Block and tackle execution in an era of rapid innovation

I had an email exchange recently with an individual who is an advisor in our work. It started with my sending him an email referring to a person I had come across - a polymath who exhibited interest and hands-on work in areas far from his chosen field of expertise (without identifying the individual, imagine a doctor who potters around with classic sports cars and knows how to put them together from scratch, not kits, with great finesse - I did know one such individual during my days in the US). In my own exuberant manner, I exclaimed "this is the kind of person we need!". To which he responded, trifle drily, "he is simply a hobbyist. There is a gulf of difference between a hobby toy and a real machine". So I reflected on what the gulf of difference could be and if multi-dimensional interest and experimentation was of no consequence in today's world.

Here is how I see this. Most of the companies in the world pursue opportunities related to products or services delivered in some unspectacular way. I call this block and tackle execution (BATE), meaning they are only doing what is a necessary business and what really differentiates one company from another is how well they do it. A few are great, many average, and most are mediocre. Wikipedia defines block and tackle as "characterized by the use of a single continuous rope to transmit a tension force around one or more pulleys to lift or move a load".

Larsen & Toubro, for instance, does a lot of engineering involving building structures for nuclear reactors, submarines, oil refineries, and sundry infrastructure work. These projects are often complex, require great expertise and demand thorough domain knowledge from its engineers. They are regular engineering nonetheless - civil, mechanical, or electrical for the most part, with practices that are well understood and going back several decades. Nothing particularly novel or entirely new in scientific discovery is demanded here. Such companies pursuing everyday execution use their vast resources including  specific expertise and long experience ("single continuous rope") to leverage work in many different, but allied, areas  of endeavor ("transmit a tension force around one or more pulleys to lift or move a load"). In other words, BATE companies enjoy what in economics is referred to as economies of scale resulting from initial investment cost and operating labor cost and economies of scope resulting from opportunity to exploit knowledge across project boundaries within the company. L&T is not alone in this; Schlumberger, Bechtel, Toyota, Ford, Tata Motors, Mitsubishi, Hyundai, American Airlines, Pepsico, to name a few - in fact, most organizations, come to mind. They are…all BATE companies whose daily grind comprises having the work done at high efficiency, getting the product out at low cost, and ensure delivery using established and time-tested knowledge, processes, and systems.

And then there are companies such as Corning, Intel, Qualcomm, Google, Amgen, Genentech. What's the difference? At a very obvious level, these "technology" companies spend between 10% and 25% of gross revenues on R&D. Mainstream, or BATE, companies spend less than 10%, generally under 5% if at all. This is not to say that Toyota or Ford do not have extensive research and development. They do, only it is not fundamental to their business the way it is for Intel, for example, where one sinks or swims with the duration of a product's lifecycle and the speed expected to come up with new products (ie, shortening product lifecycles). We could refer to such companies as "Innovation-Driven Product Development" (IDPD) companies.

Just so we are clear, automobile companies have increasingly short product lifecycles, but these are generally restricted to design, not whole product makeovers (engine, drivetrain, battery, etc) which still happens only every six or seven years. Contrast that with a semiconductor company facing makeovers every 18 months.

Another point to remember is that most BATE companies are often integrators - the discrete elements come from a variety of focused companies big and small, and some of them, depending on the criticality of the component or product they supply and where they are situated in the technological matrix, are possibly IDPD companies. An aerospace company integrates structures, avionics, jet engines, power systems, wheel assemblies, etc from a variety of high technology vendors such as Rolls Royce, Pratt & Whitney, Rockwell, Honeywell, Goodyear, etc. While the economics of traditional BATE industry is well understood, that of innovation is still in its infancy since the days of Schumpeter and uses much the same theoretical frameworks to understand it.

From a practitioner's standpoint, however, there is less mystery: it is based on a foundation of inspiration (observation and discovery), experimentation, analysis, and solution. The uniqueness and value of the solution determines the success of an innovation in product or service. Traditional BATE companies confine themselves to analysis and solution as they are based on well understood, extensively used,  repeatable or reusable technologies and processes. The high cost of R&D, then, is simply because of the entire and complex discovery path to innovation that IDPD companies have to traverse that is sought to be protected as intellectual property. Yet another way to understand this maturity vs immaturity of two entirely variant businesses is to look at standards: BATE industry has established standards while IDPD industry often experiences evolving or absence of standards.

