A very happy new year?

January 6th, 2010 — 6:11pm

I spent a chunk of December in the UK, traveling from London to Edinburgh to Cambridge to Cardiff (It’s a Dr. Who/Captain Jack Harkness thing; if you know these names, you won’t ask, “Why Cardiff?” and if you don’t, don’t worry since the answer’s too long to give here!). There, as here, on the surface the economy seemed fine. Oxford Street, London’s equivalent of New York’s 5th avenue, was beautifully lit up and packed with people. The department stores were hard to walk through; Harrod’s had its security staff directing and controlling traffic inside. Our effort to get seating for a traditional afternoon tea – relatively easy, even near Christmas, on past trips – met polite refusals at multiple locations; we ultimately went to the British Museum, not to see the exhibits, but for tea!

I also saw a very different side of UK. In all the cities, many stores were boarded up or had “To Let” signs. Other than Harrod’s, department stores were discounting prices even though there were no posters and banners announcing sales; we paid less than sticker price for several items. The news was gloomy – Iceland was bankrupt, Greece almost so and Spain and Portugal were not far behind; failure to resolve these would undoubtedly hurt the Euro Zone. Perhaps most tellingly, endless pubs and small restaurants were inviting customers to party with them on Christmas, using price – “Only £16.95 a person” – as their primary solicitation tool. In contrast, a few years ago, we few restaurants were open and we had to pay £150 for 3 people (one a child) at one of the few open establishments.

Almost metaphorically, the elegant, comfortable and super-fast Eurostar trains that run through the tunnels beneath the English Channel broke down. On a bitterly cold day, not one or two, but five of these trains simply came to a halt within the tunnels. Why? No one knew. The trains had operated flawlessly for 17 years – and on occasion, in comparably cold weather. Chaos reigned for days: Thousands of people were stranded, unable to go on their planned ‘holidays.’ As the trains stopped, so did truck traffic between the UK and France. Thousands of truck drivers stood around on British highways, turning them into parking lots. And for good measure, the British Airways cabin crew union decided to go on an indefinite strike to protest a work rule change. The strike was ultimately avoided when a British court voided the strike vote on the basis of a technicality, but before the court ruled, more panic gripped the public. Uncharacteristically, huge amounts of snow and bitter cold stopped other trains and blocked roads all over the country. And a financial institution made news by announcing its plan to transfer its professionals abroad to help them avoid the newly announced taxes on bonuses – even though it was unclear whether the law applied to them.

Whenever there’s panic and chaos, humans almost cannot resist pointing fingers at others. And that’s exactly what was happening all around. The people and the press wanted black and white answers – somebody’s head should roll, shouldn’t it? Someone has to pay for my inconvenience, right? And far from black and white, no one nominally in charge even seemed to know whether the problems were on the grey scale – or were a garish shade of red and orange.

This situation is a microcosm of today’s US economy (and most likely, for many others). The old rules no longer work because of network effects. Experts disagree about what the new rules should be and “My model is better than your model, you imbecile!” types of arguments abound. Politics drains what little realism there is in these models and ideology is spewed, dressed up as science. Piecemeal solutions are offered as panaceas for all evils. People who don’t know the difference between “budget deficit” and “national debt” routinely pass judgment on what should or should not be done. And seeing them in this state, many of those who can distinguish such terms – but don’t understand terms like “empathy” and “conspicuous consumption” – tell themselves that this is the best time to pay themselves their biggest bonuses ever.

I couldn’t help wondering whether the US definitely – and Western Europe perhaps – are on glide paths to a two-tier economy. Certainly Warren Bennett, who could single-handedly finance some small countries for years without breaking a sweat, has expressed similar concerns about the US; he has flatly said that this trend does not bode well for a democracy.

So, here’s my hope for 2010: That of us who are brilliant or are among the top echelons of the society (in our minds anyway) and those of us who make major decisions on behalf of our companies, resolve to do whatever we can to help turn this gloomy picture around. We don’t need specialized training to do this; all we need is (1) to consider for our own, everyday choices, not just “What’s in it for me?” but also, “How will it affect the network within which I live?” and (2) to help others do the same. If our networked economies thrive, we’ll do even better than we are doing now; if they fail, sooner or later they will drag us down.

Governments alone can’t solve a problem that companies, consumers and governments jointly created. They will need the active help of companies and consumers. And if, as corporate executives and consumers, we do think of our networks, 2010 can truly be a happy new year.

Comment » | Business Environment

What Took You So Long, Mr. Whitacre?

