-Suzuki). Entrepreneurs and corporations were rid of controls, and certain industries started becoming global leaders in certain sectors from the 1990s (TCS and Infosys, in Information Technology). Increasing confidence in Indian competencies and policies from the 2000s and post-patent harmonization assurances led to great global interest in India with a better awareness of the competitiveness of Indian enterprise. Simultaneously, Indian industrial groups and larger Indian companies became globally aggressive, entering overseas markets (directly and through partnerships), acquiring overseas units and marquee brands.
The Indian start-up model
From a protected, regulated domestic regime, the industrial paradigm in India evolved into a liberalized, competitive globalized regime in the 2000s. The models that helped Indian start-ups to enter and stay fixed in scale and scope are becoming less tenable. The Indian start-ups are today verily at cross roads, with choices between smug stagnation and tough transformation. Yet, the continued proliferation of owner-managed companies and small scale enterprises with dated technologies indicates that a new start-up model is yet to emerge.
The Indian start-up model is highly domestic market oriented and self-reliance inspired. While start-up firms would not be averse to being suppliers to larger firms, especially in sectors such as engineering and automobile, the overwhelming preference seems to be on direct go-to-market strategies. This enables firms have a quick market-oriented entry in any industrial segment but also limits the ability of entrepreneurs to create stable, growth or niche models that could be more vibrant technologically and commercially in the long term.
The missing dimensions in the Indian start-up scenario relate to inadequate access to technology, insufficient financial resources and overwhelming reluctance to consolidate. The first two factors dictate the pace with which a start-up in India is able to navigate to, and through, the growth phase while the last factor dictates the ability of a start-up firm to stay on course in the growth phase or navigate the maturity phase. Typically, a start-up in India would have the capability to move from a USD 1 million to USD 100 million annual sales but lack the capability to move beyond without dedicated efforts to manage the three dimensions of technology, finance and ownership.
An examination of the Western and Japanese models of start-up could provide guidance for new development models relevant for Indian start-ups.
The Western and Japanese start-up models
The Western and Japanese start-up models are typically based on pioneering pieces of technology or market creation. While it may be tempting to relate this to the fact that all modern technologies emanated in the West (largely USA or Europe) or in Japan it is the start-up intent that made the difference. Entrepreneurs with truly ground-breaking products in the West or in Japan or Korea went on to make their start-ups into mega global enterprises. However, there are certain typical nuances of technology-led start-up development that are different.
Not all techno-entrepreneurs in the West were or are keen to build their start-up enterprises into mega enterprises. Entrepreneurs in the West see creation of commercial value (for themselves) more important than either reaching the market or expanding the scale of the enterprise. Entrepreneurs see technology as a concept to be commercially proved at their hands rather than converted into commercial saleable products in their hands. Entrepreneurs benefit from an equity environment that provides multiple-series funding. Finally, entrepreneurs are willing to monetize their technologies and firms to generate surpluses for new endeavors. Ownership and management are treated as very important in the start-up phase but are considered expendable for leading into the growth and maturity phases.
The techno-entrepreneurs in Japan are different. They tend to innovate for larger industrial firms or trading groups and in the process help create multi-level business arrangements. The start-ups set up by the techno-entrepreneurs typically grow with the larger firms and groups, and become global enterprises in their own right. The entrepreneurs are typically attached to their technologies and family presence but are also able to evolve to the higher levels due to the synergistic relationships. Typically, the larger firms in Japan respect the origins and independence of the smaller suppliers and desist from the Western temptation of acquiring promising technologies and firms. Instead, the accent is on letting the smaller start-ups grow into mature, innovative enterprises.
A hybrid model for Indian start-ups
Given the constraints the Indian start-ups face in accessing technology, finance and markets, and the attachment of the entrepreneurs to continued ownership of the firms they founded, a hybrid model is relevant for Indian start-ups. Assuming that a base level of promoter and external funding is arranged, typically, start-ups fall into one of the three categories: those that make better use of available technology, those that make their operations more competitive and those that access certain market segments more creatively. Needless to say, firms which achieve a virtuous combination of technological innovation, operational efficiency and market penetration would be in a position to drive into a growth phase on their own. The hybrid model would be relevant to start-ups having competencies in one of the three dimensions.
Firms which are technologically innovative need to aim at achieving the earliest proof of concept, following which they should be prepared to license or sell the technology to larger firms which can take the product to the market. This phenomenon is widely prevalent in the West, especially in technology and biopharmaceutical fields, and needs to be adapted to the Indian situation. Firms which have pieces of market would do well by either taking in products from other start-ups or providing market access to larger firms. Firms which are operationally efficient must focus on gaining market access in partnership with larger firms having Indian and global market presence. This could enable a longer independent functioning to such firms, enabling growth journey on their own.
The hybrid model for Indian start-ups thus envisages growth through inorganic relationships across fragments of value chain rather than through organic end-to-end value chain. Many Indian start-ups in India have evolved into mid-sized firms through such relationships. Still some decisions have to be customized: for example, the scale and scope of such relationships, whether such relationships would need to be limited period relationships or permanent relationships, and whether the end game is surplus generation through value monetization and exit as per the Western model or lifetime domain commitment.
Founder-Manager transformational issues
Part of the evolutionary response would emerge from how the founders of the Indian start-ups manage the entry, growth and maturity phases of an enterprise. Entrepreneurial firms tend to be typically founder managed. Investors gain confidence with the founder being in total control of the enterprise while the employees get inspired by the leadership of their founder. As enterprises move into growth phases, investors need to let go of their control on the founders, and the founders need to let go of the control on their enterprises. As an enterprise becomes larger it needs to organize itself into organizational and business units that can be driven by independent managers to generate greater value.
While no professional manager can bring the passion and feel of a founder-leader to an enterprise, start-ups need to find ways and means of institutionalizing the entrepreneurial passion and feel through diversified professionalization. Indian start-ups which moved into the big league have done so not only on the basis of technology-efficiency-market grid but also due to organizational development. Serial entrepreneurship could well help Indian entrepreneurs to continue to feel their passion with newer enterprises while helping their earlier enterprises move on their own steam.
The suggested organizational model is based on the unique Indian psyche that complies as much as it commands; that follows as much as it leads; and that is as much professional as it is entrepreneurial. Compensating any limitations it has, the Indian employee base is driven by a deep sense of loyalty and frugality that can be leveraged by placing capable people in commanding positions. The success of large Indian private and public sector corporations is related to the diversified ownership model that is extended to individual organizational units of an enterprise.
Science and finance for start-up transformation
Start-ups need access to science and technology. Indian entrepreneurs are adept at adapting technology, enhancing efficiency and perching their firms on market niches. They are, however, diffident in taking science and technology from Indian research laboratories. For example, there are over 40 specialized laboratories under the umbrella of the Council for Scientific and Industrial Research (CSIR) as one of the largest publicly funded research network in the world. In addition, institutes of higher learning such as Indian Institutes of Technology and Indian Institute of Science have cutting edge researchers. These competencies can be leveraged to establish new drivers of growth through win-win commercial arrangements. Indian start-ups can place a just small proportion of the risk on using and developing indigenous science and technology to secure cost-effective business development. There is a great potential for Indian science and technology that is waiting to be captured.
Western and Japanese angel investors and private equity funds can achieve substantial returns by considering multi-phase investments in Indian start-ups that could transform themselves into future growth engines by utilizing India specific science and technology. There is tremendous potential that is untapped in social and industrial infrastructure, as well as rural and urban development. A comparative inventory of small enterprises in US, Europe and Japan with those existing in India will indicate the enormous possibilities.
Central and State Governments in India have traditionally supported start-ups by policy measures. Newer and more creative measures are required. Encouragement of single person companies, creation of financial exchanges exclusively for start-ups, channeling of a certain proportion of CSIR research effort for small enterprises, creation of start-up finance divisions in all banks and financial institutions, exemption of small enterprise promotion and management from complex legal hurdles and encouragement of mentoring of start-ups by working executives, all of these supported by governmental policies, could add up to a great entrepreneurial start-up movement in India.
Posted by Dr CB Rao on May 9, 2010
The Indian industrial evolution
The Indian industrial start-up model, as elsewhere, was fuelled by entrepreneurial energy. Even when India was under foreign occupation, in the 1800s and the early 1900s, Indian industrial start-ups were established by the Tatas and Birlas, with their enterprises becoming large industrial groups over the years. Post-independence, successive government policies enabled and encouraged establishment of scores of cottage and small scale enterprises in India. Some of these served larger firms as suppliers and vendors of materials and components while several other start-ups sought a direct go-to-market strategy, with varying degrees of success.
An introverted India, even post-independence in 1947, rarely encouraged free entry and exit, expansion of scale and induction of technology in its industrial and economic policies. As a result, companies stagnated and became less competitive, relative to global trends. At the same time, licensing regulations inhibited global corporations from entering into or expanding in India. On a helpful side, process patent policies (as in some other countries) ensured freedom for domestic companies to reverse-engineer global products for Indian markets. The Indian automobile and pharmaceutical industries became, for example, the epitome of low-scale, domestic-oriented direct to market fragmented industrial structures of the 1960s and 1970s.
There emerged a new Indian entrepreneurial wave from the 1970s (Ambani founded Reliance, for example). Technology induction and assimilation blazed new paths from the 1980s (Indo-Japanese automobile collaborations such as Maruti-Suzuki). Entrepreneurs and corporations were rid of controls, and certain industries started becoming global leaders in certain sectors from the 1990s (TCS and Infosys, in Information Technology). Increasing confidence in Indian competencies and policies from the 2000s and post-patent harmonization assurances led to great global interest in India with a better awareness of the competitiveness of Indian enterprise. Simultaneously, Indian industrial groups and larger Indian companies became globally aggressive, entering overseas markets (directly and through partnerships), acquiring overseas units and marquee brands.
The Indian start-up model
From a protected, regulated domestic regime, the industrial paradigm in India evolved into a liberalized, competitive globalized regime in the 2000s. The models that helped Indian start-ups to enter and stay fixed in scale and scope are becoming less tenable. The Indian start-ups are today verily at cross roads, with choices between smug stagnation and tough transformation. Yet, the continued proliferation of owner-managed companies and small scale enterprises with dated technologies indicates that a new start-up model is yet to emerge.
The Indian start-up model is highly domestic market oriented and self-reliance inspired. While start-up firms would not be averse to being suppliers to larger firms, especially in sectors such as engineering and automobile, the overwhelming preference seems to be on direct go-to-market strategies. This enables firms have a quick market-oriented entry in any industrial segment but also limits the ability of entrepreneurs to create stable, growth or niche models that could be more vibrant technologically and commercially in the long term.
The missing dimensions in the Indian start-up scenario relate to inadequate access to technology, insufficient financial resources and overwhelming reluctance to consolidate. The first two factors dictate the pace with which a start-up in India is able to navigate to, and through, the growth phase while the last factor dictates the ability of a start-up firm to stay on course in the growth phase or navigate the maturity phase. Typically, a start-up in India would have the capability to move from a USD 1 million to USD 100 million annual sales but lack the capability to move beyond without dedicated efforts to manage the three dimensions of technology, finance and ownership.
An examination of the Western and Japanese models of start-up could provide guidance for new development models relevant for Indian start-ups.
The Western and Japanese start-up models
The Western and Japanese start-up models are typically based on pioneering pieces of technology or market creation. While it may be tempting to relate this to the fact that all modern technologies emanated in the West (largely USA or Europe) or in Japan it is the start-up intent that made the difference. Entrepreneurs with truly ground-breaking products in the West or in Japan or Korea went on to make their start-ups into mega global enterprises. However, there are certain typical nuances of technology-led start-up development that are different.
Not all techno-entrepreneurs in the West were or are keen to build their start-up enterprises into mega enterprises. Entrepreneurs in the West see creation of commercial value (for themselves) more important than either reaching the market or expanding the scale of the enterprise. Entrepreneurs see technology as a concept to be commercially proved at their hands rather than converted into commercial saleable products in their hands. Entrepreneurs benefit from an equity environment that provides multiple-series funding. Finally, entrepreneurs are willing to monetize their technologies and firms to generate surpluses for new endeavors. Ownership and management are treated as very important in the start-up phase but are considered expendable for leading into the growth and maturity phases.
The techno-entrepreneurs in Japan are different. They tend to innovate for larger industrial firms or trading groups and in the process help create multi-level business arrangements. The start-ups set up by the techno-entrepreneurs typically grow with the larger firms and groups, and become global enterprises in their own right. The entrepreneurs are typically attached to their technologies and family presence but are also able to evolve to the higher levels due to the synergistic relationships. Typically, the larger firms in Japan respect the origins and independence of the smaller suppliers and desist from the Western temptation of acquiring promising technologies and firms. Instead, the accent is on letting the smaller start-ups grow into mature, innovative enterprises.
A hybrid model for Indian start-ups
Given the constraints the Indian start-ups face in accessing technology, finance and markets, and the attachment of the entrepreneurs to continued ownership of the firms they founded, a hybrid model is relevant for Indian start-ups. Assuming that a base level of promoter and external funding is arranged, typically, start-ups fall into one of the three categories: those that make better use of available technology, those that make their operations more competitive and those that access certain market segments more creatively. Needless to say, firms which achieve a virtuous combination of technological innovation, operational efficiency and market penetration would be in a position to drive into a growth phase on their own. The hybrid model would be relevant to start-ups having competencies in one of the three dimensions.
Firms which are technologically innovative need to aim at achieving the earliest proof of concept, following which they should be prepared to license or sell the technology to larger firms which can take the product to the market. This phenomenon is widely prevalent in the West, especially in technology and biopharmaceutical fields, and needs to be adapted to the Indian situation. Firms which have pieces of market would do well by either taking in products from other start-ups or providing market access to larger firms. Firms which are operationally efficient must focus on gaining market access in partnership with larger firms having Indian and global market presence. This could enable a longer independent functioning to such firms, enabling growth journey on their own.
The hybrid model for Indian start-ups thus envisages growth through inorganic relationships across fragments of value chain rather than through organic end-to-end value chain. Many Indian start-ups in India have evolved into mid-sized firms through such relationships. Still some decisions have to be customized: for example, the scale and scope of such relationships, whether such relationships would need to be limited period relationships or permanent relationships, and whether the end game is surplus generation through value monetization and exit as per the Western model or lifetime domain commitment.
Founder-Manager transformational issues
Part of the evolutionary response would emerge from how the founders of the Indian start-ups manage the entry, growth and maturity phases of an enterprise. Entrepreneurial firms tend to be typically founder managed. Investors gain confidence with the founder being in total control of the enterprise while the employees get inspired by the leadership of their founder. As enterprises move into growth phases, investors need to let go of their control on the founders, and the founders need to let go of the control on their enterprises. As an enterprise becomes larger it needs to organize itself into organizational and business units that can be driven by independent managers to generate greater value.
While no professional manager can bring the passion and feel of a founder-leader to an enterprise, start-ups need to find ways and means of institutionalizing the entrepreneurial passion and feel through diversified professionalization. Indian start-ups which moved into the big league have done so not only on the basis of technology-efficiency-market grid but also due to organizational development. Serial entrepreneurship could well help Indian entrepreneurs to continue to feel their passion with newer enterprises while helping their earlier enterprises move on their own steam.
The suggested organizational model is based on the unique Indian psyche that complies as much as it commands; that follows as much as it leads; and that is as much professional as it is entrepreneurial. Compensating any limitations it has, the Indian employee base is driven by a deep sense of loyalty and frugality that can be leveraged by placing capable people in commanding positions. The success of large Indian private and public sector corporations is related to the diversified ownership model that is extended to individual organizational units of an enterprise.
Science and finance for start-up transformation
Start-ups need access to science and technology. Indian entrepreneurs are adept at adapting technology, enhancing efficiency and perching their firms on market niches. They are, however, diffident in taking science and technology from Indian research laboratories. For example, there are over 40 specialized laboratories under the umbrella of the Council for Scientific and Industrial Research (CSIR) as one of the largest publicly funded research network in the world. In addition, institutes of higher learning such as Indian Institutes of Technology and Indian Institute of Science have cutting edge researchers. These competencies can be leveraged to establish new drivers of growth through win-win commercial arrangements. Indian start-ups can place a just small proportion of the risk on using and developing indigenous science and technology to secure cost-effective business development. There is a great potential for Indian science and technology that is waiting to be captured.