Why is this important in the context of my email exchange? Verily because creativity in the lab does not equate that easily to long experience or even individual expertise. It requires knowledge, of course, but equally an attitude of experimentation, multitasking, cross-domain enquiry, risk tolerance, and discovery. The story of Twitter comes to mind. The venture came out of a struggling podcasting company called Odeo where Jack Dorsey, an undergraduate at the time, toiled away to build what became the 140-character technology that Odeo never envisioned. 3M's Post-it came off a similar serendipitous outcome when Art Fry made use of the company's officially sanctioned "permitted bootlegging" policy to develop an idea originally discovered accidentally by Dr. Spencer Silver who was attempting to develop a very strong adhesive. Google's much-vaunted search engine was a solution in search of a problem until it happened on a creative strategy many years after it was founded that allowed it to make humongous revenues. Remember, there were at least six other ventures who already had search products in the market when Google came onto the scene.

The point is that knowledge is a necessary, but not sufficient, condition for innovation. It further requires the spirit of  discovery and perseverance and a yen for multi-disciplinary experimentation with no visible payoff. These qualities do not necessarily exist within BATE organizations where engineers can bore down into a problem and solve by fitting their experience from another comparable problem they have come across before. My advisor friend is quite right in his implicit belief that expertise and experience deliver on execution. But off the mark when he says a hobby toy cannot make it to a real machine. That's judgmental and is the primary reason why companies cannot see their way through innovation. Hobbyists are unfit in block and tackle execution with its requirement of expertise and experience. But they are very much a necessity for the eclectic mindset required of creativity in IDPD organizations.

Remember Xerox PARC in Palo Alto? Xerox Corp HO 3,000 miles away to the east never quite realized that the PARC was the jewel in its crown and viewing it, in the words of an award-winning writer, with uneasiness and hostility. The PARC folks were not part-time hobbyists, of course, but those scientists had all the same characteristics of passion addicted to a hobby who challenged odds, refuted reason, and were willing to rewrite the trajectory of technology. They did so with out-of-the-box thinking, drawing insights from multiple areas, and taking an experimental, prototyping, approach.

Good BATE companies can develop and ship good products. Even great products. Only don't expect something tangibly innovative to come out that charts a different growth path for the company. For that, you need a multi-dimensional hobbyist team that is insane enough to persist and keep plugging away at something that no one sees any value in immediately. Top this off with a disciplined process and you have the basis for an innovation engine inside an IDPD company.

Note: I do not wish to give the impression that all BATE companies or all IDPD companies are engineering / tech companies. Far from it. Some of the best BATEs are organizations such as WalMart, FedEx, Starbucks, Wegman's, Sysco, etc - all inherently non-technology, though with a very strong technology underpinning. In the same vein, innovations can, and do, occur in areas such as business models, financial, distribution, etc.

Taxis, Drivers, and Where Uber and Ola could step up to the plate

A recent blog post here on LI extolled the virtues of hail taxis and the new era of "Uberia". That set me thinking: aside from the possibly polarized views on the business viability of so many new-gen taxi ventures, are these mushrooming concepts contributing to hazard on the Indian roads? To me, they are not very dissimilar to the NYC couriers on two wheels who drive like the devil and have been, at times, a threat to pedestrians.

The big Indian cities are beset with four major problems today (among many, many more): a. crush of vehicles of all types as Indians begin to overdose on vehicular consumption; b. absent city planning and unscientific traffic management; c. lack of adequate policing and proper training among traffic police; and d. vastly inadequate enforcement and penalty measures.

Now, where and how is Uber (and other Indian ventures such as Ola, Meru, EasyCab, etc) involved in this debate, you ask? These taxis are now contributing not only to the exponential increase in cars on the road but to sloppy driving practices and serious breaches of traffic rules (hopping red lights, gross lane indiscipline, aggressive driving with frequent tailgating, flashing lights and honking incessantly). While we can all look to the government - and particularly the traffic police - to step in and enforce rules, this is not going to happen any time soon.  Nor is it the responsibility of the government alone.

Mere observation tells me some 60+% of all taxis on urban roads are those of organized taxi companies, the balance standalone. Of the 60%, I would wager 90% of them (and all of the standalones) break traffic laws every single day.  That's a phenomenal number of law breakers risking life and limb. Most of the drivers are ill-trained and barely know the rules.  My own car has been bruised, scratched, and rear lights smashed and this sorry tale is the experience of every law-abiding citizen on the roads. The story of pedestrians is even worse.

However, as a citizen and as a customer aiding such hail taxi ventures to make revenues and in brand building in my own little way, I have a legitimate expectation. This expectation is directed both at the senior leadership at these companies and at the venture capital firms that have heavily funded them to step up customer acquisition. That expectation can be summed up with this: where do you get off fellas in your implicit support for illegal behavior by your drivers?

