As I write this, the media is rife with news about the dire straits the Indian airline industry finds itself in. Black ink spent in discussing the predicament appears to be competing with the spreading red ink at every airline, casting a pall across an industry that sported abundant cheer not a few months ago. There is increasing clamor from the industry for government support of some form. The scene is not very different in the US or Europe, though the auto industry, for a change, has taken center stage in the former. Airlines have sought to address some fundamental problems by setting up new entitities to target specific customer segments. Thus we have JetLite as a fully owned entity, a reincarnate of the old full-service Sahara, now in the avatar of a "low-cost" airline. Kingfisher, likewise, has re-branded Deccan as Kingfisher Red. Jet even attempted to lay off several hundreds of people and had to beat a hasty retreat at the resulting political storm. The dizzying pace of change in India is matched abroad as well: British Airways, too, has now come up with a fully-owned branded carrier called OpenSkies while Delta is merging with Nortwest.
Will these work? What really ails the airline industry and do these measures address the real problems? Are the the several airlines making short-term tactical decisions, operational fixes, or working out longer-term ideas? In other words, are they pursuing a strategy or making use of a situation to bring their house in order? A singular feature of the airline industry throughout the world is its total fixation with current problems and an inability to learn from what has happened in the past to its own fortunes from specific sets of circumstances. A study of the industry is an excellent reference to understand strategy.
Strategy, Simply Put
Strategy, according to Porter, is all about creating a difference one can preserve. It lies, in his thinking, in doing the same activities differently from others or in undertaking entirely new activities. This is what has been referred to as a "positional" point of view which holds that competitive advantage arises from the ability of a firm to create a unique differentiation in the market in which it competes. The competitive advantage is sustained when a firm benefits from natural or given barriers or those it erects itself to make it difficult for other firms to replicate the unique position. These barriers include industry-specific ones that make customers captive (such as spectrum a telecom firm has bid for and won, the right to manage an important port or utility, ownership of a large coal or oilfield, etc); economies of scale and scope (cable or satellite television, undersea optic fiber cable); proprietary technology (DNA chips) or process complexity that create a unique set of activities for the advantaged firm (such as Amazon's online retailing with backend sophistication, Sabre's ownership of the travel agent's desktop, or McKesson's overwhelming presence across hundreds of US hospitals). The positional viewpoint is a product-market orientation - ie, advantage through the creation, domination, and preservation of the product market, where a "product" can be either a physical one or a service.
An alternative is the resource-based view of the firm that posits that competitive advantage comes from ownership of unique resources that include assets such as brand, distribution channels, intellectual property, corporate culture, competencies, etc. Thus, other much-touted strategy formulations such as core competence are subsumed within this viewpoint. The practical importance of whether a firm has a positional or resource advantage is possibly only academic: one may argue on both sides, for example, with respect to Southwest Airlines where its arguably unique combination of culture, staff, and systems has created a valuable competitive advantage which owes its position to the resources, but the resources themselves are unique only because of an ability and focus to deploy them in a manner that has created advantages.
The Crux of the Matter
It is easy enough, with this in mind, to see if the various airlines in India have pursued any strategic intent by seeking a competitive advantage. About four or five years ago, Captain Gopinath burst forth on the Indian skies with Air Deccan and quickly garnered market share. The so-called "low cost" airline concept took hold and was instantly - if only interminably - profitable; attracted more players, and the concept became an industry mantra. The skies soon became crowded with Air Deccan, Go, IndiGo, Spice, and Kingfisher jostling with the so-called "full service" airlines - Jet, Sahara, and Indian Airlines.
Thanks to a fast growing economy, the airline pie became larger and all the airlines grew as a result. The incumbent ones, however, saw falling market share as the new ones gained. Increasing market share of some airlines, however, only tells upon the top line, not the bottom line, and this holds important clues to the tragedy that followed. The airlines cumulatively created value that largely accrued to customers and not to the providers of such value. Today's bleeding industry is evidence of the fact that most of these players did not succeed in capturing the value they created and are now scrambling to find ways to do so.
A point that seems to have currency in recent discussions is that our low cost carriers were never that; instead they were merely low fare carriers. Where could low cost arise in the case of airlines? Listen to Herb Kelleher of Southwest Airlines: "If you take all of Southwest's compensation together - wage rates, profit sharing, the full 401(K) match, the stock options that our people have - Southwest employees are the most highly compensated people in the airline industry". So how does SWA still manage to be a low cost airline despite ostensibly having the highest visible costs? There are the usual variables that have been much discussed as characteristics of a true low cost airline: one type of aircraft that saves capex and training; direct intercity routing in place of hub-and-spoke; rapid, 20-minute, turnarounds at the gate; greater frequency; one class with no assigned seating; higher load factors; cheaper, secondary, airports; no interline baggage check; no costly booking systems; absence of costly air mile administration; vastly higher productivity of their assets, both human and material; futures contracts for fuel; and so on.
Not by Costs Alone
The cost per seat mile of such a LCA for a 500 mile flight, a Booz Allen study estimated, was about Rs.3.50, or less than half that of a full service, hub-and-spoke carrier. Their study further showed cost differences across the board between the two types of carriers: pilots, onboard services, sales and reservations, maintenance, aircraft ownership, ground handling. In general, LCAs were seen to be using all resources much more effectively and the cost difference between the two were 2-to-1 for the same stage length and aircraft after adjustments. Specifically, 65% of the cost advantage resulted from production model choices (slower pace of full service airlines owing to slack built into schedules, process complexity, and ticket distribution), 15% to labor agreements, and 12% to capital structure. Only 5% was attributable to savings from not offering amenities.
In India, none of these seem to matter. Here, a Jet flies directly from Ahmedabad to New Delhi and a Kingfisher from Mumbai to Kolkata, notwithstanding the fact that the respective bases of each are located in Mumbai and Bangalore. In effect, there is no hub to speak of, all airlines have similar capex and staff compensations, they all fly the same aircraft of like vintage for the most part, from and to the same cities, the same airports, at the same times, often enough the same passenger segments, have implemented Internet ticketing, and onward booked passengers are a small percentage of total compared to point-to-point - important because these passengers contribute about 40% lower revenue per mile than domestic passengers and are an issue with full service carriers in the US. They even have the same, long, turnarounds due to airport congestion! The differences only exist in terms of classes and on-board meals offered.
What we notice is a lack of differentiation and, therefore, an absence of competitive advantage. Differentiation comes from offering value - not to be confused with the new fangled airline industry jargon about "value carriers" - and value is simply the old fashioned difference between a customer's desire to pay for service and the cost of providing such service. With no clear benefits, or when value is replicable there is tendency to reduce price, with the benefits transferred to customers. But this works so long as there is an extractable surplus - ie, costs are within its control or controllable. In the Indian skies, as airlines have discovered, they do not have too many options with costs and simply lowering price gets them deeper into the hole.
If you thought strategy was what our airlines are practicing think again. SWA has higher staff costs and lower ticket price compared to the airlines it competes with, but still makes money because it has a competitive advantage that others find impossible to replicate.
