Tata Aria, India’s First Crossover: Lessons from the Market Gloss Over

Tata Motors unveiled in AutoExpo 2010 India’s first crossover vehicle, Tata Aria, combining the features of a Sports Utility Vehicle (SUV), a Multi Utility Vehicle (MUV) and a sedan car. The objective was to provide to the Indian automobile users a vehicle that meets every conceivable requirement, from weekday serious business transport to weekend holiday travels, and from highway cruising to off-road punishment. The vehicle was offered in four variants, Pure, Pleasure, Pride and Prestige, with the last two models being the high end models with all-wheel drive (4X4) capability. The vehicles had a host of electronics and safety features hitherto not offered in the Indian automobiles and provided a great combination of style and performance as well as comfort and safety. In fact, one of the campaigns of the company claimed at least thirty six features that were first in class for indigenous automobiles.

Tata Aria also benefitted from the design inputs provided by Tata Motors’ JLR team, which is reflected in the quality of trim and the various bells and whistles for driving and passenger comfort.  Clearly, the emphasis was on providing an international class vehicle to the Indian consumer. The prices ranged from Rs 15 lacs (USD 30,000) to Rs 20 lacs (USD 40,000) ex-showroom. The introduction was accompanied by a marketing campaign that emphasized the capability to seat seven passengers and conquer off-highway applications without any compromise to the feel of a premium car. Due emphasis was also placed on the several sophisticated features of the car. Despite so much going for the car, Aria failed to take off. The sales trickled to hundreds and showrooms started collecting unsold Arias. In a sense, Aria represented for Tata Motors a failure larger than that of Nano. An analysis of Aria saga teaches several lessons in competitive strategy and marketing.

Positioning, the core

The genre of utility vehicles (UVs) in India comprises, apart from Aria, Tata Motors’ Sumo, Grande Dicor and Safari, Mahindra & Mahindra’s Scorpio, Bolero and XUV 500 and Xylo, Maruti-Suzuki’s Grand Vitara and Ertiga, Force Motors’ One, Premier Rio, and Toyota’s Innova  in the largely indigenously manufactured category, and Renault’s  Duster and Koleos, Nissan’s  X-Trail and Evalia, Skoda Yeti, Toyota’s  Fortuner, Land Cruiser and Prado, Mitsubishi’s Outlander and Pajero Sport, Honda’s CRV 4, Hyundai Santa Fe, Mercedes G, GL , M and ML Audi’s Q3, Q5 and Q7, BMW’s  X3, X5 and X7, Volvo XC90, and finally, Land Rover and Range Rover in the largely imported category.  Clearly, for a few thousand vehicles, the utility vehicle model variety is mind boggling. Amongst these, Tata Aria can lay claim to be different from all the SUVs with its car like profile and performance. This has, however, failed to translate into a positioning proposition.

At one level, Aria bore a significant resemblance to Innova which has been the acknowledged king of MUVs in India. With a length of 4780 mm which is longer by 200 mm and a width of 1895 mm which is larger by 125 mm compared to Innova but with the same seven seater profile, Aria began to be positioned in the marketplace by the buyers against Innova rather than against any of the other SUVS, despite the off road capability, imposing looks (with 17” wheels), and the several comparable sophisticated features it possessed. The sophistication and awesomeness of Aria was not a match for the simplicity and friendliness of Innova for the Indian market. This is borne out by the fact that Aria’s hundreds were, in fact, better sales than those of any of the imported vehicles but were just a fraction of the numbers notched up by the indigenous simpletons like Innova, Scorpio and Bolero. M&M’s newer SUVs, Xylo and XUV with greater sophistry also did substantially better. Probably, if Aria was positioned as just a superior Innova the marketing game would have been set differently.

Entry deterrent price 

As Michael Porter theorized, entry deterrent price is a vital concept in the success of new products. The price of a product is closely linked to the positioning of a product. Tata Motors may have calculated that Aria is substantially cheaper than the imported comparables (SUVs) by 25 to 75 percent. On the other hand, given that it was positioned vis-à-vis Innova it was actually perceived to be 25 percent costlier than Innova. Although Aria was made available in a number of variants with increasing sophistication, the premium of 30 percent for the high end model relative to the base model was also seen by the market to be unattractive. Relative to the positioning, therefore, Aria suffered from the classic weight of entry deterrent pricing. The recent introduction of Pure LX as a new base model at Rs 10 lacs, at a dramatic 50 percent discount in price to the earlier base model queers the pitch even more. While the new pricing is certainly entry stimulating, clearly the problem of entry deterrent pricing for other models continues.

Aria’s inflexibility with positioning and experimentations with pricing illustrate that a successful product entry requires both these factors to be properly benchmarked ab initio, failing which they are to be at least dynamically aligned as the market evolves. Had the vehicle been promoted with a clear crossover niche and in comparison with imported vehicles the positioning-pricing equation would have been more positive. Just as the new Camry of Toyota is successfully positioned for corporate leaders, Aria should have been positioned for business leaders with long commutes and who could at times be required to have colleagues to travel with them too. Organizationally, positioning and pricing decisions need to be taken by a highly analytical group of senior leaders well supported by market analytics on the positioning and price elasticity of demand. Internal and external test marketing of positioning and pricing concepts helps companies identify hidden dangers of imperfect decisions.

Service, makes or mars

If right positioning and pricing are the strategic enablers of product success in the automobile industry, satisfying after-sales service is the tactical assurance of product sustainability and customer delight in the marketplace. Ideally, a well designed and manufactured automobile should not require any servicing. Unfortunately in the case of Aria it appears that the incorporation of new generation of electronics caused considerable service issues. The lack of preparedness of the service infrastructure to handle a new generation automobile in the vehicle family has been a concern. This could have been obviated through extensive road testing on one hand and intensive training of service engineers in the new generation electronics on the other. Many of the observations made in the author’s previous blog on Tata Nano in terms of exclusive dealerships for passenger cars apply equally well to Aria. The typical sedan customer expects to have his or her high cost automobiles to be sold and serviced with exclusivity and timeliness.

The post-design and post-manufacturing value chain comprising distribution, sales and service chain (DSS chain) is a significant tactical enabler of successful new product introduction. Pre-certification of this vital DSS chain and the infrastructure is rarely done by companies to the same scale it is done in respect of design and manufacture. Pre-certification of the DSS chain helps a company make important tactical choices in respect of regional versus national launch, pilot marketing versus full scale marketing, flexible positioning versus harmonized positioning. Service part of value chain is also an important part which lets the company know how several of the add-on features that are offered in the new model are effective in practice and also are perceived by the customers. Even a limited period regional launch provides a great opportunity for a perfect national launch. Aria would have certainly benefitted from such an approach.

Options unexplored

Tata Aria crossover vehicle is yet another testimony that Tata Motors and its team of dedicated and innovative engineers can develop, manufacture and commercialize pioneering automobile concepts. In an effort to straddle all the segments, Aria probably was stuck in the middle as a people carrier, pitted in the process against the most popular vehicle in that class, Innova. Innova has been a utilitarian combination of form, performance, price, reliability and service providing the best value for money. Innova has been an excellent traffic manager as its form profile of a sedan helped navigate city traffic more effortlessly compared to the larger Aria. Aria’s off-road and highway superiority probably did not overcome the disadvantages of city traffic negotiation. An option Tata Motors could have explored with considerable probability of success was a shorter and less awesome 5 seater variant for the city traffic and the larger 7 seater variant for the long distance cruise. With most aggregates and components as well as trim remaining common, the economies of scope on a larger volume base would have been significant.

