The history of modern enterprise is built on innovative products and services that offer new features to consumers in a more competitive manner. Competitiveness is defined by not only the performance of the product in terms of meeting the functional needs of the consumer in a more exceptional manner but also the looks and appeal of the product satisfying the esteem needs of the consumer in a more elegant manner. The first time a product is invented and commercialized, it tends to get absolute acceptance regardless of the level of competitiveness. However, as follow-on products are developed and introduced, competitiveness becomes a matter of enhanced cost leadership and product/service differentiation. The ability of a firm to remain in the lead depends on the capability to keep developing technologies organically within its core industry, and to keep absorbing technologies from other related and unrelated industries inorganically.
In certain product groups, the basic product performance parameters remain unchanged over years. For example, from the time of the invention of the first automobile by Ford or Daimler, the fundamental parameters of the automobile continue to be the speed and fuel consumption. Over time, however, a whole series of additional parameters such as shape, looks, aerodynamics, safety, reliability, maintainability, automatic transmission systems, off-road drivability characteristics, entertainment and communication systems, global positioning systems, lighting systems, and such other innovative features have started to define the competitive profile of an automobile for different usage characteristics, and user profiles. Each of these has been stimulated by advancements in related sciences and technologies. The bottom line in this and other cases, be it a watch, camera or television, is that the basic product and function remain but the product configuration and the functional delivery are significantly different.
Functions remain, products exit and enter
There are, however, certain cases in which even though the function remains the product gets substituted by a new product or gets supplemented by other products due to technological and competitive forces. For example, the large transistor based radio has given way to miniaturized electronics based radio. The dot matrix printer has given way to ink jet and laser jet printers. The conventional gramophone record and box type television sets have been phased out by compact disc and flat panel televisions respectively. On the other hand, manual watches have been supplemented by digital watches. Several other products fall in this category of supplementation; fixed telephones by cellular phones; desktop computers by laptop, net-book and tablet computers; photo stands by digital photo stands; incandescent bulbs by fluorescent lamps, compact fluorescent bulbs and LED lights; fountain pens by ball point and roller point pens; tea leaves by instant tea bags; and bottled drinks by canned drinks, to quote just a few examples.
In a related manner, products that are supplemented, and hence are under the threat of losing product hegemony, attempt to modernize and reinvent themselves. A classic case is one of the mechanical watch industry, which reinvented the mechanical watches through superior craftsmanship. So has been the case of the fountain pen industry with a focus on premium craftsmanship. A more recent case is that of the camera industry which has been facing competition from mobile phones which enable quick upload of photos through wireless network. The camera industry has initially attempted to retain its competitive edge through more sophisticated lens and shooting options. With the availability of high quality cameras in cell phones, the camera industry has now begun to introduce cameras with wireless capability to enable users upload pictures and films to the Net or share with friends.
Technological obduracy
At times innovative firms tend to be prisoners of their innovation and the resultant market domination. Not many firms undertake a systematic review of their competitive strategy based on the Porter Five Forces model, in which the threat of substitute products, the threat of new entrants and the industry rivalry are three of the five important competitive forces. An analysis of these forces should dictate the formulation of the competitive strategy of a firm, resulting in the three generic strategies of cost leadership, product differentiation and niche. Probably, even in the companies that have a robust long range planning process, the analysis tends to be more introverted than extraverted, preventing an objective analysis of the impending competition. The ability of the company to listen to the vendors and customers, and watch the competitive moves of the other players is a vital ingredient of such proactive approach. This is one reason for Porter suggesting competitor analysis and market signals as critical components of a long range planning exercise.
Many times, however, the rigid viewpoints of the leadership on the superiority and sustainability of its core technologies leads to a casual approach towards the impending competitive threats. This factor may be called the technological obduracy of a firm. The intransigence of the firm’s scientific and technical leadership of the firm, enhanced by the unwillingness of corporate leadership to invest the company’s top dollars in genuine innovation, contribute to technological obduracy. The early gains of market expansion and penetration due to greater sales and marketing efforts provides an unreal estimate of the product’s life cycle to such firms. While an extended product life cycle is possible with annual and semi-annual model changes and other strategies of lifecycle management, each such strategy may only be temporarily insulating against competition and masking the vulnerability of the firm’s core technologies to more innovative and intuitive technologies.
Peaks of obduracy
After 120 years of life Eastman Kodak, the greatest imaging company ever, became a faded memory this year, filing for bankruptcy. Over time, the company rested on its ones pioneering technologies and failed to come up with new versions of its products that will fend off competition from the new innovators such as Sony and several others. Kodak further failed to leverage its core competences and capabilities in photography chemistry to expand into emerging industries, as other late 19th century American companies did. More importantly, it failed to recognize in time the advent of digital photography and its role in, and gain from, the Internet revolution. The technological obduracy coupled with the ebbing of the entrepreneurial spirit of Kodak led to the demise of the company. While not in all cases technological obduracy leads to corporate demise, it does bruise segments of the business and impacts the growth potential of the overall company.
One of the classic cases of such bruise has been that of Sony in the television arena. Sony was the uncrowned king of televisions with its patented Trinitron cathode ray tube (CRT) technology, introduced in 1966. Trinitron picture tube has been the most innovative CRT technology introduced in televisions since the 1950s. With successive improvements, the Trinitron technology provided Sony with a perception of invincibility in the television domain. The obsession with CRT televisions made Sony somewhat blasé about the imminent threat from flat panel televisions, yielding the pride of place to Samsung. The first commercial LCD was introduced by Sharp Corporation in 1988 and the Korean manufacturers Samsung and LG began to drive the flat panel television market from the 1990s. Sony eventually withdrew Trinitron based CRT televisions in 2008. Sony had to buy the flat panels from Samsung, and also enter into a joint venture with Samsung to ensure for itself a constant access to flat panels and flat panel technologies.
The technology space has several other cases like Sony’s. Microsoft’s Zune music system failed to make its mark due to it being a standalone product, without an appropriate music distribution ecosystem. The earlier versions of tablets launched in early 2000s failed because of lack of appropriate tablet-friendly operating system. Nokia failed to see, at first, the emergence of smart phone market and later the importance of an appropriate operating system for an efficient smart phone. Nokia’s obduracy in staying with Symbion for several years has, in no small measure, led to the further decline of its smart phone franchise. This is also validated by the resurgence of its Lumia smart phone series with smart phone friendly Windows mobile operating system. Failures are also not necessarily related only to single corporation actions; even collective participation of technological giants offers little protection against failures triggered by obduracy. For example, around 2001, a Sony led consortium and a Toshiba led consortium proposed their respective Blu-ray DVD and HD DVD formats and fought a bitter war for over seven years, which saw swaying loyalties of the consortium partners, each either a technology giant or media mogul. Toshiba’s technological obduracy was no small factor in prolonging the war of formats with several millions of dollars wasted until the Toshiba consortium called off its format in 2008.
Irrationality of obduracy
Despite the threat of commercial obscurity, it is surprising how technological obduracy prevails in organizations. The reasons are many; fundamentally, it requires an entrepreneurial and innovative mindset at the leadership level to establish and nurture an organization that is ahead in technology. It also requires an ability to integrate inputs and skill sets from different domains, including vendor base and marketplace to create new products and services that are refreshingly fresh and tantalizingly competitive. It requires an organizational culture and mindset that encourages patenting and publications by scientific and technical personnel, with due intellectual property protection of course, of state-of-the-art developments. It also requires an introspective, objective ability on the part of the company to analyze its products and services and abort ill-fated missions early on. Not many organizations are equipped to think and execute this way.
The irrationality of obduracy has also a strong behavioral component. The typical human unwillingness to admit failure, which extends often to even corporate behavior, is a key factor. At another end, being sold on one’s own success beyond contemporaneous relevance is another. The typical managerial fallibility of not wanting to give the best to the consumer until the consumer or regulator demands or the competition provides a more impressive experience acts as a behavioral speed breaker. A general lack of culture of innovation, accentuated by an authoritarian and unforgiving style of leadership also makes an organization become averse to experimentation. Non-availability of processes in the organization to analyze the risk-reward aspects of new product developments makes an organization risk-averse, with a resultant propensity to stay in the comfort zone. Probably, the behavioral aspects of obduracy would need to be addressed first by the leadership on an organization-wide basis prior to launch of major projects of technological innovation in a top-down manner.
The rationality of innovation
Innovation has a rationality that primes the organization for continuous and sustainable growth. Innovation works on reinforcing core competencies, leveraging them to enter into adjacencies and seeking new core competencies in a virtuous cycle. Corning, for instance, survived and thrived by leveraging its core capabilities, the processing of glass substances, to develop a string of blockbuster products, the glass for Edison’s electric lamp, the traditional TV tubes, the heat-resistant glass for missiles and kitchen ware, the fiber-optic cables that power the Internet, and the glass for flat panel TVs. Procter & Gamble has also survived and prospered by constantly replenishing and expanding its product portfolio to address emerging consumer needs. Toyota has absorbed alternative drive and energy technologies to develop the world’s leading hybrid vehicle, Prius.
Innovation comes bundled with fallibility, and risk of failure. Innovation rests on research and experimentation as much as on hypothesizing and serendipity. It is not that all of Apple products have been roaring successes; neither have all the successive versions of Windows software have been equal or increasing successes. Innovative organizations, besides possessing the requisite scientific and technological skills have the intuitive ability to spot failures early and use them as stepping stones for future successes. But for this ability, Sony would not have been able to come back into the game with the Bravia series of flat panel televisions nor Microsoft would have been able to innovate a new hardware success in Xbox series of gaming devices. If technological obduracy causes commercial obscurity, conversely technological innovation leads to commercial sustainability.
Posted by Dr CB Rao on February 19, 2012
Sunday, February 19, 2012
Tuesday, February 14, 2012
Give Me The Space; Get You The Living
In the realms of human living, space and time are two inexorable points of differentiation. Space is given by destiny, in that the first place of living is not by choice but by birth. Thereafter, of course, it is a huge expedition for an individual or a family to seek space for living wherever appropriate and possible. In that sense, it is destiny's way conferring an initial advantage or disadvantage, and the human being's ability to manage the advantage or disadvantage. Time, on the other hand, differentiates no one, initially or at any point in ones living. It is entirely up to the aptitude, enterprise and will of the individual how he or she manages the finite and priceless resource of time. The place one has the capability to provide certain advantages of time and cost.
Not surprisingly, in the realms of corporate living too, space and time emerge as the two most critical factors of destiny. Depending on where the entrepreneur is borne or where the first enterprise is set up, each company secures certain basic competitive advantage or disadvantage. It is up to the corporation as it grows older to manage its location specific opportunities and constraints. Similarly, the company needs to understand how it utilizes the factor of time to its advantage. For corporations, as much as for individuals, time and timeliness are two sides of the same coin but have completely different impact. Doing things slow is not generally a good thing for corporations in the competitive world of business while doing things fast but at inappropriate times is not necessarily good either!
Space-location-time-cost linkages
Industrial and business society has for long viewed space as the essential asset to start an industry or business. Governments and companies have imbued or sought greater value from space through location (developed or underdeveloped) and location related incentives. Advanced countries as well as emerging countries have traditionally adopted similar strategies for industrial and business development. Central to such strategies has been provision of large tracts of land for setting up industrial plants or business parks, coupled with fiscal and tax subsidies and incentives. Emerging countries, more specifically India, followed a policy of prohibiting major industries in and around cities and inducing them instead to move into backward areas.
In recent years, however, the importance of social infrastructure in attracting talent to industries in backward areas has been recognized. Companies which set up industries in backward areas struggled with the adverse time and cost effects of establishing housing, healthcare and educational infrastructure in such areas. That said, certain industries have to be set up nearer to natural resources and where population levels are thin while information technology and back-office firms are inclined to be nearer cities. However, the distinct preference for larger and larger tracts of land, whether in rural or urban areas seems to be causing significant agrarian and tribal unrest and leading to skews in real estate costs. As a result, even the apparent beneficiaries of modern development are questioning if the development is not inducing also a huge cost push in terms of housing and other social infrastructure costs. This trend does not seem to abate.
GDP-land index
Probably, the time has come to examine the concept of productivity of land. Historically, there has been no correlation at the country level between the land area and the gross domestic product. An analysis of the top 20 countries ranked by GDP shows that the index of GDP to land area shows a scattered pattern. Japan, despite being a very small country, has an index of 15 while the US has an index of only 1.5, China 0.61, Australia 0.16 and Russia 0.09. Even India has a higher index of 5.5. Several European countries such as the UK, France, Italy and Germany as well as South Korea approximate the axiom of lower land mass positively correlating with higher GDP. Clearly, having a large land mass or even being home to natural resources (eg., Australia or Russia) provides no assurance that such countries would automatically be wealthy or rank higher in GDP.
A review of countries with favorable GDP-land index shows that factors other than land area play a major role in the GDP levels. Firstly, it is technology that enables a country derive its true and optimal gross product from industrial or business investments. Secondly, it is the ability of the country to manage its import-export flows that determines the level and sustainability of its gross product. Thirdly, it is the talent stock of the people that enables the nation to generate value and wealth. In all these cases, smaller countries such as Japan and South Korea as well as Israel and Germany have demonstrated that the above three factors, rather than the size of the nation determine the national productivity and competitiveness. The keenness shown by the industries and governments to seek and provide hundreds and thousands of acres for industrial and business activity needs some discussion and debate, given the opportunity cost of the finite resource that land is.
Ease of management versus productivity of land
It is understood that in India information technology companies seek anywhere between 50 and 250 acres for new green-field IT projects while automobile companies seek 1000 and 3000 acres for new green-field automobile projects. These numbers compare with more humble spatial needs that prevail abroad. Managements seek large parcels of land at the initial stage itself to address the expansion needs of the future, to avoid cost escalation impact of incremental land acquisitions, and to retain a common management and technical team for expanding scale of operations. These valid reasons have to be juxtaposed against the broader public good that could accrue by seeking and providing land, just in time for expansion. More often than not, limits on business scale-up keep substantial parts of land unutilized. In several instances, managements themselves desire to move to new sites to reduce operational concentration and single site risk and also facilitate induction of new technologies and new practices.
If land were not to be a finite resource and the cost of land were not proving to be prohibitive, the whole concept of vertical development would not have occurred in real estate field. The government- mandated largesse of land for industrial and business purposes circumvents the market economics and artificially enhances ease of management and reduces productivity of land. If one were to leapfrog into the coming decades, lockup of land by individual corporations could act to the detriment of public good in the decades to come. While industrial units could have some limits in terms of vertical growth, back-offices need to be proactive in terms of land use optimization through high rise offices, with adequate safeguards against any hazards, including earthquake proof construction. It is forecast that urban skew is an inevitable global trend with 75 percent of population living in cities by 2050. Captive retention of thousands of acres of land would only accentuate urban living pressures.
Urban sprawl and vertical leap
Given the inevitable urban sprawl, some governments and corporations have resorted to unprecedented innovations in technology and engineering to build super-skyscrapers. Shard in London Shanghai Tower in China, Burj Khalifa in Dubai, Marina Sands Bay in Singapore and the new WTC blocks in the USA are examples of the new trend. The builders and the sponsors of such super-skyscrapers believe that these new edifices do not merely represent office space but represent ‘vertical villages’ and ‘lifestyle communities’, which are as good as sprawling horizontal urban communities. There are also trends of reclaiming land and rebuilding habitats to create new mini-cities or urban cities. The rebuilding of industrial land into civic residents and urban malls is indicative of the urban churn that could go on.
Urban land use planning requires addressing of the issue of urban slums, which are almost inevitably the first step for the rural migrants. Urban slums are also the first stops for construction and industrial workforce. Unless sustainable and affordable design and construction principles are adopted to enable affordable habitats to replace urban slums (with proportionate land allocation for such projects), the provision of hundreds or thousands of acres of land for projects could worsen the social skew even further. In the horizontal office expansion cum vertical residential growth model currently being deployed in India industrial and business land allocations and residential land allocations are typically made by different governmental agencies. It needs to be debated if this model is the right one going forward or needs to be replaced by an integrated township model where multi-purpose land allocations are made for industrial and business purposes as well as residential and civic purposes.
