Saturday, August 16, 2014

Delivering Breakthrough Innovation: Selecting customers for feedback and launch

The series of posts on "Delivering Breakthrough Innovation" are based on my experience. And in this post, I would like to talk about the challenge one finds in the marketplace when introducing innovative products/services. 

If you believe that overcoming organisation's internal skepticism & resistance for a breakthrough idea is all it takes to introduce an innovation in market. Wait, till you step in the market! One would find that the internal skepticism also reflects in external world. This shouldn't come as a surprise, because internal industry and market experts have the same mental map as the customers. And hence, they mirror the customer behavior and expectations. 

Customers too are engrossed in their day to day operations and would not imagine something disruptive in their way of working. In a B2B scenario, the customer like any another company, would have their silos, with each functional head expecting incremental improvements in their areas. Hence, level of internal resistance can be a good indicator of resistance to be expected in marketplace. 

So, one needs to be realist and not expect their innovative product/service to be an instant hit in market. At the same time, one should not get discouraged due to initial skepticism and kill the idea prematurely. Following are the pitfalls to be avoided when going to market:

___The management will insist on early feedback from customers before further investment in the idea. But all customers are not alike. Some are conservative and others are progressive, commonly know as 'Early Adopters' and 'Laggards'.
  • If progressive customers are known, feedback should be taken from them. 
  • If progressive customers are not identifiable, then customer feedback should come from a reasonable sample size. This lowers the risk of a conservative feedback. 
  • Also, as mentioned in previous posts, a prototype helps to get objective customer feedback. Even a conservative customer though skeptical, would still be forced to be objective in evaluating it. 

___Some disruptive innovations may require customer trials for further improvement and benefit assessment. While selecting a launch customer for trials, it must be ensured that the customer has reasonable interest in the idea and will give necessary support during trials. Also, the customer can be incentivised in terms of foreground IP sharing or concessions rates going further.

For success of a disruptive innovation, managing externally (market feedback and launch) is as important as managing internally (internal buy-in and development).

Saturday, June 14, 2014

Monitoring Shifts in Related Value Networks and Beyond

A value network constitutes the chain from suppliers to the ultimate customer which serve a specific set of customer needs. A simple example would be of value network of Flash memory sticks. The participants in this value network and their products serve low and portable memory storage needs of the customers. Another example would be value network of long range aircrafts which serve long distance mobility needs of people.

For a given value network there are related value networks which share some common traits. For instance, value networks related to Flash memory are portable computing, desktop computing and mainframe computing. A company may serve more than one value network by different product range.

A company tends to be occupied with shifts in its own value network to compete and survive in the marketplace. The shifts in related value networks and beyond get ignored. As a result, companies are caught off-guard when shifts in other value networks transform their own backyard.
Taking the popular disk drive example where the 3.5in drives in  mini-computers value network entered as game-changer in the desktop computing value network.
Taking the portable music player example which was serving mobile music value network. The portable music players were wiped out when the smartphones from mobile calling value network added multimedia capabilities.

In present times, a company needs to monitor shifts/changes in related value networks and beyond. For instance, an aircraft manufacturer can monitor shifts in value networks of regional, short haul, long haul, business, hobby, cargo and even beyond like space travel, surface transport etc.

While monitoring the various value networks, its important to investigate in various dimensions:
  • Can a emerging product/technology in other value network impact my value network?
  • Can a changing business model in other value network be applied to my value network?
  • Can my product/service fit in other value network as well?
The investigation will reveal both threats and opportunities for a company outside its value network.

Saturday, May 10, 2014

Delivering Breakthrough Innovation: Buy-in & Investment challenge

The last post dealt with execution challenge of an innovative idea. For execution, management buy-in and investment are required. The selection process for investment is a formalized process in many companies. And there lies the risk. Many innovative ideas slip through the cracks when they start their journey down this formalized process. It happens because the investment process is focused on delivering certainty. Innovative ideas are by nature have uncertainty associated with them. They struggle against the "certainty and no-risk" seeking comments like the following: 

Show me the money!: Revenues, cost estimates, business case, profitability, IRR are common in investment and capital budgeting decisions. Answering above questions is easy for a sustaining project which is based on existing technology, business model and market. But a disruptive idea can be different on all the three areas. Since there is no precedence, much of the time is lost in collecting data and figures. Due to uncertainty and non-precedence, the numbers are easy to challenge and hence more data is demanded. Instead of working to mature the idea, the team is caught is spiral of more data, more questions, hence more data. Some good ideas just die a slow death on a PowerPoint presentation.

My customers never mentioned about this problem!: Many companies institute a discipline of "listen to your customers". Customers are asked about their problems, a list is made based on the feedback and circulated to relevant internal departments for further action. If the innovative idea does not answer any problem in the list, then there is a slim chance of any support for the idea. One forgets that the list is just explicit needs of customers. Innovative ideas generally cater to implicit needs, or an unexplored opportunity.

It does not match with my yearly performance targets!: The investment process in general requires commitment from an internal customer who would industrialize/market the idea. An innovative idea will get blocked if it does not fit with the performance targets of the internal customer. In spite of obvious long term potential of an idea, the yearly targets influence the investment decisions. 

Not sure if it can work in real conditions!: As part of the formalized process, the experts will be called in, and questions will be raised on how a solution/idea would perform in actual operational conditions. And as one would expect, the disruptive idea/solution will not have all the answers. The formalized process in general do not provide room for "we will resolve the issues as we go along". Every issue needs to be resolved today! If not, come back with more information for the next meeting.

Formalized process for investment are important in an organisation to ensure that capital is efficiently allocated. Unfortunately, an organisation tend to use this formalized process as a single hammer for every type of nail.

