Professor Michael Porter of Harvard Business School created an outstanding and enduring stream of management thought when he propounded in 1979, through a Harvard Business Review (HBR) article, the theory of five competitive forces. He defined perceptively five competitive forces that help a company understand the structure of the industry it operates in, and stake out a position that is more profitable and less vulnerable to attack. Since then his theories of competitive strategy have been enriched by his own further contributions and collateral contributions by others. In a recent (January 2008) HBR paper, Porter reaffirmed and expanded his theory with additional examples.
The author of this paper provided a first-in-class quantitative framework to Porter’s qualitative paradigm of competitive strategy through his doctoral dissertation (Indian Institute of Technology Madras). The doctoral thesis which focused on the structure and performance of the Indian automobile industry demonstrated that Porter’s theories of competitive forces and competitive strategy have practical relevance and applicability. Continuing his appreciation for Porter’s creative and utilitarian theories, the author believes that there is now a need for reinforcing Porter’s paradigm with the addition of a sixth competitive force.
The sixth competitive force
The five competitive forces proposed by Porter are: (i) the intensity of rivalry among the existing players in the industry, (ii) the bargaining power of customers (iii) the bargaining power of suppliers (iv) the threat of new entrants, and (v) the threat of substitute products and services. While the level of rivalry largely determines industry structure and profitability, savvy customers can force down prices, dominant suppliers can drive up cost structures, aspirant entrants can create additional competition and new substitute products can lure products away from the company’s offerings. All these five competitive forces together determine the industry structure and profitability as well as the firm’s competitiveness.
The implicit essence of Porter’s theory is that corporate competitiveness play is a “win by some - lose by some” play, where the firms which are competitively agile will alone sustain themselves and grow. In a sense Porter’s theory reflects modern corporate Darwinism where only the fittest would survive. While Porter’s theory is an excellent guidepost in reasonably good times, the theory misses out on one critical dimension that one takes for granted in times of growth. The missing competitive dimension is “economic liquidity” which the author would like to term as the sixth competitive force that deserves to be added to Porter’s theory of competitive forces.
Without distracting from the economic rigor that Porter brought to corporate strategy one may say that true economic growth has to be based on foundations that are more broadly based and sustainable than an approach of survival of the fittest. Sustainable economic growth must envisage equitable growth of all sections of the society and profitable coexistence of different types of firms; from global conglomerates to local micro-enterprises.
The global financial meltdown and economic recession of the last two years has led to evaporation of economic wealth in an unprecedented manner. Deep economic recession and failures of global corporations forced governments to inject trillions of dollars to arrest economic collapse and ease liquidity crisis. The economic meltdown has shaken the advanced countries as well as the emerging countries to the roots. It has demonstrated shockingly that industries and societies can be swept away if economic liquidity is ignored by incumbent firms and regulators while crafting corporate strategies.
Economic (or system) liquidity
Firms exist through their products and services to grow customer needs and fulfill them in an ever increasing fashion. Customers embrace additional and new products on a continuous basis to elevate their quality of life. Governments which are committed to economic growth have a stake in a virtuous growth of this corporate-customer cycle. Firms and customers, however, require finance to carry out their respective obligations of manufacture and consumption. The level and sustainability of economic liquidity in the value chain of a firm constitute an essential competitive force.
The five competitive forces outlined by Porter differentially impact, and are impacted, by the competitive force of system liquidity. When finance becomes scarce, the intensity of rivalry pushes down the availability and pushes up the cost of finance. Customers move away from high cost premium products to low cost functional products while firms are faced with increased receivables. Monopoly suppliers dictate their terms of supply while fragmented suppliers suffer extended working capital cycles and uncertain payments. New product development suffers while new entrants hold back their plans. Greater industry volatility and lower industry profitability characterize the industrial system.
The financial sector, comprising banking, home finance, insurance and refinance firms as well as the private equity, venture capital, mutual fund, pension fund, hedge fund and stock broking firms, faces a quick and inexplicable evaporation of finance in an environment of downturn. The velocity of circulation of finance comes to a screeching halt. Leveraging and derivative instruments with speculative elements collapse as the system adjusts to align a virtual world of escalating financial value to the physical world of excess assets. Capital-output ratios suddenly turn awry and adverse.
Experiencing system liquidity
Liquidity for a customer exists essentially through the cash he or she has and the credit he or she can generate. The great American housing bubble has demonstrated how a credit-driven market exponentially expands until an economic downturn leads to institutional collapse and with it the total market collapse. The global consumer is today more appreciative of the need to lead a life that is meaningfully de-leveraged and sufficiently savings driven. This implies that in times to come, the bargaining power of the customers would be strong.
For a firm, which constitutes a part of, or contributes to, the balance four components of the five forces theory, liquidity exists in terms of not only equity and debt financing but also in terms of the various assets it holds, from research and manufacturing assets to process and goodwill assets. The manner in which, and the values at which these assets are acquired and nurtured and the speed with which, and the effectiveness with which these assets are commercialized or monetized determine the system liquidity that a firm faces.
In a growth economy, liquidity tends to be a factor of least concern. Entrepreneurs riding on aspirations and financiers splurging capital on ideas provide an intoxicating feel to the economy. Firms and conglomerates spend to grow. The growth thesis in such circumstances, unfortunately, is based on external funding (whether equity or debt) rather than the firm’s own cash generations. The principle of productivity gets erroneously applied with firms seeking to do far more than what they can achieve through their internal generations. Models of corporate strategy such as Porter’s Five Forces model need to be expanded to factor in system liquidity as an overarching sixth competitive force.
The Six Forces Model
The fundamental limitation, if one may say so, of Porter’s Five Forces model is that it considers all the participants in the industry, viz., the firms, customers, suppliers and new entrants as competitors with conflict of interest (relative to the goal of individual profit maximization). It also considers the creativity of new products as a disruptive force. This model and the underlying assumption may be valid purely from a firm’s short run competitive purpose but is inadequate from a long term industrial or economic purpose.
Porter cites the continued success of Paccar in the heavy duty trucking industry as an illustration of how a firm can achieve sustained long term profitability by analyzing the industry as per the Five Forces strategy and building a competitive position. The example limited to only one firm in an industry, in fact, reinforces the limitation of the Five Forces model. Firms and governments need models of strategy that achieve the maximal diffusion of economic prosperity.
The Six Forces model factors in system liquidity as the central core of the model, which includes the standard five competitive forces of Porter’s Five Forces model, viz., rivalry, customers, suppliers, entrants and new products as forces that are networked to each other and to system liquidity. The model considers system liquidity as the aggregate financial capability of all the four players in the industry, viz., firms, customers, suppliers and entrants. System liquidity, fed not only by the industry but also by the larger economic and financial system, influences and gets influenced by the strategies of the firms, customers and suppliers.
Factoring system liquidity
It would be insufficient and even erroneous to consider the profitability of individual industries in a standalone perspective. As Porter rightly observes, industry structure drives competition and profitability, not whether an industry is emerging or mature, high tech or low tech, regulated or unregulated. Moving beyond this, however, firms in the mode of strategy formulation have to consider the front-end market dynamics and the back-end supply dynamics as collaborative factors. By focusing on system liquidity the Six Forces model brings in an essential value chain perspective and a desirable economic perspective to firm level strategy formulation. Several examples can be thought of.
Reverting to the US Paccar example of the heavy duty truck industry, the concept of system liquidity, if applied by all the firms in the industry, integrates the profitability of the total value chain including the material and component suppliers and the goods transporters. This would enable different players come up with different strategies in collaborative combinations.
The Indian bus makers have languished for decades with low growth rates in bus production volumes, despite the near doubling of Indian population, because they have traditionally followed a firm level competitive strategy (firm against firm) rather than an economy level systemic strategy (firm as a part of the total system). If a firm in the bus industry develops a strategic methodology to enhance the system liquidity, taking the suppliers and customers (passenger transport corporations) in tow, the strategy would be more enduring and profitable in the long run.
The Big Three of the US automobile industry have singularly as well as collectively failed several times over the last few decades not because of the lack of application of the five forces model but more because of a lack of value chain understanding of a complex industry that includes suppliers, dealers and customers as well as oil economics. In contrast, companies such as Toyota as well as several of its competitors of the Japanese automobile industry have turned out superior global performance by viewing themselves as collaborators with their component makers (through concurrent engineering and just-in-time) and customers ( through economic and efficient, yet elegant designs) in a total economic structure.
The US retail and distribution companies, in diverse sectors such as consumer items and pharmaceuticals, which tweaked sourcing strategies for competitive advantage paid dearly with compromised product quality while some US food and beverage makers prospered by taking the farm sector as part of their strategic planning processes. Despite advance fleet planning and proactive partnerships for aircraft sourcing, global airline firms as well as the two aircraft makers and their suppliers face repeated crises due to a lack of concern for system liquidity. On the other hand power projects which have positive relationships with power equipment makers, power distributors and regulators achieve better financial closures and timely project execution.
As firms become huge national assets, the need to recognize system liquidity as an essential competitive force becomes even more intense. The battle between the two Ambani brothers (Reliance Industries and Reliance Natural Resources) in its essence is not a battle over price of the gas; it is on the other hand an ugly concomitant of corporate strategies formulated without an appreciation of economic liquidity encompassing gas using utilities, industrial customers and regulators.
Sanitizing the business models
Lack of appreciation of systemic liquidity as the sixth competitive force leads companies to develop aggressive strategies that build scale and scope, erect entry barriers, counter suppliers and distributors (at times through integration) and acquisition of businesses and products. These strategies, all of which are investment intensive, are conceptualized and executed typically during boom times. These are also oftentimes financed out of external debt and equity financing. Several Indian companies acquired overseas businesses as a result of such competitive strategies.
Dr Reddy’s Laboratories, a leading Indian pharmaceutical major acquired Betapharm of Germany to achieve leadership in the European generics space. Inadequate appreciation of economic liquidity in the European generic markets and a high business valuation of the acquisition which was feebly supported by internal profitability and generously aided by debt led to severe operating pressures on Dr Reddy’s. Acquisition of JLR and Rover brands from Ford by Tata Motors all but plunged the cost-efficient Indian automobile leader into a deep financial crisis. Tata Steel’s Corus acquisition strategy was perhaps better titrated because of the homogeneity and synergy of technological, product and customer base. Global generics leader Actavis continues to face the pressures of debt funded expansion and acquisition spree.
Corporate strategists no doubt consider enhanced investments and operational synergies while working out business models which enhance competitive stakes based on the five Forces model. There is, however, a need to consider system liquidity of the combined value chain as a sanitizer for the profitability model. If an expansion or acquisition is debt financed or if the expansion or acquisition takes the company into cost-intensive zones it would be necessary to downgrade profitability projections significantly. The elasticity of system liquidity to economic downturn would be a critical parameter.
Regulators have a role in ensuring that models of corporate growth are not hijacked by strategic adventurism. The institutional failures that triggered the global meltdown are proof enough of the perils of a totally unregulated play with external funding, whether of debt or equity variety. Like banking institutions, listed companies should be expected to operate as per prudential financial norms and capital adequacy norms relevant for different industries. In addition, listed companies should be subject to ‘stress tests’ on an annual basis by independent specialist organizations. In the ultimate analysis, firms need to exist and grow not merely to fulfill leadership aspirations but more significantly for wider economic growth.
The author believes that the Six Forces model which integrates the competitive force of system liquidity with Porter’s classic five competitive forces of intensity of rivalry, bargaining power of customers, bargaining power of suppliers, the threat of substitute products and the threat of new entrants would elevate firm level corporate strategy into a highly beneficial macro-economic endeavor.
Posted by Dr CB Rao on August 23, 2009
Sunday, August 23, 2009
Sunday, August 16, 2009
Basic Instincts and Sublime Solutions: Pathways for Innovation
Firms and industries as well as individuals and societies are driven by two basic instincts: survival and growth. Growth is predicated upon survival but survival cannot assure growth. The solutions to the compulsions of both survival and growth stem from innovation.
Survival-growth matrix
Survival and growth instincts can reside in firms at low and high levels in each case; constituting a 2 x 2 matrix. Firms with low survival and low growth instincts will be washed away by the waves of competition in the industry. Firms with low survival but high growth aspirations overreach themselves on a fragile base and will run the risk of collapse. Firms with high survival instincts but low growth aspirations will remain as profitable niche players. Firms with high survival as well as high growth aspirations will emerge as virtuous yet aggressive firms which are destined to lead their respective industries.
Typically an industry comprises all the four types of firms. Whether they exist in equal measure or in skewed proportion would depend upon the products and services the industry operates in, the ownership patterns of incumbent firms, environmental opportunities and risks affecting the industry, and the nation’s comparative advantage in science and technology relevant to the industry. When innovation becomes a national comparative advantage it also translates itself into a firm level competitive advantage, and fills the industrial landscape with virtuous, competitive firms that rank high in both survival and growth instincts.
Japan is one nation which has a high proportion of virtuous firms in all the industries it has in its national canvas. A uniformly high rate of innovation drives the firms to continuously invent and commercialize new products and services, extend market boundaries, enhance market depth and strengthen the sustainability and growth vectors of their businesses. Mature industries covering steel to automobiles as well as growth industries comprising electronics and electronics have leveraged innovation to keep Japan ahead in the global race of survival and growth.
Tailoring innovation
In order to effectively leverage innovation, each firm needs to understand the diverse typologies of innovation and choose the typology that best meets its needs. Innovation needs intellect; intellect resides in talented people; talented people need modern laboratories and facilities to work and such advanced infrastructure needs investments. Often, firm level decisions are telescoped into national resource capabilities as well.
Emerging countries have options of either limiting innovation to the frugal private or public resources they can marshal or harnessing massive resources through public effort. Smaller countries remain constrained on investment and innovation while China has pumped in massive public funding of infrastructure and research to catch up with the innovation curve. India, in contrast, has followed a unique model of public-private participation which provided a midway path, whereby investment trails requirement, and achievement arguably remains well below potential.
It would however be foolhardy to imagine that resources alone provide the requisite base, let alone an automatic boost, to innovation. Innovation exists in a total eco-system where government, universities, industries, firms, people and consumers encourage innovation in an entrepreneurial spirit. The need to understand innovation typologies is therefore relevant.
Innovation typologies
Innovation can be seen in terms of five basic typologies based on the process that drives innovation and the end points of innovation. These are: fundamental, analogue, integrative, adaptive and substitutive types of innovation.
Fundamental innovation represents the first time discovery of a new apparatus, device or instrument in a field. Automobile, telephone, railway engine, aircraft or ship represent certain fundamental innovations in the transportation field. Telephone, radio and television similarly represent fundamental innovations in the communications field. Penicillin and aspirin represent first-time medicinal discoveries. Fundamental innovations, like the ones above as well as the more recent robotics and artificial intelligence, typically simulate natural bodies and phenomena with the added edge of industrial productivity or commercial reach. Fundamental innovation obviously creates technological leadership for nations and firms, and is rarer to fund, find and sustain.
Analogue innovation, on the other hand, is at the other end of spectrum, being the more popular and affordable type of innovation, which is easier to achieve. Creation of an LCD television represents a fundamental invention. Successive discoveries of LCD televisions with 50, 100, 200 MHz resolution capabilities and higher contrast ratios represent multiple analogue innovations. A first-in-class new drug is a fundamental innovation while follow-on medicines which have a similar structural configuration but superior therapeutic profile represent analogue inventions. Analogue innovation is the breadwinner for the larger gamut of innovation oriented firms.
Integrative innovation aims to combine multiple technologies into a singular device. Bringing together multiple technologies helps the inventor offer multiple functionalities to the consumer. This is not a new approach either. While in the yesteryears a radio cum tape cum CD player represented such convergence, in today’s world a cellular phone which also plays music and captures images represents the new wave of convergence. As long as fundamental and analogue inventions grow, integrative invention also would grow. Tomorrow’s laptop may have the ability to project the presentations, and the cell phone may have physically expandable screen, for example. A futuristic glucose meter may measure glucose and also dispense insulin based on the measurement. Integration invention or convergence invention is the current hope for market expansion.
Adaptive innovation is a type of innovation that relies on a common or similar technology substrate to define and power multiple applications. Application of nanotechnology to as diverse fields such as engineering and pharmaceuticals is a prime example. Leveraging of imaging technologies for diagnostics and entertainment is another example. Robotics has already brought in revolution in engineering and medicine. Tire technology, for example, could determine how automobile chassis are configured, from low floor to high floor applications. Touch screen technologies would lead to new interactive user interfaces on wider variety of devices.
Substitutive innovation is the new hope for a cleaner and greener planet. From recycling technologies to renewable technologies, substitutive innovation would enable the planet to conserve its resources. Potentially, substitutive innovation would represent the final horizon which would combine the nuances of fundamental, integrative and adaptive innovation approaches. If integrative innovation blurs the distinction between products through convergence, substitutive innovation would dismantle the borders between industries. Agriculture could power the automobiles while days could power the nights in future.