Fast forward to 2050 AD
If the current trends of industrialization and urbanization continue with locking up of large parcels of land, sustainability of growth could be threatened. Given that global population could reach 9 billion mark by then (from the current 7 billion), there could be significant consequences of continuance of the current land use trends. Governments may, in such a scenario, mandate return of all unused land allocations. Whether by public action or private pressure, struggling industrial facilities could be pulled down, the refurbished industrial areas could face rationalization, and the concept of township development could return to weigh on industrial and business sponsors. There could be a total urban renewal with IT enabled ecologically sensitive cities being built in the place of current haphazardly developed habitats. As the current wave of sponsors face scrutiny on the extent to which they have fulfilled their land utilization promises, additional perspectives could emerge.
The governments, central and state, formulate and implement several policies that impact land use patterns. These include policies to expand the metropolitan cities into megacities, upgrade tier 2 cities into metros, disperse industrial development, dovetail industrial and residential developments, eliminate urban slums, create new industrial corridors, promote special economic zones, establish new manufacturing zones, provide road, rail and air infrastructure, enable urban-rural balance, provide social infrastructure of education and healthcare, and provide access to water and power, among others. These policies impact how the available land is allocated and utilized. Optimal development would occur when an integrated approach is taken at national and state levels covering all the above policies, with the policies individually and collectively being synergistic in terms of value enhancement and cost minimization. Optimization of speed and time of travel would need to be a key goal of the integrated policy so that the society and economy remain productive.
Posted by Dr CB Rao on February 14, 2012
Not surprisingly, in the realms of corporate living too, space and time emerge as the two most critical factors of destiny. Depending on where the entrepreneur is borne or where the first enterprise is set up, each company secures certain basic competitive advantage or disadvantage. It is up to the corporation as it grows older to manage its location specific opportunities and constraints. Similarly, the company needs to understand how it utilizes the factor of time to its advantage. For corporations, as much as for individuals, time and timeliness are two sides of the same coin but have completely different impact. Doing things slow is not generally a good thing for corporations in the competitive world of business while doing things fast but at inappropriate times is not necessarily good either!
Space-location-time-cost linkages
Industrial and business society has for long viewed space as the essential asset to start an industry or business. Governments and companies have imbued or sought greater value from space through location (developed or underdeveloped) and location related incentives. Advanced countries as well as emerging countries have traditionally adopted similar strategies for industrial and business development. Central to such strategies has been provision of large tracts of land for setting up industrial plants or business parks, coupled with fiscal and tax subsidies and incentives. Emerging countries, more specifically India, followed a policy of prohibiting major industries in and around cities and inducing them instead to move into backward areas.
In recent years, however, the importance of social infrastructure in attracting talent to industries in backward areas has been recognized. Companies which set up industries in backward areas struggled with the adverse time and cost effects of establishing housing, healthcare and educational infrastructure in such areas. That said, certain industries have to be set up nearer to natural resources and where population levels are thin while information technology and back-office firms are inclined to be nearer cities. However, the distinct preference for larger and larger tracts of land, whether in rural or urban areas seems to be causing significant agrarian and tribal unrest and leading to skews in real estate costs. As a result, even the apparent beneficiaries of modern development are questioning if the development is not inducing also a huge cost push in terms of housing and other social infrastructure costs. This trend does not seem to abate.
GDP-land index
Probably, the time has come to examine the concept of productivity of land. Historically, there has been no correlation at the country level between the land area and the gross domestic product. An analysis of the top 20 countries ranked by GDP shows that the index of GDP to land area shows a scattered pattern. Japan, despite being a very small country, has an index of 15 while the US has an index of only 1.5, China 0.61, Australia 0.16 and Russia 0.09. Even India has a higher index of 5.5. Several European countries such as the UK, France, Italy and Germany as well as South Korea approximate the axiom of lower land mass positively correlating with higher GDP. Clearly, having a large land mass or even being home to natural resources (eg., Australia or Russia) provides no assurance that such countries would automatically be wealthy or rank higher in GDP.
A review of countries with favorable GDP-land index shows that factors other than land area play a major role in the GDP levels. Firstly, it is technology that enables a country derive its true and optimal gross product from industrial or business investments. Secondly, it is the ability of the country to manage its import-export flows that determines the level and sustainability of its gross product. Thirdly, it is the talent stock of the people that enables the nation to generate value and wealth. In all these cases, smaller countries such as Japan and South Korea as well as Israel and Germany have demonstrated that the above three factors, rather than the size of the nation determine the national productivity and competitiveness. The keenness shown by the industries and governments to seek and provide hundreds and thousands of acres for industrial and business activity needs some discussion and debate, given the opportunity cost of the finite resource that land is.
Ease of management versus productivity of land
It is understood that in India information technology companies seek anywhere between 50 and 250 acres for new green-field IT projects while automobile companies seek 1000 and 3000 acres for new green-field automobile projects. These numbers compare with more humble spatial needs that prevail abroad. Managements seek large parcels of land at the initial stage itself to address the expansion needs of the future, to avoid cost escalation impact of incremental land acquisitions, and to retain a common management and technical team for expanding scale of operations. These valid reasons have to be juxtaposed against the broader public good that could accrue by seeking and providing land, just in time for expansion. More often than not, limits on business scale-up keep substantial parts of land unutilized. In several instances, managements themselves desire to move to new sites to reduce operational concentration and single site risk and also facilitate induction of new technologies and new practices.
If land were not to be a finite resource and the cost of land were not proving to be prohibitive, the whole concept of vertical development would not have occurred in real estate field. The government- mandated largesse of land for industrial and business purposes circumvents the market economics and artificially enhances ease of management and reduces productivity of land. If one were to leapfrog into the coming decades, lockup of land by individual corporations could act to the detriment of public good in the decades to come. While industrial units could have some limits in terms of vertical growth, back-offices need to be proactive in terms of land use optimization through high rise offices, with adequate safeguards against any hazards, including earthquake proof construction. It is forecast that urban skew is an inevitable global trend with 75 percent of population living in cities by 2050. Captive retention of thousands of acres of land would only accentuate urban living pressures.
Urban sprawl and vertical leap
Given the inevitable urban sprawl, some governments and corporations have resorted to unprecedented innovations in technology and engineering to build super-skyscrapers. Shard in London Shanghai Tower in China, Burj Khalifa in Dubai, Marina Sands Bay in Singapore and the new WTC blocks in the USA are examples of the new trend. The builders and the sponsors of such super-skyscrapers believe that these new edifices do not merely represent office space but represent ‘vertical villages’ and ‘lifestyle communities’, which are as good as sprawling horizontal urban communities. There are also trends of reclaiming land and rebuilding habitats to create new mini-cities or urban cities. The rebuilding of industrial land into civic residents and urban malls is indicative of the urban churn that could go on.
Urban land use planning requires addressing of the issue of urban slums, which are almost inevitably the first step for the rural migrants. Urban slums are also the first stops for construction and industrial workforce. Unless sustainable and affordable design and construction principles are adopted to enable affordable habitats to replace urban slums (with proportionate land allocation for such projects), the provision of hundreds or thousands of acres of land for projects could worsen the social skew even further. In the horizontal office expansion cum vertical residential growth model currently being deployed in India industrial and business land allocations and residential land allocations are typically made by different governmental agencies. It needs to be debated if this model is the right one going forward or needs to be replaced by an integrated township model where multi-purpose land allocations are made for industrial and business purposes as well as residential and civic purposes.
Fast forward to 2050 AD
If the current trends of industrialization and urbanization continue with locking up of large parcels of land, sustainability of growth could be threatened. Given that global population could reach 9 billion mark by then (from the current 7 billion), there could be significant consequences of continuance of the current land use trends. Governments may, in such a scenario, mandate return of all unused land allocations. Whether by public action or private pressure, struggling industrial facilities could be pulled down, the refurbished industrial areas could face rationalization, and the concept of township development could return to weigh on industrial and business sponsors. There could be a total urban renewal with IT enabled ecologically sensitive cities being built in the place of current haphazardly developed habitats. As the current wave of sponsors face scrutiny on the extent to which they have fulfilled their land utilization promises, additional perspectives could emerge.
The governments, central and state, formulate and implement several policies that impact land use patterns. These include policies to expand the metropolitan cities into megacities, upgrade tier 2 cities into metros, disperse industrial development, dovetail industrial and residential developments, eliminate urban slums, create new industrial corridors, promote special economic zones, establish new manufacturing zones, provide road, rail and air infrastructure, enable urban-rural balance, provide social infrastructure of education and healthcare, and provide access to water and power, among others. These policies impact how the available land is allocated and utilized. Optimal development would occur when an integrated approach is taken at national and state levels covering all the above policies, with the policies individually and collectively being synergistic in terms of value enhancement and cost minimization. Optimization of speed and time of travel would need to be a key goal of the integrated policy so that the society and economy remain productive.
Posted by Dr CB Rao on February 14, 2012
Monday, February 6, 2012
Public Policy and Industry Structure: Challenges and Opportunities
There is a considerable degree of misunderstanding on the scope and role of public policy in a global economy that is liberalized and provides the pride of place to free enterprise. Emerging economies such as India are prone to an even greater level of confusion on this, particularly in the context of controversies in the formulation and execution of various public policy initiatives. However, the role of positive and proactive public policy that guards the interests of society and spurs triggers development cannot be ignored. In many instances, public policy has been in the vanguard of changes that protect consumer interests. In the early years of India’s industrialization the ISI marking on industrial and consumer products and in the later years the Bharat fuel economy certifications for the automobiles are two examples of the Indian government mandatorily influencing the development of higher quality and performance norms on industries.
Governments, central and state, could, and need to, do much more to drive industrial change in India. There is, for example, a dire need to display prominently and scientifically, the ingredients, serving sizes and the nutrition values of all food products, whether they are manufactured by large companies or small and medium enterprises. This would enable a concerted move to curb the uneducated and uncontrolled drift of the population from nutrition to taste. In a similar fashion, mandatory development of easy-to-read pharmaceutical packages and introduction of package inserts for all pharmaceutical preparations could be steps that would ensure better patient safety. Public policy is vital to ensure that private enterprise in its quest for sales maximization and cost minimization does not lose track of consumer interests. Publication of data on carbon credits and other disclosure items by the companies also fall under the category of investor protection.
Transformative policy
At times, however, public policy can be transformative in its impact on social and industry structure. For example, the governments can decide that in the interests of passenger safety (protection against deep vein thrombosis) and comfort (for the young and the old alike), all airlines must provide flat-bed seats, irrespective of the class of travel, whenever travel time exceeds say, five hours. With thousands of planes flying on long distance travel and with bulk of the seats being for the economy class with constrained leg space, the drastic impact of such a policy prescription on aircraft configuration and capacity, and on air travel economics can be imagined. Such a policy prescription can affect the constituents of the broader air transportation industry in different ways. The aircraft manufacturers may face demand buoyancy as airliners may seek to order new aircraft to fulfill the new requirement. They may also be induced in the long run to develop new aircraft configurations that could provide flat-bed capacity throughout the aircraft without reducing seating capacity too much. The manufacturers may also experience a spurt in demand for larger aircraft such as Airbus A 380 or Boeing Dreamliner.
The policy prescription would impact the other constituents of the airline industry in different ways. The aircraft interior makers and seat developers would benefit from a huge demand spurt. Logistics and transportation consulting firms would have a major demand for analytics that optimize seating configurations between short haul and long haul flights as well as pricing and differentiation models. The airliners may face huge dis-economics of the policy change in terms of what the economy market segment could bear for the enhanced passenger comfort on one hand, and the possibilities of demand flux and migration across the economy class, business class and first class user segments. The society and the intellectual groups, especially in emerging markets, may react in a totally different way questioning the priority of the governments in ensuring passenger comfort in air travel when other transportation services such as road and rail are grossly inadequate. It is quite likely that emerging economies may have a positive backlash of similar structural reforms in other transportation sectors such as high speed bullet trains, full scale sleeper compartments and fully air-conditioned train and bus services.
Services, infrastructure and resources
As governments the world over quit manufacturing and ease the controls on the sector, they would focus more on services and infrastructure as well as physical resources. Policies on these sectors need to be positively disruptive to catalyze growth. In India, in particular, what are considered subsidies and election sops today could be essential social needs, in the years to come. From providing subsidized rice, governments may move towards low cost production of rice through better farming methods and yields. From providing laptops as an election promise, the governments may see the laptops and tablets as an essential investment in students to enhance the quality of students. As already contemplated, governments may enhance the duration of the medical course by one year to accommodate a one year rural stint. Governments may take upon universal medical care, universal housing and universal education as their responsibilities. Access to affordable and comfortable public transport may be seen as essential to ensure social and economic productivity. Road development may become a priority item. While all these may be seen to be taking away tax revenues, the overall economic benefit may outweigh the short term impact.
At the same time, societies and governments are likely to be vocal and interventionist in terms of natural resource utilization. Mining of coal and metals would be a contentious issue as industrialists and environmentalists seek to balance the conflicting imperatives of growth and conservation. Pricing of these resources may no longer be a matter between the private exploiters and the governments; rather it could be a matter of public interest with the courts also coming into play from time to time. Equally contentious would be matters relating to quality of air, matters of pollution, and utilization of scarce vital resources of land and water. Public policy in matters of resource utilization needs to be proactive to enable fair generation and optimal utilization of resources, rather than be ignorant of it for long spells of time, and then take draconian measures. Policies on fuel consumption and plastic and electronic waste are a few examples of the need for continuous and calibrated monitoring. While corporations may overcome domestic natural resource constraints through overseas acquisitions, governments cannot be oblivious to the geo-political impact of overseas acquisitions.
Public policy and industrial restructuring
Public policy leads to industrial restructuring from time to time. The US government’s fuel economy and EPA norms of the 1970s, promulgated in the wake of the first oil crisis, have caused complete restructuring of the global automobile industry, providing an opportunity to the Japanese automobile industry to leverage its unique fuel-efficient compact car technologies to achieve global dominance. It is not that public policy always constrains and restructures the industry. But for the support of the US government, General Motors would have ceased to exist after the global economic meltdown in 2008 and 2009. The private sector as well as public sector airlines in India are facing a situation of needing governmental support for bailout. However, it is a matter of debate if public policy should in the first place cause distress through either excessive freedom or excessive control, and then seek to remedy later. What constitutes proactive and prudent industrial management or reactive and casual industrial management in the face of unpredictable public policy has always been a grey area. Corporations have to necessarily structure their strategies anticipating volatile public policy shifts, especially in emerging economies.
In contrast, where public safety and health, resource conservation and environmental protection are concerned it would pay for the businesses to be ahead of the public policy curve. Many times, public policy comes up with requirements that challenge the industry. The pharmaceutical industry has instances of ePedigree solutions (required by the US government) or the 2D barcoding (required by the Indian government) adding new packaging and distribution requirements. Whether it is first PVC and now BPA free food grade materials or lead free fuels, those companies which are proactive in developing superior products ahead of public policy not only serve the society better but also secure competitive advantage. To be able to do so, firms must first consider public policy as a competitive input rather than collaborative enabler. The author of this blog post argued earlier that the theory of Five Competitive Forces propounded by Michael Porter needs to be expanded to include global liquidity as the sixth competitive force. It would be appropriate to consider the competitive pressure of public policy as the seventh competitive force.