Some organisations have woke up to the need of providing alternate channels for innovative and disruptive ideas, keeping them separate from the sustaining projects.

Friday, March 7, 2014

Delivering Breakthrough Innovation: The Execution Challenge

My earlier two posts dealt with zeroing on a potential break-through idea with the feedback from customers and experts. And believe me when I say that you have come just a quarter of the way. Still there is a long road ahead of execution and implementation. More disruptive the idea, more challenging is its execution.

But why is execution of a disruptive innovation so difficult, especially in established companies? The answer lies in organisation and processes of the company which is performance driven and focused on incremental growth in the boundaries set by the market conditions.

In other words, participating in execution of disruptive innovation is not part of any KPI of a manager and in many cases works against the existing KPIs. Consider following execution elements and the challenges: 
  • Detail solution design and development: Any disruptive idea typically requires a cross-functional team and external expertise. However, R&D and Engineering team are busy with projects for improving existing product. They cannot spare the manpower. And working with external experts raises IP & confidentiality issues.
  • Procurement of hardware/services for development: The procurement team is focused on cost reduction and applies the same process. The suppliers need to be registered and meet the criteria. They want competing quotes and negotiation for any procurement. Whereas you want to work with a designated supplier who is agile and understands your requirements without asking for a 50 page specification document. 
  • Production: The production plan is frozen for the year. There is no availability of machines and skilled manpower to work on your product. 
  • Customer discussion and feedback: Marketing team is busy with promoting existing products. Salesmen are busy with hitting their targets and have no time to discuss ideas with customers.

In nutshell, the organisational processes are designed for what they do best, to build on the past performance and efficiently earn the daily bread and butter for the company. Disruptive innovation is antithesis to what they are designed to do.

A certain organisational support is required to handle disruptive innovation. It would be wrong to rely just on an individual leadership and charisma.

The organisational support can come in following ways:
  •        Empowered team for Innovation with access to top management.
  •        Designated coordinators from each functional dept.
  •        Faster procurement channels
  •        Flexibility in pursuing external partnerships with start-ups, academics and other companies.
  •        A dedicated budget and regular review via say roadshows.

With the organisational support in place, next comes the team. The team may constitute of persons from diverse industry backgrounds and in-house experts. The common behavioural aspects are self-driven, open to new ideas and ability to perform in uncertain environment.

The organisational support and a good team are the foundation to manage and execute disruptive innovation. However, there is no formula for the execution itself. It can be chaotic, iterative, going back and forth, working-around, re-work etc. At the same time it would require painstaking attention to detail, documenting experiment results and mundane project planning & management.


So do you still think Innovation is glamorous and exciting?? J

Tuesday, December 31, 2013

Delivering Breakthrough Innovation - Where to Start? Ans: New Technologies

In the previous blog post, we discussed the vision of ideal world as the starting point. In this blogpost, we will discuss how an emerging technology can be a starting point.

For the start, one needs to keep an eye out for emerging technologies. There are several ways to do it like having subscriptions of relevant magazines, visiting demo days of corporate accelerators etc.

The next step would be to explore the application of an emerging technology relevant to your business. This would require knowledge of the company's products/services.

Once an application areas is defined, the next step is to investigate technical feasibility and create a mock-up/demo to communicate the idea. Its important to note that to adopt an emerging technology for a given application, it may need to be combined with some other technologies as well. It would be wrong to assume that a technology in isolation can be the whole solution.

The next step is to present the idea with a mock-up/demo to the customers/stakeholders and get their feedback. One can argue that customers should be involved earlier when discussing the area of application. But then there is a risk that the idea would be shot down prematurely. Customers or experts are good at pointing out that why something won't work. The response one can get will be 'things are already being managed well and hence the change is not required', 'something of this sort is already happening', 'users may not accept the change', 'I can't see the real benefit' etc.

Its only when there is a demo in front, the minds of customers or experts get triggered to think how the idea might be useful. Also, the ideas start flowing from them on how to improve it further.

With a stakeholder/customer buy-in , its time to move on to implementation.

Since, we are talking about approaching breakthrough innovation via emerging technologies, often the expertise in an emerging technology will be found absent in the organisation. One would need to tap into external expertise which might be present with an academic institution or a company or an expert. Hence, external partnerships become critical in this approach. An open innovation network not only helps companies to keep abreast with emerging technologies but also find experts to adapt and develop them. 

Friday, November 29, 2013

Delivering Breakthrough Innovation - Where to Start? Ans: Vision of Ideal World

In this and subsequent blogpost, several starting points of an Innovation will be discussed. These starting points are not related to interesting stories that you might have heard which include a napkin, a coffee table or a beer. Instead they are more tangible which would tell a professional where and how to start innovating. In any large organisation, the success of Innovation program is measured by innovations delivered and impact on triple bottom line. All the hot air and talk surrounding innovation is inconsequential if it doesn’t translate into concrete deliverables.

For the professionals tasked with delivering breakthrough innovation, following is a good starting point:

The Vision of ideal world
With some knowledge of the overall business ecosystem in which the company operates in, it’s possible to paint a picture of an ideal world. Some examples could be ‘Door-to-Door mobility’ for a automotive company, ‘Non-intrusive security’ for a security systems company, 'Green Buildings' etc.

A vision too broad will not help. It should deal with a manageable part of business like inbound supply chain, a specific area of customer concern, a green product/service etc.

Next step is to validate the vision with experts. I would emphasize the word ‘experts’. The objective assessment of experts helps to identify weakness in the vision and forces one to improve it and plug the gaps.