December 9th, 2009 — 2:40pm

Edward Whitacre, the Chairman of the Board of GM, has been very active during the last few days. On December 1, he – formally GM’s Board – fired CEO Fritz Henderson. An Associated Press article in The New York Times reported on opinions expressed by two – unnamed – people who were close to Mr. Henderson. It noted that “…the board upset that the automaker’s turnaround wasn’t moving more swiftly and Henderson frustrated with second-guessing …” The same people also suggested that “[Henderson has] was frustrated from the beginning by the board and government push for faster change and other questions about his decisions.” Mr. Whitacre has taken on the task of interim CEO while the Board searches for a replacement. In all likelihood, he/she will be from outside the industry.

Three days after making this decision, Mr. Whitacre appointed a new management team. He reached down into the senior middle management cadre and appointed Mark Reuss, a recent GM for Australia and a newly appointed VP for Engineering, GM for North America. He expanded the responsibilities of three women executives and sidelined Robert Lutz, the Vice Chairman who ran product development and who had hinted publicly that he would be replacing Mr. Henderson. In a public statement about these decisions, Mr. Whitacre noted that GM’s top heavy management was stifling good mid-tier managers, and he wanted to “… give people more responsibility and authority deeper in the organization, and hold them accountable.”

Of course I cheered! In this blog, last December (“What’s Good for General Motors is Good for America”) I wrote, “… this company cannot be trusted to reform itself …” and listed five conditions that the US government should ask for in return for bailing out GM. These included: “Mr. Wagoner and his top lieutenants must resign in an orderly fashion …;” “ … over the next five years GM … must be reduced in size, so they are no longer ‘too big to fail.’ This will require mandatory spin-offs of relatively independent businesses …;” and “…no one in the top spots in any of the restructured companies should come from the senior-most ranks of these companies …”

Then, in January (“Marie Antoinette’s Soulmate”), I tore into Mr. Lutz: “If anyone has any doubts about why GM is really flirting with bankruptcy, Mr. Lutz comments (during an NPR interview) should have clarified the issue. The Vice Chairman of a company which went with a begging bowl to Congress acted as if he was Marie ‘Let them eat cake’ Antoinette’s soul mate. CEO Rick Wagoner and GM’s Board should have repudiated his statements by publicly firing him …” I also opined that a pre-arranged bankruptcy would not solve GM’s core problem. During the negotiations, I said, “No one will be focusing on changing the culture that allow people like Mr. Lutz to be top dogs. And without changing culture – encouraging collaboration, being open to others’ ideas, being willing to take considered risk, managing learning every day, etc. – these companies will stumble from one disaster to another. Changing culture takes great effort, committed leadership and time. All three will be in short supply during the negotiations …” I added, “I would like to see … an orderly departure of people like Rick Wagoner and Bob Lutz, and a shifting of power to less jaded executives running smaller companies created by splitting up the behemoths.”

Then in April (“The King is Dead! Long Live the King”), I challenged the criticism made of the firing of Rick Wagoner: “Imagine, for a moment, that a President of the US (… ‘POTUS’) was at the end of an eight year tenure and he … had not been able to turn around the economy. Would you call him a failure? Sure you would! Mr. Wagoner has been CEO for 8 years; prior to that he was GM’s CFO, President of North American Operations, and COO. A comparable track record in US national politics would have been Secretary of Treasury, (a hands on) Vice President and then POTUS. In effect, Mr. Wagoner had many more then 8 years to fix GM. Under the circumstances, the fact that he might have ‘made progress,’ is simply not good enough!” I ended that post with, “The King is dead. I hope the new King – or kings, as I have argued earlier – come from middle ranks or better yet, from outside the industry.”

So, Mr. Whitacre has made many of the executive changes I wanted. Hopefully, the new blood will transform GM’s ossified culture and structure and take the strategic steps I suggested. As long as Mr. Henderson was the CEO, there was no hope of this happening. His concern that the Board was pushing too hard indicates that he, like Mr. Wagoner, would have found eight years too short for reforming GM.

Now there is hope that at least some of the money the US government used to bail out GM will be returned.

Comment » | Company Performance, Corporate Culture, Leadership, Organizational structure, Politics

“Stargazer, you with your head in the heavens …”

November 28th, 2009 — 2:05pm

Around this time every year, American manufacturers and retailers fill the airwaves with countless advertisements. A couple of days ago, I saw many from Toyota, touting the legendary quality of its cars. But for the first time in a long while these sounded hollow. Toyota has just announced yet another recall – affecting four million cars – for possible uncontrollable acceleration. The problem has resulted in a few deaths. I immediately told my wife, “This is Toyota’s “Audi moment.”

In the 1980s, Audi’s slogan was “The art of engineering” and its cars were doing very well in the premium/luxury segment. One year, some customers complained about accidents at start up; the cars moved before the drivers wanted to, often causing accidents. Audi denied the problem and blamed driver error. The media picked up the story and ultimately, the US government mandated a new safety feature for all cars: one cannot shift the gear to ‘Drive’ or ‘Reverse’ without having a foot on the brake. But by that time, Audi’s sales had plummeted – if I recall correctly – from about 50,000 a year to under 10,000. Audi’s reputation didn’t recover for many years.