Western and Japanese angel investors and private equity funds can achieve substantial returns by considering multi-phase investments in Indian start-ups that could transform themselves into future growth engines by utilizing India specific science and technology. There is tremendous potential that is untapped in social and industrial infrastructure, as well as rural and urban development. A comparative inventory of small enterprises in US, Europe and Japan with those existing in India will indicate the enormous possibilities.
Central and State Governments in India have traditionally supported start-ups by policy measures. Newer and more creative measures are required. Encouragement of single person companies, creation of financial exchanges exclusively for start-ups, channeling of a certain proportion of CSIR research effort for small enterprises, creation of start-up finance divisions in all banks and financial institutions, exemption of small enterprise promotion and management from complex legal hurdles and encouragement of mentoring of start-ups by working executives, all of these supported by governmental policies, could add up to a great entrepreneurial start-up movement in India.
Posted by Dr CB Rao on May 9, 2010
Sunday, May 2, 2010
From Planet to Person: The Third Wave of Technology
The history of mankind and industrialization helps us to understand how technology has, over the years, impacted human life, of course overwhelmingly in a positive manner. The first wave of technological revolutions comprised electricity, telephony, printing, radio transmission, transportation, imaging and curative medicine, as well as sadly nuclear detonation, to name a few. The second wave of technological revolutions comprised computerization, television, internet, cellular telephony, software and diagnostic and surgical medicine, again to name a few.
If the first wave was supported by mechanical and electro-magnetic devices, the second wave was primed by electronic devices and the ubiquitous chip. In the first wave, devices were designed to perform as per laws of science. In the second wave, devices were instructed to perform as per human needs. If the first wave of technology was characterized by fundamental enablement, the second wave was characterized by transformational enhancement. How will the third wave of technology be different from the previous ones? What will support the third wave and how will it be characterized?
The third wave of technology would in all probability be a combination of the first two waves. It will be both fundamental and transformational simultaneously. The devices – mechanical, electro-mechanical and electronic – will be all there, made more powerful and friendly by more versatile and more capable embedded hardware and software. The devices will incorporate hitherto unchartered laws of science and will feature software that mimics human need fulfillment to a greater degree. Combining the two waves, the third wave of technology will probably rewrite human and industrial paradigms, covering both the planet and person in a holistic sense.
Food security
Topping the agenda would be technological levers for ensuring global food security. With land being increasingly utilized for industrialization and urbanization, especially in emerging countries, the need to use technology for ensuring affordable food for all is a major imperative. The unpredictability and harshness of climate change accentuates the need for better technology markers for agriculture. As opposed to the second wave which sought to propagate factory style farming, the third wave would address the need for sustainable agriculture.
According to United Nations, by 2025 the global population would cross 8 billion. Of this 6.7 billion (84 percent) would live in the less developed or emerging countries. A vast proportion of this population currently lives without even one square meal a day. The need to ensure food security to this huge population would be the most impactful technological challenge. The advanced sections of the global society would simultaneously need to reassess and moderate its approach towards dietary habits, including the dependence on meat consumption. Several studies have pointed out the adverse impact of current approaches on global farming and climate warming on one hand and the direct adverse linkages with animal ethics and human health on the other (reference, Eating Animals by Jonathan Safran Foer, The End of Overeating: Taking Control of our Insatiable Appetite by David A Kessler, and An Edible History of Humanity by Tom Standage, FT Bookshop).
Drought-tolerant seeds, perennial grains, non-toxic fertilizers, titrated plant nutrition, weather-timed sowing, sensor-driven irrigation, clinically validated GM foods, meat-mimicking vegetarian food options, drip irrigation, soil fertility strategies, no-loss harvesting, nutrition-driven grain processing, multiple crop patterns, recyclable agriculture and customized farm equipment could combine to trigger huge spikes in farm productivity with sustainability. Biotechnology, nanotechnology and information technology should drive new technological innovations in agriculture. An emerging country such as India can take the lead by establishing a string of Institutes for agricultural technology on the lines of the famous Indian Institutes of Technology.
Energy security
Energy is the fuel of growth; unfortunately, however, it is also the greatest contributor for loss of natural resources, increase of carbon emissions, and worsening of climate change. From around 500 quadrillion BTU in 2010, the world energy consumption is forecast to increase to 532 quadrillion BTU in 2015 and 678 quadrillion BTU in 2030, representing an increase of 44 percent. China and India, the emerging economic powers, are the two largest consumers of energy. Their share in world energy consumption which was 10 percent in 1990 has increased to 20 percent currently and is forecast to increase to 30 percent by 2030. While advanced nations may be accusative of this trend, the growing share of China and India, as the world’s largest people base (around 40 percent of global population), is an inevitable and logical corollary of their emergence as global hubs of research and manufacture as well as outsourcing.
Currently, oil, coal and natural gas together contribute to around 80 percent of total energy generation. The first challenge for technology is to increase the inter se share of natural gas within these three fuel sources and to make coal a super-clean source of energy. The second challenge is to make energy generation from renewable sources of energy, wind, ocean, solar and geo-thermal, intrinsically economically viable, weaning them away from government subsidies and incentives, and making them contribute a larger share to total energy generation. The third challenge is to make nuclear energy multi-atomic element and super-safe with terror, and accident proofing. The fourth challenge is to shift hydro-energy generation from stored river water dams to naturally flowing waterfalls, releasing river water to uses that are more critical, such as irrigation and domestic and industrial uses. The combined impact of the technology redefinition in energy sector should be to make oil, coal and natural gas (as a group), all renewable sources as a group, and nuclear sources contribute equally to energy generation, at around 33 percent each.
How would China and India, and their technologists cope with the challenges of the required tectonic shift in energy consumption and generation? Massive replacement of dated generating equipment, optimization of energy distribution and upgrades of machinery in user industries are the low hanging fruits which will serve to lower the cost of energy generation and consumption. It is, however, in establishing new infrastructure for renewable energy generation that technology needs to provide a new definition. Given that India is a hot, tropical, windy country with an enormously long coast line it is possible to make India a hub of renewable energy. Technologists, industrialists and bureaucrats need to collaborate to establish solar energy and wind energy cities across the length and breadth of the country, and ocean energy plants all along the coastal line. It is a technology challenge that could redefine the scale, scope and competitiveness of India’s economic and industrial growth in future for India.
Expanded convergence
The second wave of technology was characterized by a new principle of multi-function delivery, aptly called convergence. Devices began to be designed to perform more than one function; and in some cases the distinction between the primary function and the secondary functions got diffused. Cellular phone is a classic case that overrode the primary function of long distance speech communication with secondary functions such as camera, music player, organizer, multi-channel messaging, GPS navigation and social networking. Thousands of software applications have served to convert the mobile phone into a powerful daily aid and a virtual pocket computer.
In the third wave, the principle of convergence will test new frontiers even in mobile telephony, expanding to cover more functions, some of which could not be linked previously even in concept. Current email messages could be replaced by voice and video mail messages, making mobile phone interactions virtually face to face human interactions. From today’s finger touch banking the mobile phone could morph into tomorrow’s portfolio manager, making program-guided transactions. A hand held mobile phone could in future become a virtual health companion by diagnosing body health parameters real time through new sensor technologies.
Convergence could take multiple forms. As a hypothetical but potentially feasible proposition future televisions could come with video capture potential while set-top boxes could have reverse transmission capability enabling aspiring citizens participate in reality shows of the studios direct from their homes. Direct-to-home television transmission could also become direct-to-studio transmission. New power generation equipment could be designed to work equally effectively with all kinds of feedstock, from coal to oil, or from hydro to solar. Applications of convergence could be as many as human ingenuity could dream; the third wave of technology could make them possible.
Diversified concurrence
The automobile industry made a major contribution in the second wave by conceptualizing and implementing concurrent engineering. By involving all the domains of an automobile value chain, from market research and product development, through facility planning and manufacturing, to supply chain and marketing, the Japanese automobile industry created a paradigm that brought new products on time to market , with targeted quality and cost profiles. The third wave of convergence, which involves designs without walls, requires concurrence across businesses which were traditionally built around mono-function products.
Hitherto, convergence has been technology driven. Innovative technologists utilized adjacent usage spaces to develop design-driven products with multi-market segment capabilities. The third wave would require different business segments, and perhaps even different companies, to collaborate and define new product possibilities. For example, laptop makers and projection device makers could collaborate to develop a laptop which could also project the presentations. Flower vase makers could collaborate with organic farmers to develop readymade vases with green plants for homes. Food processing firms could collaborate with pharmaceutical firms to develop immune boosting functional foods. Possibilities could be many.
Concurrence may not be natural and collaborative either due to competitive business compulsions or due to an inability of firms to balance mutual contributions and rewards. Concurrence would have to be achieved in such conditions through creation of requisite technical capabilities, licensing arrangements or downright acquisitions. Organic or inorganic, an ability to combine multiple technologies to develop multi-functional products will be the new dimension of competitiveness. Google’s acquisition of YouTube was an example; so is HP’s acquisition of Palm. Valero’s acquisitive move into ethanol production and ExxonMobil’s multi-million dollar bet on in-house research into algae and synthetic genome technologies reflect the opposite, but equally relevant, approaches to merge businesses without borders.
Efficiency in form factor
A new found focus on form factor has been at the core of the new wave of miniaturization and the emergence of convergence devices. The third wave of technology, however, has to look beyond miniaturization to exploit the full potential of form factor, and to conserve resources. The fundamental premise for the third wave technologists is that at least 50 percent of any device is a wasted, non-usable or non-used space, partly due to the technological limitations and partly due to user habits. Take, for example, a television in which the back of the panel is a completely wasted space. It is possible to design televisions with back-to-back twin panels if only users are willing to use televisions as central pieces of entertainment rather than as corner pieces!
Laptops, notebooks, net-books and computer display screens are yet another device group that reflect an enormous waste of space. At a very simple level, with more robust display screens, the effective display screen size within the total screen can be increased from the current 85 percent to 95 percent. In addition, with the advent of touch screen technologies, there is no reason why both the internal sides of a laptop cannot be fully utilized to achieve total display or partitioned display; for example, the top of the opened laptop for typing in of information and the bottom for simultaneous browsing of the Internet. The front of a notebook can also feature an optional screen for two co-workers to simultaneously see, discuss and edit. Electronic readers and mobile phones can be released from the constraints of passive space design to active space design, with some ingenuity.
Form factor efficiency need not be confined only to electronic devices. Industrial machinery, farm equipment, automobiles and home interiors, to quote a few, could benefit from new dimensions in form factor efficiency. Machining centers were a great advancement in multi-machining of components, especially complex automobile parts such as cylinder head and cylinder block. Typically, the part to be machined is kept in the centre of the machining centre. The idle exterior of the machining centre can also be designed to perform other machining activities such as planning and shaping or to perform certain surface measurements. Farm equipment constitute yet another example of how the total surface area can be differentially designed and shaped to meet different soil conditions and tilling requirements. Automobiles can be designed for example to offer seat configurations that can be modified to suit the occupiers’ body profiles and driving preferences. Home interiors offer enormous potential for space-optimized and convergence-oriented designs.
Regenerative engineering
Technology has, so far, made life easier for the human being with the advances in science, engineering, information processing and medicine. Devices and equipment are continually upgraded to newer levels of efficiency and new devices and equipment are also continuously developed to offer new applications. Creation of robots and humanoids has been the crowning glory of this technological achievement. The next wave of technology could create robots which replicate human beings with thought processes and movements which are as close to those of human beings as possible. The third wave could see two different dimensions of medical technology.
The first is a chip-empowered human being. If a chip can power a computer or a device to the highest realms of performance, it would be equally feasible in future for a chip to power a handicapped person to overcome his or her handicaps. Physically challenged special persons can look forward to previously unforeseen contributions from third wave of technology. Technologists, physicians and surgeons, however, need to collaborate to establish connectivity between the human chip and neural networks of the human brain. Just as a pacemaker did wonders to cardiac performance, the new human chip would be the future brain maker, duly supported by a slew of bio-medical parts.
The second is creation of human organs through regenerative medicine. Stem cells are showing enormous promise to rebuild human capabilities, whether of weakened heart muscles or re-growing lost organs. While immortality is certainly antithetical to rules of life, enhanced span of life and improved quality of life are certainly possible through regenerative medicine. Technology would need to create appropriate environmentally conditioned laboratory suites and new generation equipment for cellular and molecular analysis. Aseptic cryogenic, genetic and incubating equipment with enhanced bioengineering capabilities are required for scientists to explore new vistas in regenerative medicine .
Summary
The world is in the throes of several challenges posed by depletion of resources, global warming, and increasingly volatile economic and social conditions. Technology has made life meaningful in the past bringing previously inconceivable things into the realms of life; there is no reason why technology would not usher in yet another transformation for a society that is being increasingly pressured not only by technology itself but also by the way technology is deployed.
The new third wave of technology will express itself in four essential dimensions. The first will be in terms of ensuring food and energy security for the planet, through new infrastructural technologies. The second will be in terms of growing businesses without borders through new convergence products and concurrence businesses. The third will be in terms of greater utilization of form factor design for each device and equipment to be spatially and functionally more utilitarian. The fourth will be in terms of integrating technological and human capabilities to regenerate and reinforce human capabilities.
The world would be a far better and rejuvenating place to live for the human race if the third wave of technology pans out as presented herein.
Posted by Dr CB Rao on May 2, 2010
If the first wave was supported by mechanical and electro-magnetic devices, the second wave was primed by electronic devices and the ubiquitous chip. In the first wave, devices were designed to perform as per laws of science. In the second wave, devices were instructed to perform as per human needs. If the first wave of technology was characterized by fundamental enablement, the second wave was characterized by transformational enhancement. How will the third wave of technology be different from the previous ones? What will support the third wave and how will it be characterized?
The third wave of technology would in all probability be a combination of the first two waves. It will be both fundamental and transformational simultaneously. The devices – mechanical, electro-mechanical and electronic – will be all there, made more powerful and friendly by more versatile and more capable embedded hardware and software. The devices will incorporate hitherto unchartered laws of science and will feature software that mimics human need fulfillment to a greater degree. Combining the two waves, the third wave of technology will probably rewrite human and industrial paradigms, covering both the planet and person in a holistic sense.
Food security
Topping the agenda would be technological levers for ensuring global food security. With land being increasingly utilized for industrialization and urbanization, especially in emerging countries, the need to use technology for ensuring affordable food for all is a major imperative. The unpredictability and harshness of climate change accentuates the need for better technology markers for agriculture. As opposed to the second wave which sought to propagate factory style farming, the third wave would address the need for sustainable agriculture.
According to United Nations, by 2025 the global population would cross 8 billion. Of this 6.7 billion (84 percent) would live in the less developed or emerging countries. A vast proportion of this population currently lives without even one square meal a day. The need to ensure food security to this huge population would be the most impactful technological challenge. The advanced sections of the global society would simultaneously need to reassess and moderate its approach towards dietary habits, including the dependence on meat consumption. Several studies have pointed out the adverse impact of current approaches on global farming and climate warming on one hand and the direct adverse linkages with animal ethics and human health on the other (reference, Eating Animals by Jonathan Safran Foer, The End of Overeating: Taking Control of our Insatiable Appetite by David A Kessler, and An Edible History of Humanity by Tom Standage, FT Bookshop).
Drought-tolerant seeds, perennial grains, non-toxic fertilizers, titrated plant nutrition, weather-timed sowing, sensor-driven irrigation, clinically validated GM foods, meat-mimicking vegetarian food options, drip irrigation, soil fertility strategies, no-loss harvesting, nutrition-driven grain processing, multiple crop patterns, recyclable agriculture and customized farm equipment could combine to trigger huge spikes in farm productivity with sustainability. Biotechnology, nanotechnology and information technology should drive new technological innovations in agriculture. An emerging country such as India can take the lead by establishing a string of Institutes for agricultural technology on the lines of the famous Indian Institutes of Technology.