Sunday, November 30, 2008
Saturday, November 22, 2008
The Extended Braintrust: Your Customer
C.K.Prahalad, in his intriguingly thought-provoking book "The Future of Competition", refers to two two "deeply embedded, traditional business assumptions" - that any company can create value unilaterally and that value resides exclusively in the company's products or services. There may still be exceptions, but it should be fairly obvious that the days of vendor-driven value creation that ignores the customer perspective is long gone. The feedback loop exists in myriad forms today and a firm's capacity for receptivity can become a powerful differentiating factor.
From a vendor perspective, the path to customer acquisition, satisfaction, and retention does not actually center around its products or services - a mistake often committed by both marketing and sales. Instead, it focuses on the customer. That is a notion that is difficult to grasp at most organizations where staff is ill-equipped in defining and articulating the value of its products and services in a context that the customer can appreciate. In an ongoing, consulting engagement with one organization that provides healthcare services, I have been working with sales in understanding the challenges they have been experiencing and their inability to translate interest among potential clients to actual revenues. Their market has been heavily commoditized, one that reveals itself in plain vanilla functionality and indiscriminate price discounting by a large number of players attempting to increase or hold on to market share. In probing their contact with potential corporate customers a refrain was hard to miss: that it was difficult to get through to the HR head (HR in most cases had ownership for employee benefits); that when a face-to-face meeting did transpire, they heard but did not listen; and the list of services appeared to get lost in an executive chain of evaluation and approvals. Simply - apply, apply, no reply. Has the vendor attempted to understand what is of value to the customer? What shapes them? Who is the real decision making authority and how they could be involved in designing a package of services that works?
This is a company looking to sign corporate contracts which are inherently more difficult than approaching the individual, end-customer. The difficulties here pertain to requirements for vendor evaluation and empanelment; a constant battle to hold the price in the face of competitive pressures that are used by the customer to play one vendor against another; non-exclusivity of most agreements; choice and optional use of services by its employees among the several vendors empaneled for benefits services; and fulfillment that elicits customer response and matches expectations. By contrast, snagging the non-corporate customer should be a cakewalk!
Defining, articulating, and delivering value is one thing. Retaining touch with the customer is quite another. Most telcos today face this problem where the customer understands the kind of value they expect. Some companies do a better job than others in developing products or packages around these values. The real trouble, that we all see in the world of telecom, begins after one has signed up either as prepaid or post-paid customers. "There's many a slip between the cup and the lip" goes an old expression and that is proved to a fault at most companies when reality bears a different testimony: in other words, when the cheery words from the ad agencies promising instant nirvana comes face-to-face with delivery and fulfillment. That's when customers willing to give the benefit of the doubt turn into hardcore cynics. Such a customer is ripe for desertion and almost nothing the company does can reverse weeks and months of indifference and callous disregard. Unfortunately, in hyper-growth industries - as telecom has been for some time now - where net customer acquisitions are positive by far, companies pay scant regard to deserting customers. Hindsight is 20/20 but the tide has already begun to turn when management wakes up to reality and the problem is not peculiar to telecom alone.
Customers can become deserters when there are competitive products in the product. To some extent, the network effect may restrain or delay a decision, but decide they will when the cost of continuing with an indifferent provider proves too compelling. Telecom, satellite television, banking, brokerage, courier services are all fair game in the customer's evaluation. Most of these are services and the reason is not unusual. Services have to scale capacity in the form of human resources in line with demand and when this falters - eg, when a company wishes to reduce or to have the same number of customer call center agents - quality suffers immediately. Services also require staff to be well trained and versed in the company's products or services even if they scale well and this could be a sore point with customers who wish to speak with someone who appreciates their problem and wants solutions. Finally, the real disconnect happens because most companies continue to exist in silos of departments, functions, and responsibilities. Hence, a customer seeking information about an order s/he has placed is transferred endlessly to people who have no visibility into the order or its fulfillment. We are beginning to see this happen with DTH players experiencing exponential growth. These companies, facing high capital costs and a challenging and competitive market, have resorted to endless variations in packages on offer - a theme that has been raised to an art of great and inexplicable complexity by the telcos. You may be a subscriber undertaking periodic recharge, but neither you nor the provider at the other end can tell you what exactly you are getting and how they are priced. Such is the nature of nonsensical differentiation that is foisted on the customer.
These are not new issues and have been discussed threadbare by academics and practitioners alike. Yet, the fact remains that few companies do a good job. How can organizations ensure that customers do not fall through the cracks? Three ideas come to mind:
First, dispense with the traditional "customer complaints" function and instead use the opportunity to integrate customer experience within the larger framework of product or process innovation. This is not as easy as it sounds: the organization has to have a sense and an overwhelming desire to innovate. So this would well work only with companies where senior management is serious about a culture of constant innovation and continuous, incremental, implementations. Many companies spend time and energy attempting to get employees to give feedback and ideas. Why not involve the customers as well, given that customers are the ones likely to spot or experience less-than-satisfactory performance? This pathway could well be routed through the employees in some manner and have them incented, thereby catching two birds with one stone - attendance to customer grievance and also having employees involved in sifting through them to cull the most appealing ideas that could be put up for evaluation, brainstorming, and implementation.
Second, provide a valid channel for customer access. Such an access has to be both physical - ie, clearly identified person(s) at each location together with phone, fax, and address where they may be reached - as also virtual in some form such as email or live chat. Contrary to fears, not all customers attempt to reach out to management, but providing such access both reassures and enables a mechanism for "release of steam". The benefits of this are immense: it allows an organization to retain the customer and even use the opportunity to upsell its products and services.
Third, keeping the customer engaged. Much of the problem lies in the fact that a customer perceives an organization that s/he deals with as a black hole where queries or complaints simply disappear into. This can be resolved in two stages, one automatic, the other manual. The automatic approach is to have an immediate stock response (by email, SMS, etc) promising that a representative would attend to their issues in short order. Such a promise has then to be followed up by a manual process by employees who are able to access information and are empowered to take decisions.
None of the above ideas are unique. But it behooves organizations with a real interest in customer focus to utilize them in a manner that does not result in customer flight while also benefiting from their complaints. Not all organizations would be able to implement these ideas even if they wanted to and that may be because of their position in the market that may run contrary to the greater resources - and, therefore, the cost - of getting more involved with the customer. That is a topic for discussion in itself. But, for those who do, integrating the customer (especially those with less-than-satisfactory experience) in the innovation process has important implications for product differentiation and leadership.
From a vendor perspective, the path to customer acquisition, satisfaction, and retention does not actually center around its products or services - a mistake often committed by both marketing and sales. Instead, it focuses on the customer. That is a notion that is difficult to grasp at most organizations where staff is ill-equipped in defining and articulating the value of its products and services in a context that the customer can appreciate. In an ongoing, consulting engagement with one organization that provides healthcare services, I have been working with sales in understanding the challenges they have been experiencing and their inability to translate interest among potential clients to actual revenues. Their market has been heavily commoditized, one that reveals itself in plain vanilla functionality and indiscriminate price discounting by a large number of players attempting to increase or hold on to market share. In probing their contact with potential corporate customers a refrain was hard to miss: that it was difficult to get through to the HR head (HR in most cases had ownership for employee benefits); that when a face-to-face meeting did transpire, they heard but did not listen; and the list of services appeared to get lost in an executive chain of evaluation and approvals. Simply - apply, apply, no reply. Has the vendor attempted to understand what is of value to the customer? What shapes them? Who is the real decision making authority and how they could be involved in designing a package of services that works?
