Balancing Golden Glitter and Economic Flutter: A Framework of Industry Structure and Competitive Strategy

Gold, the king of precious metals has many sayings around it. The more famous ones, probably are the following: “Old is gold”, “All that glitters is not gold”, “All that is gold does not glitter”, “If gold rusts what then can iron do?”, “Silence is golden”, “Truth, like gold, is to be obtained not by its growth, but by washing away from it all that is not gold”, “Fire is the test of gold; adversity, of strong men”, “As every thread of gold is valuable, so is every moment of time”, “More gold has been mined from the thoughts of men than has been taken from the earth”, “A mask of gold hides all deformities”, and “It is health that is real wealth and not pieces of gold and silver” (the last one attributed to Mahatma Gandhi).

All the sayings and proverbs on gold reflect the precious and adored state of the special metal. Gold has been an object of adornment and allure as well as trade and economy for India from ancient times. While the Vedas spoke of gold, historians wrote about Indo-Roman trade in gold (imports into India) and diamonds (exports from India). Archaeologists spoke of gold and diamond mining in certain regions of the country. Kings’ treasuries as well as commoners’ homes were having gold as the principal security. Even more importantly, gold has been an integral part of the Indian ethos of religion and marriage and the mystique and charm of Indian women. Crafting of gold into ornaments was a highly skilled vocation of goldsmiths who were essential members of every living community. And, through the ages, it has been the safe haven of domestic investment that insulates families against economic crises.

Oiled glitter

Like with everything, modernity has transformed the way how gold is made, consumed and stored in the country. Increasingly, streets of Indian cities and towns are getting dedicated to gold shops (and other precious metals too, of course). Shops for gold have become household brands. Several tonnes of gold probably lie in these mammoth gold malls as elegant as well as ostentatious ornaments. Less gold is recycled in India (at 15 percent compared to 33 percent globally, approximately) and incremental consumption (and hence incremental import) is hefty. All that would not be of much concern had it not been for the fact that gold accounts for a significant share of India’s current account deficit. And, India needs to control its current account deficit (CAD) if it has to be economically competitive internationally. No wonder that successive governments have tried to address the gold consumption issue in India, but to little avail!

Gold, in modern economy, is not just of ornamental value. Of the 4,000 MT of India’s gold demand in 2014, 58 percent went to jewellery and 10 percent to technology (mainly electronics) while 43 percent was consumed as gold bars and coins and 10 percent as central bank purchases. Positive investments of 20 percent were cancelled by an equivalent negative growth in exchange traded funds (ETFs). At around approximately 1,100 MT each, India and China seesaw as the largest consumers of gold around the world. India’s households are estimated to hold 22,000 MT of gold as per a BCG Report for World Gold Council. India’s gold imports at around 1,000 MT each year contribute to a major share of India’s CAD, apart from oil and petroleum products. India’s CAD peaked to 6.7 percent of GDP in Q3 of 2012-13 but declined to 1.3 percent of GDP in 2014-15 due to the tumble in oil prices (was 4.7 percent of GDP in 2013-14).

Policies galore

From the time of independence, successive Indian governments had been trying to curb the personal consumption of gold. The most striking acts have been from the Union Government in the 1960s. Morarji Desai who was the Finance Minister then passed the Gold Control Act 1962 (since repealed in 1990) which recalled all gold loans given by banks and banned all forward trading in gold. He also banned production of all gold ornaments above 14 carat fineness and launched the gold bond scheme. All these measures, however, did not make any material difference to consumption of gold. When India was almost in default on external liabilities in the early 1990s, the government had to pledge 40 MT of its central bank gold reserves with the Bank of England and saved the day (along with other measures such as devaluation of the INR and economic liberalization). Imports of gold were allowed to be made with an import duty. Gold imports continued to surge, post-1990s but at least the official market for gold began dominating the unofficial market which ruled the roost in the 1960s, and up to the 1990s.

The UPA government, alarmed by the surge in gold imports up to USD 50 billion contributing to 3 percent of GDP, imposed a 10 percent import duty on gold imports in 2012. In August 2013, the government introduced an 80:20 rule by which the importers were required to export 20 percent of their imports as value added exports. This rule was revoked by the NDA government in December 2014, possibly buoyed by the sharp decline in the prices of imported crude and the sharp decline in CAD. In a more progressive effort, the NDA government in the Union Budget 2013-16 has proposed certain measures to monetise the huge household gold reserves. Finance Minister, Arun Jaitley has proposed gold deposit accounts and sovereign gold bonds as well as minting of coins with Ashok Chakra to monetize gold and provide equivalent value circulation and household storing of paper than gold.    

Global allure

It is probably incorrect to consider that only India has the allure for gold, and only the Indian economy is impacted by gold; it has indeed been a global phenomenon. The fact that China has been a marginally larger importer and consumer of gold without any of the traditional allure and sense of security that Indian society has is proof enough of this. Not many may remember, but US dollar until August 1971 was freely convertible to gold! President Richard Nixon’s landmark decision to stop the dollar-gold convertibility led to a weakening of US dollar and a rally in the price of gold which reached a peak in January 1980. Since then, every appreciation or depreciation of the dollar caused by global economic events led to a corresponding weakening or strengthening of gold, consistently. In September 2011, gold reached an all-time record peak of USD 1921 a troy ounce. Since then, as the dollar began to strengthen again, the price of gold has fallen to USD 1100 per troy ounce.  

Although dollar is expected to further appreciate over the next few months, gold is expected to hold reasonably well for the next cycle despite the plateau in production. Gold bugs as well economists agree that it would be difficult to dislodge gold’s position as the ultimate personal investment and all-season safe haven. The next boost for gold could come from a hitherto totally unanticipated source: the upcoming Apple Watch! In a bid to position the Apple Watch as a luxury accessory, Apple could liberally use gold in the watch and become the largest single consumer of gold. Assuming Apple Watch Edition requires 2 troy ounces of gold, the anticipated production of 12 million watches per year would require 24 million troy ounces, or 746 metric tonnes of gold, which will be 30 percent of global mined production! Not to be outdone, other watchmakers may resort to use of gold in their watches leading to an exponential growth in the demand for gold.

