A Framework of Generic Competitive Talent Strategies: An Extension of Porter’s Generic Competitive Strategies

In my last week’s blog post titled “Five Competitive Forces in Organizational Talent Arena: Porter’s Competitive Strategy Framework Extended”, Strategy Musings, June 16, 2013, I proposed that Porter’s theory of five competitive forces can be applied remarkably well at functional level too, and not merely at a firm or an industry level.  This hypothesis was formulated with specific illustration of talent management as a domain of application (http://cbrao2008.blogspot.in/2013/06/five-competitive-forces-in.html). Towards the end of the discussion, I also stated that an understanding of the five competitive forces in the talent arena would need to be followed up with generic competitive talent strategies. This blog post develops a framework of generic talent strategies which can help firms to cope with the five competitive talent forces, namely, bargaining power of candidates, bargaining power of service providers, threat of competitors, threat of new knowledge and competitive rivalry in talent pool.

Generic competitive strategies are those strategies that are broadly available to firms when they face industry level competitive forces. While each firm is unique, strategies themselves tend to be generic as firms, by and large, tend to fulfill similar customer goals and have access to industry level and environment level strategic information with no particular firm level superiority. As a result, while all firms may choose one of the available generic strategies, the competitive advantage for a firm arises from how effectively it executes with reference to the generic competitive strategy chosen by it. By definition, each generic strategy would have a set of enablers, which again may not be unique, but would provide significant challenge and opportunity for individual firms to vary the emphasis and execution. For example, the generic competitive strategy of cost leadership may be derived by any or all of enablers such as product standardization, high scale, lean manufacture and integration.

Triggers for generic competitive strategies 

Any generic strategy must provide competitive advantage to the firm. Cost leadership, for example, enables a firm to be the lowest cost producer of functional products, other factors like quality being the same as industry standard, thus insulating the firm against future adversities. Differentiation, on the other hand, enables a firm to offer a diversified, feature-rich product or service range, with a premium user experience. Niche, on the other hand, enables a firm to be known for something unique to the firm. On a similar analogy, any generic talent strategy must deliver competitive advantage on the talent front. Unlike firm level competitive strategies which use factor resources including people to address markets, firm level talent strategies must address market factors to deliver people resources. An understanding of the five competitive forces of talent is, therefore, vital to construct generic talent strategies.

The triggers for that process are two questions: how can employees generate value for their firms, and how can firms generate value for their employees. In an ideal situation both these concerns are self-aligned and self-supporting. In reality, however, there tends to be misalignment between these two value objectives due to the varying influences of the five competitive forces. This blog post proposes value leadership, career differentiation and competency niche as three appropriate generic competitive talent strategies. As with generic competitive strategies, talent strategies must bear some nexus with business models pursued by firms. Generic talent strategies cannot be replicas of generic competitive strategies, however. Just because a firm pursues a cost leadership strategy it cannot pursue cost leadership in talent acquisition too; in fact, such a mimic could produce disastrous results! Similarly, for a firm it being a most differentiated employer need not necessarily translate to a generic strategy of differentiation at the firm level. Niche would be even more inappropriate to mimic.

Value leadership

Value leadership is a generic talent strategy that rewards the employees for the value they generate for the company. Value can be interpreted and quantified in various ways depending on the nature of the business and sophistication of the measurement system. It could be as simple as a rating through an annual performance appraisal system or as complex as a multidimensional analysis covering individual performance, peer evaluation, team performance, business unit performance and corporate performance. Value leadership strategy is direct and creates a nexus between an individual's perceived value to the organization and the business performance. Given the emphasis on keeping the individual happy and contended, value leadership strategy is a vital component of companies getting perceived as the best employers to work with.

In terms of the five competitive talent forces, the value leadership strategy addresses the bargaining power of candidates the best and establishes a benchmark to assess the bargaining power of substitute service providers. It responds to the threat of competitors but does not adequately address the threat of new knowledge. At a broader level, the value leadership strategy ensures that the competitive forces are anchored around tangible and visible metrics of compensation. In the overall, value leadership enhances the intensity of competition in the talent pool. The biggest criticism of the value leadership strategy is that it focuses far too much on the past track record of the individuals, their current performance and the short run performance of the businesses they are directly involved with. Long term value building for the organizations and employees is somewhat lost sight of.

Career differentiation

In contrast to value leadership which focuses on the metrics of credentials, performance and compensation, career differentiation addresses talent issues in a career prism. An organization subscribing to career differentiation strategy takes a holistic and long term view of career development of individuals as opposed to short run talent-results match. In India, Tata Group, Hindustan Unilever, ITC, L&T and a few other firms have a track record of building careers, right from the induction stage of talented youngsters. Rotating people through a number of challenging assignments in different functions, businesses and sites, such companies provide long term careers as opposed to day-to-day jobs to aspirants. It is interesting that the governments, especially the Indian Administrative Service (IAS) followed career diversification as a competitive talent strategy.

Career differentiation addresses the five competitive talent forces in a manner different from leadership. While not ignoring the importance of compensation, career differentiation focuses on other motivators such as professional empowerment, responsibility with accountability, diversified experience and leadership opportunity to inspire individuals. Career differentiation helps in a virtuous iterative cycle of fulfillment and actualization, building strong roots and loyalty between the individuals and the corporation. Over time, such companies get known as differentiated employers where careers are made rather than jobs executed. Needless to say, career differentiation works best when the corporation has a sustainable growth agenda. Career differentiation works the best when employees and the organizational ecosystem consider long term sustainable growth as being more important than short term spikes in performance.

Niche competency

Niche competency as a generic talent strategy works best when firms are highly specialized in terms of business domain. Firms specializing in drug discovery, design and development, and contract manufacture as well as research oriented higher education institutions and such other highly focused activities rely on pools of experts who can deliver on the needed goals. A standalone design studio, for example, will be quite distinctive compared to a research department located in a larger integrated company. Generic talent strategy of niche competency looks for a rare fusion of innovation with a highly homogenized talent. A design house, for example, would have doctorates in science and engineering as reflective of homogenization but each is expected to be highly innovative, breaking new ground each time.