Also, the experts feedback mark the beginning of the journey from ‘Vision to Idea’. As one explores the vision further with experts, one would come to know that:
  •        Some parts of the vision have already been implemented.
  •        Some parts of the vision are already being looked into.
  •        Some parts of the vision are too far from the business perimeter of a company.

The above parts, though attractive, may have to be dropped. As a result, the unique actionable part of the vision which is relevant to a company would constitute the innovative idea. This innovative idea, apart from drawing on a bigger vision, would also constitute a business case and indicators of potential impact on business. This should get the first buy-in to move forward.

One would be tempted to assume that the next step would be to detail a business and operating plan. However, for a breakthrough innovation, there is uncertainty and hardly any precedence to compare with. Market research and pricing becomes difficult in such cases. An alternate approach is needed for dealing with breakthrough innovative ideas with high uncertainty levels. This alternate approach is prototyping. Quick and low-cost prototypes which are able to demonstrate and communicate the benefits are much more powerful than huge Word and Excel documents.

Building a prototypes generates valuable insights: 
  • Costing: While building a prototype, one gets to know how much a full blown solution may cost.  
  • Technological risks: Any technology risks are made visible early in product development.
  • Customer feedback: Customer feedback is more objective and elaborate on a prototype rather than a paper concept.
  • Market potential: With demonstration of prototypes to customers and experts, one could gauge the benefits accrued and hence size the market.
  • Risk sharing launch customer: A forward-looking customer may agree to try out the proposed product/service and share the risk in its development.
The ‘How’ (how the idea will be implemented) and ‘Why’ (a detailed business case backed with research) becomes evident with a prototype. With a green signal from the management, the next stage is to implement and deliver.


To conclude, a good starting point of breakthrough innovation is to paint a vision. Also, for breakthrough ideas, prototyping is key to resolve various uncertainties. 
On the soft side, perseverance is key. Some expert feedback can be discouraging, but key is to persevere and find the Gold.  

Sunday, September 29, 2013

Market Sentiments at odds with Statistics. Case of Economic service life of aircrafts.

Recently I came across an interesting conflict. A serious debate has been going on whether Economic Service life of Civil Aircrafts are under pressure.

Proponents of debates cite recent developments and experts view to say that Economic service life of aircraft is reducing. And opponents are citing statistics to refute the claims. That makes the debate all more interesting.

Let's quickly look at what proponents are saying:
  • Aircraft values have fallen significantly for many older aircraft over the last two to three years.  John McCormack , Ernst and Young, 2012
  • The widening gap between the physical life of the aircraft and the assumptions made in respect of life and value in financiers' calculations is a growing concern. Airline Business 2012
  • Another trend is for younger aircraft to be parted out and sold for spares as this provides greater value than as an aircraft in operation. PWC 2013
  • … despite the large availability of used aircraft in the secondary market, many airlines have begun to lease new aircraft from lessors ……made older aircraft harder to sell/lease, increasing their availability and reducing their values... Aircraft Monitor 2012
  • ….. aircraft lessors basing their lease rates for new jets on the assumption they will have an economic life of 25 years, when 15 years might be more realistic… Aviation Week MRO Forum, Dallas 2012
There are several explanations offered to support the aforesaid trend. Customers are now preferring new aircrafts to attract customers. Also, on the supply side, it is alleged that there are too much new aircrafts production from OEMs. ECA (Export Credit Agency) support new aircraft manufacturing in home countries. In addition, they give credit support for the sale of new aircrafts to developing countries which were earlier a second hand market. Coupled with technology advancements in new aircrafts which lower cash operating costs for airlines, the overall effect is downward pressure on the residual values of the older aircraft and the second hand market. Also, the changes in regulation related to safety, noise and emissions are driving up the demand of new aircrafts.


However, the opponents point out that statistics tell a different story. 


Both positions are well supported, but then how does one clarify the dichotomy. There is no straight answer, but following observations may help shed some light:
- The world economy has been going through a slump for past 5 years which has put pressure on aviation industry as a whole and consequently on second hand market.
- The statistics from a leading aircraft leasing company do show higher retirement near 15 year life but not significant to shift the average over 45 years.
- Early aircraft retirements are a more recent phenomena. Many LCC carriers have adopted this approach to acquire fuel efficient and brand new aircrafts to attract customers. 

It might be too early to say whether there is a long-term fundamental shift in aircraft economics or a short-term trend. However, the issue can have far reaching consequences on the industry and hence warrants attention and close tab on developments.

Sunday, August 4, 2013

Move up the Business Value Chain? Or Create the most Value in the Chain?

Several companies who compete on cost are tired of it. Hence, they strive to move up the business value chain with an aim to differentiate themselves from competition and improve their margins. This is evident across industry sectors. Several IT companies who compete on cost for back-end subcontracted work are trying to build capabilities up the value chain like Enterprise and Management consulting. Manufacturing companies as well are looking for ways to build high-value products rather than being suppliers for it. The encouragement for moving up the business value chain also comes from Govt. industry and trade bodies.

Is moving up the value chain the only way out from fighting on cost? Or is there an alternate way where you can add much value in the chain without changing your position? Consider aviation industry for example. Fuel savings have become a much important lever for airlines to make profits and stay in business. And who contributes the maximum to fuel savings today? Its not the aircraft manufacturers, but the engine suppliers. Most of the increase in fuel efficiency in recent times is attributed to technology advances in engines. Hence, engine suppliers are contributing much value in aviation value chain without changing their position in it. Needless to say, it does increase their bargaining power.

Even in other industries its not very difficult to see whereby players in middle of the chain can add value. For instance, in Automotive, as the whole industry move towards electric cars, the battery suppliers will have the opportunity to play the most value adding role by providing batteries with high energy density and other important characteristics.

