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.
Wednesday, January 28, 2009
Wednesday, January 14, 2009
The Attitude of "chalta hai"
Managers at enlightened organizations may often find themselves partial to Porter's five forces model or the BCG four-quadrant matrix (as strategic positioning tools), the resource-based view, balanced scorecard, core competence, or other frameworks as the ideal strategy methodology. The idea of strategy, though, is perhaps far simpler and commonsensical: it is simply a matter of attitude, insights, and method. The acronym thus formed - AIM - is also at once symptomatic of what strategy intends: it aims to secure a differentiation by directing an attitude of "can do" to develop critical insights and rooting it in method that delivers sustainable advantage. It is in the method that various schools of thought differ.
If every nation may be said to have a spirit that showcases its identity, ours must surely be one of "chalta hai" (everything goes). Indeed, this Hindi phrase can be found in most of our languages and used frequently: in Kannada it's "solpa adjust madi" (please adjust), in Tamil it's "athulam kandukathangai, sir" (don't let these worry you), and so on. The point is, we have internalized an attitude of taking things in our stride, to not make a fuss, and to tolerate inefficiency, waste, and poor quality. Such a national attitude has its repercussions when the minority voice seeking a better product or service becomes the aberrant voice and a "troublemaker". More importantly, products and service delivery have lower thresholds and perpetuate the cycle of poor quality and low expectations. Thus an attitude of acceptance of decreased expectations prevents us from constantly seeking solutions and innovating on them. This may seem harsh but the evidence is all around us. Certain sectors in recent years have attempted to break free of self-imposed limitations, notably where competition is high and any vestige of old style thinking likely to meet resistance from newly empowered customers. We can think of banking and retail in this connection. But a competitive marketplace cannot by itself ensure innovations or better service because high growth and high volumes have their own logic that sometimes run counter to marketplace economics. The telecom industry is a good example.
Customers begin to have higher expectations only when they have been exposed to superior products and services. This is a slow process because it requires an oddball organization to stand up and demonstrate that things could be better, and the results for itself are not always positive. In the 1960s in Tamil Nadu, TVS ran an extensive moffusil bus service whose standards of quality and on-time performance has not been bettered to this day by the airline industry, let alone passenger road transport. In our Nehruvian enthusiasm to embrace the "commanding heights of the economy" passenger road transport in state after state was nationalized as with many other sectors. In the 21st century, we still don't have any where close to the benchmarks set by the likes of Tata-owned Air India or TVS with its bus services in the mid-20th century. So the question: there was a generation that was exposed to high standards of delivery, even if only in pockets; what happened? The fact is, expectations can be systematically destroyed and a whole nation forced to accept lower standards of living when a national psyche is framed by an attitude of chalta hai. Our singular national achievement perhaps was in forsaking our very own emergent diamonds in the rough and substitute them with a self-destructive malaise of indifference.
An attitude of complacence and low standards fostered by the political and bureaucratic class is one thing. What can one say of the private sector, now unleashed and rearing to go places? A like attitude prevails in most organizations and it requires the will and persistence of promoters and senior management to change this all down the line. Permit me to cite two examples of the same organization that display contrasting conduct. At the Chennai regional head office of the State Bank of India, the imposing building mostly houses HQ staff. The building also has an adjunct that has one ATM (note, one ATM, when the property is arguably in Chennai's most valuable central business district with a large hospital next door!) and a retail banking branch. The ATM is often non-functional while my experience with the branch to transact some business was less-than-satisfactory - at 2:30 PM (still open hours for customers), the office was deserted with just one teller busy talking with a colleague while six customers waited. The manager was nowhere in sight. Are all SBI branches equally indifferent? My branch in south Chennai stands at the opposite end of the spectrum. It is neat, well ordered, efficient, courteous and friendly. In the former, the attitude of chalta hai prevails while the local branch management in the latter have obviously overcome it.
Attitude is important because it inhibits or fosters the next step on the path to securing strategic advantage: insight. Innovative companies require both attitude and insight before they can begin to focus on the prescriptives that management gurus often dole out. When these are missing - as they often are - strategic initiatives flounder on the rocks of internal confusion, absence of passion behind a goal, oneupmanship, and forces that work at cross-purposes. And these happen despite senior management commitment to innovation, quality, low cost, customer focus, and other lofty ideas seeking to reposition the organization. So where does that leave an organization that is keen to stand tall and lead in its chosen market? Lost in the buzzwords such as market share, margin, growth, positioning, and competitive advantage is the simple idea that, just as with individuals, companies too need - nay, require - a bedrock of positive attitude, self belief, and confidence. Long before the suits get down to the task of strategic initiatives and reorgs perhaps management might want to think about how to percolate positive vibes and a can do spirit. For that to happen, listen to the hard working but voiceless majority who watch helplessly as a minority that is deeply entrenched at all levels of an organization run the roost. This is the cabal that has perfected self interest, feathered its own nest, has constructed islands of groupism, and promotes fear through a perception of reflected power. Any management that is really intent on a makeover can win the war of attitude only when it destroys this festering cancer. The majority will then be behind it all the way.
