Unlearn the past to create the future: C K Prahalad

There was a time when the general belief was that the developed markets are the source of innovation and the benefits of their innovation may flow over time emerging economies like India. That the opposite could be true, that the world could be more equitable and that innovation could flow from emerging markets to developed markets was never seriously considered. Why is the obvious sometimes so hard to recognise? It’s because of the tyranny of dominant logic.

Dominant logic is the result of a pattern of socialisation. All of us are susceptible to it. Often, the dominant logic is implicit. For over fifty years, developed country managers, consultants and academic researchers have been socialised to believe that developing markets cannot be a source of innovation. The academic community has, by and large, accepted this notion as well. The dominant logic provides the theoretical lens with which we see the world. I think it’s time to challenge this received wisdom.

We need to bring back a dash of curiosity, creativity and imagination into the discipline of academic research. To create the future, we have to un-learn the past. We all know the learning curve, but equally important is the forgetting curve — the rate at which we unlearn old habits that hinder our ability to spot emerging opportunities.

The fact is, emerging economies today are becoming the laboratory for new business models. Countries like India are resource constrained so you just have to be innovative here. 800 million Indians live in poverty — can they become a source of innovation and growth? Aspiring young consumers want world class goods and services at low prices. The challenge is to figure out how to do it.

There’s a market for everything in India be it laptops or packaged food. For example, India presents a new challenge and an opportunity for those in the healthcare business; a poor country with over 45 million people with diabetes. How do we get the life long service for diabetics who are poor at a price they can afford? There are big opportunities for building disruptive business models. Today, thanks to new technologies, connectivity and globalisation, price-performance envelopes are changing faster, in every industrial sector, than anyone would have expected.

A truly disruptive business model radically alters the economics of the industry. In the emerging markets, cell phone services offer an excellent example of disruptive innovations that have altered the economics of an entire industry. Bharti Airtel, for example, is adding three million new connections to its network every month, which will make it the largest cellular service provider in the world next to China Telecom, which operates as a monopoly.

Another characteristic of disruptive innovations is that they enlarge the size of the market. They improve functionality and make it difficult for incumbent players to react swiftly. And being based on logical, internally consistent business principles, they are sustainable in the long run.

Emerging market companies offer examples in the field of IT, ITES, pharmaceuticals and FMCG that fit all these characteristics. In India, we have disruptive products like the one cent shampoo sachet, the $20 hotel chain (Ginger), the $30 cell phone, the $35 DVD player, the $30 cataract surgery (Aravind Eye Hospitals) and the $2,000 car (Tata Motors). These products have taken things from the rich to the masses. They’ve used what RA Mashelkar calls ‘Gandhian engineering’, embracing resource constraints in the quest to do more with less for more people.

When you look at the companies that have achieved this, you find their aspirations are greater than their resources. Here, it’s stretch and strategic intent that drives the innovation process. Imagination constraints, I’ve found, are far worse than resource constraints.

Disruptrive, resource-constrained innovation necessarily starts with a perspective best described as : “Price-Profit = Cost”. It makes use of advanced technology and leverages assets that are unique to the market. It has scale and logistics and it has the capacity to collaborate with other players.

For those who create the theories of management — us academicians — there’s a need to cultivate curiosity about new phenomenon and emerging markets and pass this to the next generation of scholars. Instead of the usual denominator management that we’ve come to be so good at, we need to focus on next practices, look for the new, the outliers. We need to think of strategy as innovation, tighten the academic-business link and build a new research connection. What’s needed is a transition in our thinking, to an inclusive model of growth where you do more with less for more people.

(The article is based on the opening address by the author at the Strategic Management Society conference at ISB, Hyderabad)

(The Economic Times)