I have long admired Toyota’s management prowess, and praised some of its policies and experiences in The Spider’s Strategy and in this blog. However, Toyota has clearly not learnt from Audi’s experiences. It first denied the problem and then blamed its customers. When it – very belatedly – acknowledged the issue, it said that the accelerator pedal was getting stuck on the mat and said that it would retrofit the existing pedals.

Toyota’s response is far from appropriate. It won’t be able execute the retrofitting till April 2010. What are the legions of Toyota customers supposed to do till then? Help slow global warming by not driving? Moreover, not everyone is convinced that the pedals are at fault; many blame a software malfunction. (This isn’t far fetched; in The Spider’s Strategy, I described earlier software problems in Toyota – and other high end cars – as one of the motivations for networked companies.) Toyota disagrees sharply – but nevertheless, is changing the software in some cars.

Toyota’s advertisements, reminded me of a Neil Diamond song: “Stargazer, you with your head in the heavens / You’ll never get by walkin’ that high off the ground / Moon dreamer, I’ve been around and I’ve seen it / The higher you get – the harder they let you down / You pay your dues, it seems forever /And if you’re clever you may be in for a while / Then you’re out of style/” I wondered why its executives didn’t realize that since quality is their claim to fame, a plausible challenge of that capability can be devastating. I also mused about the appropriateness of focusing advertisements on quality while a major recall is the lead news item on the evening news. Finally, I pondered why good executives don’t understand that blaming large numbers of customers is always a losing strategy in a crisis. Perhaps it is because they forget – with their “head in the heavens” – that they can’t afford to be “walkin’ that high off the ground.”

Only time will tell if Toyota is “out of style” now, having been “in for a while” because of its earlier “cleverness.” Recently, its new CEO, Akio Toyoda, apologized abjectly to shareholders and customers for Toyota’s many recent failings and vowed to return to policies that had made it one of the most admired companies in the world.

Great (Adaptive) companies do make mistakes, just like lesser ones. What distinguishes them is what they do next. They acknowledge their mistakes, quickly correct them and determine how to obviate the entire class of such mistakes in the future. Mr. Toyoda, the ball’s in your court.

1 comment » | Company Performance, Corporate Culture, Leadership

A Tale of Two Indias

October 21st, 2009 — 2:03pm

Earlier this month, I finished a fifteen day trip to India. I formally met executives at two of the country’s largest business groups, and several others in social settings. A journalist posed a question that set me thinking about how business had changed since I lived and worked there.

In 1984, I returned to India after finishing my MBA and spending 13 months in the US as a management trainee at American Express Bank. In other posts, I’ve mentioned my experiences as a trainee creating policy papers for the AEB Board. My return quickly cut me down to size.

My 13 months in New York hadn’t taught me the basics of banking. For example, the lesson I was taught about “Letters of Credit,” the grease of the wheels of international trade, was: reject any “Bill of Lading” that differed from its LC, no matter how small the discrepancy. This categorical rule was meant to protect the Bank if contract disputes emerged between the buyer and seller of the goods covered by the LC and BL. But in India, 100% of the BLs had multiple differences from their LCs. Rejecting them all would shut down the Bank. My India-trained colleagues handled these decisions effortlessly, whereas I, supposedly a “high potential” junior manager, couldn’t without help. (Incidentally, the (rare) managers from the Sub-Continent who got posted abroad, often received multiple, quick promotions to the levels they would have normally achieved had their careers unfolded in the West.)

I also learnt there were many things we could not do, even if they made good business sense. Often, my colleagues (and even my boss) signed off on some transactions with indecipherable squiggles. Moreover, when they had to approve certain types of transactions (e.g., giving a valued client a better deal on its foreign exchange transaction than was allowed by India’s central bank), they almost always had to make client calls; in those cases I signed for them. Ultimately, I realized that these transactions violated arcane Indian laws; when these were minor, the officers squiggled; when they were non-trivial, I became a convenient fall guy.

Today, the situation is very different. Many arcane rules have been repealed; one does not need to break the law every day in order to do one’s job. A palpable degree of confidence radiates from business executives about the prospects of their own firms in particular, and the economy in general. In the 1980s, virtually nothing I had studied in my MBA was applicable in India. Today, many companies are brilliantly run – and could teach a lot to the rest of the world.

The country’s liberalization and rapid growth has, however, produced one downside: A top executive I met bemoaned the fact that the country was teeming with MBAs who wanted to be Managing Directors immediately, without putting in sufficient time to learn their profession. (And I could sympathize with this viewpoint. I watched an interview of a newly appointed, very young, CEO on a TV business channel. The interviewer fawned over him in a manner typically reserved for film stars and cricket players. Which young person wouldn’t want such treatment?) The fact that virtually none of the many business schools that have sprung up all over the country require work experience for admission exacerbates this problem; selections are done mostly based on the Indian equivalent of the GMAT and/or the candidate’s academic record. The desire of the young MBAs clashes with the realities of corporate life and is producing a serious problem: Indian executives estimate that 20% – 40% of their professional staff change employers each year.