Energy security
Energy is the fuel of growth; unfortunately, however, it is also the greatest contributor for loss of natural resources, increase of carbon emissions, and worsening of climate change. From around 500 quadrillion BTU in 2010, the world energy consumption is forecast to increase to 532 quadrillion BTU in 2015 and 678 quadrillion BTU in 2030, representing an increase of 44 percent. China and India, the emerging economic powers, are the two largest consumers of energy. Their share in world energy consumption which was 10 percent in 1990 has increased to 20 percent currently and is forecast to increase to 30 percent by 2030. While advanced nations may be accusative of this trend, the growing share of China and India, as the world’s largest people base (around 40 percent of global population), is an inevitable and logical corollary of their emergence as global hubs of research and manufacture as well as outsourcing.
Currently, oil, coal and natural gas together contribute to around 80 percent of total energy generation. The first challenge for technology is to increase the inter se share of natural gas within these three fuel sources and to make coal a super-clean source of energy. The second challenge is to make energy generation from renewable sources of energy, wind, ocean, solar and geo-thermal, intrinsically economically viable, weaning them away from government subsidies and incentives, and making them contribute a larger share to total energy generation. The third challenge is to make nuclear energy multi-atomic element and super-safe with terror, and accident proofing. The fourth challenge is to shift hydro-energy generation from stored river water dams to naturally flowing waterfalls, releasing river water to uses that are more critical, such as irrigation and domestic and industrial uses. The combined impact of the technology redefinition in energy sector should be to make oil, coal and natural gas (as a group), all renewable sources as a group, and nuclear sources contribute equally to energy generation, at around 33 percent each.
How would China and India, and their technologists cope with the challenges of the required tectonic shift in energy consumption and generation? Massive replacement of dated generating equipment, optimization of energy distribution and upgrades of machinery in user industries are the low hanging fruits which will serve to lower the cost of energy generation and consumption. It is, however, in establishing new infrastructure for renewable energy generation that technology needs to provide a new definition. Given that India is a hot, tropical, windy country with an enormously long coast line it is possible to make India a hub of renewable energy. Technologists, industrialists and bureaucrats need to collaborate to establish solar energy and wind energy cities across the length and breadth of the country, and ocean energy plants all along the coastal line. It is a technology challenge that could redefine the scale, scope and competitiveness of India’s economic and industrial growth in future for India.
Expanded convergence
The second wave of technology was characterized by a new principle of multi-function delivery, aptly called convergence. Devices began to be designed to perform more than one function; and in some cases the distinction between the primary function and the secondary functions got diffused. Cellular phone is a classic case that overrode the primary function of long distance speech communication with secondary functions such as camera, music player, organizer, multi-channel messaging, GPS navigation and social networking. Thousands of software applications have served to convert the mobile phone into a powerful daily aid and a virtual pocket computer.
In the third wave, the principle of convergence will test new frontiers even in mobile telephony, expanding to cover more functions, some of which could not be linked previously even in concept. Current email messages could be replaced by voice and video mail messages, making mobile phone interactions virtually face to face human interactions. From today’s finger touch banking the mobile phone could morph into tomorrow’s portfolio manager, making program-guided transactions. A hand held mobile phone could in future become a virtual health companion by diagnosing body health parameters real time through new sensor technologies.
Convergence could take multiple forms. As a hypothetical but potentially feasible proposition future televisions could come with video capture potential while set-top boxes could have reverse transmission capability enabling aspiring citizens participate in reality shows of the studios direct from their homes. Direct-to-home television transmission could also become direct-to-studio transmission. New power generation equipment could be designed to work equally effectively with all kinds of feedstock, from coal to oil, or from hydro to solar. Applications of convergence could be as many as human ingenuity could dream; the third wave of technology could make them possible.
Diversified concurrence
The automobile industry made a major contribution in the second wave by conceptualizing and implementing concurrent engineering. By involving all the domains of an automobile value chain, from market research and product development, through facility planning and manufacturing, to supply chain and marketing, the Japanese automobile industry created a paradigm that brought new products on time to market , with targeted quality and cost profiles. The third wave of convergence, which involves designs without walls, requires concurrence across businesses which were traditionally built around mono-function products.
Hitherto, convergence has been technology driven. Innovative technologists utilized adjacent usage spaces to develop design-driven products with multi-market segment capabilities. The third wave would require different business segments, and perhaps even different companies, to collaborate and define new product possibilities. For example, laptop makers and projection device makers could collaborate to develop a laptop which could also project the presentations. Flower vase makers could collaborate with organic farmers to develop readymade vases with green plants for homes. Food processing firms could collaborate with pharmaceutical firms to develop immune boosting functional foods. Possibilities could be many.
Concurrence may not be natural and collaborative either due to competitive business compulsions or due to an inability of firms to balance mutual contributions and rewards. Concurrence would have to be achieved in such conditions through creation of requisite technical capabilities, licensing arrangements or downright acquisitions. Organic or inorganic, an ability to combine multiple technologies to develop multi-functional products will be the new dimension of competitiveness. Google’s acquisition of YouTube was an example; so is HP’s acquisition of Palm. Valero’s acquisitive move into ethanol production and ExxonMobil’s multi-million dollar bet on in-house research into algae and synthetic genome technologies reflect the opposite, but equally relevant, approaches to merge businesses without borders.
Efficiency in form factor
A new found focus on form factor has been at the core of the new wave of miniaturization and the emergence of convergence devices. The third wave of technology, however, has to look beyond miniaturization to exploit the full potential of form factor, and to conserve resources. The fundamental premise for the third wave technologists is that at least 50 percent of any device is a wasted, non-usable or non-used space, partly due to the technological limitations and partly due to user habits. Take, for example, a television in which the back of the panel is a completely wasted space. It is possible to design televisions with back-to-back twin panels if only users are willing to use televisions as central pieces of entertainment rather than as corner pieces!
Laptops, notebooks, net-books and computer display screens are yet another device group that reflect an enormous waste of space. At a very simple level, with more robust display screens, the effective display screen size within the total screen can be increased from the current 85 percent to 95 percent. In addition, with the advent of touch screen technologies, there is no reason why both the internal sides of a laptop cannot be fully utilized to achieve total display or partitioned display; for example, the top of the opened laptop for typing in of information and the bottom for simultaneous browsing of the Internet. The front of a notebook can also feature an optional screen for two co-workers to simultaneously see, discuss and edit. Electronic readers and mobile phones can be released from the constraints of passive space design to active space design, with some ingenuity.
Form factor efficiency need not be confined only to electronic devices. Industrial machinery, farm equipment, automobiles and home interiors, to quote a few, could benefit from new dimensions in form factor efficiency. Machining centers were a great advancement in multi-machining of components, especially complex automobile parts such as cylinder head and cylinder block. Typically, the part to be machined is kept in the centre of the machining centre. The idle exterior of the machining centre can also be designed to perform other machining activities such as planning and shaping or to perform certain surface measurements. Farm equipment constitute yet another example of how the total surface area can be differentially designed and shaped to meet different soil conditions and tilling requirements. Automobiles can be designed for example to offer seat configurations that can be modified to suit the occupiers’ body profiles and driving preferences. Home interiors offer enormous potential for space-optimized and convergence-oriented designs.
Regenerative engineering
Technology has, so far, made life easier for the human being with the advances in science, engineering, information processing and medicine. Devices and equipment are continually upgraded to newer levels of efficiency and new devices and equipment are also continuously developed to offer new applications. Creation of robots and humanoids has been the crowning glory of this technological achievement. The next wave of technology could create robots which replicate human beings with thought processes and movements which are as close to those of human beings as possible. The third wave could see two different dimensions of medical technology.
The first is a chip-empowered human being. If a chip can power a computer or a device to the highest realms of performance, it would be equally feasible in future for a chip to power a handicapped person to overcome his or her handicaps. Physically challenged special persons can look forward to previously unforeseen contributions from third wave of technology. Technologists, physicians and surgeons, however, need to collaborate to establish connectivity between the human chip and neural networks of the human brain. Just as a pacemaker did wonders to cardiac performance, the new human chip would be the future brain maker, duly supported by a slew of bio-medical parts.
The second is creation of human organs through regenerative medicine. Stem cells are showing enormous promise to rebuild human capabilities, whether of weakened heart muscles or re-growing lost organs. While immortality is certainly antithetical to rules of life, enhanced span of life and improved quality of life are certainly possible through regenerative medicine. Technology would need to create appropriate environmentally conditioned laboratory suites and new generation equipment for cellular and molecular analysis. Aseptic cryogenic, genetic and incubating equipment with enhanced bioengineering capabilities are required for scientists to explore new vistas in regenerative medicine .
Summary
The world is in the throes of several challenges posed by depletion of resources, global warming, and increasingly volatile economic and social conditions. Technology has made life meaningful in the past bringing previously inconceivable things into the realms of life; there is no reason why technology would not usher in yet another transformation for a society that is being increasingly pressured not only by technology itself but also by the way technology is deployed.
The new third wave of technology will express itself in four essential dimensions. The first will be in terms of ensuring food and energy security for the planet, through new infrastructural technologies. The second will be in terms of growing businesses without borders through new convergence products and concurrence businesses. The third will be in terms of greater utilization of form factor design for each device and equipment to be spatially and functionally more utilitarian. The fourth will be in terms of integrating technological and human capabilities to regenerate and reinforce human capabilities.
The world would be a far better and rejuvenating place to live for the human race if the third wave of technology pans out as presented herein.
Posted by Dr CB Rao on May 2, 2010
Sunday, April 18, 2010
CK Prahalad (August 8, 1941 – April 17, 2010): Timeless in Strategy, Tireless in Creativity
In the sudden demise of Dr CK Prahalad in San Diego, USA, the world of strategy has lost one of the most perceptive, innovative and influential strategic thinkers of all times. Strategy would not have been what it is today but for the innumerable path-breaking conceptual and analytical constructs that Professor Prahalad developed and propagated over the years. With indefatigable energy and passion he taught, wrote, consulted and mentored, on a global platform for over 44 years, leaving behind his unique and distinguished stamp on management thought and practice.
CK Prahalad (CK or CKP as he is popularly called) represented the very best of Indian intellect that found a global home. Born into a large family of Sanskrit Brahmin scholars in the South Indian city of Coimbatore in August 1941, Coimbatore Krishnarao Prahalad obtained his B Sc degree in Physics from Loyola College, University of Madras in 1960. After graduation, he worked in Union Carbide as industrial engineer and later in India Pistons as training manager. Setting sights on management education, he earned his PG diploma in Business Administration from the prestigious Indian Institute of Management, Ahmedabad, as a student of the first batch in 1966. His stint at Union Carbide and the move into the management studies were perhaps the critical inflexion points of his life.
Prahalad, armed with the MBA from IIMA, proceeded to Harvard Business School, USA where he earned his Doctor of Business Administration in 1975. He returned to India to teach at his Alma Mater, IIMA during 1976-77. He thereafter joined University of Michigan, USA and made his mark as a foremost management teacher in the United States. He served as the Distinguished University Professor of Corporate Strategy at the Stephen M Ross School of Business in the University of Michigan. Dr Prahalad was the recipient of several honors and awards globally. Honorary doctorate degrees from global universities and high-ranking civilian awards from the Government of India such as Padma Bhushan were part of the recognitions.
Though a bit dated, one of the best accounts of CK Prahalad’s passions expressed as his reflections can be found in the paper “C.K. Prahalad’s Passions: Reflections on His Scholorly Journey as a Researcher, Teacher and Management Guru” co-authored by Lynn Perry Wooten and Anne Parmigiani from University of Michigan and Nandini Lahiri from Indian School of Business (Journal of Management Inquiry, Vol. 14, No. 2, June 2005, pp 168-175).
This blog post presents Dr Prahalad’s genius from diverse perspectives based on the author’s understanding of his works and the author’s attendance in Dr Prahalad’s speaking forums.
Sweeping in canvas
Throughout his long distinguished career Professor Prahalad helped reshape strategy and set new directions for business. He had an unparalleled genius for developing seemingly abstract yet elegantly simple constructs, marked by lateral and out-of-the-box thinking. His teachings helped future managers and leaders acquire leading-edge conceptual, analytical and strategic skills. His articles and books, which went on to become bestsellers, shaped innumerable professionals, across domains and countries, to think differently. His consultancy assignments helped companies plan and grow existing and new businesses or turnaround the ailing ones. His speeches and presentations in several global forums helped strategy acquire a distinctiverecognition as a critical domain. More importantly, his mentoring of corporate boards, chief executive officers, entrepreneurs, bureaucrats and ministers helped India, Inc recognize its global potential.
If there is one factor that characterized all of CK’s contributions it is the unique trail-blazing nature. While several management gurus are content to spin extension and analogue theories around their first fundamental premise, CK constantly and consistently propounded new trail-blazing concepts and theories. As a result, CK made a more complete and holistic contribution to business management than any other exponent, save perhaps the legendary Peter Drucker. Each of Dr Prahalad’s bestselling books and award-winning articles exemplifies a thought process that is refreshingly different and genuinely creative.
Prahalad’s books institutionalized new ways of strategic thinking through elaborate paradigms, well-illustrated with real time case studies. His notable works include “Competing for the Future”, co-authored with Gary Hamel (1984), “Multinational Mission: Balancing Local Demands and Global Vision” (1987), ”The Future of Competition: Co-Creating Unique Value with Customers”, co-authored with Venkat Ramaswamy (2004), “The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits” (2004), and “The New Age of Innovation: Driving Co-Created Value through Global Networks” (2008), co-authored with MS Krishnan. Each of the books created a new strategy paradigm completely different from the previous ones and laid new trails of strategic thinking.
Prahalad’s award-winning articles almost inevitably churned management thought and laid new pivots of strategic thinking. Prahalad’s “The Dominant Logic: A New Linkage between Diversity and Performance” (1986), co-authored with Richard Bettis,” Strategic Intent” (1989) and ”The Core Competence of Corporation” (1990), both co-authored with Gary Hamel,” The Role of Core Competencies in the Corporation” (1993), “A Strategy for Growth: The Role of Core Competence in the Corporation” (1993),” Weak Signals Vs. Strong Paradigms” (1995), “The End of Corporate Imperialism” (1998), “Serving the World’ Poor, Profitably” (2002), co-authored with Allan Hammond, “The New Frontier of Experience Innovation” (2003), and “Twenty Hubs and No HQ” (2008), co-authored with Hrishikesh Bhattacharyya, have each led to entirely new waves of thinking in corporate strategy.
Unlike many management gurus who preferred to plough their own lonely paths, Professor Prahalad believed strongly in collaborating with other management thinkers, including his students who evolved into independent thinkers in their own right. The array of books and articles he co-authored with such experts, some of them listed above, is proof of his cross-institutional, cross-border collaborative research and writing, often taking years of dedicated work before a publication is made. Quite often, however, it fell on his shoulders to present and communicate thoughts to several learned forums across the globe. While there could be effective class room teachers and public orators, Dr Prahalad had a unique capability to connect with the audience, influence listeners of varied mindsets, and instill a sense of purpose in each listener.
Pioneering in theory and practice
Amongst the many conceptual contributions of Prahalad, ‘strategic intent”, “core competency” and “bottom of the pyramid” have been the truly game-changing ones. Though these were initially proposed by Dr Prahalad as case based theoretical constructs and caused intellectual upheavals in management thought when they were first presented, all of these have now become viable practices.
The construct of strategic intent comprised three attributes of direction, discovery and destiny. It required a company to think of a long term and differentiated competitive position that a firm must seek over a decade or so, which in turn would motivate the employees explore the new terrain with a sense of purpose. Prahalad advocated upward movement of new ideas from all across the organization to help the company chart out a competitive future stating that a company’s strategic orthodoxies would prove to be more dangerous than its well-financed rivals. The prime message was one of doing things differently to achieve desired differentiated outcomes.
The concept of core competencies made fundamental departure from the established concepts of strategic business units and outside-in models of competitive strategy by arguing that only the core competency of a firm could truly drive its strategy and business. Each firm could have its own core competency or a portfolio of core competencies but a true core competency would be one that remained difficult to replicate by the competitors. The theory advocated building of core competencies that support a strategic intent. It proposed a core competency mind-set that would unchain talent from the imprisonment of business units, identify projects and people who embody core competencies and a game plan to identify next-generation competencies.