Opportunities can also be created rather than waiting for market conditions to create them. For instance, engineering suppliers can seek to be more than a subcontractor for low-end engineering work. They can provide niche skills and rapid prototyping capabilities which can be leveraged by their customers to try out new ideas and innovate. By doing so, they can also benefit by being part of growing Open Innovation trend.

Hence, the opportunities to escape the price-war and provide differentiated offerings may not be that far up in the value chain.


Sunday, May 26, 2013

Opportunities at the Intersections: Aviation and Agriculture

There are several alternate perspectives which one could leverage to seek out new business opportunities in an industry. One such alternative perspective that was experimented with was to explore the intersections between the focus industry and a distinctly different industry. The focus industry was aviation and the distinct industry was agriculture. While exploring the intersections between the two industries, several opportunity areas worth exploring became apparent. I would discuss some of the briefly:

Weather Predictions
Weather is as important to agriculture as it is to aviation. Both industries require improved weather predictions. Data and numerical weather modelling drives the weather predictions today. Satellite data has some limitations. For instance, they cannot provide for upper air data and more localized data. The weather data collected on-board the aircraft is now being leveraged to provide the upper air data to Meteorological agencies (Refer AMDAR program, http://www.wmo.int/pages/prog/www/GOS/ABO/AMDAR/ ) . This improves weather modelling which helps agriculture as well.
Also, the sensors on passing aircrafts can provide localised weather data on the regions below which can improve weather advisories for agriculture.

Precision Agriculture
Its the latest agricultural method to maximize crop yield. The method relies on remote sensing data to monitor crops conditions. Unmanned aircrafts are being deployed in some regions for the purpose and the crop imagery is being used to determine conditions like crop-stress, ready for harvesting, water scarcity etc. (Eg: http://www.cropcam.com/ ) . Further opportunities may lie in using imagery from commercial flying aircrafts on a large scale.

High value produce
To improve the income and livelihood for farmers, they are encouraged to grow high value crops. One of the such crops are bio-fuel cultivars from which bio-jet fuel can be derived. We consider only sustainable bio-fuel crops which can grow in dry and waste land and hence do not compete with food crops. Eg: Jatropha, Castor, Eucalyptus. As per IATA, aviation bio-fuel is a US$100bil plus business opportunity.

The emphasis in this blog post is not on the above three areas as such but on the perspective to explore linkages between industries to identify opportunity areas. 

Sunday, April 21, 2013

Urbanisation Megatrend & its Impacts

The global proportion of urban population rose dramatically from 29% in 1950, to 49% in 2005. It is projected to rise to 60% (4.9 billion) by 2030.


Its in the middle of 2009, when the number of people living in urban areas (3.42 billion) had surpassed the number living in rural areas (3.41 billion).


However, there is a glaring disparity in urbanisation levels throughout the world as shown below.


% of Population in Urban Areas


Broadly, developed countires have more urbanisation levels than the developing and least developed countries. Urbanisation tends to increase with economic development and urban areas become major economic centres. For instance, the Mumbai megacity contributes 5% of India's GDP and its GDP is expected to grow five folds in next 20 years.

Urbanisation megatrend imposes challenges in both urban and rural settings.

Urban

As urban centres expands, the stress on civic infrastructure would increase, be it water, sewage, electricity or roads. Infrastructure of several sities are already stretched. City authories are banking on a combination of sensor network and information technologies to deliver 'Smart City' to cope with the demands.
Mobility, a key to vibrant and functioning city, is also being relooked with emphasis on multi-modal integration and sustainable transport strategies.

In addition to reactive approaches, proactive approach in terms of urban planning is also gaining importance. Urban planners and city agencies are getting together to plan controlled and sustainable expansion of cities. In recent times, city suburbs are far better planned than before. For instance, urban planners go for polycentric development with a theme for each centre. And for each centre, urban planners may go for mixed use (co-locating resdential and employment centres). Urban planning for each city is customised and there is no universal formula yet.

As urban areas become economic centres, more and more efforts will be invested in preserving their capacity of economic growth.


Rural

Rural may sound the poor cousin of urban in all the talk about urbanisation. However, ignoring rural would be a costly mistake. Rural economies will continue to serve our basic neccessities of food and clothing. Urban migration is aready posing a serious challenge to rural economies. One cannot stop migration, but one must ensure that rural areas continue to grow in spite of migration. Capacity building, technology driven practices and right produce are some of the intervention areas. For instance, the focus in developing countries like India would be more on mechanisation and improved agricultural practices to improve productivity. In addition, to improve revenue capability, the focus would be more on cash crops (including bio-fuel crops) and output quality (which could be bought by food processors at high prices).


Fate of both urban and rural economies are interconnected by demand and supply. If one goes down, it will drag down the another. Urbanisation is affecting both. Care must be taken that we do not pre-occupy ourselves with Urban issues that we lose sight of rural challenges.

Monday, January 28, 2013

Customer Behaviour & Social Media

In a recent market study, I came across an interesting phenomenon related to customer behaviour and social media. It was observed that customers were more vocal on social media. Extreme statements were made by customers on twitter, facebook etc. However, during interviews, the responses were more controlled and mild.

One possbile explanation of this behaviour is that customers are always connected to social media. Hence, they post (or vent out) their feelings soon after their experience. Over time, the strong feelings associated with an experience subside and later customer interviews seldom elicit strong reactions.

Its important to take note of  this behaviour. The feedback on social media is rich in customer feelings and hence an important source of consumer feedback to a company's products and services.