Try Uber, for instance. The company does not even have its brand on the taxis that have Uber drivers. Which means I do not even know if a taxi that just hopped a red light was a Uber taxi. If I took a snapshot and sent it to Uber, they could always claim it was not their taxi. Many taxi drivers in India, moreover, have multiple allegiances, fielding two or more smartphones tied to two or more taxi companies. And, finally, economics trumps: all of these companies are in a desperate drive - pun intended - to retain drivers and incentivize them even more to bring in customers. See that logic? This fuels the Speeding Ninjas who, in any case, are given no formal good driving training or penalized in any way so long as they bring in the accounts. In fact, I wonder what corporate value system these companies hold to.

The relentless push for market share, and therefore, higher valuations, has had very deleterious effects. It has made these companies turn a blind eye to Indian traffic laws and made them lawbreakers as a result. The blame lies not so much with the taxi drivers, it now lies squarely with the management of the companies and their investors in not stepping in to stem the spreading disease. I hope they would and save themselves the ignominy of a toll on reputation that would inevitably follow. As it is, none of them enjoy a particularly good brand image. This is just another version of drug companies that preferred to hide evidence of adverse events with their drugs on the market or of car companies that ignored warning signs of something going wrong with one of their vehicle models in order not to incur the expense of recall.

Uber and the like represent a new-gen version of these old economy companies that have an obligation to society. Only the form is different, but the impact on public safety is just the same. Uber has been in the news for individual passenger safety but we need to examine their record - as well as those of its competitors - in public safety as well.

Greek Tragedy

The Greek events are proving curioser and curioser. Who is in the right? That is not just a tongue-in-cheek ideological observation of the forces aligned on the Right and Left but a puzzled view of what it means to be in a bear's embrace. Greece, apparently, finds itself in that predicament.

Consider these various articles: first, the latest by Paul Krugman who argues - quite convincingly in my opinion - that there can be no monetary union without political union. For those of us in Asia wishing for something like the EU project this could be a cautionary tale (perhaps the ASEAN has to be even more cautious since you have the big economies of Indonesia and Singapore at one end and the tiny ones of Laos and Cambodia at the other). Second, a previous article he cites by a couple of European economists who thumb their nose at American skepticism. Krugman's own assessment of the "Finnish disease" and finally, the Finnish finance minister's defense of his economy. Is the per capita GDP measure of a tiny country, that the finance minister uses as the thrust of his main argument, whose national income was high to start with and whose population is declining a supportable argument to compare with countries like Australia that has seen net increase in immigrant population?

What may be the case is that the EU had buy-in by different nation-state citizenry (especially the new members of the east and other smaller, poorer economies) because entry into the EU gave them access to the larger, higher income, western economy labor markets and the buy-in was mistakenly assumed by the Brussels bureaucrats as a consensus referendum on monetary union. Average citizens don't have a clue as to the ramifications and it appears the chickens have come home to roost.

http://www.nytimes.com/2015/07/20/opinion/paul-krugman-europes-impossible-dream.html

file:///C:/Users/User/Desktop/EuropeanMonetaryUnion_January2010.pdf

http://krugman.blogs.nytimes.com/2015/06/01/the-finnish-disease/?_r=0

http://www.nytimes.com/2015/07/21/upshot/finland-shows-why-many-europeans-think-americans-are-wrong-about-the-euro.html?ref=international

WalkTransit: A healthy, inexpensive, urban transit for India's cities

A slideshow in the February 18 issue of the Economic Times describes a concept being discussed by the Ministry of Road Transport for a network of driver-less vehicles to connect New Delhi with Manesar, or New Gurgaon, in the state of Haryana. Developed by Metrino Personal Rapid Transit, the system involves "small, fully automatic, driver-less vehicles called pods" that would travel suspended under an overhead network which itself would be laid over the median of a highway stretch. The news item goes on to say that the pods can seat a maximum of 5 people per pod for individual trips at an average speed of 50 kmph. We are told that the company claims the cost of construction is 50 times less compared to an underground metro - or Rs.40 to Rs.50 crore per km ($6.5 million to $8.2 million at current exchange rates) - with a maximum carrying capacity of 6,000 passengers per direction per hour compared to 3,000 for buses and 40,000 for the metro.

This set me thinking. At Rs.50 crore per km, this would still amount to Rs.2,500 crore (almost a half-billion dollars; more accurately, about $410 million) for a 50 km coverage in any Indian city. Now, imagine (I love the word for its possibilities)...

