Every conference, every entrepreneur meeting, jam session, or talkathon I have attended in recent years has this buzz - call it hype - around the word "innovation". Whether hands-on geeks or wide-eyed entrepreneurs, they all appear to be completely taken up by this, even as the air is thick with the latest management jargon, the latest "killer app", the Apple iPad, and the noise from across the Potomac on "chop shops" taking away jobs from the Good Ol' US of A (as for the latter, our own IT giants are now speaking of "innovating" out of the crisis). So are we right in pinning our hopes on innovation or are we barking up the wrong tree?
On a seemingly unrelated matter, the airwaves have been filled, these past couple of months, with our national mediocrity - not to speak of shame - on display in the preparations - or lack thereof - for the Commonwealth Games. At this point in our collective, nationalist, angst, we are even prepared to excuse the unimaginable scale of corruption and inflated prices to rent chairs and treadmills - if we could be assured, nay, guaranteed, that the nation works with clockwork efficiency, accuracy, precision, and delivers the highest quality. Vain hope? Perhaps. But it does point to one incontrovertible fact: we are a nation that holds "chalta hai" as our national anthem, our national mantra. Satyameva jayate? Let's get real; I suggest we replace this hypocritical exhortation with one that is more contemporary, more real, more universally accepted - chalta hai.
In an article I had written about a couple years ago in these columns ("The Attitude of Chalta Hai", BG, October 2008), I had said this one phrase showcases our national identity. It can be variously interpreted to mean it's ok, let it go, or plain indifference. Whatever meaning we accord to the cultural slang, it does expose our comfort with the status quo and our lack of concern. It does not matter if the topic is corruption in high places, nepotism in India Inc., a preference for "adjustment" and fixes, rewarding mediocrity in place of meritocracy...the list goes on and on. But that's short sighted; it does matter. For not only do we reveal ourselves as a nation that does not respect excellence in whatever we do, it stamps us unequivocally as a nation of also rans. We have ourselves to blame. Don't look at history, at colonialism, at perceived slights over hundreds of years, at our ethnic, class, caste, and language differences. Those are excuses.
Which brings me to the crux of this article framed by the title. Should we as a people place importance on achieving excellence or be in perennial pursuit of a nebulous concept that innovation really is? What is it about innovation that excites so many? Do we have much evidence, across this large landmass, of innovation that is hugely visible and has impacted many? Not too long ago, Swaminathan Anklesaria Aiyar wrote glowingly about "jugaad" in his Sunday column in the Times of India. There was a rejoinder some days later by Swapan Das Gupta (incidentally, I admire both writers) in his own column who asked if the humble housewife's attempts to recycle the metal foil on milk bottles to scrub utensils was what jugaad was all about and should we be satisfied with this "innovation"? If his example sounded a bit crass, I think he had a point. Das Gupta went on to say that jugaad was nothing but "attempts to reinvent the wheel with the help of carpentry tools". So much for native innovation.
But the real question is should we expend much energy in pursuing or celebrating indigenous innovation when what the country really needs is a kick in its backside to shake it out of its philosophy of mediocrity and aversion to excellence. Excellence, I humbly submit, is the need of the hour, not innovation. Our inability to embrace excellence means we will perennially be behind the great powers in how we address issues, the kind of expectations we put on ourselves, the manner by which we institute systems and procedures, and our willingness to walk the talk, honestly evaluate the results, and respect our institutions. Let's not kid ourselves: when Apple gets its great products made in mainland China by Foxconn, it is not looking at the latter for innovations. It is looking for excellence. And if we desire to be the "factory to the world" that graduates from exporting iron ore to making and exporting high technology products, excellence is the thing that would get us there. It is not that the world does not expect innovations from us, but we ourselves would be every bit challenged in our quest for true innovation that shakes us and the world - because we did not get the fundamentals right.
Excellence and innovation are two sides of a coin. In today's extremely complex world, to expect an Edison-like creativity from the lab is being unrealistic. Even Edison did not achieve every innovation attributed to him by himself; behind him was a dream lab comprising very hard working, intelligent, experimental, methodical, men and women. Excellence in whatever we do gives us confidence to set our sights higher, to aim for the unreachable, and be confident that we have the ability to do it. Innovation flowers in the rich soil of genuine excellence as shown by many a great organization throughout the world - GE, P&G, 3M, Apple, Sony, Porsche, Heidelberg, Disney, et al.