Corporate leaders must address this challenge, even if these numbers are a wild exaggeration. I suspect that they will have to take a good hard look at their human resource policies to craft a uniquely “modern Indian” solution. A key part aspect must be the strengthening of company-specific management training; such an investment will convince seasoned managers that the company is truly interested in their professional wellbeing. Until Enron went down in flames, Tom Peters and others were preaching that every manager should adopt a “Me Incorporated” mindset; this doctrine is still prevalent on today’s Wall Street. In India, the most visible example of this mindset is the bitter fued between the two Ambani brothers, each a billionaire many times over. In a networked world, the rest of Indian industry simply cannot afford to fall into the same trap.

A model of what is needed already exists in India and I was privileged to visit it: The Tata Management Training Center in Pune is one of the oldest corporate universities in the world. It is using everything from in-class programs for senior executives to eLearning tools to meet the needs of managers at all levels. Some courses last for a few days, while others are delivered “Executive MBA” style over several months. Chetan Tolia, its Managing Director, told me that some 5,000 managers walk through TMTC’s gates each year. If other major business houses emulated the Tatas in this regard, India could develop a truly formidable competitive advantage.

The million dollar question is: Will they? The ten million dollar question is: What impact will this have on developed economies?

1 comment » | Business Environment, Corporate Culture, executive education, MBA education

On Being Prepared to Walk Alone

September 28th, 2009 — 11:11pm

Between 1994 and 1998, I was first a senior consultant and then a Director (partner) at Arthur D. Little. ADL was really a technology consulting company and the majority of the people I worked with were highly skilled, hard core engineers and scientists, many of whom held Ph.D.s. (ADL ran into trouble – after I left – because the people who ran it forgot its essence and decided to compete head-to-head with McKinsey. But that’s a story for another day.)

One day, infuriated at a “McKinsey wannabe,” I turned to an outstanding engineer. “Dave,” I said, “One reason companies run into trouble is that everyone believes that he or she can do strategy. No one questions the fact that to do what you do, you need years of specialized training. There have been great inventors who never ever attended school, but they were few and far between. In contrast, there are many more examples of people – like Bill Gates – who became brilliant strategists without any training. So, everyone seems to believe that they too can be great strategists – without investing any time or energy or creativity. What utter nonsense!” Dave made sympathetic noises and returned to his work.

This story has a link to my last post on competing with “free” on the Web. A key reason why media companies are hemorrhaging money is that few have true strategies.

All the great thinkers in strategy agree on two issues. First, a strategy must be unique and hard to effect. Recall that in the heydays of the dot com companies, every website had a page entitled, “Our Partners” which – invariably – named IBM, Microsoft and Cisco. For years, I’ve told executives, “If IBM is everybody’s partner, then IBM is nobody’s partner.” Generalizing, if every company has the same strategy, no one has a strategy. This is definitely true of most media companies: most have the same content; all are reliant on advertising; all have roughly comparable technical capabilities; all can be accessed from around the world; and only a handful have true brand names which could give them great advantage.

Second, a great strategy is about fit – lots of little factors are designed to work together as one seamless entity. Thus, simply copying the most prominent and visible of these factors does not help a competitor. For example, in my post, “Time to Re-read ‘What is Strategy?’” I argued that simply copying Apple’s retail strategy won’t help Microsoft, just as it didn’t help Sony. Apple’s retail stores are a seamless part of the “digital culture” that pervades all its products and services.

Media companies will not thrive if they all rely on advertising. This funding mechanism worked for newspapers and broadcast TV since they differentiated themselves first by content and second, by distribution. It also work for Google for pretty much the same reason. Since there’s really nothing unique in the online personas of most media companies, an advertising based model will inevitably reduces competition to a dog-eat-dog level, forcing them to compete with “free.”

A different solution can be found; it only requires creative thinking. After leaving ADL, I became the Chief Technology & Strategy Officer of a high tech company, TurboChef, which still manufactures a device which I’ve always described as “a computer which cooks.” When I was creating its online strategy, I deliberately eschewed advertising. No person who could afford to buy a TurboChef was going to spend endless time sitting in front of its control screen watching advertisements.

In its place, I focused on the one thing we controlled that no one else, regardless of size, could duplicate – at least as long as our patents were valid. I asked my engineers to design the device so that its operating system would be upgradeable for several years. This required, for example, the use of flash memories, which were just appearing and very expensive. Nevertheless, I mandated the use of flash memories. We would give consumers a “free” upgrade (naturally downloaded directly into their TurboChef ovens) if and only if they participated in the online community we were creating – where they could buy exotic foods, high end kitchen artifacts and yes, exchange recipes (by downloading them directly into each other’s ovens). We would make money online through this community – without relying on a single advertisement.