The other option would have been to connect each variant of Aria as launched to different customer segments with appropriate add-on features, in a pick and choose manner. A whole new consumer experience could have been provided to build and order a crossover of one’s preferences. That would have been a great way to align the features and users, given the vehicle’s unique profile of multiple features and multiple usages. The third option could have been to accept all the criticisms, refresh the models to new standards and launch a new Aria series with a suitably upgraded DSS system. To facilitate this, all Arias on stock should have been liquidated with aggressive discounts rather than allowed to linger on. In Aria, Tata Motors, as it has in respect of Nano, a technology winner that has not been completely tested to perfection and supported in the field with commitment. Now that the evaluation and correction phase is over, it is incumbent on the part of the company to convert a technology promise into a positioning success in the marketplace with the right performance, price and service. As with Nano, the stakes are high not merely for Aria and Tata Motors but also for Indian technology and marketing in the overall.

Posted by Dr CB Rao on October 28, 2012  

       

Tata Nano Technology Marvel: The Need for Marketing Muscle

When Ratan Tata set out on a mission to have Tata Motors design and manufacture the world’s smallest four door micro car with a capacity to seat comfortably a family of five adults at a price of INR 100,000 (USD 2000 approximately) which is less than half of the price of India’s ruling small car, Maruti Suzuki 800, there was disbelief. However, when Nano was finally unveiled in the 2008 AutoExpo, its successful development was welcomed with rapturous applause. And, when it could not be manufactured in the originally envisaged green-field plant at Singur there was disappointment all round  that one of the best indigenous industrial marvels of India was being stymied. Well-wishers followed Nano’s manufacturing journey from Singur in West Bengal to Sanand in Gujarat and appreciated Ratan Tata’s commitment and gumption to commercialize Nano despite the multitude of challenges.

Post launch, however, Nano car did not exactly set the Indian car market afire. It was received with a rather tepid response, and the initial glitches did not help the car either in its image. Given that the pricing was attractive and the car was cute and spacious the inability of Nano to translate the consumer and corporate expectations into robust market demand and sales is intriguing. Nano’s maximum monthly sales has not exceeded 10,000 units while the sales have languished below the 1,000 units per month for most months since its launch in 2008. This compares with market leading sales of Maruti Suzuki’s  Alto sub-compact car at over 35,000 units per month.  In fact, there would be no comparison of a new product that had, or probably would have, its performance-price equation so favorable for the consumer.  It is somewhat strange that management schools have not yet thought it fit to analyze Tata Nano from a management perspective. This blog post seeks to fill a vital gap in this respect, hoping also to throw some useful pointers to make Nano a mega success, a feat that the car, Tata Motors and Ratan Tata richly deserve.

‘Design to demand’ variance

The primary reason for Nano’s failure relative to its potential can be traced to the huge variance between the concept that triggered its design genesis and the platform on which it was eventually positioned in the marketplace. The genesis of Nano can be traced to Ratan’s desire to offer an affordable and safe car for the typical Indian small family of a couple and two or three children, which otherwise travels riskily on a two-seater two wheeler. Given that a high end two wheeler costs INR 70,000, Nano as a five seater, four door car at INR 100,000, with all its features, had an unbeatable value proposition. Given that India absorbs each year 20,000,000 two wheelers the demand potential for Nano even on the basis of conversion of only 10 percent of two wheeler buyers into Nano buyers would have been huge. Nano would have easily become the largest selling car in the Indian car market had events gone right for the car, several of them in the management’s own control.

This potential has not been realized mainly because the company fought shy of converting its design inspiration into a marketing value proposition. Either because of the Tatas’ corporate ethic of not directly attacking competitors or because of casual hope that Nano would have its own natural demand pull,  the company never had an aggressive marketing campaign that directly appealed to the Indian small family, especially the young family, on a platform of safety and security. The dilemma for the Tatas would have been whether such a campaign would imply that its co-industrialists market two-wheelers as unsafe family transportation vehicles or that the India traffic system turns a blind eye to the overloaded Indian two-wheelers on the road. Independent of such conundrums, the important lesson for corporations from the Nano experience is that the original design genesis and the ultimate marketing platform must have a clear nexus and alignment. The other lesson is that marketing must rise above the paradoxes to deliver a clear product proposition to the consumer, without fear or favor, and without prejudice or bias.

Gross and subtle, Mind and heart

Whenever the design inspiration for a new product is extraordinary and out of the box, even if it is seemingly explicit, the challenge for the marketer increases manifold. Successful companies have focused time, effort and cost to market and institutionalize new concepts in the consumer mind. A classic example is that of Samsung launching a massive campaign for its large smart phone Galaxy Note as a phone cum tablet, ‘phablet’, with the unique proposition of a stylus to write and sketch. The company did not think that it was distorting its own smart phone and tablet markets that were growing exceedingly well under the Galaxy umbrella brand, nor did it think that it was cannibalizing its own smart phones or tablets. The power of unique technological concepts needs to be demonstrated to the marketplace, also positioned in the minds of the consumers and instilled in in a gross manner. In respect of Nano, the technological innovation of the product should have been demonstrated with unceasing and high-force campaigns rather than sporadic and low profile advertisements. Mind space can be secured only through powerful, explicit and rational delineation in respect of technological factors.

Gross campaigns need to be reinforced with subtle messaging too, particularly when the product really needs to change the segment proportion within the overall market, and wrest the overall market share in competition with a different group of products made by competition. Nano was indeed faced with the dilemma of challenging the two wheeler segment with a superior value proposition of safety of a micro four wheeler. Gross messaging would have not served the purpose, apart from possibly being a strict no-no for the Tatas corporate competitive behavioral philosophy. Emotional subtlety that appeals to the heart is the key to such messaging. Here again, we have the example of Cadbury positioning its milk chocolates as a ‘sweet’ for homely and auspicious occasions in competition with traditional Indian sweets. For the Indian small family, the concept of caring for the life partner and protecting the kids through the small car as opposed to leaving them to the vagaries of environment and turbulence of road traffic in a two wheeler would have been highly effective, for example. Equally, in a society where owning a car is considered to be a symbol of having arrived to a noticeable stage in life, owning a Nano car at the very early start of the career, independent of the relative affluence, would be an impressive value proposition. Subtlety impacts heart positively, which in turns influences the mind share of the buyer.

Value qualifiers

All marketing literature talks about value for the consumer being a function of price and features of a product. In respect of Nano, technology speaks for itself in terms of compact exterior and spacious interior on one hand and the power to drive and fuel to conserve on the other. Any additional value drivers must appeal to both the mind and heart, if the above gross and subtle messaging is accepted. Electronic braking system and front and side air bags would reinforce the safety tag. Experimental evidence of crash test safety would reinforce the safety image even further. An ability to upgrade Nano to a Manza sedan as the family evolves in life, through Tata exchange and finance schemes, could be another value driver. It would be important for the company to first develop a list of various additional features that could add value as a comprehensive list of value qualifiers, and then select value drivers which are appropriate to different groups of customers. For example, a 2 DIN music system will be a stronger value add for a couple while a safety kit as outlined above will probably be a more welcome value add for a couple with babies or kids.

The fundamental value creation, however, starts at the dealer point. The low price of Nano means that the turnover on Nano sales and service would be the lowest for the typical dealership in the Tata family of vehicles. This problem is further compounded by the initial strategy of having a combined dealership covering all vehicles, from cars and utility vehicles to trucks and buses. The implication for Tata Motors as also to all other automobile manufacturers in India is that dealership can no longer be considered just a point of sale. The infrastructure and organization for automobile dealership would need to extend vertically along the product value chain as a continuum of design, development, manufacture, distribution, sales and service. Ideally, Tata Motors would need to have completely different dealerships for cars and utility vehicles on one hand and commercial vehicles (light, medium and heavy trucks and buses) on the other. In each case, the product should receive the same level of care; for example a Nano micro car should receive the same attention as a high end Aria crossover and an Ace mini-truck the same attention as a high end Prima luxury truck. Value qualification by dealership should be an important component of Nano resurgence strategy.