Fiscal vs Strategic 

If these demand trends do materialize, there would be an upward shift in the price of gold which coupled with dollar appreciation could pressure India’s CAD as never before. Given the unshakeable role gold plays in the socio-economic firmament of India, consumption may never be curtailed. Whether only fiscal approaches could address the unravelling situation is a moot point. The author proposes that an approach of competitive strategy and structural management of industry could provide a sustainable solution. The gold industry is not a small industry; it has high turnover wide reach, and  is on par with industries like information technology and apparel in earnings and employment. A structural and strategic analysis of the gold industry is well-merited. Such an analysis would lead to five drivers of competitiveness, with significant socio-economic benefits for India as below.

1.      Make to order

The most effective way to bring moderation and efficiency in the Indian gold market is through neither design nor manufacture; it is through curtailing mindless retailing of gold! Contrary to popular perception, the largest stockpiling of gold occurs in the several thousands of shops that stock and sell growth. One has to visit any of the upmarket gold shops to see millions of rupees locked up in gaudy and heavy ornaments. There seems to be no end to the gold retail mania because gold, as a product, has no shelf life (no deterioration, ever!). There is little incentive, therefore, to have any just-in-time stocking policy or frequent turnover of jewellery. Quite possibly, non-moving jewellery could be reformulated to newer designs compounding wastage and pushing up costs and prices. Probably, there is a case to ban physical stockpiling of gold ornaments above a particular value per category so that a low-inventory, make-to-order system develops.   

2.      Technology for the SMEs

The next important step would be to make manufacture efficient and productive. Traditionally the gold and jewellery segment has been in the small and medium enterprise category. This has enabled lower overheads but also resulted in lower manufacturing efficiencies. There is a need to announce a duty and tax free technology upgradation scheme for the gold SME segment covering gold refineries, laser cutting and polishing machines and metal forming and grinding machines as well as tools and dies. It is not necessary for this approach that the industry structure should be skewed towards large firms; instead technological depth in SME sector could make the gold industry a role model for other industries in India.

3.      Computerized design

The gold jewellery in India has spawned multiple design formats, more particularly with the emergence of the larger branded stores and companies. However, factors like weight to strength ratios, low wastage designs, modular components, high strength-high flexibility joineries, and alternative fashion designs need to be incorporated with computer aided design capability. This may require specialized computer programmes and customized computer infrastructure. A major emphasis must be on design and manufacturing process technologies that reduce wastages to no more than 3 to 5 percent as opposed to current 15 to 20 percent. Needless to say, this measure could provide more disposable income in the hands of consumers and also reduce the costs of inventory and inventory holding.

4.      Incentivized recycling

It is known that recycling of gold in India is at half of the global level of 33 percent. Transparency and equity in valuing old ornaments together with a drastic reduction of taxes on new ornaments bought in exchange for old ornaments could go a long way in improving the recycling share. A major barrier to recycling would seem to be the sentimental value associated with retaining old ornaments across generations. While there cannot be a financial incentive to substitute the sentiment, the recyclers could offer some scaling up of incentives for the older generation ornaments.  Modernization and optimization of design, manufacturing and retailing must be accompanied by national and international certifications, including ‘hallmarking’.

5.      Financial instruments

Unlike in most countries, In India, gold is used to almost an equal share for investment purposes. If at least this portion is monetized, not only the imports would be reduced by half but also there would be multiplicative flow of money which can be ploughed by the banking system for the much needed funding of the gems and jewellery industry. Apart from issue of sovereign gold bonds as proposed by the Finance Minister, converting of physical gold locker accounts into virtual gold banking accounts and convertibility options for gold traded funds could be considered.    

Glitter without flutter

The Indian gold industry, together with the gems and jewellery segments, is a very important industry in India. With a turnover exceeding INR 260,000 crore and employing 2.5 million currently, and with potential to double to INR 500,000 crore and add another 1.5 million jobs in just 5 years, the industry is one of the most vibrant sectors of Indian economy. It is on par with automotive, information technology and apparel industries in its socio-economic dimensions. The two issues of locking up of gold inventory and impact of CAD need to be tackled with novel approaches. The entire gold value chain consisting of imports, domestic mining, refining, design, manufacture, retailing and recycling needs to be addressed holistically.

The Indian gold industry would benefit from an incisive structural and strategic analysis, as illustrated to some extent in this blog post’. The industry requires a ‘made to order’ pull type demand and supply chain system that minimizes inventory rather than a traditional ‘see and select’ traditional retail marketing system that maximizes inventories. If new gold mines could be discovered, it would be a great bonus. It is also important to recognize the intertwining of gold-centric investment and financing in rural and indigent sections of the Indian society, and create exclusive gold branches or cells to provide a more contemporary and congenial vehicles for India. The five dimensional structural and strategic paradigm as described herein would make the typically Indian socio-economic fantasy of gold an economically beneficial social reality.

 

Posted by Dr CB Rao on March 28, 2015 

Microsoft’s New Operating Strategy (OS) Mindset: From Innovator Exclusivity to Generic Convertibility to Indian Ubiquity!

There are no two opinions that the phenomenal growth of Apple led iOS and iOS devices and Google led Android OS and Android devices have dealt a significant blow to the dominance of Windows as a once-monopoly operating system, and also started raising questions on the rigid coupling between computing devices and Windows software. This challenge to Windows and Microsoft hegemony has not been helped by Microsoft’s inadequate response to the mobile smartphone revolution in terms of delayed development of Windows (or any other OS) for mobile devices. Microsoft’s exclusive tie-up with Lumia for dedicated Windows based phones and the subsequent acquisition of Lumia mobile devices business have not helped in any dramatic manner either (as yet).

There are always critiques who try to predict the end-of-the-road for monopoly technologies and inflexible business strategies which have been slow to recognize the changing ecosystem. Such firms, instead of changing their strategies and products (or services) to cater to the new ecosystem, try to defend the established business models and product offerings but eventually fail to stem the tide. As version after version of Windows is developed and as the new Microsoft devices (whether the Lumia smartphones or Surface tablets) continue the attempts to make it big, the question is whether Microsoft is immune to the risk of business model decadence. The question assumes even greater significance as the latest version of Windows OS, Windows10, is getting ready to be launched.