Generic competitive talent strategy addresses the five competitive forces in a unique way. First of all, the way the entire organization is designed with highly standardized yet creative talent reduces the tendency of individual bargaining power. It also addresses the other forces such as the bargaining power of service providers (as no vendor can be better than in-house talent in such niche companies) and the threat of new knowledge (as the environment of innovation fosters continuous learning and knowledge development). It also enables a moderate level of competitive intensity within the talent pool as such organizations are managed in a collegial manner. Niche competency as a strategy, however, is susceptible to poaching by competitors who may tend to replicate the model by transplanting the talent en bloc. Niche competency requires deep attachment of the individuals to their work and results just as all great scientists were wedded to their discoveries.

Talent, the core paradigm

The talent paradigm is the most critical challenge for an organization’s progress. No wonder, therefore, that the five competitive forces of talent rank almost on par with the competitive forces that influence the evolution of firms and industries. As with generic competitive strategies, generic talent strategies offer help in coping with the talent forces. Each of the three generic talent strategies, value leadership, career differentiation and niche competition has a role depending on the firm’s strategy. Each of these strategies requires proactive and front-ended investments in talent management which will be well worth the while for organizations.

Posted by Dr CB Rao on June 19, 2013         

Five Competitive Forces in Organizational Talent Arena: Porter’s Competitive Strategy Framework Extended

Michael Porter had in 1980 formulated a landmark framework for generic competitive strategies. Central to Porter’s theory of competitive strategy is the framework of five competitive forces. These five forces are the bargaining power of suppliers, the bargaining power of customers, the threat of new entrants, the threat of substitute products and the competitive rivalry within the industry. These represent five important external competitive forces that influence competitive intensity in an industry. Each of the competitive forces typically has several components to it. A good understanding of the five competitive forces enables a firm to respond with appropriate generic competitive strategies. The ability of the firm to leverage or address the competitive forces leads to firm-level competitive strategies in terms of cost leadership, differentiation or niche, as postulated by Porter.

My blog, “Strategy Musings” featured several posts by me that address certain weaknesses of Porter’s framework or tweak the framework to be in step with the contemporary environment. Some of these are: “Beyond Porter’s Darwinism: The Sixth Competitive Force”, http://cbrao2008.blogspot.in/2009/08/beyond-porters-darwinism-sixth.html, Generic Competitive Strategy and Specific Competitive Advantage: Viable Paradigm or Visible Paradox?” http://cbrao2008.blogspot.in/2011/07/generic-competitive-strategy-and.html, and “From Competition to Collaboration: Porter’s Five Forces Theory Revisited”, http://cbrao2008.blogspot.in/2012/05/from-competition-to-collaboration.html. Though several other aspects of Porter’s generic competitive strategy have also been addressed by the author, the above cited posts have a direct treatment of the five forces framework. The blog posts point to the solidity and the adaptability of the five forces framework to a changing environment.

From macro to micro

Porter’s strategy is essentially aimed at a macro level understanding of the firm and its environment. However, the framework can be applied at functional and micro levels as well. At each functional level (be it manufacturing, research, supply chain or human resources, for example), there could be relevant competitive forces that can be captured in terms of the Porter framework. One of the important applications could be addressing the industry’s war for talent. In emerging markets such as India which are aiming at faster economic and industrial development, talent is a scarce factor that is hotly competed. Three macro factors dictate the talent competition. Firstly, the pace of foreign direct investments in India would only go up with global firms increasingly looking to Indian operations to provide products and services for their global needs. Secondly, there would be a renewed interest to capture the burgeoning Indian market as India promises to become the most populous country of the world, overtaking China by 2028. Thirdly, Indian companies would globalize more aggressively to achieve market access and geographic diversity.

At a micro level, the talent wars would place a premium on readily deployable talent as more companies vie for the Indian pie and more Indian companies vie for the global pie. With business models being limited and competition relatively unlimited, the availability of ready-to-use skills would be a key factor. As companies realize the challenge, there would be a greater emphasis on operational excellence and product or service level innovation to achieve differentiation. The micro level strategies of the firms are bound to accentuate the pressures on talent. With universities churning out candidates with only generic skills, availability of candidates with customized, industry specific skills becomes a key requirement for firms seeking competitive advantage. Corporate human resources leaders need to understand the five competitive forces that govern the talent scenario and influence firm level competency to attract talent. The five forces of talent are:  bargaining power of candidates, bargaining power of service providers, threat of competitors, threat of new knowledge, and competitive rivalry in talent pool. These are considered below.

Bargaining power of candidates

While at a gross level there are more candidates than available jobs, when it comes to skills that are required for effective job performance highly competent candidates do wield considerable bargaining power. In India particularly, a combination of technical and commercial knowledge, operating and strategic skills, and communication and collaboration skills is hard to get in candidates, particularly as one considers middle and tiers of management. It is not surprising, therefore, that the limited talent pool of this particular combination of candidates exercises considerable bargaining power. HR leaders are required to balance the premium that is required to be paid for such talented candidates with the value that such candidates would be able to bring about in the particular organizational settings. In certain cases, this requires a broader review of organizational culture; organizations that are home to multi-faceted talent tend to have an equally potent value proposition for such multifaceted candidates. Recruiters need to focus as much on creating a star organization as on recruiting star performers. Neither should they baulk away from the costs of building high performance organizations and recruiting high performing talent.    

Bargaining power of service providers

Certain skills lend themselves for outsourcing. Service providers in technical and management fields often emerge as short term and medium term alternatives to regular talent that seeks in-house employment. This alternative becomes particularly relevant for one-time burst activities and for specialized skill sets. Certain advanced geographies and certain global corporate houses tend to rely on service providers as a matter of course even as such service providers tend to be available in abundance thereon. In emerging markets and domestic companies the reliance on service providers is much less even as such service providers tend to be relatively scarce. From an organization’s viewpoint, however, it is a choice between two types of power rather than reduction of overall external power on the organization system per se. Progressive organizations may seek to strike a prudent balance between premium in-house talent (that could be both a perpetual cost and institutionalized value) and specialized external vendor support (which could offer specialized support at high cost but with a discretionary tenure). The resort to service providers as an alternative to in-house talent must be a carefully thought out strategy.      