We would also be able to do something no consumer durable company has ever been able to: keep in constant touch with our consumers. That way, in five or seven years, when we told them that their hardware (the physical oven) could no longer handle the latest versions of the operating system, they would virtually be compelled to buy the latest TurboChef available.

Much of the “strategy” churned out by companies stinks (and that’s putting it mildly) because people who formulate them think it is a mechanical exercise. Creating good strategy requires creativity comparable to that which underlies the output of a good artist or a top-notch engineer. And so, the worst possible time for companies to create strategies is in conjunctions with their annual business planning cycle. At that time, the only creativity observable is in the “massaging” of budget numbers to produce a pre-determined output!

Since childhood, I have loved Bengali song that says, “If no one hears your call, then walk alone.” (Trust me, the poetry is much more lyrical in the original language!) Creating anything, particularly something unique, requires the courage of conviction and the willingness to walk alone.

1 comment » | Business Tools, Online Business Models

There’s Always a Price Tag

September 13th, 2009 — 3:46am

In recent weeks, media mogul Barry Diller made a news splash when he proclaimed that hundreds of millions of people are in for a rude shock: They who expect virtually everything on the Internet to be free, but within 5 years, they will actually have to pay for content.

Virtually simultaneously, Chris Anderson, the editor-in-chief of Wired magazine (and author of The Long Tail), set forth a dramatically different viewpoint. In his book, Free: The Future of a Radical Price, he argued that businesses must learn to compete with “free.” Anderson doesn’t really believe the provocative title of his book; he argues that in an Internet-focused world, every business must be willing to give away something valuable for free in order to gain paying customers for other – presumably more expensive – products and services. Anderson himself is reportedly giving away copies of his book for free (at least to some people); his payoff will be invitations by companies and associations to give paid talks, which can be a very lucrative business.

Anderson’s viewpoint is not novel, though it is being treated as such. A decade ago, I read a book entitled Information Rules: A Strategic Guide to the Network Economy. The authors, two well known economists (Carl Shapiro and Hal Varian) argued that the “new rules of business,” a very common phrase during the early days of the commercialized Internet, were not new at all. Indeed, classical economic theory had within its doctrine all of the rules needed to run Internet-based businesses successfully. One, which is relevant here, was that buyers could not assess the true value of an “experience good” without consuming it at least once.

The experience good idea suggests that Anderson overstates his case, while Dillard will have to pay at least some attention to the idea of “free.” For example, business people can assume that the online Wall Street Journal – perhaps the best example of the Barry Dillard argument – will be worth paying for since they have consumed the paper version and know that there are at best, only a handful of media outlets which can provide comparable information. In contrast, the online version of the average daily newspaper has to give away all its content for free simply because experience has taught potential consumers that most newspapers carry pretty much the same news – at least regarding most of the important issues of the day. So, if a particular newspaper charges for its online edition, the average consumer can find similar coverage by some other which does not.

Media companies will not succeed unless they pay much greater attention to the first of nine questions I ask when formulating strategy: Who needs us? Why? If no one “needs us” we can’t charge for the value we think we deliver. If people do need us, we can.

Of course, one might present a counter-argument by pointing to the relationship young people have with music: They “need” it but they want it free. Here I’ll say that we must differentiate between theft and fair use. I have yet to meet a young person who considers ripping off music as his or her right; they are almost always apologetic and defensive, pointing out they have little money and “everyone is doing it.” If it weren’t for this attitude, I doubt if iTunes would have been the money maker it is: why buy it on iTunes if you can get it for free? Yet Apple is making money … perhaps even minting it.

The Internet is as close as we can come to the economists’ assumption of a perfect market – one in which no one makes “supernormal profits” because there are too many buyers and too many sellers of the same (or very similar) stuff. The only way a company can make money is by making this perfect market “imperfect,” and draw a greater number of buyers than any competitor. And there are only three ways of doing this: building a great brand, creating defensible intellectual property or creating a hard to replicate delivery system. The WSJ is in the catbird seat because it has done the first two very well; the typical newspaper lacks “defensible intellectual property” and is distributed in exactly the same way as every other. Moreover, only a handful have true “brand name” status. Hence, they cannot get out of the perfect market.

I will be interested in learning how Mr. Dillard will deal with this issue. If he can, he will be able to turn the Internet into paid media. If he cannot, he won’t – unless of course, all of the content providers collude and in Ayn Rand’s John Galt style, go on strike (or equivalently, coordinate the raising of barriers).

Comment » | Business Environment, Online Business Models

Time to Re-read “What is Strategy?”