From breakeven to breakthrough

Tata Motors which has received acclaim for being the pioneer in indigenous development of passenger cars and utility vehicles has been losing ground in that segment in recent years. This has been admitted by Ratan Tata himself in the annual shareholders meeting of Tata Motors.  The appointment of Karl Slym, a GM veteran who had a successful stint in GM India, as the Managing Director of Tata Motors has been indicative of the resolve of Ratan Tata to turn around Tata Motors’ fortunes in the passenger car sector. Hopefully, Tata Nano will be a beneficiary of his attention, given that Tata Nano car initiative is at crossroads. The car has certainly seen a revving up of sales in recent months.  However, even with the recently achieved monthly high of 10,000 Nano cars, the production level is below the breakeven point of 150,000 Nanos per annum. Breakeven should not be a concern, however. To utilize the current capacity of 250,000 Nanos per annum and the potential capacity of 400,000 Nanos at the 75 acre site which also has an adjunct component park, Tata Motors requires breakthrough strategies.

Tata Nano is more than just one another passenger car model. It represents the passion and creativity of the Indian Business and the innovation and skill of the Indian engineers to develop and manufacture a passenger car with a feature and cost profile that no other automobile company, global or Indian could ever conceive of and commercialize. More than the success of Nano as a car model of Tatas, far more is at stake for the Tata Group as well as the Indian industry. The author of the blog post hopes that Tata Motors would persevere and make an enduring success of Tata Nano based on an effective strategic format. The announcement by Tata Motors that it would take Tata Nano to the US at an appropriate price tag is indicative of the resolve of the management to take up the challenge by scaling even higher bars. As this blog post brings out, an integrated techno-marketing strategy, customized to the marketplace, is required to reposition Nano car for accelerated growth in India and also position it for successful entry into advanced countries.   

Posted by Dr CB Rao on October 24, 2012           

The ABC of Leadership for Youngsters: Performance-Focus-Capabilities Model

In today’s information driven world, leadership is no longer an aspiration sought after by only a few. It is the new generation’s aspiration to be in charge of its destiny through entrepreneurial enterprise or become empowered to transform by heading a business or a company. And, it is no pipe dream. India’s growing club of entrepreneurial entities and the increasing tribe of graduate trainees becoming the chief executives of their corporations do indicate that becoming a leader is a dream worth having. It is, however, not clear whether the young generation understands what it takes to become a generation of leaders. This blog post addresses certain foundational factors that could ensure a successful transformation of the leadership dream into reality in terms of a performance-focus-capabilities model.    

Theories of leadership, covering the A to Z of leadership abound. Many bring out how personality attributes, knowledge base, skill levels and behavioral propensities influence leadership development. Many theories also provide inputs on how the ability to craft a vision, draft a strategy and ensure execution is an essential triad for successful leaders. Unfortunately, however, many of these are applicable or can even be only appreciated, only when the young entrants reach a particular stage, often mid-career, in the organizations. Many times, it becomes too late for most professionals to change at that stage. Lack of an appropriate model for the entrants to absorb and institutionalize is a glaring gap which this post addresses. The model presented herein is simple and uncomplicated and is relevant all through the four decades plus of an executive, managerial and leadership career that a youngster would coast through.

ABC of leadership

It is indeed feasible to capture the ABC of leadership in terms of nine foundational factors, symbolically driven by the three starting alphabets equally. These are Aspiration, Analysis and Achievement, Balanced, Binary and Buoyant, and Competence, Communication and Collaboration. These, however, need to be observed with caveats that are contextual and which mentor the youngsters on the complexities of leadership with the right perspectives. This enables the youngsters to be directionally incremental but resolutely focused on their goals. The caveats prevent the youngsters from diffusing their energies, and instead help them conserve and regenerate their energies. Leadership achievement is a step by step marathon race where the strong and steady are bound to reach the zenith.

Leadership journey typically takes place under competitive conditions with different organizational ecosystems providing different enabling and disabling environments. The organizational ecosystems themselves are shaped by the nature of the industry and the business, the life cycle of the organization and the overall socio-economic opportunities that India as a rapidly growing emerging nation offers. Irrespective of whether the culture of an organization explicitly promotes leadership development or not, organizations committed to growth require not only leaders at the top but also grassroots leadership at the bottom of the organizational pyramid. The three sets of factors can be viewed as the foundations of performance, focus and capabilities, all equally important and mutually enabling.

Performance factors: aspiration, analysis and achievement

Aspiration is at the core of any leadership drive. Typically, the new entrant would have been able to enter the organization based on the educational aspiration and the domain aspiration that he or she would have pursued. Particularly in the Indian educational system, aspirations are set high from the early schooling as a result of which aspiration as a drive is not a new phenomenon to a fresher to the corporation. Aspiration, however, needs to be exercised in moderation in an organizational setting. It would be inappropriate for a fresher to set for himself the goal of becoming the chief executive of the organization. On the other hand, an aspiration to grow in career as fast as the organization would permit would be a feasible goal. Another desirable goal would be to be differentiated and credible in performance. The more plausible and realizable the aspirations are in the short term, the higher would be the motivational levels to succeed with greater challenges later. One of the dictums of good leadership behavior is that if one does the right things the right results would follow.

Analysis is the bridge that connects aspiration with achievement. The ability to analyze a problem and develop a structured solution enables a professional to be efficient and effective in his or her job. Analysis does not happen in vacuum. Proper analysis requires a thorough knowledge of products, processes and business in a holistic sense to be able to grasp, size up and address a challenge. Good organizations enable this knowledge in their graduate and postgraduate trainees by rotating them in all the departments for a sufficiently long duration of two years. By combining the capabilities of scientific, technical and business analysis taught in educational institutions with the knowledge of products, processes and customers acquired in the organization, the fresher can reinforce his or her analytical capabilities meaningfully. Successful organizations in India are differentiated by such structured trainee programs.    

The fundamental lesson for any fresher in an organization is that an activity does not represent an achievement. In fact, several activities need to be routinely performed and several others non-routinely (and creatively) performed to lead to an achievement. An achievement is a distinctive accomplishment that transforms several inputs into a desired outcome. Individuals and corporations need achievements, not mere activities, to stay competitive. Holistic knowledge, insightful analysis and dedicated application enable a fresher to become capable of differentiated achievement. Credibility is an important component of achievement. Alignment of expansive deliveries to stretched commitments tends to be the hallmark of a credible executive.

Focus factors: balance, binary and buoyant

Life is a balance of attributes and objectives. Career life is even more so. Just as a corporation needs to titrate each of its goals and strategies in terms of the rewards and risks, the individual employee needs to develop an innate orientation towards rewards of high performance and risks of poor performance. Such balance emerges by supplementing knowledge with skill, experience with intuition, aggression with thoughtfulness, analysis with decisiveness, objectivity with empathy and task orientation with people orientation, to identify a few. A balanced way of performance reinforces credibility.  Industrial life requires fulfillment of multiple objectives seemingly in dissonance with each other, harmonization of which is the true test of a balanced executive.