Threat of competitors

The talent paradigm adopted by competitors has a bearing on the competitive forces exerted in the talent scenario. At the very basic level the more companies seek a particular level of talent the more demanding and choosy the premium candidates become. At a more involved level, however, as companies innovate or begin to follow innovators they become competitors to incumbents and monopolists. Firms which are forced to defend their positions and firms seeking to dethrone them equally become hunting grounds for talent. In addition, during certain phases of industry evolution certain discrete skills tend to be sought after by all companies fiercely. For example, leaders with expertise in global selling and customer development became the highly sought after skills of Indian IT majors in the 1990s. For the Indian pharmaceutical industry in hot pursuit of Hatch-Waxman generic exclusivity opportunities, intellectual property expertise became highly sought after. As competitors follow successful business and operational models of industry leaders, the threat of competitors in terms of poaching talent or proactively attracting talent enhances the competitive intensity.    

Threat of new knowledge

Managements are aware how technologies make laboratory and manufacturing assets obsolete. As new measuring technologies emerge metrology equipment pass through successive generations of obsolescence. As new machining technologies emerge machine tools become lighter and more flexible. Less realized, however, is the impact of new knowledge on the talent scenario. In the 1980s and 1990s, a new generation of computer savvy executives overtook more conventionally trained established manpower. In the 2000s and 2010s, a new generation of Internet savvy and highly networked executives is tending to dominate global executive scenario, overtaking standalone executives. Scientific and technology domains are, often, reinvented by new innovations. Firms which lay store on the talent trained years ago would find themselves obsolete as new knowledge shapes new business models. Construction firms which rely on conventional excavating, piling and stuttering practices may find themselves overtaken by firms which deploy mechanized excavation, ready-mix concreting and mechanized stuttering, for example.    

Competitive rivalry in talent pool

Quite apart from the above four factors, firms and industries are affected by the competitive rivalry in the talent pool. By logic, firms and industries that are in an aggressive growth mode tend to experience competitive rivalry within the talent pool. If corporations are unable to clearly explain the individual talent - employee career - corporate growth paradigm with visible nexus between individual performance, career development and business results, individuals tend to jostle for visibility, enhancing rivalry. Firms and industries that have enjoyed rapid growth but are slated to slow down also are subject to competitive rivalry as talent seeks new avenues to satisfy its growth passion. Departure of successful key executives from firms encountering growth-plateau to companies desperate for reinvention leads to higher competitive rivalry in the industry in the overall as leaders seek to build their growth teams. Firms need to understand that their own internal career policies and external hiring policies could elevate the competitive rivalry in an industry and even create a talent bubble wherein competitive intensity for talent zooms far ahead of competency growth of the talent, leading to an unsustainable demand-supply balance.

Generic talent strategies

Porter suggested cost leadership, differentiation and niche as three generic strategies that are available to firms to cope with the five competitive forces that an industry faces. To manage the five competitive forces of the talent paradigm discussed herein, the author suggests three relevant generic talent strategies that firms can adopt. These are compensation leadership, career differentiation and niche. Each of these will have unique ways of talent management that offer alternative approaches for coping with the five competitive forces in the talent arena and optimizing organizational and business performance. A framework of such generic talent strategies would be the subject of a later day sequel to this blog post.

Posted by Dr CB Rao on June 16, 2013

           

 

From Prodigal to Savior: The Evolution of a Trainee as a Leader

In recent business times of India, no event has triggered so much surprise and debate as the return of NR Narayana Murthy from retirement as the Executive Chairman of Infosys, the Indian information technology iconic bellwether struggling to remain on a growth path (please also see: http://cbrao2008.blogspot.in/2013/06/the-return-of-narayana-murthy-fast.html). There have been positive and negative angles to the news of Murthy’s comeback. On the positive side, many have held that there is nothing wrong, and everything to support, in such a towering personality returning to bring back to health the company he founded and grew with his co-promoters. On the negative side, many also have held the return to be a reflection of the inadequacy of the past leadership development, and hence a prognosis of future insufficiency of leadership development.  After the initial swell of the welcome notes, analysts believe that only future events can judge if the return would be a positive or a negative for the long term future of Infosys and the overall gamut of business leadership development in India, including strengths and weaknesses of a possible dynastic succession.

For the larger body of students of technology and management as well as other professions, aspiring entrants to corporations and budding leaders, the return of Narayana Murthy must signify an entirely different aspect of corporate life and career development. It is not uncommon for scores of employees at all levels of an organization to leave, and for some of them to return to their alma mater. The twist here is that such returns are often seen as the return of the prodigal rather than the return of the savior as is the case with the return of towering leaders such as Murthy. Given that every unit of work in a corporation has its importance, the return of the employees at whatever level should qualify to be deemed as the return of the savior. That, however, hardly is the case except in certain truly high level leadership positions. As youngsters watch the unwinding of the Murthy2.0 story in Infosys3.0 saga, apart from the lessons to learn, a key self-learning objective must be how the young aspirants would be seen as saviors rather than prodigals, should such exit and return episodes occur to them.

Demand-supply perspectives

As with every aspect of human endeavor, factors of demand and supply determine the relative importance of any material or non-material resource. At a gross level, from a human resource perspective, in a company or in an industry there would only be few leaders of a comparable caliber while there could be hundreds of executives and managers at lower levels with comparable caliber. At a gross level, from a business growth perspective, there could be only a few corporations that are willing to introspect and take radical measures to revert to their growth path as Infosys has boldly done. At a gross level, therefore, the demand-supply gap determines whether the return of any individual professional is deemed to be the return of a prodigal or a savior. The phenomenon of surplus-scarcity can, however, be addressed efficiently by individuals and corporations equally by deploying the concept of substitutability appropriately.

The relationship between the organization and its human resources is a paradoxical one. Organizations benefit if the available skill sets are both standardized and unique. Standardized skills enable the companies lower the bargaining power of candidates and reduce the attrition pressure of employees.  At the same time, unique skills enable the companies enhance their competitive advantage in an industry and enhance the ability to reward and retain their employees. For employees, unique skills need not only continuous self-development but also an organizational ecosystem that facilitates development and deployment of unique skills. If an organization’s human resource base comprises only generic and standardized skill sets, it is unlikely that such an organization would become highly competitive. On the other hand, if an organization seeks only highly unique skills, conventional organizational systems would fail to cope with the need for heightened reward systems. The paradox needs resolution.

