What next?

I came across this very interesting article written by Stan Davis and Christopher Myere that talk about the future economies titled Create, Connect, Evolve. It is very insightful to know their thoughts about the future and the way they have predicted the future based on past trends and the pace at which things are moving. What intrigued me more is the fact that the length of different economies is shortening starting from a 1000 years with the hunting and gathering based economies to the digital economy that as per them will last for about 80 years with about a 30 years more to go. Furthermore what they say is that the new economy starts blooming when the old one is still alive and for some time they exist in parallel till the new one matures and becomes the order of the day.

Taking a cue from what they say it is important for us to very clearly start looking at what next in everything that we do specially for business leaders. Trying to be second in the race is not going to be as easy as it was in the current economy since the new economy is going to led through evolution which in my opinion is difficult to copy. The way business will now need to define and invest in the future is going to be based on what science brings to the fore in terms one discoveries and inventions. A lot has been happening in various fields of science where the basic philosophy is to try and produce naturally occurring substance artificially to cater to the growing demand of the world and may be bring down cost and time of production.

There is going to be a good 20 years from today for us in business to ensure that we do not become legacy in this process of evolution. What is the new economy going to look like is anybody’s guess but what we know is that it is going to be shorter than the one we are living in right now and so is going to be the window of opportunity. Let us get ready for what next.

Happy reading..

Rohan

We know people want to be able to find reliable data and statistics on a variety of subjects. But what kind of statistics are they looking for most? To help us better prioritize which data sets to include in our public data search feature, Google  analyzed anonymous search logs to find patterns in the kinds of searches people are doing.

Some interesting trends from Google for readers of CEO speak, on Human development indicators, in reference to Education Index. We have taken emerging nations BRICS.

One of the three indices on which the Human Development Index is built. It is based on mean years of schooling (of adults) and expected years of schooling (of children).

On Feb 16^th 2012, GM posted record sales of $7.6bn breaking its 1997 sales record of $6.7bn. It has posted excellent sales record in North America and has displayed steady growth in Chinese market. However, in the European market they recorded a loss of $1bn for the year 2011. The reason given by the company is ‘mostly’ due to ‘Opel’. It is reported that Opel’s market share in Western parts of Europe has reduced to 7.3% in 2011 from 12.6% in 1993.

Opel was founded in 1862 in Germany and is headquartered in Russelsheim. In 1929 GM bought 80% of it and two years later the remaining 20%. After Opel was taken over by Volkswagen in Wolfsburg in 1998, it started losing its market share gradually and with it, brand image. Lack of investment in new models was the reason quoted. The fact is there was no major financial crisis in US or Europe in 1998. Looking at this acquisition closely, traditional business models exhibit bureaucracy and elaborate processes. Why was this not addressed at the time of acquisition?  

Critics in Europe believe that the main reason for loss is purely operational which is related to their outdated product management and not due to their products. Opel has been undergoing restructuring for the past 15 years and the recent restructuring plan was again incomplete. Further, selling German car in US or a captive import resulted in a few design mismatches in later stages, leading to reduced sales. A few designs have been completely abandoned due to such reasons. A few others believe that it is due to poor marketing strategy adopted as they do not follow segmentation and branding strategy to suit the emerging trends. One strong concern in this area is about GM ’s adaptability or sensitivity to local market. Are they ruining Opel’s brand image through these failures? Will it shrink the future market for Opel in Europe?

GM however believes that it is not just outdated system with bureaucratic policies that is affecting the system but also increasing uncertainties operating in Europe due to financial crisis and the fluctuations in pivotal currency used, Euro. Further the economic slowdown has resulted in government forming laws and rules in the interests of their people. This has affected their redundancy plans and their plans to close down certain units that were not aligned with their processes. There seems to be variations in the nature and number of stakeholders getting involved as well.

As usual, GM has abandoned the plans of an Opel sale and has laid out a vision for 2016. By then they expect to conquer 8.5% of Europe market share with a profit of Euro1bn or $1.27bn. Can they achieve it? Will their plans falter again? How can this be stopped? How will GM in Europe become profitable again?