Focused and timely decisions and actions are required for an organization to stay aligned to effective performance. Fresh entrants while learning a whole lot of inputs and absorbing a whole set of options need to be decisive. Like a computer that achieves efficiency and effectiveness through a binary language (on-off, and nothing else), executives need to appreciate that they need to believe in one way or the other, and aim at one outcome or the other. The ability to review multiple options quickly and narrow down choice helps executives become decisive and timely. Successful executives see activities and outcomes in clear right or wrong lenses and not in may-be or could-be lenses. Acquiring binary processing capability (ethical or non-ethical, technically correct or incorrect, for example) early on in careers helps youngsters with a critical element of leadership.

Buoyancy is that creative and energetic ability of a person not only to stay afloat but let the system stay afloat. Both the internal and external environments that an executive encounters in an organization are likely to be replete with unpredictable developments. It is not always a perfect environment that a fresher encounters in his or her career span. It is always inspiring to recall that some of the best scientific and technological developments, including the Nobel prize winning achievements, were accomplished by passionate inventors with makeshift equipment and laboratories. A fresher entering the portals of the institution should never have a sinking feeling that what he expected of his organization of choice, be they material necessities or technical tools, is not available. Rather, he should focus on delivering individual and team buoyancy through creative functioning and innovative use of resources.

Capability factors: competence, communication and collaboration

Competence is the core of career sustenance. As technologies develop and businesses become competitive, an organization needs to be at the leading edge of science and technology as well as managerial processes to remain relevant. Archaic educational and professional knowledge needs to be updated and refreshed continuously by professional executives. While great organizations have robust programs of continuous education, executives need to continuously be on a self-driven mission to upgrade their competencies as a personal commitment. Executives must never lose their scientific, technical and management core capabilities in pursuit of generalist approaches, required as they are as they move upwards. Core competencies are the ultimate key differentiators in leadership journey.

The second essential capability relates to communication ability. In today’s globalized world, an ability to correctly and perceptively represent and absorb each other’s viewpoints is critical to the success of business. Communication ability should not be confused with language ability. The best of language would fail if the flow of technological, scientific and business thought is not well presented sequentially and perceptively. The Japanese knew little English but mastered global business because of their clarity in understanding and presenting the core issues. Indian executives need to understand that effective communication requires a grasp of the current and emerging issues and a delineation of proactive and responsive solutions in a manner that appeals to stakeholders from multiple environments and cultures.

Collaboration is the ultimate byword for individual and organizational effectiveness. Authority provides controlling ability but in today’s liberal world far less is amenable to control. Moreover, control prevents free expression and stifles creativity. In contrast, an ability to influence (but not lobbying to influence!) promotes creativity, which is essential for organizational competitiveness. Influence, in turn, is enabled by collaboration. An ability to collaborate with peers, juniors and seniors while competing for resources and striving for recognition is a challenge for fresh entrants. However, an investment of time and effort to understand the nuances of collaboration within the competitive framework of an organization is indeed a critical need for today’s young aspirants on the leadership journey.

Self-help is a relevant help

Talented and educated individuals daily join the multitudes of Indian corporations with the hopes and aspirations of making it big in their careers. While companies, on their part, make their efforts to train and develop youngsters, the needs of learning and development far outweigh what companies can realistically provide. It is in the enlightened self-interest of young executives to completely absorb what is offered on the job and constantly update and equip themselves beyond that too. The model of performance-focus-capabilities presented herein provides a relevant framework for young entrants to become young leaders, in the process contributing to business and corporate growth, and national wealth.  

Posted by Dr CB Rao on October 21, 2012               

     

Indian Automobile Marketing: A Three Layer Demand Model

The Indian automobile market has grown to be one of the largest and fastest growing markets in the world, with an annual production of 20 million vehicles comprising domestic sales of 17 million vehicles and export sales of 3 million vehicles per year (2011-12 data). The domestic sale comprises over 13 million two-wheelers, and nearly 3 million cars and utility vehicles, with other categories of vehicles constituting the balance. The rapid growth has put an enormous pressure on the already congested and inadequate road system in India but that does not seem to deter either the customers or the manufacturers. Clearly, however, a combination of rising incomes and increasing number of players with a liberalized import system has led to the growth in the market. Compared to other developed markets, however, the scale and scope of the market has not motivated either the customers or the manufacturers to seek or introduce more relevant marketing approaches, respectively.

It is not an exaggeration to say that the automobile dealerships in India typically have showrooms no bigger than what white goods manufacturers have (after adjusting for the size and variety of products). It is also commonplace to have representative models on display rather than comprehensive product range. The approach of having large sales yards through which customers can have walkthroughs and have reviews of multiple models at a glance is also non-existent. Salespersons typically tell only the broadest of the features and let the customers decide on purchases on their own. Much emphasis, on the other hand, is placed on media advertisements, often with celebrities to build corporate brand equity and develop product differentiation. Typically, therefore, a pre-decided customer enters a narrowly equipped dealership to make a purchasing evaluation without much choice.

Constituents of demand

This blog post hypothesizes that most consumer goods have three layers of demand. The first is a steady state replacement cum augmentation demand which is related to economic factors of the society in terms of population growth, GDP growth, job growth, purchasing power, urbanization, rural modernization, transportation needs and infrastructure growth. This may be called the economic demand. The second layer of demand relates to the pull of new products and models whereby superior technology as expressed in a number of design and performance parameters, including the styling of the car, create additional demand, for both replacement and augmentation, over and above the economic demand. This may be called technology demand. The third layer of demand is purely seasonal related to festive seasons, New Year sales or simply discounts. This may be called promotional demand. In an ideal industrial situation, the bulk of the demand should be driven by the economic demand with technology demand and seasonal demand providing impetus to move demand to the next trajectory.

In the context of India, with a population growth rate of 1.3 percent per annum and a GDP growth rate of 5 to 8 percent, and with all other parameters following a growth trajectory, the automobile demand can comfortably cruise at a rate of 10 to 16 percent. This has, in fact, been the trend too. However, the inter se ratios of economic demand, technology demand and promotional demand are sub-optimal. The author of the blog post believes that the economic demand must be 60 percent, technology demand 30 percent and promotional demand 10 percent of the total demand in an ideal socio-industrial situation. The author hypothesizes that in India, these proportions are at 60, 10 and 30 percent respectively. In other words, there is a strong manufacturer induced push to demand, which also tends to be seasonal. While the effectiveness of the marketing departments in creating such seasonal push is commendable, it needs to be further titrated in terms of its constituent push factors

Economic demand

The economic demand for automobiles is heavily driven by two wheelers, given the nature of income patterns, road conditions and inadequacy of public transportation. Nevertheless, passenger cars have emerged as a strong growth sector aided by new models. Looking to the future, there are both gloomy and bright sides to the likely movement of economic demand. The bright side is that the huge annual sales of 17 million two wheelers presents a huge opportunity to the car makers to double their sales to 5 million annually if only they are able to offer an economically viable alternative to the two wheeler usage. In addition, the trend to possess a second farm home or opt for weekend travels boosts the demand for a second car, especially in the utility vehicle segment. The gloomy side is that with the roads highly congested and parking spaces severely restricted, potentially the limits to growth in automobile population have already been reached. From an ideal perspective, the public transport must really be boosted in terms of both quantity and quality so that excessive use of automobiles, two wheelers at least, is moderated.

Given the current restraints, the economic demand can be sustained only if a significant part of it is taken over by replacement demand rather than augmentation demand. This paradigm is also closely linked to the industrialization or professionalization of the used car market. Rising oil prices, growing environmental concerns and the stricter emission norms (BS IV) would serve to enhance the demand for new cars as replacement with better performance characteristics, especially emission, fuel economy and drive. At the same time, unless more manufacturers and dealers come into the used car market in a big way (Toyota has made a good start with the UTrust program), it would be difficult to make used car sales a meaningful demand option (rather than a customer exigency option as is currently in vogue). The shape and scale of the replacement demand can only be sparked with appropriate technology strategies of the company, which would be reflected in terms of technology demand. In an ideal scenario again, the technology demand should funnel itself equally into replacement demand and augmentation demand.