This is a company looking to sign corporate contracts which are inherently more difficult than approaching the individual, end-customer. The difficulties here pertain to requirements for vendor evaluation and empanelment; a constant battle to hold the price in the face of competitive pressures that are used by the customer to play one vendor against another; non-exclusivity of most agreements; choice and optional use of services by its employees among the several vendors empaneled for benefits services; and fulfillment that elicits customer response and matches expectations. By contrast, snagging the non-corporate customer should be a cakewalk!
Defining, articulating, and delivering value is one thing. Retaining touch with the customer is quite another. Most telcos today face this problem where the customer understands the kind of value they expect. Some companies do a better job than others in developing products or packages around these values. The real trouble, that we all see in the world of telecom, begins after one has signed up either as prepaid or post-paid customers. "There's many a slip between the cup and the lip" goes an old expression and that is proved to a fault at most companies when reality bears a different testimony: in other words, when the cheery words from the ad agencies promising instant nirvana comes face-to-face with delivery and fulfillment. That's when customers willing to give the benefit of the doubt turn into hardcore cynics. Such a customer is ripe for desertion and almost nothing the company does can reverse weeks and months of indifference and callous disregard. Unfortunately, in hyper-growth industries - as telecom has been for some time now - where net customer acquisitions are positive by far, companies pay scant regard to deserting customers. Hindsight is 20/20 but the tide has already begun to turn when management wakes up to reality and the problem is not peculiar to telecom alone.
Customers can become deserters when there are competitive products in the product. To some extent, the network effect may restrain or delay a decision, but decide they will when the cost of continuing with an indifferent provider proves too compelling. Telecom, satellite television, banking, brokerage, courier services are all fair game in the customer's evaluation. Most of these are services and the reason is not unusual. Services have to scale capacity in the form of human resources in line with demand and when this falters - eg, when a company wishes to reduce or to have the same number of customer call center agents - quality suffers immediately. Services also require staff to be well trained and versed in the company's products or services even if they scale well and this could be a sore point with customers who wish to speak with someone who appreciates their problem and wants solutions. Finally, the real disconnect happens because most companies continue to exist in silos of departments, functions, and responsibilities. Hence, a customer seeking information about an order s/he has placed is transferred endlessly to people who have no visibility into the order or its fulfillment. We are beginning to see this happen with DTH players experiencing exponential growth. These companies, facing high capital costs and a challenging and competitive market, have resorted to endless variations in packages on offer - a theme that has been raised to an art of great and inexplicable complexity by the telcos. You may be a subscriber undertaking periodic recharge, but neither you nor the provider at the other end can tell you what exactly you are getting and how they are priced. Such is the nature of nonsensical differentiation that is foisted on the customer.
These are not new issues and have been discussed threadbare by academics and practitioners alike. Yet, the fact remains that few companies do a good job. How can organizations ensure that customers do not fall through the cracks? Three ideas come to mind:
First, dispense with the traditional "customer complaints" function and instead use the opportunity to integrate customer experience within the larger framework of product or process innovation. This is not as easy as it sounds: the organization has to have a sense and an overwhelming desire to innovate. So this would well work only with companies where senior management is serious about a culture of constant innovation and continuous, incremental, implementations. Many companies spend time and energy attempting to get employees to give feedback and ideas. Why not involve the customers as well, given that customers are the ones likely to spot or experience less-than-satisfactory performance? This pathway could well be routed through the employees in some manner and have them incented, thereby catching two birds with one stone - attendance to customer grievance and also having employees involved in sifting through them to cull the most appealing ideas that could be put up for evaluation, brainstorming, and implementation.
Second, provide a valid channel for customer access. Such an access has to be both physical - ie, clearly identified person(s) at each location together with phone, fax, and address where they may be reached - as also virtual in some form such as email or live chat. Contrary to fears, not all customers attempt to reach out to management, but providing such access both reassures and enables a mechanism for "release of steam". The benefits of this are immense: it allows an organization to retain the customer and even use the opportunity to upsell its products and services.
Third, keeping the customer engaged. Much of the problem lies in the fact that a customer perceives an organization that s/he deals with as a black hole where queries or complaints simply disappear into. This can be resolved in two stages, one automatic, the other manual. The automatic approach is to have an immediate stock response (by email, SMS, etc) promising that a representative would attend to their issues in short order. Such a promise has then to be followed up by a manual process by employees who are able to access information and are empowered to take decisions.
None of the above ideas are unique. But it behooves organizations with a real interest in customer focus to utilize them in a manner that does not result in customer flight while also benefiting from their complaints. Not all organizations would be able to implement these ideas even if they wanted to and that may be because of their position in the market that may run contrary to the greater resources - and, therefore, the cost - of getting more involved with the customer. That is a topic for discussion in itself. But, for those who do, integrating the customer (especially those with less-than-satisfactory experience) in the innovation process has important implications for product differentiation and leadership.
Friday, October 31, 2008
Celebrity Fixation
Quick, here's a quiz question: name the company whose advertisements on prime time TV feature an adorable pug and a cute little girl? Chances are, you will have no trouble in naming Vodafone. The telco's recent series of ad spots have caught the imagination of the viewing public and has been much commented on. It has even been the subject of an attempt by the animal welfare board in New Delhi to investigate alleged ill-treatment of the canine reprising the role of a loyal Dog Friday. Shot in South Africa, the ads are sweet, humorous, and engaging. Qualities that leave a lasting impression and an indelible association with the brand. The price of this breed of dog has gone up three times since the ads were released, demonstrating the wide impact of good media content.
Now here's another question: name a brand that features Hrithik Roshan? Unless you're an inveterate ad follower or a die-hard Hrithik fan, you're likely to pause and think hard. Celebrities appear in numerous media campaigns and the bigger the celebrity, the more brands they peddle. So it is that a King Khan disappears in a crowded haze of media clutter where he has endorsed everything from cars, phones, potato chips, to upcoming television shows. Clutter causes the human mind to shut down receptivity and the result - brand association and recall take a hit.
I've long puzzled over why companies choose to go with celebrities. I can think of three reasons. First, the ad lobby instinctively reaches for "celebs" to front campaigns because it has been routine. Second, there are few, if any, sound metrics that show concrete relationships between campaign expense and ROI. Finally, the old adage of "you can't go wrong with IBM" is equally at work: marketing executives within companies face little risk - and can be less accountable - for product failures when they choose to go with the agency recommendation to have Shah Rukh Khan (or Amitabh Bacchan, M.S.Dhoni, Tendulkar, Rani Mukherjee, Katrina Kaif, Kareena Kapoor...you name it) to endorse them in the first place.
Let's examine these possible reasons a little more in depth.