Innovation and India
India is aiming to be an economic superpower in the years to come. It has a large consumer base of 1 billion plus population and one of the largest scientific and technical talent bases of the world. All these, however, have not led India on a genuinely innovation led development pathway. The collective responsibility for this rests on the firms, industries and governments.
Innovation can help firms survive and grow. Not all types of innovation will, however, suit all types of firms. Firms with low survival and low or high growth instincts can go no better than relying on analogue innovation to move them to a better growth quadrant. Firms with high survival and low growth instincts will need to deploy their cash in either integrative or adaptive innovation to build on available core competencies. Companies which score high on both survival and growth instincts can consider the full spectrum of innovative approaches, including fundamental, analogue, integrative, adaptive and substitutive.
Firms which desire to master innovation need to focus as much on fundamental sciences as on application technologies. Strategic tie-ups with universities and specialized research laboratories would help application oriented firms in-license fundamental sciences and technologies on a cost competitive basis. Success of American, Japanese and Korean firms in innovation is in no small measure due to the support they provide to, and receive from, universities and research entities.
Indian governments, central and state, scientific laboratories, universities, and firms need to consider bolder and futuristic strategies to create new paradigms of innovation. The central government, and its ministries and departments (such as science and technology and biotechnology) are no doubt taking up several national science and technology missions, many of them as government-industry-academic partnerships. Unfortunately, most of these projects and missions are set up, relative to the needs of the substrates, with meager funds, fuzzy deliverables and indifferent participation, with an almost exclusive focus on analogue research.
India has now world-class and world-scale infrastructure in pharmaceuticals, vaccines, automobiles, telecommunications, textiles, chemicals, information technology and a host of other sectors. These sectors qualify for establishing national centers of collaborative innovation to achieve fundamental innovation as well as substitutive innovation. The task of analogue, integrative and adaptive research may, in contrast, be left to the capabilities of individual firms. Only a concerted effort such as the above, duly backed by an upgraded and expanded university research infrastructure, can place India firmly on the global innovation map.
Posted by Dr CB Rao on August 16, 2009
Survival-growth matrix
Survival and growth instincts can reside in firms at low and high levels in each case; constituting a 2 x 2 matrix. Firms with low survival and low growth instincts will be washed away by the waves of competition in the industry. Firms with low survival but high growth aspirations overreach themselves on a fragile base and will run the risk of collapse. Firms with high survival instincts but low growth aspirations will remain as profitable niche players. Firms with high survival as well as high growth aspirations will emerge as virtuous yet aggressive firms which are destined to lead their respective industries.
Typically an industry comprises all the four types of firms. Whether they exist in equal measure or in skewed proportion would depend upon the products and services the industry operates in, the ownership patterns of incumbent firms, environmental opportunities and risks affecting the industry, and the nation’s comparative advantage in science and technology relevant to the industry. When innovation becomes a national comparative advantage it also translates itself into a firm level competitive advantage, and fills the industrial landscape with virtuous, competitive firms that rank high in both survival and growth instincts.
Japan is one nation which has a high proportion of virtuous firms in all the industries it has in its national canvas. A uniformly high rate of innovation drives the firms to continuously invent and commercialize new products and services, extend market boundaries, enhance market depth and strengthen the sustainability and growth vectors of their businesses. Mature industries covering steel to automobiles as well as growth industries comprising electronics and electronics have leveraged innovation to keep Japan ahead in the global race of survival and growth.
Tailoring innovation
In order to effectively leverage innovation, each firm needs to understand the diverse typologies of innovation and choose the typology that best meets its needs. Innovation needs intellect; intellect resides in talented people; talented people need modern laboratories and facilities to work and such advanced infrastructure needs investments. Often, firm level decisions are telescoped into national resource capabilities as well.
Emerging countries have options of either limiting innovation to the frugal private or public resources they can marshal or harnessing massive resources through public effort. Smaller countries remain constrained on investment and innovation while China has pumped in massive public funding of infrastructure and research to catch up with the innovation curve. India, in contrast, has followed a unique model of public-private participation which provided a midway path, whereby investment trails requirement, and achievement arguably remains well below potential.
It would however be foolhardy to imagine that resources alone provide the requisite base, let alone an automatic boost, to innovation. Innovation exists in a total eco-system where government, universities, industries, firms, people and consumers encourage innovation in an entrepreneurial spirit. The need to understand innovation typologies is therefore relevant.
Innovation typologies
Innovation can be seen in terms of five basic typologies based on the process that drives innovation and the end points of innovation. These are: fundamental, analogue, integrative, adaptive and substitutive types of innovation.
Fundamental innovation represents the first time discovery of a new apparatus, device or instrument in a field. Automobile, telephone, railway engine, aircraft or ship represent certain fundamental innovations in the transportation field. Telephone, radio and television similarly represent fundamental innovations in the communications field. Penicillin and aspirin represent first-time medicinal discoveries. Fundamental innovations, like the ones above as well as the more recent robotics and artificial intelligence, typically simulate natural bodies and phenomena with the added edge of industrial productivity or commercial reach. Fundamental innovation obviously creates technological leadership for nations and firms, and is rarer to fund, find and sustain.
Analogue innovation, on the other hand, is at the other end of spectrum, being the more popular and affordable type of innovation, which is easier to achieve. Creation of an LCD television represents a fundamental invention. Successive discoveries of LCD televisions with 50, 100, 200 MHz resolution capabilities and higher contrast ratios represent multiple analogue innovations. A first-in-class new drug is a fundamental innovation while follow-on medicines which have a similar structural configuration but superior therapeutic profile represent analogue inventions. Analogue innovation is the breadwinner for the larger gamut of innovation oriented firms.
Integrative innovation aims to combine multiple technologies into a singular device. Bringing together multiple technologies helps the inventor offer multiple functionalities to the consumer. This is not a new approach either. While in the yesteryears a radio cum tape cum CD player represented such convergence, in today’s world a cellular phone which also plays music and captures images represents the new wave of convergence. As long as fundamental and analogue inventions grow, integrative invention also would grow. Tomorrow’s laptop may have the ability to project the presentations, and the cell phone may have physically expandable screen, for example. A futuristic glucose meter may measure glucose and also dispense insulin based on the measurement. Integration invention or convergence invention is the current hope for market expansion.
Adaptive innovation is a type of innovation that relies on a common or similar technology substrate to define and power multiple applications. Application of nanotechnology to as diverse fields such as engineering and pharmaceuticals is a prime example. Leveraging of imaging technologies for diagnostics and entertainment is another example. Robotics has already brought in revolution in engineering and medicine. Tire technology, for example, could determine how automobile chassis are configured, from low floor to high floor applications. Touch screen technologies would lead to new interactive user interfaces on wider variety of devices.
Substitutive innovation is the new hope for a cleaner and greener planet. From recycling technologies to renewable technologies, substitutive innovation would enable the planet to conserve its resources. Potentially, substitutive innovation would represent the final horizon which would combine the nuances of fundamental, integrative and adaptive innovation approaches. If integrative innovation blurs the distinction between products through convergence, substitutive innovation would dismantle the borders between industries. Agriculture could power the automobiles while days could power the nights in future.
Innovation and India
India is aiming to be an economic superpower in the years to come. It has a large consumer base of 1 billion plus population and one of the largest scientific and technical talent bases of the world. All these, however, have not led India on a genuinely innovation led development pathway. The collective responsibility for this rests on the firms, industries and governments.
Innovation can help firms survive and grow. Not all types of innovation will, however, suit all types of firms. Firms with low survival and low or high growth instincts can go no better than relying on analogue innovation to move them to a better growth quadrant. Firms with high survival and low growth instincts will need to deploy their cash in either integrative or adaptive innovation to build on available core competencies. Companies which score high on both survival and growth instincts can consider the full spectrum of innovative approaches, including fundamental, analogue, integrative, adaptive and substitutive.
Firms which desire to master innovation need to focus as much on fundamental sciences as on application technologies. Strategic tie-ups with universities and specialized research laboratories would help application oriented firms in-license fundamental sciences and technologies on a cost competitive basis. Success of American, Japanese and Korean firms in innovation is in no small measure due to the support they provide to, and receive from, universities and research entities.
Indian governments, central and state, scientific laboratories, universities, and firms need to consider bolder and futuristic strategies to create new paradigms of innovation. The central government, and its ministries and departments (such as science and technology and biotechnology) are no doubt taking up several national science and technology missions, many of them as government-industry-academic partnerships. Unfortunately, most of these projects and missions are set up, relative to the needs of the substrates, with meager funds, fuzzy deliverables and indifferent participation, with an almost exclusive focus on analogue research.
India has now world-class and world-scale infrastructure in pharmaceuticals, vaccines, automobiles, telecommunications, textiles, chemicals, information technology and a host of other sectors. These sectors qualify for establishing national centers of collaborative innovation to achieve fundamental innovation as well as substitutive innovation. The task of analogue, integrative and adaptive research may, in contrast, be left to the capabilities of individual firms. Only a concerted effort such as the above, duly backed by an upgraded and expanded university research infrastructure, can place India firmly on the global innovation map.
Posted by Dr CB Rao on August 16, 2009
Saturday, August 15, 2009
Mentorship: Beyond Leadership
Firms are aggregations of people who are positioned in the framework of an organization and are enabled to progress over time, horizontally and vertically. Workmen, executives, managers, leaders and directors constitute the organization. This paper discusses why the concept of an organization should add mentors to the inventory of the human resource asset base in an organization.
Workmen, executives, managers, leaders and directors
Workmen are direct employees working on the physical production and production support processes in a firm. Lower level educational qualifications and experiential limitations often make the adage “once a workman, always a workman” unfortunately true. While a few workmen do cross the barriers through supervisory roles within the shop floor environment, organizations are typically designed to accord mobility only to those personnel who are inducted into executive cadres on the basis of professional qualifications. This situation needs innovative organizational and educational paradigms to break the mould, which probably is the subject of another discussion.
Executives, though well educated, are operating professionals who learn and perform largely as per directions. Executives who display an exceptional flair for conceptualizing, analyzing and executing become managers early on in corporate life. The brightest of the managers grow as general managers of sites or functions. Most also become leaders of businesses or corporations. Some will be whole-time directors on the boards, which also comprise outside experts as part-time independent directors. Very few, however, end up becoming mentors.
The journey of a professional, from the time he or she starts his or career as an executive to the time he or she becomes a mentor, is an unpredictable and rollercoaster ride. During this journey, spanning decades of professional life, intrinsic leadership traits in an individual at the grassroots level as well as corporate leadership proclivities at the apex level are equally important.
Executives are competent professionals who keep the day-to-day operations moving. Managers are competent executives who plan, and get the budgets implemented optimally as per plans. Leaders are competent managers who envision a new future, craft an enabling strategy, and create a performing organization that converts the vision into a reality. Directors are leaders who are willing to take business, legal and governance responsibilities. Who then are mentors?
Mentors
Mentors are competent leaders who nurture the organizations to have the right mix of competent executives, managers, leaders and directors, all of whom play a role in building the business of a firm and enhancing shareholder value. Mentor is a leader who cares for the organization and its people to build their value through a competency cum governance framework. A mentor, having been a leader and a director knows the business well enough to position the firm positively in the industry and the economy.
The transformation of a manager into a leader is often performance driven. However, the transformation of a leader into a mentor is as contextual and environmental as it is personal and professional. The transformational challenges and opportunities are also uniquely determined. A manager tends to be an executive in his own right for most part. A leader ceases to be a true leader when he starts managing. A mentor may in contrast never be able to separate leadership from mentorship.
While it is well accepted that a firm should have a leadership team for day to day execution and a board of directors for governance and mentorship, the concept of having a fulltime mentor in the company has not been established in the corporate practice. Towering leaders of Indian conglomerate groups such as JRD Tata and GD Birla did serve as mentors to their group leadership teams, but in informal capacities. It is only in the 2000s that the concept of a leader turning a mentor for the organization came to be recognized when Mr Narayana Murthy the founder-CEO of Infosys Technologies became its Chief Mentor. His was the first formal and bold attempt by a successful leader to transit into a mentorship role, even ahead of time. While there is a clear need to have more such initiatives at leadership and firm levels, his example did not initiate a new wave of organizational redesign in Indian corporations.
Are leaders against the concept of mentorship, both in terms of their own transformation into mentors, and acceptance of mentors in their midst?
Always a leader, and never a mentor?
The position of mentor does not reflect a popular practice in corporate structuring, organizational design or legal framework. The examples set by Narayana Murthy in Infosys and Bill Gates in Microsoft are exceptions rather than rules. The mentorship concept therefore needs passionate advocacy as well as objective evaluation as an instrument of larger organizational benefit.
Leadership provides a singular opportunity for outstanding professionals to guide the destiny of a firm. It provides the power to perform and the canvas to achieve. Chief executive officers (CEOs) are often buffeted by performance compulsions and obsessed with themselves as singular drivers of performance. Many are unable to accord a due role to even legally mandated board of directors. It is therefore not unnatural that CEOs are reluctant to debate the concept of mentorship as a discrete senior level position, let alone accept a mentor at the helm. As a corollary, CEOs who have been at the pinnacles of power in the organizations are also reluctant to move over to an apparently sinecure position of chief mentor.
The ownership context of a firm possibly provides some basis for a more delineated determination of managerial, leadership and mentorship roles. Family owned and patriarchal firms have a greater flexibility to move their family CEOs informally into mentorship positions while non-family owned professional firms have no greater flexibility than providing non-executive chairmanship positions to potential mentors. However, the concept of mentorship deserves a more formal and popular positioning in the corporate landscape.
Potential of mentorship
Mentors, typically, are successful leaders who have perspectives larger and wider than the perspectives of the firms they have led. They are intellectual achievers who have built their businesses competitively and placed their firms on sustainable growth trajectories. They are well known nationally and globally and are capable of acting as brand ambassadors not only for their firms but also the industries they operate in and their countries. Potential mentors exude high ethical values and have passion for communicating them. They would have built leadership talent in their organizations that can take on larger responsibilities seamlessly from them.
True mentors are those who move away from executive leadership positions and focus on fulfilling certain qualitative aspects of business which only they can focus on. Having been consummate leaders, they are aware of the pitfalls and potentialities of leadership. By continuing full time in the organizations but taking up mentorship roles such leaders can add strength to the new leadership teams. Fundamentally, leaders who move as mentors create a positive leadership vacuum that elevates potential leaders into performing leadership roles.
There are two keys to ensure success of mentorship. The keys serve to distinguish the mentors from executive leaders on one hand and boards on the other. Such role differentiation will promote synergy and eliminate conflict.
At the executive level, mentors, for example, can focus on means as the leaders focus on ends; mentors can focus on risk management while the leaders focus on taking risks to achieve goals; mentors can build grassroots leadership in the organization while the leaders focus on building their next levels of leadership; and most importantly mentors can promote deeper organizational values even as the leaders are engaged in enhancing value of their businesses.
At the board level, mentors, being full time executive leaders can fulfill a role that is different from the ones performed by independent directors (including chairmen) on the boards. Directors bring sagacity and caution to the board and corporate matters. They hardly have the ability and resources as full-time leaders could have to convert their sagacious advice into effective execution. Mentors can provide the continuity and act as the bridge between executive leadership and non-executive board.
Institutionalizing mentorship
Given the normal corporate dynamics neither leaders nor directors could be expected to proactively and wholeheartedly welcome mentors in their midst. A regulatory framework which provides for a full time chief mentor in an organization could help. Every CEO who crosses the age of 60 years should have the choice between the ages of 60 and 65 years and compulsion by the age of 65 years to transform into a mentorship role, which could continue until he attains a final superannuation age of 75 years. Appointment of chief mentor would need to be a Clause 49 corporate governance stipulation.
The mentor of an organization should have the freedom under the corporate governance umbrella to interact with all functions, participate in all leadership meetings at his discretion and address town hall meetings which the leadership team could attend at its discretion. Certain key governance functions such as risk management, corporate governance and management audit (not internal audit) should be required to be formally established and made directly accountable to the chief mentor. The chief mentor need not be the chairman of the board. In fact, combining the positions would negate the benefits of this key supplemental position of mentorship.
The office of the chief mentor should be fully budgeted and resourced with compensation levels not less than those enjoyed by him prior to his becoming a chief mentor. Inbreeding of mentors and potential cozy relationships or conflicts between the chief mentor and the leadership teams are likely issues that could erode the effectiveness of this institution. In-sourcing of mentors from other organizations is not necessarily a solution. In-sourcing would in fact be an erroneous approach. The fundamental purpose of transiting to mentorship is to enable the leader address add additional perspectives while leveraging the past full time capabilities.
Mentors would be effective largely on the basis of their established acceptability, intellect and statesmanship. Initial institutionalization through a Clause 49 mechanism provides faster and wider spread of the concept, and is unlikely to be a necessary requirement for the success of the mentorship concept. The author hopes that more leaders and corporations would follow the Infosys model in successful mentorship.