Prodigal minds and savior skills

Aspirations need to be matched by achievements. What we see in some organizations is a constant unrest in young operators, officers and executives to grow in their careers at a fast clip. Many times such young employees imagine a superior work opportunity and career package in other companies. When employees move far too quickly out of an organization in pursuit of short term career boost, such decisions, more often than not, result in later day distress. The foundations of such fast moving careers, instead of being reinforced by industry or skill distinction, tend to be brittle with disconnected skills and inadequate depth and breadth. At times, the best way to address the gaps is to retrace the steps and return to the base organization as a prodigal. In some cases, organizations also make mistakes in judging employees and release them too soon. Both organizations and employees need to be prodigal in such occasions. While this may cause some emotional distress, correcting the missteps, and more importantly rebuilding the stronger skill base, provides longer term solidity to the employee careers and organizational strength. Eventually, employees and organizations may benefit from the phenomenon of prodigal minds.

Renunciation must take place only after actualization. Leaders too face their share of needlessly fast moves, albeit into sunset. Leaders play a crucial role in not only growing their corporations but also preparing them for sustainability. Actualization for a leader is not complete until he or she is able to execute a business model and build a leadership team that can take the execution forward, until the firm is under a need, or in preparedness, for a new business model with an appropriate leadership model. When Narayana Murthy moved out of Infosys, it was probably actualization that was incomplete and renunciation that came on too soon. In retrospect, it would appear to be more of governance redistribution rather than undertaking the right change at the right time (please also see: http://cbrao2008.blogspot.in/2011/05/infosys-board-rejig-crowded-at-top.html ).  Saviors possess leadership skills that have built and grown companies with achievements that are industry acclaimed. Saviors typically have stature and charisma that can rebuild confidence in internal and external stakeholders, and turn situations around for stalled corporations.

Prodigals as saviors

It is not that prodigals need to be at the bottom of the organizational pyramid and saviors at the top of the pyramid. Youngsters need to have the skills and the stamina that can make unique contributions in the domains in which they operate in their organizations, however small such domains may be. A product designer, a market researcher, a process engineer, a project executive, a quality officer and a salesperson all have their respective opportunities to be distinctive and become much sought after executives in their domains. The early development of savior skills in a youngster is a good augury for organizational competitiveness. Youngsters need to complement their subject specialization with practical expertise and a breadth of outlook. An automobile component designer, for example, would need to be conscious of the challenges of material technologies on one hand and the complexities of manufacturing on the other. The more end-to-end connected a specialized youngster’s thinking is, and the more broad-spectral his or her aptitude is, the more he or she would be able to add value to his or her functional competencies.  Such talent at the bottom of the pyramid is often hard to find, and that is the reason it is so valuable to build a cadre of saviors at the bottom of the pyramid.

This requires that organizations should focus on all-round skill integration in youngsters. The need for ready to use talent is so high in organizations that fewer organizations are willing to commit the lead time and effort to train youngsters in all the departments of an organization prior to their getting absorbed in their core functions. Early departmental rotation provides a broad perspective of a corporation’s value chain without compromising the core competence. If entrepreneurs such as Murthy emerge as saviors it is not necessarily only because of any superior skills and attributes but also because of their intimate association with the total value chain of the organizations as they establish and build their organizations. Professional organizations which compartmentalize functions as organizational silos in the name of specialization need to consciously adapt policies of all round development of skills in their youngsters. The greater the commitment to graduate and post-graduate rotational training and development programs for youngsters the corporation has, the greater will be the development of savior skills in the organization.

From prodigal to savior

Too much of functional specialization with too much of an emphasis on assigned task delivery but without an understanding of the total value chain contribution on the part of youngsters gives them a needlessly elevated view of their contribution.  Organizations-in-silos which are aware of the gap between the due requirements of organizational competitiveness and undue expectations arising from tiny contributions in narrow niches struggle to explain and retain talent consummately. Organizations that are unbounded in thinking and creative in execution tend to be conscious of the need to leverage young talent as much as possible to develop deep knowledge, broad perspectives and futuristic vision in them. Such organizations do not fight shy of nurturing and rewarding saviors from the early years of their careers. Youngsters who join organizations must understand the responsibilities and nuances of developing savior skills from the early years, and keep reinforcing the savior skills as they move up the managerial and leadership hierarchy. Such leveraged talent provides sustainable competitive advantage to corporations.

Posted by Dr CB Rao on June 9, 2013    

The Return of Narayana Murthy: Fast Forward Again for Infosys?

On May 7, 2011, I published a blog post on the board level moves at Infosys, “Infosys Board Rejig: Crowded at the Top?”, in my blog Strategy Musings, http://cbrao2008.blogspot.in/2011/05/infosys-board-rejig-crowded-at-top.html).  The blog post analyzed the challenges founder-leader teams face when all the leaders are competent and when the broader leadership team needs the challenges and opportunities of running their corporations. The blog post traced the dilemma faced by founder-leaders when they are one too many in a corporation. The post also made three important points. The first was that corporations need to recognize the importance of holistic leaders. The second was that leadership is not only skills and competencies but also about charisma and instincts. The third was that when corporations are headed by iconic leaders, such corporations struggle to subject themselves to objective benchmarking with respect to competition.

The loss of competitive edge and industry leadership faced by Infosys after the board level rejig that was announced on April 30, 2011 together with the more competitive business landscape has apparently prompted the Infosys board and its key stakeholders to raise, on June 1, 2013, the retirement age for executive positions to 75 years of age and recall the Chairman Emeritus N R Narayana Murthy to the board to operate as Executive Chairman. The other existing leaders,  Kris Gopalakrishnan becomes the Vice Chairman (from being a co-chairman) while SD Shibulal would continue to be the MD and CEO. While Narayana Murthy has stated that it was too early to comment on how he would re-strategize, his plan to establish an executive office, headed by his son Rohan Murty, a well-qualified professional in his own right points to his leadership style being different this time around.