The paradigm of “fortune at the bottom of the pyramid’, was India-centric theory with truly global implications. It argued that by developing low cost products and services that serve the poorest of the poor, corporations would actually earn profits with a social purpose. It hypothesized that by focusing on the demand at the bottom of the social pyramid companies would help eliminate poverty. The book supported the theory with several actual case studies from India. While it had its share of skeptical critics it is now well established that Prahalad’s BoP theory has become viable industrial practice. Tata’s USD 2,000 dollar Nano small car, Nokia’s and Samsung’s USD 20 mobile phones and Yunus’s Grameen Bank demonstrate how profits get generated by focusing on, rather than shirking away, from poverty.
Equally path-breaking have been Dr Prahalad’s other concepts; for example, that the consumer and the firm are intimately involved in jointly creating value that is unique to the individual consumer and sustainable to the firm (“The Future of Competition”) or that the emerging markets can be a source of innovation, which can be captured by accessing global resources and talent to create customized co-created experiences for consumers. The attempts of global automobile firms and innovator pharmaceutical firms to collaborate with Indian partners indicate that the time has arrived, as always, for Prahalad’s futuristic propositions.
Passion for India as a global force
CK Prahalad was perhaps the only Western management thinker who believed that India would be a global leader sooner than later. He appreciated and forecast global competitive dynamics as much as he understood and formulated dynamic corporate strategies. He held that leadership was all about the future, about hope and change.
In 1994 Dr Prahalad addressed a select group of CEOs of India, Inc in Windsor Club. He suggested to them that they must build multinational firms from India (Indian MNCs) rather than be paralyzed by the entry of multinationals into the Indian market. Very few of the assembled CEOs thought then that it could happen. Probably saddened by this reaction he started working with Indian corporations and individual CEOs to prompt a multinational mindset. Surely to Prahalad’s satisfaction, he saw in his lifetime the concept of Indian MNCs becoming reality. Today virtually all industrial sectors of India are significantly globalized while several top Indian corporations have made major global acquisitions.
In 2007-08, as the celebrations of India@60 wound down, he formulated a new vision for India@75, ie., India by 2022. He argued that India’s success in this endeavor would depend on economic strength, technological vitality and moral leadership. He set several exciting goals for India. He urged the governments to convert the huge population into a distinct advantage through quality education. He believed that India would account for 10 percent of global trade. He exhorted India, Inc to get 30 of its firms onto Fortune 100 list. He wanted India to have 10 Nobel Prize winners based on research conducted in India. He believed that India’s unique manufacturing and R&D paradigms could be developed to develop cost-effective breakthrough innovations.
Dr Prahalad advocated game changing accomplishments for India to move to the next higher trajectory. He said: “ Focus on the future, and not on the present or the trajectory of the past; Aspirations must exceed the resources; and Imagination is more important than analysis”. By focusing on inclusive growth that would emphasize the larger rural landscape as micro-producers and micro-consumers as much as the more visible urban landscape as major producers and consumers he felt that India with its 1 billion plus population could turn his India@75 vision into reality.
People power of strategy
Prahalad’s works are characterized by an unflinching faith in people as shapers of strategy and drivers of growth. Prahalad never looked at strategy as an impersonal corporate construct or as a mere structural enabler. CKP’s recent works have focused explicitly on consumers as the co-creators of value; however, even his earliest works integrated people as the essential component of strategy development.
In Prahalad’s framework people emerge as the primary constituency, either as generators of demand or creators of products, with his strategy linking both. For example, in Strategic Intent Prahalad dwelt with an active management process that would include: focusing the organization’s attention on the essence of winning, motivating people by communicating the value of the target, leaving room for individual and team contributions, sustaining enthusiasm by providing course corrections and using the intent consistently to guide resource allocations.
Needless to say, his work on core competencies is completely people focused. Here, however, he focused on the intellectual competencies of people. According to Prahalad, core competencies are the collective learning in the organization, signifying a unique ability to coordinate diverse skills and integrate multiple technologies. He argued, correctly so, that several individualized skills would not lead to the competitiveness of an organization, unless they were woven into a core competency that was distinctive to the organization. In his view, core competence would many levels of people and all functions, with top management looking at the company as an amalgam of skills and not as a collection of departments or products.
It is, however, in the “Fortune at the Bottom of the Pyramid” that an entirely new human dimension of CK Prahalad emerged. By all accounts, no management guru (or any corporate honcho) until then considered poverty-stricken sections of the society as one deserving of any mention in strategy formulation. In an era where consulting organizations and corporate strategists encouraged companies to focus on advanced markets to drive revenues, Prahalad in his landmark book advocated creation of fortune by focusing on poor people in emerging markets. The tag line “enabling dignity and choice through markets” is evocative. Post-publication of this book, creation and delivery of low cost but high quality products for customized applications became a board room topic, finally.
A loss, a void and a duty
Typically, Prahalad never stayed in a zone of comfort. If consulting assignments to top ranking global firms provided early challenges and opportunities, his passion to evengalize his strategic philosophies globally with a special focus on India made Dr Prahalad a truly jet-set global management guru. Very often, he is reported to have placed his external commitments ahead of his personal comfort and health. He founded and personally ran entrepreneurial ventures (Praja, Inc) which sought to harness the power of the technology and Internet. As with the philosophy he advocated for others, he set aspirations higher than resources and aimed to push the boundary farther, ever often.
The passing away of Dr CK Prahalad has snatched one of the most innovative and prolific management thinkers from the business world. Many academic institutions, industry associations, corporate boards and chief executives, directly served by his thoughts through association and indirectly influenced by his written and spoken thoughts, will be orphaned. More than anything else, the employee-on-the-frontline and the man-on-the-street would be impacted by the snapping of his creative thoughts that targeted common good, globally.
In Professor Prahalad’s demise, companies have lost a mentor who encouraged managements to engage the apparently ordinary people in their organizations and feel their extraordinary potential in strategy formulation and execution. Societies have lost a benefactor who could develop new business constructs which would harmonize the profit motives of a capitalistic corporation with the equity needs of a handicapped society.
Needless to say, India has lost a towering icon of great intellectual capability, acclaimed as the most influential management thinker of the world. Converting Dr Prahalad’s vision for India into a reality is the most relevant homage that India’ strategists can pay to his unique and distinguished memory.
Posted by Dr CB Rao on April 18, 2010
CK Prahalad (CK or CKP as he is popularly called) represented the very best of Indian intellect that found a global home. Born into a large family of Sanskrit Brahmin scholars in the South Indian city of Coimbatore in August 1941, Coimbatore Krishnarao Prahalad obtained his B Sc degree in Physics from Loyola College, University of Madras in 1960. After graduation, he worked in Union Carbide as industrial engineer and later in India Pistons as training manager. Setting sights on management education, he earned his PG diploma in Business Administration from the prestigious Indian Institute of Management, Ahmedabad, as a student of the first batch in 1966. His stint at Union Carbide and the move into the management studies were perhaps the critical inflexion points of his life.
Prahalad, armed with the MBA from IIMA, proceeded to Harvard Business School, USA where he earned his Doctor of Business Administration in 1975. He returned to India to teach at his Alma Mater, IIMA during 1976-77. He thereafter joined University of Michigan, USA and made his mark as a foremost management teacher in the United States. He served as the Distinguished University Professor of Corporate Strategy at the Stephen M Ross School of Business in the University of Michigan. Dr Prahalad was the recipient of several honors and awards globally. Honorary doctorate degrees from global universities and high-ranking civilian awards from the Government of India such as Padma Bhushan were part of the recognitions.
Though a bit dated, one of the best accounts of CK Prahalad’s passions expressed as his reflections can be found in the paper “C.K. Prahalad’s Passions: Reflections on His Scholorly Journey as a Researcher, Teacher and Management Guru” co-authored by Lynn Perry Wooten and Anne Parmigiani from University of Michigan and Nandini Lahiri from Indian School of Business (Journal of Management Inquiry, Vol. 14, No. 2, June 2005, pp 168-175).
This blog post presents Dr Prahalad’s genius from diverse perspectives based on the author’s understanding of his works and the author’s attendance in Dr Prahalad’s speaking forums.
Sweeping in canvas
Throughout his long distinguished career Professor Prahalad helped reshape strategy and set new directions for business. He had an unparalleled genius for developing seemingly abstract yet elegantly simple constructs, marked by lateral and out-of-the-box thinking. His teachings helped future managers and leaders acquire leading-edge conceptual, analytical and strategic skills. His articles and books, which went on to become bestsellers, shaped innumerable professionals, across domains and countries, to think differently. His consultancy assignments helped companies plan and grow existing and new businesses or turnaround the ailing ones. His speeches and presentations in several global forums helped strategy acquire a distinctiverecognition as a critical domain. More importantly, his mentoring of corporate boards, chief executive officers, entrepreneurs, bureaucrats and ministers helped India, Inc recognize its global potential.
If there is one factor that characterized all of CK’s contributions it is the unique trail-blazing nature. While several management gurus are content to spin extension and analogue theories around their first fundamental premise, CK constantly and consistently propounded new trail-blazing concepts and theories. As a result, CK made a more complete and holistic contribution to business management than any other exponent, save perhaps the legendary Peter Drucker. Each of Dr Prahalad’s bestselling books and award-winning articles exemplifies a thought process that is refreshingly different and genuinely creative.
Prahalad’s books institutionalized new ways of strategic thinking through elaborate paradigms, well-illustrated with real time case studies. His notable works include “Competing for the Future”, co-authored with Gary Hamel (1984), “Multinational Mission: Balancing Local Demands and Global Vision” (1987), ”The Future of Competition: Co-Creating Unique Value with Customers”, co-authored with Venkat Ramaswamy (2004), “The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits” (2004), and “The New Age of Innovation: Driving Co-Created Value through Global Networks” (2008), co-authored with MS Krishnan. Each of the books created a new strategy paradigm completely different from the previous ones and laid new trails of strategic thinking.
Prahalad’s award-winning articles almost inevitably churned management thought and laid new pivots of strategic thinking. Prahalad’s “The Dominant Logic: A New Linkage between Diversity and Performance” (1986), co-authored with Richard Bettis,” Strategic Intent” (1989) and ”The Core Competence of Corporation” (1990), both co-authored with Gary Hamel,” The Role of Core Competencies in the Corporation” (1993), “A Strategy for Growth: The Role of Core Competence in the Corporation” (1993),” Weak Signals Vs. Strong Paradigms” (1995), “The End of Corporate Imperialism” (1998), “Serving the World’ Poor, Profitably” (2002), co-authored with Allan Hammond, “The New Frontier of Experience Innovation” (2003), and “Twenty Hubs and No HQ” (2008), co-authored with Hrishikesh Bhattacharyya, have each led to entirely new waves of thinking in corporate strategy.
Unlike many management gurus who preferred to plough their own lonely paths, Professor Prahalad believed strongly in collaborating with other management thinkers, including his students who evolved into independent thinkers in their own right. The array of books and articles he co-authored with such experts, some of them listed above, is proof of his cross-institutional, cross-border collaborative research and writing, often taking years of dedicated work before a publication is made. Quite often, however, it fell on his shoulders to present and communicate thoughts to several learned forums across the globe. While there could be effective class room teachers and public orators, Dr Prahalad had a unique capability to connect with the audience, influence listeners of varied mindsets, and instill a sense of purpose in each listener.
Pioneering in theory and practice
Amongst the many conceptual contributions of Prahalad, ‘strategic intent”, “core competency” and “bottom of the pyramid” have been the truly game-changing ones. Though these were initially proposed by Dr Prahalad as case based theoretical constructs and caused intellectual upheavals in management thought when they were first presented, all of these have now become viable practices.
The construct of strategic intent comprised three attributes of direction, discovery and destiny. It required a company to think of a long term and differentiated competitive position that a firm must seek over a decade or so, which in turn would motivate the employees explore the new terrain with a sense of purpose. Prahalad advocated upward movement of new ideas from all across the organization to help the company chart out a competitive future stating that a company’s strategic orthodoxies would prove to be more dangerous than its well-financed rivals. The prime message was one of doing things differently to achieve desired differentiated outcomes.
The concept of core competencies made fundamental departure from the established concepts of strategic business units and outside-in models of competitive strategy by arguing that only the core competency of a firm could truly drive its strategy and business. Each firm could have its own core competency or a portfolio of core competencies but a true core competency would be one that remained difficult to replicate by the competitors. The theory advocated building of core competencies that support a strategic intent. It proposed a core competency mind-set that would unchain talent from the imprisonment of business units, identify projects and people who embody core competencies and a game plan to identify next-generation competencies.
The paradigm of “fortune at the bottom of the pyramid’, was India-centric theory with truly global implications. It argued that by developing low cost products and services that serve the poorest of the poor, corporations would actually earn profits with a social purpose. It hypothesized that by focusing on the demand at the bottom of the social pyramid companies would help eliminate poverty. The book supported the theory with several actual case studies from India. While it had its share of skeptical critics it is now well established that Prahalad’s BoP theory has become viable industrial practice. Tata’s USD 2,000 dollar Nano small car, Nokia’s and Samsung’s USD 20 mobile phones and Yunus’s Grameen Bank demonstrate how profits get generated by focusing on, rather than shirking away, from poverty.
Equally path-breaking have been Dr Prahalad’s other concepts; for example, that the consumer and the firm are intimately involved in jointly creating value that is unique to the individual consumer and sustainable to the firm (“The Future of Competition”) or that the emerging markets can be a source of innovation, which can be captured by accessing global resources and talent to create customized co-created experiences for consumers. The attempts of global automobile firms and innovator pharmaceutical firms to collaborate with Indian partners indicate that the time has arrived, as always, for Prahalad’s futuristic propositions.
Passion for India as a global force
CK Prahalad was perhaps the only Western management thinker who believed that India would be a global leader sooner than later. He appreciated and forecast global competitive dynamics as much as he understood and formulated dynamic corporate strategies. He held that leadership was all about the future, about hope and change.
In 1994 Dr Prahalad addressed a select group of CEOs of India, Inc in Windsor Club. He suggested to them that they must build multinational firms from India (Indian MNCs) rather than be paralyzed by the entry of multinationals into the Indian market. Very few of the assembled CEOs thought then that it could happen. Probably saddened by this reaction he started working with Indian corporations and individual CEOs to prompt a multinational mindset. Surely to Prahalad’s satisfaction, he saw in his lifetime the concept of Indian MNCs becoming reality. Today virtually all industrial sectors of India are significantly globalized while several top Indian corporations have made major global acquisitions.
In 2007-08, as the celebrations of India@60 wound down, he formulated a new vision for India@75, ie., India by 2022. He argued that India’s success in this endeavor would depend on economic strength, technological vitality and moral leadership. He set several exciting goals for India. He urged the governments to convert the huge population into a distinct advantage through quality education. He believed that India would account for 10 percent of global trade. He exhorted India, Inc to get 30 of its firms onto Fortune 100 list. He wanted India to have 10 Nobel Prize winners based on research conducted in India. He believed that India’s unique manufacturing and R&D paradigms could be developed to develop cost-effective breakthrough innovations.
Dr Prahalad advocated game changing accomplishments for India to move to the next higher trajectory. He said: “ Focus on the future, and not on the present or the trajectory of the past; Aspirations must exceed the resources; and Imagination is more important than analysis”. By focusing on inclusive growth that would emphasize the larger rural landscape as micro-producers and micro-consumers as much as the more visible urban landscape as major producers and consumers he felt that India with its 1 billion plus population could turn his India@75 vision into reality.
People power of strategy
Prahalad’s works are characterized by an unflinching faith in people as shapers of strategy and drivers of growth. Prahalad never looked at strategy as an impersonal corporate construct or as a mere structural enabler. CKP’s recent works have focused explicitly on consumers as the co-creators of value; however, even his earliest works integrated people as the essential component of strategy development.
In Prahalad’s framework people emerge as the primary constituency, either as generators of demand or creators of products, with his strategy linking both. For example, in Strategic Intent Prahalad dwelt with an active management process that would include: focusing the organization’s attention on the essence of winning, motivating people by communicating the value of the target, leaving room for individual and team contributions, sustaining enthusiasm by providing course corrections and using the intent consistently to guide resource allocations.
Needless to say, his work on core competencies is completely people focused. Here, however, he focused on the intellectual competencies of people. According to Prahalad, core competencies are the collective learning in the organization, signifying a unique ability to coordinate diverse skills and integrate multiple technologies. He argued, correctly so, that several individualized skills would not lead to the competitiveness of an organization, unless they were woven into a core competency that was distinctive to the organization. In his view, core competence would many levels of people and all functions, with top management looking at the company as an amalgam of skills and not as a collection of departments or products.