July 22nd, 2009 — 4:45pm

For the uninitiated, “What is Strategy?” is the name of a best-selling Harvard Business Review article that Michael Porter, a “University Professor” (i.e., the highest of the high) at the Harvard Business School and the Grand Poobah of Strategy, wrote in 1996. I will address only one of its many ideas in this post. I thought of it because of a recent visit to an upscale mall – and an announcement by a major company.

The visit was to an Apple retail store. I needed to connect my Mac to our Sony plasma TV, but could not remember the exact pin-configuration of the TV’s socket. The Apple employee helping me suggested that I ask at the Sony Style retail store located nearby and so, there I went.

You may recall that Sony began opening these stores when Apple started eating its lunch. The stores would make the vast array of great Sony products accessible to consumers. The moment I told a salesperson – who looked like a supervisor – that I was there for information, not to buy, he visibly lost interest in me. Not that the store was busy; you might have been able to hear a pin drop if you cupped your ear. Undeterred, I asked my question. The salesperson responded, “Do you have internet access at home?” “Yes,” I said, “But how does that help me now?” “Well,” he replied, “When you go home, look up the answer on our website.” “You can’t do that here?” I asked. “No,” he said, walking away. The ludicrousness of the idea that I would search their website instead of looking at the back of my TV did not even occur to him. And he is supposed to convince affluent consumers how to spend their money? In the time he spent losing a once and future customer – perhaps for ever – my teenager used my iPhone to get the information.

At the Apple store, the same salesperson greeted me again. He apologized for not thinking of going online and gave me the cable I needed. My wife asked for his help in selecting a graduation gift for my niece, who was finishing her high school. He showed us several fun software, but my wife picked up an expensive productivity program. “Oh gee,” he said sarcastically, “I just finished school and in the Fall, will start college. And my aunt gets me a productivity software! How nice!” We laughed, saw his point and decided to defer the purchase. He lost an immediate sale, but he reinforced the link between Apple and me.

Porter’s article says that strategy is about “fit.” Multiple small, individually inconsequential items must work together seamlessly for a strategy to be successful. The reason why Apple’s retail stores work – one in two purchaser of a Mac in an Apple store is new Apple customer – is that they are a seamless part of Apple’s corporate strategy. From the Genius Bar to the highly knowledgeable, non-pushy employees, everything fits together perfectly, just like the components of any Apple product. (Even the employees’ clothes match those of the Steve Job-like pitchman on its highly effective advertisements, “Hello, I’m a Mac” “And I’m a PC.”)

Sony once knew this lesson, but has forgotten it. Retailers speak of “location, location, location.” Sony’s location did not help it seal a relationship with me.

It is in this context I have been waiting to see how Microsoft’s newly announced retail stores will turn out. So far, this venture has been defined by location: the stores will be near Apple stores to give consumers non-Apple options. This is strategy?

For the sake of Microsoft’s shareholders (of which, regretfully, I’m one), I hope that the people in Redmond have thought this out a bit more. And if they haven’t, they should take this opportunity to first read Chan Kim and Reneé Mauborgne’s book, “Blue Ocean Strategy.” The essential thesis of this book is that too often, companies compete head to head with each other, leaving blood in the waters (“Red Ocean”) instead of seeking “Blue Oceans” where there are no established competitors. The Redmond strategists should also remember Porter’s message about fit: business history is full of examples of companies which tried to copy an effective strategy of a competitor, but failed miserably. The copying was typically superficial and small, seemingly inconsequential elements did not fit together. The Sony Style stores are a great example. Oh wait, Wintel machines and Windows Vista are even better ones.

1 comment » | Business Environment, Business Tools, Company Performance, Corporate Culture

The Roadblock to India’s “Tryst with Destiny,” Part 2 of 2

May 18th, 2009 — 5:36pm

I held off on completing this post – a direct follow-on to my last one – until the Indian elections ended. The 700 million strong electorate returned to power the current Prime Minister, Dr. Manmohan Singh, with a stronger plurality of votes than anyone has obtained in a long time. This means India should have a stable, reformist government for the next few years, led by a technocrat with integrity.

One reform that won’t be on Dr. Singh’s radar is the dismantling of the “Iron Triangle.” It won’t be because it is important, but in the face of many, many other issues, not urgent. Yet, it is this Iron Triangle which keeps more people like Dr. Singh from wielding power and driving change that will benefit the country at large.

The “pervasive mindset effect” of the Iron Triangle initiates this problem. I had just completed my eight standard (grade) when my father called me back from the playground. Did I want to be an engineer or a doctor? I chose the former to avoid dissecting cockroaches (an 8th grade requirement). My friends, all good students, had similar conversations. Only one smart kid among the 220 boys in my class opted out of the sciences; today he is a well known Indian author and journalist. Years later, at the premier Birla Institute of Technology and Science, a computer took on my father’s role: it directed students with high Grade Point Averages to engineering or science, those with moderate GPAs into management; and those with low GPAs into English or economics.

