Products (or services) and Firms: The Five Immutable Laws of Emotive Brand Loyalty

Normally, I do not post immediate sequels to my blog posts. However, the comments of my good friend and respected colleague, Dr Ganesh Nayak on my last week’s blog post, “Products, Brands and the Firm: The Five Immutable Laws of Branding”, Strategy Musings, February 16, 2014 (http://cbrao2008.blogspot.in/2014/02/products-brands-and-firm-five-immutable.html) have set me thinking on the emotional facets of branding. I believe I should not only clarify certain aspects of the previous blog post but also benefit from Dr Nayak’s thoughts to cover certain additional aspects through this blog post. As readers may recall, the previous blog post postulated that six attributes of a product or service, functionality, reliability, durability, maintainability, affordability and differentiability, result in sustainable branding. Dr Nayak rightly commented that important as these points are, a brand is beyond these points.

Dr Nayak mentions that the many of the six points are tangible which a customer can experience in many “me too” products as well. He points out that a premium sedan such as Nissan Teana may have all the six features to a rational mind but the said car as a brand may not be as powerful as BMW or Mercedes is. He follows up that a brand is more of emotions, as a result of which the customer does not think of critically evaluating the above six points in respect of a product under the brand; the customer takes the presence of the factors granted. He refers to Mont Blanc pen not necessarily scoring high on all the six factors but customers willing to spend a fortune to acquire one. Acknowledging the meaningful insights that Dr Ganesh Nayak brings but also reviewing Dr Nayak’s points objectively, it is clear to me that Dr Nayak’s insights point to the need to supplement my previous blog post by developing  appropriate constructs for the emotive aspects of branding.

Emotions and loyalty

Emotions are strong feelings, and are characterized by positive ones such as respect, love and attachment, and negative ones such as anger, fear and hatred. Emotions are considered to be independent of rational thought. An emotive act or product causes people to feel strong emotions. A strong brand, without doubt, is based on, and is capable of, evoking strong emotions. When Nokia decided to sell its Lumia smart phone business several people responded more emotionally than analytically; the emotions were feelings of sadness that it marked the end of a historic Finnish brand, rather than feelings of optimism that a new owner with deep pockets and an emerging mobile operating system would infuse new life. The latter was probably based on negative emotions that Microsoft could not yet make a success of computing devices and, in addition, a concern that Microsoft Windows would never be an OS platform that can revive and ramp up Lumia. Clearly, future is somewhat imperfectly but popularly prejudged on the basis of emotions rather than rational thought.

At the same time, in spite of Nokia trailing other firms and brands in product features and customer acceptance, millions of Nokia handsets continue to be sold globally, the reason being brand loyalty. Loyalty, as we know, is the quality of being faithful in support of someone or something. Like emotions, loyalty is also not necessarily based on rational thought but at the same time has necessarily a history of the customer benefitting from the product or service in terms of the six factors in the past. Emotions and loyalty reinforce or erode each other contextually. The objective of all marketing generally, and advertising specifically, is to cause positive emotions and build brand loyalty. That said, it is to be realized that both emotions and loyalty cannot materialize in thin air, and on the other hand require a record of past performance based on the postulated six factors. This blog post postulates five immutable laws of emotive brand loyalty to deepen the understanding of these processes.

The first law: An emotive brand is “product plus trust”

Certain products and firms evoke trust; a belief and an assurance that they reflect quality, dependability, goodness, service and ethics. The trust typically develops from a firm and its products consistently scoring well on the six attributes. Over time, successful firms and products get branded positively, or negatively, predominantly on a singular dimension. For example, certain firms and groups get known for ethical conduct. Certain others get known for consistently high quality of its products. Certain service providers get known for their timeliness while some others get negatively branded for their erratic schedules. Consistent delivery on product attributes leads to brand equity and sustained brand equity leads to brand loyalty. The leading and lagging brands of the world have their instructive lessons on compliance to this law. 

The second law: Branding is "banking of emotions"

A firm has to provide products of quality to be a player of any standing in an industry. Yet, some firms and their products gain a higher level of customer trust within an industry. This may be considered firm level aggregate branding. Once a firm achieves collective superiority in all of its products, occasional or isolated setbacks are taken in stride. For example, Toyota, the world’s leading manufacturer of automobiles had, two years ago, a series of product recalls in one of the most stringent markets of the world. Yet, the company could tide over the crisis rather comfortably, and even achieve higher sales in the year after. Apart from an unassailable reputation of quality, a humbled and focused response to addressing the quality concerns protected the Toyota brand. Branding is like a savings bank of emotions for the firm. The larger the account, the more secure is its future.

The third law: Firm branding is portable, product brand extendable

Firms which are fortunate to develop brands tend to be anxious to leverage the success of brands to drive success of new products. While doing so, firms tend to fritter away the opportunity by an inadequate appreciation of scope and limits for brand reformatting. As a principle, product branding can be extended in a product family but not portable across products. Any attempted portability across product lines could be suboptimal compared to develop distinctive line-specific brands. For example, Samsung could extend its Galaxy brand to all its smart phones but its porting to a camera lineup was not as successful. On the other hand, a firm which has high firm level brand equity can port its equity into new product lines. Conglomerates and firms with high brand equity are well positioned to achieve this. New firms of Tata and Reliance groups as well as new product lines of electronic giants are indicative of this.      

The fourth law: Low cost is never a high price for branding

Theories of marketing teach us that features with underlay of technology and overlay of luxury come with a price. Premium products demand higher price. That said, price competitiveness of a product, the other five attributes remaining the same, buys brand loyalty. A customer who prefers a Mercedes SUV to a Toyota Innova (also an SUV) typically has such preferences based more on the reputation of Mercedes as a luxury brand even if it is pricey. That said, the same customer who prefers the Mercedes SUV may not prefer a Land Rover SUV, despite Land Rover being better SUV brand because of the much higher price tag that a Land Rover has (Rs 2.5 crore versus Rs 1 crore of Mercedes). The practical application of the six attributes of functionality, reliability, durability, maintainability, affordability and differentiability varies from customer to customer based on the nature of the customer, the social and economic demographics and the product itself. Apart from the customer’s own preferences the overall social infrastructure influences brand acceptability.

The fifth law: Brand loyalty takes the vision of the viewer

Brand loyalty takes many forms. The reasons why a product, firm or brand commands loyalty varies from customer to customer. For someone who understands the entire spectrum of automobile industry, Toyota could be the most favored brand for its innovative accomplishments in manufacturing management, and not necessarily because of the quality of any particular model. For someone who understands aseptic practices, a hospital that has state-of-the-art aseptic practices could command respect while for many others the association of topnotch medical consultants could be the decider. It is for this reason that some brands, “super-brand” themselves to ensure higher brand loyalty. While Aquafina and Kenley mineral (pure) water brands command brand loyalty for purity, Evion and Himalayan evoke further connect with the emphasis on bottling at source of Alpines or Himalayas as the case may be.