Celebs to the Rescue: By some reckoning, involving celebs result in a 5X-10X multiple in total expenses for media campaigns compared to those that did not have any celebrities. That's a huge number. From an agency perspective, it is risk mitigating as the presence of the celeb ensures maximum billing and an ostensibly foolproof method to bring visibility to the advertisements. In my opinion, it is a lazy strategy. Ad agencies are supposed to bring creativity to the account in such a manner that brand visibility is enhanced among the viewing public, the brand value is well articulated, and a positive connection established between the brand and the potential customer. Mere presence of a celeb - howsoever popular - does little to promote any of these, especially when the same celeb has been seen countless times in various contexts and promoting widely different products. It is lazy because it seeks to absolve the agency from hard work and instead substitute a star to carry the weight of the promotion.
Return on Investment: To this day, there are no sound, true-and-tried metrics that relate campaign (ie, media) expenditures to actual outcomes. In other words, there is no evidence or established benchmarks that demonstrate return on investment. The industry has had no real compulsion to undertake such an exercise because, for one, it is difficult to prove causation and agencies are often run by "creatives" who do not have an ear for analytical rigor; and for another, it is self-defeating as it potentially empowers the client to question expensive campaigns and billing. So ROI remains a mystery for most ad campaigns, even by large, presumably well informed, companies. Those that question are bedazzled by the agencies with the advantages of associating their portfolio of brands with a premier celebrity. At crunch time, client managements also take the easy option and settle for a presumably riskless decision (see below).
IBM Syndrome: In the good ol' days when IBM reigned supreme in the large corporate world with its "big iron" mainframe machines, mid-level management could apparently never go wrong with a decision to go for an expensive IBM lease - even where competing solutions were available at lower cost. This gave rise to the adage that "no one ever got fired for buying from IBM". The same holds true with creative media decisions. There are no real ROIs to ponder over; the top tier agency that the client has hired has recommended a sure-fire seller featuring Bollywood's Number One; and, finally, the decision can be blamed (if necessary) by client management on the outside firm that recommended and came up with the creative. In rare instances, the client may actually request a specific celeb, but chances are, the idea came from the agency. Near term awe at having Amitabh Bacchan to associate with one's products or services overwhelms longer term requirement that the product or service indeed benefited from the higher cost decision. In any case, it is unlikely someone in the future is going to rake the past.
There has been an ad from Hyundai on television lately featuring King Khan to promote the new i10 car. Pause and think about this for a minute. This a cute, tiny, bottom-of-the product lineup model from the company and here is a person, owner of the IPL franchise from Kolkata no less, fronting it! The dissonance is striking. No average person would be expected to believe that Khan actually drives one of these little peas-on-wheels or to buy the product because one loves the superstar. Does Hyundai have concrete data that shows sales have increased because buyers saw Khan in the ads? Or even that they remember the i10 every time they see him? If not, why bother with such expensive campaigns? Moreover - and the ad community would not admit it - examine closely and one discerns a curious fact: campaigns featuring celebs, for the most part, are not even creative by any stretch of the imagination. I don't know about Hyundai, but I personally cannot find one redeeming quality about the particular advertisement. You just have to compare this with the Vodafone ad to see what I mean. The reason is simple: celeb-less ads need more work, require creativity, to ensure they do not disappear in the maw of indistinguishable mediocrity. That's not to say all celeb-less ads are creative, but the good ones are vastly more so than anything the ad agencies can dish up with pricey celebs.
Why, then, is there a surfeit of celeb advertisement in this country? No developed market in the world finds such a crying need to involve celebrities as in India. Automobiles, FMCG products, beverages, telecom, travel and entertainment - none of these see any celebrity endorsements to any great extent in the developed markets of Europe, North America, or Japan. The only exceptions are luxury goods or premium range products and services where one might see a Tiger Woods, a George Clooney, or a Roger Federer. In India, both marketing professionals and the agencies see them as de rigueur across all product categories and verticals, and this belief itself needs to be busted. Some of the most memorable campaigns in this country have, in fact, had no celebrities and memory recall for the respective brands has been instantaneous: think Amul, Air India, Bournvita, Vicks VapoRub, Bajaj Auto, Raymond's, Vimal, Surf, and more. Try convincing the ad moghuls weaned on Bollywood that the Indian consumer really does not care for celebrities and that until there is evidence of a causal link between expensive, celebrity-endorsed campaigns and return on investment such campaigns are merely taking the clients for a ride!
But, then again, it's for senior management within client companies to wake up and smell the coffee...
Now here's another question: name a brand that features Hrithik Roshan? Unless you're an inveterate ad follower or a die-hard Hrithik fan, you're likely to pause and think hard. Celebrities appear in numerous media campaigns and the bigger the celebrity, the more brands they peddle. So it is that a King Khan disappears in a crowded haze of media clutter where he has endorsed everything from cars, phones, potato chips, to upcoming television shows. Clutter causes the human mind to shut down receptivity and the result - brand association and recall take a hit.
I've long puzzled over why companies choose to go with celebrities. I can think of three reasons. First, the ad lobby instinctively reaches for "celebs" to front campaigns because it has been routine. Second, there are few, if any, sound metrics that show concrete relationships between campaign expense and ROI. Finally, the old adage of "you can't go wrong with IBM" is equally at work: marketing executives within companies face little risk - and can be less accountable - for product failures when they choose to go with the agency recommendation to have Shah Rukh Khan (or Amitabh Bacchan, M.S.Dhoni, Tendulkar, Rani Mukherjee, Katrina Kaif, Kareena Kapoor...you name it) to endorse them in the first place.
Let's examine these possible reasons a little more in depth.
Celebs to the Rescue: By some reckoning, involving celebs result in a 5X-10X multiple in total expenses for media campaigns compared to those that did not have any celebrities. That's a huge number. From an agency perspective, it is risk mitigating as the presence of the celeb ensures maximum billing and an ostensibly foolproof method to bring visibility to the advertisements. In my opinion, it is a lazy strategy. Ad agencies are supposed to bring creativity to the account in such a manner that brand visibility is enhanced among the viewing public, the brand value is well articulated, and a positive connection established between the brand and the potential customer. Mere presence of a celeb - howsoever popular - does little to promote any of these, especially when the same celeb has been seen countless times in various contexts and promoting widely different products. It is lazy because it seeks to absolve the agency from hard work and instead substitute a star to carry the weight of the promotion.
Return on Investment: To this day, there are no sound, true-and-tried metrics that relate campaign (ie, media) expenditures to actual outcomes. In other words, there is no evidence or established benchmarks that demonstrate return on investment. The industry has had no real compulsion to undertake such an exercise because, for one, it is difficult to prove causation and agencies are often run by "creatives" who do not have an ear for analytical rigor; and for another, it is self-defeating as it potentially empowers the client to question expensive campaigns and billing. So ROI remains a mystery for most ad campaigns, even by large, presumably well informed, companies. Those that question are bedazzled by the agencies with the advantages of associating their portfolio of brands with a premier celebrity. At crunch time, client managements also take the easy option and settle for a presumably riskless decision (see below).
IBM Syndrome: In the good ol' days when IBM reigned supreme in the large corporate world with its "big iron" mainframe machines, mid-level management could apparently never go wrong with a decision to go for an expensive IBM lease - even where competing solutions were available at lower cost. This gave rise to the adage that "no one ever got fired for buying from IBM". The same holds true with creative media decisions. There are no real ROIs to ponder over; the top tier agency that the client has hired has recommended a sure-fire seller featuring Bollywood's Number One; and, finally, the decision can be blamed (if necessary) by client management on the outside firm that recommended and came up with the creative. In rare instances, the client may actually request a specific celeb, but chances are, the idea came from the agency. Near term awe at having Amitabh Bacchan to associate with one's products or services overwhelms longer term requirement that the product or service indeed benefited from the higher cost decision. In any case, it is unlikely someone in the future is going to rake the past.