It is, however, in the “Fortune at the Bottom of the Pyramid” that an entirely new human dimension of CK Prahalad emerged. By all accounts, no management guru (or any corporate honcho) until then considered poverty-stricken sections of the society as one deserving of any mention in strategy formulation. In an era where consulting organizations and corporate strategists encouraged companies to focus on advanced markets to drive revenues, Prahalad in his landmark book advocated creation of fortune by focusing on poor people in emerging markets. The tag line “enabling dignity and choice through markets” is evocative. Post-publication of this book, creation and delivery of low cost but high quality products for customized applications became a board room topic, finally.
A loss, a void and a duty
Typically, Prahalad never stayed in a zone of comfort. If consulting assignments to top ranking global firms provided early challenges and opportunities, his passion to evengalize his strategic philosophies globally with a special focus on India made Dr Prahalad a truly jet-set global management guru. Very often, he is reported to have placed his external commitments ahead of his personal comfort and health. He founded and personally ran entrepreneurial ventures (Praja, Inc) which sought to harness the power of the technology and Internet. As with the philosophy he advocated for others, he set aspirations higher than resources and aimed to push the boundary farther, ever often.
The passing away of Dr CK Prahalad has snatched one of the most innovative and prolific management thinkers from the business world. Many academic institutions, industry associations, corporate boards and chief executives, directly served by his thoughts through association and indirectly influenced by his written and spoken thoughts, will be orphaned. More than anything else, the employee-on-the-frontline and the man-on-the-street would be impacted by the snapping of his creative thoughts that targeted common good, globally.
In Professor Prahalad’s demise, companies have lost a mentor who encouraged managements to engage the apparently ordinary people in their organizations and feel their extraordinary potential in strategy formulation and execution. Societies have lost a benefactor who could develop new business constructs which would harmonize the profit motives of a capitalistic corporation with the equity needs of a handicapped society.
Needless to say, India has lost a towering icon of great intellectual capability, acclaimed as the most influential management thinker of the world. Converting Dr Prahalad’s vision for India into a reality is the most relevant homage that India’ strategists can pay to his unique and distinguished memory.
Posted by Dr CB Rao on April 18, 2010
Thursday, March 25, 2010
Toyota on Test: Lessons for the Rest
This is my fiftieth post on my Blog: Strategy Musings. I see writing this post on Toyota Motor Corporation, one of the most admired corporations of the world ever, as a challenge in the context of the quality and recall problems that Toyota has been facing in recent months. My post is not on the rights and wrongs of the current situation faced by Toyota; there is little information in public domain to make any meaningful analysis. In any case, Toyota, its stakeholders, and the regulators are seized of the matter. Reasons and remedies are certain to emerge, and hopefully will serve to preserve and nurture the culture of quality, efficiency and harmony that Toyota sought to preserve.
The purpose of the blog post, on the other hand, is to view the Toyota happenings in a broader context and hypothesize certain lessons for the rest of the industrial world which could reinforce the quality, safety, and productivity movement of the world.
Toyota: Admired for achievements
Toyota was founded on August 28, 1937. After the World War II, Toyota reinvented itself and led Japan’s growth as a global industrial powerhouse, along with the likes of Sony, Matsushita (Panasonic), Hitachi and other Japanese mega corporations. In calendar year (CY) 2009, Toyota sold 7 million automobiles worldwide, 13 percent lower than the vehicles it sold in CY 2008, due to the deep global recession. Prior to the recalls issue hitting its reputation, the company hoped to sell 7.4 million vehicles in CY 2010, registering a 6 percent growth rate. The company employs 70,000 people worldwide. Together with its two of its Japanese automobile affiliates, Hino (truck and bus maker) and Daihatsu (small car and light vehicle maker), Toyota sold 7.8 million vehicles in CY 2009 and planned to sell 8.3 million vehicles in CY 2010.
Between 1950 and 2010, Toyota became the most admired company of the world for its path-breaking engineering initiatives and manufacturing achievements.
Toyota’s several pioneering innovations in automobile engineering cover engine, drive train, braking, suspension, body, electronics and overall automobile design concepts, over the years. Smokeless diesel engine, common rail direct ignition turbo diesel engine, lean burn engine, vehicle stability control system, electronics controlled throttle, navigation and safety systems, eco-friendly materials and electric and fuel cell as well as hybrid and plug-in hybrid cars helped Toyota consistently lead automobile design. Between 1990 and 2009, Toyota introduced over 150 individual innovations across its automobile range. Apart from consolidating the mainline product lineup with successive generations of Corolla, Camry, RAV 4 and Land Cruiser models, the company created competitive luxury through Lexus and energy efficiency through Prius designs. Toyota Corolla remains the most successful global model with over 30 million vehicles sold worldwide since launch.
It is, however, in the manufacturing domain that Toyota’s achievements acquired iconic status. Toyota’s Toyota Production System (TPS) transformed the way manufacturing is conceived, planned and executed. It demonstrated to the industrial world how more could be achieved with less. TPS itself was established on two core concepts. The first is called “jidoka” (defined as automation with human touch). Jidoka highlights and visualizes problems by stopping manufacturing when a defect is found until a solution is found. The second is the concept of just-in-time, in which each process produces only that is needed by the next process in a continuous flow.
Toyota’s role model achievements in engineering and manufacturing are matched by commensurate strides in quality. Over the years, Toyota built a seemingly impeccable reputation around its quality. TPS and quality circles helped Toyota build quality in its manufacturing. Since 1951, when Toyota introduced its famed suggestion scheme, thousands of suggestions helped the company to institutionalize “kaizen” (continuous improvement) and raise quality and productivity standards. Toyota was one of the first to win Deming application prize for quality control in 1965. Toyota’s in-house quality initiatives and positive association with Deming quality standards led other manufacturers view Toyota’s quality movement as important as TPS in keeping Toyota at the top of the quality curve.
In today’s globalized context TPS is being evolved into an ultimate global lean management system while multi-tasking robotics is being attempted to move manufacturing productivity to a higher level. On the cost-competitiveness front, the traditional item based cost innovation which has, in the past, yielded significant savings is being transformed into system based cost innovation for more breakthrough results.
It is interesting that even as Toyota grew into global automotive leadership, Toyota has also ventured into several non-automotive business areas which integrate the corporation further into human and planetary life. Toyota’s non-automotive businesses include housing, with focus on earthquake resistant and flexible construction technologies, financial services with focus on vehicle financing, information technology (IT) and IT solutions (ITS), semi-conductors, e-commerce automotive shopping mall, pleasure crafts and marine engines, aerospace, and biotechnology and afforestation. Some of these are also global initiatives.
McKinsey in its thought-leading work “The Alchemy of Growth” discussed how firms need to create new horizons of growth. Worldwide, automobile firms are notable for standing committed to only automobile business. Toyota, on the other hand seems to inherit the founder Keeichiro Toyoda’s vision of extending into future, which led him to creating an automobile business within textile spinning business, and spinning off Toyota Motor from its parent, Toyoda Loom Works. Decades later, once again into the future, Toyota’s current diversifications could demonstrate that innovation has no boundaries.
Toyota: Rebuked for recalls
It is inconceivable that Toyota, the corporation that stood by, and grew with, quality as a plank could face the unsettling quality problems and recall issues covering 14 car models. According to agency reports, Toyota recalled more than 9 million cars, a number significantly more than its intended annual sale for CY 2010. Over 1,500 Toyota dealers and over 172,000 team members across North America are stated to be working 24X7 over the last few months to handle the largest recall program ever in the history of the global automobile industry. It is no consolation that several other automobile manufacturers also started having recalls, albeit at much lower levels.
The quality problems which caused unintended acceleration of some Toyota vehicles, more pronouncedly in the North American region, leading to unfortunate fatalities in some cases, have been traced to defective pedals and sticky floor mats. This indeed is a surprise given that a typical automobile which has thousands of high precision components, two relatively simple parts have caused havoc. As if to compensate for this, a new wave of recalls, though smaller in scale, covers the software program that controls the antilock braking system (ABS) in its high technology hybrid and hybrid plug-in Prius models.
After months of hesitation, which some say can be traced to incidents even in 2002, Toyota swung into action in 2010 initiating the massive recall program. The US regulators have also moved into action seeking personal testimonies from the top executives of Toyota. In the prepared testimony dated March 2, 2010 to the US Senate Committee on Commerce, Science and Transportation, Yoshimi Inaba, President and COO, Toyota Motor North America, Toyota has stated that at the product level Toyota has developed effective and durable solutions for the recalled vehicles. He also stated that the company has carried out fundamental changes in the way Toyota operates to ensure that Toyota sets even higher standards for vehicle safety and reliability, responsiveness to customers and transparency with regulators.
The testimony stated that at a global level, Toyota has established a Special Committee for Global Quality, led by Toyota’s President to thoroughly review operations and ensure that problems of this nature do not recur. In the interest of openness, Toyota is also assembling a blue ribbon panel of distinguished, independent experts to confirm that the enhanced quality controls conform to best industry practices. Toyota is also putting a system in place to better share important quality and safety information across its global operations and to work more closely and transparently with government agencies, including NHTSA in the United States.
The testimony also stated that at a regional level, Toyota will ensure that its customers’ voices will be heard and acted upon in a timely manner. In the United States, Toyota committed to investigate consumer complaints more aggressively by deploying “SWAT teams” of technicians to make on‐site inspections of unintended acceleration, and reports of such incidents, as quickly as possible. Toyota is establishing the new position of Regional Product Safety Executive, and its North American operations will have more autonomy and decision making power with regard to recall and other safety issues. In addition, Toyota will establish a new Automotive Center of Quality Excellence in the U.S., where a team of its top engineers will focus on strengthening the quality control throughout the region.
At the customer level, Toyota is taking significant steps to bolster confidence in the safety and reliability of its vehicles. Toyota will be one of the first full‐line automakers to make brake override systems standard on all the new models sold in North America, including hybrids which have a system that achieves a similar result. Toyota is also installing brake override on seven existing models. This advanced system automatically cuts engine power when the accelerator and brake pedals are both depressed. In addition, Toyota has commissioned a comprehensive, independent evaluation of its electronic throttle control system by a world‐class engineering and scientific consulting firm. Toyota stated that in its own extensive testing, Toyota never found a defect that caused unintended acceleration. Toyota expressed confidence in the system but recognizing the need for additional reassurance promised to make the findings of this independent analysis public.
In renewing its commitment to customer safety as its top priority, Toyota committed, as part of its various testimonies to the US House Committees, to revitalize the simple principle that has guided Toyota since 1937 – to build the highest quality, safest and most reliable automobiles in the world.The company also engaged Exponent, Inc, a leading scientific and engineering firm to conduct a thorough evaluation of its electronic throttle control system. One recent study by Exponent disputed the conclusion of “unintended acceleration” by Professor David Gilbert of Southern Illinois University of the USA. Exponent concluded that Gilbert demonstration was based on “unrealistic sequence” and “manipulated faults” and replication of such sequences and faults in vehicles of other manufacturers created similar unintended acceleration in such cars. Evaluation by Exponent and tests by Toyota’s engineers are continuing.
If Toyota can falter, anyone can
Media reprimanding and corporate remedying apart, the episode of Toyota on test has several lessons for the rest. The fundamental lesson that the Toyota episode teaches is that if a company as technology and quality savvy as Toyota can falter, anyone can. This is a sobering thought for all companies, conservative or aggressive, and deliberative or opportunistic.
Speeding on business highway
Toyota has such robust and consensual systems with multi-hierarchy check provisions that faults cannot seep easily. Only speed could have altered Toyota’s organizational eco system. One could hypothesize that the carefully preserved Toyota values were challenged by the unprecedented global expansion that the company executed over the last 10 years. There has been an accelerated growth in capacity over this period. In 2000, Toyota produced 5.2 million cars; by 2009 it doubled the capacity to 10 million cars. In 2000, Toyota had 58 production plants; by 2009 it added 17 new plants, most of them outside Japan. Probably, Toyota’s famed systems could not keep pace with the scorching pace of growth.
In his prepared testimony dated February 24, 2010 to the Committee on Oversight and Government Reform, Akio Toyoda, President, Toyota stated, discussing the philosophy of Toyota’s quality control, “I myself, as well as Toyota, am not perfect. At times, we do find defects. But in such situations, we always stop, strive to understand the problem, and make changes to improve further. In the name of the company, its long-standing tradition and pride, we never run away from our problems or pretend we don’t notice them. By making continuous improvements, we aim to continue offering even better products for society. That is the core value we have kept closest to our hearts since the founding days of the company.”
Toyoda also stated, discussing the recall issues, “Toyota has, for the past few years, been expanding its business rapidly. Quite frankly, I fear the pace at which we have grown may have been too quick. I would like to point out here that Toyota’s priority has traditionally been the following: First; Safety, Second; Quality, and Third; Volume. These priorities became confused, and we were not able to stop, think, and make improvements as much as we were able to before, and our basic stance to listen to customers’ voices to make better products has weakened somewhat. We pursued growth over the speed at which we were able to develop our people and our organization, and we should sincerely be mindful of that. I regret that this has resulted in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced.”
The above two statements reflect the characteristic passion for quality and an uncharacteristic candor on growth, on the part of Toyota’s chief executive. These statements are relevant for all chief executive officers responsible for safety, quality and growth in an organization. Just as reckless speed could involve people in accidents on a highway, unmanageable growth can make companies skid on business highway. Prior to finalizing growth plans, corporate leadership teams should thoroughly discuss how the growth plans impact the safety, quality and environment aspects and agree on risk-mitigated execution plans, including heightened organizational preparedness to handle multi-product development, multi-site manufacture, multi-country marketing , and multi-environment usage of products.
Globalization risks
All companies, big and small, must view every challenge as an opportunity to review their product specifications, development methodologies, quality standards, manufacturing and supply chain processes, product usage conditions and customer use feedback. The challenge and urgency increase as a company enhances its global supply chain, manufacturing and marketing operations. The challenge would be even higher when companies resort to the Toyota model of producing “world products”. The concept involves more of models sharing more of components on a smaller number of platforms, with globally diffused procurement and production. While this model is the epitome of manufacturing efficiency, the risks of one sub-standard part blotching up global production are correspondingly higher.
It is perhaps not accidental that the problems for Toyota cars emerged in North America where the cars were manufactured, marketed and used. Only detailed internal Toyota studies can reveal if the North American plants completely absorbed the failsafe manufacturing processes that were always so successfully deployed in Japan, the faster highway speed conditions stressed some of the components more than a congested Japanese highway system would, the customer service organization failed to amplify the on-road signals to the regional and parent organizations, or simply the complex globalized corporate organization failed to listen to weak signals from a distant region. Globally organized companies would do well to institutionalize their best practices globally, stress-test the products to stringent operating conditions, strengthen their market vigilance organizations and provide the needed voice to their leaders in the corporate management.
Pharmaceutical industry in regulated countries works under a stringent regime of multi-country clinical trials, post-marketing studies and pharmaco-vigilance reporting established by food and drug administration agencies. Even this system is post-facto and does not customize medicines in the stage of development to genetic variations of ethnic groups or even better, to individuals. Though not to same scale environmental conditions and operating practices of different countries vary so much that global designs need to be customized for individual regional needs or need to be targeted for the most variable conditions and practices.
Outlining various steps taken to alleviate and avoid problems, which include greater regional decision making, keeping local customer safety first, setting up of US based quality advisory group and automotive center of quality excellence in the US, Toyota’s President observed, in a manner reflective of the Japanese Gemba Kaizen philosophy, “I believe that only by examining the problems on-site, can one make decisions from the customer perspective. One cannot rely on reports or data in a meeting room”. Pre-product development surveys and post-launch surveillance methodologies need to be strengthened immensely to develop globally sustainable products.