Emotional connect

The relationship between a seller (the firm) and a buyer (the customer) is neither a selling relationship nor a purchasing relationship; it is one of human relationship. In an organization, for example, people may deliver  on performance and may get rewarded in terms of compensation, and teams may share bonuses amongst the members; however, unless there is an emotional connect or an empathetic rapport amongst the team members, the team may not be reaching the fullest potential. Even though a sales transaction between a seller and a buyer may be a onetime occurrence (or even a periodic occurrence in respect of retail transactions), the multi-factorial emotional feel of getting to know a brand, exercising a reasoned choice, being sold with care, actually experiencing the functionality and after-sales service care, and having options to upgrade to next generation products all add up to building the emotional connect around a product, firm and brand.

Wise companies, therefore, do not consider their responsibility fulfilled with delivery to the retail chain; they pursue a diligent and caring connect till the point of contact with the customer, at the time of potential sale and thereafter. While a firm cannot be present at all points of contact, the firm would choose associates and partners who are aligned with its own emotional code of connectivity. The emotive brand loyalty of a firm and its products is probably the most important determinant of sustainability in a hyper-competitive market. The emotive brand loyalty does, however, gets built on the foundations of the six fundamentals that characterize a product or service to the customer: functionality, reliability, durability, maintainability, affordability and differentiability.

Posted by Dr CB Rao on February 23, 2014  

Products, Brands and the Firm: Five Immutable Laws of Branding

The relationship between products and brands has been an exciting and fascinating area of research in marketing strategy. Products represent performance and functionality while brands represent experience and assurance. Typically, products build brands but once built, brands outlast products. Marketing strategy, oftentimes, has to face the intriguing dilemma of new products riding on the existing brands or steering off to develop new brands. The more interesting question is also whether the firm itself represents a brand, and in some cases the product as well. In the recent years of technological innovation and marketing acceleration, the relationship between products, brands and the firm has demonstrated multiple facets. The relationships could vary across firms and industries but certain generic principles represent the essence of such relationships.

There could be a view that products, brands and firms are not standalone phenomena but are dependent on certain other critical foundational factors. For example, products may be seen to be embodiments of technology while advertising may be seen to build brands. Firms may be expected to be built not merely by products but also by a variety of tangible resources like assets and finance and intangible resources like culture and values. While this reality need not be denied, products and brands represent the final outcomes of all efforts of a firm, and represent respectively the tangible and intangible assets that together drive the competitive advantage of a firm. This blog post proposes certain simple laws of product and brand performance as influencers of firm performance. Like Newton’s laws of motion, these laws are simple but universal, and immutable.

The first law: Distinctive products make sustainable brands

Products help consumers fulfill their needs. Products offered by several firms may have similar characteristics but only certain products end up building themselves into real brands. Products get transformed into powerful brands when they offer functionality, reliability, durability, maintainability, affordability and differentiability on a consistent basis to the customers. From an organizational process point of view, these product features are an outcome of quality and competitiveness in design, manufacture and service. Firms should direct their efforts to develop products that offer the six-feature bundle through requisite organizational processes.

Firms with global leadership or national leadership, in any product category, reflect the above theorem. They master the organizational processes to provide the six superior product features, consistently product after product. Brand building is a phenomenon that clearly goes beyond advertising. It is a total organizational paradigm. Toyota, Nissan, Honda, Sony, Panasonic, Apple, GE, and any of the  top firms with strong brands have organizational processes that enable exceptional products. There exist no shortcuts for building brands but there exist well proven multiple methodologies to achieve functional excellence and integration. Each of the firms listed above has relied on functional excellence within organizational integration to reach its respective pole position.   

The second law: Differentiated products make discrete brands

Brands are expressions of product differentiation. However, overuse of singular brands on multiple products leads to monotony while underuse of a successful brand for product extensions wastes valuable resources. Samsung, it appears, has overused its successful Galaxy smart-phone brand on multiple products. LG, on the other hand, has underused any of its brands to better represent its smart phones. Companies struggle with the right balance in brand-product nexus. Product differentiation is the key to discrete brand recognition. It would appear that weaving a unique brand around each unique design theme is a helpful approach.

 In an automobile lineup, hatchbacks, sedans, crossovers, utility vehicles and off-roaders qualify for discrete brands. Each of these product segments may be known by integrated brands but each product segment can house further differentiated products, each with a discrete brand. Titan’s Raga brand represents an ethnic uniqueness for ladies watches and the Edge watch brand represents slim design form factor. Both have been highly successful, as they continue to preserve their unique propositions. However, Titan’s sub-brand Fastrack which started as a youthful brand known for its funky designs has got lost in multiple themes. At times, sequential simplicity makes the brand-product bonding perpetual and continuously expanding.

The third law: A pioneering product brands the firm

Most companies have multiple products but just a few brands. However, it is left to a few pioneering firms to develop singular products with which respective brands, and even the firms, are completely identified. This is true in highly developed markets as well as naïve emerging markets. Typically, this happens when the product provides a unique need fulfillment and/or user functionality and experience like never before. Once this phenomenon happens the world starts referring to products and use of products by the pioneering product itself. For a firm to be in such an unassailable position, it needs market-savvy innovative technologies.

Several examples, from the distant past as well as contemporary present, come to mind. Coca Cola representing sweetened beverage as a product, brand and the firm, first in America and later globally, is a classic example. So does Xerox, the pioneering developer of photocopying machines, representing the process of photocopying as Xeroxing. Philips is still remembered as a company of bulbs. Even in contemporary times, people call searching the Internet as ‘googling ‘rather than by any other name; with Google getting identified with its pioneering search engine product, in the triple formats of the product, brand and firm. Clearly, product pioneering needs to be the goal of firms that enter sunrise industries with leading edge technologies.

The fourth law: Great brands are forever

The deep, and inseparable, bond between the consumer and the product as well as the brand has one downside. When the product becomes irrelevant the brand too becomes irrelevant. That said, great brands that are made by great products have a truly mystique effect. Within reasonable generations of mankind, they never wither away; they just remain frozen in a grateful and appreciative consumer memory to be thawed into life just at the right time. Firms that are engaged in divestments or acquisitions and firms that are phasing out technologically obsolete products must keep in mind that brands have lives far beyond the products that made them.

Sony’s Walkman was synonymous with a music device running on taped music. With the obsolescence of that technology and the related product, Sony had to jettison the Walkman brand. That did not mean the demise of the Walkman brand, however; the brand came back to brand Sony music cellular phones as Walkman phones. Nissan phased out Datsun line of cars, and the Datsun brand itself, as Nissan’s other automobile products became the mainstay cars for the company. However, when Nissan set out to launch a global low cost car series, Datsun reemerged as the ideal brand that brought back its mystique. It is no wonder that Nokia has only licensed, and not sold, its Lumia smart phone brand to Microsoft; who knows what Nokia could do with Lumia brand a decade hence!