Technology as a differentiator
Public policy does not of course happen in thin air. Many times it is developed based on technological developments that happen in different sectors, and in different countries. The way the pharmaceutical industry controls its aseptic manufacture stringently could prompt the governments to require hospitals to establish similar aseptic standards in their operation theatres and intensive care units. The technologies that are generated in research laboratories, many of which are either funded by the governments or owned by the governments, could trigger the governments to mandate the commercial application of such technologies. Elimination of cancer causing materials is one such example. As the seismic activity in different regions becomes unpredictable, governments may mandate that all builders must follow Japanese-type earthquake proof construction. Similarly, deployment of green building technologies or alternative energy concepts could become the rules rather than exceptions.
Firms must, as a corollary, never accept technological status quo as a strategy. Those firms which constantly examine the linkages between their products and services on one hand and the consumer and environment protection needs, and develop appropriate technological solutions on the other could be ahead of the public policy curve. Yet, it is amazing how industries get trapped within the technological, operational and business templates that have proved successful, and lose sight of the impending game changing public policy directives. Reverting to the earlier example of the aircraft and airline industries, it is surprising why the industry refuses to recognize leg space, let alone, sleeping comfort as the essence of futuristic aviation design. The automobile industry took several long years to discover the needs of the society for low-floor buses and hybrid vehicles. There is no reason why other industries should fail to see the wave of egalitarian design becoming an edgy public policy.
Opportunities, rather than challenges
Public policy provides to the industry as many opportunities as challenges. In fact, proactive firms may see more opportunities than challenges. To institutionally respond to this paradigm, firms must go beyond the strategy of higher allocations to R&D. Emphasis must be placed on channeling a certain portion of R&D expenditure towards more consumer and environment friendly technologies which could serve public policy more effectively. The attempt to develop Aakash tablet computer by India as an extremely low cost computer for school children is a perfect example. The tablet computer industry could, instead of trying an unending desperate attempt to compete with Apple, view the billions of school and college going students as the universe to serve. Agricultural scientists and food processing industries could align themselves to the needs of the public policy to provide low cost food grains through better technologies and farming practices. Those participants in education, healthcare, and housing sectors may examine how parts of their services portfolio could be aligned to public policy imperatives of universalization. Anticipating and proactively catering to public policy changes could vest in firms virtually unlimited market opportunities and significant competitive advantage.
Posted by Dr CB Rao on February 6, 2012
Governments, central and state, could, and need to, do much more to drive industrial change in India. There is, for example, a dire need to display prominently and scientifically, the ingredients, serving sizes and the nutrition values of all food products, whether they are manufactured by large companies or small and medium enterprises. This would enable a concerted move to curb the uneducated and uncontrolled drift of the population from nutrition to taste. In a similar fashion, mandatory development of easy-to-read pharmaceutical packages and introduction of package inserts for all pharmaceutical preparations could be steps that would ensure better patient safety. Public policy is vital to ensure that private enterprise in its quest for sales maximization and cost minimization does not lose track of consumer interests. Publication of data on carbon credits and other disclosure items by the companies also fall under the category of investor protection.
Transformative policy
At times, however, public policy can be transformative in its impact on social and industry structure. For example, the governments can decide that in the interests of passenger safety (protection against deep vein thrombosis) and comfort (for the young and the old alike), all airlines must provide flat-bed seats, irrespective of the class of travel, whenever travel time exceeds say, five hours. With thousands of planes flying on long distance travel and with bulk of the seats being for the economy class with constrained leg space, the drastic impact of such a policy prescription on aircraft configuration and capacity, and on air travel economics can be imagined. Such a policy prescription can affect the constituents of the broader air transportation industry in different ways. The aircraft manufacturers may face demand buoyancy as airliners may seek to order new aircraft to fulfill the new requirement. They may also be induced in the long run to develop new aircraft configurations that could provide flat-bed capacity throughout the aircraft without reducing seating capacity too much. The manufacturers may also experience a spurt in demand for larger aircraft such as Airbus A 380 or Boeing Dreamliner.
The policy prescription would impact the other constituents of the airline industry in different ways. The aircraft interior makers and seat developers would benefit from a huge demand spurt. Logistics and transportation consulting firms would have a major demand for analytics that optimize seating configurations between short haul and long haul flights as well as pricing and differentiation models. The airliners may face huge dis-economics of the policy change in terms of what the economy market segment could bear for the enhanced passenger comfort on one hand, and the possibilities of demand flux and migration across the economy class, business class and first class user segments. The society and the intellectual groups, especially in emerging markets, may react in a totally different way questioning the priority of the governments in ensuring passenger comfort in air travel when other transportation services such as road and rail are grossly inadequate. It is quite likely that emerging economies may have a positive backlash of similar structural reforms in other transportation sectors such as high speed bullet trains, full scale sleeper compartments and fully air-conditioned train and bus services.
Services, infrastructure and resources
As governments the world over quit manufacturing and ease the controls on the sector, they would focus more on services and infrastructure as well as physical resources. Policies on these sectors need to be positively disruptive to catalyze growth. In India, in particular, what are considered subsidies and election sops today could be essential social needs, in the years to come. From providing subsidized rice, governments may move towards low cost production of rice through better farming methods and yields. From providing laptops as an election promise, the governments may see the laptops and tablets as an essential investment in students to enhance the quality of students. As already contemplated, governments may enhance the duration of the medical course by one year to accommodate a one year rural stint. Governments may take upon universal medical care, universal housing and universal education as their responsibilities. Access to affordable and comfortable public transport may be seen as essential to ensure social and economic productivity. Road development may become a priority item. While all these may be seen to be taking away tax revenues, the overall economic benefit may outweigh the short term impact.
At the same time, societies and governments are likely to be vocal and interventionist in terms of natural resource utilization. Mining of coal and metals would be a contentious issue as industrialists and environmentalists seek to balance the conflicting imperatives of growth and conservation. Pricing of these resources may no longer be a matter between the private exploiters and the governments; rather it could be a matter of public interest with the courts also coming into play from time to time. Equally contentious would be matters relating to quality of air, matters of pollution, and utilization of scarce vital resources of land and water. Public policy in matters of resource utilization needs to be proactive to enable fair generation and optimal utilization of resources, rather than be ignorant of it for long spells of time, and then take draconian measures. Policies on fuel consumption and plastic and electronic waste are a few examples of the need for continuous and calibrated monitoring. While corporations may overcome domestic natural resource constraints through overseas acquisitions, governments cannot be oblivious to the geo-political impact of overseas acquisitions.
Public policy and industrial restructuring
Public policy leads to industrial restructuring from time to time. The US government’s fuel economy and EPA norms of the 1970s, promulgated in the wake of the first oil crisis, have caused complete restructuring of the global automobile industry, providing an opportunity to the Japanese automobile industry to leverage its unique fuel-efficient compact car technologies to achieve global dominance. It is not that public policy always constrains and restructures the industry. But for the support of the US government, General Motors would have ceased to exist after the global economic meltdown in 2008 and 2009. The private sector as well as public sector airlines in India are facing a situation of needing governmental support for bailout. However, it is a matter of debate if public policy should in the first place cause distress through either excessive freedom or excessive control, and then seek to remedy later. What constitutes proactive and prudent industrial management or reactive and casual industrial management in the face of unpredictable public policy has always been a grey area. Corporations have to necessarily structure their strategies anticipating volatile public policy shifts, especially in emerging economies.
In contrast, where public safety and health, resource conservation and environmental protection are concerned it would pay for the businesses to be ahead of the public policy curve. Many times, public policy comes up with requirements that challenge the industry. The pharmaceutical industry has instances of ePedigree solutions (required by the US government) or the 2D barcoding (required by the Indian government) adding new packaging and distribution requirements. Whether it is first PVC and now BPA free food grade materials or lead free fuels, those companies which are proactive in developing superior products ahead of public policy not only serve the society better but also secure competitive advantage. To be able to do so, firms must first consider public policy as a competitive input rather than collaborative enabler. The author of this blog post argued earlier that the theory of Five Competitive Forces propounded by Michael Porter needs to be expanded to include global liquidity as the sixth competitive force. It would be appropriate to consider the competitive pressure of public policy as the seventh competitive force.
Technology as a differentiator
Public policy does not of course happen in thin air. Many times it is developed based on technological developments that happen in different sectors, and in different countries. The way the pharmaceutical industry controls its aseptic manufacture stringently could prompt the governments to require hospitals to establish similar aseptic standards in their operation theatres and intensive care units. The technologies that are generated in research laboratories, many of which are either funded by the governments or owned by the governments, could trigger the governments to mandate the commercial application of such technologies. Elimination of cancer causing materials is one such example. As the seismic activity in different regions becomes unpredictable, governments may mandate that all builders must follow Japanese-type earthquake proof construction. Similarly, deployment of green building technologies or alternative energy concepts could become the rules rather than exceptions.
Firms must, as a corollary, never accept technological status quo as a strategy. Those firms which constantly examine the linkages between their products and services on one hand and the consumer and environment protection needs, and develop appropriate technological solutions on the other could be ahead of the public policy curve. Yet, it is amazing how industries get trapped within the technological, operational and business templates that have proved successful, and lose sight of the impending game changing public policy directives. Reverting to the earlier example of the aircraft and airline industries, it is surprising why the industry refuses to recognize leg space, let alone, sleeping comfort as the essence of futuristic aviation design. The automobile industry took several long years to discover the needs of the society for low-floor buses and hybrid vehicles. There is no reason why other industries should fail to see the wave of egalitarian design becoming an edgy public policy.
Opportunities, rather than challenges
Public policy provides to the industry as many opportunities as challenges. In fact, proactive firms may see more opportunities than challenges. To institutionally respond to this paradigm, firms must go beyond the strategy of higher allocations to R&D. Emphasis must be placed on channeling a certain portion of R&D expenditure towards more consumer and environment friendly technologies which could serve public policy more effectively. The attempt to develop Aakash tablet computer by India as an extremely low cost computer for school children is a perfect example. The tablet computer industry could, instead of trying an unending desperate attempt to compete with Apple, view the billions of school and college going students as the universe to serve. Agricultural scientists and food processing industries could align themselves to the needs of the public policy to provide low cost food grains through better technologies and farming practices. Those participants in education, healthcare, and housing sectors may examine how parts of their services portfolio could be aligned to public policy imperatives of universalization. Anticipating and proactively catering to public policy changes could vest in firms virtually unlimited market opportunities and significant competitive advantage.
Posted by Dr CB Rao on February 6, 2012
Friday, February 3, 2012
Skill Development as Corporate Social Responsibility (CSR): The Example of Maruti-Suzuki
Many shareholders of Maruti Suzuki India Limited (MSIL) recently received a proposal from the company relating to establishment by the company of an Automotive Skill Development Institute (AMDI) with the following objectives: (a) Impart technical training to school pass-outs to make them employable on the shop floor as well as in service workshops; (b) Besides technical training, train the students in proper value systems of work culture and team work; and (c) On successful completion of the course, absorb the students at service networks of the company and also at its manufacturing facilities depending on the manpower requirements. An interesting aspect of the proposal is that the students would be free to join any other organization that could decide to recruit them. Equally interesting is the resolve of the company to treat this project as a Corporate Social Responsibility (CSR) activity. Hopefully, the proposal will receive an overwhelming support from MSIL’s shareholders.
The above proposal is not only novel but is also germane to the Indian society. The Indian society is characterized by significant dropouts after school education. Not all interested in college education are able to move into colleges due to family pressures to earn a living. Certain jobs, for example automobile servicing, product selling, transport services and hospitality services are, in contrast, are not considered suitable avocations by college graduates. Given the peculiar social structure, school pass-outs as well as dropouts, who could not get the necessary educational background, occupy certain jobs which require technical finesse as well as business acumen while the graduates and post-graduates seek predominantly technical supervisory and white collar jobs. Although the Industrial Technical Institutes (ITIs) were set up in the 1950s as a vocational training via media between inadequate school education and higher technical education, there remain a large number of jobs which require a more practical and socially acceptable option. The AMDI model of skill development initiated by MSIL offers a great new option.
Skills at the bottom of the pyramid
Skills of the organization are at the core of business success. MSIL itself has been a striking proof of the proposition. In the 1980s, a major argument of status quo advocates against technological modernization in the Indian automobile industry was that it would be impossible to service a modern vehicle such as Suzuki car in the country which was accustomed only to urban and semi-urban use of cars of dated designs such as Ambassador. Rather than be baulked by such arguments, MSIL pioneered the concept of authorized service stations with factory trained service personnel, with well-stocked spare parts, to ensure that the modern cars are maintained with thorough product knowledge. This has enabled the service and longevity oriented Indian customers to welcome the new car technologies. The MSIL model has since been replicated by other automobile manufacturers, with similar success. Over a period of time, the ability to have such skill based service infrastructure has become an entry barrier too. Dissemination of skills to the bottom of the organizational pyramid is clearly a matter of core competence for organizations.
Skill development need not be limited to service. Ashok Leyland and MRF, the noted commercial vehicle and tyre manufacturers respectively have focused on driver training institutes as a methodology to reduce the shortage of trained drivers and enable better transportation services. Certain engineering giants such as L&T are reported to have set up training institutes to train construction workers in good construction practices. Certain corporate groups have been quick to realize the need for trained front-line customer facing manpower and have established specialized institutions for the purpose. NIS Sparta Education and Learning Technologies Pvt. Ltd., which has started in 1991 as an institute for salesman’s training, has rapidly grown to become Asia's leading training, education and learning solutions provider. It is now a part of the Reliance ADA Group. NIS Sparta today offers training solutions to organizations and employability linked, skill based programs to individuals. More recently, the concept of finishing schools has also come into play to enhance the employability of individuals at various levels, and not merely at workforce and salesman levels.
Unskilled as an archaic concept
While the above sounds good, it is ironic and paradoxical that even large corporations still suffer from the syndrome of unskilled and skilled differentiation as an institutionalized concept in the bottom rungs of the organization. In a new world which seeks equality and dignity of labor, besides perfection and productivity in products and services delivered, the institutionalized concept of unskilled and skilled differentiation is completely archaic and even counterproductive. One has to observe the poor artisans who mold clay into works of art or the indigent masons who provide impeccable finish to buildings to realize that skills are an integral part of any job. There could be arguments that all workmen who undertake predominantly manual labor can be classified as manual labor, and that no trained or educated workman would in fact accept to do such “unskilled” jobs. This again is a specious argument. Even in the so called unskilled categories a level of skill exists. For example, a so called unskilled workman who clears the sludge in a reactor of a bulk drugs company needs to know the right way of removing the sludge besides the material and process safety specifications and the correct sequence of carrying out various activities. As a paradox, whenever a so called unskilled or manual work gets substituted by robots, it is technology at the highest level that replaces such unskilled work!
Organizations have tried to reduce the proportion of the unskilled workforce within the permanent rolls by outsourcing such unskilled jobs to third party service providers. Services such as janitor services, civil construction services or maintenance services come to mind. As an apparent truism, the differences in skill levels of the in-house personnel and contracted personnel tend to be visible, with the former working on jobs that require higher levels of skills and education. Unfortunately, this may perpetuate a system by which such service providers due to their financial and other considerations could perpetuate an “unskilled” environment for their personnel. As a result, progressive organizations are forced to undertake special programs for the contract workforce to enhance the skill levels. Fortunately, most progressive organizations now realize that contracting jobs out has nothing to do with jobs being manual or otherwise but has everything to do with how specialization could enhance the skill level and delivery efficiency regardless of the type of the job outsourced.
Skills as sinews of strength
The visible part of any job hides the need for latent skills. In fact, latent skills serve as the sinews of strength. The job of an airhostess or a flight attendant may appear to be one of receiving the passengers and serving them food with a smile. However, when a crisis confronts, be it a suddenly sick passenger or a flight malfunction latent skills are expected to come forth to save the flight and the passengers. A janitor in the hospital may not be, in the ordinary course of work, expected to know anything more than wiping the floor and other accessories clean. Awareness of the nature of the infectious bugs and microorganisms that affect the human safety and how the job of cleaning has to be performed to protect safety represents the inner skill that is required. Every job, however naturally simple or manually heavy would have its own undertone of skill requirements. Skill development involves anticipating all the ordinary and extraordinary situations that a workman could encounter routinely or sporadically and equip him or her with such skills. It is the robustness of the underlying skills that enables the seemingly most ordinary personnel exceed expectations and avert crises, as the case may be.