Going back into past, Scenario Planning was first used by Alfred P Sloan in GM during 1941 and 1946. Till then it was used only in the military. During this period and for nearly thirty years after, GM was a highly successful company in the world despite post-war conditions. The fact is Opel was a brand that belonged to the rival country during world war, but Alfred retained GM ’s associations with Opel on grounds of German workers’ loyalty and their devotion to Opel despite war conditions. They had grown with Opel and looked at it as a source of employment to Russelsheim in general. The company was rebuilt from ruins between 1945 and 1946. Is there a strong emotional bond tagged with Opel at GM?  Is that the reason why GM is ready to try every option to reduce break-even condition in Europe without selling Opel?

What GM needs is Scenario planning again. There are more uncertainties than mere government policies or rules. It is mostly related to people and cultural trends that they are ignoring. It is about negotiations with unions and labor structures which is a challenge when there are redundancies to handle and new opportunities to create while introducing structural changes at almost every level starting from production lines to management. It is also about selective elimination of redundant and obsolete processes to ensure better productivity in system.

What is needed in GM is a Strong Operational Strategy supported with strong Contingency Plans to ensure adaptability to new market demands and changing trends for the next thirty years to come. This demands a strong understanding of the uncertainties and its driving forces. One of the biggest reasons for Opel failure is ‘failure to modernize’ due to increasing interdependence amongst Opel units and the other production units across globe. Fundamental reason for failure however could be the drastic differences in economic cultures. America believes in free-market and Germany does not. Germany has a highly labor-friendly employment system, with greater job security than the Americans. To address lay-offs Germans came up with work-sharing or ‘short work’ or kurzarbeit system. The bank systems are functionally different as they believe in operating debit cards more than credit cards. That is the reason behind financial stability of banks and industries in Germany. Pricing on everything is highly inflated which is again very German. Majority of American expats find it difficult to get used to price fluctuations. International HRM appears to be the weak spot in GM. Level of satisfaction in Managers could reflect in their performance and interactions with German co-workers.

The recent report reveals their plan to import know-how from Asian subsidiaries into European plants to increase the speed of transformation and production. But have they arrived at a plan to address the cultural mixtures and language barriers that will result in the process? Perhaps this is something that GM should have addressed right from 1998, but there seems to be a very obvious delay in their approach. Is this a Leadership issue? The company is spending money, making losses, trying out various options, but failing to consider the changes in micro and macro-economic conditions, to build and embed processes that are fail-proof. This imbalance in prioritizing objectives has created visible gaps in the system.

It is high time GM thought about what it has done as a protagonist in Scenario planning during 1940s and set an example to follow for the other automobile companies facing similar problems in Europe.

Globalization can be generalized as the concept of cross-border integration of technologies, ideas, people, capital, information, finance and services. Such an integration may involve several factors which may be classified as social, economic, political or even cultural.

Why do emerging economies rely on Globalization? What are the gains from these exchanges and integrations? In what way is that impacting the choices of today’s Entrepreneurs in IT industry?

Let us start with the gains first. IT industry is strongly influenced by economic factors. Therefore economic integration and its implications matter. The Economic Advisory Council to the Prime Minister of India, believes that there are 3 ways of achieving economic integration

1. Trade in services and goods
2. Movement of capital
3. Financial flow

International trade is beneficial as it allows for resource allocation that is consistent with a nation’s comparative advantage which in turn results in enhanced productivity due to specializations. According to their reports, emerging economies face ‘special and differentiated treatment’, which has now become an accepted principle while trading. The reason behind this is ‘Capability building through existing productive-resource utilization requires time’ and therefore international trade agreements make exceptions by allowing longer time to such economies in terms of reduction in tariff and non-tariff barriers. Looking at it positively, this is the right time for IT product entrepreneurs to act and build their capabilities.

Capital flows are essential to improve production base. Such a flow could be in the form of foreign direct investment and portfolio investment. Developing economies such as India prefer foreign direct investment to enhance their production base.