The fifth law: With branding, strategy follows structure

One of the cardinal principles of the theory of the firm, as postulated by Alfred Chandler(1962), is that structure follows strategy. However, in respect of branding, strategy must follow structure, more specifically business-product structure. Firms, depending on the industry setting and their own strategy, require diverse business and organizational structures to deliver. This leads to a brand hierarchy that cascades down from the firm as an apex brand into multiple business brands, each of which will cascade down into further product-line brands. On the face of it, such a brand hierarchy makes branding complex but with logical definition of business and product lineage, simplicity can be achieved. It would also provide for future business optimization.

The ‘strategy follows structure’ branding theory is particularly relevant when different products cater to different markets. There exist certain businesses that run on discrete brands, for example, branded generics pharmaceutical businesses in emerging markets such as India which cater to different healthcare specialties; such businesses validate the theory of branding strategy following business-product structure. Conglomerates and diversified firms benefit from the structure-driven strategy route.  One of the well established ways to retain thematic simplicity in such structural complexity is to prefix the Group’s name or the Firm’s name to all the new businesses and product lines. The examples that come to mind readily are the Tata business structures (Tata Steel, Tata Motors, Tata Chemicals, Tata Power, Tata Consulting Services, and so on) and the Google product lines (Google Plus, Google Play, Google Drive, Gmail, Google Glass, and so on).

Lessons from laws

Not many Indian companies appreciate the theory and practice of strategic branding. Either the firms  see the brand as a target rather than as an outcome or they dissipate the potential power of branding in a crisscross maze of brands. The perfect brands are those which score a 10-10 on the dimensions of revenue and profits. Most firms, however, fail to appreciate that such a perfect branding is built on the product or service scoring a 10-10 on user experience and user trust. Apple, in several ways, comes closest to the concept of perfect brand in the above perspective. The organizational competencies and processes must blend into an optimal mix to achieve perfect brands.

Even more fundamentally, Indian companies should start cleaning up the brand clutter (for example, companies getting known by multiple and complex names, and product-brand overlaps confusing customers). Firms also need to identify areas in their business-product canvas where and how the five laws of branding postulated herein can be applied. Business leaders must see branding beyond advertising or even customer recall, essentially in terms of products and services that ride on technology, quality and competitiveness to deliver on need fulfillment with the six imperatives that were mentioned in the preamble. It is worth recalling these six product or service attributes as being functionality, reliability, durability, maintainability, affordability and differentiability.

Posted by Dr CB Rao on February 16, 2014     

Sony VAIO: Elegance in Vain, and Smart in Strategy – The Theory of Sinusoidal Business and Product Strategy

When Sony launched its VAIO (originally, an acronym of Video Audio Integrated Operation) series of personal computers, first as desktops in 1996 and later as laptop and notebook computers in 1997, not many took Sony seriously. Users were under the impression that computers were industrial and business products, for which service would be the most important. The market mainstay at that point of time was seen in terms of office and industrial use. As Sony sold its laptops and notebooks through its normal consumer retail outlets which mainly sold televisions and other audio-visual products to individual consumers and families, Sony was not considered to be channel-friendly to the computer buyers. To Sony’s credit, it proved its detractors wrong. VAIO became the preferred laptop brand competing with Apple, HP and IBM/Lenovo, for its top of the mind consumer recall. It even became a leader in large format CPU integrated desktop computers. Sony emerged next only to Apple in terms of design elegance and product sophistication.

If one would recall, laptops at that point of time were staid and boxy with black as the only color (even today, several models continue to be that way). Sony pioneered laptop and notebook design to levels that made the products works of art. Use of exotic materials and colors and incorporation of slim form factor enabled Sony to develop and offer lightweight and high performance computers that captured the imagination of young and old as well as individual users and business firms alike. The latest in Sony design innovation is VAIO Flip which represented a unique design that straddled a laptop and tablet. In terms of hardware too, Sony VAIO packed a punch with bundles of proprietary software to add considerable value to the products. Against the scenario of elegant design, sophisticated manufacture and robust branding, the recent decision by Sony to sell off its VAIO computer business to Japan Industrial Partners (JIP), booking a business loss in the bargain, has been a surprise.

Theme in strategy

The divestment of the VAIO business must have been emotional for Sony but seems a practical decision from one perspective, and visionary from another perspective. The practicality arises from the fact that the Sony VAIO may have fired the imagination of users but has not exactly raked in the requisite revenues and profits. Part of it could be related to the high manufacturing and supply chain costs related to multiple SKUs and excessive accessories. The strategy of multiple product platforms, frequent model changes, optional availability of several accessories, and celebrity led advertisement campaigns required that Sony operated VAIO as a mass market product range to financially breakeven. Yet, the products were often a trifle underspecified spec-wise and quite over-specified price-wise. The top-of-the-line design elegance inspires consumers to look for the best in hardware capabilities, but Sony traditionally stopped short of giving the best in its products; for example, 1 TB hard disk capacity is offered with a 6 GB RAM, rather than an 8 GB RAM. Even in respect of flash memory models, initial offerings have been in terms of 128 GB rather than 256 GB.  

Possibly, Sony’s reluctance to pack the ultimate punch in the internals in line with the futuristic external elegance has limited the market for its elegant products; many consumers seek RAM upgrades at their cost, for example. The strategic template set for VAIO laptops (the best in design, the next best in hardware, the maximal variety in SKUs, the best in promotion, and the highest in pricing) was thus possibly too embedded to allow a major shift for higher volumes, lower volumes and a revival in profitability.  The proposed divestment of its PC business by Sony thus makes sense in the face of Sony’s unwillingness to make any major shift in VAIO strategic theme. Interestingly, this is not the first time that Sony exited from its computers business. Sony initially entered the PC business in the 1980s with computers made exclusively for the Japanese domestic market but exited the business in the early 1990s. The proposed VAIO divestment, after a successful reentry in 1996 and growth over nearly two decades, is reflective of an approach to delete the strategy itself rather than reengineer the strategy. From a strategy perspective, therefore, firms do face the clinical option of strategic abandonment vis-à-vis thematic reengineering. That said, Sony’s decision is possibly not as simple and self-effacing as it appears.

Arena redefinition

Sony’s decision to quit the VAIO business needs to be viewed in the context of how the communication, computing, entertainment and social media arenas are getting redefined and integrated into one huge seamless arena of networking through the cloud. Smart phones and tablets have emerged as the devices which cater to this new arena. Sony’s decision to quit the VAIO computer business needs to be seen in the context of the company’s earlier decision to consolidate in the mobile phones business by buying out the stake of Ericsson in the Sony-Ericsson joint venture. Over the last few years since this has happened, Sony has demonstrated a new penchant to bring its industrial design and manufacturing elegance to the smart phones business. One may hypothesize that Sony would now concentrate all its resources to develop a smart phone and tablet lineup that caters to the four needs of communication, computing, entertainment and social media. From a perspective of developing a strategy for future, Sony’s smart phone and computer decisions together indicate how a changing technology landscape could dictate the product strategy, and an overall business strategy.