Posted by Dr CB Rao on August 15, 2009
Workmen, executives, managers, leaders and directors
Workmen are direct employees working on the physical production and production support processes in a firm. Lower level educational qualifications and experiential limitations often make the adage “once a workman, always a workman” unfortunately true. While a few workmen do cross the barriers through supervisory roles within the shop floor environment, organizations are typically designed to accord mobility only to those personnel who are inducted into executive cadres on the basis of professional qualifications. This situation needs innovative organizational and educational paradigms to break the mould, which probably is the subject of another discussion.
Executives, though well educated, are operating professionals who learn and perform largely as per directions. Executives who display an exceptional flair for conceptualizing, analyzing and executing become managers early on in corporate life. The brightest of the managers grow as general managers of sites or functions. Most also become leaders of businesses or corporations. Some will be whole-time directors on the boards, which also comprise outside experts as part-time independent directors. Very few, however, end up becoming mentors.
The journey of a professional, from the time he or she starts his or career as an executive to the time he or she becomes a mentor, is an unpredictable and rollercoaster ride. During this journey, spanning decades of professional life, intrinsic leadership traits in an individual at the grassroots level as well as corporate leadership proclivities at the apex level are equally important.
Executives are competent professionals who keep the day-to-day operations moving. Managers are competent executives who plan, and get the budgets implemented optimally as per plans. Leaders are competent managers who envision a new future, craft an enabling strategy, and create a performing organization that converts the vision into a reality. Directors are leaders who are willing to take business, legal and governance responsibilities. Who then are mentors?
Mentors
Mentors are competent leaders who nurture the organizations to have the right mix of competent executives, managers, leaders and directors, all of whom play a role in building the business of a firm and enhancing shareholder value. Mentor is a leader who cares for the organization and its people to build their value through a competency cum governance framework. A mentor, having been a leader and a director knows the business well enough to position the firm positively in the industry and the economy.
The transformation of a manager into a leader is often performance driven. However, the transformation of a leader into a mentor is as contextual and environmental as it is personal and professional. The transformational challenges and opportunities are also uniquely determined. A manager tends to be an executive in his own right for most part. A leader ceases to be a true leader when he starts managing. A mentor may in contrast never be able to separate leadership from mentorship.
While it is well accepted that a firm should have a leadership team for day to day execution and a board of directors for governance and mentorship, the concept of having a fulltime mentor in the company has not been established in the corporate practice. Towering leaders of Indian conglomerate groups such as JRD Tata and GD Birla did serve as mentors to their group leadership teams, but in informal capacities. It is only in the 2000s that the concept of a leader turning a mentor for the organization came to be recognized when Mr Narayana Murthy the founder-CEO of Infosys Technologies became its Chief Mentor. His was the first formal and bold attempt by a successful leader to transit into a mentorship role, even ahead of time. While there is a clear need to have more such initiatives at leadership and firm levels, his example did not initiate a new wave of organizational redesign in Indian corporations.
Are leaders against the concept of mentorship, both in terms of their own transformation into mentors, and acceptance of mentors in their midst?
Always a leader, and never a mentor?
The position of mentor does not reflect a popular practice in corporate structuring, organizational design or legal framework. The examples set by Narayana Murthy in Infosys and Bill Gates in Microsoft are exceptions rather than rules. The mentorship concept therefore needs passionate advocacy as well as objective evaluation as an instrument of larger organizational benefit.
Leadership provides a singular opportunity for outstanding professionals to guide the destiny of a firm. It provides the power to perform and the canvas to achieve. Chief executive officers (CEOs) are often buffeted by performance compulsions and obsessed with themselves as singular drivers of performance. Many are unable to accord a due role to even legally mandated board of directors. It is therefore not unnatural that CEOs are reluctant to debate the concept of mentorship as a discrete senior level position, let alone accept a mentor at the helm. As a corollary, CEOs who have been at the pinnacles of power in the organizations are also reluctant to move over to an apparently sinecure position of chief mentor.
The ownership context of a firm possibly provides some basis for a more delineated determination of managerial, leadership and mentorship roles. Family owned and patriarchal firms have a greater flexibility to move their family CEOs informally into mentorship positions while non-family owned professional firms have no greater flexibility than providing non-executive chairmanship positions to potential mentors. However, the concept of mentorship deserves a more formal and popular positioning in the corporate landscape.
Potential of mentorship
Mentors, typically, are successful leaders who have perspectives larger and wider than the perspectives of the firms they have led. They are intellectual achievers who have built their businesses competitively and placed their firms on sustainable growth trajectories. They are well known nationally and globally and are capable of acting as brand ambassadors not only for their firms but also the industries they operate in and their countries. Potential mentors exude high ethical values and have passion for communicating them. They would have built leadership talent in their organizations that can take on larger responsibilities seamlessly from them.
True mentors are those who move away from executive leadership positions and focus on fulfilling certain qualitative aspects of business which only they can focus on. Having been consummate leaders, they are aware of the pitfalls and potentialities of leadership. By continuing full time in the organizations but taking up mentorship roles such leaders can add strength to the new leadership teams. Fundamentally, leaders who move as mentors create a positive leadership vacuum that elevates potential leaders into performing leadership roles.
There are two keys to ensure success of mentorship. The keys serve to distinguish the mentors from executive leaders on one hand and boards on the other. Such role differentiation will promote synergy and eliminate conflict.
At the executive level, mentors, for example, can focus on means as the leaders focus on ends; mentors can focus on risk management while the leaders focus on taking risks to achieve goals; mentors can build grassroots leadership in the organization while the leaders focus on building their next levels of leadership; and most importantly mentors can promote deeper organizational values even as the leaders are engaged in enhancing value of their businesses.
At the board level, mentors, being full time executive leaders can fulfill a role that is different from the ones performed by independent directors (including chairmen) on the boards. Directors bring sagacity and caution to the board and corporate matters. They hardly have the ability and resources as full-time leaders could have to convert their sagacious advice into effective execution. Mentors can provide the continuity and act as the bridge between executive leadership and non-executive board.
Institutionalizing mentorship
Given the normal corporate dynamics neither leaders nor directors could be expected to proactively and wholeheartedly welcome mentors in their midst. A regulatory framework which provides for a full time chief mentor in an organization could help. Every CEO who crosses the age of 60 years should have the choice between the ages of 60 and 65 years and compulsion by the age of 65 years to transform into a mentorship role, which could continue until he attains a final superannuation age of 75 years. Appointment of chief mentor would need to be a Clause 49 corporate governance stipulation.
The mentor of an organization should have the freedom under the corporate governance umbrella to interact with all functions, participate in all leadership meetings at his discretion and address town hall meetings which the leadership team could attend at its discretion. Certain key governance functions such as risk management, corporate governance and management audit (not internal audit) should be required to be formally established and made directly accountable to the chief mentor. The chief mentor need not be the chairman of the board. In fact, combining the positions would negate the benefits of this key supplemental position of mentorship.
The office of the chief mentor should be fully budgeted and resourced with compensation levels not less than those enjoyed by him prior to his becoming a chief mentor. Inbreeding of mentors and potential cozy relationships or conflicts between the chief mentor and the leadership teams are likely issues that could erode the effectiveness of this institution. In-sourcing of mentors from other organizations is not necessarily a solution. In-sourcing would in fact be an erroneous approach. The fundamental purpose of transiting to mentorship is to enable the leader address add additional perspectives while leveraging the past full time capabilities.
Mentors would be effective largely on the basis of their established acceptability, intellect and statesmanship. Initial institutionalization through a Clause 49 mechanism provides faster and wider spread of the concept, and is unlikely to be a necessary requirement for the success of the mentorship concept. The author hopes that more leaders and corporations would follow the Infosys model in successful mentorship.
Posted by Dr CB Rao on August 15, 2009
Saturday, August 8, 2009
Style is Substance: Management of Product Design and Manufacture
One of the fallacies of popular thinking is that consumers are conned into repetitive purchases based on mere stylistic changes in products which do not offer any material differences in product functionality. This paper argues that stylistic changes, on the other hand, are the key drivers for innovation in product design and manufacture.
Style demands substance
Style is a distinctive and differentiated presentation of a literary piece, an art form or a product. Style is visual and appeals to the senses. It also creates a craving in the beholder for ownership and usage of a stylistically elegant device. This, by itself, does not mean that styling is mere superficial embodiment. A well-styled product is also fundamentally a well-endowed product. A stylistically elegant product has a creative form which not only has visual appeal but also offers handling ease.
A novel form factor that is smaller in size but packs greater performance and versatility is an essential component of any stylistic approach. Yet, styling does not end with appeal and handling either. Style sets ownership and usage expectations higher, driving fundamental innovations on how products are designed for wider and stronger performance. Style is also not merely physical; a digital experience adds a significant additional dimension to style. Sony Walkman, Apple iPod and iPhone are the best examples to date of style revolutionizing product profiles and creating new businesses, if not industries. Modern day automobiles which integrate new stylistic designs with greater safety, comfort and digital controls are another example.
Style often influences, if not enables, new paradigms of convergence. Bringing a variety of functions such as music, camera, maps, organizer and radio into a telephone is a styling challenge as well as opportunity. Emotional harmonization and functional alignment are helping laptops to be distinctively styled and repositioned as net books. Each stylistically distinctive product is thus integrated with differentiated performance to provide sustainable, and nor superficial, value for the consumer.
Style boosts efficiency
Style brings in its wake efficiency as well. Examples such as a well-styled car which has a low coefficient of drag, an ergonomically designed chair which enables healthy sitting posture, a high definition lap top screen that provides visual clarity, a thin flat panel screen which conserves materials in manufacture and space in usage, and a green building which is not only contemporary in design but also harmonious with nature
illustrate the efficiency side of style.
A few design factors drive the efficiency trigger in stylistic design. Style demands miniaturization on one hand and multi-functionality on the other. Style requires materials and components that enable better visual feel and physical handling. These factors are at the base of a relentless drive for advances in design and manufacturing technologies that offer better style with greater performance.
A favorable input-output ratio (lower input and higher output) is the hallmark of a well-styled product. Contrary to the perception that frequent stylistic changes promote repetitive and conspicuous consumption, style puts pressure on companies to design and manufacture products more efficiently. This, coupled with the greater emphasis on material recycling and environmental waste ensure that style leads to efficiency.
Style encourages creativity
Modern styling is not merely an art of shaping a product. It is a science of creating a hybrid substance that withstands the rigors of usage and environmental damage. A floor tile should not only be marble-like but also be skid-proof. A new cement blend has to not only create an elegant feel but also retain its appeal for a longer period of time. A new touch screen should not only click and display well but also has to be scratch proof. A speaker system in a flat panel TV has to be ingenuously designed to be invisible yet powerful. A medicinal tablet must be more potent to cure but smaller to swallow. Often, therefore, designers have to merge contradictory requirements to develop novel harmonized products. Conceptualization of such hybrid designs requires creativity in design of a higher order.
New technologies are often required to enable hybridization of designs. Polymer technologies helped design of better pharmaceuticals. From plasma to liquid crystal to light emitting designs, new signal conversion technologies helped newer flat panel displays. Wireless technologies unwired and uncluttered computer devices with better and non-intrusive connectivity. Nanotechnology promises to usher in a revolution in surface preparation, material efficacy and functional usage.
Style is also not necessarily limited to consumer interface. Industrial goods also benefit from style driven design. Introduction of “semi-forward cab” truck design, wherein the cab was partially mounted over the engine to provide a stylistic superiority over the conventional “engine outside the cab” designs is a case in point. This design catered to the driver’s preference for a hooded design (ostensibly for safety) while enabling maximum usable chassis space. Similarly, all components have to shrink in form but expand in performance as an automobile aims to become lighter, sleeker and yet more powerful and fuel-efficient.
Style promotes flexibility
Style can integrate or diversify product design. It can simplify or complicate need fulfillment. A single activity such as display of time can be accomplished by timepieces of myriad designs, shapes and colors. A wristwatch can also be converted into a diagnostic marvel by converting into a measure of relevant body parameters such as temperature, blood pressure, pulse rate and so on. The twin platforms of integrative design and diversified applications mirror the fusion of style and substance in product design.
Style enables a sharper focus on a latent user need and a greater alignment between the customer and developer. A paint development technology that enables a house-owner choose a novel combination by fusion of base colors ensures that the style reflects individuality. Dell’s marketing and supply chain innovation that enables users choose and assemble a computer configuration which meets their needs is an innovative anti-thesis of mass production of standard functional devices. Apart from functionality, style defines the personality of a user too. Ranges of products can be stylized to cater to generations of users.
Today’s consumer has a singular need but multiple desires. This need-desire matrix can be fulfilled by a combination of core and collateral functionalities that can be stylistically integrated. A dual time zone watch or radio controlled watch would provide greater satisfaction to a global traveler than a traditional watch would. A shock-proof and water-proof chronograph integrated watch would serve a sportsman better. Yet, styling innovations which integrate shades of peripheral time functionalities with core needs provide even greater flexibility to the user.
Style drives growth
The economic ramifications of stylistic changes in product design are rarely understood in perspective. At best, styling is seen as a demand generator, segmenting the market as it does in terms of multiple likes and preferences of customers. While the impact of customer segmentation, product diversification and market expansion are easy to see, not so visible is the underlying impact in industrial transformation.
At one level, style has driven the conception and growth of whole new streams of industries in personal effects and fast moving consumer goods space, from textiles, fashion apparel and personal accessories to soaps, cosmetics and daily care products. Styling and packaging have given a new life to the food processing industry and entire food value chain. Industries such as cellular phone industry which had no more than a single offering at the start today signify a style-driven litany of products.
Style not only creates new industries; it helps the established and mature industries to reinvent themselves and stay competitive. It renews the value chain and creates the need for new skills and new jobs. As an automobile, or for that matter any product, gets redesigned it triggers a cascade of new developmental and manufacturing activities across the value chain. From hundreds of designers who play with computer and clay models to thousands of engineers and technicians who create new tools, dies, materials, components, processes, assemblies, finishes, packages and deliveries in each firm, restyling stirs up a beehive of activities. The positive cascading impact on the host of economic, industrial, business and social activities is indeed the driver of growth.
Style needs management
Style drives not only economic growth but also enhances management complexity. The need to design, manufacture, supply and manage multiple SKUs, the need to service products of diverse generations and designs and the need to balance the cost push of product variety with the cost-attractiveness of manufacturing simplicity pose new challenges for managers. Many of these challenges can be met by enhanced process automation and use of information technology. Yet, each firm has to dynamically set its tipping points in determining the rate and pace of stylistic innovation.
Style is an amalgamation of the art of human behavior and science of product design. Successful designers are those who read consumer mind as perceptively as they understand the challenges of concurrent engineering of a new design, manufacturing and supply chain. They should have a 360 degree of the firm as a provider, with a competitive value chain, of innovative and differentiated products that meet human needs in an increasingly satisfactory fashion. Stretching the horizons of innovation with the practicality of utilitarian inventions, the stylist almost always accomplishes the seemingly impossible of giving to the consumer more for less. Nothing reflects the success of the amalgam of style and substance as Tata’s Nano micro-car does.
Designers, manufacturers and managers involved in the process have to view style and substance as an inseparable duo, representing the two sides of an innovation coin. Courses in industrial and product design and value chain management must treat styling as more than a cosmetic or emotive exercise, with a marketing endpoint. Styling is the essence of the progress of the society and economy, for tomorrow can, and should, never be the same as today in a developmental perspective. The quest for greater elegance, differentiation and efficiency as embodied by a constantly evolving fusion of style and substance defines the mankind’s progress.
Posted by Dr CB Rao on August 8, 2009.
Style demands substance
Style is a distinctive and differentiated presentation of a literary piece, an art form or a product. Style is visual and appeals to the senses. It also creates a craving in the beholder for ownership and usage of a stylistically elegant device. This, by itself, does not mean that styling is mere superficial embodiment. A well-styled product is also fundamentally a well-endowed product. A stylistically elegant product has a creative form which not only has visual appeal but also offers handling ease.
A novel form factor that is smaller in size but packs greater performance and versatility is an essential component of any stylistic approach. Yet, styling does not end with appeal and handling either. Style sets ownership and usage expectations higher, driving fundamental innovations on how products are designed for wider and stronger performance. Style is also not merely physical; a digital experience adds a significant additional dimension to style. Sony Walkman, Apple iPod and iPhone are the best examples to date of style revolutionizing product profiles and creating new businesses, if not industries. Modern day automobiles which integrate new stylistic designs with greater safety, comfort and digital controls are another example.
Style often influences, if not enables, new paradigms of convergence. Bringing a variety of functions such as music, camera, maps, organizer and radio into a telephone is a styling challenge as well as opportunity. Emotional harmonization and functional alignment are helping laptops to be distinctively styled and repositioned as net books. Each stylistically distinctive product is thus integrated with differentiated performance to provide sustainable, and nor superficial, value for the consumer.