Growth in capital and foreign exchange markets facilitates growth, and international transfer of capital. Financial flows have very strong impact on macro-economic stability of a nation. A most important observation is that financial markets exhibit a herd instinct as it believes in exaggerating weaknesses more and therefore crisis in one country affects the other. In addition sometimes foreign exchange traders could add to financial crisis depending on the nature of controls exerted over their investments. Therefore with globalization, ‘macro-economic stability’ gains more focus at national level to reduce such negative forces operating in ecosystem.

The IT industry is largely guided by human resources availability. It is predicted that with increase in ‘knowledge intensive’ activities replacing earlier prevalent ‘resource intensive’ activities, specialized human resources will become a deciding criteria for economic growth in future. This shifts the focus to the area that is gradually gaining larger visibility in India – Digital Divide, which has in a way handicapped growing economy. Increased productivity will lead to faster growth in future and therefore balancing mechanisms have to be identified to bridge the visible divide to improve nation’s comparative advantage to facilitate further international trades. This could be an opportunity to tap by IT product entrepreneurs as this is the area that will gain more focus in the next few years to come. The cultural sensitivity that an Indian product could offer to Indians mapped under Digital divide, may carry an edge over a transnational firm’s offerings due to the difference in approach. That is a visible area of growth for the opportunistic in future.

When an Organization is considered as a whole, it comprises of tangible and intangible resources and people who are managing those resources to utilize and deliver pre-defined or anticipated results in a directed manner. It is therefore critical for organizations to arrive at a job description which will create scope for an individual to perform activities in a manner that best utilizes the unmapped resources to arrive at a result.

Organizations believe in metrics. This is a way to measure performance against various indicators that are either directly or indirectly associated with organizational objectives or mission. Organizational development and learning rely on these metrics and accordingly action plans can be rolled-out targeting professional and continued development across organization.

Many techniques have been devised to plan and control work. The idea is that work can get abstract if it is not measured. Deviation from actual tasks cannot be measured if there is no quantitative measure associated with it. Intrinsic biases will result, creating scope for work imbalances. Two popular methods to plan and control work involve using Gantt Charts and PERT (Program Evaluation and Review Technique). This is helpful in deciding whether a project is ahead, behind or as per schedule. The amount of work that an average worker in an industry can do is recorded as man hour. The productivity of a person lies in the amount of work he is able to perform towards completion of a project. Generally all these metrics are decided even before resources are allocated to projects and may be included as part of hiring plan. Thereafter resources are allocated work as per skill sets and availability. Lateral hiring is required if there is no manpower available with certain skill sets. Until then skill leveraging is common across projects. A shared resource may exhibit lesser productivity in initial stages, but this can be addressed easily.

Avoiding showstoppers is critical. What does this mean? Excessive dependence on one person to perform critical jobs must be avoided. This is one common mistake that many startups and mid-sized companies commit. The best way to avoid it is by measuring work and splitting it into measurable sub-units. The idea is that if a job is measurable, then it is transferable.

The next concern is Cultural Fit of a person. As organizations grow, depending on the strategic objectives and values of organization a cultural trend develops. Research indicates that organizational culture has a strong influence on the performance and productivity of its people. The main reason being ‘motivation to work’ is directly linked to the nature of work atmosphere which is a consequence of organizational culture. It is one of the key reasons why Induction of employees is taken seriously in many global organizations to provide an insight into organization from functional and cultural perspectives before starting actual work.

This is the most debated topic in management research today, and yet there has not been any clarity in arriving at a conceptual distinction between these two styles at increasing number of organizations. Often organizations struggle to understand whether a given problem is to be handled by a Manager or a Leader, further so, there are situations wherein while establishing jobs to handle a group or team of people the recruiting authority is unsure about the nature of control to be exerted i.e. whether the recruited person should have management skills alone or leadership skills alone or is it a combination of both.