Sunday, December 16, 2012

Leveraging The Big Data

The term 'Big Data' refers to huge amount of data (in Terabytes or even in Petabytes) that a company has access to. It not only refers to stored data but also the data which is being continuously streamed in through various sensors and other data collection points. However, 'Big Data' doesn't represents this huge data but the opportunity that it holds.

Big data has moved from a concept to reality because:
  • Information technologies has made it possible to extract (from database, image, audio, video, sensors etc..), manage and process the data without significant latency.
  • Advances in data analysis like machine learning algorithms which can provide predictive intelligence and pattern analysis to mine unstructured data.

Everyone now understands the Big Data and the value it holds. The challenge lies in dealing with it. There are two approaches to leverage the Big Data:
  1. Start with the problem statement: Define the need or problem statement first and then work backwards to identify the analysis and data required. This approach works when there is clear understanding of the business need. If some of the data required to meet the business need is not available, efforts are made to collect that data or redefine the business need.
  2. Dig for Gold: Executives are not always clear what can be done out of the big data. In that case, the suggested approach is to play with the data and derive some sense out of it. While experimenting by combining the data and applying algorithms, one gathers insight and increases the chances of finding the 'Gold'.
One can argue in favour of either of the approaches. However, success of both the approaches hinges on the 'Data Scientist'. It is an emerging profile with the required skillset in applying maths, statistics and algorithms to the data and spotting patterns, trends. A data scientist also acts as the bridge between the Executive who understands the business need and a database engineer. Companies are increasing relying on a data scientists to make sense of the unwieldy data sets in their organisation.

Big Data is the new gold mine for organisations. And tools are techniques are evolving to effectively mine it. Though organisations realise that they cannot ignore it, not everyone really knows where exactly the gold lies. Irrespective of the approach taken, perseverance and experimentation are key to unlock the value in big data.   





Sunday, October 28, 2012

Open Innovation Ecosystem

Open Innovation has become quite popular in recent years. Organisations have realised that they need to leverage the capabilities outside the organisation to build innovative & competitive operations, products and services. Companies have realised that great ideas can come from outside, distinctive resources and capabilities may lie outside and even sharing internal resources with external players can unlock greater potential. Increasingly, companies are working on partnerships with academic insititutions, start-ups, investors, government agencies, companies and individuals.  

An ecosystem with a sense of community is required to enable diverse players to engage and form productive relationships for Open Innovation. Efforts in this direction include establishing marketplaces to bring innovators and sponsors together, Eg: IX (Innovation Exchange). Building communities, expert's database and platform to exchange ideas, run competitions and fund projects like Innocentive, Nine Sigma etc. Then in software space, there are open source communities like Eclipse and others. 

More often, companies rely on personal one to one relationships for Open Innovation. While the future is many to many interactions; trust, governance and intellectual property are some of the issues that weigh down the the progress.

Sunday, September 30, 2012

First CSR, now CSV! Convergence of Business & Society

Earlier, corporations only concern was their business and competition. Society & Environment came into equation only in late 60's with rise of CSR (Corporate Social Responsiblity). CSR became important to corporations to comply with regulations, society's expectations and to preserve their reputation. Over the time, various approach to CSR came in practice. 

Philanthrophy emerged to be a widely used approach. It is simple to implement and does manage to grab a positive mind share of the public. However, it has hardly any operational or strategic connect to the business.

Another approach to CSR have been to forumulate internal regulations which a business complies with. This was done in order to insulate the business from any risks to brand image arising out of interfaces with external stakeholders like suppliers, distributors, customers, NGOs etc. The benefits were more in terms of avoidable costs of negative publicity and loss of brand equity.

Gradually, CSR's connect with Business strategy became more obvious as focus shifted to markets at 'Bottom of Pyramid'. Also, several business realised that CSR initaitves can lower the cost of externalities on their business. For instance, reducing carbon footrpint has direct benefits of reduced fuel costs and earned carbon credits. CSR became increasingly realised as imperative for building long-term sustainable and competitive business model.

However, business conditions continued to evolve.
  • Due to recession, capitalism as a whole became a target. Companies were accused of being greedy and in-sensitive to society.
  • Fundamental shifts took place in market conditions whice was fuelled and accelerated by social networking. Consumers now want empowerment and a say in building their product/service experience. Society is now more vocal about its expectations from businessess.
  • New products and services now require co-creation and collaboration among firms from diverse industries. Increasingly, we now talk about business ecosystems and working partnerships.
A response to these changing business conditions came in form of CSV ('Creating Shared Value' by Michael Porter & Mark Kramer). Though treated separately, it can also be considered as another evolved form of CSR. CSV attempts to remove any conflicts between business profits and society welfare by espousing innovative ways to enlarge the pool of economic and social value. For instance, a food company looking into improving productivity of farmers and agri supply chain can create a far better social benefits. The food company in turns gain by a strong inbound supply chain and increased sales volumes.

Most of the time, impact of Creating Shared Value on business benefits is not very obvious and hazzy. Certain amount of commitment and staying on the course is required till one gains clarity. And more than often, innovative approaches are required to identify and leverage the sweet spots where business and social benefits converge.

Wednesday, August 29, 2012

Industries of Tomorrow....

What would industries after 30 years look like? Similar to industries of today or radically different! We should explore possibility of radical changes because of slow but fundamental shifts happening around us. Lets discuss them:

Democratization of Design & Manufacturing: Product design is moving out of confines of R&D Dept with suppliers and customers participating in the process. Several Auto OEMs invite suppliers to design the car parts which are supplied by them. Customers are encouraged to give design suggestions. 3D printing will further make manufacturing available to masses and consequently design.    