While redefining the strategic arena is important, developing a new generation of devices that meet the requirements of the new arena is equally essential. Sony’s design studios must surely be working on the new product themes. The challenge is to imagine the future shape of arena. In this case, for example, the question would be how seamlessly the nations of the future would be networked. Like radio and television waves, would carriers and the governments be offering free seamless wireless connectivity through satellites across the nations? Answers to such questions would determine how the phones and tablets of the future would evolve. It is important that product development in environments of such technological fluidity must emerge from the environments of the future rather than the capabilities of the firm. One view, for example, is that the large boutique of proprietary software that Sony bundles in its VAIO and other devices (nicknamed ‘bloatware’) has been a system drag rather than a user friend. As products become mass-market products, the balance between three types of product architectures, open, value added semi-open and proprietary, has to be carefully evolved.

Strategy, product sine cycles

Most firms that exist for the long term go through strategy cycles. These are sinusoidal curves of entry, growth, decline and exit into a business based on specific products. While this may seem similar to a product lifecycle, what is not seen is the hidden sine wave of product redevelopment that occurs, unseen to the external world. This involves deep de-learning, futuristic re-development, revalidation through piloting and finally reentry into the market.  If Sony’s strategy journey, from 1980 to 2014, is reviewed, clearly strategy can be seen to be moving in cycles (for example, into computers, out of it, again into computers and again out of it) with silent product redevelopment occurring unseen. Microsoft has also been into some kind of strategy cycles in a similar manner (into tablets, out of it, into it, and again further into it, through acquisition). Firms with strong brand equity and deep resources would use every exit challenge as an opportunity to reinvent its products and its own business. ITC, which is a market leader in cigarettes may face product exit if tobacco consumption is banned but the sinusoidal theory of strategy would require that ITC should develop tobacco and nicotine free cigarettes for a reentry.

Product strengths and environmental fit of a firm positively correlate with each other. Product stagnation and environmental transformation inversely correlate with each other. This constitutes the essence of the theory of sinusoidal theory of business and product strategy.  Strategists must define objectively, and on a continuing basis, the fit between current products and future environment. When products are considered inappropriate for the future evolution and the firm does not have the resources to reinvent the products or any such reinvention is not considered sustainable or viable, strategic exit is advisable. If the reverse is true, that is products are appropriate and can be rendered even more effective for the new environment, the product strategy must be leveraged to amplify the business strategy. The stronger the product competencies and greater the product-environment, the greater will be the amplitude of the sine wave. If the entry-peak-exit sine wave has high amplitude and long time horizon, the hidden product redevelopment reverse sine-wave need not necessarily have the same amplitude and time span; it is all a question of how technological savvy and proactive a firm is.

Ideally, the positive sine wave of product-market entry, growth and decline and product (not necessarily market) exit must be mirrored by the inverse sine wave of product redevelopment, piloting and reentry into the market. Even as the positive sine wave takes shape and rules the market, there should be several inverse sine waves of product redevelopment. Sony VAIO case study teaches us the curious but very interesting theory of sinusoidal product and business strategy. A technologically virtuous and environmentally sensitive firm should take cue to let technology and business act in concert to generate high and wide positive sine waves and simultaneously generate short and speedy inverse sine waves of product strategy.  The author believes that the theory of sinusoidal product and business strategy, as developed in this blog post, is a novel contribution to the theory of strategy that seems strapped for innovative contributions.  

Posted by Dr CB Rao on February 9, 2014    

    

Expectation – Speculation and Real – Unreal Inflation: The Gross – Subtlety Conundrums of Indian Economic and Industrial Policies

The Reserve Bank of India (RBI) has refused to adopt a soft money policy once again, though the Indian GDP growth rate has decelerated to 4.5 percent, and despite cries for affordable money to fuel growth. Raghuram Rajan, the dapper Governor of RBI has stated that inflation is a greater concern than anything else. As students of economy know, inflation erodes the purchasing power and leads to a spiral of wages chasing prices. Inflation affects the export competitiveness of Indian products, and erodes India’s claim to global cost competitiveness. A major component of the Indian inflation scenario has been the high food inflation. This has hit the vulnerable sections of the Indian society, especially the daily wage earners, who are affected by only a partial inflation-indexing of annual salaries and lack of inflation-indexing of the daily wages.

The squeeze on real living conditions is contrasted sharply by the huge increase that has happened in the prices of real estate. Recent papers, for example, have been flooded with advertisements for apartments and villas that claim price tags of Rs 10 crore plus for downtown apartments and Rs 3 crore plus for apartments and villas in outlying suburbs, even in a conservative city like Chennai. The saga of galloping real estate prices against a backdrop of unsold housing stock is frustrating and enigmatic. There is no doubt that there is a huge element of speculation in the rapid increases of certain asset classes such as real estate and gold in India. Speculation, however, appears to be a larger cultural phenomenon, given the rapid fluctuations that occur in the Indian stock market and the fanciful nature of fancied stocks, euphemistically referred to as momentum stocks.

Banking on banks

Indian governments have conventionally treated inflation through fiscal policies, more specifically banking policies. Increase of interest and deposit rates on one hand, and mopping up of or release of liquidity into and from the banking system have been the specific tools.  Deployment of these tools has led to alternate cycles of high growth and low growth, accompanied by low inflation and high inflation in the better times. The current situation, however, seems to be a more disparate combination of high growth and low inflation, set in a cultural background of speculative trends. Classic banking solutions are unlikely to provide the required solution.  The other way of looking at this is in terms of demand-supply equation; the more goods and services are generated, the greater will be the price competitiveness leading to greater demand fulfillment with lower prices. As discussed earlier, the conundrum in India is one of more products and services at higher prices.    

In India, the banking sector has played an enormous role, incomparable in any other country, of supporting the industry across a broad spectrum, playing a variety of roles. The banks have been the angel investors of sorts to set up, and support, micro and small enterprises. They have been lenders of first resort for medium scale enterprises unable to or unwilling to obtain private equity investments. They have been bank-rolling large enterprises in their expansion, diversification and globalization plans. And most importantly, they have been hugely risk-friendly in supporting gigantic infrastructure projects. Without the banking system, especially the national and nationalized banking system, industrial growth in India would not have been what it has been. Yet, the banking system has got in return been a specter of bad debts, non-performing assets and delinquent or defaulting accounts. It is a moot point if this high level of bad returns is due to the gross insufficiency of risk capital for the industry on one hand and the expedient dependence of the industry on the interest bearing loans on the other or due to a combination of poor industrial management, loose loan monitoring or high interest rate regime.