Due to these minor differences in choices in initial stages many organizations have failed in missions or have experienced disconnect in operational alignment which has led to some serious blunders. Examples include BP oil spill event in 2010 which has been associated with leadership failure and NASA’s Columbia and Challenger disaster again associated with leadership. Studies have indicated that leaders carry a stronger impact on deciding organizational culture as they can induce more vibrations than a manager.

How can these two styles be distinguished and how do we know which one to adopt in a given situation? One of the most important reasons why these two do not have clear distinctions at fundamental level is because their styles are slightly linked or overlapping. Management style operates in distinct boundaries and is highly restrictive to job expectations unlike Leadership style which does overlap with Management style to some extent, but there is neither any distinct boundary to tasks nor any restrictions on actions or responses to certain events.

A Leader can be a thinker, creator, innovator and doer. A Manager can be a facilitator, adapter and planner. A manager believes in taking actions that is limited to his resources, a leader may have to generate resources to achieve a task. History portrays and associates radical changes and revolutionary movements with Leadership and not Management. Some of the best politicians have been described as leaders again and not managers. It is quite obvious by now that leadership is a stronger style requiring charisma, self-awareness and strong presence of mind.

The divide becomes even more apparent during certain situations when there is a sudden need to change priorities and look for alternative action plans. It is said that in certain industries such as manufacturing and automobiles, having a leader is the way to strengthen their Contingency plan as proactive approach is required to mediate and implement backup processes immediately in case of emergencies.

Considering the fact that Collaborations are an increasing trend with knowledge sharing and leveraging business models, researchers at Harvard Business School have described a new leadership style called “Collaborative leadership”. My earlier articles dealt with Apple as a case study to understand this leadership style and deliberate on how it can impact the culture of organization and its vibe.

As more and more companies are kicking off, there is a need to have clarity in job descriptions and the intrinsic qualities expected in the hired individual. One of the biggest reasons for operational failures is ‘wrong people in right places’. Imagine a transactional leader who believes in accepting orders and performing them in a step-by-step process to arrive at results. The vibe that he sends is different from the vibe that a transformational leader can send. Assessing people for their psychological strengths and weaknesses maybe one of the ways to avoid a future disconnect.

Looking at an Organization with multiple views often helps in understanding the hidden trends of growth that is very closely associated with knowledge and intellect. Modern industries are bound by values and driven by intellect. This results in more and more abstractness creation in an ecosystem. With more and more innovations trickling into knowledge base, it is critical for them to provide a means to protect the individuality of work and recognize the contribution.

This calls for Intellectual Property Rights to be embedded into knowledge driven processes. The best means to achieve it is by integrating it into HR processes which form the foundation to spread the awareness in a secure manner amongst employees working in critical segments to respect and value someone’s creation without actually revealing it. At the same time they can assist the Management by providing indicators to decide on the well-being and health of an Organization from that perspective.

An Intellectual Property may be a Copyright, Patent, Trademark and designs. Associated with something new and original are Patents, copyrights, industrial designs, IC Layout Design and trade secrets (Patent Facilitating Centre or PFC, 2011, WWW). It is critical for the organization relying on these innovations to protect and avoid infringement to ensure that the uniqueness of the product and service is not stolen or used in an unethical manner.

It is even more important when an invention is a novelty and it has not been patented yet. It is critical to preserve the information as any disclosure to public through publications, conferences, seminars or any other medium may damage novelty thereby rendering the invention not worthy of patenting.

According to PFC, ‘Copyright gives the creator of the work the right to reproduce the work, make copies, translate, adapt, sell or give on hire and communicate the work to public. Any of these activities done without the consent of the author or his assignee is considered infringement of the copyright.’ Under provision of ‘Fair Law’ the copyrighted information can be used for academic, research and development work. The owner is vested with ‘moral rights’ to ensure that the work is not used in an obscene manner. ‘A trademark provides to the owner of the mark by ensuring the exclusive right to use it to identify goods or services, or to authorize others to use it in return for some consideration (payment)’ (PFC, 2011, WWW)

Another critical element in a modern organization that has embraced technology for its growth is Computer program and expressions that are copyrightable. PFC elaborates that ‘Trade Secret or a piece of undisclosed information can be as simple an item as a company’s customer list or as complex as a formula for a product or a process’

In highly knowledge driven organizations such as the modern IT industries which encompasses all the other domains and connects to an ethereal medium of computers and internet, managing intellectual capital from HR perspective is critical to ensure that the resources are vested with adequate knowledge through training programs to protect secrets and not divulge them in public domain.