Global leadership comebacks

The global corporate world has witnessed several comeback sagas. The most recent one has been the callback of the 66 year old A G Lafley, former chairman as the chairman and CEO by Procter & Gamble (P&G). Other notable comebacks have been Myron Ullman at JC Penney, Steve Jobs at Apple,  Henry Schacht at Lucent,  Jamie Houghton at Corning,  Ted Waitt at Gateway,  Richard Schulze at Best Buy, Charles Schwab at Schwab, William Stavropoulos at Dow,  Howard Schultz at Starbucks, Michael Dell at Dell and Paul Allaire at Xerox. Such callbacks have often been prompted by the need to shore up struggling businesses or take them to newer trajectories. However, not all such comebacks have proved to be successful.  The most spectacular comeback story was that of Steve Jobs at Apple as is widely known. Another success story has been that of Howard Schultz at Starbucks. Others had successes and difficulties in their second innings, in varying degrees though.

Given that not all global comebacks have been equally successful, and some have been even downright disastrous, it goes without saying that comeback by itself is not an implicit guarantee of success. A research on leadership comebacks quoted and commented upon in the May 24, 2013 online issue of Forbes suggests that allowing gilded chief executives an encore performance had been no guarantee of success. It often required the recalled leaders to execute radically new and unsentimental strategies even if some of them were crafted by them. It also mentions that paradoxically three-quarters of the recalled chief executives had actually handpicked their successor leaders, suggesting that handling them in the new innings could be a challenge, besides implying concerns on the durability of handpicked succession plans. The case of Infosys suggests that organizational challenges in the company could be no different, given that the successor team had been handpicked by Narayana Murthy himself. Setting the strategic direction and ensuring capable succession would continue to be the exiting leader’s most important contribution. Even when it is done well, there could be unexpected eventualities as demonstrated by several of the above cases.

Challenging times, dramatic measures

The saga of leadership comebacks is not so well experienced in India. Part of the reason is that Indian enterprises generally tend to retain their leaders as long as possible; the cases in point being Ratan Tata of Tata Group or Y C Deveshwar of ITC Group.  Infosys has been an exception where the founder leaders themselves accelerated leadership successions. The return of the 67 year old Narayana Murthy to Infosys is likely to be the most high profile and path-breaking one in India Inc, potentially rewriting the script in terms of leadership tenure, succession planning and comeback options in challenging and difficult times. That the times have been challenging in the last seven years when Murthy has been taking a declining interest and, in fact, no interest over the last two years when he moved out of even non-executive chairmanship are well documented. In the times of Nandan Nilekani, who succeeded Narayana Murthy as the MD and CEO (2003-07), Infosys clocked compounded annual growth rates (CAGRs) of  42.3, 44.5 and 54 percent in revenues, profits and share price respectively in that block of years. Those were some of the best times in Infosys’s history.

Times, however, have started to change for the worse as Kris Gopalakrishnan took charge between 2007-11 as reflected by the declining CAGRs of 18.3, 15.2 and 10.3 in each of those factors. During the current CEO S D Shibulal’s term (2011-13) not only the market conditions turned tougher but the competitors notably upgraded their competitive game; as a result the CAGRs continued to maintain their downward journey with 10.7 and 7.3 and finally a negative 7.1 percent in respect of revenues, profit and share price in 2011-13. During the same period, the leader Tata Consultancy Services (TCS) continued to post stronger results while other competitors, notably Cognizant and HCL Technologies, began to overtake Infosys in performance. As a result, while Infosys continued to retain an iconic aura, the earnings bellwether status began to slip. During the period, the company also saw the exits of several high profile executives and leaders from the company. Apparently, the Infosys board led by non-executive chairman K V Kamath (who himself was brought in to wring in a change in Infosys in 2013) felt that the return of Narayana Murthy would be the one dramatic measure that would reverse the declining fortunes (Kamath, one of the great leaders of the Indian industry, would continue as the lead independent director).

Challenges; internal or external?

In 2011, at the time of his retirement from Infosys, Narayana Murthy stated that the team that he left behind at Infosys was a dream team in whose safe hands the company would grow further. At that time, Infosys initiated a major strategic transformation, called Infosys 3.0. The strategy aimed to move Infosys higher up the value chain of information technology into newer areas like consulting, products and platforms while targeting greater value addition in the traditional areas of application development and management. One view has been that Infosys embarked on a right strategy at a wrong time; the company needed to protect its base business through low costs, competitive pricing and quality execution prior to embarking on newer vistas of development. The other view is that the new leadership upset the organization all across the levels as it sought to become more efficient through readjustment of roles, responsibilities and grades; increased attrition pointed to more than ordinary churn.  

Declining performance of corporations is often due to a variety of causes, both internal and external. Leadership and competencies are unique and internal to a company. Customer mindsets and competitors are discontinuities and external to a company. The intersections that are available to the company and competitors are technologies, strategies and people. The skill of the company lies in deploying technologies, strategies and people to maximize its competitive advantage in the marketplace vis-à-vis its competitors. Leadership and competencies that are unique to the organization can drive the competitive advantage through the above equation. The decision to recall Narayana Murthy is grounded in a strong faith in his charismatic leadership which is characterized by a visionary approach and a global stature that would augur well for positive, business development. It remains to be seen whether this time around he would develop his leadership bench to be able to weather any sort of competitive pressures.

Rohan, the new ‘roshan’?

If there has been one surprise in the recall paradigm, it is the induction by Narayana Murthy of his son Rohan Murty as his executive assistant in a chairman’s office that will be newly created to connect Narayana Murthy with the broader company. There is no doubt that the 30 year old Rohan is a highly educated and well accredited young professional, with roots in Indian values  and his father’s value system, and competencies in state-of-the-art information technology. Narayana Murthy has assured, in addition, that Rohan would have no leadership role in Infosys, and more such young professionals would be inducted into the chairman’s office. There are two ways this surprise induction can be looked at. The first is that as a software company, Infosys can no longer ignore the massive changes that are occurring in the hardware segment in terms of ultrabooks, tablets, smartphones, phablets, convertibles and wearable computers, as also the integration of the new generations of hardware and new applications software. Rohan and his team of young officers would hopefully go beyond the mechanics of data collection and analysis of a conventional chairman’s office and drive innovation as well as connectivity with Gen-Next devices and users.