Imagine there's no metro

Imagine we had a system, just as with the Metrino, of an overhead system running above the road medians which could perform much the same task of transporting people at even less cost of construction - say, Rs.5 crore, or about $820,000 per km. And this system could deliver not one, but multiple gains: transportation of up to 10,000 people per hour in either direction; an encouragement to walk, thus positively impacting the increasing incidence of chronic disease owing to sedentary lifestyles, more involvement in the local community through slower vistas of the surrounding areas and the ability to have leisurely conversations with co-passengers, and the opportunity to reduce local bus services and, therefore, the carbon emissions.

How good could this be? From an engineering perspective, the concept is very old - the first moving walkway was installed at the World's Columbian Exposition in Chicago in 1893, followed by one at the Paris Exposition Universelle in 1900. The Beeler Organization, a New York consulting company, proposed a continuous transit system for Atlanta in 1924 that involved a linear induction motor. In 1954, Jersey City in the US deployed the first commercial moving walkway inside a railway station and the first one inside an airport was installed in Dallas in 1958. These were short distance, slow, travelators that can still be seen at many airports around the world.

In the 1970s, Gabriel Bouladon and Paul Zuppiger of Dunlop developed theSpeedaway, a high speed travelator prototype that was demonstrated at the Battelle Institute in Geneva. Their design achieved a maximum speed of 15 kmph and also had a unique differential embarking/disembarking section - a wide walkway, moving at a speed of about 4 kmph and a narrower, high speed, transport section that could achieve the maximum stated speeds. The Speedaway never achieved commercial production and many other attempts followed - the TRAX developed by Dassault in the 1980s and installed at the Paris Invalides metro station; the Loderway Moving Walkway installed at the Flinders Street Station in Melbourne, Australia in the 1990s; and the experimental high speed walkway installed at the Montparnasse-Bienvenue metro station in Paris in 2002. The last of these traveled at a maximum speed of 6 kmph (although it could travel faster at 12 kmph but found that people were losing their balance at that speed).

Travelators as inexpensive public transit

Keeping in view the possible constraints - usage by senior citizens and children, maximum usage in local neighborhood areas and not for long-distance commuting, and as a compelling and competitive alternative, but not a substitute, to existing local bus and tramcar systems that would likely need some enticement in the form of comfort and a pleasant traveling experience - this old idea of moving walkways or travelators could be improved upon to provide Indian urban areas with an inexpensive transport. This could even be the magic bullet for Prime Minister Modi's oft-discussed smart city transit planning.

The urban transit travelators could be broad and have a segregated section on the left half for individuals who wish to stand rather than walk with handrail support; and the other half that could accommodate people who wish to walk along with the moving walkway and thus get some exercise as with present-day airport travelators. The whole thing could be enclosed in an air conditioned tubular glass construct to provide passengers with a pleasant and non-polluting experience. The stations could be much smaller, sparse, and simpler with covered escalators to both sides of the road. Of course, many challenges would need to be worked out. The important thing to note is that contemporary travelator designs in Europe that attempted at a fast public transit have generally failed for reasons of complexity and safety. Many of them had a railway station design heuristic that sought to separate much slower moving traffic for people wanting to get off at a station and a faster moving one for those continuing their journey. This likely added unnecessary complexity. For Indian cities the simpler airport design where walkways run for about a 100 meters and then terminate on hard ground (for those wanting to get off to get to nearby gates) and resumption of the walkway about 10 meters further for those continuing to gates further away seems appropriate. This could be adopted with a bus stop design heuristic, where the hard ground termination - or travelator stops - could happen every few hundred meters (with visual and audio announcements) and leading, on both sides, to escalators that take passengers down to each side of the street. These stops, in turn could be integrated with metro stations and bus stops to maximize public transit efficiency and use for long distance commuting.

I don't have numbers, but if the Metrino is expected to cost Rs.50 crore per km with its advanced personalized transportation systems for safety, monitoring, and intelligent management, I would imagine the simple airport-style travelator as an urban transit alternative could possibly be one-tenth, or Rs.5 crore per km. The re-design along the lines described above may double the cost per kilometer which would still be an extraordinarily inexpensive solution to transport 5,000 to 10,000 people per hour in any neighborhood area that otherwise would require relatively expensive bus or tramcar services. As a comparison, an air conditioned bus, such as a Volvo that is now a common sight in the big Indian cities, costs about Rs.1 crore each and can transport about 80 people when full, including standees (most of them run at 50% capacity), meaning you would need 50 such buses costing Rs.50 crore to transport the number of people a travelator could for a fraction of the cost. And that's not counting the impact on traffic congestion, cost of fossil fuel, and pollution from emissions - all of which could be an advantage when you consider that a travelator would run on electricity and will likely cost much less per person.