Style boosts efficiency
Style brings in its wake efficiency as well. Examples such as a well-styled car which has a low coefficient of drag, an ergonomically designed chair which enables healthy sitting posture, a high definition lap top screen that provides visual clarity, a thin flat panel screen which conserves materials in manufacture and space in usage, and a green building which is not only contemporary in design but also harmonious with nature
illustrate the efficiency side of style.
A few design factors drive the efficiency trigger in stylistic design. Style demands miniaturization on one hand and multi-functionality on the other. Style requires materials and components that enable better visual feel and physical handling. These factors are at the base of a relentless drive for advances in design and manufacturing technologies that offer better style with greater performance.
A favorable input-output ratio (lower input and higher output) is the hallmark of a well-styled product. Contrary to the perception that frequent stylistic changes promote repetitive and conspicuous consumption, style puts pressure on companies to design and manufacture products more efficiently. This, coupled with the greater emphasis on material recycling and environmental waste ensure that style leads to efficiency.
Style encourages creativity
Modern styling is not merely an art of shaping a product. It is a science of creating a hybrid substance that withstands the rigors of usage and environmental damage. A floor tile should not only be marble-like but also be skid-proof. A new cement blend has to not only create an elegant feel but also retain its appeal for a longer period of time. A new touch screen should not only click and display well but also has to be scratch proof. A speaker system in a flat panel TV has to be ingenuously designed to be invisible yet powerful. A medicinal tablet must be more potent to cure but smaller to swallow. Often, therefore, designers have to merge contradictory requirements to develop novel harmonized products. Conceptualization of such hybrid designs requires creativity in design of a higher order.
New technologies are often required to enable hybridization of designs. Polymer technologies helped design of better pharmaceuticals. From plasma to liquid crystal to light emitting designs, new signal conversion technologies helped newer flat panel displays. Wireless technologies unwired and uncluttered computer devices with better and non-intrusive connectivity. Nanotechnology promises to usher in a revolution in surface preparation, material efficacy and functional usage.
Style is also not necessarily limited to consumer interface. Industrial goods also benefit from style driven design. Introduction of “semi-forward cab” truck design, wherein the cab was partially mounted over the engine to provide a stylistic superiority over the conventional “engine outside the cab” designs is a case in point. This design catered to the driver’s preference for a hooded design (ostensibly for safety) while enabling maximum usable chassis space. Similarly, all components have to shrink in form but expand in performance as an automobile aims to become lighter, sleeker and yet more powerful and fuel-efficient.
Style promotes flexibility
Style can integrate or diversify product design. It can simplify or complicate need fulfillment. A single activity such as display of time can be accomplished by timepieces of myriad designs, shapes and colors. A wristwatch can also be converted into a diagnostic marvel by converting into a measure of relevant body parameters such as temperature, blood pressure, pulse rate and so on. The twin platforms of integrative design and diversified applications mirror the fusion of style and substance in product design.
Style enables a sharper focus on a latent user need and a greater alignment between the customer and developer. A paint development technology that enables a house-owner choose a novel combination by fusion of base colors ensures that the style reflects individuality. Dell’s marketing and supply chain innovation that enables users choose and assemble a computer configuration which meets their needs is an innovative anti-thesis of mass production of standard functional devices. Apart from functionality, style defines the personality of a user too. Ranges of products can be stylized to cater to generations of users.
Today’s consumer has a singular need but multiple desires. This need-desire matrix can be fulfilled by a combination of core and collateral functionalities that can be stylistically integrated. A dual time zone watch or radio controlled watch would provide greater satisfaction to a global traveler than a traditional watch would. A shock-proof and water-proof chronograph integrated watch would serve a sportsman better. Yet, styling innovations which integrate shades of peripheral time functionalities with core needs provide even greater flexibility to the user.
Style drives growth
The economic ramifications of stylistic changes in product design are rarely understood in perspective. At best, styling is seen as a demand generator, segmenting the market as it does in terms of multiple likes and preferences of customers. While the impact of customer segmentation, product diversification and market expansion are easy to see, not so visible is the underlying impact in industrial transformation.
At one level, style has driven the conception and growth of whole new streams of industries in personal effects and fast moving consumer goods space, from textiles, fashion apparel and personal accessories to soaps, cosmetics and daily care products. Styling and packaging have given a new life to the food processing industry and entire food value chain. Industries such as cellular phone industry which had no more than a single offering at the start today signify a style-driven litany of products.
Style not only creates new industries; it helps the established and mature industries to reinvent themselves and stay competitive. It renews the value chain and creates the need for new skills and new jobs. As an automobile, or for that matter any product, gets redesigned it triggers a cascade of new developmental and manufacturing activities across the value chain. From hundreds of designers who play with computer and clay models to thousands of engineers and technicians who create new tools, dies, materials, components, processes, assemblies, finishes, packages and deliveries in each firm, restyling stirs up a beehive of activities. The positive cascading impact on the host of economic, industrial, business and social activities is indeed the driver of growth.
Style needs management
Style drives not only economic growth but also enhances management complexity. The need to design, manufacture, supply and manage multiple SKUs, the need to service products of diverse generations and designs and the need to balance the cost push of product variety with the cost-attractiveness of manufacturing simplicity pose new challenges for managers. Many of these challenges can be met by enhanced process automation and use of information technology. Yet, each firm has to dynamically set its tipping points in determining the rate and pace of stylistic innovation.
Style is an amalgamation of the art of human behavior and science of product design. Successful designers are those who read consumer mind as perceptively as they understand the challenges of concurrent engineering of a new design, manufacturing and supply chain. They should have a 360 degree of the firm as a provider, with a competitive value chain, of innovative and differentiated products that meet human needs in an increasingly satisfactory fashion. Stretching the horizons of innovation with the practicality of utilitarian inventions, the stylist almost always accomplishes the seemingly impossible of giving to the consumer more for less. Nothing reflects the success of the amalgam of style and substance as Tata’s Nano micro-car does.
Designers, manufacturers and managers involved in the process have to view style and substance as an inseparable duo, representing the two sides of an innovation coin. Courses in industrial and product design and value chain management must treat styling as more than a cosmetic or emotive exercise, with a marketing endpoint. Styling is the essence of the progress of the society and economy, for tomorrow can, and should, never be the same as today in a developmental perspective. The quest for greater elegance, differentiation and efficiency as embodied by a constantly evolving fusion of style and substance defines the mankind’s progress.
Posted by Dr CB Rao on August 8, 2009.
Tuesday, July 28, 2009
Thought Leadership in Management : Current Drought and Future Potential
The theory and practice of management have been enriched over the past several decades by several thought leaders. It is a matter of dismay, however, that the last two decades have suffered from a dearth of fresh management thinking. Michael Porter’s theory of competitive strategy of the early 1980s still remains as the last game changing paradigm in managerial thought and practice. This paper reviews the past contributions and future imperatives.
Some of the best contributions ever
Modern management began in the late 1800s and early 1900s as an offshoot of economics on one hand and as an adjunct to industrial and social revolutions on the other. Several experts have proposed tools, techniques, theories and practices that not only were a function of the times but also endured to grow and adapt with the times.
Frank Gilbreth, Henry Gantt, Frederick Taylor, Joseph Juran, Shigeo Shingo, Agner Erlang, Henri Fayol, Herbert Simon, Walter Shewhart, Chester Barnard, Walter Scott, Ronald Fisher, Oliver Sheldon, Elton Mayo, Genichi Taguchi, Mary Follett, Russell Ackoff, Edward Deming, Peter Drucker, Armand Feigenbaum, Philip Crosby, David Ogilvy, Theodore Levitt, Henry Markovitz, Chris Argyris, Alfred Chandler, Richard Waterman, Rensis Likert, Douglas McGregor, Henry Mintzberg, Merton Miller, Franco Modigliani, Lawrence Peter, Philip Kotler, C K Prahalad, Michael Porter, Kenichi Ohmae, Tom Peters. Eliyahu Goldratt, Stephen Covey, Masahi Imai, Michael Hammer, Gary Hamel, Robert Kaplan, Pankaj Ghemawat and Sumantra Ghoshal are some of the eminent scholars and practitioners of management who provided path-breaking concepts. These experts came from diverse domains covering psychology, sociology, accounting, engineering, finance and economics, to name a few. Some were / are doctorates and served as professors in reputed universities such as Harvard, MIT and Wharton while others carried with them the wisdom of expertise and experience. They also came from different geographies of the world. Contributions of some of these are discussed below with the proviso that those not reviewed herein do not necessarily represent any less leading edge thoughts than the ones discussed below.
Frederick Taylor (1856-1915) was perhaps the first ever thought leader of management who pioneered the concepts of efficiency movement and productivity improvement. Acknowledged as the father of scientific management, Taylor brought precision and rationale to managerial processes, and laid the foundations for a whole new management science called industrial engineering.
Henry Ford (1863-1947), the founder of the Ford Motor Company pioneered the concept of modern assembly line as a tool of mass production. His introduction of Model T automobile revolutionized the transportation industry with concepts of standardization, cost leadership and customer reach. Ford was perhaps the only business leader who relied on inventions and management to create huge wealth, without his company employing any major accounting or auditing practices.
Alfred Sloan (1875-1966), the famed chief of General Motors was perhaps the antithesis of Ford. He grew General Motors as a global leader in automobiles, pioneering the concepts of product and customer differentiation, planned obsolescence and accounting driven management. He was also instrumental in establishing the concepts of market segmentation and product branding.
Abraham Maslow (1908-1970), the creative psychologist brought a new humanistic face to psychology to understand and define the basic motivators of human living and performance. His framework of the “5 need hierarchy” remains to date the fundamental foundation of managerial theories of motivation. Maslow created the psychological basis for human resources management to come on its own in an organizational setting.
Douglas McGregor (1906-1964), the management professor ushered in a radical transformation in the practice of people management with his Theory X and Theory Y. That people do not seek to avoid work but rather are intrinsically self-motivated to perform and that people could be motivated to perform not by autocratic control but by actualization opportunity were the pioneering changes in managerial mindset proposed by him. McGregor provided a practical and sustainable execution framework for Maslow’s need hierarchy.
Peter Drucker (1909-2005), one of the most prolific management writers, explored how humans are organized across all sections of the society, whether business, government or not-for-profit. He could predict and guide dramatic changes in management of economies, industries and organizations. His emphasis on lifelong learning and coinage of the term “knowledge worker” reflect the superior role he accorded to knowledge as a driver of growth. His multitude of books and countless scholarly and popular papers are a lasting contribution to management.
Henry Mintzberg, born in 1939, has been famous for his critical review of established organizational dogmas and hyped-up managerial styles. His theory of organizational forms threw new light on how organizations can be configured for performance. He is one of the few exponents of a process driven managerial culture in organizations. He made an incisive attempt at separating style and substance, especially with reference to strategic planning.
Kenichi Ohmae, born in 1943, belongs to a rare breed of Japanese management experts who made an impact on the global management space. A pioneer of “3C’s Model”, Ohmae is an authority on strategic management practice, which has a measure of universality covering multiple industrial sectors. With his academic depth and practical insight he defined a new paradigm of knowledge driven management consultancy.
Rensis Likert (1903-1981), proposed four systems of management applicable in industrial settings and commended a participative style of management. Likert developed and validated several hypotheses of relationship between employee management and corporate performance, linking individual attributes such as loyalty, attitude, motivation, etc. to variables of organizational achievement such as productivity, cost and earnings. His Likert Scale and Linking Pin Model are enduring contributions to studies of organizational structure and supervision.
Taiichi Ohno (1912-1990), the perceptive engineer of Toyota is considered to be the developer of the world-famous Toyota Production System. Perhaps, no system of operations management had as profound influence on industrial management as Ohno’s TPS had. It represented not only Toyota’s competitive advantage in global automobile manufacture but quickly became Japan’s national comparative advantage, which even today is unmatched by any nation. Ohno’s principles of “Just In Time” extended outside manufacture into virtually all facets of industrial management.
William Deming (1900-1993) was one of the foremost experts in quality control and quality management. He was respected for his quality management methodologies by the Japanese. His principles of business and quality management, and his teachings of statistical process control and other techniques to the Japanese companies contributed in no small measure to the eventual dominance of the Japanese in global quality standards. He earned an enduring place in history not only for his expertise in applying statistics for quality improvement, but also for his principles of management focused on quality.
Joseph Juran (1904-2008) was an evangelist for quality and quality management who fused the best of oriental and western quality and management practices. Juran’s trilogy of quality planning, quality control and quality improvement and his advocacy of cross-functional participation in quality were unique for the times. His application and adaptation of Pareto Principle (“vital few and useful many”) to quality management, his focus on human and cultural issues in quality improvement and his amalgamation of Japanese quality circle concepts in his quality teachings enabled him to assume a broader role in quality management in Japan, USA as well as other countries.
Theodore Levitt (1925-2006), was an epitome of marketing vision and creativity. Rarely did a single thesis influence the course of the discussion in the domains of marketing and business strategy as did his paper on marketing myopia. His was perhaps the first clarion call for the CEOs to view their businesses in broader rather than narrower contexts and redefine their product-market strategies to spur growth. Levitt was insightful, provocative, practical and pragmatic, offering a unique synthesis of academic and industrial perspectives.
Alfred Chandler (1918-2007), the eminent business historian researched and wrote extensively on the scale, scope, strategy and structure of modern corporations. Chandler’s identification of the large industrial firm as the focus and driver of economic growth and his thesis on how structure follows strategy of a firm are solid foundations of the modern theory of firm. His proposition of managerial processes rather than the market forces as the prime component of industrial revolution was perhaps the precursor for the later day management thoughts on corporation as an entity of competencies and competitive strategies.
Robert Kaplan (born 1940), the co-creator with David Norton, of the Balanced Score Card (BSC) provided a mechanism to connect a company’s current actions to its long term goals. The BSC has helped the industry captains with a methodology to empower as well as control its senior executives by means of several indicators that balance the short term and the long term. The BSC methodology seeks to convert even seemingly qualitative goals and activities into measurable deliverables and efforts, integrating individual and functional or business unit performance into corporate performance.
C K Prahalad (born 1941) belongs to the new generation of management gurus who focused attention on the corporation as an entity. Known globally as one of the most incisive and influential management thinkers, Prahalad propounded the theory of core competencies. His later research focused on emerging countries and how fortune could be found at the bottom of the pyramid by deploying innovative products and services, and by relying on corporate constructs that reach every segment of the population.
Michael Porter (born 1947) literally took the world of strategic management by storm with his path-breaking theories of competitive advantage and comparative advantage. His distilled analysis of the five forces of competition, generic competitive strategies, strategic grouping, entry barriers and mobility barriers and value chain management have helped business strategists and industry chiefs position their companies in a competitive manner for sustainable growth. No other management thinker has probably propounded strategy as a key driver of corporate, industry or even national performance as Porter has done.
Eliyahu Goldratt (born 1948), created new paradigms in project management and capacity scheduling by deploying unique systemic approaches and software solutions. Goldratt’s theory of constraints and critical chain project management techniques are designed to unlock value from a company’s assets, overcoming and correcting traditional employee and corporate practices that sub-optimize goal setting and execution in organizations. Few management thinkers and practitioners have been as iconoclastic and aggressive as Goldratt has been in propagation of production and operations management techniques that avowedly seek to convert turnover into profit for organizations.
Michael Hammer (1946-2008), the creator of the theory of business process reengineering was a highly influential thinker who believed that corporations ought to reinvent and reengineer themselves to stay competitive. He proposed that the way a business organizes itself structurally and the manner in which it conducts its business processes would strongly influence the efficiency and effectiveness of its business. While he focused on the operating nuts and bolts of business, Hammer’s uniqueness was in his emphasis on business processes rather than individual tasks.
An evolutionary spectrum of theories
A review of the works and contributions of the above thought leaders points out a few major thought paradigms.
As industries began to evolve around organization of people and industrial structures began to emerge, initial focus was on employee as the fulcrum of productivity. However, as economics and industries began to globalize, and as the larger multinational corporations and conglomerates began to dominate, with their share of successes as well as failures, management thoughts started focusing on survival and growth of firms in the face of intense competitive pressures.
The first stream focused on Taylorisim which focused on getting the best out of an individual through time and motion studies and scientific principles of management. The overriding influence was one of rigorous control of an employee and the work practices to optimize the man-machine interface.
The second stream (eg., Maslow, McGregor and Likert) aimed at understanding the organization behavioural factors of employee motivation and developed paradigms that controlled an employee less but motivated him more.
The third stream focused on viewing the industrial operations as a technology-practice driven system and maximizing the efficiency and effectiveness of the system as a whole. Contributions by Hendry Ford and Taiichi Ohno fall under this category.
A set of management thinkers such as Alfred Sloan and Alfred Chandler saw the firm as a mega corporation with relevant structure, strategy and system that would drive growth.
Quality exponents such as Deming and Juran instead focused on product and process quality as the key determinant of corporate success. Japan’s global success clearly validated their focus on quality as a driver of competitive performance.