The new Microsoft

Ever since Satya Nadella has taken charge a little over a year ago as the new CEO of Microsoft, there has been a palpable change in Microsoft strategies. Some of these relate to announcing of unlimited free cloud storage on Office 365, development of connectivity between Dropbox (a Google product) and Office 365, and offering of more effective and productive Office Apps for Apple’s iPhone and iPad. Azure, the cloud based software has been set for continuous development while Skype and other apps are also actively developed for all devices. The new Microsoft under Nadella has started recognizing its major competitors as likely unintended partners in its new quest for device-agnostic software acceptance. Clearly, in the new strategy, higher pricey software sales has become less important than more open acceptance of its once highly proprietary software.

Microsoft’s devices and tablets business has also been doing better, with the smartphone business focusing on the low price endpoints with multiple Lumia smartphones and the tablet business focusing on high end Surface tablets. Microsoft is also trying to broaden its appeal to youngsters and gaming addicts and virtual reality fans who may not care about Windows and Office at their stage of life. Building on its organic success of Xbox, Microsoft has moved inorganically too with the purchase of HoloLens and Minecraft with an eye on the future. HoloLens is the futuristic 3D holographic virtual reality headset, compatible with all systems. Minecraft is more than a game; it is a cross-platform community with a huge cloud component.  In addition, despite the virtual failure of Windows Vista and lukewarm success of Windows 8, the new Microsoft has not drawn back from launching its most audacious software development ever, Windows 10!      

Windows 10

If Microsoft is to be believed, Windows 10 is more than just a major software upgrade; it is a transformative operating system for Microsoft. Technology magazines are agog with 10 top features of Windows 10 that are announced (and another 10 top features not announced!). From all this promotional material, one can identify certain unique characteristics of Windows 10.  Primarily, it is cloud-centric, pan-device and cross-platform. It is touch (new Start menu) and speech sensitive (improved Cortana), with an inbuilt ability to adjust itself to different types of devices (Continuum); from smartphones to desktops and 2 inch screens to 84 inch screens. New browser (Spartan), new Outlook and new Xbox applications are also proposed. Commercially, with these features and more, Windows 10 is proposed to be offered free, at least for Windows recent version users and for the first year to start with.

More than all these features, the attempt by Microsoft to convert phones operating on Android system to a version of Windows (in association with one device manufacturer, initially) is an interesting play. Potentially, this may be extended to iOS. While it is too early to comment on what IP and patent related issues, this is a bold new stride; from offering Windows Apps like Office and OneDrive to Android and iPhones to convert alien operating systems into Windows own. Whether the convertibility option is superior to encouraging device makers to offer Windows based phones is for the future to judge but in the realms of contemporary business play the convertibility strategy is certainly a novel option. This is not without its risks, however, there is no guarantee that it can fit all devices smoothly and seamlessly, and also that the costs and experience will be any better. Apple and Android may not plan a counter-strategy given the low share of Windows OS devices but the risk would still remain.

Convertibility strategy

The convertibility strategy has probably some similarities to the strategies adopted by retailers of multi-brand and own brand franchising. It has also some parallels in after-sale service. In manufacturing and products, broadly speaking, there is no history of convertibility option as proposed for Windows. It could be outlandish and over-expensive even to think of it in such domains; like one automobile maker retrofitting its “superior” engine in another competitor’s automobile! The larger issue here, probably, is the attempt to draw users to a larger unified ecosystem. Whether it should be done through the way Microsoft now proposes or through the integrated elegance route of iOS and iOS devices as Apple has always done is a moot point at this stage. Microsoft has little to lose but a lot to gain by the convertibility strategy.

That said, as the importance of operating systems in products grows, the possibility of convertibility strategy could increase. As automobiles become driverless and self-navigated, Microsoft, Apple and Google could be the three players pitted against each other to control the new generation automobile development. The success that may be scored by Microsoft in the Windows 10 conversion strategy may hold some pointers to future successes in other more challenging arenas. One may think of home appliances, audio and video equipment, and remote home management systems as potential areas for the convertibility strategy. The convertibility strategy may bring to the fore once again the risks and benefits of open source versus proprietary operating system development and the defences against portability without restraints.

Competitor as customer

At a more philosophical plane, the unravelling Microsoft strategies bring forth the concept of ‘competitors as customers’. The advantages of the philosophy are that it provides economies of scope for key functions such as R&D and manufacturing, and also helps in the development of hybrid components and systems that integrate the superior systems of competitors. While firms may be initially dismissive of this concept, there is no reason why this cannot be a viable concept at least in the maturity and decline phases of the industry players. As an example, the two truck makers of India who are battling out for decades with independent designs from bolts to drivetrains but with little change in the market share over the long decades may opt for internal convertibility to bring down costs dramatically.

Domestic airlines, which are in the fragmented and declining phase, could also benefit a lot by making planes, aircraft maintenance and ground services portable across the carriers. Rather than drive down fares to completely unviable levels to boost capacity utilization of individual planes and routes of carriers, the carriers can operate at viable fare levels and have infrastructure portability to serve the customers better. While excessive collaboration amongst competitors may raise cartelisation fears, oversight by regulatory bodies and metrics of customer satisfaction could be certain moderating factors. In fact, there could be a counter-hypothesis as to whether competition without tangible differentiation is not worse than a monopoly with robust product specifications and service characteristics.

Indian ubiquity

While examining the Microsoft convertibility strategy, one may marvel at how India offers a fascinating spectrum of commonplace convertibility or portability; call it Jugad or otherwise. We have a mobile micro-sim card being precision-cut with scissors to convert it into a nano-sim card for the new generation phones! You may find a Maruti car spare part being customized for a Hyundai small car in a workshop specializing in the service of Toyota cars!!  More (intellectual) options could come up in the Indian context, in future. Indian higher education system is famous for certain overarching brands; Indian Institute of Technology, Indian Institute of Management, Indian Institute of Information Technology, Indian Institute of Science Research and Education, for example. While the admission to each Institute is governed by a specific common entrance test, once admitted in a particular location-specific institute the student would have to stay with that institute all through. There could be convertibility options across locations and branches under each overarching brand, something which a Harvard and Stanford can never hope to achieve as they try zealously to defend their distinctive identities!!!