Once the premise that every job has its own battery of skills is accepted, it is easy to see how a progression of skills could enable individuals to progress in their careers and achieve self-actualization. Organizations must move away from unskilled-skilled classification which creates increasing pools of disgruntled unskilled workers. On the other hand, organizations must define the jobs from the lowest level upwards in terms of a hierarchy of skills that are required in all natures of operations and business. The reserve skill levels of a job and the innate skill levels of an individual help employees progress from the lower levels of careers to the higher levels. There have been cases in India of individuals becoming entrepreneurs from what were seen to be ordinary avocations, be it product distribution, product selling, household plumbing or restaurant food-making. Only when individuals recognize the skill-sets as innate sinews of strength can such career progression be possible.
Developing skills
One’s skill-sets come from a combination of inputs; comprising formal and informal education at school and/or college levels, vocational and skill development institutions, and on-the job training. However, all these inputs can go only as far as the individuals are capable, eager and motivated to absorb skills. Particularly, skills come from keen observation, sustained practice and perfection for quality. Preparing the individual’s mind to the challenges of skill development through practice requires behavioral coaching. A willingness to work with hands and without inhibitions of blue collar work are the other two essential requirements. Unlike broader education, skill development in any vocation requires certain specific preferences and aptitudes on the part of the individuals. The challenge of skill development is one of customized practice and selection.
It is fascinating to watch and conceptualize how skill development takes place in a practical setting. Received skills, observed skills and practiced skills combine to form a progressively enhancing skill-set. Continuing practice remains the key however. It is in this context that specialized skill development institutes such as AMDI with openness to allow the products of the institute to join other companies is a welcome initiative. If leading companies in all other industries reinforce the initiative by setting up similar skill development institutes, the Indian economy would be the best in the world. Skill development cannot be an end in itself. At appropriate stages, it should be possible to supplement the skill epitomes with higher education, so that individuals can graduate from operational excellence to strategic exposure.
Skill development as a corporate social responsibility
Skill development on the lines envisaged by MSIL AMDI is an enlightened move to expand the talent base of the country while ensuring a somewhat captive skill base for the sponsoring firm. That said, the format offers enormous scope to provide education to indigent sections of the society in partnership with government and non-government organizations. NIS Sparta has partnered with the government in that direction, for example. Ministry of Rural Development’s (MoRD) Special Projects for Placement Linked Skill Development of Rural Below Poverty Line (BPL) Youth under Swarnjayanti Gram Swarozgar Yojana (SGSY), is designed to equip the unemployed rural youth from the BPL Households with marketable skills, with an objective to ensure a time-bound training and capacity building programme for bringing a specific number of Rural BPL families above the poverty line through placement ensuring regular wage employment.
Without specialized skill development institutions like NIS Sparta such social uplift through skill development would not be possible with optimal efficacy. When education-for-fee institutions such as NIS Sparta are able and willing to participate in such CSR programs, industry sponsored institutes can be even more effective. The new Companies Bill requires that public corporations spend at least 5 percent of their net profits on activities of corporate social responsibility. It also requires that the Board of a company is obligated to explain the reasons if the company is not able to invest in CSR. The skill development initiatives outlined herein provide a perfect vehicle with appropriate business and social rationale to fulfill the mandate voluntarily. It is hoped that all corporations would be able to follow Maruti-Suzuki example, and create a multiplier effect in the economy.
Posted by Dr CB Rao on February 2, 2012
The above proposal is not only novel but is also germane to the Indian society. The Indian society is characterized by significant dropouts after school education. Not all interested in college education are able to move into colleges due to family pressures to earn a living. Certain jobs, for example automobile servicing, product selling, transport services and hospitality services are, in contrast, are not considered suitable avocations by college graduates. Given the peculiar social structure, school pass-outs as well as dropouts, who could not get the necessary educational background, occupy certain jobs which require technical finesse as well as business acumen while the graduates and post-graduates seek predominantly technical supervisory and white collar jobs. Although the Industrial Technical Institutes (ITIs) were set up in the 1950s as a vocational training via media between inadequate school education and higher technical education, there remain a large number of jobs which require a more practical and socially acceptable option. The AMDI model of skill development initiated by MSIL offers a great new option.
Skills at the bottom of the pyramid
Skills of the organization are at the core of business success. MSIL itself has been a striking proof of the proposition. In the 1980s, a major argument of status quo advocates against technological modernization in the Indian automobile industry was that it would be impossible to service a modern vehicle such as Suzuki car in the country which was accustomed only to urban and semi-urban use of cars of dated designs such as Ambassador. Rather than be baulked by such arguments, MSIL pioneered the concept of authorized service stations with factory trained service personnel, with well-stocked spare parts, to ensure that the modern cars are maintained with thorough product knowledge. This has enabled the service and longevity oriented Indian customers to welcome the new car technologies. The MSIL model has since been replicated by other automobile manufacturers, with similar success. Over a period of time, the ability to have such skill based service infrastructure has become an entry barrier too. Dissemination of skills to the bottom of the organizational pyramid is clearly a matter of core competence for organizations.
Skill development need not be limited to service. Ashok Leyland and MRF, the noted commercial vehicle and tyre manufacturers respectively have focused on driver training institutes as a methodology to reduce the shortage of trained drivers and enable better transportation services. Certain engineering giants such as L&T are reported to have set up training institutes to train construction workers in good construction practices. Certain corporate groups have been quick to realize the need for trained front-line customer facing manpower and have established specialized institutions for the purpose. NIS Sparta Education and Learning Technologies Pvt. Ltd., which has started in 1991 as an institute for salesman’s training, has rapidly grown to become Asia's leading training, education and learning solutions provider. It is now a part of the Reliance ADA Group. NIS Sparta today offers training solutions to organizations and employability linked, skill based programs to individuals. More recently, the concept of finishing schools has also come into play to enhance the employability of individuals at various levels, and not merely at workforce and salesman levels.
Unskilled as an archaic concept
While the above sounds good, it is ironic and paradoxical that even large corporations still suffer from the syndrome of unskilled and skilled differentiation as an institutionalized concept in the bottom rungs of the organization. In a new world which seeks equality and dignity of labor, besides perfection and productivity in products and services delivered, the institutionalized concept of unskilled and skilled differentiation is completely archaic and even counterproductive. One has to observe the poor artisans who mold clay into works of art or the indigent masons who provide impeccable finish to buildings to realize that skills are an integral part of any job. There could be arguments that all workmen who undertake predominantly manual labor can be classified as manual labor, and that no trained or educated workman would in fact accept to do such “unskilled” jobs. This again is a specious argument. Even in the so called unskilled categories a level of skill exists. For example, a so called unskilled workman who clears the sludge in a reactor of a bulk drugs company needs to know the right way of removing the sludge besides the material and process safety specifications and the correct sequence of carrying out various activities. As a paradox, whenever a so called unskilled or manual work gets substituted by robots, it is technology at the highest level that replaces such unskilled work!
Organizations have tried to reduce the proportion of the unskilled workforce within the permanent rolls by outsourcing such unskilled jobs to third party service providers. Services such as janitor services, civil construction services or maintenance services come to mind. As an apparent truism, the differences in skill levels of the in-house personnel and contracted personnel tend to be visible, with the former working on jobs that require higher levels of skills and education. Unfortunately, this may perpetuate a system by which such service providers due to their financial and other considerations could perpetuate an “unskilled” environment for their personnel. As a result, progressive organizations are forced to undertake special programs for the contract workforce to enhance the skill levels. Fortunately, most progressive organizations now realize that contracting jobs out has nothing to do with jobs being manual or otherwise but has everything to do with how specialization could enhance the skill level and delivery efficiency regardless of the type of the job outsourced.
Skills as sinews of strength
The visible part of any job hides the need for latent skills. In fact, latent skills serve as the sinews of strength. The job of an airhostess or a flight attendant may appear to be one of receiving the passengers and serving them food with a smile. However, when a crisis confronts, be it a suddenly sick passenger or a flight malfunction latent skills are expected to come forth to save the flight and the passengers. A janitor in the hospital may not be, in the ordinary course of work, expected to know anything more than wiping the floor and other accessories clean. Awareness of the nature of the infectious bugs and microorganisms that affect the human safety and how the job of cleaning has to be performed to protect safety represents the inner skill that is required. Every job, however naturally simple or manually heavy would have its own undertone of skill requirements. Skill development involves anticipating all the ordinary and extraordinary situations that a workman could encounter routinely or sporadically and equip him or her with such skills. It is the robustness of the underlying skills that enables the seemingly most ordinary personnel exceed expectations and avert crises, as the case may be.
Once the premise that every job has its own battery of skills is accepted, it is easy to see how a progression of skills could enable individuals to progress in their careers and achieve self-actualization. Organizations must move away from unskilled-skilled classification which creates increasing pools of disgruntled unskilled workers. On the other hand, organizations must define the jobs from the lowest level upwards in terms of a hierarchy of skills that are required in all natures of operations and business. The reserve skill levels of a job and the innate skill levels of an individual help employees progress from the lower levels of careers to the higher levels. There have been cases in India of individuals becoming entrepreneurs from what were seen to be ordinary avocations, be it product distribution, product selling, household plumbing or restaurant food-making. Only when individuals recognize the skill-sets as innate sinews of strength can such career progression be possible.
Developing skills
One’s skill-sets come from a combination of inputs; comprising formal and informal education at school and/or college levels, vocational and skill development institutions, and on-the job training. However, all these inputs can go only as far as the individuals are capable, eager and motivated to absorb skills. Particularly, skills come from keen observation, sustained practice and perfection for quality. Preparing the individual’s mind to the challenges of skill development through practice requires behavioral coaching. A willingness to work with hands and without inhibitions of blue collar work are the other two essential requirements. Unlike broader education, skill development in any vocation requires certain specific preferences and aptitudes on the part of the individuals. The challenge of skill development is one of customized practice and selection.
It is fascinating to watch and conceptualize how skill development takes place in a practical setting. Received skills, observed skills and practiced skills combine to form a progressively enhancing skill-set. Continuing practice remains the key however. It is in this context that specialized skill development institutes such as AMDI with openness to allow the products of the institute to join other companies is a welcome initiative. If leading companies in all other industries reinforce the initiative by setting up similar skill development institutes, the Indian economy would be the best in the world. Skill development cannot be an end in itself. At appropriate stages, it should be possible to supplement the skill epitomes with higher education, so that individuals can graduate from operational excellence to strategic exposure.
Skill development as a corporate social responsibility
Skill development on the lines envisaged by MSIL AMDI is an enlightened move to expand the talent base of the country while ensuring a somewhat captive skill base for the sponsoring firm. That said, the format offers enormous scope to provide education to indigent sections of the society in partnership with government and non-government organizations. NIS Sparta has partnered with the government in that direction, for example. Ministry of Rural Development’s (MoRD) Special Projects for Placement Linked Skill Development of Rural Below Poverty Line (BPL) Youth under Swarnjayanti Gram Swarozgar Yojana (SGSY), is designed to equip the unemployed rural youth from the BPL Households with marketable skills, with an objective to ensure a time-bound training and capacity building programme for bringing a specific number of Rural BPL families above the poverty line through placement ensuring regular wage employment.
Without specialized skill development institutions like NIS Sparta such social uplift through skill development would not be possible with optimal efficacy. When education-for-fee institutions such as NIS Sparta are able and willing to participate in such CSR programs, industry sponsored institutes can be even more effective. The new Companies Bill requires that public corporations spend at least 5 percent of their net profits on activities of corporate social responsibility. It also requires that the Board of a company is obligated to explain the reasons if the company is not able to invest in CSR. The skill development initiatives outlined herein provide a perfect vehicle with appropriate business and social rationale to fulfill the mandate voluntarily. It is hoped that all corporations would be able to follow Maruti-Suzuki example, and create a multiplier effect in the economy.
Posted by Dr CB Rao on February 2, 2012
Wednesday, January 25, 2012
Desires and Aspirations; Wants and Needs (DAWNs): A New Sunrise for Egalitarian Economics?
Basic economics taught us for decades that the human needs and wants dictated the economic behavior of individuals, societies and nations. At the core are the definitions of human needs and wants. A need is something without which it is not possible for a human being to survive; for example food, clothing, housing and protection from nature. On the other hand, want is something which is nice to have but without which it is possible for a human being to survive; for example, television, car or smart phone. As a society develops and its economy grows, more of needs are taken to be automatically available, and more wants are perceived as needs that are to be sought after as essential for living. This also explains the differential economic behavior across urban, semi-urban, rural and tribal areas in a nation on one hand and between developed nations, developing nations and the underdeveloped nations on the other. The paradox of needs and wants, and the resultant economic behavior is that resources are limited in nature, and do not lead to unlimited fulfillment of needs and wants even as human needs and wants are unlimited in quantity and quality. At the same time, it is the rather unlimited nature of human needs and wants that pushes the envelope of economic development. Typically, as each need is fulfilled, the accent shifts to fulfillment of a better class of need and fulfillment of basic wants. Economics is a social science that deals with the production, distribution, consumption of goods and services and their management. Human needs and wants, and the economics are therefore clearly interrelated.
Within any nation, there tend to be three main economic sectors which comprise the public sector, which includes the government and the government owned entities, the for-profit sector, which is mostly private sector organizations, and the not-for-profit sector. The not-for-profit sector is also called the third sector, nonprofit sector, independent sector or voluntary sector. In India, the public sector has been playing a major role in fulfilling the "needs" of the society by providing such things as roads, schools and public assistance or welfare. The funds providing these services are typically largely in the form of taxes, and cross-funded through public debt and subsidies. The for-profit private sector generally addresses the "wants" of society by producing and distributing goods and services to a portion of the population based on demand. Demand is the ability and desire to purchase goods and services. If there is a high demand, the private sector will supply those wants. Some examples of what the population demands from this sector include products such as luxury cars, expensive restaurants, cosmetic alterations, and so on, and services such as insurance, marketing, service, advertising, banking, accounting, finance, and so on. Equity, debt, profits and dividends provide the growth and reinvestment possibilities for the private sector. The not-for-profit sector is mostly responsible for the "needs" of the society, provided voluntarily with corpuses contributed by government subsidies, tax breaks and funding from the private sector and high net worth individuals. While the organizational principles are by and large common across the sectors, the governments are motivated by a simultaneous need to serve and control, the public sector entities are burdened by a combination of commercial principles and social purpose and the private sector entities are fired by motives of stoking the demand, increasing production of goods and services, and enhancing market capitalization.
The Indian context
The Indian context is a classic crucible for the basic economics of needs and wants. Seventy percent of India’s population is rural and indigent on farming that is subject to vagaries of nature. Despite significant economic progress, over 25percent of the population lives in extreme poverty, living on a measly earning of less than Rs 32 (60 US Cents) per day, which is the government specified poverty threshold. Over seventy five percent of the population lacks access to proper housing, sanitation, education and healthcare, providing another telling index of poverty. In this scenario, the emergence of an affluent middle class and the conspicuous consumption of high net worth individuals further compound the inequities. Leakage of the various benefits and subsidies before they reach the poor defeat the purpose of well-intentioned government sponsored welfare schemes, and eventually aggravate the overall tax burden and public debt burden in the economy. Infant mortality, child malnourishment and micronutrient deficiencies are endemic. Some pockets of some States of India are said to be faring poorly compared to even the underdeveloped world. Viewed in a macro-perspective, the Indian economy is still in a phase which requires massive need fulfillment across the population geographies and strata. It is a paradox of the global order that in the developed world that wants are easily fulfilled and needs are assured for a great majority of the population while in the emerging countries even a minority of the population would require subsidies for subsistence while wants prove elusive for the majority of the population. Without harping on the causative factors, one may still see this as a great opportunity of economic development, provided production, distribution and consumption of products and services are equitably organized.