If every nation may be said to have a spirit that showcases its identity, ours must surely be one of "chalta hai" (everything goes). Indeed, this Hindi phrase can be found in most of our languages and used frequently: in Kannada it's "solpa adjust madi" (please adjust), in Tamil it's "athulam kandukathangai, sir" (don't let these worry you), and so on. The point is, we have internalized an attitude of taking things in our stride, to not make a fuss, and to tolerate inefficiency, waste, and poor quality. Such a national attitude has its repercussions when the minority voice seeking a better product or service becomes the aberrant voice and a "troublemaker". More importantly, products and service delivery have lower thresholds and perpetuate the cycle of poor quality and low expectations. Thus an attitude of acceptance of decreased expectations prevents us from constantly seeking solutions and innovating on them. This may seem harsh but the evidence is all around us. Certain sectors in recent years have attempted to break free of self-imposed limitations, notably where competition is high and any vestige of old style thinking likely to meet resistance from newly empowered customers. We can think of banking and retail in this connection. But a competitive marketplace cannot by itself ensure innovations or better service because high growth and high volumes have their own logic that sometimes run counter to marketplace economics. The telecom industry is a good example.
Customers begin to have higher expectations only when they have been exposed to superior products and services. This is a slow process because it requires an oddball organization to stand up and demonstrate that things could be better, and the results for itself are not always positive. In the 1960s in Tamil Nadu, TVS ran an extensive moffusil bus service whose standards of quality and on-time performance has not been bettered to this day by the airline industry, let alone passenger road transport. In our Nehruvian enthusiasm to embrace the "commanding heights of the economy" passenger road transport in state after state was nationalized as with many other sectors. In the 21st century, we still don't have any where close to the benchmarks set by the likes of Tata-owned Air India or TVS with its bus services in the mid-20th century. So the question: there was a generation that was exposed to high standards of delivery, even if only in pockets; what happened? The fact is, expectations can be systematically destroyed and a whole nation forced to accept lower standards of living when a national psyche is framed by an attitude of chalta hai. Our singular national achievement perhaps was in forsaking our very own emergent diamonds in the rough and substitute them with a self-destructive malaise of indifference.
An attitude of complacence and low standards fostered by the political and bureaucratic class is one thing. What can one say of the private sector, now unleashed and rearing to go places? A like attitude prevails in most organizations and it requires the will and persistence of promoters and senior management to change this all down the line. Permit me to cite two examples of the same organization that display contrasting conduct. At the Chennai regional head office of the State Bank of India, the imposing building mostly houses HQ staff. The building also has an adjunct that has one ATM (note, one ATM, when the property is arguably in Chennai's most valuable central business district with a large hospital next door!) and a retail banking branch. The ATM is often non-functional while my experience with the branch to transact some business was less-than-satisfactory - at 2:30 PM (still open hours for customers), the office was deserted with just one teller busy talking with a colleague while six customers waited. The manager was nowhere in sight. Are all SBI branches equally indifferent? My branch in south Chennai stands at the opposite end of the spectrum. It is neat, well ordered, efficient, courteous and friendly. In the former, the attitude of chalta hai prevails while the local branch management in the latter have obviously overcome it.
Attitude is important because it inhibits or fosters the next step on the path to securing strategic advantage: insight. Innovative companies require both attitude and insight before they can begin to focus on the prescriptives that management gurus often dole out. When these are missing - as they often are - strategic initiatives flounder on the rocks of internal confusion, absence of passion behind a goal, oneupmanship, and forces that work at cross-purposes. And these happen despite senior management commitment to innovation, quality, low cost, customer focus, and other lofty ideas seeking to reposition the organization. So where does that leave an organization that is keen to stand tall and lead in its chosen market? Lost in the buzzwords such as market share, margin, growth, positioning, and competitive advantage is the simple idea that, just as with individuals, companies too need - nay, require - a bedrock of positive attitude, self belief, and confidence. Long before the suits get down to the task of strategic initiatives and reorgs perhaps management might want to think about how to percolate positive vibes and a can do spirit. For that to happen, listen to the hard working but voiceless majority who watch helplessly as a minority that is deeply entrenched at all levels of an organization run the roost. This is the cabal that has perfected self interest, feathered its own nest, has constructed islands of groupism, and promotes fear through a perception of reflected power. Any management that is really intent on a makeover can win the war of attitude only when it destroys this festering cancer. The majority will then be behind it all the way.
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