In a more contemporary era, management gurus such as Prahalad and Porter saw firms as embodiments of unique sets of strategies and competencies that provide competitive advantage and differentiation. The period also saw the revival of the efficiency movement in different hues of reengineering and project management (for eg., by Goldratt at shop floor level and by Kaplan at business unit level). Including the contributions made by other scholars such as Hammer, Goldratt and Kaplan, this later generation of management thinkers proposed management theories that focused on energizing a corporate entity for superior performance.
Techno-management as the next frontier
The relative dearth of breakthrough theories in management beyond Porter’s competitive strategy of the 1980s raises several questions. Has the era of cutting edge management thinkers come to a close all too soon? Have the management thinkers moved over to the relatively more cozy and remunerative areas of management consultancy? Are the thinkers busier with setting up organizations structured around their past theories rather than continuing with their innovative pathways? Or, are the management scholars overwhelmed by the scope and rapidity with which technology is redefining the sustainability of firms and industries?
The answer to the drought in management thinking may eventually be found in the waves of creativity and innovation that have been sweeping the technological landscape. However, while management is seemingly upstaged by technology, it also provides the opportunity for management thinkers to develop new fusion models of technology and management, which the author would like to call as “techno-management”.
The technological trends influencing the industrial and economic scene may be categorized under one or all of the following phenomena: (i) convergence of functionalities, (ii) miniaturization of form factor, (iii) maximization of product performance, (iv) greening of technologies and (v) dominance of the Internet. As a result, product-market segments are in a continuous churn and rejig, with exponential expansion in product categories, market segments and value points.
Arising from these technological changes, the pace of product development has already accelerated over the last 10 years. Just one breakthrough product concept ends up triggering a slew of differentiated clones, each seeking to achieve dominance over the pioneering concept, as also over the rest of clones. Nowhere is this evident as in the mobile phone industry where one iPhone has triggered hundreds of touch phones with multiple features in competition.
Convergence of functionalities as a phenomenon is applicable to, and transcends, multiple product platforms. For example, a mobile phone is no longer a mere phone; it is a complete audio-video device combining in it the functionalities of a music system, data storage system, smart office system, video and camera system, web browsing system and a global positioning system. So is a laptop, moving from a position of data processor into a smart office system, video conference system and even a 3G enabled caller phone system.
Complementing convergence, the form factor design dramatically alters the visual appeal and handling of different products providing the much needed product diversity and differentiation even within the convergence of functionalities. Evolution of laptops into netbooks and extension of cellular phones into smart phones are two examples.
Miniaturization, an essential component of form factor redesign, is also accompanied by maximization of performance. The processor speeds and memory capacities in various electronic devices have increased nearly 10 fold in just as many years even as the devices and equipments became smaller and lighter. From conventional televisions to flat panels to ultra-slim panels, form factors drove creation of new market segments. Response times in flat panel LCD TVs, for example improved from 10 ms to 1 ms while the contract ratios jumped from 2000:1 to as high as 200,000:1. Computer RAM capacities moved up from 256 MB to as much as 5 GB even as hard disk capacity jumped from 50 GB to 500 GB (and even to 2 TB more recently). Power to weight ratios of diesel engines, EMFs of motors, delivery heights of pumps, tractive ability of rail engines, thrust capacity of rocket and missile launchers, to quote other examples, have all moved up significantly.
The ubiquitous electronic chip, ever smaller and faster, has become an essential component of every technological and management innovation that is focused on functional convergence, form design and product performance.
Even as devices and equipment change dramatically in form, performance and functionality, the material components of devices and equipment, and the feedstock materials that help operate are set to undergo fundamental changes. From recyclable plastics and metals to bio and alternative fuels, the entire material consumption and usage paradigm would undergo transformational changes. Cross-connectivity between industries as distant as agriculture and automobiles illustrates the metamorphosis that could occur in the materials domain. The ultimate objective, in the context of climate change and global warming would be to make the planet an ecologically harmonious eco-system that is as life-preserving as it is lifestyle providing.
The Internet, against this background, is shaping into an exponentially expanding source of information and decision-making. The Internet is likely to enhance pressure on innovation with several facets of information hitherto considered proprietary becoming open source information. The Internet will also become increasingly a search space for guidance and decisions rather than for data or information. The Internet would free valuable physical space hitherto dedicated for data computing and storage, with the expansion of “cloud computing”. Several social and industrial activities may be deeply affected as innovative Internet applications provide the added advantage of physical feel to the virtual handling of data and information in the Internet (eg., readability in page-flip type book form).
Given the magnitude of technological changes, a new generation of management thinkers has to emerge who would weave creative management approaches around the booming technological innovation. The focus of techno-management thinking will be a structural transformation of firms and industries based on massive changes in technologies.
Techno-management needs to prepare the firms for the impending technological changes, in several cases prompting the firms to lead the changes to stay competitive. Organizational structures and strategies must be in a state of dynamic equilibrium with changing product-market profiles. The product and process value chains must be defined across multiple industrial sectors to cope with the changing cross-industrial alignments. The author hypothesizes that the new breed of management thinkers will be pioneers in scientific and technological forecasting who can foresee new businesses riding on the wings of hitherto unforeseen technological changes.
Posted by Dr CB Rao on July 28, 2009
Some of the best contributions ever
Modern management began in the late 1800s and early 1900s as an offshoot of economics on one hand and as an adjunct to industrial and social revolutions on the other. Several experts have proposed tools, techniques, theories and practices that not only were a function of the times but also endured to grow and adapt with the times.
Frank Gilbreth, Henry Gantt, Frederick Taylor, Joseph Juran, Shigeo Shingo, Agner Erlang, Henri Fayol, Herbert Simon, Walter Shewhart, Chester Barnard, Walter Scott, Ronald Fisher, Oliver Sheldon, Elton Mayo, Genichi Taguchi, Mary Follett, Russell Ackoff, Edward Deming, Peter Drucker, Armand Feigenbaum, Philip Crosby, David Ogilvy, Theodore Levitt, Henry Markovitz, Chris Argyris, Alfred Chandler, Richard Waterman, Rensis Likert, Douglas McGregor, Henry Mintzberg, Merton Miller, Franco Modigliani, Lawrence Peter, Philip Kotler, C K Prahalad, Michael Porter, Kenichi Ohmae, Tom Peters. Eliyahu Goldratt, Stephen Covey, Masahi Imai, Michael Hammer, Gary Hamel, Robert Kaplan, Pankaj Ghemawat and Sumantra Ghoshal are some of the eminent scholars and practitioners of management who provided path-breaking concepts. These experts came from diverse domains covering psychology, sociology, accounting, engineering, finance and economics, to name a few. Some were / are doctorates and served as professors in reputed universities such as Harvard, MIT and Wharton while others carried with them the wisdom of expertise and experience. They also came from different geographies of the world. Contributions of some of these are discussed below with the proviso that those not reviewed herein do not necessarily represent any less leading edge thoughts than the ones discussed below.
Frederick Taylor (1856-1915) was perhaps the first ever thought leader of management who pioneered the concepts of efficiency movement and productivity improvement. Acknowledged as the father of scientific management, Taylor brought precision and rationale to managerial processes, and laid the foundations for a whole new management science called industrial engineering.
Henry Ford (1863-1947), the founder of the Ford Motor Company pioneered the concept of modern assembly line as a tool of mass production. His introduction of Model T automobile revolutionized the transportation industry with concepts of standardization, cost leadership and customer reach. Ford was perhaps the only business leader who relied on inventions and management to create huge wealth, without his company employing any major accounting or auditing practices.
Alfred Sloan (1875-1966), the famed chief of General Motors was perhaps the antithesis of Ford. He grew General Motors as a global leader in automobiles, pioneering the concepts of product and customer differentiation, planned obsolescence and accounting driven management. He was also instrumental in establishing the concepts of market segmentation and product branding.
Abraham Maslow (1908-1970), the creative psychologist brought a new humanistic face to psychology to understand and define the basic motivators of human living and performance. His framework of the “5 need hierarchy” remains to date the fundamental foundation of managerial theories of motivation. Maslow created the psychological basis for human resources management to come on its own in an organizational setting.
Douglas McGregor (1906-1964), the management professor ushered in a radical transformation in the practice of people management with his Theory X and Theory Y. That people do not seek to avoid work but rather are intrinsically self-motivated to perform and that people could be motivated to perform not by autocratic control but by actualization opportunity were the pioneering changes in managerial mindset proposed by him. McGregor provided a practical and sustainable execution framework for Maslow’s need hierarchy.
Peter Drucker (1909-2005), one of the most prolific management writers, explored how humans are organized across all sections of the society, whether business, government or not-for-profit. He could predict and guide dramatic changes in management of economies, industries and organizations. His emphasis on lifelong learning and coinage of the term “knowledge worker” reflect the superior role he accorded to knowledge as a driver of growth. His multitude of books and countless scholarly and popular papers are a lasting contribution to management.
Henry Mintzberg, born in 1939, has been famous for his critical review of established organizational dogmas and hyped-up managerial styles. His theory of organizational forms threw new light on how organizations can be configured for performance. He is one of the few exponents of a process driven managerial culture in organizations. He made an incisive attempt at separating style and substance, especially with reference to strategic planning.
Kenichi Ohmae, born in 1943, belongs to a rare breed of Japanese management experts who made an impact on the global management space. A pioneer of “3C’s Model”, Ohmae is an authority on strategic management practice, which has a measure of universality covering multiple industrial sectors. With his academic depth and practical insight he defined a new paradigm of knowledge driven management consultancy.
Rensis Likert (1903-1981), proposed four systems of management applicable in industrial settings and commended a participative style of management. Likert developed and validated several hypotheses of relationship between employee management and corporate performance, linking individual attributes such as loyalty, attitude, motivation, etc. to variables of organizational achievement such as productivity, cost and earnings. His Likert Scale and Linking Pin Model are enduring contributions to studies of organizational structure and supervision.
Taiichi Ohno (1912-1990), the perceptive engineer of Toyota is considered to be the developer of the world-famous Toyota Production System. Perhaps, no system of operations management had as profound influence on industrial management as Ohno’s TPS had. It represented not only Toyota’s competitive advantage in global automobile manufacture but quickly became Japan’s national comparative advantage, which even today is unmatched by any nation. Ohno’s principles of “Just In Time” extended outside manufacture into virtually all facets of industrial management.
William Deming (1900-1993) was one of the foremost experts in quality control and quality management. He was respected for his quality management methodologies by the Japanese. His principles of business and quality management, and his teachings of statistical process control and other techniques to the Japanese companies contributed in no small measure to the eventual dominance of the Japanese in global quality standards. He earned an enduring place in history not only for his expertise in applying statistics for quality improvement, but also for his principles of management focused on quality.
Joseph Juran (1904-2008) was an evangelist for quality and quality management who fused the best of oriental and western quality and management practices. Juran’s trilogy of quality planning, quality control and quality improvement and his advocacy of cross-functional participation in quality were unique for the times. His application and adaptation of Pareto Principle (“vital few and useful many”) to quality management, his focus on human and cultural issues in quality improvement and his amalgamation of Japanese quality circle concepts in his quality teachings enabled him to assume a broader role in quality management in Japan, USA as well as other countries.
Theodore Levitt (1925-2006), was an epitome of marketing vision and creativity. Rarely did a single thesis influence the course of the discussion in the domains of marketing and business strategy as did his paper on marketing myopia. His was perhaps the first clarion call for the CEOs to view their businesses in broader rather than narrower contexts and redefine their product-market strategies to spur growth. Levitt was insightful, provocative, practical and pragmatic, offering a unique synthesis of academic and industrial perspectives.
Alfred Chandler (1918-2007), the eminent business historian researched and wrote extensively on the scale, scope, strategy and structure of modern corporations. Chandler’s identification of the large industrial firm as the focus and driver of economic growth and his thesis on how structure follows strategy of a firm are solid foundations of the modern theory of firm. His proposition of managerial processes rather than the market forces as the prime component of industrial revolution was perhaps the precursor for the later day management thoughts on corporation as an entity of competencies and competitive strategies.
Robert Kaplan (born 1940), the co-creator with David Norton, of the Balanced Score Card (BSC) provided a mechanism to connect a company’s current actions to its long term goals. The BSC has helped the industry captains with a methodology to empower as well as control its senior executives by means of several indicators that balance the short term and the long term. The BSC methodology seeks to convert even seemingly qualitative goals and activities into measurable deliverables and efforts, integrating individual and functional or business unit performance into corporate performance.
C K Prahalad (born 1941) belongs to the new generation of management gurus who focused attention on the corporation as an entity. Known globally as one of the most incisive and influential management thinkers, Prahalad propounded the theory of core competencies. His later research focused on emerging countries and how fortune could be found at the bottom of the pyramid by deploying innovative products and services, and by relying on corporate constructs that reach every segment of the population.
Michael Porter (born 1947) literally took the world of strategic management by storm with his path-breaking theories of competitive advantage and comparative advantage. His distilled analysis of the five forces of competition, generic competitive strategies, strategic grouping, entry barriers and mobility barriers and value chain management have helped business strategists and industry chiefs position their companies in a competitive manner for sustainable growth. No other management thinker has probably propounded strategy as a key driver of corporate, industry or even national performance as Porter has done.
Eliyahu Goldratt (born 1948), created new paradigms in project management and capacity scheduling by deploying unique systemic approaches and software solutions. Goldratt’s theory of constraints and critical chain project management techniques are designed to unlock value from a company’s assets, overcoming and correcting traditional employee and corporate practices that sub-optimize goal setting and execution in organizations. Few management thinkers and practitioners have been as iconoclastic and aggressive as Goldratt has been in propagation of production and operations management techniques that avowedly seek to convert turnover into profit for organizations.
Michael Hammer (1946-2008), the creator of the theory of business process reengineering was a highly influential thinker who believed that corporations ought to reinvent and reengineer themselves to stay competitive. He proposed that the way a business organizes itself structurally and the manner in which it conducts its business processes would strongly influence the efficiency and effectiveness of its business. While he focused on the operating nuts and bolts of business, Hammer’s uniqueness was in his emphasis on business processes rather than individual tasks.
An evolutionary spectrum of theories
A review of the works and contributions of the above thought leaders points out a few major thought paradigms.
As industries began to evolve around organization of people and industrial structures began to emerge, initial focus was on employee as the fulcrum of productivity. However, as economics and industries began to globalize, and as the larger multinational corporations and conglomerates began to dominate, with their share of successes as well as failures, management thoughts started focusing on survival and growth of firms in the face of intense competitive pressures.
The first stream focused on Taylorisim which focused on getting the best out of an individual through time and motion studies and scientific principles of management. The overriding influence was one of rigorous control of an employee and the work practices to optimize the man-machine interface.
The second stream (eg., Maslow, McGregor and Likert) aimed at understanding the organization behavioural factors of employee motivation and developed paradigms that controlled an employee less but motivated him more.
The third stream focused on viewing the industrial operations as a technology-practice driven system and maximizing the efficiency and effectiveness of the system as a whole. Contributions by Hendry Ford and Taiichi Ohno fall under this category.
A set of management thinkers such as Alfred Sloan and Alfred Chandler saw the firm as a mega corporation with relevant structure, strategy and system that would drive growth.
Quality exponents such as Deming and Juran instead focused on product and process quality as the key determinant of corporate success. Japan’s global success clearly validated their focus on quality as a driver of competitive performance.
In a more contemporary era, management gurus such as Prahalad and Porter saw firms as embodiments of unique sets of strategies and competencies that provide competitive advantage and differentiation. The period also saw the revival of the efficiency movement in different hues of reengineering and project management (for eg., by Goldratt at shop floor level and by Kaplan at business unit level). Including the contributions made by other scholars such as Hammer, Goldratt and Kaplan, this later generation of management thinkers proposed management theories that focused on energizing a corporate entity for superior performance.
Techno-management as the next frontier
The relative dearth of breakthrough theories in management beyond Porter’s competitive strategy of the 1980s raises several questions. Has the era of cutting edge management thinkers come to a close all too soon? Have the management thinkers moved over to the relatively more cozy and remunerative areas of management consultancy? Are the thinkers busier with setting up organizations structured around their past theories rather than continuing with their innovative pathways? Or, are the management scholars overwhelmed by the scope and rapidity with which technology is redefining the sustainability of firms and industries?
The answer to the drought in management thinking may eventually be found in the waves of creativity and innovation that have been sweeping the technological landscape. However, while management is seemingly upstaged by technology, it also provides the opportunity for management thinkers to develop new fusion models of technology and management, which the author would like to call as “techno-management”.
The technological trends influencing the industrial and economic scene may be categorized under one or all of the following phenomena: (i) convergence of functionalities, (ii) miniaturization of form factor, (iii) maximization of product performance, (iv) greening of technologies and (v) dominance of the Internet. As a result, product-market segments are in a continuous churn and rejig, with exponential expansion in product categories, market segments and value points.