Lighter vein discussions apart, the current and likely commonplace examples of India suggest the great Indian intellectual ubiquity; an openness to accept any proposition, an enthusiasm to deliver on anything and a willingness to fit into any culture. This ubiquity, if channeled in intellectually constructive modes focused on technology, quality and compliance, could deliver from and for India a host of Microsoft Windows 10 like or even superior convertibility options. This is because, the operating system convertibility is not a software challenge; it is a strategic mindset shift (it is a moot point if Satya Nadella being an Indian has helped in this new flexibility at Microsoft). If Windows convertibility is viewed as a mere software issue, we have already many App developers who straddle multiple platforms and devices, the latest being Star India’s mobile application, Hotstar, which achieved 10 million downloads in just 40 days, and is claimed to be capable of running on as many as 7,000 variations of operating systems and screen sizes. What matters is the strategic mindset that enables a firm develop a universal and standardized ecosystem for the customer that promises to the customer a true hassle-free convertibility and portability of low-cost and high-value user experience.

Posted by Dr CB Rao on March 22, 2015

Product Renewal through Technological Resurgence: When Past is the Future and Legacy is the Discovery!

It is generally believed that new technology not only makes older technologies inefficient and inappropriate but also makes whole product lines obsolete. There have been many case studies of products that have become obsolete by the sheer march of technology. Mechanical watches by quartz watches, ink jet printers by laser jet printers, fountain pens by ball point pens, hand telephones, calculators, cameras and navigation systems, all by cellular phones, physical publishing by digital publishing, corner bookstore by online bookstore, telex by fax, mail and fax by Internet, and so on. Almost all of these have been driven by revolutions in electronics, telecommunications and software technologies. If such changes have not been more universal (for example, X Ray not getting edged out still by CT Scan), the costs alone could be the deterrent.   

The upcoming Apple Watch is another perfect example of a disruptive technology in wearable computers that could change the way smartphones and health devices are positioned in future. Interestingly, this technological trend may not leave even very traditional and mature products such as automobiles untouched.   The fascinating point in all this technological revolution and product obsolescence is that the basic needs that were fulfilled by the earlier generation products continued to be required. Things like timekeeping, printing, writing, voice communication, photography, navigation, book reading, mail communication, other non-voice communication, and medical diagnosis are still required. Technology’s ability to converge more applications into one device or one medium has contributed to this transformation.

Technological resurgence

Established technologies, and hence established products, may be overtaken by newer ones; however, nothing prevents them from staging a comeback. The case of Seiko Epson, the famous Japanese printer group is a case in point. The company, under the stewardship of Minoru Usui san, took a bold step in 2006 to refocus on ink jet printers despite the likely advent of a paperless digital office. Not only did he focus on ink jet printers, in preference to laser printers that are considered to be technically superior, but also shifted focus from consumer markets to business markets. This has been made possible by a technological stride in print head technology patented by Seiko Epson that enabled high accuracy in firing the ink droplets and thus securing higher print quality. This was also accompanied by a different bundling strategy for the marketplace that enabled his high cost printers featuring big tanks accept cheaper inks from any brand.

Similar technological resurgence has been behind the Swiss watch industry, which recovered from the shock of piezoelectric quartz watch technology by a refocus on its precision design and manufacturing capability on one hand and by integrating multiple drive options from mechanical to quartz to light powered and radio powered movements in watch design and manufacture. This was also accompanied by redesign of watches to appeal to customers belonging to different demographics and professions, including youngsters, students, sportsmen, professionals and seniors. There has also been a very successful effort to position watch as a luxury product, with an additional ornamental value for the ladies watches. The case of the fountain pen is also one of similar comeback, from a mass writing instrument to one which is rendered obsolete by ballpoint pen and which finally staged as a gallant comeback as a luxury writing instrument.

Basic needs

It is important to recognize that technologies may come and go but the basic objectives of all technological developments would be to fulfil certain basic needs in an ever better fashion.

As long as writing exists, the need for writing instrument exists. Many thought that personal computers have rendered typewriters irrelevant, and along with traditional typists. True, but typing itself has never gone out of need; in fact, typing has become a universally required skill and physical keys of a typewriter got replaced by a computer keyboard, followed by a BlackBerry keyboard, now followed by a virtual keyboard. The same type of product reinvention cycle can be seen across products. At the core of such renewal lies the relevance of technology in enhancing user experience even for basic established needs.

Successful technological resurgence would depend on multiple factors: the scope for the old generation technology to be upgraded, the opportunity to extract incremental value from the technology, the costs and benefits of breakthrough innovation vis-à-vis incremental innovation, the potential to integrate supportive technologies, the ability to re-segment the markets based on new technologies and products, the possibility to reposition and rebrand through ‘retro’ features, the adaptive nature relative to the Internet technologies, and so on. Not all later stage technology would result in more expensive products. For example, Swatch watch used inexpensive quartz technology to provide to youngsters inexpensive watches as fashion accessories. It is important, therefore, not to discard any product or banish legacy technology simply because a new technology has arrived. 

Market redefinition

The key to re-emergence of legacy technologies for renewing products lies in the ability to redefine markets. It also requires redefining competition. The relevant case is that of fountain pens. The industry possibly sold several hundred million units each year in the 1950s but by the 1970s the annual sales dwindled to a few million units due to the advent of the ballpoint pen. Today, possibly in unit volumes the same level is being maintained but in dollar value the turnover of the industry multiplied – the reason being that the fountain pens are now being marketed not as utilitarian writing instruments but as nostalgic luxury accessories. It is not that technology was passive in this process; from finely honed gold nibs to lacquer finish cases, new technology did give luxury touch to the renewed fountain pen drive.  As a result, fountain pens and ballpoint pens now operate in two distinct market segments. The same could happen to radios and record players.

The case of Seiko Epson also demonstrates how technological resurgence gives confidence to redefine markets. Given the lower print quality and lower price point relative to laser printers, ink jet printers were ideally positioned for the cost conscious consumer markets and the laser printers for the office market. However, on the back of energy efficiency and comparable print quality, Seiko Epson could do the contrary market positioning for its new series of ink jet printers focusing more on business users successfully. The likely future market definitions could be even more disruptive; from simple definition on the basis of a spectrum between mass consumption and luxury use, future products would have very novel redefinitions. For example, shoes in the past moved from being classified as business and casual shoes to application oriented shoes (running, jogging etc.). Tomorrow, if a smart chip can be embedded in the sole of a shoe, shoes may get stratified into health shoes and routine shoes!