Apple Inc. reported highest quarterly revenue and earnings ever with an all-time record sale of iPhone, iPad and Mac. ‘Company posted record quarterly revenue of $46.33 billion and record quarterly net profit of $13.06 billion, or $13.87 per diluted share’ (Source: Apple Press Info, Jan 24, 2012). This was just after Steve Jobs’ death on October 5th, 2011. The company has reacted to his death in the most positive way by setting an all-time record. Reflecting on Apple’s past, just a decade ago before Steve Jobs took over as CEO the company held a different vision and was not collaborative enough to win the market.

Steve Jobs was a strong leader who believed in Collaborative leadership. His idea was to embed innovation and entrepreneurship in culture of Apple to provide cutting-edge technology and invest on bleeding-edge technologies. He incorporated the idea of “startup culture” in every player’s mind and believed in having just one “cohesive strategy” to reach his ‘vision’. Technically he believed in ‘pulling the plug’ (Jim Collins,1997) if required. In other words, he would shut down all those businesses that were not aligned with his vision whether they generated revenue or not.

Culture plays an important role in Collaborations. It is entrenched in the very heart of the business and the processes built are reflective of that. Collaborative leadership is all about enabling and facilitating teams to participate in a constructive way thereby creating scope for ‘creative conflict’ to encourage creation of new ideas, exploration of new dimensions, mitigation of possible risks analyzed and creation of a safe channel for successful implementation of ideas generated.

Innovators have a unique way of looking at their inventions, some of them look at it as business or work and for a few others it is passion and commitment. It could be an individual looking at opportunities to incubate his idea in company or an employee with a flair for new design trends. Apple as an innovation startup believes in collaborating with such teams of researchers and innovators who can envision a product that will be an outcome of ‘team effort’.

Apple has a holistic view of its operations. The strategy is to have a cohesive approach towards all aspects of products starting from conceptualization to sales. This implies that at any given time the product and all related information is accessible which minimizes and even eliminates scope for errors due to operational misalignment or hitches.

Apple believes that ‘innovation is the key to its survival’. It is quick at adapting to growing trends in market and quick in releasing cutting edge technologies to acquire market share for further releases. It is quick at integrating technologies to offer a ‘unified integrated service’ for its users.

Apple’s iCloud is its own version of cloud storage service. All the Apple products now have Apple’s iCloud embedded into them which allows better syncing, backup and collaboration with other Apple gadgets. A few buyers have found iCloud highly personal as only those users with more than one Apple device is benefitted by this feature and a few others have found its collaboration to be highly limited. Amazon, Google and Microsoft are competitors in this space.

But what really matters is that Apple has released its innovation into market to create a first mover advantage, buyers are now familiar with brand name, customers are aware of its limitations and market will definitely look forward to new releases to find out if they have better features in future. That is very reflective of their startup culture.

Stakeholders, investors, product portfolio, customers, resources, processes and employees are fundamental elements of any organization. The ‘mission’ of an organization is helpful in deciding how these elements are used to reach its ‘objective’. Strategy is an integral part of any organization that decides the best means to utilize them to reach a common objective which is otherwise known as the ‘strategic goal’.

In order to understand the significance of formulating strategy the influence of following factors on an organization must be realized.

• Range of businesses or product portfolio, their future growth
• Target markets and competitors operating in same segments
• Organization’s response to competition
• Identification of resources required in response to competition
• External environment
• Stakeholders’ expectations and value

Strategy operates at various levels of organization where planning is required.