Expectation and speculation

It is perfectly natural and logical for the industry and bankers to have mutual expectations. However, if expectations are not based on solid forecasts, and if results are not reviewed against expectations, any transactional relationship moves into a zone of speculation. Speculation, as can be appreciated, is the act of forming opinions about what has happened or what might happen without knowing all the facts. Speculation is nothing but guesswork without a basis of facts; speculation is also engaging in a physical or financial transaction in the hope of a profit; the more usurious the hope of profit is the more speculative the transaction becomes. Expectation, on the other hand, is a belief that an outcome will happen because it is likely. Expectation is based on refined human capabilities of logic and rationality while speculation is based on primal human characteristics of greed or fear. It is important that economic and industrial management of India is based on sound expectations and not on shaky speculations.

It is perfectly logical for the experts and laymen to expect that the RBI will raise or lower interest rates, or tighten or liberalize liquidity each time the monetary policy is announced. It is, however, pure speculation (pardon the oxymoron!) if the stock market investors and operators indulge in massive selloffs or buyouts in anticipation of, or within minutes of, any particular movement in policy. It is important that all stakeholders base their judgments and actions on expectations, and eschew any preemptive or presumptive judgments and actions that are built on speculations. It is, therefore, commendable that Raghuram Rajan has been forthright in setting expectations on inflation and growth, and not fueling speculative trends.  He discourages the widely held notion that low interest rates magically lead to high growth rates and advocates that the best way to promote growth is keeping inflation low. He is very clear, rightly so, that there is no tradeoff between inflation and growth.  That said, India faces a threat from two hues of inflation, which hopefully will be addressed by authorities with similar objectivity and candor.

Real and unreal inflation  

In any society, there cannot be a perfect match of demand and supply or of factors of consumption and factors of production. It is this mismatch that primes the drive for growth (potential demand outstripping physical supply) or leads the quest for competitiveness (physical demand lagging potential supply). The virtuous economic management seeks to develop and utilize factors of consumption and production to balance demand and supply at continuously increasing levels. The not so virtuous economic management seeks to tolerate inflation and curb consumption in times of short-supply of products and services. While this is a natural economic characteristic, proactive economic management and industrial management require that growth and competitiveness are always pursued as twin sides of the same coin. Clarity in fiscal and monetary policies set the stage for this. An integral part of this approach is the accessibility for continuously improving factors of production such as technology, talent and investments.

The economic mismatch generates real inflation as discussed above, but can be managed with emphasis on factors of production and other instruments of economic policy. However, it is the unreal inflation that tends to be a more dangerous scourge for the economy. Unreal inflation occurs when prices rule high, in some cases usuriously high, even when products and services remain unsold. The state of real estate mentioned in the beginning of this blog post (threefold increases in real estate prices when more than two-thirds of housing stock is remaining unsold, as an example) is an example of unreal inflation. There could be several other examples such as luxury hotel rooms being pricey despite low occupancy, luxury brands commanding unearthly prices  or leading smart phones costing more than computers despite increased competition and lower per manufacturer sales. The unreal inflation is a fight between firms with erstwhile monopolies and deep pockets and the new generation resource constrained firms with follow-on products. In the unequal tussle, more often than not, the economy and society tend to be squeezed in and lose out.

Philosophical issues

The discussion on inflation and speculation as well as on real and unreal inflation brings forth several philosophical issues and guideposts. Firstly, it is clear that there should be a healthy balance between risk capital and borrowed capital in an industry so that each firm optimizes its cost of capital (disregarding for a moment the invisible and long term cost of equity capital). Secondly, the industrial comity, investor community and the banking sector must anchor their transactions around expectations rather than on speculations. Thirdly, the balance between demand and supply on one hand and the factors of consumption and those of supply must be dynamically optimized, with focus on continuous growth and competitiveness. Fourthly, economists and industrialists must learn to differentiate between real inflation (which is inescapable but can be managed cyclically) and unreal inflation (which is irretrievably erosive and needs to be rooted out). Fifthly, and most importantly, economic and industrial policies require a culture of trust, transparency, forthrightness, logic and rationality amongst all the stakeholders that consider growth and competitiveness as two sides of an integrated economic and industrial strategy.

Posted by Dr CB Rao on February 2, 2014   

      

 

Technological Power as a Marker for Competitive Analysis: A Conceptual and Analytical Framework

In the previous blog (http://cbrao2008.blogspot.in/2014/01/technology-fluidics-and-adaptive.html), I have postulated that competitor analysis is best carried out in terms of technological power of a firm, expressed through the fluidic ability and adaptive agility of new technology. Unlike the traditional strategy theory of the 1980s, which positioned technology as a core competence and collaborative factor, it would now be more relevant to view all technology that is outside of a firm’s intellectual ownership or commercial access as being a potentially competitive force against the firm. Technology, being an embedded invisible platform, is too abstract to identify a priori in terms of commercial potential and feasibility. While Porter’s Five Forces theory considers technology as a competitive force, it depends on a physical surrogate (ie., substitute products) for identification. A relevant approach in the new age would be to analyze competition in terms of technology share, ahead of substitute products coming up commercially. This blog post proposes a conceptual and analytical framework to understand and quantify technological competencies of a firm, in an industry context.

Technology, in the context of blog post, includes science. Technology represents both product and process technologies, and at every level of a product or service value chain. For example, in the case of processed foods such as corn flakes, technology represents the complete spectrum from corn cultivation, including soil and seed development, through flake manufacture, including packaging, to customer delivery, including logistics, distribution and retailing. The technologically optimal firm is the one that deploys the best of technologies across this full corn value chain. The highest technological power is derived when each part of the corn value chain deploys the leading edge technologies. Very often, internal strategists and external analysts miss this point and assess technology only from the end-product or consumer point perspective which leads to quite a high level of lag in holistic development of the total technological value chain. Many times, technological solutions are developed in parts to meet specific needs but probably more would be gained if each such challenge is leveraged to address the total value chain.

Parts are more than the whole

The much used saying of management is that the whole must always be greater than sum of the parts, reflecting the principle of synergy. In respect of technology the sum of parts can be more than the sum of the parts only if the full potential of each part is exploited at each challenge. Let us take the case of introduction of non-asbestos gasket in automobiles as a response to regulatory and environmental concerns on the use of asbestos. Most automobile companies took up the issue as an individual fix of replacing the asbestos gaskets by non-asbestos gaskets, mostly as an initiative of component manufacturers. Some manufacturers simply made gasket to gasket replacement while some considered the finer aspects of change in gasket thickness vis-à-vis cylinder block and cylinder head clearance, to redesign key components. However, a few wise automobile companies considered the total challenge of increasing the fuel efficiency and reducing the environmental impact, not merely through non-asbestos gaskets but essentially through a series of measures from micro-mixing of fuel to catalytic converters in exhausts.  