At the other end of activity spectrum, if Rohan and his executive office stay at the level of data compilation and data analysis, the recall experiment of Narayana Murthy could create an informal power hierarchy which is more operations-focused and performance-oriented rather than innovation and transformation driven. At an extreme, such a traditional approach could make the established leadership somewhat redundant as the formal structure would also have similar operational performance objectives. Unless managed well, Narayana Murthy’s comeback could be a boomerang on the orderly management which Infosys is known for. The balance of advantage to Narayana Murthy as the new executive chairman, therefore, lies in utilizing Rohan and his young team as the new ‘roshan’ (shine and light being the literal meanings of the Indian word) that shines the light for a new pathway of technological and operational innovation for Infosys.

Without doubt, the Narayana Murthy experiment has to succeed exceedingly well for the sake of not only Infosys but also the Indian information technology sector in general. And, succeed must this experiment as Infosys has no comeback leader left in the open other than Nandan Nilakani, now well ensconced as the successful head of Government of India’s strategic Aadhaar UID Project!

Posted by Dr CB Rao on June 2, 2013

 

 

Customized Product Design (CPD): The Next Wave of Competitive Advantage?

Exponential technological development has contributed, in recent years, to a massive increase in product lines and products. Companies typically run hundreds, if not thousands, of store keeping units (SKUs). The more global a company is the greater the proliferation of SKUs. SKUs typically define product variations to meet country and customer specific homologation needs. It is, therefore, tempting to hypothesize that there is a huge wave of customization that is sweeping the industrial scenario. Unfortunately, SKU proliferation ends up adding to complexity with variations rather than meeting multiple customer needs with real customization.  Product variations do not necessarily mean customer customization.  The nature of variations, oftentimes, tends to be as per design templates rather than customer needs.  Product variations, as are commonly found irrespective of product or country, tend to fall broadly under three main categories: category driven, performance driven, and price driven. There are, however, two influencers that are esteem driven and policy driven.  

Category-driven is exemplified by broad and dominant product configuration; for example, smart phone versus non-smart (or, dumb?) phone and sedan versus utility vehicle. Performance-driven is exemplified by hardware and software differences which together set performance differential between products. Price-driven appears rather easy to understand in terms of different price points at which a product can be positioned but is actually more complex; specifications-driven costs and brand-driven premiums impact price. Esteem-driven is reflective of product-market niches that are created by companies. Policy-driven is the outcome of the influence of regulatory policy on product design. The preference for 660 cc mini cars in Japan or sub-four meter cars in India which qualify for lower excise duty reflect that category. Despite five such categories and multiple SKUs, rarely do products get designed around customers.

Customer choice; a mirage? 

The interests of the customer and corporation are conceptually aligned but practically tend to be misaligned. When one sees the hundreds of apparel in retail stores, it is easy to appreciate that the apparel are designed with certain standard sizes and ruling fashions in mind. In fact, factory production, ipso facto, tends to promote standardization and reduce customization in any field. Reverting to the example of apparel, decades ago when there used to be no readymade apparel, tailoring represented the only and complete form of dress development, which was truly customized to the individual.  In the earlier paradigm, the consumer had the choice of selecting a cloth and getting it tailored to his or her measurements and stylistic requirements. In the current paradigm, mass production of multiple designs does not necessarily translate itself into real customer choice. Probably, the right phraseology for the current scenario is product choice rather than customer choice.

Mass production in factories, of course, vests several other advantages of quality in design, manufacture and delivery, use of superior material and methods, reliability and adoption of global trends. Henry Ford’s assembly line manufacture of a standardized car in a single color in the 1910s represented that extreme of industrialization while General Motors’ competing strategy of differentiation was an alternative approach. In contemporary times, Apple represents the early Ford of smart phones with not more than a couple of products in each product line while Samsung with its scores of smart phones represents an amplified version of General Motors in smart phones. Customer choice, however, is not a matter of numbers either; there need not necessarily be proportionality between SKUs and customer choice. A simple question clarifies: Is Galaxy S4 equally ergonomically optimal to hold and operate for all ages and for all types of palms? The answer, unfortunately, is a ‘no’, which implies that a person of a small palm has to either bear the burden of an oversized state-of-the-art phone or a right-sized smaller screen phone of lower specifications.

Customer choice defined

True customer choice occurs when a customer is able to secure a product that meets his or her expectations on all specification and at all price points. This is an awakening that is occurring slowly, but surely, even in some of the most strident category manufacturers. Luxury vehicle manufacturers such as Mercedes Benz and Audi are now moving down the categories to B class and A class cars as well as towards compact SUVs to provide their customary luxury specifications across all categories and price points. Becoming a full length manufacturer is commonly seen as the solution to providing customer choice. Probably, this is a beginning and still not a full resolution of the trend. The concept of full line manufacture as it exists today is one of positioning products at different price points, which almost invariably translates having a range of products from low-spec to high-spec.  True customer choice, however, enables the design of a product around the customer needs, with a very open and flexible mix and match approach.

Dell, the computer maker was long seen to be a leader in customers designing their computers by selecting the configuration of choice. Even the Dell model is not representative of true customer choice. Changing the processor, adding RAM capacity or battery power, or providing operating system (OS) options and accessory choices are more in the nature of upgrades rather than product redefinition.  True product definition would occur if a customer can, in the case of Dell for example, mix and match the specifications of Inspiron, Latitude and XPS models as well as those of laptop, ultra-book and tablet. Similar is the case with automobile manufacturers who try to customize marginally based on power train options or interior trim. The day when a hatchback can be grown proportionally into a compact utility vehicle at customer’s choice is probably still decades away even globally. Service industries, which are not manufacturing oriented and therefore should be better placed for flexibility, find it difficult to offer multiple services in flexible formats.