Technology demand

Technology driven demand is what keeps the economic demand buoyant. While economic demand grows on sheer socio-economic factors (cars were indeed sold in India even technologically the models were outdated), it is the technological profile of the automobile that determines the level of technology demand. The smaller size (sub-four metre length) and fuel economy of the cars are often incentivized h through excise duty concessions by the government. This, often, presents a skew in the development of cars with relatively price-inelastic larger models being largely imported (as completely built units or kits) and only the lower end, mass produced cars being indigenously manufactured from the component stage. While at first glance this may seem appropriate for India’s economic and road conditions, lack of a manufacturing scale across the models does deter the Indian automotive industry from becoming globally competitive in future.

The Indian car industry is driven completely by global names. The good thing about this is the ready access of models and manufacturing plant. The challenging thing about this is the lack of indigenous R&D to the extent desirable. There is evidence from the track record of Tata Motors and M&M that investments in indigenous research and development do contribute to product development. Toyota Etios and Maruti Suzuki Ertiga are pointers to what customization to a market can accomplish in terms of product portfolio. If the parent corporations and the Indian subsidiaries arrive at a paradigm by which annual product updates and refreshes are developed locally and new model introductions are done globally, there could be benefit to local and global corporations as well as local and global consumers. The Indian industry should view local development as a clear strategy to achieve a larger technology induced demand, enhance replacement demand and finally keep integrating the technology demand into economic demand.

Promotional demand

Promotional demand to stimulate sales or clear stocks, or even pave the way for model upgrades is not unique to India. Even the most developed markets deploy the tactics most vigorously. The sharp drop in prices of Apple iPhone 4 and 4S ahead of the launch of iPhone 5 or the lowered pricing of the vintage BMW 3 series car in the wake of the new replacement are clear examples of firms realizing that customers are alive to new technologies taking shape. That said, long festive season promotion is an approach which is probably unique to India. The months of October to January typically emerge as the manufacturers’ sweet spot in terms of promoting higher demand on the plank of celebrations and auspicious occasions. When the seasonal promotion is combined with new product introductions, the marketplace can, in fact, turn lively. This festive season alone the Indian car manufacturers have begun the introduction of over 20 new models, some of them brand new introductions. Intensity of competition and increase of demand, coupled with lower prices could boost a seasonal increase in demand.

The manufacturers, however, have to seriously consider if the Indian automotive dealer infrastructure is geared to do justice to the promotion of multiple products. As mentioned earlier most Indian dealerships have little or no display yards as the dealerships in the West have, or the way even a space starved country like Japan has. The dealer showrooms can hardly display four or five models as compared to ten or fifteen which most manufacturers would have (ignoring the variants). The approach of salesperson explaining the full features on a dedicated basis is also, by and large, absent. Most dealerships do not also have customized sales and service solutions which recognize that a substantial proportion of cars in India is driver driven. This emerges as a blind spot given the increasing sophistication of the new breed of cars that are being introduced in India. Most promotion is done by manufacturers that too through newspapers and television advertisements, oftentimes with movie celebrities as brand ambassadors. The manufacturers would need to relook at dealer economics and enable a more holistic marketing, sales and service paradigm to integrate dealer point selling into the economic demand and technology demand processes.     

The three layer demand model

Automobile marketing is a complex amalgam of socio-economic factors, technological factors and consumer need factors. While the sheer power of economic development provides the motive force for the expansion of the Indian automobile industry, understanding the demand paradigm in terms of economic demand, technology demand and promotional demand as proposed in this blog post would help the automobile manufacturers, global and Indian, to come with proactive and responsive strategies that optimize the long term demand-production models. There is considerable talent in the country, economic, engineering and marketing, to sub-model each of the demand layers and come up with firm-specific strategies which could collectively foster healthy competition in the Indian automobile market, and also enable the Indian automobile industry achieve global competitiveness.    

Posted by Dr CB Rao on October 20, 2012

    

 

The Indian Utility Vehicle Segment: Design Creativity for Market Opportunity

From a scenario, two decades ago when Mahindra & Mahindra’s (M&M’s) Jeep was the only utility vehicle of sorts available in India, the Indian utility vehicle (UV) segment has indeed come off age.  Tata Motors began work on this segment in 1989 with its Tatamobile which was followed up with Tata Sierra in 1991 and Tata Estate in 1992. The first real push towards UV acceptance with range expansion and design modernization came with Tata Sumo, introduced by Tata Motors in 1994. This was followed, again by Tata Motors, with Tata Safari which set new standards in design and styling, when it was launched in 1998. Mahindra & Mahindra followed up with its Scorpio and Bolero models, responding to Tata Motors’ success.

Maruti-Suzuki, which was the pioneer that transformed the India passenger car industry in the 1980s, has been trying its bow at family vehicles first with Omni in 1983 and later with Gypsy in 1985 and Wagon R in 1999. The utility vehicle landscape saw the introduction of Qualis by Toyota in 2000 to a disappointed and muted welcome but the segment  got quite a transformation when Toyota launched its replacement, Innova, in 2009. Toyota Innova has since become the king of multi utility vehicles (MUVs) on the Indian roads; it is the favorite of both cab owners and private families alike. M&M continued to build on its UV success with more modern XUV 500 and Xylo vehicles. Not to be left behind, Maruti Suzuki in 2012 introduced a 7 seater utility vehicle specially engineered for Indian families, called Ertiga, and positioned as life utility vehicle,which quickly reached the Top 10 car table within a few months of launch.

The growth in the MUV segment has opened up the market for import of luxury marquees in this class, lately. While Audi Q7 and Q5 as well as BMW X5 and X3 have been the early leaders in this segment, Toyota Prado and Land Cruiser, Mitsubishi Outlander and Pajero, Honda CR-V, Nissan X-Trail, Tata Motors Land Rover and Range Rover as well as Evoque and Mercedes GL have been the major vehicles imported as completely built units (CBUs). BMW has been the first to recognize the attractiveness of SUV profile for young upwardly mobile people and has designed Q3 as its small SUV with big thinking. Renault has not been behind with its Duster while M&M Quanto has been the indigenous answer taking advantage of lower excise duty for sub-4 metre class. The recent explosion of the MPV and sports utility vehicle (SUV) models is thus reflective of a structural change in the Indian automobile market.

Market dynamics

Worldwide, SUVs offer greater pricing and profit advantage, besides growth potential, for the automobile manufacturers, India would be no different. The developed markets have had a tradition of encouraging utility vehicles as vehicles of weekend lifestyle as well as a “drive-free” lifestyle that brings the weekend life to weekends.  Given the way families move in a flexible manner, balancing professional work and personal life, and with gender equality coming to the fore in coping with multiple responsibilities, the  utility vehicles and crossovers  are as near to each other in customer preference as standard sedans are. The rural needs are probably catered to by micro-truck, huge station wagon type vehicles which carry people as well as produce. In the Indian market, where evolutionary trends follow the developed markets, the potential is enhanced by an open acceptance of the utility vehicle concept by the rural population. The success of Tata Sumo as a bridge vehicle across the urban-rural divide has been an interesting development of the Indian market. The inability of Tatamobile, the first station wagon in India, to get positioned as the true rural “people-produce” vehicle is another validation of the need for a well-designed utility vehicle concept.