Increasing Commercial Significance of Community Platforms: Platforms like Facebook, MySpace, Twitter have revolutionized the basic act of social interaction. As these community platforms gained wide acceptance, social media marketing became prevalent. Several start-ups broke into scene which provide a community platform for people with complimentary needs to interact and exchange services (Eg: www.myridebuddy.com). On some platforms, the participants are both provider and consumer of the service (Eg: www.waze.com).


Rise of Integrators: Developments in ICT have made it possible to integrate data from various sources, including real-time data, and run analytics. Now data is out of silos and available to derive intelligence and insights from it. This has led to new business models where firms integrate data and provide services like multi-modal trip planning, traffic simulations etc. Eg: www.rideamigoscorp.com, Mapunity

So what kind of industries and business models these shifts to democratization, community participation and integration will lead to? Some of the defining characteristics could be:

  • Society and Business will converge: Business will be primarily oriented towards addressing social and environmental needs.  
  • Orchestration by consumer: Industries will organize around consumer experience. Consumers will configure and design their experience and businesses around will adapt and serve accordingly.
It would not be a surprise if industries like healthcare and transportation cease to exist and industries of Well-being, Happiness, Mobility & Leisure emerge. Its exciting times ahead and we could witness a renaissance in industries.

Friday, July 20, 2012

Tracking the Evolution in HRM (Human Resource Management)

I am not an HR Practitioner and have always been on the other side or lets say, on the receiving side of HR. Recently, I was involved in a consultancy assignment related to setting up a high-tech center. Human Resource Management (HRM) was one of the key focus areas and we couldn't onboard an HR expert for the assignment. So, we went ahead and tracked the evolution of HRM (professional experience of team members helped) and the future.

From my study, evolution of HRM can be understood as three versions of approaches.


The HRM 1.0 can be characterized as a 'Policing' approach, where the focus was on controlling employees. Do's and Don’t's list was prescribed and enforced. Salaries and labor issues were the major HR tasks. This approach worked in the production environment of past which had an authoritarian work culture.


Then came Knowledge Workers and hence the HRM 2.0 approach of managing employees. Knowledge workers have specialized knowledge and were expected to work with less supervision and more self-motivation. Hence the rules of the game changed. It was now more bottom-up approach with focus on improving employee experience, talent attraction and retention. HR personnel work towards continuous education & learning, team building and managing expectations of knowledge workers. HRM 2.0 approach is widespread but has its share of criticism .


With changing times when Customer service and Innovation are becoming survival imperatives rather than a competitive advantage, a distinct approach is required. Hence the HRM 3.0, which is geared towards facilitating employee. It’s a top-down approach where the company's strategy and objectives are the starting point and HR process is aligned to it (as illustrated below).
The workforce is expected to thrive in an uncertain and dynamic environment, adopt new work practices, remain customer oriented and champion innovation. Such a workforce needs to be supported and facilitated to meet these expectations. HR function in an organisation would need to step out of the existing mould to engage such a workforce. HRM 3.0 is gaining ground and is highly relevant for high-tech and service industries.


Saturday, June 30, 2012

Lessons for Business from Defense & Security Planning... (2/2)


This is the concluding part of the topic discussed in last post. In this post, an attempt is made to outline application of Capability based planning in business environment.


Applying Capability Based Planning to Business World

Now, we shall return to business world and map the learnings from an equally if not more complex defense world. Like defense, business too at earlier times had to deal with a limited set of threats like that from a competitor, or a substitute product or a new entrant. Porter's 5 forces was a great tool to examine the possible threats. Once threats were identified, the appropriate response plans were drawn up. Earlier, Pepsi and Coke had no threats except each other and were busy fighting their Cola wars.

But times have changed. The business environment is now far more complex. New sources of threats have emerged. Many of them being non-market. The pace and impact of events have increased tremendously. Bad news spreads like wildfire. Nike and the 'Sweat Shop' incident is a case in point. Also one cannot predict how an event might affect. Executives often lament that business environment has changed and their plans are no longer valid.

In such an uncertain and volatile business environment, traditional threat based planning often falls short. A capability based planning approach in business world would imply accepting the uncertainties as fundamental driver and concentrating on scenarios of how threats materialize irrespective of their source. Following graph illustrates various scenarios of how threats can materialize for a business.
 



Under Capabilities based planning for business, the first step is to build a menu of various detail scenarios of 'how ' threats will materialize. Then, each scenario needs to be analyzed on following three dimensions and prioritized.

Severity: Scenarios which may have adverse effects and are to be planned for adequately. For instance, a natural calamity can disrupt supply and kill the production.
Probability of Occurrence: Scenarios whose possibility of occurrence is high need to be given priority. For instance, high frequency of competitive product launch and marketing campaigns are a norm in various industries.
Detection Ability: In some case detection itself is difficult for a given scenario. For instance, it is not easy for a company to detect the negative sentiments in viral media and how they might coalesce and snowball. In such cases, capabilities are to be developed for early detection and warning or quick response plans must be put in place.

Similar to Risk Priorities Number of FMEA (Failure Modes & Effects Analysis) a priority number can be worked out against each scenario.


Next step would be to define actions (either offensive or defensive) to counter each scenario. One may have a combination of actions or alternate actions for a given scenario. This is an intermediate but an important step before we arrive at capabilities. It’s in this step, an executive needs to tap their business acumen, management thinking and emerging trends to devise effective actions. For instance, in response to a scenario of 'Diverse and Un-predictable customer preferences for fashion goods' a retailer can choose to build its forecasting and S&OP process or go for daily replenishments to stock higher variety of SKUs and turn them faster.