Arising from these technological changes, the pace of product development has already accelerated over the last 10 years. Just one breakthrough product concept ends up triggering a slew of differentiated clones, each seeking to achieve dominance over the pioneering concept, as also over the rest of clones. Nowhere is this evident as in the mobile phone industry where one iPhone has triggered hundreds of touch phones with multiple features in competition.
Convergence of functionalities as a phenomenon is applicable to, and transcends, multiple product platforms. For example, a mobile phone is no longer a mere phone; it is a complete audio-video device combining in it the functionalities of a music system, data storage system, smart office system, video and camera system, web browsing system and a global positioning system. So is a laptop, moving from a position of data processor into a smart office system, video conference system and even a 3G enabled caller phone system.
Complementing convergence, the form factor design dramatically alters the visual appeal and handling of different products providing the much needed product diversity and differentiation even within the convergence of functionalities. Evolution of laptops into netbooks and extension of cellular phones into smart phones are two examples.
Miniaturization, an essential component of form factor redesign, is also accompanied by maximization of performance. The processor speeds and memory capacities in various electronic devices have increased nearly 10 fold in just as many years even as the devices and equipments became smaller and lighter. From conventional televisions to flat panels to ultra-slim panels, form factors drove creation of new market segments. Response times in flat panel LCD TVs, for example improved from 10 ms to 1 ms while the contract ratios jumped from 2000:1 to as high as 200,000:1. Computer RAM capacities moved up from 256 MB to as much as 5 GB even as hard disk capacity jumped from 50 GB to 500 GB (and even to 2 TB more recently). Power to weight ratios of diesel engines, EMFs of motors, delivery heights of pumps, tractive ability of rail engines, thrust capacity of rocket and missile launchers, to quote other examples, have all moved up significantly.
The ubiquitous electronic chip, ever smaller and faster, has become an essential component of every technological and management innovation that is focused on functional convergence, form design and product performance.
Even as devices and equipment change dramatically in form, performance and functionality, the material components of devices and equipment, and the feedstock materials that help operate are set to undergo fundamental changes. From recyclable plastics and metals to bio and alternative fuels, the entire material consumption and usage paradigm would undergo transformational changes. Cross-connectivity between industries as distant as agriculture and automobiles illustrates the metamorphosis that could occur in the materials domain. The ultimate objective, in the context of climate change and global warming would be to make the planet an ecologically harmonious eco-system that is as life-preserving as it is lifestyle providing.
The Internet, against this background, is shaping into an exponentially expanding source of information and decision-making. The Internet is likely to enhance pressure on innovation with several facets of information hitherto considered proprietary becoming open source information. The Internet will also become increasingly a search space for guidance and decisions rather than for data or information. The Internet would free valuable physical space hitherto dedicated for data computing and storage, with the expansion of “cloud computing”. Several social and industrial activities may be deeply affected as innovative Internet applications provide the added advantage of physical feel to the virtual handling of data and information in the Internet (eg., readability in page-flip type book form).
Given the magnitude of technological changes, a new generation of management thinkers has to emerge who would weave creative management approaches around the booming technological innovation. The focus of techno-management thinking will be a structural transformation of firms and industries based on massive changes in technologies.
Techno-management needs to prepare the firms for the impending technological changes, in several cases prompting the firms to lead the changes to stay competitive. Organizational structures and strategies must be in a state of dynamic equilibrium with changing product-market profiles. The product and process value chains must be defined across multiple industrial sectors to cope with the changing cross-industrial alignments. The author hypothesizes that the new breed of management thinkers will be pioneers in scientific and technological forecasting who can foresee new businesses riding on the wings of hitherto unforeseen technological changes.
Posted by Dr CB Rao on July 28, 2009
Monday, July 20, 2009
Indian Medical Metropolis : A Conceptual Aspiration for Global Healthcare
Indian corporate hospitals, specialist doctors and surgeons have achieved a reputation for treating challenging diseases and surgical cases in a manner comparable with some of the world’s best hospitals. So much so, medical tourism has become an accepted phrase to define the phenomenon of overseas citizens, especially from emerging countries, visiting India to seek advanced treatments. Even the much derided government hospitals and also the better-respected railway hospitals have produced some of India’s finest physicians and surgeons. That said, Indian hospitals have some way to go before they match the best in the world in terms of hospital infrastructure, medical skills, nursing care and patient satisfaction. This paper develops a conceptual framework for a Medical Metropolis infrastructure in India that could lead a revolution in terms of India-centric global healthcare.
What constrains Indian hospitals?
The Indian hospital system has its basic roots and foundations in the government hospital network that focused on cities and towns, and in the public health and rural heath dispensary network that catered to the other parts of the country. Treatment was largely free but infrastructure (wards, theatres and equipment) tended to be poor and medical care insufficient. The public health system was constrained by low budgetary allocations and burdened by growing population. A few national health institutes were set up but to no avail, given the magnitude of healthcare needs. Despite successive five year plans, not much has changed in the public hospital system.
Though some great hospitals have been set up by industrialists and philanthropists, post-Indian independence in the private sector, it was only in the 1980s that the first Indian corporate initiative took shape in India. Since then, several corporate hospital establishments have emerged across the nation, some with geographic focus and some with pan-Indian footprint. Though most corporate initiatives confined themselves to metropolitan cities, a few have extended themselves to second tier cities. One group has ventured into rural medicine and tele-medicine as well. Charitable and voluntary health institutions have also been set up by socially conscious individuals and citizen groups.
Impressive as these achievements are, the Indian corporate hospital system, in the overall, is a relatively inaccessible monopoly with inadequate infrastructure and overworked doctors, insufficient nursing and uninsured patient population. The better known hospitals face severe patient and caretaker overload while ordinary hospitals lack the fundamentals of standard medical care. Even the larger hospitals fail to leverage information technology to achieve operational excellence and customer satisfaction.
Hospitals, the world over, face a classic efficacy-affordability dilemma. On one hand, cutting edge treatments cause cost increases while the growing burden of healthcare requires low cost treatment solutions. Typically, corporate structures drive up investor expectations of high returns while scale and scope demand infrastructural investments that have long gestation periods. If a truly global hospital system is to be established in India innovative financial solutions have to be formulated; however, prior to that what a truly global hospital system entails needs to be defined.
A global hospital system – the Medical Metropolis concept
A truly global hospital system needs to combine scale, scope and competence. In this model, it must have all the specialties relevant for alleviation of human suffering and promotion of wellness, not necessarily the few that drive high bed-occupancy or profitable corporate earnings.
From pediatrics to geriatrics, from initial birth to terminal illness and from planned treatment to emergency intervention, a world-class hospital system should be able to meet all the needs. In addition, the hospital should have an educational and social infrastructure that could position the hospital as a sustainable hub of medical tourism, and development. A hospital established on the above lines would, in fact, be a Medical Metropolis where the society develops around the hospital nucleus. However, to qualify as a growth trigger, the hospital should be truly world-class and differentiated.
Each such Medical Metropolis would need to build its outstanding and core competencies in some specialties while at the same time ensuring the presence of all the therapeutic categories, as a one-stop shop. This would be essential for timely and integrated patient care on a global scale. Ideally, therefore, a global hospital should have a three-tier system of super specialty, core specialty and generic specialty medical care.
In each specialty, there needs to be a relevant mix of cutting-edge physician and surgical services, state-of-the-art diagnostics, personalized nursing care, accessible pharmacy services and computerized patient management systems. Each specialty also must focus on a mix of outpatient and inpatient services to balance effective treatment with affordable cost. To support high standards of patient care and doctor availability, the hospital should take on board doctors and surgeons who are willing to dedicate themselves to only that institution.
A global hospital must compete favorably with the world’s best in terms of infrastructure and equipment. A futuristic corporate vision and a modular design strategy are essential to support competitive infrastructure. While the vision must be driven by corporate considerations of scale, scope and competence, the strategy must be driven by patient considerations of cure, care and comfort. Engineering provides the key to a synergistic fusion of these six essential attributes.
Indian hospitals suffer from a low priority accorded to facility engineering. Typically, all facilities and specialties are housed in one large block designed for a today that minimizes the investment rather than for a tomorrow that will see a patient surge. As a result, typical Indian hospitals suffer from crowded corridors and waiting rooms, cramped consultancy suites, shared diagnostic services, inadequate environmental controls and poor patient isolation systems. Walls, floors and ceilings are often of residential or commercial quality. The environmental standards and entry/exit protocols for operation theatres are not designed for 24 by 7 aseptic controls. Intensive care units are not designed around individual diseases and instead are used to house patients of diverse diseases, leading to possibilities of cross-infection.
A global hospital could adopt as a design option, a hub and spoke facility engineering strategy. As per this, each specialty (super, core or generic) would be housed in a dedicated specialty block, with its own primary wards, diagnostic laboratories and operation theatres. All the specialty blocks would be connected to a central sophisticated diagnostic facility which will house only the highly advanced facilities such as Gamma Camera, PET Scanner and Multi-speed MRI. All other equipment such as X- ray, Ultra-sound, Doppler, ECG and CT Scanners would be housed in individual blocks. Where treatment requires additional sophisticated equipment (for example, the Gamma Knife, Linear Accelerator, Multilead Collimeter in respect of oncology, and Light Speed CT and Radial Lounge in respect of cardiovascular surgery) such facilities must be integrated within the specializations. While this design philosophy may appear to be investment-intensive, it would be relevant and beneficial in terms of fulfilling the above six attributes. Establishment of world scale capacity would be a prerequisite for a globally competitive hospital.
The facility design should provide separate entry corridors for unhindered emergency cases, backed by a multi-specialty emergency ward, with appropriate connectivity to the central hospital services.
Hospital acquired infections, especially from multi-drug resistant bugs is a world-wide concern. An ability to assure sterility in super-critical areas such as operation theatres, endotoxin-free environment in intensive care units and appropriate clean environment in all zones would be a key differentiator for a world-class hospital. It is essential to achieve this by adopting sterility assurance and clean room practices from pharmaceutical companies manufacturing aseptic products.
The design for sterility assurance would involve deployment of sophisticated HVAC systems with HEPA filters and ensuring requisite air changes. Operation theatres, together with preparation rooms, recovery rooms, dispensing rooms, equipment rooms should be treated as integrated units with positive air differentials and door locks as required.
Corridor design assumes great importance. A surgical floor especially would require at least two dedicated corridors, one for patients and doctors as well as sterile materials and the other for infectious materials. Lifts and elevators should be designed to facilitate non-contaminating movement as above. Change rooms, washing facilities, lockers for street clothes and infection eradicating solutions should be provided logically at applicable points.
It is also important to establish modern laundries on the site with steam sterilizers for patient, doctor and nurse gowning materials and autoclave equipment for sterilization of surgical garments and instruments. Fumigation systems, agents and cycles should be established and validated. Utilities for uninterrupted power, steam, air, oxygen and other hospital essentials have to be designed for peak performance of the hospital facility.
Medicare through systems and processes
The success of modern medicine and surgery lies in the rapid development of specializations and high-end pharmaceutical products. This emphasis on specialization has, at the same time, become the bane of modern medicine with the human body being treated as several specialized parts rather than one integrated whole. The premium for specialization has also placed skill ahead of system and ego ahead of empathy. Despite the growing evidence that several disorders are interconnected (eg., metabolic syndrome), that there is so much more to be understood of human physiology (eg., cancer), that pharmacogenomics is still a nascent science (eg., genetic variability) and that pharmaceutical treatment is still imprecise (eg., unknown side effects, drug interactions and contraindications), modern medical practitioners are increasingly dismissive of the need to treat any disease in a holistic way.
A true hospital should bring in systems and processes, leveraging information technology to a large extent, to keep a complete track of the patient’s physiology in a wholesome manner. Systems such as co-lead in treatment, peer review of treatment at entry and exit as well as progress milestones and independent quality audit of patient treatment need to be implemented.
As with aseptic pharmaceutical facilities, sterility has to be built in by design engineering, assured by validation processes, and further reinforced by infection control processes. This requires establishment of a quality assurance division, right from the green-field stage so that the facilities are designed and executed in the right manner, all equipment are validated and all processes are implemented with total compliance. Drawing up of SOPs and training of all personnel would be critical requirements. Defining and implementing Good Clinical Practice (GCP) would go a long way in not only sterility assurance and infection control but also in overall medical treatment.
Given the equal priority to be accorded to outpatient and inpatient care, it is imperative that the facilities are designed to separate the entry and exit systems for outpatients and inpatients and their respective caretakers, providing for adequate waiting space for different categories of patients and caretakers. Outpatient blocks should ideally be designed for different specialties and backed by relevant dedicated laboratory services.
The Medical Metropolis should have a wellness campus which provides rehabilitation and rejuvenation services, deploying a wide range of Indian and oriental methods. Yoga and meditation can contribute to a total treatment paradigm while Ayurveda can provide natural cures. A Spa, gymnasium, joggers’ track, nutritional laboratory and fitness studio can help the treated patients and their caretakers explore new horizons in healthy living.
Also relevant would be a geriatric medicine centre which could also extend into an old age home dedicated for the care of senior citizens with NGO or socially conscious corporate groups or charitable entities. Arguably, a home health service is also a primary need to take care of an ageing society. It will not only reduce the pressure on hospital services but also enhance customer relationship management, building in the process excellent brand equity for the Medical Metropolis.
Hospital as an eco-system
The above specifications would certainly help build and manage a world-class hospital. However, a more holistic living experience remains an aspiration and a gap. A hospital campus is almost inevitably seen as a place where concern, anxiety and seriousness reign supreme, to be ultimately relieved as a patient gets cured. The patient is central to the current hospital designs. Little emphasis is placed on caretakers and overall pre-admission and post-admission lives of either the patients or their caretakers. However, a hospital can be a microcosm of the society with all its thrills and frills. That alone can capture India’s potential as the global hub of medical tourism.
Entrepreneurs and corporate groups should look at setting up a global hospital in the larger canvas of creating a global metropolis, where the hospital is merely an integral and helpful part of a mini-society. The global hospital eco-system would have education, culture, entertainment, township for hospital employees, hotels and hospitality services, to mention a few social facets that would supplement the hospital infrastructure.
A global hospital eco-system should be a fountain of talent. Three types of educational institutions would provide an educational trigger for growth of the hospital system itself. A medical college dedicated to graduate, post-graduate and research courses, a paramedical college which is focused on developing paramedics such as physiotherapists, speech therapists, rehabilitation specialists, biochemists, laboratory and biomedical technicians and a nursing college which will provide the much-needed stock of qualified nurses would lay a robust talent base not only for the hospital but for the larger society itself.
Working in a global hospital which offers the world’s most competitive services will be a high pressure job, often involving extended sessions in theatres, wards and consultancy suites. The workforce would be productive and logistically efficient if the eco-system includes a township for different categories of employees including medical professionals. Quarters for nurses and technicians as well as employees of essential utilities would ensure that the hospital can be run with the highest degree of assurance as well as employee convenience.
Medical tourism would rest on a creative and comfortable exposure to the myriad hues of Indian culture. Ideally, the eco-system should have a cultural village where Indian arts, both ancient and contemporary, are showcased. The village could also house Indian handicrafts and organize periodic cultural fairs. Strategic tie-ups can be had with other cultural and tourist spots in the vicinity for providing a holistic cultural experience to the caretakers.
The medical eco-system will also house a multiplex which will offer state-of-the-art cinematic and artistic experiences alongside an exciting shopping experience. With multiple screens and stages catering to movies and fine arts in Indian and foreign languages the multiplex can attract not only the medical tourists but also the city residents themselves. The shopping complex should sport more Indian labels than foreign labels so that the medical tourists can carry back the high quality Indian goods at competitive prices. Textiles, handicrafts, jewellery and other consumer goods could have a pride of place.
In several hospitals the world over, the caretakers and families of the patients get short shrift. Overcrowding in hospital corridors and/or expensive stays at far-off places severely depress the emotional and economic wellbeing of the families of the patients. Establishment of caretaker dormitories and budget as well as star hotels for the visiting families would help the families of patients visit India with greater assurance and comfort. A spectrum of restaurants offering the wide range of Indian cuisine would complete the picture.
Needless to add, the eco-system will be efficient only when it has banking services (including ATMs), travel services and telecommunication services in ample measure. Complete wi-fi coverage all across the Medical Metropolis would be essential in these times. Rental services for cellular phones, laptops, net books and other gadgets will help the caretakers remain connected and even carry out official and personal chores seamlessly.
Financing the Metropolis
A globally-competitive yet uniquely Indian Medical Metropolis is probably akin to creating a whole new city based on medical science and expertise. At the very least, a Medical Metropolis of the order envisaged would require land bank of 2500 to 5000 acres with approved land-use zoning and future expansion opportunities. It would well qualify as an infrastructural project.
The Indian governments (Central and State) should support the Medical Metropolis projects by providing land at subsidized rates in return for a mix of free treatment, free beds for below-the-poverty-line (BPL) population and royalties from revenues. This would need to be supplemented by soft loans from banking institutions for project funding.