Another fine example of total technological value chain approach would be to reduce the cost of an automobile. The results of a cost reduction exercise can be astounding if the exercise is taken up in a larger format. Weight reduction of each component can reduce the overall material consumption and reduce costs. It also can reduce frictional losses of the engine and also lead to better power to weight ratios. It can also enhance the load carrying capacity for a similar form factor. There is, therefore, merit in approaching any particular technological problem through a broader technological spectrum. If breakfast cereal makers approach the challenge of healthy foods from a perspective broader than just reducing salt, sugar and preservative content across the board but customize them in terms of age needs and nutritional requirements product development would be more comprehensive. This requires defining the technology value chain in terms of agro-biology; aligning crops and food processing with human physiology and disease pathology. A broader definition of technological power in the manners described is easier said than achieved.

Refocus versus defocus

Whenever major shifts in strategic perspectives and technological platforms take place, rather than address the shifts appropriately, such shifts are addressed stylistically than substantively. The former would hypothesize that automobile industry will in future be redefined as global navigation industry or dairy product industry be redefined as probiotics industry. Dramatic though it may seem and worthy of publication in HBRs, such presumptive portrayals of industry shifts represents defocus rather than refocus. The reason is that the core objectives of products do not disappear merely because of convergence of other functionalities. An automobile will never cease to be an automobile just because of the integration of leading edge electronics and global navigation technologies. A dairy product manufacturer cannot afford to redefine itself a dairy company or as a probiotics company just because dairy biotechnology has developed to let dairy products work as gastro-intestinal medicines. Google may not cease to be an Internet company even if it masters the driverless or self-driving car technology.

Extension and deepening of product capabilities by firms based on new technological capabilities needs to be distinguished from deliberate moves by companies from one industry to another (as was the case with Nokia, for example). For every firm which desires to be competitive, the passion must be not in terms of reinventing its industry roots but in terms of vitalizing and expanding the spectrum of technologies that can be embedded in its core products. As the simultaneous efforts by Google at one end and Toyota at the other end show, one may utilize each other’s products or capabilities but driverless car as a technological concept transcends companies. The same was applicable to robots whether developed by Honda or Sony; a robot is robot. The key point to note is that while it is the power of technology that redefines product capabilities it is the access to technology across the total technological value chain that redefines a firm’s capabilities. It is important firms to appreciate that while technologies can be integrated in a variety of ways two are the most important ones; each affording different opportunity - challenge profiles and different risk - reward profiles for different firms.  

Assessing and accessing 

It is easy to overdo the technology angle as much as under-do. There is a significant difference between technology cycle and product cycle. The first payoff for technology is in terms of a product embedding the technology. The payoffs for technology and product thereafter occur in layers, first in terms of sales, then in terms of profits and finally in terms of payback on investments. Depending on the industry, the payoffs from the first investment in technology to the final back could take anywhere between five to twenty years. Clearly, the volume base of new technology products determine where the payback needle would settle. We discussed earlier that the total technological power of a product is a sum of the parts. However, a technological value chain tends to be only as strong as its weakest link. A high performance formula car, for example, cannot survive on normal on-road tyre technology. In terms of quantification, a more powerful expression would be a multiplication of the technological indices of the individual parts of the total technology value chain. A firm would do well to completely define the technological value chain of its product, objectively index each part’s technological power and multiply all the indices to arrive at the total technological power of the product. Such analysis also lets the firm analyze the vulnerabilities across parts and measure the sensitivity to enhancements.

Clearly, it is a strategic necessity to ensure the full complement of technologies. That said, it is neither commercially appropriate nor practically feasible for firms to develop technologies across the total chain organically. What must be done, however, is to develop a few core technologies organically and access the best of technologies for all the rest. Accessing technologies in strategic partnership with firms ensures total coverage of the technology value chain. This requires creation of competencies in the firm to constantly scan the intellectual property landscape and hone in on the best alliances and licensing arrangements. Such competencies should include ability to continuously phase in new technologies across the value chain. Three dimensions are proposed to quantify this capability. The first is the ability to commercially upscale or downscale new technologies across the value chain. The second is the ability to upscale or downscale technologies to other products in the same design family. The third is the ability to embed the technologies of one product into other significantly different products.

Posted by Dr CB Rao on January 26, 2014

Technology Fluidics and Adaptive Agility: Markers for Competitor Analysis in the New Age

Competitor analysis is a key aspect of developing strategy for any firm. The subject has received considerable attention with the theory of competitive strategy propounded by Michael Porter. Definition of competition and competitors has acquired a new abstractness and challenge in the increasingly technology-driven world. The commonly used markers of competition of a firm, for example, are in terms of revenues, profits, growth, products or services, regions or markets and investments. Each of these can be assessed in terms of relative industry ranking, the most important one amongst them being relative industry market share. However, the breadth and depth of an understanding of competitors can be far greater in terms of comparative absolute and ratio analysis. In fact, analysis of each item of an income statement or balance sheet, on an item to item basis, can provide significant inputs to sharpening the competitive strategy of a firm. There is a strong view, however, that financial analysis of competition is of limited value, and real insights can be gleaned from a detailed product-market analysis of competition.

For a firm, traditionally the marketing department provides information on competitors’ new product launches and marketing moves. Similarly, the strategy department undertakes a financial analysis of competitors. Rarely, the research and development (R&D) departments are involved in regular competitor analysis. In matter of fact, there is a new dictum that neither launches nor performance offers sufficient understanding of competitor activity. Product pipeline and market canvas, as drivers of future performance, are perhaps more relevant. With increasing tracking of product and market development activities, and voluntary disclosures by firms to acquire anticipatory customer interest, analysis of future products and markets is more feasible today than it was a few years ago. An automobile maker, for example, has a preview of the concept cars proposed by its competitors, years ahead through international automobile exhibitions. Proliferation of the specialist magazines dedicated to specific product lines has enhanced such transparency even further.  The same applies to entry into new markets and regions as well.

Defining competition

Competition is usually defined in terms of industry players, industry being defined in terms of a type of product or service; for example, automobile industry, consumer durables industry, power industry, and so on. This carries with it the interesting and intriguing facet of industry boundary, which is interplay of technology shifts, consumer needs and player positions. The apparently simple way is to define an industry is in terms of its customers (product or service users) rather than a broad function (need fulfillment), recognizing that the same users can be catered to by different products or services. For example, bus industry and car industry are different because they cater to different users, even though all the users are individuals seeking transportation. Overlaps in industry definition are unavoidable on several dimensions. At one level, two wheeler industry and low cost car industry could be competing with each other, the level of competition depending on the product price or its life cycle operational cost. At another level, they can never be competitors as the products cannot be designed, manufactured or delivered using the same or similar infrastructure. Given this complexity, it may be appropriate to define the industry in three ways (besides the firm as a player); in terms of a product at a basic level, in terms of technology at a delivery level and in terms of functionality at a gross level.  