Once the actions are decided against each scenario, then comes defining and listing capabilities to execute those actions. One may find similar capabilities addressing various scenarios. One would also notice that there can be various levels of a capability to choose from. For instance, to have a capability to address supply disruptions, a company can go for higher inventory or take a bold step to diversify its supply base. Both have different cost implications and impact. Hence a judicious mix of capabilities and its level needs to be worked out.


Conclusion

Defense and Security is perhaps the only area which rivals the complexity and volatility of the business world. With some of the best minds working in Defense and Security planning, it’s prudent to learn from them. The principles of Capabilities based planning are equally valid for a business and the methodology can be adapted with some tweaking. Capabilities based planning is a paradigm shift for business planning which would give a business, the confidence to not only survive but excel in an uncertain environment. 

Wednesday, May 30, 2012

Lessons for Business from Defense & Security Planning.. (1/2)

This is a two part topic. In first part we explore the underlying similarity in a business environment and a nation's Defense and Security environment. Then we look at evolution in Defense & Security Planning and understand Capabilities based planning approach. 


The application of Capabilities based planning in business environment will be dealt in second post on the same topic.

Introduction

The business environment has become more dynamic and unpredictable with time. Some would claim that the complexity is increasing exponentially. Planning is a big challenge in such a rapidly changing and volatile environment. The starting point of conventional corporate planning is directed towards specific threats emanating from a competitor, substitute product etc. or directed with a specific objective to capture a given market share or enter new segment. But rapid changes in external conditions like govt. policy, regulations, consumer behavior, social turmoil, economic turmoil, vagaries of nature etc., often render even the best-laid plans ineffective. Maybe its time to rethink the current Paradigm of our approach to planning.

In search for new paradigms, let’s shift our focus from business to other areas which share the same unpredictability and dynamism. One such area is that of national defense and security which comprise of military, homeland security, intelligence etc. This is an area, different from business world but with far more uncertainty, sudden changes and perils. Hence, defense planning is a good candidate to search for new paradigms.

Evolution in Defense & Security Planning

Defense strategy and planning itself has evolved over time.  Earlier, defense planning was threat based. The threat could be a specific nation or specific terrorist organization or a specific channel (air, sea or water). With time, defense environment has become complex, the variables and volatility has increased manifold. Lack of and asymmetric intelligence adds further complexity. A country can no longer predict with confidence the source, time and extent of the threats. Threats can emanate from a change of government in other countries, from social tensions which fuel terrorism, shifting alliances, conflict over resources, new weapons development etc. 9/11 is a typical example of such unpredictable threat which led to a totally new approach to defense planning called capability based planning. 

Capability Based Planning for Defense & Security

Under capability based planning, the focus is not on identifying the threats but building capabilities to respond to any threat. This marks a tectonic shift in defense planning where uncertainty has been acknowledged as the fundamental driver. And best way to address uncertainty is to build on-demand, flexible, adaptable and robust capabilities which can generate a speedy and appropriate response in face of a threat. The key part of planning process is to identify various scenarios of attack. It doesn’t matter who attacks. What matters is how you may be attacked; by crippling your food supply, by attacking the energy supply, by online virus, by a proxy war etc.. These scenarios are analyzed and actions are listed that need to be taken to neutralize them. The actions are prioritized which is followed by identification of capabilities and their levels required to perform those actions. The identified capabilities and their levels have to be further studied in terms of investment requirement. This is a sort of portfolio management of capabilities which is required in face of limited resources that a nation has for investment in defense.

Applying Capability Based Planning to Business World

This would be covered in next post. So stay tuned....



Friday, April 27, 2012

Can 3D Printing Redefine the Automotive Industry? An Alternate Future...

The post has embedded links to interesting videos and information. )


3D printing has been hailed as a technology which could change the way we do manufacturing. 3D printing along with stereo-lithography and similar technologies, growing at CAGR of 26%, are expected to reach $5.2 billion by 2020. The technology is capable of making complex metal parts, intricate mechanisms, civil construction components to even food items. The Star Trek's Replicator device may be well around the corner. Automotive industry is a leading user and consumes 17.5% of total commercial 3D printing services, second to consumer products/electronics. Present application by auto companies is limited to large size 3D printers for rapid prototyping in Product Development. However, with dropping prices (personal 3D printers costing around few thousand dollars) and maturing ecosystem (Machine builders, CAD S/W providers, Designers, Makers, Aggregators & users), 3D printing is poised to become mainstream and a game changer. Possibilities are endless for automotive industry. Let's explore some of the potential futuristic scenarios:
 - Mass Customization: Imagine a buyer in front of a large touch screen, trying out various combinations of bumper, rear view mirror, headlights, spoiler, dashboards, steering wheels and other interior/exterior styling parts on a basic car frame. A dealer rep assisting him to further nip & tuck the designs. As soon as buyer confirms his choices, the 3D printing machine at dealer starts making those parts. Next day, the buyer walks out of the showroom with a car customized to his tastes and unique on roads. Is it possible to provide such service? Yes! 3D printers are capable of producing complex shapes in various colors & materials. Does such service makes business sense? Of Course! customization is 30 percent of what draws a person to a brand. Cost of producing cars that do not meet customer requirements is $80 bil/year for car manufacturers

DIY Personalization: Imagine a car enthusiast designing a sporty spoiler for his car. He has the attachment frame in the CAD software and builds the rest of the design on top of it. He also refers to some Off-the-shelf designs for ideas. Once done, he clicks the print button and his personal 3D printer gets on to work. If his 3D printer cannot manage the dimensions, he sends the design to a nearby vendor who prints it and delivers it in few hours. This new spoiler is his third in last one year. And his next dream project is a cool dashboard. Is it possible? Yes! 3D printers are increasingly becoming affordable. Commercial paper printer manufacturers are now making 3D printers. One can imagine a 'Knight Rider' car or a 'Ghost Rider' bike running on the roads. 