There has been an ad from Hyundai on television lately featuring King Khan to promote the new i10 car. Pause and think about this for a minute. This a cute, tiny, bottom-of-the product lineup model from the company and here is a person, owner of the IPL franchise from Kolkata no less, fronting it! The dissonance is striking. No average person would be expected to believe that Khan actually drives one of these little peas-on-wheels or to buy the product because one loves the superstar. Does Hyundai have concrete data that shows sales have increased because buyers saw Khan in the ads? Or even that they remember the i10 every time they see him? If not, why bother with such expensive campaigns? Moreover - and the ad community would not admit it - examine closely and one discerns a curious fact: campaigns featuring celebs, for the most part, are not even creative by any stretch of the imagination. I don't know about Hyundai, but I personally cannot find one redeeming quality about the particular advertisement. You just have to compare this with the Vodafone ad to see what I mean. The reason is simple: celeb-less ads need more work, require creativity, to ensure they do not disappear in the maw of indistinguishable mediocrity. That's not to say all celeb-less ads are creative, but the good ones are vastly more so than anything the ad agencies can dish up with pricey celebs.
Why, then, is there a surfeit of celeb advertisement in this country? No developed market in the world finds such a crying need to involve celebrities as in India. Automobiles, FMCG products, beverages, telecom, travel and entertainment - none of these see any celebrity endorsements to any great extent in the developed markets of Europe, North America, or Japan. The only exceptions are luxury goods or premium range products and services where one might see a Tiger Woods, a George Clooney, or a Roger Federer. In India, both marketing professionals and the agencies see them as de rigueur across all product categories and verticals, and this belief itself needs to be busted. Some of the most memorable campaigns in this country have, in fact, had no celebrities and memory recall for the respective brands has been instantaneous: think Amul, Air India, Bournvita, Vicks VapoRub, Bajaj Auto, Raymond's, Vimal, Surf, and more. Try convincing the ad moghuls weaned on Bollywood that the Indian consumer really does not care for celebrities and that until there is evidence of a causal link between expensive, celebrity-endorsed campaigns and return on investment such campaigns are merely taking the clients for a ride!
But, then again, it's for senior management within client companies to wake up and smell the coffee...
Tuesday, October 21, 2008
IPL Redux
I have not posted in a long while, but since the second season of IPL (Indian Premier League, for those who don't follow cricket) is around the corner, I figured I couldn't go wrong in resurrecting an old article that was published in BusinessGyan, a monthly business journal published from Bangalore. It might even be marginally interesting to see if the learnings I wrote about are any less true the second time around...
-------------------------------------------------------
LESSONS FROM IPL
Posted with permission from the editors of BusinessGyan
Published: June 2008
I have been keenly watching the IPL matches - for the cricket, of course, but interestingly also for the learnings that come across, embedded for all of us entrepreneurs to mull over. Here are my observations and I hope it sparks off some debate!
1. What's the Product?
The Indian Premier League started off, I thought, without a clear idea of what the product was all about. Was it about cricket? Entertainment? New masala medium to spike the TV ratings for some privileged channels? New line of business for jaded conglomerates? A radical form of sports entertainment never tried out in the country? Vijay Mallya was asked about this on TV on Day 1 and responded by saying "let them play cricket, we will give the entertainment!" A case of dissonance between the investor and management? So, what was this new venture all about? Who was the target market and what was the business model? This confusion has beset ventures of all kinds, including established businesses who ought to know better. In the 1990s, Xerox woke up to the reality of shrinking markets, threat to its core high margin enterprise xerographic systems, and an inability to articulate what it stood for - great products or a service-oriented IBM-style lease business. In the same decade, Mazda Motor Company had identity pangs, especially in the North American market. Was it sporty niche cars anchored by the RX series with the Wenkel engine? Was it small sedans for the starter pack? How did it wish to differentiate itself from the rest who had a bigger line up and production volumes? Dunkin Donut was not spared either: its great coffee drew the crowds into its coffee shops and there was enough data to prove that, but it sought for a while to push its other wares to make a statement that it was more than just coffee. But coffee got the crowd in who bought the rest anyway. It sells more coffee than donuts. So where was the beef? I happened to be living in the Valley when Borders (of Borders Bookstore) founded Webvan, a venture that was funded $450 million for its celebrity founder and the strength of its idea. Webvan spent the next couple years rapidly running down its funding without a clue as to what it was really about, investing in pricey, designer vans and highly automated warehouses to supply its yuppie customers - placing a $1 billion order, for example, with Bechtel to create its robotic warehouses. Ironically, a few years later, I found myself living in Skokie, Illinois (north of Chicago), which was the home of Peapod, a venture that had a similar business model to Webvan and with a clearer perspective of what it wanted to be. Peapod still exists; Webvan is long gone.
2. Hype & Reality
Tremendous hype has surrounded this league. It's a paradigm shift; no, it's a game changer. It's gonna revolutionize the game of cricket, become the fulcrum of the game. Sounds rather suspiciously like the hype in the late 90s when the Internet went commercial. In 2000 Victoria's Secret scored more than 2 million unique visits for its webcast fashion show live from Cannes, France. Page views for most merchants skyrocketed and new software and hardware arrived on the market at a rate that outstripped the ability to install it. In 1999, average spend on customer acquisition by online retailers in the US was about $150, with some spending as much as $600, compared to $12 for the average offline retailer. The absurdity is evident when you note that online revenues that year for the average online retailer was less than $65 per customer. A BCG study put this in perspective: the online retailers spent 58% on customer acquisition, 31% on brand awareness, and 11% on customer retention - in other words, about $70 on acquisition, $40 for brand, and $13 for retention on average. Based on the hype, VC funding for ecommerce ventures shot through the roof - from $7 billion in 1998 to $32 billion in 1999 and $15 billion in the first quarter of 2000. Yet, by the start of 2001, most major players had become e-liquidators! The Industry Standard that year listed over 80 companies, many of them erstwhile high profile names, that had ceased operations in just 12 months. Hype has a tendency to be its own worst enemy and the jury is out if the IPL can afford to peddle hype that has little connection to reality.
3. Valuation
There is a reason for all the hype - valuation. The Mumbai franchise was much touted in the media as being the most valuable. By whom? On what terms? With what reckoning? A huge conglomerate had bought out the team for the highest bid and it had an icon player and the assumption was the team was the most valuable! Does valuation matter? For a startup, valuation is purely notional; an arbitrary number arrived to decide on investment and dilution. Real valuation comes when the venture has something to show - products that are perceived to have value in the market and begets revenues. Until then, the valuation game is a king's feast no one - especially the entrepreneur - can afford. What's the valuation today of the Mumbai team? You tell me. Performance gets the valuation, not the numbers cooked up before the venture has a story to tell. Pre-money valuation is all about the stage of development of a venture - ie, principally existence of revenues, expense, and a sound management team. For the Mumbai franchise, its "management" is its 11 players on the team; its revenues are the ratings-driven property value for its TV games, in-stadia advertisements, and sundry other sources of revenues such as ticket sales, team branded merchandise, etc many of which have yet to be demonstrated; and its performance is in the achievement of milestones - games it is yet to win. Does the initial valuation really matter today?