The cumulative production data for April-March 2012 shows production growth of 13.83 percent over the same period last year. In March 2012 as compared to March 2011, production grew at a single digit rate of 6.83 percent. In 2011-12, the industry produced 20,366,432 vehicles of which the share of two wheelers, passenger vehicles (cars and utility vehicles together), three wheelers and commercial vehicles were 76 percent, 15 percent, 4 percent and 4 percent respectively. With a population exceeding 1,300 million, with rural population within that exceeding 900 million, with increasing “suburbanization” driving urban expansion, with nearly 80 percent of passenger transportation needs being met by two wheelers and three wheelers, with punishing road conditions caused by poor road infrastructure, with joint families rather than just couples being the nuclear family norm, with festivals and family events dominating the social canvas, and with Indians being used to travelling with large baggage utility vehicles could see an explosive growth  in India. Currently, the total passenger car production in India is 3,000,000 per year approximately, of which only  ten percent is in the UV category. Population-wise too the UVs are a small fraction. However, if the trends described herein stoke a change in consumer preferences, the growth rate of the UVs, already double that of passenger cars albeit on a much lower base, could be treble that of the passenger cars.   

More models, less choice

The indigenous UV segment does boast of a plethora of models; Hindustan Motors Trekker,  M&M  Jeep, Marshall, Scorpio, Bolero, XUV 500, Xylo and now Quanto, Force Motors Force One, and Tata Motors Sumo, Safari and Aria, for example. In spite of this, in terms of design package and functionality, the overseas designed models, whether completely imported or partially made in India have a clear consumer appreciation, their sales being inhibited only by the high price of such models. Such models are General Motors Tavera and Captiva, Mitsubishi Motors Outlander and Pajero, Nissan X-Trail, Mercedes R, G, M and ML, Jaguar LR and RR, Hyundai Santa Fe, Ford Endeavor, BMW X1, X3 and X5, Audi Q3, Q5 and Q 7, Renault Duster and Koleos, Honda CRV, Toyota Fortuner, Prado and Land Cruiser and so on.  The price premium on imported/semi-imported models in some cases goes up to as high as 400 to 600 percent. Clearly, this should have provided the opportunity for the indigenous UV manufacturers to come up with products of greater design substance at an intermediate price premium. Tata Motors did make such an attempt with Aria as the first crossover vehicle in India but the vehicle has had a very lackluster reception due to certain design bugs and service inadequacies. On the other hand, Toyota with its significantly indigenized Innova is ruling the India roads, rural or urban.

The Indian customers in the UV segment are a varied and demanding lot. They demand of their preferred model the ability to seat seven or eight people and carry luggage too if it can be helped! Despite the largeness it entails, they expect the vehicle to navigate the crowded and narrow Indian streets comfortably. They expect the vehicle to straddle both the urban and rural roads safely, and be able to be comfortable on both long and short hauls. To the users, the vehicle must look elegant and also be rugged.  And not to be missed, the vehicles must be economical both on the acquisition price and running costs. The government also adds its own weight to the design criteria by insisting on Bharat IV norms (broadly Euro IV equivalents) in respect of emission controls. It is for no reason that Carlos Ghosn, the chairman and chief executive officer of Renault-Nissan termed the Indian automobile market one of the most challenging in the world.  While the Indian automobile industry has a huge UV opportunity, its ability to harness the potential would depend on design creativity.

Innovation of Innova

The form that design creativity can take for market leadership in India is well illustrated by Toyota’s Innova. As the name suggests, it is indeed a unique vehicle even in the global automobile industry. Despite retaining the same dimensional features as a 5 seater sedan car, Corolla (which has dimensions of 4540, 1760 and 1480 mm in length, width and height),  Innova as a utility vehicle (4585, 1760 and 1850 mm in length, width and height) has been engineered to accommodate 7 to 8 people with the requisite boot space as well as seating and cargo flexibility. As a result, it meets both the urban and rural needs, as well as intercity and intra-city traffic and drive conditionsof India nicely. By offering, in addition, diesel engine as a standard feature from early days of Innova’s introduction Toyota made sure that Innova also emerged as a vehicle particularly low on driving costs. The product profile backed by an impeccable service backup of Toyota ensured that Innova became the choice vehicle in the UV market, with a pricing that is attractively pitched between the homegrown MPVs (like Tata Safari and M&M Bolero) and the imported MPVs such as (Honda CRV and Mitsubishi Outlander). If smart dimensional packaging alone could deliver such differential positioning to Toyota Innova, more fundamental innovations  which are customized to the multi-purpose India user needs could lead to additional successes (Toyota sells around 80,000 Innovas ranking higher than any other UV in India and sharing the space as one among the Top 10 cars in India).  

Fundamentally, the ability to enhance the wheel base (for example, 2750 mm of Innova compared to 2600 mm of Corolla Altis) while reducing the front track and enhancing the rear track with comparable road handling and safety would be a vital benchmark of spatial engineering. There could be other innovations too, such as a switchable all-wheel drive option to make on-road off-road traction easy or a transverse mounted engine with front wheel drive to further economize on dimensions. Whatever be the innovations “less is more” needs to be the design mantra for UVs in the Indian market. It is important to maintain a minimum seating capability of  at least 7 passengers, with adequate luggage space, to make the UV a truly family vehicle in India, while optimizing all other performance characteristics like ground clearance, turning radius, gradient management, cruising speed, ride quality, road handling, vehicle and passenger safety, easy navigation, and interior comfort. This requires companies to adopt a three tiered approach to design innovation that optimizes exteriors, interiors and performance in one India-centric package. The Indian automobile manufacturers would need to consider if they will be governed by current market size and offer many “apparent variants” or a few “real options” customized for multiple needs. The former may succeed with a “mix and match” or “cut and re-form” approach which would be economical (as with Quanto) but would not drive the UV segment to its full potential. In contrast, a design strategy of developing the right form, comfort and performance combination on entirely different and discrete platforms like Toyota does (RAV4, Innova, Fortuner, Prado and Land Cruiser) could open up the UV segment in India to unforeseen growth

Future beckons

The Utility Vehicle segment in India, though growing at double the rate of passenger cars is still relatively small in India. As against 3,000,000 passenger cars produced in India, only 400,000 utility vehicles are produced. The UV segment, however, has the potential to outdo even the passenger car segment, given all the reasons discussed in this blog post. And the world statistics clearly lead the way too. The demand for UVs trebled over the last two consecutive decades, worldwide. Over 30 percent of the cars sold in the USA are UVs. Europe, a longstanding sedan market, is seeing a rapid market push for UVs. Indian automakers have, therefore, an unprecedented market opportunity in the utility vehicle segment, by whatever name it is called (aka, multi-purpose vehicle, multi-utility vehicle, sports utility vehicle, crossover vehicle, or even light utility vehicle). All that is required is design creativity, manufacturing versatility and marketing acumen on the part of the Indian auto makers that could reshape the Indian passenger transportation scenario, and also transform themselves into truly global players.    

Posted by Dr CB Rao on September 30, 2012  

The Strategist’s Challenge: Managing Choices and Options

The strategy of a firm is, by and large, collectively shaped. However, the strategist of a company, usually the chief strategy officer or in some cases the chief executive officer has the primary responsibility to develop and drive the strategy of the company. With the environment becoming more complex and more volatile, the job of a strategist, which essentially involves taking bets on the future, has become more challenging. Fortunately, however, the complexity of strategy formulation also lends itself to certain simplicity of choices for each strategic direction a firm could take. To put differently, unlike in a scientific or engineering experiment which may have infinitely variable experimental conditions, strategy lends itself to fewer options and sharper selectivity.