Electronics enigmas
The automobile is no more a pure mechanical equipment. In today’s automobile, electronics is as important as thermodynamics and software as vital as hardware. Electronics and information technology today control and manage the automobile as never before. In a Toyota automobile, over the last twenty years as many as twenty revolutionary electronic governance systems have been introduced. Electronically controlled throttle, piezoelectric common rail injection system, electric valve timing system, electronic start-stop and idling systems, all-wheel drive control system, GPS car navigation, radar cruise control system, lane monitoring system, crash safety system and telematic systems are some of the digitally controlled aspects of a Toyota automobile. Some special Toyota models such as fuel cell electric vehicle, fuel cell hybrid vehicle and Prius hybrid system vehicle represent a complete generational shift in the use of electronics and software in an automobile.
The unprecedented use of electronics and software brings in its wake the issues of robustness of performance in harsh and highly variable conditions caused by extremes of heat, dust, rain, bumps, and snow. Potentially it could be well nigh impossible to test and validate computer systems in such conditions with total operational infallibility. Unlike a fly-by-wire aircraft or an in-house computer, an automobile hardly gets the attention or time to check all the computer systems prior to start. The typical automobile driver is always rearing to zoom from the time he or she gets into the driver’s seat. Automobile makers need to develop ingenious ways to fail-proof the electronics systems in their automobiles. Potentially, they must establish dedicated software and electronic companies in a manner analogous to their nurturing dedicated component makers.
The lessons of the electronics enigma are not limited to only automobiles. Virtually every device today, from a bathroom shower which has electronic control of temperature to an electronic pacemaker which digitally regulates human heart, has plenty of electronics that could potentially risk runaway changes under certain unforeseen circumstances. Apart from thorough validation protocols for products pre-release, and incorporation of failsafe over-ride mechanisms, user friendly operating protocols could go a long way in ensuring equipment and device safety as well as user safety in operation. One would note that arising from the recalls Toyota has decided to make brake override systems mandatory on its models. Relevant warning signal and override systems need to be thought of for all equipment and devices that could impact safety.
Operational complexity vs organizational simplicity
Global operations are bound to be complex. Nowhere else is it illustrated better than in Toyota’s own case. Toyota’s global operations churn out 82 mainline Toyota car models and 10 Lexus car models which are sold in 170 countries and regions through 460 distributors (290 in Japan and 170 overseas). Toyota has 13 R&D sites globally (6 in USA, 4 in Europe and 2 in Asia Pacific, besides the mother technical centre in Nagoya, Japan). Toyota produces its highly customized product range out of its 65 manufacturing plants (12 in Japan and 53 in overseas countries, of which 12 are in North America, 4 in Latin America, 8 in Europe, and 25 in Asia, excluding Japan). Several of these are constituted as legal entities and subsidiaries. In addition, Toyota has 14 large group companies producing components and materials, each with its own subsidiaries and overseas ventures. Given the highly networked system of automobile production, and also migration of platforms, and plants from advanced markets to emerging markets the complexity of globalization can be overwhelming.
Toyota sought to overcome the complexity as much as possible by constituting overseas entities as corporate subsidiaries, with each manufacturing plant being a company in some cases (as in Europe or India) and with a holding company owning several manufacturing entities in some cases (as in North America). Yet, none of the overseas subsidiaries seem to have an organization that reflected the breadth and depth of the parent Toyota organization in Japan. The Toyota corporate organization, for example, has besides the chairman, 2 vice-chairmen, 1 president, 5 executive vice presidents, 18 senior managing directors, 2 directors, 50 managing officers, 23 advisors and 7 corporate auditors. The enormous product planning, engineering, manufacturing, quality and regulatory organization that exists in Japan is not prevalent in overseas subsidiaries despite the surge in overseas engineering, production and sales. Around 42 percent of total Toyota production is contributed by overseas units while 75 percent of sales is derived from overseas markets. Increasingly, more automobile designs are executed overseas. Yet, probably the gravitas remained in Japan. While there is nothing inappropriate in a Japan-driven strategy given that Japan has been the core of Toyota’s engineering and manufacturing creativity, the thin structuring of overseas organizations perhaps impeded complete transfer and absorption of parent’s hard and soft skills by the regional units on one hand, and transmission of the needs and usage patterns of local markets to the parent on the other hand.
Clearly, multinational corporations with global footprint and aspirations need specific structural strategies. The success of MNCs such as Unilever and Proctor & Gamble in countries such as India has been due to their early indigenization of management (while integrating global best practices) through understanding of the local pulse, and leveraging of local talent. Carlos Ghosn, global CEO of Renault-Nissan reflected similar principles while inaugurating the Indian car facility a few days ago. He stated that his company chose India not for cost but for a whole different way of conceptualizing highly cost-competitive projects and operations. While these skills and approaches would be more readily available with joint ventures, wholly owned subsidiaries need to be structured in a way that the soul and spirit of local enterprise is reinforced with the structures and systems of the global corporation.
Structure with process; the complete solution for globalization
From all accounts, despite the remarkable engineering capability that Toyota has, the company could not reach to the core of the recalls problem. In fact, from floor mats and sticking pedals (which appear to be too simple a reason) to electronic deficiencies (which are relatively inscrutable) the reasons for the safety problems have not formed a cohesive narration. An analysis in Los Angeles Times, February 23, 2010 asserted, quoting former Toyota insiders, that the mangled messages from Toyota had roots in the company's fractured organizational structure in the United States -- a design that put key decision making in the hands of executives in Japan and ultimately impaired its ability to prevent the burgeoning safety problems before they reached the crisis stage.
As Toyota has grown into a powerhouse of the auto industry over the last decade, it has built up a vast complex of engineering centers, test tracks, financial arms, sales offices and manufacturing plants that spread from California to New York, spilling over into Canada and Mexico as well. According to LA Times, Toyota lacks a single U.S. headquarters; its units can operate as fiefdoms that report independently to Japan. The complicated tasks of gathering information about sudden-acceleration incidents, analyzing the problems and engineering fixes, as well as reporting the issues to federal safety regulators, were handled by different Toyota subsidiaries, each managed separately in many cases from Japan, former Toyota managers and employees say. This analysis, if correct, provides an instructive insight that a structural solution of subsidiaries by itself does not help. Meaningful processes for management of parent-subsidiary structures relevant to local needs and capabilities are required. Dissemination of instructions from parent needs to be balanced by an amplification of feedback from subsidiaries.
Here again, successful multinationals in emerging markets led the way decades ago by constituting local corporations as complete organizations. The technical depth was perhaps lower, and technology ostensibly flowed from the parent given the state of Indian talent situation in the 1950s. Yet, such MNCs created integrated and viable structures which could benefit from equally responsive localized processes. In fact, the statement by the Chairman of the Indian subsidiary of Lever was, from the inception, a classic essay in thought leadership for Lever’s global needs as much as for its Indian operations. The talent pool, and professional enterprise in contemporary India are radically different, and in fact, world-class. As advanced countries take a new aim at India for both the market and skills that India offers, organizational structures and processes need to reflect a similar maturity.
Summary
No analysis can do justice to analyze, much less understand, in totality the automobile engineering and manufacturing phenomenon that Toyota is. It is painful, therefore, that certain structural and process deficiencies in the context of rapid global expansion should cast a shadow on Toyota’s famed technical capability and quality delivery. Contrary to the hypothesis by some columnists that Toyota’s problems signify the final decline of Japan itself, one can expect the engineering great to reassert its core skills and win back customer confidence. Toyota, on test today, offers several lessons for the rest on building up core capabilities and the nuances of managing growth and globalization with appropriate structures and processes. If the discussion in this blog post helps in developing these perspectives, it is perhaps because there could be no better vehicle than Toyota to stimulate, organize and present these thoughts.
Posted by Dr CB Rao on March 25, 2010
The purpose of the blog post, on the other hand, is to view the Toyota happenings in a broader context and hypothesize certain lessons for the rest of the industrial world which could reinforce the quality, safety, and productivity movement of the world.
Toyota: Admired for achievements
Toyota was founded on August 28, 1937. After the World War II, Toyota reinvented itself and led Japan’s growth as a global industrial powerhouse, along with the likes of Sony, Matsushita (Panasonic), Hitachi and other Japanese mega corporations. In calendar year (CY) 2009, Toyota sold 7 million automobiles worldwide, 13 percent lower than the vehicles it sold in CY 2008, due to the deep global recession. Prior to the recalls issue hitting its reputation, the company hoped to sell 7.4 million vehicles in CY 2010, registering a 6 percent growth rate. The company employs 70,000 people worldwide. Together with its two of its Japanese automobile affiliates, Hino (truck and bus maker) and Daihatsu (small car and light vehicle maker), Toyota sold 7.8 million vehicles in CY 2009 and planned to sell 8.3 million vehicles in CY 2010.
Between 1950 and 2010, Toyota became the most admired company of the world for its path-breaking engineering initiatives and manufacturing achievements.
Toyota’s several pioneering innovations in automobile engineering cover engine, drive train, braking, suspension, body, electronics and overall automobile design concepts, over the years. Smokeless diesel engine, common rail direct ignition turbo diesel engine, lean burn engine, vehicle stability control system, electronics controlled throttle, navigation and safety systems, eco-friendly materials and electric and fuel cell as well as hybrid and plug-in hybrid cars helped Toyota consistently lead automobile design. Between 1990 and 2009, Toyota introduced over 150 individual innovations across its automobile range. Apart from consolidating the mainline product lineup with successive generations of Corolla, Camry, RAV 4 and Land Cruiser models, the company created competitive luxury through Lexus and energy efficiency through Prius designs. Toyota Corolla remains the most successful global model with over 30 million vehicles sold worldwide since launch.
It is, however, in the manufacturing domain that Toyota’s achievements acquired iconic status. Toyota’s Toyota Production System (TPS) transformed the way manufacturing is conceived, planned and executed. It demonstrated to the industrial world how more could be achieved with less. TPS itself was established on two core concepts. The first is called “jidoka” (defined as automation with human touch). Jidoka highlights and visualizes problems by stopping manufacturing when a defect is found until a solution is found. The second is the concept of just-in-time, in which each process produces only that is needed by the next process in a continuous flow.
Toyota’s role model achievements in engineering and manufacturing are matched by commensurate strides in quality. Over the years, Toyota built a seemingly impeccable reputation around its quality. TPS and quality circles helped Toyota build quality in its manufacturing. Since 1951, when Toyota introduced its famed suggestion scheme, thousands of suggestions helped the company to institutionalize “kaizen” (continuous improvement) and raise quality and productivity standards. Toyota was one of the first to win Deming application prize for quality control in 1965. Toyota’s in-house quality initiatives and positive association with Deming quality standards led other manufacturers view Toyota’s quality movement as important as TPS in keeping Toyota at the top of the quality curve.
In today’s globalized context TPS is being evolved into an ultimate global lean management system while multi-tasking robotics is being attempted to move manufacturing productivity to a higher level. On the cost-competitiveness front, the traditional item based cost innovation which has, in the past, yielded significant savings is being transformed into system based cost innovation for more breakthrough results.
It is interesting that even as Toyota grew into global automotive leadership, Toyota has also ventured into several non-automotive business areas which integrate the corporation further into human and planetary life. Toyota’s non-automotive businesses include housing, with focus on earthquake resistant and flexible construction technologies, financial services with focus on vehicle financing, information technology (IT) and IT solutions (ITS), semi-conductors, e-commerce automotive shopping mall, pleasure crafts and marine engines, aerospace, and biotechnology and afforestation. Some of these are also global initiatives.
McKinsey in its thought-leading work “The Alchemy of Growth” discussed how firms need to create new horizons of growth. Worldwide, automobile firms are notable for standing committed to only automobile business. Toyota, on the other hand seems to inherit the founder Keeichiro Toyoda’s vision of extending into future, which led him to creating an automobile business within textile spinning business, and spinning off Toyota Motor from its parent, Toyoda Loom Works. Decades later, once again into the future, Toyota’s current diversifications could demonstrate that innovation has no boundaries.
Toyota: Rebuked for recalls
It is inconceivable that Toyota, the corporation that stood by, and grew with, quality as a plank could face the unsettling quality problems and recall issues covering 14 car models. According to agency reports, Toyota recalled more than 9 million cars, a number significantly more than its intended annual sale for CY 2010. Over 1,500 Toyota dealers and over 172,000 team members across North America are stated to be working 24X7 over the last few months to handle the largest recall program ever in the history of the global automobile industry. It is no consolation that several other automobile manufacturers also started having recalls, albeit at much lower levels.
The quality problems which caused unintended acceleration of some Toyota vehicles, more pronouncedly in the North American region, leading to unfortunate fatalities in some cases, have been traced to defective pedals and sticky floor mats. This indeed is a surprise given that a typical automobile which has thousands of high precision components, two relatively simple parts have caused havoc. As if to compensate for this, a new wave of recalls, though smaller in scale, covers the software program that controls the antilock braking system (ABS) in its high technology hybrid and hybrid plug-in Prius models.
After months of hesitation, which some say can be traced to incidents even in 2002, Toyota swung into action in 2010 initiating the massive recall program. The US regulators have also moved into action seeking personal testimonies from the top executives of Toyota. In the prepared testimony dated March 2, 2010 to the US Senate Committee on Commerce, Science and Transportation, Yoshimi Inaba, President and COO, Toyota Motor North America, Toyota has stated that at the product level Toyota has developed effective and durable solutions for the recalled vehicles. He also stated that the company has carried out fundamental changes in the way Toyota operates to ensure that Toyota sets even higher standards for vehicle safety and reliability, responsiveness to customers and transparency with regulators.
The testimony stated that at a global level, Toyota has established a Special Committee for Global Quality, led by Toyota’s President to thoroughly review operations and ensure that problems of this nature do not recur. In the interest of openness, Toyota is also assembling a blue ribbon panel of distinguished, independent experts to confirm that the enhanced quality controls conform to best industry practices. Toyota is also putting a system in place to better share important quality and safety information across its global operations and to work more closely and transparently with government agencies, including NHTSA in the United States.
The testimony also stated that at a regional level, Toyota will ensure that its customers’ voices will be heard and acted upon in a timely manner. In the United States, Toyota committed to investigate consumer complaints more aggressively by deploying “SWAT teams” of technicians to make on‐site inspections of unintended acceleration, and reports of such incidents, as quickly as possible. Toyota is establishing the new position of Regional Product Safety Executive, and its North American operations will have more autonomy and decision making power with regard to recall and other safety issues. In addition, Toyota will establish a new Automotive Center of Quality Excellence in the U.S., where a team of its top engineers will focus on strengthening the quality control throughout the region.
At the customer level, Toyota is taking significant steps to bolster confidence in the safety and reliability of its vehicles. Toyota will be one of the first full‐line automakers to make brake override systems standard on all the new models sold in North America, including hybrids which have a system that achieves a similar result. Toyota is also installing brake override on seven existing models. This advanced system automatically cuts engine power when the accelerator and brake pedals are both depressed. In addition, Toyota has commissioned a comprehensive, independent evaluation of its electronic throttle control system by a world‐class engineering and scientific consulting firm. Toyota stated that in its own extensive testing, Toyota never found a defect that caused unintended acceleration. Toyota expressed confidence in the system but recognizing the need for additional reassurance promised to make the findings of this independent analysis public.
In renewing its commitment to customer safety as its top priority, Toyota committed, as part of its various testimonies to the US House Committees, to revitalize the simple principle that has guided Toyota since 1937 – to build the highest quality, safest and most reliable automobiles in the world.The company also engaged Exponent, Inc, a leading scientific and engineering firm to conduct a thorough evaluation of its electronic throttle control system. One recent study by Exponent disputed the conclusion of “unintended acceleration” by Professor David Gilbert of Southern Illinois University of the USA. Exponent concluded that Gilbert demonstration was based on “unrealistic sequence” and “manipulated faults” and replication of such sequences and faults in vehicles of other manufacturers created similar unintended acceleration in such cars. Evaluation by Exponent and tests by Toyota’s engineers are continuing.
If Toyota can falter, anyone can
Media reprimanding and corporate remedying apart, the episode of Toyota on test has several lessons for the rest. The fundamental lesson that the Toyota episode teaches is that if a company as technology and quality savvy as Toyota can falter, anyone can. This is a sobering thought for all companies, conservative or aggressive, and deliberative or opportunistic.