4. Team
If you have any doubts that a great team can do wonders, you only have to check out the Rajasthan Royals. It's a story of an inspired team that had self-belief and and a will to succeed. We're just midway in the season, but from where they've come it's entirely a story of team performance that worked like magic. Managerial incompetence, team friction, hubris, and a profligate culture were the preeminent traits at Boo.com, a high profile UK-based sports and high fashion online retailer that was hugely funded by LVMH and J.P. Morgan, and one that can be identified with several elite IPL teams that came with guns blazing but now languish at the bottom of the league table. A stark example of a dysfunctional team that just couldn't get its act together and lost valuable momentum occurred at Apple under the leadership of John Sculley. Silo-ed engineering, development, marketing, and communications led to rapid inability to manage product lines and confusion in the market. As confusion reigned, projects proliferated, many of them coming up with un-viable products, to a cycle of belt tightening and internal funds crunch and leading to ransacking projects among influential managers. Today's huge successes at Apple belie the death wish it had owing to severe team management problems in the late 1980s and 90s.
5. Leadership
The IPL is a great example to talk about leadership. Who *is* the leader in a franchise team? The owner or owners? The captain? The coach? The new-fangled CEO or manager? Even in these early days of the league's existence, the evidence appears stark. The teams that have worn its celebrity owners on its sleeves - think Vijay Mallya of Bangalore, the Ambanis of Mumbai, or Shah Rukh Khan of Kolkata - have had pitiable little to show for themselves, possibly arguing that real leadership has to come from elsewhere. On the contrary, Jaipur and Chennai have had its owners largely hidden, but sought to portray its leadership as originating with its players, especially the captain. Again, the leaders have been devoid of flamboyance and quietly gone about their business (unlike Mallya's hot sauce glamor on offer that hasn't done wonders). Leadership has been likened to an elephant that several blind people see different things in from their unique perspectives. While styles differ - autocratic, democratic, hands-off, participatory, etc - its larger characteristics lies actually in what is accomplished and how, and in that sense three things seem to matter: vision, accountability, and sensible management that fosters trust and empowerment. If you can say with conviction that SRK really holds the key to all three, you have your answer as to who the Kolkata team's real leader is. But, chances are, the arrow points someplace else. Both Autodesk and Adobe - strangely enough, founded the same year - exemplify the quiet quality of leadership that emphasizes focus, stability, vision, and steady management. These are exactly the characteristics that studies of hugely successful German SMEs that became leaders beyond compare in their chosen areas worldwide have revealed.
6. Technology
"Build it and they will come" is an oft-heard expression, and an idea that is quite well entrenched in tech companies. This view places a premium on the product or technology and gives short shrift to customer value or market propensity. The list of examples of tech-focused products that bombed in the market is numerous: the Apple Newton, Sony Betamax and eVilla, Segway, the Ford Edsel, New Coke, CueCat, and on and on. Corning tasted near bankruptcy with its ill-fated focus on optic fibers that completely misread the market. In recent years, TiVo (a digital video recorder) and SlingMedia's Slingbox are dangerously close to finding out if their ventures are of the "technology first" kind and its expected markets slipping away from its grasp. At the IPL, one may think of the "technology" as equivalent to the icon player. In a decision that fundamentally set expectations, it decreed that certain city teams would have "icons", who would be paid more, and be the fulcrum of the respective teams. Hence we had Tendulkar fronting for Mumbai; Ganguly for Kolkata; Singh for Punjab, and Dravid for Bangalore. This was a case of shooting oneself in the foot as the total price cap together with the premium required to be paid for icons meant the icon teams had little left over to bid aggressively with. Result? Chennai and Hyderabad made the most of it. But the larger context here is the focus on the "technology" that became the leitmotif for the teams supposedly fortunate enough to have the icon players. It set the stage for a "technology"-driven franchise venture that was expected to do the trick and when that bombed - as when Tendulkar could not join the team or Dravid failed at the crease - the teams were left scrambling to recover. Focusing on technology here meant reliance on individuals (a la single technology products), while focusing on the market would have highlighted the total team component, the need to jell, and bring a holistic dimension to how value could be delivered on the field. The difference was one of perspective: should the approach be from the outside in or inside out? The Mumbai Indians are still vainly hoping that their "technology" (Tendulakar's entry finally) would turn the tide around. The alternate perspective of where value has to be sought has been on display with the Royals.
7. Culture
Organizational culture has become synonymous with a type of management fad today. Pity. In a very real sense, the initial founding culture defines what the enterprise will be or how it will become what it sets out to be. Yesterday's match between Bangalore and Chennai was a lot about the cultures of the respective teams. One founded on glitz and glamor that flowed from a flamboyant owner and the sexy aura of being associated with some of the strongest Indian and foreign brands - think ubiquitous Kingfisher beer, luxury Kingfisher airlines, F1 motorsport, and the hipness of the Washington Redskins cheerleaders - while the other had, well, nothing much to trot out with the exception of Sivamani on the drums. It is not possible to say if culture can fundamentally define a venture's performance: Oracle's corporate culture under Ellison leaves no one in doubt about who calls the shots and who decides on where the company is headed (does any one even recall Miner or Oates who started out with Ellison?). Yet, it has been a success. The same can be said of Apple under Jobs. At the other extreme is Whole Foods with its almost libertarian culture or the contemporary ventures such as CraigsList and Wikipedia. Two examples I can think of in the Indian context are Sridhar Vembu's AdventNet that has almost zero attrition and a highly productive, innovative, workforce, and the Murugappa Group. As with Oracle and Whole Foods, Murugappa and Reliance represent opposite ends of the spectrum in organizational culture and both are extremely successful. So, while a particular organizational culture does not appear to predispose the likelihood of success, it can point to issues that may detract from a startup venture's initial focus and ability to perform. Bangalore probably suffers from the destructiveness of an aggressive cultural overhang that its players find difficult to dissociate from.
The ideas above may not find agreement with all, nor is it expected to. It merely lays out some rather common issues of entrepreneurship that we would confront and to frame these in such a way that a young venture is able to see the larger context of decisions it or its founders may make. As I set out on my own venture, some of these issues are front-and-center for me: should I seek funding now (I have decided not yet); what is my product? how do I aim to demonstrate value?; how should I create a culture of creativity and innovation? and so on.
-------------------------------------------------------
LESSONS FROM IPL
Posted with permission from the editors of BusinessGyan
Published: June 2008
I have been keenly watching the IPL matches - for the cricket, of course, but interestingly also for the learnings that come across, embedded for all of us entrepreneurs to mull over. Here are my observations and I hope it sparks off some debate!