A healthy spinoff...

Finally, the most important benefit is likely long term and largely inestimable: the opportunity to get people to use and have them exercise to some extent. Indian cities have become notoriously difficult for people to walk and navigate owing to the poor quality of sidewalks, chaotic traffic, high rate of accidents, and extreme pollution. Hence, people have stopped walking and only a few do so in parks. More and more people now use motorized personal transport that adds to the congestion. If a travelator system design could solve for these in very pleasant ways, people might actually use them and make gradual behavioral changes for their own healthy benefit. Not to put too fine a point on it, India is now the "capital" of the major chronic diseases - diabetes (70 to 100 million confirmed cases) and cardiovascular (30% of urban and 15% of the rural population suffer from high BP and 2.5 million die of heart disease annually, according to a recent study). There's a huge cost to society with such life-long diseases in the form of decreased productivity that shaves 1% to 2% from GDP growth, extra expenditure in healthcare that both families and the governments can ill-afford, and a financial and emotional burden that continues to increase in time. There's an epidemic in progress that the government needs to apply its mind to and the solution lies not in drugs but diet and exercise. The government can do little with the former, but certainly can with the latter to promote it.

Medellin's example
Can India rise up to the challenge of re-defining public transportation that could be embraced by other cities around the world for its innovative thinking? The question is worth asking because of the possibilities that it holds. In 2013, Medellin in Columbia, one of the world's most violent cities, was voted the most "innovative city of the year" by the Wall Street Journal. It beat New York City and Tel Aviv for first place. There were many reasons for conferring the honor - among them mobility, buildings and spaces, and participatory citizen budgeting. But one of the most talked about changes to the cityscape was the deployment of a large outdoor escalator system in 2011 that connected poverty-stricken slum neighborhoods along the hillsides to the prosperous valley floor and integrated an otherwise separated city. Slum dwellers could access job opportunities that were out of bounds because of distance. Other out-of-the-box transportation systems in that city included a free, public bicycle system and a much-acclaimed bus rapid transit system. The much preferred and oft-touted word in India today is "inclusiveness" and what better example of this than Medellin's?

I believe that "WalkTransit", an extensive, safe, and innovative travelator system for every neighborhood in the cities represents an opportunity for the Indian government to think radically and set in motion a disruptive, collaborative, public-private partnership (one that has gained a bad reputation in recent years because of past mistakes and scams) involving licensed operators for specific areas in each city, government-owned infrastructure that operators would use, technology companies to provide intelligent systems, discounted ticketing to encourage users to give up or leverage traditional transit, coupons tied to mobile apps that cold document exercise in using the travelators and be used for lower health premiums or doctor consultations or lower personal income tax, mobile payment systems, an efficient and effective regulator, and many more. We are only limited by the scale of our imaginations.

Acknowledgment: Moving Walkway, Wikipedia; The Economic Times, February 18, 2015.

Innovation or Excellence?

Every conference, every entrepreneur meeting, jam session, or talkathon I have attended in recent years has this buzz - call it hype - around the word "innovation". Whether hands-on geeks or wide-eyed entrepreneurs, they all appear to be completely taken up by this, even as the air is thick with the latest management jargon, the latest "killer app", the Apple iPad, and the noise from across the Potomac on "chop shops" taking away jobs from the Good Ol' US of A (as for the latter, our own IT giants are now speaking of "innovating" out of the crisis). So are we right in pinning our hopes on innovation or are we barking up the wrong tree?


On a seemingly unrelated matter, the airwaves have been filled, these past couple of months, with our national mediocrity - not to speak of shame - on display in the preparations - or lack thereof - for the Commonwealth Games. At this point in our collective, nationalist, angst, we are even prepared to excuse the unimaginable scale of corruption and inflated prices to rent chairs and treadmills - if we could be assured, nay, guaranteed, that the nation works with clockwork efficiency, accuracy, precision, and delivers the highest quality. Vain hope? Perhaps. But it does point to one incontrovertible fact: we are a nation that holds "chalta hai" as our national anthem, our national mantra. Satyameva jayate? Let's get real; I suggest we replace this hypocritical exhortation with one that is more contemporary, more real, more universally accepted - chalta hai.