Some skeptical minds may retort that the IIT JEE and the IIM CAT are Indian examples of excellence. We could debate the point, but it is more likely they are examples of effort required and to master a process with a temporal perspective. But they do reflect a standardization of process and standardization is generally a requirement for excellence. This might again appear contradictory: if excellence requires standardization and innovation is "creative experimentation", they are at odds, aren't they? The flaw in this is to assume innovations are inherently creative; much modern research tend to show that innovations are as subject to method and process as any other. The idea that innovations are all the work of a creative genius has largely been discredited.
Thursday, September 30, 2010
Friday, March 12, 2010
Retail Detail: Ethnic Chic
Intra-industry Growth: Why the Difference?
Two recent conversations with senior executives at similar, but different retailers, brought up an interesting discovery. These two companies, in the traditional sari retailing business, are both well known and their brands well received in the market, especially in south India. A visit to their several retail outlets in Chennai and other cities present a picture of energy, activity, and growth - at any time of the year. The contrast is with the "modern" apparel retail showrooms selling readymade western garments.
The flurry of business got me talking - on two separate visits to their respective flagship showrooms - with the executives. It was obvious, seeing the crush of customers, the cost of purchases, and the wide variety (in designs, price points, fabric, etc) that traditional apparel retail was holding its own, even succeeding where modern made-to-wear was struggling. Both executives exuded optimism and confidence in their company's performance - about 30% annual sales growth and relative price stability (one of these chats was pre-Diwali and sales for which were yet to happen). Not for them the race to the bottom with endless discounts and two-for-one or two-for-three offers.The vicious circle that characterize Main Street modern chain store retail selling mostly western wear is conspicuous by its absence in retail stores selling traditional wear, especially saris, salwars, and kurtis of all types.
How is it that traditional apparel retail is traipsing along in these ostensibly hard times while western wear retail is caught in a serious bind? One does not have to look hard to discern serious underlying problems; the customer has the market virtually eating out of his or her hands. An article in Business World some time ago said higher unit sales have not resulted in greater absolute value of sales. Payment cycles have expanded, theoretically to 90 days (though there are cases of retailers delaying payments to vendors by as much as two years). Margins are wafer thin. A recent chat with a vendor from Tirupur showed how deep the problem was - a Rs.10 crore company, his firm had not been paid for 11 months for goods supplied and this was reverberating downstream to all suppliers.
It's not as if the traditional wear retailers have it any easier: they incur the same expensive lease for metropolitan locations, advertising and brand-building costs, uneven demand and supply, and need to accommodate to sharply changing tastes and fashion. To some extent, they benefit from regional focus that allows them to narrowcast and finetune, but that argument could be equally turned around - they have less economies of scale to work with as their procurement cannot be spread over a nationwide market.
Most, if not all, traditional wear retailers are tightly held and family-controlled while many of the emerging nationally branded chain stores selling western wear are externally funded and some publicly listed. So numbers for the former are harder to come by and we do not know the details of their cash cycle, working capital, contribution, and the like. Estimates put the number of total retail transactions at over 90 billion a year, which includes retail of all kinds. The total value of retail spending by 2010 or 2012 is forecast at between USD 500 and USD 550 billion (the current value is put at about USD 400 billion). Furthermore, according to the McKinsey Global Institute, apparel retail in 2005 accounted for 6% of total consumption. Included in this consumption basket were food & beverage, transportation, healthcare, housing & utilities, education & recreation, communication, and household products. If one restricts the list only to tangible retail consumption, the apparel market has a larger slice of the market.
It is worth noting that traditional retail has a much larger variety than western wear - while the latter, for any particular wear, has a handful of types by fabric type, a dozen different types in terms of fashion, and a possibly larger selection in terms of color the sari industry by contrast is enormously complex. Complexity, volumes, fabric and design choices, SKU sizes, and relatively unorganized and small scale procurement sources must clearly tell upon inventory holding of finished goods at these retailers. Not for them the option of taking on consignment or return to vendor for disposal in the surplus and rejects markets. These vendors are either company-owned suppliers or small cottage units.
So it's worth pondering why traditional apparel retail with all the obvious disadvantages, in the light of modern management theory, is able to trounce modern western wear retailers in performance. Could it be that relative price inelasticity of the former comes from core constituencies whose demand never wavers? Or is there some other factor at work such as better demand matching, just-in-time product introductions with very short market response-to-design rework, more firmly grounded customer relationships being fostered, or simply better management of inventory and cost? We may never know; but any curious layperson can see the difference: traditional retail is thriving even as modern retail finds itself in a tailspin of self-inflicted injuries. In such circumstances, value is what value does - and the consumer sees only the rebates, offers, discounts, and ever more attractive prices. It would be very interesting indeed to see how the market values a traditional retailer, such as Nalli's, if it were ever to list itself.