The financial profile of India Corporate hospitals significantly varies, given the vast difference in bed strength, from say 80 to 8000 beds, and in the network of hospitals, from 1 to 40. Two of the largest groups have deployed USD 150 million and USD 360 million as capital to develop network of 10 and 40 hospitals respectively, with bed strengths of 2000 and 7500 respectively. Clearly, even with corporate structures, Indian hospitals are substantially cheaper to establish and operate.
Given the scale and scope of facilities proposed for a Medical Metropolis it is to be expected that the investment cost will be around 2X of the current investment norms. It may also be economically unviable for a single entity to bear all the infrastructural investments relating to the non-hospital assets. The governments and the lending institutions should allow the lead sponsor to rope in partners for each of the additional social infrastructural items such as education, culture, entertainment, hotels and hospitality services. A special purpose vehicle backed by a consortium of corporations with expertise in each of the areas and private equity firms will be ideally equipped to launch and develop the Medical Metropolis concept.
The concept of Medical Metropolis could achieve for India, in the healthcare sector, what the concept of industrial estates and special economic zones have done for China (and even India) in terms of globally competitive development, benefitting not only the national economy but national and international healthcare as well.
Posted by Dr CB Rao on July 20, 2009.
What constrains Indian hospitals?
The Indian hospital system has its basic roots and foundations in the government hospital network that focused on cities and towns, and in the public health and rural heath dispensary network that catered to the other parts of the country. Treatment was largely free but infrastructure (wards, theatres and equipment) tended to be poor and medical care insufficient. The public health system was constrained by low budgetary allocations and burdened by growing population. A few national health institutes were set up but to no avail, given the magnitude of healthcare needs. Despite successive five year plans, not much has changed in the public hospital system.
Though some great hospitals have been set up by industrialists and philanthropists, post-Indian independence in the private sector, it was only in the 1980s that the first Indian corporate initiative took shape in India. Since then, several corporate hospital establishments have emerged across the nation, some with geographic focus and some with pan-Indian footprint. Though most corporate initiatives confined themselves to metropolitan cities, a few have extended themselves to second tier cities. One group has ventured into rural medicine and tele-medicine as well. Charitable and voluntary health institutions have also been set up by socially conscious individuals and citizen groups.
Impressive as these achievements are, the Indian corporate hospital system, in the overall, is a relatively inaccessible monopoly with inadequate infrastructure and overworked doctors, insufficient nursing and uninsured patient population. The better known hospitals face severe patient and caretaker overload while ordinary hospitals lack the fundamentals of standard medical care. Even the larger hospitals fail to leverage information technology to achieve operational excellence and customer satisfaction.
Hospitals, the world over, face a classic efficacy-affordability dilemma. On one hand, cutting edge treatments cause cost increases while the growing burden of healthcare requires low cost treatment solutions. Typically, corporate structures drive up investor expectations of high returns while scale and scope demand infrastructural investments that have long gestation periods. If a truly global hospital system is to be established in India innovative financial solutions have to be formulated; however, prior to that what a truly global hospital system entails needs to be defined.
A global hospital system – the Medical Metropolis concept
A truly global hospital system needs to combine scale, scope and competence. In this model, it must have all the specialties relevant for alleviation of human suffering and promotion of wellness, not necessarily the few that drive high bed-occupancy or profitable corporate earnings.
From pediatrics to geriatrics, from initial birth to terminal illness and from planned treatment to emergency intervention, a world-class hospital system should be able to meet all the needs. In addition, the hospital should have an educational and social infrastructure that could position the hospital as a sustainable hub of medical tourism, and development. A hospital established on the above lines would, in fact, be a Medical Metropolis where the society develops around the hospital nucleus. However, to qualify as a growth trigger, the hospital should be truly world-class and differentiated.
Each such Medical Metropolis would need to build its outstanding and core competencies in some specialties while at the same time ensuring the presence of all the therapeutic categories, as a one-stop shop. This would be essential for timely and integrated patient care on a global scale. Ideally, therefore, a global hospital should have a three-tier system of super specialty, core specialty and generic specialty medical care.
In each specialty, there needs to be a relevant mix of cutting-edge physician and surgical services, state-of-the-art diagnostics, personalized nursing care, accessible pharmacy services and computerized patient management systems. Each specialty also must focus on a mix of outpatient and inpatient services to balance effective treatment with affordable cost. To support high standards of patient care and doctor availability, the hospital should take on board doctors and surgeons who are willing to dedicate themselves to only that institution.
A global hospital must compete favorably with the world’s best in terms of infrastructure and equipment. A futuristic corporate vision and a modular design strategy are essential to support competitive infrastructure. While the vision must be driven by corporate considerations of scale, scope and competence, the strategy must be driven by patient considerations of cure, care and comfort. Engineering provides the key to a synergistic fusion of these six essential attributes.
Indian hospitals suffer from a low priority accorded to facility engineering. Typically, all facilities and specialties are housed in one large block designed for a today that minimizes the investment rather than for a tomorrow that will see a patient surge. As a result, typical Indian hospitals suffer from crowded corridors and waiting rooms, cramped consultancy suites, shared diagnostic services, inadequate environmental controls and poor patient isolation systems. Walls, floors and ceilings are often of residential or commercial quality. The environmental standards and entry/exit protocols for operation theatres are not designed for 24 by 7 aseptic controls. Intensive care units are not designed around individual diseases and instead are used to house patients of diverse diseases, leading to possibilities of cross-infection.
A global hospital could adopt as a design option, a hub and spoke facility engineering strategy. As per this, each specialty (super, core or generic) would be housed in a dedicated specialty block, with its own primary wards, diagnostic laboratories and operation theatres. All the specialty blocks would be connected to a central sophisticated diagnostic facility which will house only the highly advanced facilities such as Gamma Camera, PET Scanner and Multi-speed MRI. All other equipment such as X- ray, Ultra-sound, Doppler, ECG and CT Scanners would be housed in individual blocks. Where treatment requires additional sophisticated equipment (for example, the Gamma Knife, Linear Accelerator, Multilead Collimeter in respect of oncology, and Light Speed CT and Radial Lounge in respect of cardiovascular surgery) such facilities must be integrated within the specializations. While this design philosophy may appear to be investment-intensive, it would be relevant and beneficial in terms of fulfilling the above six attributes. Establishment of world scale capacity would be a prerequisite for a globally competitive hospital.
The facility design should provide separate entry corridors for unhindered emergency cases, backed by a multi-specialty emergency ward, with appropriate connectivity to the central hospital services.
Hospital acquired infections, especially from multi-drug resistant bugs is a world-wide concern. An ability to assure sterility in super-critical areas such as operation theatres, endotoxin-free environment in intensive care units and appropriate clean environment in all zones would be a key differentiator for a world-class hospital. It is essential to achieve this by adopting sterility assurance and clean room practices from pharmaceutical companies manufacturing aseptic products.
The design for sterility assurance would involve deployment of sophisticated HVAC systems with HEPA filters and ensuring requisite air changes. Operation theatres, together with preparation rooms, recovery rooms, dispensing rooms, equipment rooms should be treated as integrated units with positive air differentials and door locks as required.
Corridor design assumes great importance. A surgical floor especially would require at least two dedicated corridors, one for patients and doctors as well as sterile materials and the other for infectious materials. Lifts and elevators should be designed to facilitate non-contaminating movement as above. Change rooms, washing facilities, lockers for street clothes and infection eradicating solutions should be provided logically at applicable points.
It is also important to establish modern laundries on the site with steam sterilizers for patient, doctor and nurse gowning materials and autoclave equipment for sterilization of surgical garments and instruments. Fumigation systems, agents and cycles should be established and validated. Utilities for uninterrupted power, steam, air, oxygen and other hospital essentials have to be designed for peak performance of the hospital facility.
Medicare through systems and processes
The success of modern medicine and surgery lies in the rapid development of specializations and high-end pharmaceutical products. This emphasis on specialization has, at the same time, become the bane of modern medicine with the human body being treated as several specialized parts rather than one integrated whole. The premium for specialization has also placed skill ahead of system and ego ahead of empathy. Despite the growing evidence that several disorders are interconnected (eg., metabolic syndrome), that there is so much more to be understood of human physiology (eg., cancer), that pharmacogenomics is still a nascent science (eg., genetic variability) and that pharmaceutical treatment is still imprecise (eg., unknown side effects, drug interactions and contraindications), modern medical practitioners are increasingly dismissive of the need to treat any disease in a holistic way.
A true hospital should bring in systems and processes, leveraging information technology to a large extent, to keep a complete track of the patient’s physiology in a wholesome manner. Systems such as co-lead in treatment, peer review of treatment at entry and exit as well as progress milestones and independent quality audit of patient treatment need to be implemented.
As with aseptic pharmaceutical facilities, sterility has to be built in by design engineering, assured by validation processes, and further reinforced by infection control processes. This requires establishment of a quality assurance division, right from the green-field stage so that the facilities are designed and executed in the right manner, all equipment are validated and all processes are implemented with total compliance. Drawing up of SOPs and training of all personnel would be critical requirements. Defining and implementing Good Clinical Practice (GCP) would go a long way in not only sterility assurance and infection control but also in overall medical treatment.
Given the equal priority to be accorded to outpatient and inpatient care, it is imperative that the facilities are designed to separate the entry and exit systems for outpatients and inpatients and their respective caretakers, providing for adequate waiting space for different categories of patients and caretakers. Outpatient blocks should ideally be designed for different specialties and backed by relevant dedicated laboratory services.
The Medical Metropolis should have a wellness campus which provides rehabilitation and rejuvenation services, deploying a wide range of Indian and oriental methods. Yoga and meditation can contribute to a total treatment paradigm while Ayurveda can provide natural cures. A Spa, gymnasium, joggers’ track, nutritional laboratory and fitness studio can help the treated patients and their caretakers explore new horizons in healthy living.
Also relevant would be a geriatric medicine centre which could also extend into an old age home dedicated for the care of senior citizens with NGO or socially conscious corporate groups or charitable entities. Arguably, a home health service is also a primary need to take care of an ageing society. It will not only reduce the pressure on hospital services but also enhance customer relationship management, building in the process excellent brand equity for the Medical Metropolis.
Hospital as an eco-system
The above specifications would certainly help build and manage a world-class hospital. However, a more holistic living experience remains an aspiration and a gap. A hospital campus is almost inevitably seen as a place where concern, anxiety and seriousness reign supreme, to be ultimately relieved as a patient gets cured. The patient is central to the current hospital designs. Little emphasis is placed on caretakers and overall pre-admission and post-admission lives of either the patients or their caretakers. However, a hospital can be a microcosm of the society with all its thrills and frills. That alone can capture India’s potential as the global hub of medical tourism.
Entrepreneurs and corporate groups should look at setting up a global hospital in the larger canvas of creating a global metropolis, where the hospital is merely an integral and helpful part of a mini-society. The global hospital eco-system would have education, culture, entertainment, township for hospital employees, hotels and hospitality services, to mention a few social facets that would supplement the hospital infrastructure.
A global hospital eco-system should be a fountain of talent. Three types of educational institutions would provide an educational trigger for growth of the hospital system itself. A medical college dedicated to graduate, post-graduate and research courses, a paramedical college which is focused on developing paramedics such as physiotherapists, speech therapists, rehabilitation specialists, biochemists, laboratory and biomedical technicians and a nursing college which will provide the much-needed stock of qualified nurses would lay a robust talent base not only for the hospital but for the larger society itself.
Working in a global hospital which offers the world’s most competitive services will be a high pressure job, often involving extended sessions in theatres, wards and consultancy suites. The workforce would be productive and logistically efficient if the eco-system includes a township for different categories of employees including medical professionals. Quarters for nurses and technicians as well as employees of essential utilities would ensure that the hospital can be run with the highest degree of assurance as well as employee convenience.
Medical tourism would rest on a creative and comfortable exposure to the myriad hues of Indian culture. Ideally, the eco-system should have a cultural village where Indian arts, both ancient and contemporary, are showcased. The village could also house Indian handicrafts and organize periodic cultural fairs. Strategic tie-ups can be had with other cultural and tourist spots in the vicinity for providing a holistic cultural experience to the caretakers.
The medical eco-system will also house a multiplex which will offer state-of-the-art cinematic and artistic experiences alongside an exciting shopping experience. With multiple screens and stages catering to movies and fine arts in Indian and foreign languages the multiplex can attract not only the medical tourists but also the city residents themselves. The shopping complex should sport more Indian labels than foreign labels so that the medical tourists can carry back the high quality Indian goods at competitive prices. Textiles, handicrafts, jewellery and other consumer goods could have a pride of place.
In several hospitals the world over, the caretakers and families of the patients get short shrift. Overcrowding in hospital corridors and/or expensive stays at far-off places severely depress the emotional and economic wellbeing of the families of the patients. Establishment of caretaker dormitories and budget as well as star hotels for the visiting families would help the families of patients visit India with greater assurance and comfort. A spectrum of restaurants offering the wide range of Indian cuisine would complete the picture.
Needless to add, the eco-system will be efficient only when it has banking services (including ATMs), travel services and telecommunication services in ample measure. Complete wi-fi coverage all across the Medical Metropolis would be essential in these times. Rental services for cellular phones, laptops, net books and other gadgets will help the caretakers remain connected and even carry out official and personal chores seamlessly.
Financing the Metropolis
A globally-competitive yet uniquely Indian Medical Metropolis is probably akin to creating a whole new city based on medical science and expertise. At the very least, a Medical Metropolis of the order envisaged would require land bank of 2500 to 5000 acres with approved land-use zoning and future expansion opportunities. It would well qualify as an infrastructural project.
The Indian governments (Central and State) should support the Medical Metropolis projects by providing land at subsidized rates in return for a mix of free treatment, free beds for below-the-poverty-line (BPL) population and royalties from revenues. This would need to be supplemented by soft loans from banking institutions for project funding.
The financial profile of India Corporate hospitals significantly varies, given the vast difference in bed strength, from say 80 to 8000 beds, and in the network of hospitals, from 1 to 40. Two of the largest groups have deployed USD 150 million and USD 360 million as capital to develop network of 10 and 40 hospitals respectively, with bed strengths of 2000 and 7500 respectively. Clearly, even with corporate structures, Indian hospitals are substantially cheaper to establish and operate.
Given the scale and scope of facilities proposed for a Medical Metropolis it is to be expected that the investment cost will be around 2X of the current investment norms. It may also be economically unviable for a single entity to bear all the infrastructural investments relating to the non-hospital assets. The governments and the lending institutions should allow the lead sponsor to rope in partners for each of the additional social infrastructural items such as education, culture, entertainment, hotels and hospitality services. A special purpose vehicle backed by a consortium of corporations with expertise in each of the areas and private equity firms will be ideally equipped to launch and develop the Medical Metropolis concept.
The concept of Medical Metropolis could achieve for India, in the healthcare sector, what the concept of industrial estates and special economic zones have done for China (and even India) in terms of globally competitive development, benefitting not only the national economy but national and international healthcare as well.
Posted by Dr CB Rao on July 20, 2009.
Sunday, July 12, 2009
From Failure to Success: Can Leaders Reinvent Themselves?
All leaders grow corporations but some of them cause their collapse too. Mostly, the same successful leaders who have led the growth of their corporations through their competencies also cause their downfall. Control mechanisms such as boards, stock exchange reporting, share holder meetings have been unable to detect and correct the leadership failures that undo their own successful past. Two questions arise: What are the negative leadership attributes that lead to leadership failures? Can failed leaders rework their success through appropriate corrective actions? The case of Jan Baan answers these two questions but still the underlying leadership behavior is not adequately hypothesized.
Jan Baan : boon and bane for BAAN
BAAN, the ERP company was one of the technology success stories of the 1990s. BAAN benefited from the entrepreneurial and communication skills of the then chief executive officer and founder Jan Baan. A pioneer in ERP technologies of that era, BAAN nevertheless lacked basic management skills, grew under opaque and incorrect accounting practices and, by Jan Baan’s own later time admission, suffered from his ego and greed as a corporate leader. He had to eventually sell the company and exit the board.
The spirit of a pioneer, if he is also an entrepreneur, perhaps cannot be held back. Jan Baan became a VC and helped two established companies with pioneering technologies grow. The first one was WebExpress which pioneered global connectivity and conferencing solutions and the other was TopTier which pioneered portal solutions for ERP systems. WebExpress was sold to CISCO while TopTier was sold to SAP, both for handsome valuations. Both platforms continue to lead with their technologies in the new homes. Presently, Jan Baan is leading his own new entrepreneurial venture, Cordys which is engaged in cloud computing architecture which Google is pursuing as a game-changer.
Jan Baan’s track record with BAAN reflects a hypothesis that a leader fails when ego and greed overshadow his capabilities and competencies. Baan’s later day successes with the three follow-on companies suggests also that a leader can rediscover his touch as long as he retains his core competencies, overcomes his weaknesses and controls his ego and greed.