In an article I had written about a couple years ago in these columns ("The Attitude of Chalta Hai", BG, October 2008), I had said this one phrase showcases our national identity. It can be variously interpreted to mean it's ok, let it go, or plain indifference. Whatever meaning we accord to the cultural slang, it does expose our comfort with the status quo and our lack of concern. It does not matter if the topic is corruption in high places, nepotism in India Inc., a preference for "adjustment" and fixes, rewarding mediocrity in place of meritocracy...the list goes on and on. But that's short sighted; it does matter. For not only do we reveal ourselves as a nation that does not respect excellence in whatever we do, it stamps us unequivocally as a nation of also rans. We have ourselves to blame. Don't look at history, at colonialism, at perceived slights over hundreds of years, at our ethnic, class, caste, and language differences. Those are excuses.

Which brings me to the crux of this article framed by the title. Should we as a people place importance on achieving excellence or be in perennial pursuit of a nebulous concept that innovation really is? What is it about innovation that excites so many? Do we have much evidence, across this large landmass, of innovation that is hugely visible and has impacted many? Not too long ago, Swaminathan Anklesaria Aiyar wrote glowingly about "jugaad" in his Sunday column in the Times of India. There was a rejoinder some days later by Swapan Das Gupta (incidentally, I admire both writers) in his own column who asked if the humble housewife's attempts to recycle the metal foil on milk bottles to scrub utensils was what jugaad was all about and should we be satisfied with this "innovation"? If his example sounded a bit crass, I think he had a point. Das Gupta went on to say that jugaad was nothing but "attempts to reinvent the wheel with the help of carpentry tools". So much for native innovation.

But the real question is should we expend much energy in pursuing or celebrating indigenous innovation when what the country really needs is a kick in its backside to shake it out of its philosophy of mediocrity and aversion to excellence. Excellence, I humbly submit, is the need of the hour, not innovation. Our inability to embrace excellence means we will perennially be behind the great powers in how we address issues, the kind of expectations we put on ourselves, the manner by which we institute systems and procedures, and our willingness to walk the talk, honestly evaluate the results, and respect our institutions. Let's not kid ourselves: when Apple gets its great products made in mainland China by Foxconn, it is not looking at the latter for innovations. It is looking for excellence. And if we desire to be the "factory to the world" that graduates from exporting iron ore to making and exporting high technology products, excellence is the thing that would get us there. It is not that the world does not expect innovations from us, but we ourselves would be every bit challenged in our quest for true innovation that shakes us and the world - because we did not get the fundamentals right.

Excellence and innovation are two sides of a coin. In today's extremely complex world, to expect an Edison-like creativity from the lab is being unrealistic. Even Edison did not achieve every innovation attributed to him by himself; behind him was a dream lab comprising very hard working, intelligent, experimental, methodical, men and women. Excellence in whatever we do gives us confidence to set our sights higher, to aim for the unreachable, and be confident that we have the ability to do it. Innovation flowers in the rich soil of genuine excellence as shown by many a great organization throughout the world - GE, P&G, 3M, Apple, Sony, Porsche, Heidelberg, Disney, et al.

Some skeptical minds may retort that the IIT JEE and the IIM CAT are Indian examples of excellence. We could debate the point, but it is more likely they are examples of effort required and to master a process with a temporal perspective. But they do reflect a standardization of process and standardization is generally a requirement for excellence. This might again appear contradictory: if excellence requires standardization and innovation is "creative experimentation", they are at odds, aren't they? The flaw in this is to assume innovations are inherently creative; much modern research tend to show that innovations are as subject to method and process as any other. The idea that innovations are all the work of a creative genius has largely been discredited.

Retail Detail: Ethnic Chic

Intra-industry Growth: Why the Difference?

Two recent conversations with senior executives at similar, but different retailers, brought up an interesting discovery. These two companies, in the traditional sari retailing business, are both well known and their brands well received in the market, especially in south India. A visit to their several retail outlets in Chennai and other cities present a picture of energy, activity, and growth - at any time of the year. The contrast is with the "modern" apparel retail showrooms selling readymade western garments.

The flurry of business got me talking - on two separate visits to their respective flagship showrooms - with the executives. It was obvious, seeing the crush of customers, the cost of purchases, and the wide variety (in designs, price points, fabric, etc) that traditional apparel retail was holding its own, even succeeding where modern made-to-wear was struggling. Both executives exuded optimism and confidence in their company's performance - about 30% annual sales growth and relative price stability (one of these chats was pre-Diwali and sales for which were yet to happen). Not for them the race to the bottom with endless discounts and two-for-one or two-for-three offers.The vicious circle that characterize Main Street modern chain store retail selling mostly western wear is conspicuous by its absence in retail stores selling traditional wear, especially saris, salwars, and kurtis of all types.