Let’s have some wa, hansei and kaizen

by Sudheendra Kulkarni

Indian businessmen doing business with Japan are of two types — one, for whom the relationship is short-term and frustrating, and the other for whom it becomes durable and highly fulfilling, not only financially but also in other intangible ways. The first type will complain: “It’s difficult to understand the Japanese. They take so long to take decisions, rarely come straight to the point and conclude the deal. Who has got that much time in today’s world of multiple opportunities?”
Those in the second category will tell you: “For the Japanese, business partnerships are not only about making money. They are about seeking, preserving and promoting wa or harmony, a quintessentially Japanese principle, which they practice within their own companies, in product design, art and society in general. They have an elaborate and often time-consuming way of ascertaining whether a particular decision harmonises with their culture of doing business. But once they know that you are trustworthy and the right partner, decisions are taken very fast, often without the formality of legal documents. You then begin to realise how scrupulously they keep their word, care for your feelings, respect your ideas and suggestions, and make the relationship an opportunity for mutual growth.”
I have mentioned this because in my last week’s column (‘The Toyo-Tata Way to Nation-Building’) I had reflected upon how Toyota’s unique manufacturing principles had not only enabled it to become the world’s leading car company, but also offered important lessons for all types of organisation-building. My reflections were triggered, first, by Jeffrey K. Liker’s internationally acclaimed book The Toyota Way and, later, by a visit to Toyota’s main plant in Nagoya in Japan. Can manufacturing have a moral message? Can it have a cultural and philosophical basis? These questions may sound strange, but the answer, provided by Toyota and many Japanese companies, is yes.
In Toyota’s superior business paradigm, its long-term vision of value-creation supersedes pursuit of short-term money-making. Every employee is made to feel important, honoured, empowered and responsible to achieve the company’s objectives of zero-defect, zero-waste and complete customer satisfaction. This is what helped Toyota beat American auto giants Ford and General Motors in most markets globally. Liker’s book presents amazing case-studies of how Toyota doubled or tripled the speed of every business process, reduced production cost through constant innovation, and made quality control a company-wide obsession.
But The Toyota Way’s principal lessons are not for car-making alone. For example, as a political activist, I believe that all those political parties that are concerned about problems within and genuinely desire long-term growth would profit by paying heed to the following principles.
• “Don’t hide problems within the organisation, but bring them to the surface.”
• “Continuously solving root problems improves organisational learning. Even high-level managers should go and see things for themselves, so that they will have more than a superficial understanding of the situation.”
• “Develop such leaders in your organisation who thoroughly understand the work, live the philosophy, and teach it to others.”
• “Develop exceptional people and teams who follow your company’s philosophy. Make an ongoing effort to teach individuals to work together as teams toward common goals.”
• “Become a learning organisation through relentless reflection (hansei) and continuous improvement (kaizen). Protect the organisation’s knowledge and cultural base by developing stable personnel, careful promotion, and well thought-out succession systems.”
Similarly, Toyota’s constant effort to achieve “zero waste of human, material, energy and time resources” is something that ought to become the guiding principle of a national mission in India. Take energy conservation, for example. When the Japanese government issued a directive to its citizens three years ago to use less energy for air-conditioning in summer, Toyota, Hitachi, Sony and other big and small companies asked everyone, from chairmen down to receptionists, not to wear their ties and jackets in office. When the government set strict new energy-saving targets for consumer and office electronics products, saying they must be redesigned to use 63 per cent less power by 2008, every company got down to the task. It is through such national campaigns that Japan has managed to achieve the impossible: It now imports 16 per cent less oil than it did in 1973, although its GDP has more than doubled. How does India fare in this regard? Five years ago, former prime minister Atal Bihari Vajpayee announced an energy-saving campaign in government offices, in which the PMO and Rashtrapati Bhavan were required to cut their power consumption by 10 per cent. Nobody knows about the fate of that campaign.
The trouble with Indians, especially with those in government and politics, is that we talk more and do less. Though our businesses are now transforming themselves, most of the work processes in government and political parties are extremely slow and deeply flawed. There is poor adherence to any long-term vision and specific goals, and scant accountability to reach them. And little is done to enthuse, empower, involve and reward the ‘small’ man in the achievement of big organisational or national objectives. If we want to build a New India in the 21st century, isn’t it high time we enshrined the Indian equivalents of wa, hansei and kaizen in a nationwide drive for a New Work Culture in governance, politics, business and other spheres of public life? --(IndiaExpress)

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Breaktrough management - 'manufacturers must think global'

MUMBAI: Even as the debate on core competency and diversification continues to dog Indian companies, a well known Japanese management expert was in the country recently to try and make Indian manufacturing companies look beyond mere production and to include aspects like research and logistics, to increase their share of the global pie. Professor Shoji Shiba, a former professor at the Massachusetts Institute of Technology, and author of the celebrated ‘breakthrough management’ concept, was in Mumbai, to make middle and senior executives unlearn the “need to produce and produce more.” Core competency for corporations has been a key part of management restructuring in most companies ever since gurus CK Prahlad and Gary Hamel published their celebrated theory in the Harvard Business Review in the nineties. But then there has also been too much of a focus on production, fears the professor. “For years Indian manufacturing companies have been laying too much emphasis on production. It’s time they made that leap to the big mindset,” he said. “You need to include R&D (research and development), product design, supply chain, if you want to go global,” he said. The Japanese professor who is also one of the world’s leading experts in Total Quality Management, recently spent two weeks at the Godrej’s Center for Excellence in Mumbai, in a joint effort with the Confederation of Indian Industry. “If Indian manufacturing companies don’t get their act together and work toward a global presence, they could be wiped out,” he said. Indian manufacturing is already reeling under the impact of old labour laws and a weak infrastructure, he added. Outlining his views through a presentation titled ‘Small m vs Big M’, with the ‘m’ representing mindset, Prof Shiba said R&D based on customer feedback is vital before focusing on production. The feedback and research would feed product design which could then be used in producing custom-made goods, he said. Putting the supply chain - including logistics for raw materials and finished goods - was equally important and so were developing after-sales-service and warranty to spur global growth, he added. Industry insiders, including those who have attended Prof Shiba’s previous sessions say that the re-orientation from production-only to a global mindset, shows how dynamic his concepts could be. In fact the former MIT professor wasn’t slow to attack TQM and Total Productivity Maintenance (TPM). “All that was okay till three years back...now it isn’t enough. The Big M is essential to survive under global competition,” he added. Rightfully, his new concept now includes manufacturing, societal and environmental changes as well. “You also need to develop manufacturing and create role models,” he said while talking about the erosion of the sector’s share of the Indian economy. Manufacturing currently accounts for 27% of the GDP, way behind the 55% contributed by the service sector. But that could be changing, say latest reports. Manufacturing firms reported healthy expansion of output in September, with the rate of growth the fastest since November 2006 and led by higher volumes of new orders and increased marketing. The ABN AMRO India Purchasing Managers’ Index (PMI) rose from 57.9 in August to 59.1 in September. The index is an indicator of the economic health of the manufacturing sector and is based on factors like new orders, inventory levels, production, supplier deliveries and employment. A index reading of more than 50 means that the sector has expanded. Apart from a more-than-necessary focus on production, weak R&D is another inhibiting factor, said Prof Shiba. “Research in India is mostly product design...that needs to be ramped up so that Indian centres create a series of innovations,” he added.