The Indian context is notable for the peculiar nature of public, private and non-profit entity objectives. The Indian socialistic model which was antagonistic towards the private sector and the so called big business from 1947 to 1990 saw to it that the government departments and the public sector undertakings (PSUs) got into production and distribution of industrial goods and consumer goods even as the private sector was limited from producing more goods and services for the general population through controls on licensing, equity and debt funding and technology imports. As a result, governments, central and state, could not invest as much as they ought to have in their primary areas of responsibility of social services and infrastructure, and also by default, through the control and command economy model, limited employment generation, technological modernization and demand globalization. Given the skew in public-private participation the non-profit organizations had to move into core areas of social services rather unsuccessfully in contrast to niche areas of service where they would have been more successful. The production-distribution system in India until the economic liberalization of the 1990s sub-optimized the need-want fulfillment. Unfortunately, even after the economic liberalization, however, the liberalized production-distribution system continues as an imbalanced need-want system at the bottom of the social pyramid while a new desire-aspiration driver at the top of the social pyramid has emerged, leaving also a huge uncared for middle portion in the social pyramid. The Indian economy, even before it could cross the trajectory of need-want fulfillment has begun to try leaping on to a more challenging, and even diversionary, trajectory of desire-aspirations pursuit.
Desires and aspirations
Desire is a higher form of want which is accompanied by longing and craving. Influences of social esteem distinguish desires from wants. Aspiration is an even stronger form of desire, tinged by ambition, a potential sense of achievement, and a strong feeling of ego fulfillment. As opposed to needs and wants which are somewhat personalized and stand-alone, desires and aspirations are comparative and are sparked by the cognitive window that an individual possesses. In the Indian economic policy milieu that struggled to cope with “need-want” basics, economic liberalization and globalization brought in “desire-aspiration” as new drivers of economic growth. Indian markets are now home to the top brands of the world in almost all consumer-touching areas such as watches, perfumes, apparel, automobiles, writing instruments, jewels, electronics, home interior products, international travels and scores of other luxury items and services. Aspirations assume an even a larger canvas of social and economic behavior. In contrast to needs, wants, and even desires which are all, by and large, product and service specific, aspirations tend to be life-centric. For example, ambitious young executives no longer desire just a flashy car or a smart phone but instead crave for a total millionaire lifestyle. There is overtly nothing wrong in having aspirations of good to great life but when the socio-economic price of luxury-spend shoots through the roof and contrasts garishly with the stark reality of millions not having two square meals a day, one would wonder if desires and aspirations have arrived too early into the Indian psyche to be of any benefit for orderly economic development.
The issue with the creation of islands of luxury living and proliferation of luxury brands in an inequity stricken emerging economy is that it distorts deployment and use of scarce resources. This inequity gets enhanced when the luxury brands are import dependent, and even more when they are imported as completely built units. According to estimates, a typical luxury product could have an inbuilt premium of 100 to 500 percent, compared to a more functional product, in each category. For example, a luxury car would have almost the same level of component fitment and processing activity as a normal sedan car would have. Even with some allowance for premium accessories and trim for a luxury car, a luxury car requires almost the same employment hours but consumes two to five times higher consumer dollars. From an economic point of view, each dollar spent by the consumer, and invested by the producer, on luxury and super luxury products creates less employment than normal consumer dollar. The possibility of employment dollars dwindles even lower when the product is imported completely as a fully finished product. In a globalized economy, barriers to trade are, of course, an anathema to neo-economists. Yet, one cannot ignore the compulsions on resource strapped developing economies to ensure that each investment Rupee or consumption Rupee is spent for the maximum possible economic benefit.
Archaic socialism, or orderly capitalism?
The inability of the socialist economies to reach full potential in the second half of the 20th century is attributable to State controls which stifled free enterprise. India was a classic example. Surprisingly, State capitalism practiced by China gave astounding results. The 21st century, however, ushered in significant changes in the world economic order, especially over the last five years. Free market economies with unbridled financial systems posed systemic risks and caused global economic meltdown. Welfare economics funded by public and global debt without productivity driven economic growth has caused in part the Euro Zone crisis. Given that State capitalism has been uniquely and inimitably only a phenomenon of China, and in addition is antithetical to democratic cultures, there do not seem to be many choices of alternate economic paradigms that can be followed by emerging economies such as India. Rather than despair, it would be appropriate for the Indian polity to leverage the historical socialist roots fused with contemporary free market enterprise to generate a new model of orderly capitalism. The need for such orderly capitalism is dictated by the continuing inequities juxtaposed with the economic benefits of free market enterprise.
According to an analytical study by the National Council for Applied Economic Research (NCAER) and Centre for Macro Consumer Research (CMCR) just about 1 percent of India’s households have an annual income of Rs 1.25 million (USD 25,000). This is far lower than the income threshold of top 1 percent in the US of USD 500,000 to 700,000. The US figure is 20 times that of the Indian threshold, and is 10 times more even after adjusting for the purchasing power parity. On the other hand, the minimum wage guaranteed by the Central Government under the National Rural Employment Guarantee Act (NREGA) is just Rs 100 (USD 2) per day, guaranteed for only 100 days in a year. Considering the millions of indigent households, the inequities between the USD 400 annual income at the bottom end and the USD 125,000 annual income minimum threshold for the top 1 percent households are strikingly disheartening. Do the rural households need more Xylos and Safaris or more tractors and bore wells, and do the urban households need more Audis, BMWs and Mercedes Benz’s or more buses and monorails are questions difficult to answer non-emotionally. If progress is pursued without rational economic allocations there could be more progress surely but with more inequities. On the other hand, if free market enterprise is pursued with caveats of inequity reduction, potentially the benefits could be synergistic.
Optimized DAWNs: A new sunrise for egalitarian economics
The development of human race has for centuries been predicated upon creation, discovery, development and utilization of an ever increasing array of products and services, based on ever expanding frontiers of research in science and technology. This is an inexorable trend, which requires people, money and business processes to be available on an increasing level. A developed society has all of an emerging nation’s wants and desires fulfilled as basic needs. The more the wants and desires in an emerging nation the more would be the development compulsions as well as development triggers. Yet, resource generation and distribution have to be at adequate levels to support continuous growth. India is fortunate in this context. India would be adding 10 million of educated manpower each year over the foreseeable future. Many of the infrastructure projects, despite the current delays, would be energized over the next few years. High speed trains and super highways are likely to be funded well by infrastructure bonds. The oil and gas sector is likely to see induction of more modern exploration and drilling practices with foreign collaboration. With the power of talent, the torque of transport, the spring of oil and gas, and the energy of electricity, India could hope for sustainable growth. To boost infrastructure development, PSUs are allowed to issue infrastructure bonds of Rs 30,000 crore in 2011-12.
As India starts benefitting from this vast resource pool, India must also start planning for universal fulfillment of basic needs of healthcare, housing, food, education and sanitation. Planning and resource allocation indigenization of luxury to bring desires to the level of wants. Relative priorities must not be lost sight off. A spend of Rs 2 crore on a chauffeur driven imported luxury car, for example, is equivalent to an investment on 6 buses which can transport 300 people daily. The more the level of sunk investments with lower economic productivity the more cash strapped the economy and the society would be in the pursuit of the needs, wants, desires and aspirations, which are surely required to trigger and sustain an economic boom. However, by recognizing that less could actually be more (as even the luxury car makers such as Audi and BMW seem to have discovered!) and resolving once again that India should be in the forefront of indigenous manufacture of all classes of goods, policy planners and industrialists of India can usher in a new economic model for India. An optimized DAWN model which seeks to provide the vast Indian population with needs and wants at superior levels but desires and wants at basic levels, would position India on a sustainable path of high economic growth with social equity. On the occasion of the 63rd Republic Day of India, this great nation with its fascinating social fabric could have no better republican resolution than this!
Posted by Dr CB Rao on January 26, 2012
Within any nation, there tend to be three main economic sectors which comprise the public sector, which includes the government and the government owned entities, the for-profit sector, which is mostly private sector organizations, and the not-for-profit sector. The not-for-profit sector is also called the third sector, nonprofit sector, independent sector or voluntary sector. In India, the public sector has been playing a major role in fulfilling the "needs" of the society by providing such things as roads, schools and public assistance or welfare. The funds providing these services are typically largely in the form of taxes, and cross-funded through public debt and subsidies. The for-profit private sector generally addresses the "wants" of society by producing and distributing goods and services to a portion of the population based on demand. Demand is the ability and desire to purchase goods and services. If there is a high demand, the private sector will supply those wants. Some examples of what the population demands from this sector include products such as luxury cars, expensive restaurants, cosmetic alterations, and so on, and services such as insurance, marketing, service, advertising, banking, accounting, finance, and so on. Equity, debt, profits and dividends provide the growth and reinvestment possibilities for the private sector. The not-for-profit sector is mostly responsible for the "needs" of the society, provided voluntarily with corpuses contributed by government subsidies, tax breaks and funding from the private sector and high net worth individuals. While the organizational principles are by and large common across the sectors, the governments are motivated by a simultaneous need to serve and control, the public sector entities are burdened by a combination of commercial principles and social purpose and the private sector entities are fired by motives of stoking the demand, increasing production of goods and services, and enhancing market capitalization.
The Indian context
The Indian context is a classic crucible for the basic economics of needs and wants. Seventy percent of India’s population is rural and indigent on farming that is subject to vagaries of nature. Despite significant economic progress, over 25percent of the population lives in extreme poverty, living on a measly earning of less than Rs 32 (60 US Cents) per day, which is the government specified poverty threshold. Over seventy five percent of the population lacks access to proper housing, sanitation, education and healthcare, providing another telling index of poverty. In this scenario, the emergence of an affluent middle class and the conspicuous consumption of high net worth individuals further compound the inequities. Leakage of the various benefits and subsidies before they reach the poor defeat the purpose of well-intentioned government sponsored welfare schemes, and eventually aggravate the overall tax burden and public debt burden in the economy. Infant mortality, child malnourishment and micronutrient deficiencies are endemic. Some pockets of some States of India are said to be faring poorly compared to even the underdeveloped world. Viewed in a macro-perspective, the Indian economy is still in a phase which requires massive need fulfillment across the population geographies and strata. It is a paradox of the global order that in the developed world that wants are easily fulfilled and needs are assured for a great majority of the population while in the emerging countries even a minority of the population would require subsidies for subsistence while wants prove elusive for the majority of the population. Without harping on the causative factors, one may still see this as a great opportunity of economic development, provided production, distribution and consumption of products and services are equitably organized.
The Indian context is notable for the peculiar nature of public, private and non-profit entity objectives. The Indian socialistic model which was antagonistic towards the private sector and the so called big business from 1947 to 1990 saw to it that the government departments and the public sector undertakings (PSUs) got into production and distribution of industrial goods and consumer goods even as the private sector was limited from producing more goods and services for the general population through controls on licensing, equity and debt funding and technology imports. As a result, governments, central and state, could not invest as much as they ought to have in their primary areas of responsibility of social services and infrastructure, and also by default, through the control and command economy model, limited employment generation, technological modernization and demand globalization. Given the skew in public-private participation the non-profit organizations had to move into core areas of social services rather unsuccessfully in contrast to niche areas of service where they would have been more successful. The production-distribution system in India until the economic liberalization of the 1990s sub-optimized the need-want fulfillment. Unfortunately, even after the economic liberalization, however, the liberalized production-distribution system continues as an imbalanced need-want system at the bottom of the social pyramid while a new desire-aspiration driver at the top of the social pyramid has emerged, leaving also a huge uncared for middle portion in the social pyramid. The Indian economy, even before it could cross the trajectory of need-want fulfillment has begun to try leaping on to a more challenging, and even diversionary, trajectory of desire-aspirations pursuit.
Desires and aspirations
Desire is a higher form of want which is accompanied by longing and craving. Influences of social esteem distinguish desires from wants. Aspiration is an even stronger form of desire, tinged by ambition, a potential sense of achievement, and a strong feeling of ego fulfillment. As opposed to needs and wants which are somewhat personalized and stand-alone, desires and aspirations are comparative and are sparked by the cognitive window that an individual possesses. In the Indian economic policy milieu that struggled to cope with “need-want” basics, economic liberalization and globalization brought in “desire-aspiration” as new drivers of economic growth. Indian markets are now home to the top brands of the world in almost all consumer-touching areas such as watches, perfumes, apparel, automobiles, writing instruments, jewels, electronics, home interior products, international travels and scores of other luxury items and services. Aspirations assume an even a larger canvas of social and economic behavior. In contrast to needs, wants, and even desires which are all, by and large, product and service specific, aspirations tend to be life-centric. For example, ambitious young executives no longer desire just a flashy car or a smart phone but instead crave for a total millionaire lifestyle. There is overtly nothing wrong in having aspirations of good to great life but when the socio-economic price of luxury-spend shoots through the roof and contrasts garishly with the stark reality of millions not having two square meals a day, one would wonder if desires and aspirations have arrived too early into the Indian psyche to be of any benefit for orderly economic development.
The issue with the creation of islands of luxury living and proliferation of luxury brands in an inequity stricken emerging economy is that it distorts deployment and use of scarce resources. This inequity gets enhanced when the luxury brands are import dependent, and even more when they are imported as completely built units. According to estimates, a typical luxury product could have an inbuilt premium of 100 to 500 percent, compared to a more functional product, in each category. For example, a luxury car would have almost the same level of component fitment and processing activity as a normal sedan car would have. Even with some allowance for premium accessories and trim for a luxury car, a luxury car requires almost the same employment hours but consumes two to five times higher consumer dollars. From an economic point of view, each dollar spent by the consumer, and invested by the producer, on luxury and super luxury products creates less employment than normal consumer dollar. The possibility of employment dollars dwindles even lower when the product is imported completely as a fully finished product. In a globalized economy, barriers to trade are, of course, an anathema to neo-economists. Yet, one cannot ignore the compulsions on resource strapped developing economies to ensure that each investment Rupee or consumption Rupee is spent for the maximum possible economic benefit.
Archaic socialism, or orderly capitalism?
The inability of the socialist economies to reach full potential in the second half of the 20th century is attributable to State controls which stifled free enterprise. India was a classic example. Surprisingly, State capitalism practiced by China gave astounding results. The 21st century, however, ushered in significant changes in the world economic order, especially over the last five years. Free market economies with unbridled financial systems posed systemic risks and caused global economic meltdown. Welfare economics funded by public and global debt without productivity driven economic growth has caused in part the Euro Zone crisis. Given that State capitalism has been uniquely and inimitably only a phenomenon of China, and in addition is antithetical to democratic cultures, there do not seem to be many choices of alternate economic paradigms that can be followed by emerging economies such as India. Rather than despair, it would be appropriate for the Indian polity to leverage the historical socialist roots fused with contemporary free market enterprise to generate a new model of orderly capitalism. The need for such orderly capitalism is dictated by the continuing inequities juxtaposed with the economic benefits of free market enterprise.
According to an analytical study by the National Council for Applied Economic Research (NCAER) and Centre for Macro Consumer Research (CMCR) just about 1 percent of India’s households have an annual income of Rs 1.25 million (USD 25,000). This is far lower than the income threshold of top 1 percent in the US of USD 500,000 to 700,000. The US figure is 20 times that of the Indian threshold, and is 10 times more even after adjusting for the purchasing power parity. On the other hand, the minimum wage guaranteed by the Central Government under the National Rural Employment Guarantee Act (NREGA) is just Rs 100 (USD 2) per day, guaranteed for only 100 days in a year. Considering the millions of indigent households, the inequities between the USD 400 annual income at the bottom end and the USD 125,000 annual income minimum threshold for the top 1 percent households are strikingly disheartening. Do the rural households need more Xylos and Safaris or more tractors and bore wells, and do the urban households need more Audis, BMWs and Mercedes Benz’s or more buses and monorails are questions difficult to answer non-emotionally. If progress is pursued without rational economic allocations there could be more progress surely but with more inequities. On the other hand, if free market enterprise is pursued with caveats of inequity reduction, potentially the benefits could be synergistic.