Leadership decline : causes
Reversing leadership failure through retained competencies and corrected behavior is easier said than done. Very few leaders would have it in them to acknowledge their weaknesses and failures even tacitly and embark upon a plan of professional reconstruction. Leaders of failing organizations often are drawn into seclusion, are distanced from competent but independent executives, are influenced by a servile coterie of incompetent executives and continue to be driven by an imagery of super-performance.
Only when performance becomes hopelessly eroded and stakeholder environment turns openly hostile such leaders recognize that they are confronted with, and confounded by, the worst phase of their careers. Leaders in such situations give up or are forced to give up their companies. The leaders have few options left in such terminal situations; seek external professional help (eg., turnaround consultancy), seek corporate alliances (eg., mergers or investments by larger firms, or take recourse to corporate law (eg., bankruptcy) to pull the chestnuts out of the fire. Few investors or boards, or for that matter the leaders themselves, can consider any other alternative.
It is indeed a personal decision by a leader to decide on the path he or she should take, given a legacy of dramatic growth which is followed by dismal collapse. The leader should recognize that timely admission of failure helps not only his company but also his own stature. From a situation in which events would control him he can then look forward to a possibility of his basic competencies being considered for a genuine revival process. More fundamentally, he should also recognize that he would no longer have implicit trust as in the past; and that he has to earn the trust once again, and with much greater effort.
A failed leader rarely gets a chance to manage a corporate turnaround. This stems from the fact that typically not only he would have contributed to the mess but would, more often than not, be refusing to recognize that that he, in fact, contributed to the mess. The logical and rational part of such leaders is overwhelmed by the emotional and egoistic part, ruling out any chance of voluntary course correction. Many times such leaders and their coterie of executives would continue to lead and manage their corporations till the doomsday without any change in professional style and without any corrective action, hoping rather naively that a dramatic plan or sudden breakthrough would still help them tide over the crisis.
Timely recognition of an impending crisis is as much a hallmark of a true leader as identification of an emerging opportunity is. Why then leaders fail to recognize the crisis so often? Leaders gloss over the emergence of crises because they tend to believe that their leadership is unassailable and the environment is not unmanageable. All the failed chiefs of bankrupt corporations, from Bear Stearns to General Motors, refused to recognize and respond to crises in logical, timely and transparent manner. This refusal syndrome is the common factor in failures of leadership.
This ostrich-like leadership behavior defies logic when one considers that there are several metrics of performance that are available for a leader to easily understand whether his firm is sliding into a crisis situation. These relate to competition, market share, growth rate, customer access, productivity, attrition, and a host of profitability ratios. Some very relevant financial metrics include asset turnover ratio, capital output ratio, debt equity ratio, interest cover, receivables percentage, payables percentage, profitability margins and so on. The catch is that leaders oftentimes view these as functional metrics relevant for functional heads rather than as corporate metrics that are even more applicable to the chief executives themselves. That each of these parameters has a vital bearing on the overall health of the corporation is not recognized by such leaders until it is too late.
Possibly, in some cases, an insecurity of losing managerial control obscures the clarity of thought in failing leaders and spurs them to try to work their way under a façade. A leader who overcomes this vulnerability can possibly recapture his magic, working in collaboration with an intelligent and mentoring board and a positively activist shareholder base. Except in cases of wanton mal-governance and illegitimate activities, a leader can offer himself to revive the company he led to growth first and to collapse next.
Pathways to correction
Even great organizations had failed in the past. IBM of the 1970s and 1980s is a case in point. As IBM historians state its leadership was in disconnect with the market as well its own organization. According to them, “IBM had all the ingredients for failure: arrogance, complacency, bureaucracy, a sense of malaise in the organization." A realization of failure and a new leadership model which emphasized contemporary management processes led to a revival. If a new leadership can achieve corporate revival there is no reason why an existing leader cannot do so, provided he rediscovers himself. A leader in crisis has to bring in positive change as a proactive alternative to being out of the leadership role.
Obviously there are pros and cons of an existing leader trying to retrieve the firm from a crisis vis-à-vis a new leader wielding the broom. Fundamentally, an existing leader can be a successful turnaround manager if he has reformed himself and is willing to live down his past in a transparent manner and redeem the future with constructive creativity. Such a leader will of course require strong support from the investors and board to lead the turnaround. As mentioned earlier, trust for failed leaders would not be forthcoming automatically but has to be sought assiduously. On the other hand, a new leader comes with little baggage of the past and with the full and automatic support of the stakeholders. He can thus take radical actions but, given his relative lack of understanding of the company, runs the risk of throwing the baby with the bathwater. The boards and investors who would have committed unflinching support unconditionally upfront would think twice before questioning the new turnaround leaders all too quickly.
In sum, if a failed leader recognizes a crisis in time and is willing to make a clean break to overcome the crisis there is possibly merit in trusting him on a revival path. There are, several actions a failed leader, his board and the investors can consider to preserve the virtuous part of the past while chiseling away the infamous blemishes and building a new genuine strength in the failed leader.
Fundamentally, the leader has to admit the impending crisis with his board on one hand and with his senior executive ream on the other. Such a move, no doubt, explodes the myth of invincibility and infallibility of single-handed achievement that he has built. But it also helps him to come to terms in a non-egoistic manner with the new reality of a potential failure that could occur if he takes no corrective action in a collaborative manner. This openness should lead to a five-step process of corporate correction: problem definition, solution definition, talent induction, strategic transformation and performance improvement.
Corporate failure is caused by loss of competitiveness vis-à-vis other competitors. Competitiveness is determined by benchmarking the company against the more successful players in the industry in a transparent manner. Benchmarking helps a leader define the problem in a cohesive manner. The leader then has to introspect on the roles played by his leadership style and the available talent pool in the loss of competitiveness. Once the company’s pecking order on the competitiveness parameters is determined, the leader has to put in place a framework of strategies to improve the company on its pecking order.
The turnaround strategy mix could comprise seemingly contradictory activities such as expanding viable businesses, shrinking or spinning off unviable businesses, enhancing asset utilization, selling off wasting assets, investing in new growth engines, retiring incompetent people, inducting new talent, raising fresh finance, driving innovation and creating new management processes. The strategy mix, when implemented in totality by an organization of competent and refurbished talent, would lead to a total strategic transformation of the company. Sustained performance would lead to the reemergence of the company as a healthy and profitable entity, once again firmly on the growth path.
Self-sustaining cash flow is ultimately the fundamental goal of any business -- it makes the company valuable to shareholders, employees, suppliers and customers, and the society at large. A leadership which stays connected with the imperative of business competitiveness is bound to succeed.
Cases of corporate revival through leadership
There are legions of companies that went through growth, mismanagement and performance failure to only prosper again through leadership reform and strategic change. Xerox, HP, Sony, AT&T, IBM, Renault, Nissan are but a few standing examples in the international scene. Lupin, Bata India, Singareni Colleries, HMT, Essar Steel, Balsaras, United Bank of India, Tanishq, Indian Railways, Reliance Communications, Britannia, and scores of other companies had seen turnaround through corrected and spirited leadership in India.
Leaders who presided over the failures of companies should question themselves why they cannot turnaround their own companies if historically other companies could be turned around by existing owners or leaders at least in some cases, and by new owners and leaders in most cases. It is also up to them to analyze as reformed leaders whether they would be able to turnaround their companies despite the negative overhang on their reputation, or try out their competencies in newer, relatively, unbiased settings. Whichever path is chosen, an honest self-evaluation of their leadership role in the corporate collapse is the first step towards that process. There will be two major hurdles in the way of such candid self-evaluation by a leader: firstly, the ego state of the leader and secondly, the obsessive state of his team. It is however a moot question whether failed leaders and their teams would make wise and timely choices in their moments of crisis, and become creators of positive change rather than end up as chapters of a frozen history.
Posted by Dr CB Rao on June 12, 2009
Jan Baan : boon and bane for BAAN
BAAN, the ERP company was one of the technology success stories of the 1990s. BAAN benefited from the entrepreneurial and communication skills of the then chief executive officer and founder Jan Baan. A pioneer in ERP technologies of that era, BAAN nevertheless lacked basic management skills, grew under opaque and incorrect accounting practices and, by Jan Baan’s own later time admission, suffered from his ego and greed as a corporate leader. He had to eventually sell the company and exit the board.
The spirit of a pioneer, if he is also an entrepreneur, perhaps cannot be held back. Jan Baan became a VC and helped two established companies with pioneering technologies grow. The first one was WebExpress which pioneered global connectivity and conferencing solutions and the other was TopTier which pioneered portal solutions for ERP systems. WebExpress was sold to CISCO while TopTier was sold to SAP, both for handsome valuations. Both platforms continue to lead with their technologies in the new homes. Presently, Jan Baan is leading his own new entrepreneurial venture, Cordys which is engaged in cloud computing architecture which Google is pursuing as a game-changer.
Jan Baan’s track record with BAAN reflects a hypothesis that a leader fails when ego and greed overshadow his capabilities and competencies. Baan’s later day successes with the three follow-on companies suggests also that a leader can rediscover his touch as long as he retains his core competencies, overcomes his weaknesses and controls his ego and greed.
Leadership decline : causes
Reversing leadership failure through retained competencies and corrected behavior is easier said than done. Very few leaders would have it in them to acknowledge their weaknesses and failures even tacitly and embark upon a plan of professional reconstruction. Leaders of failing organizations often are drawn into seclusion, are distanced from competent but independent executives, are influenced by a servile coterie of incompetent executives and continue to be driven by an imagery of super-performance.
Only when performance becomes hopelessly eroded and stakeholder environment turns openly hostile such leaders recognize that they are confronted with, and confounded by, the worst phase of their careers. Leaders in such situations give up or are forced to give up their companies. The leaders have few options left in such terminal situations; seek external professional help (eg., turnaround consultancy), seek corporate alliances (eg., mergers or investments by larger firms, or take recourse to corporate law (eg., bankruptcy) to pull the chestnuts out of the fire. Few investors or boards, or for that matter the leaders themselves, can consider any other alternative.
It is indeed a personal decision by a leader to decide on the path he or she should take, given a legacy of dramatic growth which is followed by dismal collapse. The leader should recognize that timely admission of failure helps not only his company but also his own stature. From a situation in which events would control him he can then look forward to a possibility of his basic competencies being considered for a genuine revival process. More fundamentally, he should also recognize that he would no longer have implicit trust as in the past; and that he has to earn the trust once again, and with much greater effort.
A failed leader rarely gets a chance to manage a corporate turnaround. This stems from the fact that typically not only he would have contributed to the mess but would, more often than not, be refusing to recognize that that he, in fact, contributed to the mess. The logical and rational part of such leaders is overwhelmed by the emotional and egoistic part, ruling out any chance of voluntary course correction. Many times such leaders and their coterie of executives would continue to lead and manage their corporations till the doomsday without any change in professional style and without any corrective action, hoping rather naively that a dramatic plan or sudden breakthrough would still help them tide over the crisis.
Timely recognition of an impending crisis is as much a hallmark of a true leader as identification of an emerging opportunity is. Why then leaders fail to recognize the crisis so often? Leaders gloss over the emergence of crises because they tend to believe that their leadership is unassailable and the environment is not unmanageable. All the failed chiefs of bankrupt corporations, from Bear Stearns to General Motors, refused to recognize and respond to crises in logical, timely and transparent manner. This refusal syndrome is the common factor in failures of leadership.
This ostrich-like leadership behavior defies logic when one considers that there are several metrics of performance that are available for a leader to easily understand whether his firm is sliding into a crisis situation. These relate to competition, market share, growth rate, customer access, productivity, attrition, and a host of profitability ratios. Some very relevant financial metrics include asset turnover ratio, capital output ratio, debt equity ratio, interest cover, receivables percentage, payables percentage, profitability margins and so on. The catch is that leaders oftentimes view these as functional metrics relevant for functional heads rather than as corporate metrics that are even more applicable to the chief executives themselves. That each of these parameters has a vital bearing on the overall health of the corporation is not recognized by such leaders until it is too late.
Possibly, in some cases, an insecurity of losing managerial control obscures the clarity of thought in failing leaders and spurs them to try to work their way under a façade. A leader who overcomes this vulnerability can possibly recapture his magic, working in collaboration with an intelligent and mentoring board and a positively activist shareholder base. Except in cases of wanton mal-governance and illegitimate activities, a leader can offer himself to revive the company he led to growth first and to collapse next.
Pathways to correction
Even great organizations had failed in the past. IBM of the 1970s and 1980s is a case in point. As IBM historians state its leadership was in disconnect with the market as well its own organization. According to them, “IBM had all the ingredients for failure: arrogance, complacency, bureaucracy, a sense of malaise in the organization." A realization of failure and a new leadership model which emphasized contemporary management processes led to a revival. If a new leadership can achieve corporate revival there is no reason why an existing leader cannot do so, provided he rediscovers himself. A leader in crisis has to bring in positive change as a proactive alternative to being out of the leadership role.
Obviously there are pros and cons of an existing leader trying to retrieve the firm from a crisis vis-à-vis a new leader wielding the broom. Fundamentally, an existing leader can be a successful turnaround manager if he has reformed himself and is willing to live down his past in a transparent manner and redeem the future with constructive creativity. Such a leader will of course require strong support from the investors and board to lead the turnaround. As mentioned earlier, trust for failed leaders would not be forthcoming automatically but has to be sought assiduously. On the other hand, a new leader comes with little baggage of the past and with the full and automatic support of the stakeholders. He can thus take radical actions but, given his relative lack of understanding of the company, runs the risk of throwing the baby with the bathwater. The boards and investors who would have committed unflinching support unconditionally upfront would think twice before questioning the new turnaround leaders all too quickly.
In sum, if a failed leader recognizes a crisis in time and is willing to make a clean break to overcome the crisis there is possibly merit in trusting him on a revival path. There are, several actions a failed leader, his board and the investors can consider to preserve the virtuous part of the past while chiseling away the infamous blemishes and building a new genuine strength in the failed leader.
Fundamentally, the leader has to admit the impending crisis with his board on one hand and with his senior executive ream on the other. Such a move, no doubt, explodes the myth of invincibility and infallibility of single-handed achievement that he has built. But it also helps him to come to terms in a non-egoistic manner with the new reality of a potential failure that could occur if he takes no corrective action in a collaborative manner. This openness should lead to a five-step process of corporate correction: problem definition, solution definition, talent induction, strategic transformation and performance improvement.
Corporate failure is caused by loss of competitiveness vis-à-vis other competitors. Competitiveness is determined by benchmarking the company against the more successful players in the industry in a transparent manner. Benchmarking helps a leader define the problem in a cohesive manner. The leader then has to introspect on the roles played by his leadership style and the available talent pool in the loss of competitiveness. Once the company’s pecking order on the competitiveness parameters is determined, the leader has to put in place a framework of strategies to improve the company on its pecking order.
The turnaround strategy mix could comprise seemingly contradictory activities such as expanding viable businesses, shrinking or spinning off unviable businesses, enhancing asset utilization, selling off wasting assets, investing in new growth engines, retiring incompetent people, inducting new talent, raising fresh finance, driving innovation and creating new management processes. The strategy mix, when implemented in totality by an organization of competent and refurbished talent, would lead to a total strategic transformation of the company. Sustained performance would lead to the reemergence of the company as a healthy and profitable entity, once again firmly on the growth path.
Self-sustaining cash flow is ultimately the fundamental goal of any business -- it makes the company valuable to shareholders, employees, suppliers and customers, and the society at large. A leadership which stays connected with the imperative of business competitiveness is bound to succeed.
Cases of corporate revival through leadership
There are legions of companies that went through growth, mismanagement and performance failure to only prosper again through leadership reform and strategic change. Xerox, HP, Sony, AT&T, IBM, Renault, Nissan are but a few standing examples in the international scene. Lupin, Bata India, Singareni Colleries, HMT, Essar Steel, Balsaras, United Bank of India, Tanishq, Indian Railways, Reliance Communications, Britannia, and scores of other companies had seen turnaround through corrected and spirited leadership in India.
Leaders who presided over the failures of companies should question themselves why they cannot turnaround their own companies if historically other companies could be turned around by existing owners or leaders at least in some cases, and by new owners and leaders in most cases. It is also up to them to analyze as reformed leaders whether they would be able to turnaround their companies despite the negative overhang on their reputation, or try out their competencies in newer, relatively, unbiased settings. Whichever path is chosen, an honest self-evaluation of their leadership role in the corporate collapse is the first step towards that process. There will be two major hurdles in the way of such candid self-evaluation by a leader: firstly, the ego state of the leader and secondly, the obsessive state of his team. It is however a moot question whether failed leaders and their teams would make wise and timely choices in their moments of crisis, and become creators of positive change rather than end up as chapters of a frozen history.
Posted by Dr CB Rao on June 12, 2009
Subscribe to:
Posts (Atom)