Based on this criterion, many leading researchers have defined Strategy as ‘direction and scope’ of an organization that aims at achieving a competitive advantage for organization through resource utilization to meet market demands and stakeholder expectations.

Strategy is important in deciding and evaluating stakeholder expectations to arrive at Strategic options. In addition to identifying internal and microeconomic factors, formulating strategy involves identification of various macroeconomic factors such as political, economic, socio-cultural,  technological, environmental and legal factors influencing business trends. This technique is referred to as PESTEL analysis. It is helpful in Scenario planning and Market segmentations.

Any transactional environment is strongly influenced by “Driving forces”. To arrive at these driving forces, key drivers operating in indirect or contextual environment such as technological, economic, commercial, organizational and political factors have to be considered. Once key drivers are identified Iceberg Analysis is used to identify new events which can be traced to arrive at a pattern of system behavior which can guide us to system structures which are otherwise termed as driving forces.

Studies have proved interdependence between PESTEL factors and the influence that it has on state of affairs in countries. Strategy involves study of these factors to understand and synthesize alternative views to the future of organization in the country of interest.

It is therefore critical for any global organization to plan strategically before arriving at an expansion action plan.

Having looked at importance of globalization and the efforts taken to gain cultural sensitivity to reduce chances of initial failure, it is now time to understand the economic factors influencing the desire to expand in globe. Why would any company choose to globalize in a particular country? What makes it stand out of the crowd? We aim at gaining an insight into these questions in this article.

The International Journal of Emerging Markets indicates that emerging markets such as Brazil, Russia, India, China and South Africa account for 20% of the world’s GDP and two-thirds of world’s population. With the IT market improving, technological advancement resulted. This has led to India having a vast pool of resources that are highly skilled. India which initially served as a low-cost labor provider is now being targeted as a resource-rich country. It is estimated that 70% of the world’s growth will come from emerging markets and 40% of that is accounted for by India and China.

With the tremendous growth, many local companies that previously offered no competition are now major competitors to transnational corporations. The shift of economic power to emerging markets has led to many transnational firms that are already established in India to initiate activities to acquire a share in the growth. The symbiotic relationship between global economies are so tightly interconnected due to these exchanges that governments and industries will have to cooperate their ways to adapt to these evolutions.

Looking at it from economic perspective, the key factors driving this change need to be identified. This is necessary to introduce changes in business strategy to reflect localization. It is quite obvious by now that the biggest factor driving economic changes in emerging market such as India is population growth. Increase in their urbanization and the growing divide between youth and aged has created space for large fraction of people who are skilled and eligible to work. The recent recession has strengthened relationships between local companies and government further as new initiatives have been launched to enable better connectivity, which has attracted more interest thereby creating gradual balance in global economic power. It is obvious that the emerging markets will soon create space for new entrepreneurs who are identifying gaps in market for services targeting low-income consumers all over globe. Internet marketing and e-commerce has led us into a new era. Disruptive innovation is now a common trend in emerging markets.

It is quite probable that the growth will result in winners and losers. What decides winning factor in emergent companies in the current context? Entrepreneurs will have to look outward as adaptations in technology and regulatory changes are inevitable while introducing a new product and creating a global market for it by adopting global workforce. Adaptations to external environment and embracing technology to reflect these changes are critical to remain trendy and visible. Supply chain management will play a critical role in the way goods are packaged and priced reflecting changes in raw-materials’ price fluctuations and labor cost structures. The trend is further influenced by national governments trying to reduce cost structures and focusing on growth agendas. With the advent of ‘cleantech ideas’ emerging companies have started incorporating green transportation, renewable energy, recycling, green chemistry and other energy efficient appliances right from initial stages to gain a ‘Competitive advantage’ in long run. According to Ernst and Young, by 2020, Brazil, Russia, China and India are expected to account for nearly 50% of all global GDP growth. This has created scope for high investment activities by investors who are trying to secure a strong base here.

In the next issue we will be discussing more about Economic factors driving changes in IT product development industry in India and how this influences Corporate Strategy.

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