Two recent conversations with senior executives at similar, but different retailers, brought up an interesting discovery. These two companies, in the traditional sari retailing business, are both well known and their brands well received in the market, especially in south India. A visit to their several retail outlets in Chennai and other cities present a picture of energy, activity, and growth - at any time of the year. The contrast is with the "modern" apparel retail showrooms selling readymade western garments.
The flurry of business got me talking - on two separate visits to their respective flagship showrooms - with the executives. It was obvious, seeing the crush of customers, the cost of purchases, and the wide variety (in designs, price points, fabric, etc) that traditional apparel retail was holding its own, even succeeding where modern made-to-wear was struggling. Both executives exuded optimism and confidence in their company's performance - about 30% annual sales growth and relative price stability (one of these chats was pre-Diwali and sales for which were yet to happen). Not for them the race to the bottom with endless discounts and two-for-one or two-for-three offers.The vicious circle that characterize Main Street modern chain store retail selling mostly western wear is conspicuous by its absence in retail stores selling traditional wear, especially saris, salwars, and kurtis of all types.
How is it that traditional apparel retail is traipsing along in these ostensibly hard times while western wear retail is caught in a serious bind? One does not have to look hard to discern serious underlying problems; the customer has the market virtually eating out of his or her hands. An article in Business World some time ago said higher unit sales have not resulted in greater absolute value of sales. Payment cycles have expanded, theoretically to 90 days (though there are cases of retailers delaying payments to vendors by as much as two years). Margins are wafer thin. A recent chat with a vendor from Tirupur showed how deep the problem was - a Rs.10 crore company, his firm had not been paid for 11 months for goods supplied and this was reverberating downstream to all suppliers.
It's not as if the traditional wear retailers have it any easier: they incur the same expensive lease for metropolitan locations, advertising and brand-building costs, uneven demand and supply, and need to accommodate to sharply changing tastes and fashion. To some extent, they benefit from regional focus that allows them to narrowcast and finetune, but that argument could be equally turned around - they have less economies of scale to work with as their procurement cannot be spread over a nationwide market.
Most, if not all, traditional wear retailers are tightly held and family-controlled while many of the emerging nationally branded chain stores selling western wear are externally funded and some publicly listed. So numbers for the former are harder to come by and we do not know the details of their cash cycle, working capital, contribution, and the like. Estimates put the number of total retail transactions at over 90 billion a year, which includes retail of all kinds. The total value of retail spending by 2010 or 2012 is forecast at between USD 500 and USD 550 billion (the current value is put at about USD 400 billion). Furthermore, according to the McKinsey Global Institute, apparel retail in 2005 accounted for 6% of total consumption. Included in this consumption basket were food & beverage, transportation, healthcare, housing & utilities, education & recreation, communication, and household products. If one restricts the list only to tangible retail consumption, the apparel market has a larger slice of the market.
It is worth noting that traditional retail has a much larger variety than western wear - while the latter, for any particular wear, has a handful of types by fabric type, a dozen different types in terms of fashion, and a possibly larger selection in terms of color the sari industry by contrast is enormously complex. Complexity, volumes, fabric and design choices, SKU sizes, and relatively unorganized and small scale procurement sources must clearly tell upon inventory holding of finished goods at these retailers. Not for them the option of taking on consignment or return to vendor for disposal in the surplus and rejects markets. These vendors are either company-owned suppliers or small cottage units.
So it's worth pondering why traditional apparel retail with all the obvious disadvantages, in the light of modern management theory, is able to trounce modern western wear retailers in performance. Could it be that relative price inelasticity of the former comes from core constituencies whose demand never wavers? Or is there some other factor at work such as better demand matching, just-in-time product introductions with very short market response-to-design rework, more firmly grounded customer relationships being fostered, or simply better management of inventory and cost? We may never know; but any curious layperson can see the difference: traditional retail is thriving even as modern retail finds itself in a tailspin of self-inflicted injuries. In such circumstances, value is what value does - and the consumer sees only the rebates, offers, discounts, and ever more attractive prices. It would be very interesting indeed to see how the market values a traditional retailer, such as Nalli's, if it were ever to list itself.
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