Optimized DAWNs: A new sunrise for egalitarian economics
The development of human race has for centuries been predicated upon creation, discovery, development and utilization of an ever increasing array of products and services, based on ever expanding frontiers of research in science and technology. This is an inexorable trend, which requires people, money and business processes to be available on an increasing level. A developed society has all of an emerging nation’s wants and desires fulfilled as basic needs. The more the wants and desires in an emerging nation the more would be the development compulsions as well as development triggers. Yet, resource generation and distribution have to be at adequate levels to support continuous growth. India is fortunate in this context. India would be adding 10 million of educated manpower each year over the foreseeable future. Many of the infrastructure projects, despite the current delays, would be energized over the next few years. High speed trains and super highways are likely to be funded well by infrastructure bonds. The oil and gas sector is likely to see induction of more modern exploration and drilling practices with foreign collaboration. With the power of talent, the torque of transport, the spring of oil and gas, and the energy of electricity, India could hope for sustainable growth. To boost infrastructure development, PSUs are allowed to issue infrastructure bonds of Rs 30,000 crore in 2011-12.
As India starts benefitting from this vast resource pool, India must also start planning for universal fulfillment of basic needs of healthcare, housing, food, education and sanitation. Planning and resource allocation indigenization of luxury to bring desires to the level of wants. Relative priorities must not be lost sight off. A spend of Rs 2 crore on a chauffeur driven imported luxury car, for example, is equivalent to an investment on 6 buses which can transport 300 people daily. The more the level of sunk investments with lower economic productivity the more cash strapped the economy and the society would be in the pursuit of the needs, wants, desires and aspirations, which are surely required to trigger and sustain an economic boom. However, by recognizing that less could actually be more (as even the luxury car makers such as Audi and BMW seem to have discovered!) and resolving once again that India should be in the forefront of indigenous manufacture of all classes of goods, policy planners and industrialists of India can usher in a new economic model for India. An optimized DAWN model which seeks to provide the vast Indian population with needs and wants at superior levels but desires and wants at basic levels, would position India on a sustainable path of high economic growth with social equity. On the occasion of the 63rd Republic Day of India, this great nation with its fascinating social fabric could have no better republican resolution than this!
Posted by Dr CB Rao on January 26, 2012
Wednesday, January 18, 2012
Knowledge, Expertise and Enterprise (KEE): Key to Leadership Development
Management development and leadership development have so many theories, practices, principles and tools that prescribe a plethora of ways for students to become young executives, for executives to become managers and for managers to become leaders. As a result, the young executive as well as his or her superiors and the heads of personnel are at a loss to come to grips with what constitutes successful management and leadership development. The performance appraisal forms which keep growing in the number of factors for assessment and development by each appraisal cycle are proof of the sophistication and complexity that have taken control of this vital area. There is every need to reduce the complexity and develop prescriptions that are simple to absorb, easy to roll out, and amenable for monitoring. Unfortunately, educational institutions, technical or business, seem to have become part of the complexity rather than proponents of simplicity.
To answer this need, we need to first of all simplify the objectives that are expected of management and leadership. Theories are galore which view management as a complex socio-technical science that covers everything from planning and execution of projects to optimization of resources and domains. Leadership is imbued with even more esoteric characteristics of envisioning, strategizing and leading companies to new futures consistently. As opposed to management, leadership is said to be the preserve of relatively fewer professionals who have exceptional skills of transformation. None of this, however, does justice to the fundamental objectives of management and leadership. Educational institutions are themselves at a loss to instill the values of technical or business leadership in students. Typically, no institution or entity is willing to admit that at the most fundamental level the objective of management and leadership is “To Deliver”; and nothing less or nothing more.
Growing fuzziness
In line with the growing complexity and volatility of the economic environment, multiple prescriptions are being sought after to incorporate the best of leadership and management in corporations. From schools of business and institutes of development to thinkers of management and gurus of leadership, every entity or thinker is in this complex maze of management and leadership development, trying to resolve one level of complexity with another. In the 1970s, theories were rather minimalist and tools were admittedly mathematical. In the 1980s, thanks to Michael Porter, a wave of strategy has overwhelmed theories of management with competitiveness as the focus. Elegance of Language and sophistication of semantics had since taken over the domains of management and leadership, which remain unabated to date. Data based analytics and experienced based guidance became secondary.
The Indian management and leadership have, not unnaturally, taken to the growing complexity of the Western management and leadership theories. Despite the suggestions from thought leaders like C K Prahalad to focus on core competencies, the theory and practice of management and leadership have become more complex and perplexing over time. From challenges that postulate that “managers and leaders are borne and not developed” to exhortations that “managers and leaders can be actually developed but with indoctrination of myriad success traits”, the maze is now complete. A young executive who enters this maze is bound to be perplexed by what he or she would see as the unforgiving reality of live performance and the intoxicating myth of thought jargon. If the objective of managers and leaders is as simple as “To Deliver”, the success factors for achieving the objective also ought to be equally simple and effective.
KEE Trilogy
There are three essential factors that shape a professional as he or she evolves over the career span. These are knowledge, expertise and enterprise. These are essential because without these no professional can ever hope to deliver. Knowledge is the basket of academic learning, practical experience and the whole set of data, information and insights that one accumulates as one progresses in one’s academic and professional life. Expertise is the ability of the individual to apply the knowledge contextually to a situation to identify issues and problems perceptively, and provide options and solutions on the ground, facing anticipated and unanticipated environment. Enterprise is the passion of an individual to seek an opportunity or challenge proactively and motivate himself or herself as well as the team consistently. Enterprise is entrepreneurship redefined and integrated in every aspect of individual behavior in an industrial or business setting.
KEE is a trilogy of factors that are also self-reinforcing. Expertise does not occur without knowledge. And, knowledge need not necessarily be only academic knowledge gained through formal degrees but also knowledge gained through informal channels, within or outside institutions. Knowledge without expertise to apply in practical situations or to develop new practice is an asset wasted. Both knowledge and expertise cannot be leveraged to the full potential without the enterprise to take risks, seek opportunities and challenges and provide solutions. Enterprise without knowledge and expertise would be a veritable leap in dark. It is easy to see how each of the three factors is important, individually and together synergistically, to help individuals, teams and organizations deliver. KEE, as a model, is clear, concise and impactful. Without any of the jargon and verbosity that abounds in the plethora of management and leadership theories and constructs, KEE provides a very natural, logical and time-titrated pathway for managers and leaders to develop themselves. KEE also is the fountainhead of several attributes and metrics that define delivery in an organizational perspective.
KEE leaders
It is important to recognize that all pioneering leaders who developed created new markets and industries around innovative products reflect the KEE model in one way or the other. All great innovators of the world, from Graham Bell to Akio Morita and Konosuke Matsushita to Bill Gates, Steve Jobs, Larry Page and Mark Zuckerberg combined knowledge, expertise and enterprise to become pioneering leaders. Knowledge includes organized laboratory research of Graham Bell that discovered telephony or practical industrial development of software operating system as Bill Gates could do. Expertise is what Steve Jobs achieved in calligraphy which translated into the elegant designs, layouts and fonts of Steve’s Apple products. Expertise is what helped Japanese automobile manufacturers to channel the available Western car technologies to better efficiency and productivity. Enterprise is what motivated knowledge experts to take to business, leveraging their knowledge and expertise.
Over a period of time, several top innovative firms discovered and developed models of KEE at enterprise level. Such organizations, as diverse in industry characteristics as IBM, P&G, RIM, Toyota, BMW, Bharti, Infosys, 3M and GE started focusing on pooling of holistic knowledge in the organizations, buildup of expertise through collaborative and open innovation, and instilling of risk taking and entrepreneurial behavior in teams. Yet, a major criticism of the development models based on visible corporate leaders is that the successes of various small business enterprises based on KEE model are ignored. Just as an example, for one Apple product such as iPhone, there are thousands of applications that are developed by individual developers with their own knowledge, expertise and enterprise models. Even in traditional areas such as automobile industry, for one automobile there tend to be hundreds of component manufacturers. In fact, both in developed countries and in emerging ones, it is the mass of individual leaders who embody the KEE model that provide the durable base of the industrial and business pyramid.
Competitive advantage
KEE, as a model, can build core competencies in organizations, whether of one person or multi-person, and single business or multi-business, and provide competitive advantage to a firm. Competitive advantage, as one can understand, stems from both cost leadership and value leadership. The former arises from efficiency and the latter from innovation. Both require KEE as a driver. The firms which have unassailable core competencies and competitive advantage in certain sectors derive that from their extensive knowledge and deep expertise, coupled with early enterprise. For example, Fanuc, the Japanese global leader in robots, machining systems, and industrial automation derived its leadership position through three capabilities; knowledge of electrical, electronic and mechanical systems, expertise in tailoring it to live industrial situations, and inspired enterprise to substitute manual work by robotic work as a business model.
KEE is not a static model. All companies start in some way or other on KEE lines. Eastman Kodak, the pioneer of photography had knowledge, expertise and enterprise when it discovered photography but failed to update its knowledge to the changing dynamics of a digital age, lacked the expertise to tweak its products and was less than enterprising in its responses to the changing environment. There is the need for every KEE modeled company to update, and when necessary transform, its KEE profile every few years to stay ahead of the competition. Keeping KEE dynamic is a matter of choice too. Many specialist biopharmaceutical startups which are set up on specific target based drug capabilities prefer to be acquired after peaking their platform skills rather than transform their KEE capabilities to the next level.
Development pathways
Aspiring leaders and managers have their task cut out if they embrace the KEE model. The model is simple but challenging. Knowledge usually has no limits. For each knowledge nugget that is learnt from the dated syllabi of educational institutions, there tend to be scores of practical pearls of wisdom that can be learnt in an industrial setting. An academic institution may teach a couple of experimental methods but the industry teaches multiple experimental techniques. A combination of practical product, process and business technologies can convert such wider knowledge into industrial expertise. In order to equip the students with requisite knowledge and expertise, educational institutions must emphasize laboratory work to a much greater degree than currently practiced. The normal 85:15 ratio of class room and laboratory work must be shifted to 50:50 ratio. Similarly, the industry level project work which usually is confined to the last semester in part or in full needs to be integrated from the starting semester itself.
In terms of enterprise, it is not sufficient to be inspired just by the studies of current leaders alone. Donovan A. McFarlane sums this up well in his article “ The Great Entrepreneur-Leader Model in MBA Programs: Impracticability and Change”, Journal of Business Studies Quarterly
2011, Vol. 3, No. 2, pp. 84-92. Today’s business environment is highly complex with more intricacies and connections than ever before recognized in trade and commerce. Doing business successfully is no longer guaranteed by simply having proven key success factors endemic to certain professions and industry. Entrepreneurs today need to have a much broader set of knowledge and skills, as well as more dynamic and diverse frames of references in order to adequately understand and adapt to changes and grow in the complex and uncertain, unpredictable business environment of the 21stcentury. The new business environment represents and requires radically different approaches and mindsets than previously possessed and applied in reaping the wealth that forerunners such as Jack Welch, Warren Buffett, Steve Jobs, Wayne Huizenga, Bill Gates, Donald Trump, Michael Dell and others who have become the exemplars of corporate and entrepreneurial success did in a less competitive arena, and continue to do in today’s hypercompetitive world.
Institutionalizing KEE
Much hope is laid on the postgraduate programs of education like MS and MBA to instill KEE competencies in professionals, as direct full-time degree programs, part-time degree programs or continuing education programs. Yet, even Ivy League institutions seem to fall short in this respect. The field of knowledge management is a highly ignored branch of management in
schools and colleges, and even in MBA programs. Graduates of these institutions, as well as aspiring entrepreneurs, leaders and managers are rarely taught how to manage their personal knowledge before they can take stock of what is needed to be successful in organizations and business ventures. Effective knowledge leaders and managers should first be able to manage their own skills set before they are able to manage or direct those of others to create value. Personal knowledge management is a set of skills and abilities that allows an individual to absorb, archive and organize knowledge to be able to manage complex and changing organizational and social environments. Beyond this, institutions have to traverse to the next level of building expertise in their students to convert their knowledge into expertise that can meet the organizational missions amid varying scenarios.
It is often thought that the MBA programs make a good job of inculcating enterprise or entrepreneurship. While many individuals choose the academic-professional path toward entrepreneurial, leadership and managerial success via the MBA program, there are many examples of entrepreneurs and successful businesspeople that are not formally educated in business, leadership and management. The completion of an MBA is no certain guarantee of success in the corporate world and business school professors and educators must be responsible in teaching this fact. More than ever, individuals must recognize the changing world around them and quickly adapt to these changes using creativity. True enterprise lies in using creativity for evolving national and cultural situations and not mimicking the Gates (Microsoft) - Jobs (Apple) models or Ambani (Reliance) - Agarwal (Sterlite) models. Each individual has to have his or her repertoire of Knowledge, Expertise and Enterprise to navigate today’s hypercompetitive business environments set against the backdrop of uncontrollable macro-environmental factors.
Posted by Dr CB Rao on January 18, 2012
To answer this need, we need to first of all simplify the objectives that are expected of management and leadership. Theories are galore which view management as a complex socio-technical science that covers everything from planning and execution of projects to optimization of resources and domains. Leadership is imbued with even more esoteric characteristics of envisioning, strategizing and leading companies to new futures consistently. As opposed to management, leadership is said to be the preserve of relatively fewer professionals who have exceptional skills of transformation. None of this, however, does justice to the fundamental objectives of management and leadership. Educational institutions are themselves at a loss to instill the values of technical or business leadership in students. Typically, no institution or entity is willing to admit that at the most fundamental level the objective of management and leadership is “To Deliver”; and nothing less or nothing more.
Growing fuzziness
In line with the growing complexity and volatility of the economic environment, multiple prescriptions are being sought after to incorporate the best of leadership and management in corporations. From schools of business and institutes of development to thinkers of management and gurus of leadership, every entity or thinker is in this complex maze of management and leadership development, trying to resolve one level of complexity with another. In the 1970s, theories were rather minimalist and tools were admittedly mathematical. In the 1980s, thanks to Michael Porter, a wave of strategy has overwhelmed theories of management with competitiveness as the focus. Elegance of Language and sophistication of semantics had since taken over the domains of management and leadership, which remain unabated to date. Data based analytics and experienced based guidance became secondary.
The Indian management and leadership have, not unnaturally, taken to the growing complexity of the Western management and leadership theories. Despite the suggestions from thought leaders like C K Prahalad to focus on core competencies, the theory and practice of management and leadership have become more complex and perplexing over time. From challenges that postulate that “managers and leaders are borne and not developed” to exhortations that “managers and leaders can be actually developed but with indoctrination of myriad success traits”, the maze is now complete. A young executive who enters this maze is bound to be perplexed by what he or she would see as the unforgiving reality of live performance and the intoxicating myth of thought jargon. If the objective of managers and leaders is as simple as “To Deliver”, the success factors for achieving the objective also ought to be equally simple and effective.
KEE Trilogy
There are three essential factors that shape a professional as he or she evolves over the career span. These are knowledge, expertise and enterprise. These are essential because without these no professional can ever hope to deliver. Knowledge is the basket of academic learning, practical experience and the whole set of data, information and insights that one accumulates as one progresses in one’s academic and professional life. Expertise is the ability of the individual to apply the knowledge contextually to a situation to identify issues and problems perceptively, and provide options and solutions on the ground, facing anticipated and unanticipated environment. Enterprise is the passion of an individual to seek an opportunity or challenge proactively and motivate himself or herself as well as the team consistently. Enterprise is entrepreneurship redefined and integrated in every aspect of individual behavior in an industrial or business setting.