Mahatma Gandhi decision to involve college students in India’s freedom struggle reinforces the problem. Unlike the “Young Republicans” or “Young Democrats” chapters on US campuses, Indian National Congress-affiliated students took to the streets, demonstrated, and went to prison. After independence, every political party set up student chapters and extended their battles into campuses. Students who aspired to be scientists, doctors and engineers typically did not join; they had too much work. But those who cared little for an education did so. They organized strikes that shut down the universities regularly. Because strikes showed a person’s ability to organize people, these people were welcomed by the political parties.

The rigidity of the educational system exacerbates the problem. For example, the famed Indian Institutes of Technology do not admit anyone older than 25 for their bachelor’s programs. The premier Indian Institutes of Management do not (they used to in my youth), but their heavy focus on academic qualifications assures that most entrants lack significant real world experience. Few mid-career Indian professionals can emulate US General David Patraeus, who took a leave of absence to do a Ph.D. at Harvard’s Kennedy School of Government; his thesis on successful fighting of insurgencies (seemingly!) helped turn the tide in Iraq. Multitudes of such ridiculous restrictions create a system which pigeon-holes people in professions which do not interest them and for which they have little aptitude or passion.

The consequences of this Iron Triangle are the range of problems other observers blame for holding India back. The best of the best in my generation left the country; the best of the best in today’s generation by and large, eschew the difficult and essential task of nation-building. In the US, some successful executives move – at least for a few years – into senior government positions; though this practice is not without its problems, these pale into insignificance when compared opportunities lost because of the lack of such movements in India. Sure, half a dozen people have made such jumps and have helped the country, but they are exceptions, not the rule.

A reformist government would reform higher education in order to demolish the Iron Triangle. Reducing rigidity will be simplest, though it will require vision. For example, the curriculum at IIT Madras trains students more rigorously in engineering than MIT or CalTech do, but gives them little chance to learn about life – or ironically, how society affects technology. Will someone replace a few science and engineering courses with music, art and poetry?

Changing the science-focused mindset will be harder and require even greater vision. In the 1970s, it made sense for my father to limit my choices. Today India needs to make the Liberal Arts an area of study that will attract the best and the brightest. (Good news: IIT-M has recently begun an Arts program.) It must create Schools of Law on the model of the IITs, IIMs and the premier private universities (like BITS).

De-politicizing the universities will be hardest, but essential. The government might have to figure out how to ban political activity (as opposed to studying political science) on campuses. This recommendation is greatly at odds with my liberal view of life, but how else can India stop the least deserving from becoming the most powerful?

The good news is that Indians are stepping up to the plate. Infosys Co-Chairman Nadan Nilekani recently publicly asked the new government to reform education. Two successful business people – ABN AMRO Bank CEO Meera Sanyal and an IIM-Ahmedabad graduate and entrepreneur Sarath Babu – were candidates in the recent election. All three’s views of what needs changing may differ sharply from mine, but that’s immaterial. What is material is that people to whom education mattered are turning their attention to the body politic. If you don’t think their efforts are important, simply consider this: how long would India’s recent rapid growth as a business powerhouse last if an ill-educated politician successfully managed to eliminate English from its premier universities?

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The Roadblock to India’s “Tryst with Destiny,” Part 1 of 2

May 8th, 2009 — 2:02pm

Last week, I was at the Judge Business School of Cambridge University. This year, Cambridge is celebrating its 800th anniversary. It is astounding that an institution not tightly bound by religion has thrived this long, much of that time as a leading center of human thought. There is hope for humanity yet!

I took the time to chat with Navi Radjou, a former colleague at Forrester, and the first Executive Director of the Center for India and Global Business. Recently created in part with a grant from the Indian Government, the Center pays homage to Jawahar Lal Nehru, an architect of Indian freedom and its first Prime Minister; Nehru had studied at Cambridge in his youth. On a recent trip to India on behalf of the Center, Navi met business people, politicians, film makers and ordinary people. He described fascinating examples of business and social innovation, some of which truly have the power to change the flow of life even in other parts of the world. I will not steal the Center’s thunder and describe any of these here; suffice it to say that this Fall, PBS will be airing a series of documentaries on some of these innovations (created by filmmaker Khursheed Khurody) and the Center will do some supporting work on the series.

With all the good happening there, it might seem churlish to some for me to keep the promise I made in my last post and bring up India’s Achilles Heel. But the country must address this and soon. So, I will go on.