Typically, in a sunrise industry which is built by, and around, the innovator who would also be a monopolist, the word competition hardly exists in the minds of many players. This is actually a false sense of security; for, competition even in sunrise monopolist industries surfaces sooner or later. Competition emerges not necessarily in terms of followers offering the same products or services but also in terms of new players offering alternate products or services (or additional ones) that make the innovator product or service less preferred or simply less competitive. The movement of external memory from floppy disk, through CD and DVD to flash memory is an example.  It emerges from the above discussion that competition, in the contemporary and futuristic environments, tends to be more abstract and more ubiquitous than ever, with competitive triggers emerging from diverse sources and translating into multiple forms. The traditional form of competitor analysis limited to an industry or sub-industry and a few players is hardly of sufficiency nowadays. Google as an Internet giant, pioneering products of futuristic technologies such as driverless cars, vision glasses that act as computers and cameras or contact lenses that act as continuous diagnostic devices, is a perfect example. This brings us to the question of technology as the central driver of competition; technology that can manifest itself in terms of any component or subsystem, and can be embedded in a restructured product.

Disruptive competition

Competition tends to be an endless continuum. The case of the watch industry is an interesting one. The initial threat for the handmade, hand-wound watches was the self-winding automatic movement. The introduction of quartz automatic movement provided the first serious competition based on the discontinuity of technology. The emergence of electronic movements posed the next serious threat. The watch industry weathered the storm by reinforcing the handmade quality to retain the watch as a fashion accessory while simultaneously integrating the electronics and perpetual kinetics to provide contemporary timekeeping perfection. The emergence of cellular phone with its time display made watches redundant for certain sections of the population but the recent emergence of smart watches aligned and locked into cellular phones is poised to bring watches onto a new plane. At this stage clearly, hand or machine made electronic watches and machine made, mobile phone mated smart phones are at two ends. It is conceivable that the watch industry would once again reinvent itself by integrating cellular smartness in its artful designs so that the future watches are communication smart with fashionable art.  Even more profound has been the competitive landscape in the handheld camera industry, from camera film to digital photography of varied sorts, and digital camera technology getting embedded in cellular phones for instant transmission and cellular technologies getting embedded in digital cameras.    

The forces of competition, of course, engulf different industries in different manners. The devices in the traditional category of largely mechanical or electrical devices (for example, automobiles or machine tools) are slow to get disruptive competition. The competitive landscape for the firms dealing with this class is easily tracked through conventional product-market share analysis of individual players. The class of electro-mechanical devices (for example, photocopiers, scanners or diagnostic devices) is prone to periodic bursts of disruptive competition. The competitive landscape for the firms dealing with the class is tackled though product-technology based analysis. The pure electronic devices (computers, smart phones, tablets etc.,) characteristically live in a technical environment of continuous disruptions in technology on one hand as well as continuous convergence and divergence of product functionalities on the other. This class of products also has the additional facet of different operating systems that determine the internal and external efficiencies of such devices. The competitor analysis for this class of products is indeed complex, and needs to be sliced on several dimensions, based on form factor, predominant product characteristic or operating system, for example. Given the agility with which product characteristics move based on multiple technological platforms, competitor analysis for manufacturers of this class needs to focus on the overall technical power of such firms, and the overall synergy of constituent product groups.

Technology fluidics  

The domain of strategy has mobility barriers as an interesting concept for determining competition. The theory classifies firms into strategic groups, and firms’ ability to move across strategic groups in response to internal and external factors is said to be based on mobility barriers across groups. Mobility barriers, themselves, are linked to scale and scope related to investments. If mobility barriers are low, firms are tempted to compete in multiple product-market segments, enhancing competitive intensity. Even more fundamental, perhaps, is the fluidic ability and adaptive agility of technologies to be deployed on multiple classes of products. For example, if flexible touch screen technology can be adapted to a huge range of screen sizes, say from 6 inches to 120 inches (diagonal) it could result in a massive transformation in display capabilities of an entire range of electronic devices. Use of Xenon flash or point and shoot SLR/DSLR technologies in camera phones and video recorders is an example. Use of sensors in any equipment from vacuum cleaners to assembly lines and from machining centers to robots is another example. The more is the discovery of platform technologies like nanotechnology, the greater would be the potential application across products and industries.

The fluidic ability and adaptive agility of any new technology is measured on two dimensions. The first is the months taken to commercially upscale or downscale any new technology to other devices in the same design family. The second is the months taken to embed the technology of one device into significantly different device. Traditional strategy theory has positioned technology as a core competence and collaborative factor. The more relevant theory would be to view all technology that is outside of a firm’s intellectual ownership or commercial access as being a potentially competitive force. Technology, being an embedded invisible platform, is abstract to identify in terms of commercial potential and feasibility. While Porter’s Five Forces theory considers technology as a competitive force, it really depends on a physical surrogate (ie., substitute products) for identification. This approach would be too late a stage approach for competitive analysis. The more relevant approach is to analyze competition in terms of technology share. An insightful understanding of technological competencies of a firm constitutes the marker for competitor analysis. A forthcoming blog post of the author will propose a conceptual and analytical framework to understand and potentially quantify technological competencies of a firm, in an industry context.

Posted by Dr CB Rao on January 19, 2014

Management & Leadership (M&L) at the Cost of Science & Technology (S&T): Time for the Former to Cease Piggybacking and Commence Standing Alone

From being a staid domain a few decades ago to becoming a fancied domain, management & leadership (M&L) have emerged as gateways to career progress and organizational ascendancy, even to scientists and technologists. Despite any number of achievements in science & technology (S&T), such as the successful launch of indigenous cryogenic space rocket by the Indian Space Research Organization (ISRO) and the national pride and international recognition such scientific and technological achievements bring to India, there is no let up in the preference for management and leadership courses, both in pre-career and in in-career stages. While the educational and course preferences tend to be a matter of supply and demand as well as job potential, an emerging economy such as India cannot afford to leave the knowledge dynamics entirely to market fancies. A nation will have a true meritocracy when domains are geared to continuously develop new knowledge, and to continuously expand the body of the overall knowledge base, in the process integrating the new knowledge and making the existing knowledge contemporaneously relevant.

 The craze of sorts for M&L, which essentially meant students and professionals moving away from further specialization in S&T courses (at post-graduate or research levels) to M&L courses (at post-graduate or fellow levels), has made advanced countries lose their some of the competitive edge.  It has prompted some of such countries to welcome overseas students and professionals from S&T streams into their nations. Emerging countries such as India and China benefitted from the importance given to S&T in their curricula. Amongst all the Asian countries, including China, Japan and Korea, only India has favored the growth of M&L streams to a great extent, essentially as an offshoot of adopting the Western education model. While this need not be disparaged, movement of top-flight talent from S&T to M&L needs to be discouraged. S&T, rightly so, have higher entry barriers for learning and mastery, compared to M&L. Lower entry barriers to learning coupled with higher job opportunities could lead to distortions in India’s talent pool and industrial endeavors, particularly at a time India requires the ultimate push to become an economic superpower.  To restore S&T to pride of place, the proud facets of being an S&T professional need to be understood by students and educational institutions, and recognized and rewarded by industrial organizations.