1. What's the Product?
The Indian Premier League started off, I thought, without a clear idea of what the product was all about. Was it about cricket? Entertainment? New masala medium to spike the TV ratings for some privileged channels? New line of business for jaded conglomerates? A radical form of sports entertainment never tried out in the country? Vijay Mallya was asked about this on TV on Day 1 and responded by saying "let them play cricket, we will give the entertainment!" A case of dissonance between the investor and management? So, what was this new venture all about? Who was the target market and what was the business model? This confusion has beset ventures of all kinds, including established businesses who ought to know better. In the 1990s, Xerox woke up to the reality of shrinking markets, threat to its core high margin enterprise xerographic systems, and an inability to articulate what it stood for - great products or a service-oriented IBM-style lease business. In the same decade, Mazda Motor Company had identity pangs, especially in the North American market. Was it sporty niche cars anchored by the RX series with the Wenkel engine? Was it small sedans for the starter pack? How did it wish to differentiate itself from the rest who had a bigger line up and production volumes? Dunkin Donut was not spared either: its great coffee drew the crowds into its coffee shops and there was enough data to prove that, but it sought for a while to push its other wares to make a statement that it was more than just coffee. But coffee got the crowd in who bought the rest anyway. It sells more coffee than donuts. So where was the beef? I happened to be living in the Valley when Borders (of Borders Bookstore) founded Webvan, a venture that was funded $450 million for its celebrity founder and the strength of its idea. Webvan spent the next couple years rapidly running down its funding without a clue as to what it was really about, investing in pricey, designer vans and highly automated warehouses to supply its yuppie customers - placing a $1 billion order, for example, with Bechtel to create its robotic warehouses. Ironically, a few years later, I found myself living in Skokie, Illinois (north of Chicago), which was the home of Peapod, a venture that had a similar business model to Webvan and with a clearer perspective of what it wanted to be. Peapod still exists; Webvan is long gone.
2. Hype & Reality
Tremendous hype has surrounded this league. It's a paradigm shift; no, it's a game changer. It's gonna revolutionize the game of cricket, become the fulcrum of the game. Sounds rather suspiciously like the hype in the late 90s when the Internet went commercial. In 2000 Victoria's Secret scored more than 2 million unique visits for its webcast fashion show live from Cannes, France. Page views for most merchants skyrocketed and new software and hardware arrived on the market at a rate that outstripped the ability to install it. In 1999, average spend on customer acquisition by online retailers in the US was about $150, with some spending as much as $600, compared to $12 for the average offline retailer. The absurdity is evident when you note that online revenues that year for the average online retailer was less than $65 per customer. A BCG study put this in perspective: the online retailers spent 58% on customer acquisition, 31% on brand awareness, and 11% on customer retention - in other words, about $70 on acquisition, $40 for brand, and $13 for retention on average. Based on the hype, VC funding for ecommerce ventures shot through the roof - from $7 billion in 1998 to $32 billion in 1999 and $15 billion in the first quarter of 2000. Yet, by the start of 2001, most major players had become e-liquidators! The Industry Standard that year listed over 80 companies, many of them erstwhile high profile names, that had ceased operations in just 12 months. Hype has a tendency to be its own worst enemy and the jury is out if the IPL can afford to peddle hype that has little connection to reality.
3. Valuation
There is a reason for all the hype - valuation. The Mumbai franchise was much touted in the media as being the most valuable. By whom? On what terms? With what reckoning? A huge conglomerate had bought out the team for the highest bid and it had an icon player and the assumption was the team was the most valuable! Does valuation matter? For a startup, valuation is purely notional; an arbitrary number arrived to decide on investment and dilution. Real valuation comes when the venture has something to show - products that are perceived to have value in the market and begets revenues. Until then, the valuation game is a king's feast no one - especially the entrepreneur - can afford. What's the valuation today of the Mumbai team? You tell me. Performance gets the valuation, not the numbers cooked up before the venture has a story to tell. Pre-money valuation is all about the stage of development of a venture - ie, principally existence of revenues, expense, and a sound management team. For the Mumbai franchise, its "management" is its 11 players on the team; its revenues are the ratings-driven property value for its TV games, in-stadia advertisements, and sundry other sources of revenues such as ticket sales, team branded merchandise, etc many of which have yet to be demonstrated; and its performance is in the achievement of milestones - games it is yet to win. Does the initial valuation really matter today?
4. Team
If you have any doubts that a great team can do wonders, you only have to check out the Rajasthan Royals. It's a story of an inspired team that had self-belief and and a will to succeed. We're just midway in the season, but from where they've come it's entirely a story of team performance that worked like magic. Managerial incompetence, team friction, hubris, and a profligate culture were the preeminent traits at Boo.com, a high profile UK-based sports and high fashion online retailer that was hugely funded by LVMH and J.P. Morgan, and one that can be identified with several elite IPL teams that came with guns blazing but now languish at the bottom of the league table. A stark example of a dysfunctional team that just couldn't get its act together and lost valuable momentum occurred at Apple under the leadership of John Sculley. Silo-ed engineering, development, marketing, and communications led to rapid inability to manage product lines and confusion in the market. As confusion reigned, projects proliferated, many of them coming up with un-viable products, to a cycle of belt tightening and internal funds crunch and leading to ransacking projects among influential managers. Today's huge successes at Apple belie the death wish it had owing to severe team management problems in the late 1980s and 90s.
5. Leadership
The IPL is a great example to talk about leadership. Who *is* the leader in a franchise team? The owner or owners? The captain? The coach? The new-fangled CEO or manager? Even in these early days of the league's existence, the evidence appears stark. The teams that have worn its celebrity owners on its sleeves - think Vijay Mallya of Bangalore, the Ambanis of Mumbai, or Shah Rukh Khan of Kolkata - have had pitiable little to show for themselves, possibly arguing that real leadership has to come from elsewhere. On the contrary, Jaipur and Chennai have had its owners largely hidden, but sought to portray its leadership as originating with its players, especially the captain. Again, the leaders have been devoid of flamboyance and quietly gone about their business (unlike Mallya's hot sauce glamor on offer that hasn't done wonders). Leadership has been likened to an elephant that several blind people see different things in from their unique perspectives. While styles differ - autocratic, democratic, hands-off, participatory, etc - its larger characteristics lies actually in what is accomplished and how, and in that sense three things seem to matter: vision, accountability, and sensible management that fosters trust and empowerment. If you can say with conviction that SRK really holds the key to all three, you have your answer as to who the Kolkata team's real leader is. But, chances are, the arrow points someplace else. Both Autodesk and Adobe - strangely enough, founded the same year - exemplify the quiet quality of leadership that emphasizes focus, stability, vision, and steady management. These are exactly the characteristics that studies of hugely successful German SMEs that became leaders beyond compare in their chosen areas worldwide have revealed.