India’s Achilles Heel is not the limits to the numbers of engineering students it can train; while the world focuses on the Indian Institutes of Technology, most engineers trained by its many of the regional engineering colleges (e.g., Delhi College of Engineering) are highly skilled. It is not lack of basic essential infrastructure, which, without doubt, is way behind world class. It is not grinding poverty, accentuated by the still pervasive effects of caste, though that is terrible to behold. (Incidentally, caste is not just a Hindu problem; sadly, Catholics, Protestants, and Muslims – as well as adherents of several other religions – also espouse their caste status in issues of importance, like marriage.) It is not religious or caste battles; these, though ugly when they happen, are not as common as the Western press makes them out to be. It is not even the fact that some 20% of the current Members of Parliament have criminal records or outstanding criminal charges against them; this fact has received widespread coverage in the West now that 700+ million Indians are voting.

I could go on with this list of issues, which have all been raised by various observers of India, some friendly to the country, and some not. In reality, all these issues – and others like them – are derivatives of the core problem, which no one I know of has described. It is a self-reinforcing Iron Triangle made up of (1) a pervasive mindset that believes that smart people should – and must – study engineering or medicine; (2) a still rigid academic system that does not give most people second chances; and (3) Mahatma Gandhi’s greatest error: the politicizing of universities.

Demolishing this Iron Triangle is India’s biggest challenge; if it does so successfully, it will flourish and achieve what Prime Minister Nehru called its “tryst with destiny.” If does not, it will probably still be successful, but is likely to plateau at a level far below its potential.

In my next post, I will describe each of the legs of the Iron Triangle and how they interact. I will also offer some thoughts about what India could do.

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Lingua Franca of the Universe?

April 17th, 2009 — 9:30am

Greetings from Hong Kong (where I started writing this post) and Barcelona (where I am currently)! In Hong Kong, I was teaching in an executive program for a very well thought-off global company. The participants, mid-level executives of the company, are from multiple countries across the Eastern half of Australasia, though the bulk were of Chinese heritage and indeed, from China.

The hotel was grand and overlooked Hong Kong Island and harbor; the views were breathtakingly beautiful. The program I teach for this company is always held here and so, the staff that host us know me well. On a prior trip, I had asked how the handover of Hong Kong to China had affected the area’s residents. One of the staff had volunteered that young people were no longer learning English as avidly as they used to.

This time, a letter to the editor in a local English newspaper caught my eye. The writer was arguing that since Hong Kong’s kids would have to deal with Mandarin in everything from official communiqués to advertisements, schools should teach Chinese, not English. Interestingly, the writer’s name indicated that she was of Indian heritage.

Subsequently, I had dinner with a young woman, a manager at my host company. She confirmed with evident dismay that both schools and parents of students were deemphasizing English education. Moreover, the new focus was not even on the more widely spoken Mandarin, but – reflecting the cultural heritage of the region – Cantonese dialect.

The attitude towards English was affecting even her company. Managers in mainland China were increasingly asking that training programs be translated and delivered in Mandarin, despite the company’s success in improving its staff’s mastery of English. They argued that junior managers and staff did not need English to sell to the vast Chinese market. The argument that lack of English would keep the local staff from achieving senior regional and corporate positions and sooner or later, the mere recognition of this inviolable ceiling would cause the best and the brightest to quit, did not change any minds.

Ever since I first encountered this self-imposed linguistic ghetto building, I have wondered about the medium and long term impact on Hong Kong’s economy. Where would fresh English speaking people come from to run its vast financial markets? What impact would the almost inevitable shortage do to Hong Kong’s position as a center of global trade? My dinner companion said that people who aspired to such jobs usually did all they could to get some education abroad, but this is far from an ideal solution.

Hong Kong is not alone. Barcelona is in the Catalan region of Spain and many Catalans do not consider themselves Spanish. Their language, I’m told, can be loosely described as midway between Spanish and French. Catalan is required of every school student and Spanish is viewed with some disdain. Moreover, I’ve heard stories of foreign students coming to study in Barcelona’s universities, and leaving when they realize that their fluency in Spanish won’t count for much in their education. And this is despite the fact that this beautiful city is trying to establish itself as a commercial destination!

Long ago, I used to tell clients that India’s ultimate advantage on the world stage was not its technically educated people, but the fact that that educated Indians learn to speak English virtually as a first language. We may speak it with funny accents, I’d say, but make no mistake, we do speak it well and many Indians even “think in English.” This fact, I used to say, will give India at least a generation’s worth of advantage over countries where English is learnt reluctantly and used only when the local language just will not do. My recent experiences suggest that the advantage may be even greater. (In a future post, I will discuss India’s Achilles Heel — and no, it is not its still weak infrastructure or the poverty in the villages and slums.)

I have nothing against anyone who is proud, genuinely proud, of his or her own language. In addition to English, I speak two other languages, and in fact, use one of these fairly extensively at home. But like it or not, if we ever make contact with aliens from some other part of the universe, in addition to using math and music, we will be communicating with them in English (and their dominant language). In a global world, it would be nice if our politicians, our academics and even ordinary citizens, recognized this fact.

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