Human factor

The temptation to discard legacy technologies could be easy to fall for executives and companies but the grit to re-develop and re-deploy legacy technologies requires strong human faculty. Fundamentally, it starts with the resolution of the apex business and function leaders to preserve the institutionalized value of technologies until the time comes to merge new technologies. This also requires preserving the technicians and workforce that grew with and lived in/with the legacy technology. There is an interesting anecdote on this. When Zenith, a Swiss watchmaker was buffeted by the quartz onslaught, it like many Swiss mechanical watchmakers decided to discard all its production tools, including critical molds and dies. However, a veteran employee who could not stand the idea of scrapping all the historical production tools hid them in a shed in the factory.  When, years later, the mechanical watch industry made a comeback and Zenith was at its wit’s end as to how to participate in the revival, the veteran employee returned to disclose the hidden treasures of historical tools and drawings, and led Zenith’s foray into mechanical watches.

There is a practical and compassionate element to the human factor too. It is easy to lay off people but difficult to retrain people. Companies which invest the time and effort to retrain people would combine the benefits of legacy knowledge and futuristic technology. Seiko Epson, for example, decided to retrain and redeploy its people on newer product lines. This, of course, requires not only a compassionately practical management but also a mature employee base which is not plagued by insecurity but is willing to learn new technologies as eager students with a faith in future. The third important factor is to focus on the customer as not merely as a user but more importantly as a human being who needs to be provided a better quality of life. The new slew of products, particularly the ones on the anvil, such as smart phone linked health watches are nothing but the stethoscopes, pedometers, electroencephalographs and diagnostic algorithms, all rolled into one.

When the customer is pampered and enthused as a human being, just with satisfaction of basic needs with resurgent technologies and renewed products, past tends to be future-perfect and legacy promises to be future-creative!  

Posted by Dr CB Rao on March 21, 2015  

When the ‘Second’ is the ‘First’: Getting the Perspectives Right

Many times in life, we are so obsessed with symptoms that we lose sight of the root cause. Also, many times we see a part as the whole. True, management thought has taught us to focus on results. True also that the industrial engineering movement, and even the famed Toyota Production System, taught us the benefits of division of work and specialization. In general, if each person does what he or she is supposed to do right, the next in sequence would occur with equal efficiency, Efficient parts, it is believed, make for an effective whole. This indeed is logical but only so long as the logic of what must override what in terms of the core purpose is not appreciated.

The issue at hand is almost like the distinction between Ayurveda, the ancient Indian science of healing and Allopathy, the modern practice of medicine. The former requires a patient to be studied in whole before a disease is treated. The Ayurvedic treatments offered in India are a case in point. The latter believes that unless the disease as expressed by the symptoms is addressed quickly there could be collateral damage. Obviously, both approaches have their merits and applicability. The debate, however, makes us think through what is primary and what is secondary in the real sense and meaning of various practices we are accustomed to in life. Some interesting examples, relevant for individuals, managers, leaders and organizations alike, follow.

1.       Teaching and learning 

There is so much focus on institutes which offer quality teaching. This focus is not peculiar to India; it pervades even the advanced countries. The basic purpose, one would presume, of good teaching is good learning. One should logically look for institutes which enable good learning rather than offer good teaching. Good teaching need not necessarily translate itself into good learning. In any case, rather than assume that good teaching makes students good learners, it would be appropriate to insist on both teachers and the students to focus on learning. While assessing graduates of institutes, it is important to assess if they had assimilated learning to the standard equivalent the teaching of an institute is expected to.

2.      Qualifications and education

As with the chase for quality teaching institutes there is an equal, if not greater, craze for educational qualifications and professional certifications. Without doubt, formal qualifications are essential means of ensuring that one goes through a prescribed process of education and evaluation. However, education can take place independent of qualifications, and all qualifications may not result in the same level of education. The challenge is greater when people acquire diverse qualifications. Whether one qualification de-educates one of the previous qualification or builds on the foundations is a key aspect. While assessing individuals with or without qualifications, it is important to assess the true level of education he or she would have got.   

3.      Assimilation and application

The main purpose of teaching and learning is to assimilate all knowledge within oneself. As modern research indicates human brain is an amazing library and storehouse of whatever information is deposited into it. Contrary to popular belief, the brain has the ability to absorb an endless array of information. Unlike a physical library, even if information is taken out from the brain it remains in the memory; in fact, it gets expanded with the way the retracted information is processed and acted upon. Assimilation is purposeless without application, just as teaching is purposeless without learning. Application of knowledge is the one that differentiates active achievers from passive followers. It is also interesting that it is the greater application of knowledge rather than just greater teaching or learning that results in greater assimilation of knowledge.  

4.      Hearing and listening

Hearing is the electro-mechanical process of receiving external sounds through the ears, whether from nature or humans. Every sound has its purpose and meaning, more so the speech of humans. In fact, the productivity of human relationships is based entirely on communication. Communication is complete only when the message is listened to, rather than merely heard. Listening, as contrasted with hearing, is the process of paying attention with a view to hear and/or hearing with an intention to take notice. Listening, therefore, is purposeful hearing. Hearing without listening does not contribute to human bonding.

   

5.      Managing and leading

Managing is the process of running a business. Leading is the process of taking a business to a new horizon. From a time not so long ago when management was considered all-encompassing we are now in a stage when managing is considered separate from (and unfortunately, somewhat inferior to) leading. Also, it is considered that management is a task of lower hierarchy and leadership is one of higher hierarchy. This un-discerning differentiation is misconceived. Leading is the sole purpose of management. A manager who cannot be a leader cannot be a true manager. The process of running a business perforce has to also lead the business to consistently better results.

6.      Facts and truths

Facts are real incidents that have occurred but truth is what they represent. The fact of one studying for long hours does not necessarily represent the truth or untruth of studying with concentration. Facts are visible and can be recounted with accuracy. Truth is invisible and can be only inferred or evaluated when disclosed. All truth is not factually discoverable while all facts may not disclose the entire truth. The dilemma in active and speedy life is to whether to progress on facts as received or get stalled in a potentially endless search for truth.