How is it that traditional apparel retail is traipsing along in these ostensibly hard times while western wear retail is caught in a serious bind? One does not have to look hard to discern serious underlying problems; the customer has the market virtually eating out of his or her hands. An article in Business World some time ago said higher unit sales have not resulted in greater absolute value of sales. Payment cycles have expanded, theoretically to 90 days (though there are cases of retailers delaying payments to vendors by as much as two years). Margins are wafer thin. A recent chat with a vendor from Tirupur showed how deep the problem was - a Rs.10 crore company, his firm had not been paid for 11 months for goods supplied and this was reverberating downstream to all suppliers.

It's not as if the traditional wear retailers have it any easier: they incur the same expensive lease for metropolitan locations, advertising and brand-building costs, uneven demand and supply, and need to accommodate to sharply changing tastes and fashion. To some extent, they benefit from regional focus that allows them to narrowcast and finetune, but that argument could be equally turned around - they have less economies of scale to work with as their procurement cannot be spread over a nationwide market.

Most, if not all, traditional wear retailers are tightly held and family-controlled while many of the emerging nationally branded chain stores selling western wear are externally funded and some publicly listed. So numbers for the former are harder to come by and we do not know the details of their cash cycle, working capital, contribution, and the like. Estimates put the number of total retail transactions at over 90 billion a year, which includes retail of all kinds. The total value of retail spending by 2010 or 2012 is forecast at between USD 500 and USD 550 billion (the current value is put at about USD 400 billion). Furthermore, according to the McKinsey Global Institute, apparel retail in 2005 accounted for 6% of total consumption. Included in this consumption basket were food & beverage, transportation, healthcare, housing & utilities, education & recreation, communication, and household products. If one restricts the list only to tangible retail consumption, the apparel market has a larger slice of the market.

It is worth noting that traditional retail has a much larger variety than western wear - while the latter, for any particular wear, has a handful of types by fabric type, a dozen different types in terms of fashion, and a possibly larger selection in terms of color the sari industry by contrast is enormously complex. Complexity, volumes, fabric and design choices, SKU sizes, and relatively unorganized and small scale procurement sources must clearly tell upon inventory holding of finished goods at these retailers. Not for them the option of taking on consignment or return to vendor for disposal in the surplus and rejects markets. These vendors are either company-owned suppliers or small cottage units.

So it's worth pondering why traditional apparel retail with all the obvious disadvantages, in the light of modern management theory, is able to trounce modern western wear retailers in performance. Could it be that relative price inelasticity of the former comes from core constituencies whose demand never wavers? Or is there some other factor at work such as better demand matching, just-in-time product introductions with very short market response-to-design rework, more firmly grounded customer relationships being fostered, or simply better management of inventory and cost? We may never know; but any curious layperson can see the difference: traditional retail is thriving even as modern retail finds itself in a tailspin of self-inflicted injuries. In such circumstances, value is what value does - and the consumer sees only the rebates, offers, discounts, and ever more attractive prices. It would be very interesting indeed to see how the market values a traditional retailer, such as Nalli's, if it were ever to list itself.

Intel Insight

In the late 1970s, when I was at college, there was one monopoly television operator - Doordarshan. Excepting Sundays, DD beamed content - such as they were - from 6:30 PM until about 11:00 PM. These programs usually started out with some form of paean to rural life, a digital daguerreotype of men and women who displayed a contentment and happiness that their kulak brothers and sisters supposedly enjoyed in the Soviet Union (DD was only borrowing from the staged manufacture of societal bliss). At about 9:00 PM such content gave way to news followed by entertainment as perceived by the controllers. On Sundays, it was more of the same, except all day. That was then: a quasi-socialist utopia that our bureaucrats sought to portray to those with the means to buy a television and be hooked by its dubious charms. What a change! From one channel broadcast over the air and available for limited hours to 200-plus available 24/7 via cable and satellite TV across 70 million households! Back in those halcyon days, the television manufacturing industry was fragmented - each region had its own collection of cottage assemblers. In Bangalore there was BPL; in Chennai, there was Dyanora and Solidaire; in Bombay, there was Crown, Televista, and Bush; in New Delhi, there was Nikitasha; and elsewhere in the country there were brands such as Crompton Greaves' Hometech (yes, they were in this too). Where are these emblems of Indian enterprise today? Indeed, where is DD itself in today's reckoning?