KEE is a trilogy of factors that are also self-reinforcing. Expertise does not occur without knowledge. And, knowledge need not necessarily be only academic knowledge gained through formal degrees but also knowledge gained through informal channels, within or outside institutions. Knowledge without expertise to apply in practical situations or to develop new practice is an asset wasted. Both knowledge and expertise cannot be leveraged to the full potential without the enterprise to take risks, seek opportunities and challenges and provide solutions. Enterprise without knowledge and expertise would be a veritable leap in dark. It is easy to see how each of the three factors is important, individually and together synergistically, to help individuals, teams and organizations deliver. KEE, as a model, is clear, concise and impactful. Without any of the jargon and verbosity that abounds in the plethora of management and leadership theories and constructs, KEE provides a very natural, logical and time-titrated pathway for managers and leaders to develop themselves. KEE also is the fountainhead of several attributes and metrics that define delivery in an organizational perspective.
KEE leaders
It is important to recognize that all pioneering leaders who developed created new markets and industries around innovative products reflect the KEE model in one way or the other. All great innovators of the world, from Graham Bell to Akio Morita and Konosuke Matsushita to Bill Gates, Steve Jobs, Larry Page and Mark Zuckerberg combined knowledge, expertise and enterprise to become pioneering leaders. Knowledge includes organized laboratory research of Graham Bell that discovered telephony or practical industrial development of software operating system as Bill Gates could do. Expertise is what Steve Jobs achieved in calligraphy which translated into the elegant designs, layouts and fonts of Steve’s Apple products. Expertise is what helped Japanese automobile manufacturers to channel the available Western car technologies to better efficiency and productivity. Enterprise is what motivated knowledge experts to take to business, leveraging their knowledge and expertise.
Over a period of time, several top innovative firms discovered and developed models of KEE at enterprise level. Such organizations, as diverse in industry characteristics as IBM, P&G, RIM, Toyota, BMW, Bharti, Infosys, 3M and GE started focusing on pooling of holistic knowledge in the organizations, buildup of expertise through collaborative and open innovation, and instilling of risk taking and entrepreneurial behavior in teams. Yet, a major criticism of the development models based on visible corporate leaders is that the successes of various small business enterprises based on KEE model are ignored. Just as an example, for one Apple product such as iPhone, there are thousands of applications that are developed by individual developers with their own knowledge, expertise and enterprise models. Even in traditional areas such as automobile industry, for one automobile there tend to be hundreds of component manufacturers. In fact, both in developed countries and in emerging ones, it is the mass of individual leaders who embody the KEE model that provide the durable base of the industrial and business pyramid.
Competitive advantage
KEE, as a model, can build core competencies in organizations, whether of one person or multi-person, and single business or multi-business, and provide competitive advantage to a firm. Competitive advantage, as one can understand, stems from both cost leadership and value leadership. The former arises from efficiency and the latter from innovation. Both require KEE as a driver. The firms which have unassailable core competencies and competitive advantage in certain sectors derive that from their extensive knowledge and deep expertise, coupled with early enterprise. For example, Fanuc, the Japanese global leader in robots, machining systems, and industrial automation derived its leadership position through three capabilities; knowledge of electrical, electronic and mechanical systems, expertise in tailoring it to live industrial situations, and inspired enterprise to substitute manual work by robotic work as a business model.
KEE is not a static model. All companies start in some way or other on KEE lines. Eastman Kodak, the pioneer of photography had knowledge, expertise and enterprise when it discovered photography but failed to update its knowledge to the changing dynamics of a digital age, lacked the expertise to tweak its products and was less than enterprising in its responses to the changing environment. There is the need for every KEE modeled company to update, and when necessary transform, its KEE profile every few years to stay ahead of the competition. Keeping KEE dynamic is a matter of choice too. Many specialist biopharmaceutical startups which are set up on specific target based drug capabilities prefer to be acquired after peaking their platform skills rather than transform their KEE capabilities to the next level.
Development pathways
Aspiring leaders and managers have their task cut out if they embrace the KEE model. The model is simple but challenging. Knowledge usually has no limits. For each knowledge nugget that is learnt from the dated syllabi of educational institutions, there tend to be scores of practical pearls of wisdom that can be learnt in an industrial setting. An academic institution may teach a couple of experimental methods but the industry teaches multiple experimental techniques. A combination of practical product, process and business technologies can convert such wider knowledge into industrial expertise. In order to equip the students with requisite knowledge and expertise, educational institutions must emphasize laboratory work to a much greater degree than currently practiced. The normal 85:15 ratio of class room and laboratory work must be shifted to 50:50 ratio. Similarly, the industry level project work which usually is confined to the last semester in part or in full needs to be integrated from the starting semester itself.
In terms of enterprise, it is not sufficient to be inspired just by the studies of current leaders alone. Donovan A. McFarlane sums this up well in his article “ The Great Entrepreneur-Leader Model in MBA Programs: Impracticability and Change”, Journal of Business Studies Quarterly
2011, Vol. 3, No. 2, pp. 84-92. Today’s business environment is highly complex with more intricacies and connections than ever before recognized in trade and commerce. Doing business successfully is no longer guaranteed by simply having proven key success factors endemic to certain professions and industry. Entrepreneurs today need to have a much broader set of knowledge and skills, as well as more dynamic and diverse frames of references in order to adequately understand and adapt to changes and grow in the complex and uncertain, unpredictable business environment of the 21stcentury. The new business environment represents and requires radically different approaches and mindsets than previously possessed and applied in reaping the wealth that forerunners such as Jack Welch, Warren Buffett, Steve Jobs, Wayne Huizenga, Bill Gates, Donald Trump, Michael Dell and others who have become the exemplars of corporate and entrepreneurial success did in a less competitive arena, and continue to do in today’s hypercompetitive world.
Institutionalizing KEE
Much hope is laid on the postgraduate programs of education like MS and MBA to instill KEE competencies in professionals, as direct full-time degree programs, part-time degree programs or continuing education programs. Yet, even Ivy League institutions seem to fall short in this respect. The field of knowledge management is a highly ignored branch of management in
schools and colleges, and even in MBA programs. Graduates of these institutions, as well as aspiring entrepreneurs, leaders and managers are rarely taught how to manage their personal knowledge before they can take stock of what is needed to be successful in organizations and business ventures. Effective knowledge leaders and managers should first be able to manage their own skills set before they are able to manage or direct those of others to create value. Personal knowledge management is a set of skills and abilities that allows an individual to absorb, archive and organize knowledge to be able to manage complex and changing organizational and social environments. Beyond this, institutions have to traverse to the next level of building expertise in their students to convert their knowledge into expertise that can meet the organizational missions amid varying scenarios.
It is often thought that the MBA programs make a good job of inculcating enterprise or entrepreneurship. While many individuals choose the academic-professional path toward entrepreneurial, leadership and managerial success via the MBA program, there are many examples of entrepreneurs and successful businesspeople that are not formally educated in business, leadership and management. The completion of an MBA is no certain guarantee of success in the corporate world and business school professors and educators must be responsible in teaching this fact. More than ever, individuals must recognize the changing world around them and quickly adapt to these changes using creativity. True enterprise lies in using creativity for evolving national and cultural situations and not mimicking the Gates (Microsoft) - Jobs (Apple) models or Ambani (Reliance) - Agarwal (Sterlite) models. Each individual has to have his or her repertoire of Knowledge, Expertise and Enterprise to navigate today’s hypercompetitive business environments set against the backdrop of uncontrollable macro-environmental factors.
Posted by Dr CB Rao on January 18, 2012
Sunday, January 15, 2012
Market, Innovation, Technology and Enterprise (MITE): Corporate Longevity for Indian Enterprise
Wall Street Journal has published an interesting article on January 7, 2012 by Spencer E Ante on corporate longevity. This is based on a study of more than six million firms by management professors Charles I. Stubbart and Michael B. Knight who conclude that, In fact, only a tiny fraction of the huge stock of companies in America reach the age of 40. "Despite their size, their vast financial and human resources, average large firms do not 'live' as long as ordinary Americans," the authors concluded. Ante makes the case that the classic strategies of product focus and manufacturing scale offer little insulation against corporate mortality if they are not accompanied by integration of emerging technologies and businesses. Ante argues that corporate longevity would seem to be at stake as organizations grow large and become bureaucratic. Reviewing the histories of several companies, Ante proposes that a willingness to forsake seemingly successful products with newer emergent technologies, diversifying into new technologies and businesses, and ensuring innovation through organic effort or niche mergers and acquisitions offer the right recipe for corporate longevity.
Even more sobering is the thought that with the increasing pace of technological change even 40 years could be a long period unless firms are innovative and agile. In particular, it appears that pioneers or innovators themselves could be at risk of technological change. Eastman Kodak is a striking example of a company that pioneered photography failing to keep pace with technological transformations in core photography as well as in social networking through photos. In contrast, IBM is an equally striking example of a company that pioneered personal computers selling off the business yet succeeding to grow beyond 100 years by embracing emerging products and businesses. HP pursued scale in its core business of personal computers with the acquisition of Compaq but found that scale in hardware needed to be matched by skills in software and timeliness. Apple, in contrast, has been ever eager to let its new innovative products cannibalize the established products, which were equally innovative at the time of their introduction, and ride the waves of growth with waves of product innovation.
Another aspect that has been discussed in the article relates to mergers and acquisitions as a tool to grow. The acquisition of You Tube and Android, and more lately that of Motorola's mobile phone business are cited as powerful examples of companies acquiring new skills and capabilities to continue to grow. This strategy needs to be differentiated from certain other types of mergers, especially in the healthcare sector, which merely aimed at achieving scale, augmenting pipelines or saving costs. While acquisitions that are prompted by acquisition of emerging technologies and businesses do mean that the start-up companies that have vibrant and innovative technologies have actually low longevity, their role in enhancing longevity of the major acquiring companies cannot be overemphasized.
The Indian context
The Indian context has been dramatically different from what obtains in a free market economy in that easy exit, closure or liquidation of businesses and legal entities has never been an easy option. In fact, prior to economic liberalization such options did not even exist. Added to that, the fact that almost all private entities in India are promoter-driven with a lot of emotional attachment and family succession makes economics of growth secondary to sentiments of survival. As a result, despite lack of product renewal or financial strength, Indian entities tend to stay on in a gamely fashion. As a corollary, despite the growth opportunities that ownership changes and mergers could bring about, Indian entities are highly reluctant to consider such options.
The economic liberalization has, no doubt, brought in a shift in mindset that recognized the relevance of industrial and business restructuring to phase out non-sustainable activities and integrate developmental strengths externally. In a sharp shift, Indian companies began to exercise such growth and longevity options in the global arena. A few examples that illustrate this trend are: Tata Steel (Corus), Tata Motors (Daewoo, JLR), Tata Tea (Tetley), Tata Chemicals (British Salt), Fortis Healthcare (Quality Healthcare), Mahindra & Mahindra (Ssangyong), Bharti Airtel (Zain ), and others. Similarly, many global companies have aimed at Indian companies to support their longevity needs. However, similar activity between companies in India has been much less prominent.
Longevity drivers
In the Indian context, the drivers of longevity are still not economic. The entry barriers that characterize the Indian markets have ensured longevity in some cases despite repeated threats of new entry. Manufacture of commercial vehicles is a classic example of the country-specific requirement in India. The need for service and spare parts infrastructure in every nook and corner of the vast country has enabled the established truck and bus manufacturers, Ashok Leyland and Tata Motors, erect unassailable entry barriers. In some other cases, regulatory policies have enabled longevity at the cost of economics. All sectors which limited or prohibited foreign investments such as media, aviation, benefitted from an insulation that by default also enabled longevity.
There have, however, been firms with customer and society facing characteristics, and also with technological and operational robustness, that consistently grew, and in the process achieved longevity. Nirma, a small scale maker of soaps and detergents which challenged MNC hegemony in soaps and detergents, and became a multi-million dollar enterprise is a classic example. Several foreign and Indian firms, on the other hand, also have seen unprecedented longevity in India by focusing on the expanding needs of a growing population. Hindustan Unilever is a striking example of this facet. This list includes firms like ITC, which recently completed 100 years in India by transforming itself from a tobacco and cigarette making company to a diversified giant in consumer, industrial and hospitality domains.
Longevity examples
As India liberalizes further and as global markets face greater turmoil, Indian entities can no longer look towards regulatory, market, and other India-unique enablers to achieve longevity by default. Instead, companies should focus on strategic and structural factors that enable longevity in the entity form to the maximum extent, failing which at least the going businesses. To achieve that, however, principles have to be developed differently for different companies in different types of businesses. Focusing on six of the growth industries in India, this blog post attempts to synthesize four critical factors that would determine corporate longevity in a model called MITE.
Heavy industrial corporations
India has, even from the pre-independence days, focused on the development of heavy industries. These represent a very wide spectrum; from “declined but supported by the government” entities such as Jessop, Garden Reach and Air India to growing and profitable corporations such as BHEL and ONGC, and several others. The determinants of longevity for such companies also vary significantly; from massive restructuring of unprofitable companies to mammoth investments in new technologies and additional capacities for growth. The longevity of the companies is linked to growth in infrastructure and industry and the influx of competition from other major emerging countries such as China. Given the massive infrastructure shortfall in India, heavy industry could be a growth industry but the challenge lies in the governments and companies securing finance for infrastructure and heavy industry.
Consumer corporations
Consumer oriented corporations, mostly as subsidiaries or franchised brands of multinational corporations, have been in existence from the pre-independence days but have faced sub-optimal growth due to pre-liberalization government policies that controlled entry licenses and production capacities. Despite this, several Indian companies such as Nirma and CavinKare could establish and grow themselves into multi-million corporations from humble beginnings. Today, a level playing field exists that allows Indian and MNC subsidiaries to benefit from the rapid growth of the Indian economy, and the middle class and affluent class social segments. Corporate longevity should not be a question mark for the consumer companies but competitiveness would surely determine the differential rates of survival and growth of such enterprises.
Information technology corporations
The Indian software companies have been in the forefront of India’s globalization from the 1990s in particular. The vast Indian talent pool has enabled the Indian Information Technology (IT) companies successfully conceptualize a global delivery model based on a combination of offshore and onshore software services. The model further extended to IT enabled services (ITES) such as Business Process Outsourcing (BPO). The successes of the IT and ITES companies has prompted global giants such as IBM, Accenture, KPMG, Cap Gemini, Ernst & Young and Deloitte to set up and expand IT, ITES and other related knowledge service bases in India, and thus protect and grow their global service businesses. This field, again, is an interesting case of level playing field of competition among entities of diverse national and ownership patterns. Given the geo-political realities of retaining jobs in the Western and Emerging worlds Indian companies in these domains are now challenged to seek a different globalization model to continue to grow. Equally challenging has been the inability of Indian corporations to turn out branded products and businesses.
Pharmaceutical corporations
Like the IT industry, the pharmaceutical industry has been a great intellectual asset, and a competitive sweet-spot of India. India has been the home to the largest number of bulk drug and formulations facilities approved by the US FDA, UK MHRA and other international regulatory agencies. The global generics industry is verily dominated by the Indian bulk drug and formulation products. While the growth of the industry has so far been excellent, and any shakiness caused by the harmonization of intellectual property regime was overcome with the double digit growth of the domestic pharmaceutical market, the prognosis from a corporate longevity point remains challenging. Firstly, the Indian pharmaceutical industry is highly fragmented with scores of large scale players, hundreds of medium scale players and thousands of small scale companies. Secondly, the space that the Indian industry operates in is the generics space which is not only a tail end play but also has a declining pipeline of generic products. Equally challenging has been the inability of the select Indian pharmaceutical firms that took to drug discovery to come up with any new chemical or molecular entities that have gone through all the phases of clinical trials and international regulatory approvals for global commercialization.