7.      Self-reliant and self-sufficient

India, since its independence days, has pursued a policy of self-reliance. This has prompted the governments to build dams and set up heavy industries as well as consumer goods industries. Self-reliance is the ability to develop its infrastructure. This has not been, however, accompanied by an ability to be self-sufficient in terms of technologies, equipment, finances or manufacturing capacities. Self-reliance without self-sufficiency is of little use as it would still leave vast sections of population unattended in terms of its needs. There can be no greater formula for economic growth and social equity than achieving self-sufficiency with self-reliance.

8.      Self-image and self-worth

All successful persons have an image of themselves. Their self-image prompts them to face the world and lead their teams with confidence. In a sense, self-image is in itself a success enabler (as long as it does not lead to narcissism!). Yet, such self-image tends to be the preserve of only the exclusive few. On the other hand, every person can, and must, have self-worth. Whatever be the avocation one is in, or the activity one chooses to do, one must take pride in executing it to the fullest capability. This leads to a strong sense of self-worth. Self-image that is backed by self-worth is a sustainable alchemy, not only for the individual but also for the broader organization.

9.      Empowering and enabling

Leadership (and management) is no longer about just controlling and co-ordinating. It is more about inspiring and influencing. Frequently used in that context is ‘empowerment’ as a concept. It is felt that leaders and managers should empower their team members to be able to accomplish the goals on their own. Empowerment is provision of more authority on one’s life and conduct. More than this oft used cliché, the real requirement for leaders and managers is to enable their team members to set and accomplish their own goals. ‘Enabling’ is making it possible for someone to achieve something by creating certain necessary conditions; this could include, among others, empowerment too. Enabling clearly is a more appropriate concept than just empowerment.  

10.  Title and stature

A key feature of social evolution, over centuries, has been the emergence of titles. Titles signify rank in a profession or in a society. Titles have such compelling attraction that everyone seeks them. Titles by definition tend to be for few. In comparison, stature is the importance and respect that a person has because of his or her ability and achievement. While titles can be had only by a few (and ironically, bestowed at times independent of stature), stature can be gained by all independent of their hierarchy through sheer dint of achievements and accomplishments. Virtuous individuals and organizations aspire to acquire stature rather than seek ranks.  

When ‘second’ is ‘first’

Many times, in the pursuit of visible results or even the activities, the central purpose gets lost in visibility. The preoccupation with the results and activities makes one equate the very act or the result (like teaching or qualification) to be the same as the underlying purpose (like learning or education), respectively. This makes achievements rather mechanical, sub-optimizing capabilities and creativity. The organizational designs, including structures and processes, as well as individual and social systems (including values and ethics) must focus on the underlying core purpose.

Oftentimes, playing a sport or participating in a competition is considered more important than winning the competition. Similarly putting in the best effort without aspiring for a result is considered philosophically appropriate. The spirit is considered more relevant than success, and the effort more relevant than result. That said, if in the ten aspects of life that have been discussed above, the primary driver of progress is recognized and followed, spirit will soar high as much as success will sustain for sure. The seemingly ‘second’ is the ‘first’ in most cases of life!

Posted by Dr CB Rao on March 18, 2015                 

Thought, Expression and Action (TEA) Positive: Triggers and Filters in One’s Mind

Thoughts, it is said, are irrepressible. Expressions and actions, it is said, are controllable. There can be no expression or action without thought. Even in involuntary actions, some system or the other of the body “thinks”.  The world expects all expressions and actions to be well thought out. A spiritual guru said that a blow from one person to another person can heal with time but an abuse or indictment from one to another would never heal with time. That is the power of the word, he said.  The physiological and neurological basis of thoughts and speech is a complex field of study. It is rational and evidence based; it can be studied with behavioural observations of a person or scanning of the person’s brain. That said, every thought-expression-action linkage is neither spontaneous nor unpredictable; it is actually conditioned – by one’s own learnings and experiences as well as expectations.

Societies which are naturally evolved but fractious human agglomerations, and organizations which are synthetically created but focused employee teams require conditioned behaviour in terms of thoughts, expressions and actions. Without conditioned behaviour societies and organizations could be at risk of disruption, if not chaos. However, completely conditioned behaviour robs the societies and organizations of the principal benefit of human existence – creativity and innovation. The need for balance between spontaneity (hence of creativity and innovation) and moderation (hence of order and discipline) is genuine for societies and organizations but quite difficult to achieve. Individuals, as they mature and develop the abilities of reflection and introspection, can help promote positive conditioned behaviour.

Cluttering, de-cluttering

Human beings are processors of abundant information. Even when they are not in conversation with fellow beings, their ecosystems tend to be in conversation with them. These conversations, whether active or passive, shape the thoughts of the individuals. These thoughts, as they bubble up, set in motion a complex chain of feedback mechanisms. Left uncontrolled, a person’s mind could become an uncontrolled cauldron of thoughts. Mercifully, a few things help control the phenomenon. Firstly, a person’s innate ability to moderate the thought processes helps. Secondly, a preference for positive thoughts results in a helpful cycle of positive expressions, positive feedback, positive actions and positive recognitions. Thirdly, as a person moves from thought and expression phase to action phase, he or she becomes focused and goal directed. For example, a person in search of an accommodation to buy would be subject to multiple thoughts in the exploration phase but becomes focused on house construction once he narrows down the choice to an acquisition.

There are three other important means to de-clutter oneself of the unending assault of thoughts. One is the daily natural phenomenon of sleep. Modern research has re-established the age old philosophy that a healthy period of daily sleep is the best means for rejuvenation of the body and the mind. The second is the discipline of daily exercise which brings focus and endurance to the body and the mind. The third is the ancient practice of yoga and meditation which helps one to become calm and relaxed as well as focused and attentive.  The Art of Living Foundation lists several benefits of meditation (http://www.artofliving.org/meditation/meditation-for-you/benefits-of-meditation). The Foundation observes that meditation is like a seed which when cultivated with care blossoms to the general wellbeing of a person. Despite the availability of such compelling evidence, people are unable to implement the moderation, focus and execution trilogy at the professional level and the sleep, exercise and meditation trilogy of the personal life.

Starting early

The new NDA government despite its preoccupation with economic reforms and acceleration of economic growth has focused on some important softer aspects of life that need to be imbibed from the early childhood stage. The Prime Minister Narendra Modi has advised students taking the Class X and Class XII Board examinations in March this year that they should learn to develop faith in oneself as Swami Vivekanda exhorted decades ago, and take the examinations as a game to play and also learn to relax. He has advised students to learn Pranayama or practise Surya Namaskar to reduce stress. In a proud moment for India, the United Nations has on December 10, 2014 adopted June 21 as World Yoga Day after Narendra Modi made an impassioned plea in the UN General Assembly for Yoga in September 2014. It is to be hoped that such guidance and measures would influence the new generation to stay positive from the early years.