6. Technology
"Build it and they will come" is an oft-heard expression, and an idea that is quite well entrenched in tech companies. This view places a premium on the product or technology and gives short shrift to customer value or market propensity. The list of examples of tech-focused products that bombed in the market is numerous: the Apple Newton, Sony Betamax and eVilla, Segway, the Ford Edsel, New Coke, CueCat, and on and on. Corning tasted near bankruptcy with its ill-fated focus on optic fibers that completely misread the market. In recent years, TiVo (a digital video recorder) and SlingMedia's Slingbox are dangerously close to finding out if their ventures are of the "technology first" kind and its expected markets slipping away from its grasp. At the IPL, one may think of the "technology" as equivalent to the icon player. In a decision that fundamentally set expectations, it decreed that certain city teams would have "icons", who would be paid more, and be the fulcrum of the respective teams. Hence we had Tendulkar fronting for Mumbai; Ganguly for Kolkata; Singh for Punjab, and Dravid for Bangalore. This was a case of shooting oneself in the foot as the total price cap together with the premium required to be paid for icons meant the icon teams had little left over to bid aggressively with. Result? Chennai and Hyderabad made the most of it. But the larger context here is the focus on the "technology" that became the leitmotif for the teams supposedly fortunate enough to have the icon players. It set the stage for a "technology"-driven franchise venture that was expected to do the trick and when that bombed - as when Tendulkar could not join the team or Dravid failed at the crease - the teams were left scrambling to recover. Focusing on technology here meant reliance on individuals (a la single technology products), while focusing on the market would have highlighted the total team component, the need to jell, and bring a holistic dimension to how value could be delivered on the field. The difference was one of perspective: should the approach be from the outside in or inside out? The Mumbai Indians are still vainly hoping that their "technology" (Tendulakar's entry finally) would turn the tide around. The alternate perspective of where value has to be sought has been on display with the Royals.
7. Culture
Organizational culture has become synonymous with a type of management fad today. Pity. In a very real sense, the initial founding culture defines what the enterprise will be or how it will become what it sets out to be. Yesterday's match between Bangalore and Chennai was a lot about the cultures of the respective teams. One founded on glitz and glamor that flowed from a flamboyant owner and the sexy aura of being associated with some of the strongest Indian and foreign brands - think ubiquitous Kingfisher beer, luxury Kingfisher airlines, F1 motorsport, and the hipness of the Washington Redskins cheerleaders - while the other had, well, nothing much to trot out with the exception of Sivamani on the drums. It is not possible to say if culture can fundamentally define a venture's performance: Oracle's corporate culture under Ellison leaves no one in doubt about who calls the shots and who decides on where the company is headed (does any one even recall Miner or Oates who started out with Ellison?). Yet, it has been a success. The same can be said of Apple under Jobs. At the other extreme is Whole Foods with its almost libertarian culture or the contemporary ventures such as CraigsList and Wikipedia. Two examples I can think of in the Indian context are Sridhar Vembu's AdventNet that has almost zero attrition and a highly productive, innovative, workforce, and the Murugappa Group. As with Oracle and Whole Foods, Murugappa and Reliance represent opposite ends of the spectrum in organizational culture and both are extremely successful. So, while a particular organizational culture does not appear to predispose the likelihood of success, it can point to issues that may detract from a startup venture's initial focus and ability to perform. Bangalore probably suffers from the destructiveness of an aggressive cultural overhang that its players find difficult to dissociate from.
The ideas above may not find agreement with all, nor is it expected to. It merely lays out some rather common issues of entrepreneurship that we would confront and to frame these in such a way that a young venture is able to see the larger context of decisions it or its founders may make. As I set out on my own venture, some of these issues are front-and-center for me: should I seek funding now (I have decided not yet); what is my product? how do I aim to demonstrate value?; how should I create a culture of creativity and innovation? and so on.
Wednesday, April 30, 2008
Different strokes in organized retail
Two recent news items in the Business Standard within days of each other reveal an interesting divergence in outcomes in the same sector: organized retail in India.
On April 28, a front page story discussed the growing pains of organized pharmacy retail while today's article on consumer electronics paints a contrasting, rosy, picture. Two sectors pursuing the same concept in a nascent market yet displaying highly contrasting performance. Why the difference?
Both sectors are marked by fragmentation and the presence of owner-owned single stores - electronic shops on the one hand and standalone pharmacies on the other. Into this mileu have stepped in big money retail such as Croma (Tata), Reliance Digital, Next, and e-zone in consumer electronics and Fortis Healthworld, MedPlus, Lifeken, and Medicine Shoppe in pharmacy retail. In both cases, the focus of these new entrants have been the metros. While the former are said to be growing at 40% year on year, the latter is said to be shrinking, many of them shelving plans to expand. Some of the organized pharmacy retail groups now also speak of expanding into rural areas, something definitely not on the radar for the consumer electronics giants.
If the basic fundamentals propelling organized retail are the same - ie, better and bigger choice, attractive pricing, shopping ambience, and assurance - why are we seeing different outcomes? Pharmacy chains point to high lease cost in the metros and that may be part of the story as the average size of these new outlets are still quite small - about 500 to 750 sq feet compared to between 15,000 and 25,000 sq feet in the case of electronics. Furthermore, the average unit price of products sold pales in comparison to that sold at the electronics stores. But, arguably, the margins are much better. More importantly, pharmacy chains have an advantage that other retail chains do not have: they deal in healthcare, a non-seasonal and inflation-proof market. That would indicate there is great scope to engage the customer and forge long-term relationships that would outweigh low unit cost purchases. Besides, they have the opportunity to innovate on the retail front and go beyond peddling prescription medicine.
When the overall healthcare market in the country is stated to be growing at about 13-15% annually there is just no reason to believe organized pharmacy cannot hold its own and, in fact, grow with the market. There are too many inconveniences, absurdities, and downright questionable practices at standalone pharmacies that organized chains could easily exploit and make an impression with customers.
On April 28, a front page story discussed the growing pains of organized pharmacy retail while today's article on consumer electronics paints a contrasting, rosy, picture. Two sectors pursuing the same concept in a nascent market yet displaying highly contrasting performance. Why the difference?
Both sectors are marked by fragmentation and the presence of owner-owned single stores - electronic shops on the one hand and standalone pharmacies on the other. Into this mileu have stepped in big money retail such as Croma (Tata), Reliance Digital, Next, and e-zone in consumer electronics and Fortis Healthworld, MedPlus, Lifeken, and Medicine Shoppe in pharmacy retail. In both cases, the focus of these new entrants have been the metros. While the former are said to be growing at 40% year on year, the latter is said to be shrinking, many of them shelving plans to expand. Some of the organized pharmacy retail groups now also speak of expanding into rural areas, something definitely not on the radar for the consumer electronics giants.
If the basic fundamentals propelling organized retail are the same - ie, better and bigger choice, attractive pricing, shopping ambience, and assurance - why are we seeing different outcomes? Pharmacy chains point to high lease cost in the metros and that may be part of the story as the average size of these new outlets are still quite small - about 500 to 750 sq feet compared to between 15,000 and 25,000 sq feet in the case of electronics. Furthermore, the average unit price of products sold pales in comparison to that sold at the electronics stores. But, arguably, the margins are much better. More importantly, pharmacy chains have an advantage that other retail chains do not have: they deal in healthcare, a non-seasonal and inflation-proof market. That would indicate there is great scope to engage the customer and forge long-term relationships that would outweigh low unit cost purchases. Besides, they have the opportunity to innovate on the retail front and go beyond peddling prescription medicine.
When the overall healthcare market in the country is stated to be growing at about 13-15% annually there is just no reason to believe organized pharmacy cannot hold its own and, in fact, grow with the market. There are too many inconveniences, absurdities, and downright questionable practices at standalone pharmacies that organized chains could easily exploit and make an impression with customers.
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