Automobile corporations
The Indian automobile industry is a fascinating example of stupendous growth from ‘rags to riches’. From around 40,000 vehicles, of extremely obsolete designs, in the 1970s to over 4,000,000 vehicles, of contemporary designs, in 2011 (100 fold increase in just 40 years), the industry has achieved an amazing rate of growth. The growth has been equally amazing in terms of the variety and technology of vehicles, covering two-wheelers and four-wheelers as well as three-wheelers, tractors and construction equipment. Amongst the various growth industries, however, the automobile industry has been the most import dependent. Yet, the saga of Tata Motors and Mahindra & Mahindra in multiple product lines, and that of Ashok Leyland in truck and bus segments illustrates that Indian technologies could also achieve global level innovation and competitiveness. In particular, the design and manufacture of Nano small car and turnaround of Jaguar-Land Rover by Tata Motors is indicative of the competitive capability and the growth potential for Indian automobile firms. The challenge, however, lies in the ability to innovate in premium segments and in designing cars that suit Indian road and driving conditions. The limited road infrastructure that could constrain the growth of the Indian automobile industry is also another challenge in the context of its low export competitiveness.
Electronics corporations
If the Indian IT, automobile and pharmaceutical sectors have been the high points of growth, the electronics industry has been a relative laggard. India’s deficiency in electronics development and manufacture is in stark contrast to the global dominance that China and Taiwan as well as South Korea (in a more pioneering fashion) have achieved in the domain. That said, the recent progress of India in the manufacture of telecommunication equipment, especially mobile phones, tablet computers, television sets and certain other electronics gear is reflective of the capability of the Indian electronics industry to develop new competencies and grow. Like automobile industry, the Indian electronics industry needs strong market-linked collaborative strengths to attract new product and manufacturing opportunities to the country. Accuracy of manufacture, finish of the products and low manufacturing cost seem to be the primary factors for success of the electronics industry in China, independent of the availability of local market. Apple products constitute a good example of the global conquest through Chinese manufacture.
MITE as a longevity model
The above discussion of the six growth industries of India helps formulation of a corporate longevity model. For the Indian enterprises, the key to longevity lies in understanding the importance of the four key factors of market, innovation, technology and enterprise (or, entrepreneurship). Firstly, India itself offers a huge market, but the enterprises must be savvy to identify the markets and develop them aggressively with appropriate products and services. In addition, the international markets are all available for the Indian companies to be won on the basis of competitiveness. All the six industries discussed above teach us that markets are eager to be served by the Indian companies. Secondly, the concept of level playing field has come to stay. Companies need to compete on factor advantages rather than on policy advantages. Yet, access to global factor advantages is also becoming possible to all global corporations. This implies that only those firms that are consistently innovative can be more competitive and enjoy the benefits of longevity. Startup innovation provides the toehold but continuous innovation alone can provide sustained growth. Thirdly, technology would be the core of competitive advantage. Those companies which deploy technology on an end-to-end basis, across the total value chain, would be more competitive than firms which deploy technology only in some areas, be it manufacturing or R&D. Fourthly, every company should remember its basic enterprising spirit and its entrepreneurial roots. Firms as they become large must preserve and foster entrepreneurial spirit as an organizational DNA. As the WSJ article observes, the board rooms of high growth and high longevity corporations tend to be as entrepreneurial as those of successful startup companies.
On a holistic basis, all the four factors are equally important but entrepreneurial spirit probably provides the fundamental corporate genetic impact to stay hungry and keep growing. As the companies become larger nationally and internationally, growth is often accompanied by bureaucracy, with multi-layering and multi-reporting. Firms fail to customize themselves to diverse markets and their needs, and instead attempt to find solutions in globally standardized products and services as well as business processes. The experience of the six growth industries suggests that an ability to customize and innovate across markets has helped certain industries such as information technology and pharmaceutical industries to take part in global growth while certain globalized industries such as automobile industry could achieve tremendous local success in India by customizing their products to local conditions. The strategies of even luxury car makers such as Range Rover, BMW and Audi to offer crossover vehicles such as Evoque, X1 and Q3 respectively to India indicates the recognition of the need for local customization, covering both urban and rural markets. Indian enterprises committed to global longevity must first internationalize their organizations to understand the markets, innovate on their products for customization and build the technological base in the value chain to manage product variety with productivity. The MITE model of corporate longevity provides the might to Indian enterprises to seek and achieve perpetual growth.
Posted by Dr CB Rao on January 15, 2012
Even more sobering is the thought that with the increasing pace of technological change even 40 years could be a long period unless firms are innovative and agile. In particular, it appears that pioneers or innovators themselves could be at risk of technological change. Eastman Kodak is a striking example of a company that pioneered photography failing to keep pace with technological transformations in core photography as well as in social networking through photos. In contrast, IBM is an equally striking example of a company that pioneered personal computers selling off the business yet succeeding to grow beyond 100 years by embracing emerging products and businesses. HP pursued scale in its core business of personal computers with the acquisition of Compaq but found that scale in hardware needed to be matched by skills in software and timeliness. Apple, in contrast, has been ever eager to let its new innovative products cannibalize the established products, which were equally innovative at the time of their introduction, and ride the waves of growth with waves of product innovation.
Another aspect that has been discussed in the article relates to mergers and acquisitions as a tool to grow. The acquisition of You Tube and Android, and more lately that of Motorola's mobile phone business are cited as powerful examples of companies acquiring new skills and capabilities to continue to grow. This strategy needs to be differentiated from certain other types of mergers, especially in the healthcare sector, which merely aimed at achieving scale, augmenting pipelines or saving costs. While acquisitions that are prompted by acquisition of emerging technologies and businesses do mean that the start-up companies that have vibrant and innovative technologies have actually low longevity, their role in enhancing longevity of the major acquiring companies cannot be overemphasized.
The Indian context
The Indian context has been dramatically different from what obtains in a free market economy in that easy exit, closure or liquidation of businesses and legal entities has never been an easy option. In fact, prior to economic liberalization such options did not even exist. Added to that, the fact that almost all private entities in India are promoter-driven with a lot of emotional attachment and family succession makes economics of growth secondary to sentiments of survival. As a result, despite lack of product renewal or financial strength, Indian entities tend to stay on in a gamely fashion. As a corollary, despite the growth opportunities that ownership changes and mergers could bring about, Indian entities are highly reluctant to consider such options.
The economic liberalization has, no doubt, brought in a shift in mindset that recognized the relevance of industrial and business restructuring to phase out non-sustainable activities and integrate developmental strengths externally. In a sharp shift, Indian companies began to exercise such growth and longevity options in the global arena. A few examples that illustrate this trend are: Tata Steel (Corus), Tata Motors (Daewoo, JLR), Tata Tea (Tetley), Tata Chemicals (British Salt), Fortis Healthcare (Quality Healthcare), Mahindra & Mahindra (Ssangyong), Bharti Airtel (Zain ), and others. Similarly, many global companies have aimed at Indian companies to support their longevity needs. However, similar activity between companies in India has been much less prominent.
Longevity drivers
In the Indian context, the drivers of longevity are still not economic. The entry barriers that characterize the Indian markets have ensured longevity in some cases despite repeated threats of new entry. Manufacture of commercial vehicles is a classic example of the country-specific requirement in India. The need for service and spare parts infrastructure in every nook and corner of the vast country has enabled the established truck and bus manufacturers, Ashok Leyland and Tata Motors, erect unassailable entry barriers. In some other cases, regulatory policies have enabled longevity at the cost of economics. All sectors which limited or prohibited foreign investments such as media, aviation, benefitted from an insulation that by default also enabled longevity.
There have, however, been firms with customer and society facing characteristics, and also with technological and operational robustness, that consistently grew, and in the process achieved longevity. Nirma, a small scale maker of soaps and detergents which challenged MNC hegemony in soaps and detergents, and became a multi-million dollar enterprise is a classic example. Several foreign and Indian firms, on the other hand, also have seen unprecedented longevity in India by focusing on the expanding needs of a growing population. Hindustan Unilever is a striking example of this facet. This list includes firms like ITC, which recently completed 100 years in India by transforming itself from a tobacco and cigarette making company to a diversified giant in consumer, industrial and hospitality domains.
Longevity examples
As India liberalizes further and as global markets face greater turmoil, Indian entities can no longer look towards regulatory, market, and other India-unique enablers to achieve longevity by default. Instead, companies should focus on strategic and structural factors that enable longevity in the entity form to the maximum extent, failing which at least the going businesses. To achieve that, however, principles have to be developed differently for different companies in different types of businesses. Focusing on six of the growth industries in India, this blog post attempts to synthesize four critical factors that would determine corporate longevity in a model called MITE.
Heavy industrial corporations
India has, even from the pre-independence days, focused on the development of heavy industries. These represent a very wide spectrum; from “declined but supported by the government” entities such as Jessop, Garden Reach and Air India to growing and profitable corporations such as BHEL and ONGC, and several others. The determinants of longevity for such companies also vary significantly; from massive restructuring of unprofitable companies to mammoth investments in new technologies and additional capacities for growth. The longevity of the companies is linked to growth in infrastructure and industry and the influx of competition from other major emerging countries such as China. Given the massive infrastructure shortfall in India, heavy industry could be a growth industry but the challenge lies in the governments and companies securing finance for infrastructure and heavy industry.
Consumer corporations
Consumer oriented corporations, mostly as subsidiaries or franchised brands of multinational corporations, have been in existence from the pre-independence days but have faced sub-optimal growth due to pre-liberalization government policies that controlled entry licenses and production capacities. Despite this, several Indian companies such as Nirma and CavinKare could establish and grow themselves into multi-million corporations from humble beginnings. Today, a level playing field exists that allows Indian and MNC subsidiaries to benefit from the rapid growth of the Indian economy, and the middle class and affluent class social segments. Corporate longevity should not be a question mark for the consumer companies but competitiveness would surely determine the differential rates of survival and growth of such enterprises.
Information technology corporations
The Indian software companies have been in the forefront of India’s globalization from the 1990s in particular. The vast Indian talent pool has enabled the Indian Information Technology (IT) companies successfully conceptualize a global delivery model based on a combination of offshore and onshore software services. The model further extended to IT enabled services (ITES) such as Business Process Outsourcing (BPO). The successes of the IT and ITES companies has prompted global giants such as IBM, Accenture, KPMG, Cap Gemini, Ernst & Young and Deloitte to set up and expand IT, ITES and other related knowledge service bases in India, and thus protect and grow their global service businesses. This field, again, is an interesting case of level playing field of competition among entities of diverse national and ownership patterns. Given the geo-political realities of retaining jobs in the Western and Emerging worlds Indian companies in these domains are now challenged to seek a different globalization model to continue to grow. Equally challenging has been the inability of Indian corporations to turn out branded products and businesses.
Pharmaceutical corporations
Like the IT industry, the pharmaceutical industry has been a great intellectual asset, and a competitive sweet-spot of India. India has been the home to the largest number of bulk drug and formulations facilities approved by the US FDA, UK MHRA and other international regulatory agencies. The global generics industry is verily dominated by the Indian bulk drug and formulation products. While the growth of the industry has so far been excellent, and any shakiness caused by the harmonization of intellectual property regime was overcome with the double digit growth of the domestic pharmaceutical market, the prognosis from a corporate longevity point remains challenging. Firstly, the Indian pharmaceutical industry is highly fragmented with scores of large scale players, hundreds of medium scale players and thousands of small scale companies. Secondly, the space that the Indian industry operates in is the generics space which is not only a tail end play but also has a declining pipeline of generic products. Equally challenging has been the inability of the select Indian pharmaceutical firms that took to drug discovery to come up with any new chemical or molecular entities that have gone through all the phases of clinical trials and international regulatory approvals for global commercialization.
Automobile corporations
The Indian automobile industry is a fascinating example of stupendous growth from ‘rags to riches’. From around 40,000 vehicles, of extremely obsolete designs, in the 1970s to over 4,000,000 vehicles, of contemporary designs, in 2011 (100 fold increase in just 40 years), the industry has achieved an amazing rate of growth. The growth has been equally amazing in terms of the variety and technology of vehicles, covering two-wheelers and four-wheelers as well as three-wheelers, tractors and construction equipment. Amongst the various growth industries, however, the automobile industry has been the most import dependent. Yet, the saga of Tata Motors and Mahindra & Mahindra in multiple product lines, and that of Ashok Leyland in truck and bus segments illustrates that Indian technologies could also achieve global level innovation and competitiveness. In particular, the design and manufacture of Nano small car and turnaround of Jaguar-Land Rover by Tata Motors is indicative of the competitive capability and the growth potential for Indian automobile firms. The challenge, however, lies in the ability to innovate in premium segments and in designing cars that suit Indian road and driving conditions. The limited road infrastructure that could constrain the growth of the Indian automobile industry is also another challenge in the context of its low export competitiveness.
Electronics corporations
If the Indian IT, automobile and pharmaceutical sectors have been the high points of growth, the electronics industry has been a relative laggard. India’s deficiency in electronics development and manufacture is in stark contrast to the global dominance that China and Taiwan as well as South Korea (in a more pioneering fashion) have achieved in the domain. That said, the recent progress of India in the manufacture of telecommunication equipment, especially mobile phones, tablet computers, television sets and certain other electronics gear is reflective of the capability of the Indian electronics industry to develop new competencies and grow. Like automobile industry, the Indian electronics industry needs strong market-linked collaborative strengths to attract new product and manufacturing opportunities to the country. Accuracy of manufacture, finish of the products and low manufacturing cost seem to be the primary factors for success of the electronics industry in China, independent of the availability of local market. Apple products constitute a good example of the global conquest through Chinese manufacture.
MITE as a longevity model
The above discussion of the six growth industries of India helps formulation of a corporate longevity model. For the Indian enterprises, the key to longevity lies in understanding the importance of the four key factors of market, innovation, technology and enterprise (or, entrepreneurship). Firstly, India itself offers a huge market, but the enterprises must be savvy to identify the markets and develop them aggressively with appropriate products and services. In addition, the international markets are all available for the Indian companies to be won on the basis of competitiveness. All the six industries discussed above teach us that markets are eager to be served by the Indian companies. Secondly, the concept of level playing field has come to stay. Companies need to compete on factor advantages rather than on policy advantages. Yet, access to global factor advantages is also becoming possible to all global corporations. This implies that only those firms that are consistently innovative can be more competitive and enjoy the benefits of longevity. Startup innovation provides the toehold but continuous innovation alone can provide sustained growth. Thirdly, technology would be the core of competitive advantage. Those companies which deploy technology on an end-to-end basis, across the total value chain, would be more competitive than firms which deploy technology only in some areas, be it manufacturing or R&D. Fourthly, every company should remember its basic enterprising spirit and its entrepreneurial roots. Firms as they become large must preserve and foster entrepreneurial spirit as an organizational DNA. As the WSJ article observes, the board rooms of high growth and high longevity corporations tend to be as entrepreneurial as those of successful startup companies.
On a holistic basis, all the four factors are equally important but entrepreneurial spirit probably provides the fundamental corporate genetic impact to stay hungry and keep growing. As the companies become larger nationally and internationally, growth is often accompanied by bureaucracy, with multi-layering and multi-reporting. Firms fail to customize themselves to diverse markets and their needs, and instead attempt to find solutions in globally standardized products and services as well as business processes. The experience of the six growth industries suggests that an ability to customize and innovate across markets has helped certain industries such as information technology and pharmaceutical industries to take part in global growth while certain globalized industries such as automobile industry could achieve tremendous local success in India by customizing their products to local conditions. The strategies of even luxury car makers such as Range Rover, BMW and Audi to offer crossover vehicles such as Evoque, X1 and Q3 respectively to India indicates the recognition of the need for local customization, covering both urban and rural markets. Indian enterprises committed to global longevity must first internationalize their organizations to understand the markets, innovate on their products for customization and build the technological base in the value chain to manage product variety with productivity. The MITE model of corporate longevity provides the might to Indian enterprises to seek and achieve perpetual growth.
Posted by Dr CB Rao on January 15, 2012
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