Like the half empty or half full analogy of a glass, it is never too late or too early to start anything positive. There is so much material and expertise that is available in the public domain on sleep-exercise-meditation aspects that it would be highly inappropriate and inadequate to discuss them in this blog post. There is, however, less attention and material on the moderation-focus-execution trilogy that is needed in professional life. Within this trilogy again, there is enough literature on driving focus and execution but very little thought on achieving positive moderation in thoughts, expression and actions. As a result, organizations and societies are focused on conflict management as a discipline of learning and development. A far better route would be to root out the triggers and precursors for conflicts in the thought processes themselves.

Triggers

Achievements, disappointments, targets, goals, teachings, exhortations, criticisms, observations, advices, and a host of other events relating to oneself or others in the society act as triggers for thoughts. The thoughts could vary across a wide spectrum, from mere noting and registering them in memory or shutting them out of active memory to feelings of joy or sadness, motivation or inspiration, security or helplessness, introversion or extroversion, and so on. These, in turn, make individuals to stay satisfied (with the status quo) or become dissatisfied (to change the status quo). The stronger the feelings, the greater would be the triggers. The triggers lead to expressions of satisfaction or dissatisfaction, and later on to situations of inaction or action. The intermediate stage of expression between thought and action is important because it provides an opportunity to provide or receive feedback, and thus correct or get corrected.

The intermediate stage of expression is also important because it helps in either dissipation of excessive (often negative) energy or reinforcement for needed (often positive) energy. In certain cases, when the triggers are particularly strong, individuals tend to jump from thought to action directly without going through the very important stage of expression, often leading to undesirable results. While keeping one’s own inner counsel does happen, and is also important and appropriate in certain cases, in most situations expression of core thoughts and intended response would go a long way in improving the end results. Needless to add, actions would certainly lead to certain results, which in turn lead to the next cycle of triggers. In order for one’s life to be in a manageable boundary, the triggers for thoughts and the consequent expressions and actions need to be purposeful.

Filters

As one grows up, the brain or mind starts developing its own filters that are set in place in a rather firm manner with maturity. Typically, an individual consciously or unconsciously passes his or her thoughts, expressions and actions (TEAs) through these filters. While the triggers add velocity and momentum to one’s TEAs, the filters help one to separate the positive ones (or those agreeable to one’s personality) from the negative ones (or those disagreeable to one’s personality). These filters start the processes of reflection, introspection, evaluation and selection as the TEAs pass through them. In an ideal situation, only those thoughts that pass through all the filters become expressions and those expressions that pass through all the filters become actions. Developing the right kind of filters and keeping them effective (and unclogged) is certainly in one’s capability, and helps one in staying TEA positive.

The typical filters one has in one’s mind are the following. The primary one is the emotional filter (will the TEA make me happy or sad, satisfied or dissatisfied and motivated or demotivated?). The second is the social filter, social including the family, friends, peers and the broader society where relevant (will the TEA gain me acceptance or rejection, recognition or castigation?). The third is the value filter (does the TEA fit into my value system or not?). Only those TEAs that pass through all the three filters make one truly happy. The sequence given above tends to be applicable for a great majority of individuals. For sage and wise individuals, the sequence would probably be in the reverse order; the value filter first followed by the social filter and then the emotional filter. While a few other filters like development filter or growth filter can be considered, the author feels that they are ultimately expressed in terms of emotions. Likewise, while the social filter can be separated into family filter and other filters it only adds needless complexity.    

 TEA positive

Staying TEA positive is a worthwhile goal in life. Ability to entertain only positive or agreeable thoughts and ability to de-clutter one’s mind are the fundamental capabilities which help one in the process. The more important aspect is setting the right filters in one’s mind. The filters are chosen right and set right depending on one’s knowledge of the broader good as may be taught by scriptures, texts, teachers, friends and families. The social and value filters, in particular, help one reach alignment and congruence between what is positive and what is agreeable.

Staying TEA positive is an organizational possibility and requirement too. From choosing a business to operate in to generating and sharing wealth with stakeholders to fulfilling corporate social responsibility, organizations and corporations have multiple ways to become and stay TEA positive. Organizations, which promote a TEA positive culture in their team members would become virtuous organizations. Societies and nations which create ecosystems that help individuals and organizations become TEA positive would become virtuous nations.  

Posted by Dr CB Rao on March 15, 2015    

Reinventing Fayol-Gulick-Urwick Legacy: The Unchanging Change of Management

My first exposure to the theory of general management was in the 1972 with the acronym POSDCORB. This acronym signified the functions of management and public administration as set out by Luther Gulick and Lyndall Urwick in their staff paper titled, “Notes on the Theory of Organization” (1937). This, of course, heavily drew from the works of French industrialist, Henry Fayol. POSDCORB denoted the basic functions of management as Planning, Organizing, Staffing, Directing, Co-ordinating, Reporting, and Budgeting. Gulick suggested that the work of a chief executive is nothing but delivering on POSDCORB. Gulick’s POSDCORB is a synthesized and condensed version of Henry Fayol’s fourteen principles of management and five elements of management.

Fayol enunciated the fourteen principles as follows: division of work, authority and responsibility, discipline, unity of command, unity of direction, subordination of individual interest to general interest, remuneration of personnel, centralization, scalar chain (line of authority with peer level communication), order, equity, stability of tenure of personnel, initiative and esprit de corps. Fayol’s five elements of management were: planning, organizing, command, co-ordination and control. Clearly, Gulick drew significantly from Fayol’s principles. Fayol’s work is notable for certain principles of management which are relevant even today but are overwhelmed by the size, scale, scope and globalization complexities of today’s organizations. It would be interesting to see how these factors have brought in some change in the unchanging world of management or how nothing ever changes in the world of management even when change is apparent!