For a truly professional strategist, the choice is never between doing something and doing nothing. Status quo is not an option for a strategist who loves his or her domain. The choice, on the other hand, is often between two or more options which can shape the future positioning of the firm in a more distinctive manner. For example, a decision between growth and profitability is a complex strategic choice. A decision between consolidation and growth is a more obvious choice. Again, the choices are not to be interpreted in generic terms. As an example, defining whether a firm should collaborate or compete in the industry is unlikely to provide any clear solution for the future. The options must be business and firm specific so that the impact can be perceived relative to the other players in the industry. Strategic choices are available as a generic tool kit; the strategist has to customize the tool box to the firm’s specific needs.

Simple words, significant impact

The strategist’s complex choices are often couched in very simple words and/or seemingly straight questions. Organic or inorganic in development, regional or global in expansion, specialization or diversification in business, penetration or diffusion for market share, equity or debt to drive investments, functional or business in organization structure, growth or profitability for dominance, generic or proprietary in technology, cost or value as niche, leader or follower in the marketplace, reinvestment or divestment for sunset businesses, integration or outsourcing in value chain, labor or automation in operations, private or public in constitution, and so on. Each strategic choice sets the company on a customized path of investment and growth which determines how the firm is positioned vis-à-vis other firms in the industry.

While all strategic choices are theoretically reversible or changeable, some choices are much more rigid in terms of investment, asset and organizational commitments compared to others. For example, for a computer maker, backward integration into chip manufacture could be a move that is virtually irreversible except at a great cost. For an Indian developer and manufacturer of products, global marketing could be a highly investment-intensive gamble that may accommodate little chance of error. On the other hand, for a tablet computer manufacturer, reliance on one of the operating system vis-à-vis another good one may not raise huge stakes. For a firm, a spin-off of an acquired entity may be easier than that of an organically built entity. The history of strategy is replete with examples of strategic choices delivering envisaged value as much as distorting established fundamentals.

Strategy: an outcome or a process?

Many a time, strategy is seen as an outcome; firms refer to expansion strategy, diversification strategy and acquisition strategy, for example. There would be explicit outcomes in each case. It is, however, incorrect to assume that strategy is all about outcomes. The outcomes are just strategic objectives; the route to achieve the objectives is, in fact, the core of the strategy. Except in the case of inorganic developments, outcomes rarely tend to constitute the total strategy. Even in such cases, the way the objective is described determines the central theme of strategy. If Tata Motors had the strategic objective of just becoming a global player in automobiles, its acquisition of Jaguar-Land Rover (JLR) as a good acquisition strategy in terms of an outcome. However, if the strategic objective of Tata Motors is described as building a sustainable global business in automobiles, acquisition of the ailing JLR was nothing but a first step in the strategy of building viable global automobile business.
Strategists have to therefore view each of the strategies in terms of not only immediately visible short term outcomes but also continuing strategic processes that deliver the envisaged long term value to the corporation.

Reverting to the example of Tata Motors-JLR, it is clear that without a clear turnaround strategy in mind for the acquired JLR entity and a synergy plan for the group as a whole, the acquisition strategy would not have been a complete strategy at all. In hindsight, it appears that Tata Motors, in fact, had a total strategy laid out before them. Given such a perspective, the acquisition price that was seen to be high and the risk assumed that was seen to be bordering on adventurism are actually well measured and successful strategic bets to redefine Tata Motors as a sustainable global player. Probably, the same may not be said to the same extent of Tata Steel-Corus acquisition in the steel industry, though belonging to the same group. Several overseas acquisitions by Indian pharmaceutical companies, in fact, failed to live up to the value generation objectives.

Extensibility and reversibility

Like the theory of mobility barriers and switching costs that is formulated with reference to strategic groups in competitive strategy, the domain of strategy formulation has to consider two important concepts: extensibility and reversibility. The concept of extensibility deals with the degrees of forward freedom built into the strategy to not only convert the first outcome into the first lap of a transformation process but also have enough flexible joints to integrate new pieces of strategy, which are not foreseen at the time of strategy formulation. GE’s strategy of first entry into India with business process outsourcing and medical equipment joint ventures had enough flexible joints to foray into Indian R&D and manufacture and also diversify into many market facing verticals. The same applies to the Korean groups of Samsung and LG and several other Japanese corporations which built their India strategies aggressively on the concept of extensibility.

Reversibility is a more challenging and complex concept to incorporate in strategy formulation. Both professionally and emotionally, no strategist builds a strategy to slide back in time. That said, reversibility need not necessarily have only a negative connotation. Unanticipated and more attractive new opportunities could encourage reversibility to generate revenues for investment. GE’s exit from what is seen as a pioneering Indian BPO operation enabled the firm (Genpact) specialize as an insurance against future captivity in a rapidly commoditizing domain space besides generating revenue and space for new businesses by GE. L&T’s move out of the cement business despite the firm’ deep involvement in construction as a core business reflects a revised thinking on cement as a vital adjunct to construction. Most times, however, reversibility could be triggered by basic faults in the initial strategy, including lack of end-to-end strategic think-through, inexplicable failures in execution, and surprising adversities of competition and environment. Sahara and Deccan demonstrated reversibility and semi-reversibility by exiting unviable low cost air carrier options in the airliner industry.

Solidity with adaptability

The strategic choice is as good as the execution to achieve the intended final outcome with the end-to-end enabling process. It is important that the strategist is involved and provided co-ownership in the strategy execution phases so that the outcomes and processes are either assured or modified to respond to any dynamic changes. Typically, the strategy is formulated by a rarefied team while the execution is carried out by a number of other stakeholders, who may have collateral objectives that are either complementary or contradictory to the basic outcomes. Co-ownership of the execution phase by the strategist ensures that the primary objectives are not overturned by an expanded team. For example, in the case of Tata Motors-JLR while it may be appropriate for the Aria (cross-over vehicle) design team to derive synergy from the Range Rover team, it would be inappropriate for the Nano design team to try to derive synergy from the Jaguar team! The more solid the strategy remains to its fundamentals the greater would be its chances of success.

That said, responsiveness to a dynamic internal and external environment is also crucial to the success of a strategic choice. This requires that the strategy must have appropriate avenues for adaptability. L&T’s move out of the cement business and GE’s move out of the BPO business, though they were strategies in reverse, actually represented firm level response to commoditization at industry level. Definition of what is core and non-core in strategy is a feature of adaptability. Adaptability in terms of switching options would be feasible in all the typical strategic choices enumerated earlier in domains as varied as business development, market expansion, portfolio selection, market share, growth financing, organizational structuring, turnover-profitability balance , technology direction, value and cost drivers, entry and exit, value chain management, operations management and corporate constitution. The net switching costs or benefits (ie., the difference in the NPVs of the current and future substitute strategies) would need to be mapped out along with other qualitative organizational issues prior to embarking on adaptive and reversal strategies.

Managing strategic change

Managing strategic change on the lines of extensibility, reversibility, solidity and adaptability discussed herein certain organizational wherewithal and resilience. The approaches would be covered in another blog post.

Posted by Dr CB Rao on September 19, 2012

The Designer’s Innovation Dilemma: How Many Increments Need or Make a Breakthrough?

Finally, Apple has unveiled the much awaited iPhone 5 on September 12, 2012. The phone has a larger screen, better construction, sleeker form factor, lighter weight, faster processor, and more advanced operating system. Simultaneously several functionalities have been upgraded, including SIRI, the voice assistant. Accessories have also taken a leap in design with earpods becoming a new benchmark for earphones and a new sleeker connector pin emerging for charging the battery. Apple maintains that its device may appear numerically challenged in specifications but the device will easily outperform its counterparts in terms of its smooth user experience and near-perfect functionality. Yet, probably for the first time, analysts and critics have started voicing an opinion that the incremental innovations of iPhone are merely offering catch-up options against the strides taken by other smartphone makers.