Speeding on business highway
Toyota has such robust and consensual systems with multi-hierarchy check provisions that faults cannot seep easily. Only speed could have altered Toyota’s organizational eco system. One could hypothesize that the carefully preserved Toyota values were challenged by the unprecedented global expansion that the company executed over the last 10 years. There has been an accelerated growth in capacity over this period. In 2000, Toyota produced 5.2 million cars; by 2009 it doubled the capacity to 10 million cars. In 2000, Toyota had 58 production plants; by 2009 it added 17 new plants, most of them outside Japan. Probably, Toyota’s famed systems could not keep pace with the scorching pace of growth.
In his prepared testimony dated February 24, 2010 to the Committee on Oversight and Government Reform, Akio Toyoda, President, Toyota stated, discussing the philosophy of Toyota’s quality control, “I myself, as well as Toyota, am not perfect. At times, we do find defects. But in such situations, we always stop, strive to understand the problem, and make changes to improve further. In the name of the company, its long-standing tradition and pride, we never run away from our problems or pretend we don’t notice them. By making continuous improvements, we aim to continue offering even better products for society. That is the core value we have kept closest to our hearts since the founding days of the company.”
Toyoda also stated, discussing the recall issues, “Toyota has, for the past few years, been expanding its business rapidly. Quite frankly, I fear the pace at which we have grown may have been too quick. I would like to point out here that Toyota’s priority has traditionally been the following: First; Safety, Second; Quality, and Third; Volume. These priorities became confused, and we were not able to stop, think, and make improvements as much as we were able to before, and our basic stance to listen to customers’ voices to make better products has weakened somewhat. We pursued growth over the speed at which we were able to develop our people and our organization, and we should sincerely be mindful of that. I regret that this has resulted in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced.”
The above two statements reflect the characteristic passion for quality and an uncharacteristic candor on growth, on the part of Toyota’s chief executive. These statements are relevant for all chief executive officers responsible for safety, quality and growth in an organization. Just as reckless speed could involve people in accidents on a highway, unmanageable growth can make companies skid on business highway. Prior to finalizing growth plans, corporate leadership teams should thoroughly discuss how the growth plans impact the safety, quality and environment aspects and agree on risk-mitigated execution plans, including heightened organizational preparedness to handle multi-product development, multi-site manufacture, multi-country marketing , and multi-environment usage of products.
Globalization risks
All companies, big and small, must view every challenge as an opportunity to review their product specifications, development methodologies, quality standards, manufacturing and supply chain processes, product usage conditions and customer use feedback. The challenge and urgency increase as a company enhances its global supply chain, manufacturing and marketing operations. The challenge would be even higher when companies resort to the Toyota model of producing “world products”. The concept involves more of models sharing more of components on a smaller number of platforms, with globally diffused procurement and production. While this model is the epitome of manufacturing efficiency, the risks of one sub-standard part blotching up global production are correspondingly higher.
It is perhaps not accidental that the problems for Toyota cars emerged in North America where the cars were manufactured, marketed and used. Only detailed internal Toyota studies can reveal if the North American plants completely absorbed the failsafe manufacturing processes that were always so successfully deployed in Japan, the faster highway speed conditions stressed some of the components more than a congested Japanese highway system would, the customer service organization failed to amplify the on-road signals to the regional and parent organizations, or simply the complex globalized corporate organization failed to listen to weak signals from a distant region. Globally organized companies would do well to institutionalize their best practices globally, stress-test the products to stringent operating conditions, strengthen their market vigilance organizations and provide the needed voice to their leaders in the corporate management.
Pharmaceutical industry in regulated countries works under a stringent regime of multi-country clinical trials, post-marketing studies and pharmaco-vigilance reporting established by food and drug administration agencies. Even this system is post-facto and does not customize medicines in the stage of development to genetic variations of ethnic groups or even better, to individuals. Though not to same scale environmental conditions and operating practices of different countries vary so much that global designs need to be customized for individual regional needs or need to be targeted for the most variable conditions and practices.
Outlining various steps taken to alleviate and avoid problems, which include greater regional decision making, keeping local customer safety first, setting up of US based quality advisory group and automotive center of quality excellence in the US, Toyota’s President observed, in a manner reflective of the Japanese Gemba Kaizen philosophy, “I believe that only by examining the problems on-site, can one make decisions from the customer perspective. One cannot rely on reports or data in a meeting room”. Pre-product development surveys and post-launch surveillance methodologies need to be strengthened immensely to develop globally sustainable products.
Electronics enigmas
The automobile is no more a pure mechanical equipment. In today’s automobile, electronics is as important as thermodynamics and software as vital as hardware. Electronics and information technology today control and manage the automobile as never before. In a Toyota automobile, over the last twenty years as many as twenty revolutionary electronic governance systems have been introduced. Electronically controlled throttle, piezoelectric common rail injection system, electric valve timing system, electronic start-stop and idling systems, all-wheel drive control system, GPS car navigation, radar cruise control system, lane monitoring system, crash safety system and telematic systems are some of the digitally controlled aspects of a Toyota automobile. Some special Toyota models such as fuel cell electric vehicle, fuel cell hybrid vehicle and Prius hybrid system vehicle represent a complete generational shift in the use of electronics and software in an automobile.
The unprecedented use of electronics and software brings in its wake the issues of robustness of performance in harsh and highly variable conditions caused by extremes of heat, dust, rain, bumps, and snow. Potentially it could be well nigh impossible to test and validate computer systems in such conditions with total operational infallibility. Unlike a fly-by-wire aircraft or an in-house computer, an automobile hardly gets the attention or time to check all the computer systems prior to start. The typical automobile driver is always rearing to zoom from the time he or she gets into the driver’s seat. Automobile makers need to develop ingenious ways to fail-proof the electronics systems in their automobiles. Potentially, they must establish dedicated software and electronic companies in a manner analogous to their nurturing dedicated component makers.
The lessons of the electronics enigma are not limited to only automobiles. Virtually every device today, from a bathroom shower which has electronic control of temperature to an electronic pacemaker which digitally regulates human heart, has plenty of electronics that could potentially risk runaway changes under certain unforeseen circumstances. Apart from thorough validation protocols for products pre-release, and incorporation of failsafe over-ride mechanisms, user friendly operating protocols could go a long way in ensuring equipment and device safety as well as user safety in operation. One would note that arising from the recalls Toyota has decided to make brake override systems mandatory on its models. Relevant warning signal and override systems need to be thought of for all equipment and devices that could impact safety.
Operational complexity vs organizational simplicity
Global operations are bound to be complex. Nowhere else is it illustrated better than in Toyota’s own case. Toyota’s global operations churn out 82 mainline Toyota car models and 10 Lexus car models which are sold in 170 countries and regions through 460 distributors (290 in Japan and 170 overseas). Toyota has 13 R&D sites globally (6 in USA, 4 in Europe and 2 in Asia Pacific, besides the mother technical centre in Nagoya, Japan). Toyota produces its highly customized product range out of its 65 manufacturing plants (12 in Japan and 53 in overseas countries, of which 12 are in North America, 4 in Latin America, 8 in Europe, and 25 in Asia, excluding Japan). Several of these are constituted as legal entities and subsidiaries. In addition, Toyota has 14 large group companies producing components and materials, each with its own subsidiaries and overseas ventures. Given the highly networked system of automobile production, and also migration of platforms, and plants from advanced markets to emerging markets the complexity of globalization can be overwhelming.
Toyota sought to overcome the complexity as much as possible by constituting overseas entities as corporate subsidiaries, with each manufacturing plant being a company in some cases (as in Europe or India) and with a holding company owning several manufacturing entities in some cases (as in North America). Yet, none of the overseas subsidiaries seem to have an organization that reflected the breadth and depth of the parent Toyota organization in Japan. The Toyota corporate organization, for example, has besides the chairman, 2 vice-chairmen, 1 president, 5 executive vice presidents, 18 senior managing directors, 2 directors, 50 managing officers, 23 advisors and 7 corporate auditors. The enormous product planning, engineering, manufacturing, quality and regulatory organization that exists in Japan is not prevalent in overseas subsidiaries despite the surge in overseas engineering, production and sales. Around 42 percent of total Toyota production is contributed by overseas units while 75 percent of sales is derived from overseas markets. Increasingly, more automobile designs are executed overseas. Yet, probably the gravitas remained in Japan. While there is nothing inappropriate in a Japan-driven strategy given that Japan has been the core of Toyota’s engineering and manufacturing creativity, the thin structuring of overseas organizations perhaps impeded complete transfer and absorption of parent’s hard and soft skills by the regional units on one hand, and transmission of the needs and usage patterns of local markets to the parent on the other hand.
Clearly, multinational corporations with global footprint and aspirations need specific structural strategies. The success of MNCs such as Unilever and Proctor & Gamble in countries such as India has been due to their early indigenization of management (while integrating global best practices) through understanding of the local pulse, and leveraging of local talent. Carlos Ghosn, global CEO of Renault-Nissan reflected similar principles while inaugurating the Indian car facility a few days ago. He stated that his company chose India not for cost but for a whole different way of conceptualizing highly cost-competitive projects and operations. While these skills and approaches would be more readily available with joint ventures, wholly owned subsidiaries need to be structured in a way that the soul and spirit of local enterprise is reinforced with the structures and systems of the global corporation.
Structure with process; the complete solution for globalization
From all accounts, despite the remarkable engineering capability that Toyota has, the company could not reach to the core of the recalls problem. In fact, from floor mats and sticking pedals (which appear to be too simple a reason) to electronic deficiencies (which are relatively inscrutable) the reasons for the safety problems have not formed a cohesive narration. An analysis in Los Angeles Times, February 23, 2010 asserted, quoting former Toyota insiders, that the mangled messages from Toyota had roots in the company's fractured organizational structure in the United States -- a design that put key decision making in the hands of executives in Japan and ultimately impaired its ability to prevent the burgeoning safety problems before they reached the crisis stage.
As Toyota has grown into a powerhouse of the auto industry over the last decade, it has built up a vast complex of engineering centers, test tracks, financial arms, sales offices and manufacturing plants that spread from California to New York, spilling over into Canada and Mexico as well. According to LA Times, Toyota lacks a single U.S. headquarters; its units can operate as fiefdoms that report independently to Japan. The complicated tasks of gathering information about sudden-acceleration incidents, analyzing the problems and engineering fixes, as well as reporting the issues to federal safety regulators, were handled by different Toyota subsidiaries, each managed separately in many cases from Japan, former Toyota managers and employees say. This analysis, if correct, provides an instructive insight that a structural solution of subsidiaries by itself does not help. Meaningful processes for management of parent-subsidiary structures relevant to local needs and capabilities are required. Dissemination of instructions from parent needs to be balanced by an amplification of feedback from subsidiaries.
Here again, successful multinationals in emerging markets led the way decades ago by constituting local corporations as complete organizations. The technical depth was perhaps lower, and technology ostensibly flowed from the parent given the state of Indian talent situation in the 1950s. Yet, such MNCs created integrated and viable structures which could benefit from equally responsive localized processes. In fact, the statement by the Chairman of the Indian subsidiary of Lever was, from the inception, a classic essay in thought leadership for Lever’s global needs as much as for its Indian operations. The talent pool, and professional enterprise in contemporary India are radically different, and in fact, world-class. As advanced countries take a new aim at India for both the market and skills that India offers, organizational structures and processes need to reflect a similar maturity.
Summary
No analysis can do justice to analyze, much less understand, in totality the automobile engineering and manufacturing phenomenon that Toyota is. It is painful, therefore, that certain structural and process deficiencies in the context of rapid global expansion should cast a shadow on Toyota’s famed technical capability and quality delivery. Contrary to the hypothesis by some columnists that Toyota’s problems signify the final decline of Japan itself, one can expect the engineering great to reassert its core skills and win back customer confidence. Toyota, on test today, offers several lessons for the rest on building up core capabilities and the nuances of managing growth and globalization with appropriate structures and processes. If the discussion in this blog post helps in developing these perspectives, it is perhaps because there could be no better vehicle than Toyota to stimulate, organize and present these thoughts.
Posted by Dr CB Rao on March 25, 2010
Saturday, March 6, 2010
The New World Order: Strategies for Managers
The recession of 2008 and 2009, and the lurking fears of a double dip recession dictate that due caution is exercised in understanding the new world realities and developing appropriate managerial strategies.
New World Order
The principal purpose of management is to establish and grow businesses profitably. Managers are engaged in planning and execution of various activities towards the fulfillment of this purpose. In this process, managers are required to define and understand the business in the context of the environmental opportunities and challenges.
Firms are increasingly focused on serving global markets as opposed to only domestic markets. Extending further, firms are not content with mere exports but are more intent on being a part of global network. Firms therefore need to understand the new world order that could determine their effectiveness.
The phrase “new world order” does not lend itself to easy definition. As vision expands and as competition intensifies, a business cannot be defined in terms of only product configuration or market opportunity. Several economic, industrial, social and cultural factors impact the businesses of industries and firms. A dynamic world order provides also its own share of changing opportunities and challenges.
The new world order needs to be viewed in terms of the following: (i) economic environment, (ii) industrial competitiveness (iii) social imperatives, and (iv) cultural factors. Each of these brings forth certain challenges to the managers.
(i) Economic environment
Recent events have brought out quite starkly how economic conditions can turn highly volatile, unsettling nations and industries in the process. Consequent to the global meltdown, which started in the USA, the world faced unprecedented recession in 2008 and 2009. The emerging economic environment is characterized by four aspects: (i) highly uncertain global liquidity conditions (ii) volatile and unpredictable exchange rates (iii) investments in infrastructure as economic stimulus, and (iv) geo-political considerations altering economic opportunities.
Economic forecasting, never a precise science, is now required to be much more robust and truly multi-factorial. Icebergs of asset bubbles move under apparently placid economic waters. The unpredictability of economic environment renders any planning for economic development or recovery hazardous. Global liquidity has in itself become a sixth competitive force that adds an entirely new dimension to Porter’s theory of competitive strategy (see the post “Beyond Porter’s Darwinism : The Sixth Competitive Force”, August 23, 2009 in my Blog, “Strategy Musings”).
The political framework has also been evolving over the last few years leading to new economic opportunities and challenges. Governments in advanced economies are turning more protective, introducing invisible barriers in the path of globalization whereas governments in emerging economies, especially China and India, are pursuing aggressive growth to move up the global economic order. Companies are required to have vastly different skill-sets including their own national comparators and risk mitigating strategies to provide a safe path for their global operations.
(ii) Industrial competitiveness
The emerging industrial framework is characterized by four new dimensions: (i) an accelerated level of technological convergence in product functionalities (ii) an unprecedented level of competitive frenzy among firms (iii) a twin and simultaneous pursuit of differentiation and cost-competitiveness and (iv) a near universal shortage of genuine talent that can take industries on a new creativity path.
Industrial competitiveness requires continuous investments in R&D and manufacture, better remuneration for intellectual talent and a quest for profitability in highly competed markets, which are characterized by increasingly shorter product life cycles. Management of firms is a challenge whether pertaining to sunrise sectors or mature sectors.
Industrial competiveness is determined by patenting capability on one hand and manufacturing efficiency on the other. So far, innovation has been an advanced market play while efficiency has been an emerging market option. Emerging economies now have a greater scope in redefining the balance in their favor, with increased share of innovation and dominant share of manufacturing, provided the opportunity is seized in the right manner.
(iii) Social needs
The social framework offers certain positive and encouraging triggers for a new world order: (i) societies across the world are increasingly conscious of the perils of profligate economies (ii) people are more aware now than at any time in the past on the need for environmental protection, global warming and renewable energy (iii) the governments and the societies are seized of the need to focus on quality education at a universal level to achieve national level competitiveness through human resource base.
Globally as a whole, societies today are better informed and more demanding in terms of quality-of-life enablers such as housing, healthcare, transportation and food security. Countries like America have, though belatedly, recognized the chinks in their social armor, for example, on healthcare. Countries like Japan and Korea are endeavoring to retain their competitiveness based on the traditional competitive nature of their society. Countries like China are on a massive drive for social uplift through aggressive growth. Countries like India are endeavoring with new paradigms to realize their own potential with a strong growth thrust, maintaining the delicate rural-urban balance.
(iv) Cultural factors
The cultural framework is a less studied aspect of globalization and the new world order. Globalization and growth typically require integration of cross-cultural resources as well as catering to their specific needs. Despite the Internet and information revolution, countries and societies remain rooted in their cultural systems. For example, without being judgmental, one may hypothesize that American culture continues to be transactional and impersonal, Japanese culture insular and cocooned, Korean culture aggressive and expansionist, Chinese culture competitive and domineering, and Indian culture philosophical and emotional.