Customized product design

The challenge in achieving true customer choice lies in combining the benefits of mass factory production with the rigor of fulfilling individual customer choice. Reverting to the example of readymade apparel, there could be two ways by which the manufacturer can achieve customized service. All this would require is a measurement system in each retail shop. By taking the measurements and communicating them to the central factory along with the requisite cloth and style codes through the company information technology system, the retail shop can provide the custom-stitched, yet factory made, apparel to the customer rather than try to force-fit or re-tailor the available options at the retail store. This first way leads to the second way of building up a database of thousands of people measurements and developing a more customized size and style classification that could combine the advantages of factory design and production with the benefits of custom tailoring for the customer. Needless to say, over a few months the database would exponentially expand and provide a competitive advantage to the apparel manufacturer relative to the others.

The concept can be extended virtually to any sector with appropriate modifications. Given the openness and the lead time of 6 months in designing and manufacturing a smart phone, the smart phone makers can encourage customers to pre-book their phone requirements by taking a picture of the buyer’s hand (palm lines and finger prints can be covered to avoid risk to personal details) and an inventory of his choices in terms of screen size, screen type, pixel resolution, on-board memory, micro-card memory, processor speed, operating system, camera pixels, flash type, battery power and build type to quote, just a few parameters. This customer data base can facilitate the design of a truly ergonomic and operationally customized smart phone. Like with apparel, as the company builds up a database of millions of customer profiles, smart phones can be smartly, rather than presumptively, designed for the widest possible focused fulfillment. This approach can be leveraged for any product or service with appropriate data capture and analysis systems to move towards mass customization.

Mindsets and competencies

What is proposed in this blog post is a radically different way of conducting product design. The proposed paradigm makes the customers the product designers by enabling them convert their individual experiences, thoughts and desires into millions of specifications which can be sifted through using high speed processing technologies to develop histograms customer choices. The paradigm requires a major shift in the mindsets of corporations. They must resolve to understand and fulfill customer requirements first hand by asking intelligent questions, providing meaningful options and redeeming the customer hopes with products that are better customized.  Customers also must change for the paradigm to be successful. They must be discerning, responsive and responsible. They must be demanding but also patient. To enable the initiative achieve widespread awareness and expand to achieve self-sustaining capability, corporations could do well to form customer clubs which can become the nuclei of customer creativity and design enablement.

Corporations need also competencies to be able to successfully pilot the customized product design initiative and institutionalize the customer integration. Companies need to identify and establish the essential infrastructure that is required to connect the customer to the corporation. As with the apparel company, it could be the ubiquitous tailor for taking measurements of customers in the apparel retail store, supplemented by style manuals or style portals. As with the smart phone company, it could be palm scanning and product design kiosks in the phone retail stores. At the central level would be a very strong information technology backbone that connects all the primary data collection hubs with a powerful central server system, a high speed algorithmic processing system and a multi-faceted analytical capability. Organizational design must provide for structures and processes that enable continuous interactions between the market and product design divisions of the company. Talent that is technology savvy and customer friendly as well as analytical would be essential.

Customized product design (CPD) as proposed in this blog post could be the next wave of competitive advantage for corporations if backed by appropriate mindsets and infrastructures.

Posted by Dr CB Rao on May 26, 2013

Institutional Actualization: The “5 A” Process of Virtuosity

If actualization is defined as becoming what one is capable of becoming, who would not want to reach a point of actualization? The desire to actualize one requires a process of virtuosity. Nothing comes easy in life, more so actualization. In a previous blog post, “Self-actualization by One’s Self for Oneself: An Enlightened Process for the Elusive Goal” published on April 21, 2013 in Strategy Musings (http://cbrao2008.blogpost.com), I proposed a model of ten-component self-actualization that had strong performance and philosophical undertones, and traced several phases and steps that need to be gone through during one’s lifespan.  The blog post postulated and demonstrated that the ten components, namely, self-awareness, self-appraisal, self-confidence, self-control, self-development, self-discipline, self-expression, self-improvement, self-motivation, and self-respect, together, constitute an enlightened process to achieve the typically elusive goal of self-actualization.

The above mentioned approach to actualization was proposed as a holistic solution to handling life’s challenges and opportunities for a human being in a social or organizational context. One question we face is whether the model of actualization for institutions would be any different from that of individuals. The answer probably is in two parts. One, to the extent that institutions are led and managed by individuals, individual actualization should lead to institutional actualization. Second, institutions are also like citizens and need to fulfill certain responsibilities and also seek fulfillment. That said, institutions have a life of their own and individuals may not be able to influence a particular course of actualization, without institutions themselves taking up actualization as a process. This blog post proposes a simple model that would capture the process of virtuosity by which institutions can achieve actualization.

Institutional actualization

Actualization of human beings and of institutions makes the world a better place to live in. There is no single benchmark of what actualization means. In fact, it is established that actualization varies vastly for individuals even within the same trade. For a particular actor or musician, for example, actualization could mean winning of an Oscar. For others in the same artistic domains, actualization could mean mass popularity amongst the audience. For a particular corporate executive, actualization could mean being a generation ahead in growth and creation of personal wealth. For another, it could mean training a vast pool of leaders and creation of institutional wealth. Whatever be the gross difference or subtle nuance, actualization is a key driver of social and economic progress.

For institutions too, actualization could be different even within an industry. For certain organizations scale is important and for others scope is important. Some are inspired by market share and some by profit share. Some aspire for growth while others are content being model corporate citizens. Whatever be the actualization benchmark, it is clear that when actualization ceases, progress plateaus. There was a time when the government-owned public sector corporations were a showpiece of India’s engineering progress. This arose as the bureaucrats and executives found actualization alike in laying the first foundations of national technological development. However, as monopoly power stalled and licensing raj stymied competition, complacence set in and actualization faltered.

Actualization, beyond strategy

Institutions rely on structures and processes to govern growth. Strategic planning or long term planning is one such systemic discipline adopted by corporations. Starting with vision, the process develops a strategy, guides execution and measures progress as an iterative process. The strategic process, unfortunately, is both an enabler and an inhibitor to institutional actualization. The SWOT analysis of long term planning, for example, is akin to the processes of self-awareness and self-appraisal, and lays the foundation for development of a corporation. However, once a strategy is developed metrics take over. Achievement is measured against hard metrics rather than soft aspiration. The even more qualitative goal of actualization never gets assessed. Strategy, while being an important enabler of actualization, also cannot be allowed to dampen the quest for actualization.  