IPhone 5 represents the sixth generation of the iconic phone that Steve Jobs launched in January 2007. From then onwards, he and the Apple team launched successive generations of iPhones, each with incremental capabilities and functionalities. iPhone 3G that was launched in July 2008, iPhone 3GS in June 2009, iPhone 4 in June 2010, iPhone 4S in October 2011 and iPhone 5S in September 2012 reflect the annual transformation that has been the norm of design innovation and operational excellence at Apple each year. The changes were not minor either; from video camera calling to voice assistance, and from iTunes integration to iCloud integration, successive generations of iPhones provided each year a major scale-up in performance and functionalities. While Apple may believe that it still has a clear winner in its hands (as indicated by the fast building up pre-order pitch) and hence needs only incremental innovations (as could well be proven by performance), iPhone 5 has laid the base for a debate on a classic innovation dilemma of the product designer.

Defining a lifecycle

Defining the lifecycle of a product is the cornerstone of viable product strategy, and hence the determinant of the business strategy of a firm. No firm, Apple included, would be in a position to formulate a priori a fixed time horizon for a product to be on the market. Given a choice each firm, Apple included, would be keen to continue the basic product configuration almost perpetually while adding to functionalities as long as the market response continues to be robust for successive generations of a product. This is one reason why iPhone could successfully retain the basic screen size (3.5 inches) with the same form and weight factors from the first generation iPhone to the fifth generation iPhone 4S. Many times, however, design teams fall into the trap of lifecycle management with incremental innovations and fail to see the major breakthrough innovation that could be coming their way, transforming the product-market space, and hence the firm’s business viability, radically.

The concept of product lifecycle is rooted in three basic concepts; the first is the product category, the second is the technology backbone and the third is the brand equity. The product category is defined by the most dominant product characteristic; for example, communication of a phone versus photography of a camera. The technology backbone is defined by the most dominant technology deployed; for example, liquid crystal display versus plasma in televisions. The brand equity is defined by a brand longevity that makes consumers see the brand as the product itself; for example, Corolla as a brand defining what a sedan is. Different products of different firms face diverse combinations of the three basic dimensions in the definition of product lifecycle. That said, to determine a product lifecycle effectively, at least during its evolution, one would need to appreciate the broader industrial design ecosystem in its totality.

Design ecosystem

The design ecosystem of a product is a combination of organic, proprietary, inorganic and licensable technological developments. The design ecosystem is rooted in the aggregate intellectual property of individual technologies of individual components as well as the integration of such technologies as a singular product. In iPhone the chipset, the operating system, the unique accessories, and the system design as well as the use and feel enablers are perhaps the organic, proprietary features. The camera, the glass, the voice recognition system as well as the assembly are perhaps the outsourced items. A different smartphone which is more open could have much higher level of outsourcing including the chipset and the operating system. At the same time, it may establish an additional differentiation by accessing external technological developments such as wireless charging as is proposed by Nokia in its upcoming Lumia 920.

The brands are increasingly getting both reflected in and reinforced by the flagship products. Just as Apple’s iPhone has become an iconic representation of a seamless consumer experience in smartphones, Galaxy for Samsung, One for HTC, Xperia for Sony, Razr for Motorola and Lumia for Nokia became flagship brands for the respective companies. Even internal technologies such as Bravia technology of Sony’s flat panel televisions got supplemented as a new benchmark in imaging and viewing system of its smartphone range. Theoretically, it is possible to run products through successive generations to sustain and extend the product lifecycles. Individual brands of cameras, for example, can continue to be market leaders based on continuous improvements in sensor, lens and aperture technologies. This seemingly endless possibility could lead to sub-optimization unless the design teams are able to grasp the inflection points in the development of design ecosystems.

The game changers

Game changers are certain technological innovations that could completely change how a device is configured. Science and technology by their very nature move towards game changing developments. It is often the business and corporate considerations that impede the inexorable move of technology, in the name of concepts such as market segmentation, customer skimming and value for money as well as return on investment. There was, for example, never a justification for huge desktops with oversized monitors and briefcase sized CPUs to coexist with laptops of fractional size and weight but imbued with higher specifications and superior performance. If science and technology were not titrated by business considerations, desktops would have been obsolete decades ago. But for the business need to keep the Mac line of computers going Apple would have displayed enough technological savvy to make iPods both media-friendly and business-friendly, with high powerchips, standard USBs and the like. Probably, Microsoft could be the new game changer with its Surface tablet that would meet both the needs.

The game changing mindset is just the reverse of the incremental mindset. A game changing Nokia could, for example, choose to make its 41 megapixel pure view imaging technology the standard in all its upcoming Lumia range of Windows 8 run smartphones. A game changing Toyota could decide to convert half of its products to hybrid drive. A game changing Microsoft could offer Windows 8 basic free and keep Windows 8 Professional on chargeable basis. A pump manufacturer may choose to make all its pumps, not merely its submergible pumps, waterproof. The game changing mindset is, however, not merely one of offering the highest end technology at the lowest end or mean affordable price point. It is more of visualizing the next big jump in consumer needs and the next big enhancement in consumer experience and deploying the right science and technology to fulfill them through breakthrough products.

The designer’s dilemma

Left to himself or herself, every bright designer, and left to themselves every bright design team would have the classic challenge of deciding between incremental innovation and breakthrough innovation. But for Steve Jobs making “touch and feel” the deciding game changer over mechanical querty key board, the iPhone would not have been a differentiated product. How long should Apple increment the iPhone in terms of technological improvements vis-à-vis making a breakthrough transformation could be the current challenge for Apple. Possibly, non-touch based gesture control of computers, tablets and iPhones, or even thought reading control mechanisms could be technically feasible and economically possible even now. Development of pumps which combine the features of both reciprocating and rotary mechanisms could be a near term reality. Cameras which send the images with oral or written messages of friends could drive a new generation of communicative cameras.

The designer’s dilemma, and at another level the corresponding corporate dilemma, is how often the consumer must be enabled to experience the ‘wow factor”. iPhone 5 could still be a runaway success with its global sales surpassing the previous records. Yet, the absence of wow factor in the recent smartphone launches, Apple and Samsung included, indicates that a period of five to ten years is probably the optimal period to try a breakthrough, transformative innovation to completely reengineer and redevelop a product. Put slightly differently, after every five to ten cycles of annual incremental innovations would come the need for one breakthrough transformative product. Certain industries which are stylistically oriented to update models each year at considerable costs (for example, the automobile industry) could explore an alternative of conserving investment and technological power by making stylistic changes only once in two years, and introducing breakthrough products every four or eight years.

Separate streams

Given the distinction in the design thought, experimentation, development, investment and commercialization approaches between incremental innovation and breakthrough innovation, firms would be well advised to establish distinct organizations for both the streams of innovation. Design institutes of fundamental or basic science and technology would go a long way in enabling larger firms play the rightful role of transformative agents in the industrial milieu. Clearly, the scientific and technological leadership required for breakthrough product transformation would be gutsy, visionary, consumer-centric and even iconoclastic. The right industrial leader, Apple and Samsung included, would never be averse to creating a new icon that challenges or obsoletes its own icon. As a thumb rule, targeting a breakthrough innovation from such groups for every five to ten annual incremental innovation cycles of the normal research groups (depending on the nature of industry) would be empirically and theoretically appropriate.

Posted by Dr CB Rao on September 16, 2012