Simple yet complex

The definition of management in terms of its processes and deliverables has become, over the decades, complex yet simple. For example, Gulick was able to reduce the nineteen components of Fayol to seven of POSDCORB. In today’s world, it may be just reduced to two: strategizing and executing. Some may say, executing is the all-encompassing management role while strategizing (along with visioning) is more of a leadership role. Execution, however, has many other components such as organizing, budgeting, monitoring, and performance management. Organizing itself would comprise organizing for resources, people, technology, equipment, external relationships and so on. Monitoring, again, cannot happen without plans and budgets and reports and reviews. It, therefore, emerges that even the most simplistic condensation cannot do away with the basic Fayol principles!

Equally interesting is the qualitative change in certain definitional optics. It is no longer appropriate to consider ‘command’ and ‘control’ as a desired aspect of management. Influence and alignment (and at best, oversight) are seen as more positive definitions of guiding to delivery. The concept of authority coming first followed by responsibility is done away with a new emphasis on accountability. Directing as a concept is replaced by leading and delegation by collaboration. Clarity of vertical line of command and peer level scalar chain is replaced by ubiquitous matrix connectivity. Tenure stability is replaced by performance satisfaction. Thus while the basic objectives of management as enunciated by Fayol-Gulick-Urwick remain undiminished, they are couched in much softer and seemingly democratic shades.    

Time tested or time tests?

At one level, time tested principles emerge softer and unified. That cannot mean that they remain that way when times are testing. For example, when a company is faced with an acute turnaround strategy, strongly directed measures implemented in an environment of total organizational clarity would be required. When a start-up rides its way to success, many principles of management except those related to directing may be ignored. When times are testing, even time-tested principles have to be relied in parts rather than holistically. To make this apparent paradox discernible, management principles may have to be seen and applied contextually. If this were not the case, there would not be a reason why the same management principles give different results for different companies and in different industries.    

Equally, there could be instances of the same company needing to provide differential emphasis on its principles over a longer time horizon. Centralization could be the main principle in the start-up mode while organizing, division of work, authority and responsibility, vertical and horizontal lines of command could become important in growth phase. Thereafter, the organization may settle down to budgeting and reporting in a mature phase. In a declining or volatile environment, esprit de corps to bring out creativity in the face of adversity could be the most dominant principle. Managers who are responsible for line functions and staff functions must be cognizant of business context to set relative priorities and emphases. The relative importance of one principle over the other does not mean that the less emphasized principle is less important.

Muscle analogy

In fact, management principles are like the muscles of a human body. Just as non-use of muscles of a human body leads to atrophy, non-use of management principles leads to organizational atrophy. It is important that all the principles are exercised to some degree or the other, irrespective of the context. The inability of some firms to adjust to varying business contexts is traced to such non-use. Successful firms from micro start-up stage to mega consolidation stage demonstrate this fact. When  Akio Morita and Masaru Ibuka started in 1946 Tokyo Telecommunications Engineering, Corp (what was to later become the famous Sony Corporation), they practised division of work; Ibuka focused on engineering and product design while Morita focussed on marketing, personnel and finance. Start-ups which had early deployment of all management principles tended to achieve enhanced competitiveness and sustainability.

Similar to misuse or overuse of particular muscle groups leading to adverse effects in a human body, misuse or overuse of management principles skews up organizations. In a very gross sense, Fayol implied a 2:3 ratio in his management elements; planning and organizing (the planning elements) versus command, co-ordination and control (the execution elements). As practice teaches us, a fine balance is obtained when a 2:3 or 1:4 ratio is exhibited between planning and execution elements. Misuse occurs when certain task principles are applied in creative environments, and vice versa. For example, unity of command and unity of direction would be a constraining principle for highly creative functions like research while they would be absolutely necessary in a production environment. Teaching and deployment of managerial principles must therefore be taken up in a contextual perspective.

POSDCORB for project management

POSDCORB, in today’s context, seems to be a more relevant construct for project management in a specific manner, rather than general management in a broader sense. All the seven elements of planning, organizing, staffing, directing, co-ordinating, reporting and budgeting fit the project management format perfectly. An infrastructure company which requires licenses prior to carrying out any resource mobilization and project execution should first focus only on planning until it is authorized to operate. Planning emerges to be the most important aspect of infrastructure projects given the huge and massive scale of stakeholder relationships, national and international resource requirements (finances, people, equipment and technologies), the long gestation periods involved and the execution precision required. POSDCORB helps lay the base for targeted infrastructure development where the goals are rigidly set but the path is daunting and subject to delays.

By the same token, POSDCORB would seem to be insufficient in a more dynamic and competitive situation which is market driven. When products have to be developed and launched quickly with optimal cost-quality relationships and aftersales requirements in globally distributed landscape, several other qualitative aspects come into play. Vision and strategy would keep changing rapidly with shortening product lifecycles while collaboration and networking assume importance for a successful go-to-market requirement. As even high-technology products become commoditized, and as investor expectations and global financial flows influence corporate restructuring, management principles which are focused only on internal processes and disciplines such as POSDCORB or Fayol principles and elements would be found wanting. Surely, the basic elements of planning and execution remain but there is a more important subtlety – that is, communication.

Communication

The whole set of principles and elements of Fayol, Gulick and Urwick did not include communication as a distinct principle or element of management. This is indeed surprising given that the industrial engineers Frederick Winslow Taylor and Frank and Lillian Gilbreth, in the scientific management period approximately between 1880 and 1920, emphasized communication as an essential component of productivity movement. In the later years, organizational behaviour, of course, gave pride of place to communication. Clearly, much has changed in the business environment over the decades but the principles remain unchanged. Interestingly, planning has had no change in either terminology or content over the decades but execution has had many terms to describe it. All the principles remain as relevant today as they were decades ago. The question is why management remains unchanged in a world where technology, products and services, and life expectations dramatically evolve with time.

The answer lies in the basics of human behaviour which is binary in terms of planning and execution, albeit with some overlap. This has an uncanny similarity to the two basic faculties of human mind, namely thought and action. In both cases, however, expression (or, communication) is the bridge. Increasingly in modern world, appropriate managerial communication is the key to differentiation, and sustainable success.  Despite high educational levels and burgeoning of all types of communication, effective communication continues to be the most important challenge for management and leadership. The need in management for basic and positive communication which is the bedrock of all human living means that while many things keep changing, including management itself, nothing really changes in management or differentiates it from simple human living, for the chief executives as well as common employees.

Posted by Dr CB Rao on March 14, 2015