First Movers

If one examines the motorcycle or scooter industry of the same era, one notices the same. We had the quintessential Yezdi and Rajdoot with a Royal Enfield Bullet holding sway at the upper end. Things could not be more different today where these yesteryear brands have disappeared - but for a niche presence by RE - and replaced by the mean machines from Honda, Bajaj, TVS, Suzuki, and Yamaha. Again, how and why did the brands fade away?

The reality bears notice: DD was a monopoly and each of the TV brands a near monopoly or oligopoly in its geographical markets. Ditto for Ideal Jawa (manufacturers of Yezdi) and Escorts (Rajdoot). These brands were first movers in the market and virtually had it eating out of their hands, thanks to the License Permit Raj. Well, we know the rest of the story; history has a way of unwinding strong tales. As went the Soviet Union, so did its exemplars at a micro-economic level. Let's examine this a bit.

Management theory tells us that first mover advantages come from three areas: asset control, leadership, and switching costs. Thanks to policy, DD had an extraordinary asset control - monopoly rights to the airwaves. Leadership is more cumbersome, requires sustainable hold over a technology or process, exemplifies itself in the form of intellectual property rights (patents, copyright, trademark, trade secret), and extensive learning in process or technology. Finally, switching costs pertain to the trouble that customers have to take to move from one vendor to another (think of moving from one mobile operator to another when number portability is yet to arrive), in re-learning an expertise (such as IT companies that focus on SAP has invested much in its understanding and the business relationships it has enabled), or in contractual forms (airline miles, telco plans for mobile - though we don't see much of this in India with GSM operators with the exception of Apple's iPhone or Blackberry that are offered at lower list prices when one gets on some plan).

Sustaining the Advantage

On hindsight, when the airwaves were opened up, DD's presumed control evaporated and it did not have the leadership it could have achieved. For example, in proprietary content, which is a hallmark of great media and publishing organizations such as the BBC in the UK; NPR, the Wall Street Journal, Barron's, or Harvard Business Review in the US. These organizations have demonstrated that investment in building leadership in content results in exclusive markets for segments that value it and enable the organization to differentiate itself from its competitors. WGBH of Boston, an NPR affiliate station, enjoys just such a differentiation. Instead, in the new competitive electronic media marketplace, DD finds itself without a differentiable product and resorting to tired rehash of Bollywood staple. DD, in fact, is an excellent example of lack of vision and inability to translate avowed first mover advantages to sustainable value. But for a paternalistic State that periodically showers minor gains - such as rights to domestic cricket matches without having to bid for them that are often politically inspired - the organization should have closed shop a long time ago. We continue to see this today with state enterprises: BSNL and MTNL were recently given 3G licenses without bidding for it. The jury is still out if either organization can make much of the largess. BSNL's first mover advantages are already fraying at the edges and shades of DD loom on the horizon.

The yesteryear motorcycle companies showcased inability to sustain first mover advantages in another area: technology. Thanks partly to exogenous environmental variables such as ill-conceived production controls under the license regime, these companies did not invest in technology R&D and product innovation. Instead, they rested on their laurels and on their incredible hold on the market. When the gates opened and far bigger rivals with great technology and willingness to pursue market share came in, it was too late. The writing on the wall, though, had been clear for a long time. The story was the same with the TV assemblers. These brands had a very strong presence in sub-national markets but had invested little in technology, scale, or national brand building. Again, when the markets were thrown open to global brands, they had no chance. Samsung, LG, and Sony reached a cumulative market share from zero to over 70% in less than a decade, completely destroying the entrepreneurial dreams of the incumbents. But, don't weep for them - they had it coming.

What this tells us is that first mover advantages have disadvantages as well. These relate to incumbent intertia, technology discontinuities and uncertainty, market flux, and free rider effects. The newcomers were certainly able to ride on the maturation of the market that the first movers enabled. The time span also opened up technological discontinuities (such as the move from broadcast-on-air to cable and, more recently, to satellite through set top boxes). Crucially, the incumbents were largely characterized by complacence and inertia.

This article is simply a reiteration of the importance of insight. If hindsight is 20/20, insight is often blurred and calls for a desire to understand the current situation, peer into the future, while learning from history. It focused on first mover examples that can offer clues to entrepreneurs about markets and brand dominance and strategies to pursue, either as an incumbent or as a late entrant. With good insight and an attitude of "can do", there is no reason first movers - or any player, for that matter - cannot craft a strategy for competitive advantage.