Touchstone of solidity

Any knowledge domain that raises expectations has to eventually live up to the expectations of contributions to society in terms of the domain knowledge and its technological applicability.  S&T undoubtedly qualifies as a critical knowledge domain under this criterion. The body of knowledge under S&T continually grows, oftentimes in exponential spurts, transforming society and quality of life. The S&T knowledge is an eclectic combination of principles, laws, logic and mathematics, leading to quantification of physical, chemical and biological models.  There is a true and sustainable correlation between publications, patents, theory and practice in S&T, making them truly holistic knowledge domains. Science creates theory out of experiments and uses experiments to validate theory. Technology applies science to design, manufacture and deliver products or services.  In contrast, the body of knowledge under M&L seems to increase at best once in a decade, and the total body of knowledge of the last several decades of organized M&L can be summarized under a handful of concepts. The M&L knowledge is predominantly based on behaviors and couched in linguistic expressions. The real expansion of knowledge in M&L, which is very low relative to S&T, is magnified by rather creative expressions and sporadic case analyses; very little is based on statistically representative research. Management creates repetitive theories on age old principles like planning, organizing, staffing, directing, coordination, controlling and budgeting. Leadership looks at personalities to weave modeling theories around stylistic syndromes.

S&T requires M&L for optimized commercialization but not necessarily always. Without S&T, however, M&L is completely superfluous; in fact, M&L is purposeless without S&T. Whether companies that wade through financial management or countries that are resurrected after economic collapse, they are dependent on science and technology. If New Delhi’s T3 airport of yesterday or Mumbai’s T2 airport of today received rave reviews, despite managerial delays, the technological concept and execution grandeur are responsible in no small measure. It is somewhat of a misrepresentation that S&T and M&L are distinct, and it is an even more of misrepresentation that S&T requires M&L to optimize itself. S&T approach which is based on review of current knowledge, logic of new hypothesis and validation through experiments has the basic managerial principles integral to the approach. S&T, once established, accepts no ambiguity. The basic principles of S&T whether it is the Periodic Table of Elements, the Boyle’s Law or the Iron-Carbon Diagram, do not change over time. S&T is absolute in a universal sense. A deep sense of review and a tremendous level of experimentation make the principles rock-solid. In contrast, all M&L principles are contextually flexible and iteratively reversible and merely firm-specific or person-influenced (for example, integration is good for some, integration is bad for some; conglomeration is good in the 1950s, bad in the 1980s, again great in 2010s, and so on).

Linear versus circular

Science and technology have a linear (and exponential) development track. Each S&T development builds on the past for a new future, rather than revert to the past. Management and leadership, in contrast, are steeped in rediscovery.  From time to time, old M&L concepts are simply refurbished and repositioned, from time to time. The flight of talent to such refurbishment and repositioning of management and leadership instead of staying with science and technology is a matter of concern. Having attracted such S&T talent, the inability of the M&L domains to become linear and exponential in genuine knowledge accretion is a matter of greater concern. The question that dispassionate analysts face is whether M&L streams contribute materially relevant value or just add some transient flamboyance to basic S&T. The first two decades of independent India had no institutes of management or even business management courses, yet the country saw significant industrialization. The best of India’s talent went into the graduate engineer schemes of technological giants. The strength of these industrial undertakings today is based on these talented scientific and engineering corps which grew the companies and grew with the companies. Officers of the Indian Administrative Services were some of the best managers and leaders then. One would like to see better value addition from the proliferation of M&L streams.

This phenomenon of early stage fundamental development on the base of science and technology is common to technology leaders of America, Inc as also to several Asian countries, such as Japan, Korea and China. From the early Toyota Production System that originated on the automobile shop floor to the Minimalist Design Philosophy that emerged from classy electronic devices, it is science and technology of design, manufacture and delivery that has been presumptively positioned as management and leadership models. From time to time, newer phraseology such as lean, six-sigma is used to reposition the philosophy of ‘minimal input-maximal value’ that is inherent at each level of S&T through the ages. Even the interpersonal facets of M&L are just simple principles of balanced living that are ingrained in the spiritual and philosophical treatises of various religions from times immemorial. The relative paucity of new M&L thoughts is due to the limited nature of enquiry, which is confined to the four types of human-machine interfaces; human-machine, machine-machine, human-machine and human-human. S&T, on the other hand, is in an endless pursuit of seemingly inexplicable and indeterminate natural phenomena, in terms of physical, chemical and biological models of the universe. The greater the talent concentration on S&T, as opposed to M&L, the greater could be the value generation and wealth creation in a nation through the unraveling of the natural mysteries and discovery, and subsequent perfection of solutions for them.

Rediscovering M&L  

To be fundamentally value-accretive and practically effective, M&L have to be considered as subservient adjuncts to S&T domains rather than as substitute or revisionist superior domains. The key M&L learning factors need to be integrated into S&T curricula. As part of several decades of practical experience, the author of the blog post has had the occasion to interact with hundreds of management graduates, managers and leaders employed in industry or services sectors; not one has admitted to have implemented the courses taught in the two year management programs, be it, for example, advanced statistics, operations research, portfolio theory, signaling theory, reliability models, and the like. Given that the engineering degree program in India is of four years durations, it makes little sense to unlearn the core S&T and spend another two years in learning fancied M&L, most of which it is never applied in any case. Given that good management and leadership is an integral part of science and technology, it would make better sense to integrate certain core management and leadership subjects, not exceeding eight in number (one in each of the eight semesters), as part of S&T domain learning. These could be statistics, economics, accounting and finance as the four core subjects, and operations, marketing, strategy   and responsibility as the four application subjects.    

Those who are committed to M&L as their life’s passion must be prepared to go through the full five year professional certification programs in management and leadership, as economists, mathematicians and accountants go through. Only then, the exponents of management and leadership, whether in academics or industry, will be challenged to develop and grow as a self-sustaining discipline rather than as a discipline that piggybacks on other disciplines, and unwittingly makes the core disciplines ignored. M&L as a stand-alone discipline will have its own research and self-development paradigms, to be relevant to the nation as a separate knowledge continuum. This, coupled with the earlier proposed strategy of graduate and post-graduate S&T programs being self-sufficient with their basic M&L knowledge, would ensure that the investments made in S&T are preserved and flight of talent from S&T is avoided. Many institutes and universities making hay on capstan management programs will be disappointed with this approach but India, as an emerging nation, will immensely benefit from S&T investments, in both education and industry, fulfilling their potential. Probably, the famed IIMs can take the lead by stopping piggybacking on the IITs for the core talent with their two year MBA programs, and start standing alone in the fields of management and leadership through new five year integrated MBA programs.

Posted by Dr CB Rao on January 12, 2014