The issue with strategy is that past performance or current competition almost always serves as a benchmark for vision and strategic goals. Strategy is rarely determined in a corporation by a true understanding of its actualization potential. That hardly does justice. Actualization is pushed to limits when a person or institution charters into a completely unchartered territory or imagines a completely invisible. Actualization for a corporation is a lifetime experience rather than the result of a five year strategic planning process. A review of the multinationals, such as Lever, Glaxo, SKF, GE who entered India more than 100 years ago and have tasted a level of growth in, and integration with, India, that would not be visible to the trained mind even at the time of entry, demonstrates how actualization of a lifetime actualization differs from a limited perspective strategic goal setting. Most pioneering inventions and most path-breaking businesses, national or multi-national, and in India or abroad, owe their success to higher levels of actualization inspired by an unknown but imagined future.

A 100 year horizon

Institutional actualization, as a process, has a horizon of several decades. While institutions exist in perpetuity, and therefore have no specified life as individuals, probably 100 years, in rests of 20 years, as with individuals is a good way of establishing actualization horizon even for institutions. Continuing that concept, a corporation can be postulated to grow up in the first twenty years, become established in the second twenty years, season itself in the third twenty years, emerge as a bellwether in the fourth twenty years and become an icon in the fifth twenty years. Today’s corporate analysts and business historians judge corporate evolution far too early. As a result, young startups are praised as bellwethers and icons even in the first decade of their growth. Like individuals, institutions are also prone to the adverse consequences of headiness caused by premature recognition, which may impact their ability to secure lifetime achievements.  

This is not to suggest that corporations do not or cannot become innovators or pioneers in the first twenty years of their life, or even within the first few years of inception. Certainly, they do and can as demonstrated by many young achiever-companies. Success of entrepreneurial efforts or competitiveness of business models, however, does not ipso facto imply sustained institutionalization of a corporation or its actualization of a lifetime. A whole series of Internet product or service companies have made their mark in their first years in the recent post but it would remain to be seen whether they would keep up a sustained momentum and achieve actualization. A process that helps institutions target actualization as a lifetime objective would be well-merited. This blog post proposes a five component process, comprising Aspiration, Ambition, Analytics, Achievement and Actualization (called the 5 A Process) that would be particularly relevant for institutions. 

The "5 A" process

Aspiration, which implies a strong desire to achieve something, is largely seen as an individual trigger. At an organizational level it gets translated into getting into a business or growing a business based on targets of revenue and/or profitability. The real aspiration for a corporation, however, must be in terms of making available to customers or society something which has not been available thus far and thereafter remaining a leader in that pioneering business for a lifetime. Whether it is Lever, Glaxo, Philips, SKF, Tata or GE who entered India over 100 years ago with consumer products, healthcare products, electronics, bearings, steel or infrastructure equipment the rule of making something available for the first time, and remaining a leader for decades in that business reflects an aspiration that lays the foundation for lifetime institutional actualization.

Ambition is aspiration reinforced with the determination to achieve and succeed. The difference between ambition and aspiration is same as the difference between determination and desire. Corporations need to be fired with an ambition to succeed. Pioneer-entrants mentioned above and a host of other private sector and public sector firms in India made their entries, braved near hostile circumstances, brought in novel products, opened up unreachable regions and all the while successively introduced new technologies, products and business models. Determination helped these corporations become institutions. Even ITC, which depended only on the socially regressive tobacco and cigarette business demonstrated pluck and determination to re-charter its course into multiple socially acceptable businesses to survive and grow.

Aspiration and ambition need to be channeled through a robust framework of analytics for corporations to achieve their aspirations. Analytics is the science of analyzing data to develop trends and providing guideposts to future. That said, decades ago there was no analytics as a domain, yet the pioneers did successfully what they did over hundred years ago. The reason lies in the fact that there is no better analytical tool than the human brain. All of GE’s inventiveness is no match to the invention of GE’s great founder Thomas Edison and his analytical ability that foresaw the need for a corporation based on technology in the 1800’s. So has been the analytics of Henning Holck-Larsen and Soren Kristian Toubro, the two Danish engineers who foresaw India’s future and established Larsen & Toubro (L&T) in 1938 in India. Human analytics still remains the best bet for providing a framework for channeling aspiration and ambition.

Measuring achievement is apparently the easiest of the five step actualization process which moves as per set aspirations. If achievement is to be measured against revenue/profit metrics, it is indeed an easy task. If, on the other hand, it is to be measured in terms of sustainability of the aspiration, it is indeed a hard task. However, there are ways to measure the sustainability of the transformation. The robustness and scalability of technology deployed in a corporation is the first measure of achievement. The breadth and depth of market reach of a corporation is the second measure of achievement. A corporation which consistently maintains its high score on these two dimensions would be on a sustainable path of actualization. Toyota and Sony are examples of such sustainable achievement; they are helped to overcome financial setbacks on the strength of sustainability of their technological depth and market reach.   

In a process of institutional actualization, why should actualization figure as a discrete process component instead of as the final outcome as would be in the case of individual actualization? The reason is fairly simple; corporations are expected to be perpetual in life while individuals are not. For individuals, actualization is nearly an end-of-the-active life experience, almost synonymous with nirvana. On the other hand, for corporations actualization is a reminder of how they can transform themselves into institutions and how they can contribute to societies in a perpetual manner. Each actualization cycle should ideally lead to the next one. In institutional actualization, the very fact of actualization should spur thinking on the next frontiers. This applies whether corporations see a 20 year horizon or a 100 year horizon for institutional actualization.

Leaders’ responsibility

Corporate leaders and their boards must, from time to time, take time off to assess their corporations on their actualization journey. Even if their corporations have met all the performance metrics and even if they are the preferred ones of the Street (and in some cases, in spite of their not being so), the leaders and boards would do well to introspect and review whether their corporations have become what they must become, and actualized themselves to the best extent. Institutional actualization tends to be a perfect blend of all the positive faculties of the individuals comprising an organization, in time spans appropriately visualized.  

Posted by Dr CB Rao on May 19, 2013