The expectations of local work force and local customers and the intentions of global multinational corporations are often at variance. Lack of understanding on issues of science and technology, biodiversity, social relevance often impedes industrial development. The issue of genetically modified crops is just one example, where objective science rather than commerce should have influenced the debate and outcomes.
Strategies for Managers
Managers, and educational institutions committed to management development, have a lot to unlearn, and learn, to be effective in the new world order. Management programs have to be contextual and dynamic, in tune with the global trends. They also need to be sharper and contemporary in terms of conceptual and analytical tools. Traditional theories and practices of management have to be potentially supplemented, and in some cases, revised with more relevant perspectives. Managers have to develop combinations of skill-sets that can help them confidently tackle the varied challenges in the economic, industrial, social and cultural frameworks mentioned earlier.
(i) Economic skills
Contemporary managers must possess a deeper understanding of national and international economies and the interlinkages between economic development on one hand and industrial and social development on the other. Economic forecasting, never an exact science despite the proliferation of statistical tools, needs to be taken up as a key methodology for understanding future economic trends and opportunities, as well as risks. Making firms self-reliant in terms of capital structure and accessing international funding options in a timely manner are two critical tasks for managers. Financial prudence and reliance on cash rather than debt need to be hallmarks of a good financial manager. Exercise of caution and display of capability while resorting to exotic financial products will help the managers serve their companies well.
An understanding of international tax laws and international forex trading would be an important addition to the customary tool kit of a typical manager. In several cases, manufacturing and supply chain logic is often distorted by tax and exchange considerations. As India’s managers aim to be a part of global manufacturing and supply chain network, knowledge of these economic aspects help them negotiate with their MNC counterparts the logic of global investment, sourcing and supply decisions.
Globalization has led to an increased shift of resources to emerging countries. This runs opposite to the aspiration of human talent in emerging markets to seek employment in advanced nations. Global outsourcing tends to reduce the need for external talent in advanced countries. Managers of education systems and human resource systems have to reframe their talent development strategies to focus on advanced capabilities to position Indian talent as being internationally competitive. Management education programs, or for that matter scientific and technical education programs, have to focus on building advanced scientific and technical skills to prepare professionals for careers in advanced domains (not necessarily in advanced countries, of course).
(ii) Competitiveness skills
Industrial or business managers have to be well-versed in competitiveness skills, to meet the intensely fierce market conditions. Multiple abilities, capabilities and skill-sets are required to manage industrial competitiveness; for example, an ability to reduce time to market, an ability to balance continuous investments with sustained profitability, an ability to manage global operations and logistics and skills in global procurement and supply chain optimization are some of the essentials for the new manager.
Equally important would be the ability to achieve greater design and manufacturing variety without compromising scheduling simplicity and inventory optimization. An understanding of industry structure and competitive forces is essential for the managers. The requirement to achieve product differentiation with low cost manufacture and an ability to serve larger markets even with niche products pose new strategic and operational challenges for managers.
Competitiveness is a function of scale and scope as well. As firms seek to acquire higher scale and scope, through organic or inorganic growth, managers must also learn to balance business aggression with financial prudence. They must also balance growth-driving leverage with stability-providing internal generations. The recession of the last two years teaches us that companies which are aggressive but prudentially managed have not only successfully withered the impact of recession but are also well poised to growth in the recovery phase.
(iii) Social values
The products and services that are identified through business analysis and business execution need to reflect normative social values. Increased purchasing power no doubt vests in the society a certain degree of consumerism and profligacy. It is incumbent on the part of business managers to focus on product and manufacturing strategies that are good for the society. Energy saving equipment, green buildings, fuel-efficient vehicles, cloud computing and storage, web based services, digital publishing, renewable energy and alternate fuels represent some areas where managerial passion for environment and society could help corporations become better citizens.
Equally important would be the need to develop healthcare solutions for poorer sections of the society so that affordable medicines are available. In countries like India, where agriculture plays an important role in the national economy, the rural sector needs to be preserved by bringing modern amenities with appropriate adaptation to rural consumers. ITC’s e-choupal, for example, is a great example of how corporate vision and IT management can leverage modern technology for rural commercialization. Dr CK Prahalad has propounded, with several case examples, how unique business and technological models can help companies find fortune at the bottom of the pyramid.
(iv) Cultural issues
Globalization requires managers to interact with multiple nationalities and multiple cultures. Many corporations undertake cultural orientation programmes to enable their executives and managers deal with cultural ramifications with sensitivity. No such program, however, is perfect. In some cases they tend to be mere facades, turning out to be counter-productive in the end. Leaders and managers who have actually worked in overseas environments can act as mentors for executives moving over to other countries. Indian managerial education needs to integrate cultural training into managerial processes through such mentorship programs.
Management education has a different cultural implication as well. In India, management education is seen to lead persons into general management as a distinct profession. The reality, however, is that management education provides certain conceptual and analytical tools relevant for any professional or specialist to grasp and solve real life business, scientific or technological issues better. As a matter of fact, Japan, the world leader in industrial operations, has very few MBAs. In USA, it is not uncommon for scientists and technologists to acquire management education simply to hone their skills. With management education, specialists are enabled to conduct domain management more efficiently and more productively in a holistic organizational and business setting. Management education has to be seen more as a value-add to all the functions or domains rather than as an enabler for a stand-alone managerial career.
Summary
The fortunes of a business are intertwined with the evolution of the world order. Economic environment, industrial competitiveness, societal expectations and cultural moorings dictate the opportunities and challenges of the world order. Managers need to retool their strategies to navigate through global liquidity concerns, achieve industrial competitiveness with innovation and efficiency, adapt their strategies to societal needs and integrate with diverse cultures to understand needs and deliver solutions.
Posted by Dr CB Rao on March 6, 2009
(This is a marginal variant of the speech delivered by the author in the valedictory session of the program on “Strategies for Managers in the New World Order” held at MOP Vaishnav College for Women, Chennai on March 6, 2009)
New World Order
The principal purpose of management is to establish and grow businesses profitably. Managers are engaged in planning and execution of various activities towards the fulfillment of this purpose. In this process, managers are required to define and understand the business in the context of the environmental opportunities and challenges.
Firms are increasingly focused on serving global markets as opposed to only domestic markets. Extending further, firms are not content with mere exports but are more intent on being a part of global network. Firms therefore need to understand the new world order that could determine their effectiveness.
The phrase “new world order” does not lend itself to easy definition. As vision expands and as competition intensifies, a business cannot be defined in terms of only product configuration or market opportunity. Several economic, industrial, social and cultural factors impact the businesses of industries and firms. A dynamic world order provides also its own share of changing opportunities and challenges.
The new world order needs to be viewed in terms of the following: (i) economic environment, (ii) industrial competitiveness (iii) social imperatives, and (iv) cultural factors. Each of these brings forth certain challenges to the managers.
(i) Economic environment
Recent events have brought out quite starkly how economic conditions can turn highly volatile, unsettling nations and industries in the process. Consequent to the global meltdown, which started in the USA, the world faced unprecedented recession in 2008 and 2009. The emerging economic environment is characterized by four aspects: (i) highly uncertain global liquidity conditions (ii) volatile and unpredictable exchange rates (iii) investments in infrastructure as economic stimulus, and (iv) geo-political considerations altering economic opportunities.
Economic forecasting, never a precise science, is now required to be much more robust and truly multi-factorial. Icebergs of asset bubbles move under apparently placid economic waters. The unpredictability of economic environment renders any planning for economic development or recovery hazardous. Global liquidity has in itself become a sixth competitive force that adds an entirely new dimension to Porter’s theory of competitive strategy (see the post “Beyond Porter’s Darwinism : The Sixth Competitive Force”, August 23, 2009 in my Blog, “Strategy Musings”).
The political framework has also been evolving over the last few years leading to new economic opportunities and challenges. Governments in advanced economies are turning more protective, introducing invisible barriers in the path of globalization whereas governments in emerging economies, especially China and India, are pursuing aggressive growth to move up the global economic order. Companies are required to have vastly different skill-sets including their own national comparators and risk mitigating strategies to provide a safe path for their global operations.
(ii) Industrial competitiveness
The emerging industrial framework is characterized by four new dimensions: (i) an accelerated level of technological convergence in product functionalities (ii) an unprecedented level of competitive frenzy among firms (iii) a twin and simultaneous pursuit of differentiation and cost-competitiveness and (iv) a near universal shortage of genuine talent that can take industries on a new creativity path.
Industrial competitiveness requires continuous investments in R&D and manufacture, better remuneration for intellectual talent and a quest for profitability in highly competed markets, which are characterized by increasingly shorter product life cycles. Management of firms is a challenge whether pertaining to sunrise sectors or mature sectors.
Industrial competiveness is determined by patenting capability on one hand and manufacturing efficiency on the other. So far, innovation has been an advanced market play while efficiency has been an emerging market option. Emerging economies now have a greater scope in redefining the balance in their favor, with increased share of innovation and dominant share of manufacturing, provided the opportunity is seized in the right manner.
(iii) Social needs
The social framework offers certain positive and encouraging triggers for a new world order: (i) societies across the world are increasingly conscious of the perils of profligate economies (ii) people are more aware now than at any time in the past on the need for environmental protection, global warming and renewable energy (iii) the governments and the societies are seized of the need to focus on quality education at a universal level to achieve national level competitiveness through human resource base.
Globally as a whole, societies today are better informed and more demanding in terms of quality-of-life enablers such as housing, healthcare, transportation and food security. Countries like America have, though belatedly, recognized the chinks in their social armor, for example, on healthcare. Countries like Japan and Korea are endeavoring to retain their competitiveness based on the traditional competitive nature of their society. Countries like China are on a massive drive for social uplift through aggressive growth. Countries like India are endeavoring with new paradigms to realize their own potential with a strong growth thrust, maintaining the delicate rural-urban balance.
(iv) Cultural factors
The cultural framework is a less studied aspect of globalization and the new world order. Globalization and growth typically require integration of cross-cultural resources as well as catering to their specific needs. Despite the Internet and information revolution, countries and societies remain rooted in their cultural systems. For example, without being judgmental, one may hypothesize that American culture continues to be transactional and impersonal, Japanese culture insular and cocooned, Korean culture aggressive and expansionist, Chinese culture competitive and domineering, and Indian culture philosophical and emotional.
The expectations of local work force and local customers and the intentions of global multinational corporations are often at variance. Lack of understanding on issues of science and technology, biodiversity, social relevance often impedes industrial development. The issue of genetically modified crops is just one example, where objective science rather than commerce should have influenced the debate and outcomes.
Strategies for Managers
Managers, and educational institutions committed to management development, have a lot to unlearn, and learn, to be effective in the new world order. Management programs have to be contextual and dynamic, in tune with the global trends. They also need to be sharper and contemporary in terms of conceptual and analytical tools. Traditional theories and practices of management have to be potentially supplemented, and in some cases, revised with more relevant perspectives. Managers have to develop combinations of skill-sets that can help them confidently tackle the varied challenges in the economic, industrial, social and cultural frameworks mentioned earlier.
(i) Economic skills
Contemporary managers must possess a deeper understanding of national and international economies and the interlinkages between economic development on one hand and industrial and social development on the other. Economic forecasting, never an exact science despite the proliferation of statistical tools, needs to be taken up as a key methodology for understanding future economic trends and opportunities, as well as risks. Making firms self-reliant in terms of capital structure and accessing international funding options in a timely manner are two critical tasks for managers. Financial prudence and reliance on cash rather than debt need to be hallmarks of a good financial manager. Exercise of caution and display of capability while resorting to exotic financial products will help the managers serve their companies well.
An understanding of international tax laws and international forex trading would be an important addition to the customary tool kit of a typical manager. In several cases, manufacturing and supply chain logic is often distorted by tax and exchange considerations. As India’s managers aim to be a part of global manufacturing and supply chain network, knowledge of these economic aspects help them negotiate with their MNC counterparts the logic of global investment, sourcing and supply decisions.
Globalization has led to an increased shift of resources to emerging countries. This runs opposite to the aspiration of human talent in emerging markets to seek employment in advanced nations. Global outsourcing tends to reduce the need for external talent in advanced countries. Managers of education systems and human resource systems have to reframe their talent development strategies to focus on advanced capabilities to position Indian talent as being internationally competitive. Management education programs, or for that matter scientific and technical education programs, have to focus on building advanced scientific and technical skills to prepare professionals for careers in advanced domains (not necessarily in advanced countries, of course).
(ii) Competitiveness skills
Industrial or business managers have to be well-versed in competitiveness skills, to meet the intensely fierce market conditions. Multiple abilities, capabilities and skill-sets are required to manage industrial competitiveness; for example, an ability to reduce time to market, an ability to balance continuous investments with sustained profitability, an ability to manage global operations and logistics and skills in global procurement and supply chain optimization are some of the essentials for the new manager.
Equally important would be the ability to achieve greater design and manufacturing variety without compromising scheduling simplicity and inventory optimization. An understanding of industry structure and competitive forces is essential for the managers. The requirement to achieve product differentiation with low cost manufacture and an ability to serve larger markets even with niche products pose new strategic and operational challenges for managers.
Competitiveness is a function of scale and scope as well. As firms seek to acquire higher scale and scope, through organic or inorganic growth, managers must also learn to balance business aggression with financial prudence. They must also balance growth-driving leverage with stability-providing internal generations. The recession of the last two years teaches us that companies which are aggressive but prudentially managed have not only successfully withered the impact of recession but are also well poised to growth in the recovery phase.
(iii) Social values
The products and services that are identified through business analysis and business execution need to reflect normative social values. Increased purchasing power no doubt vests in the society a certain degree of consumerism and profligacy. It is incumbent on the part of business managers to focus on product and manufacturing strategies that are good for the society. Energy saving equipment, green buildings, fuel-efficient vehicles, cloud computing and storage, web based services, digital publishing, renewable energy and alternate fuels represent some areas where managerial passion for environment and society could help corporations become better citizens.
Equally important would be the need to develop healthcare solutions for poorer sections of the society so that affordable medicines are available. In countries like India, where agriculture plays an important role in the national economy, the rural sector needs to be preserved by bringing modern amenities with appropriate adaptation to rural consumers. ITC’s e-choupal, for example, is a great example of how corporate vision and IT management can leverage modern technology for rural commercialization. Dr CK Prahalad has propounded, with several case examples, how unique business and technological models can help companies find fortune at the bottom of the pyramid.
(iv) Cultural issues
Globalization requires managers to interact with multiple nationalities and multiple cultures. Many corporations undertake cultural orientation programmes to enable their executives and managers deal with cultural ramifications with sensitivity. No such program, however, is perfect. In some cases they tend to be mere facades, turning out to be counter-productive in the end. Leaders and managers who have actually worked in overseas environments can act as mentors for executives moving over to other countries. Indian managerial education needs to integrate cultural training into managerial processes through such mentorship programs.
Management education has a different cultural implication as well. In India, management education is seen to lead persons into general management as a distinct profession. The reality, however, is that management education provides certain conceptual and analytical tools relevant for any professional or specialist to grasp and solve real life business, scientific or technological issues better. As a matter of fact, Japan, the world leader in industrial operations, has very few MBAs. In USA, it is not uncommon for scientists and technologists to acquire management education simply to hone their skills. With management education, specialists are enabled to conduct domain management more efficiently and more productively in a holistic organizational and business setting. Management education has to be seen more as a value-add to all the functions or domains rather than as an enabler for a stand-alone managerial career.
Summary
The fortunes of a business are intertwined with the evolution of the world order. Economic environment, industrial competitiveness, societal expectations and cultural moorings dictate the opportunities and challenges of the world order. Managers need to retool their strategies to navigate through global liquidity concerns, achieve industrial competitiveness with innovation and efficiency, adapt their strategies to societal needs and integrate with diverse cultures to understand needs and deliver solutions.
Posted by Dr CB Rao on March 6, 2009
(This is a marginal variant of the speech delivered by the author in the valedictory session of the program on “Strategies for Managers in the New World Order” held at MOP Vaishnav College for Women, Chennai on March 6, 2009)
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