Spares & Service: 3D printers can also be used to print spares and tools. Its not that far-fetched with similar application in marine transportation being explored. Repair centers and even consumers can print spares & tools on demand. We also have 3D scanners which can scan a tool along with its movable parts (like an adjustable wrench) and replicate it in a 3D printer. Only a limited stock of critical spares will be required in future.

Crowd Sourcing Product Design: Traditional product design relies on market feedback from customers. 3D printing will enable customers to design the product for companies. The guess work and gamble on market research will be eliminated. A company can crowd source product designs from prospective customers and adopt them. As consumers dream up new ideas and design, the product innovation will be prolific and dynamic.  

3D printing will enable automotive companies to address long tail market. However, there are wider implications. For instance, 3D printing will :
  • Empower auto consumers like never before: Only imagination is the limit to extent of personalization we could see. It will unleash new ways for consumers to make a personal statement through 'my ride'.  
  • Disrupt the automotive value chain and roles: New players like 3D part Designers & Makers will enter the value chain. Much of manufacturing activities will shift from OEM & Suppliers to the downstream Dealers & Consumers. Role of an Auto OEM will go beyond product design & manufacturing to include aggregation & orchestration.
  • Throw up Socio-Legal Challenges: How does one manage IP issues, Design safety, Accountability (for injuries/damages due to faulty parts) in a democratized design and manufacturing? New policies & regulations will have to be drawn up for the same.


When and to what extent the afore mentioned scenarios will materialize, no one can predict. However, one can confidently expect that 3D printing will become mainstream. A strategic roadmap to leverage 3D printing will enable auto companies to not only stay ahead but also influence the market and the industry. As Peter Drucker said 'The best way to predict your future is to create it'. 


Monday, March 12, 2012

Aggregating Fragmented Land Holdings: Imperative for Multi-fold Increase in Agricultural Productivity

Fragmented land holdings is an unique characteristic of Indian agriculture. As per GOI surveys, In 2002-03, the share of small and marginal farmers was 86%. Two-thirds of Indian population is still locked in agriculture with landholdings getting divided among siblings with each passing generation. As a consequence, the average area per holding decreased within a decade from 1.34 ha to 1.06 ha in 2002-03.

The fragmentation has an adverse impact on productivity. The yield in India for several crops is about 4 to 10 times lower than the world best. A smallholder faces several constraints which hamper his farm productivity as discussed in article below. A major challenge in front of us is to aggregate the small & fragmented land holdings with an objective to promote investment in scientific methods and application of best agricultural practices.

In the following article, which was published in a leading Agri-business magazine, I have highlighted various means by which we can aggregate land holdings and promote collective farming to bridge the productivity gap.

Sunday, February 19, 2012

Changing Contours of Automotive Industry

This is a re post of my blog post at Infosys Manufacturing Talk  http://www.infosysblogs.com/manufacturing-talk/2012/02/guest_post_by_ashutosh_agrawal.html 


Automotive industry which is about 11% of developed-world GDP is undergoing a transformation of sorts due to various market and non-market forces. At one end, car makers are grappling with shifting customer preferences. On other end, various political-socio-economic factors like recession, rising fuel prices, urbanization, government policies are impacting the industry dynamics. Some of the key trends which are changing the very contours of the automotive industry are:

  • Automotive design is increasingly influenced by safety, urban planning and environmental concerns: Hybrid & Electric cars will grow steadily and ICEs will dominate only till 2020. Fuel Efficiency (91%) and Safety (81%) are top consumer purchase reasons. Urban planning norms has also become important, for instance New York City laid down design guidelines for 'taxis of tomorrow'.

  • Entry of New Players & Changing Roles in Value Chain: With rise of electric vehicles, grid electricity providers will become a part of value chain. Battery, electric motor, inverter producing companies will enter the value chain in future. Urban congestion is driving Smart Mobility which would create mobility ecosystems and change the roles of various automotive players and their business models.

  • Growing importance of digital technologies to meet customer demand for extreme personalization and empowerment: A Yahoo-IMRB survey found that 62% of future car buyers say that they will look for information on internet. Customers are expecting personalized products and services. Customization is 30 % of what draws a person to a brand today.

  • A Car which goes beyond mobility: Demand for rich customer experience and features has set the stage for path-breaking 'Connected Car' concept which brings Smart Navigation, Communications, Entertainment, Increased Safety & Security, Marketing and Commerce to its customer. It is expected that consumption of telematics apps would grow by 97.5% over the next 5 years.

  • Supply Chain Risk Management: Recent supply chain disruptions like the Earthquake in Japan, Egypt unrest have adversely impacted various automotive companies. Automotive companies are coming to terms with volatility of business environment and looking for ways to rejig their operations model to become more resilient and adaptable.

  • Growing Importance of Reverse Supply Chain and After-market: EU ELV Directive 2005/293/ECmandates recovery/recycling targets of 95% by 2015 for End-of-Life Vehicles. Sustainability driven regulations will put the spotlight on reverse supply chain. The automotive recycling industry has$22 billion in sales annually in USA alone. With margins on car sales under constant pressure, After-market (which accounts for about 60% of total OEM revenues) will become key revenue source in future. Emerging markets are expected to clock 5 to 15% growth in aftermarkets.

In past, trends in automotive industry were characterized by globalization. In future, it would be characterized by changing business models and industry landscape. 


Thursday, January 5, 2012

Reconciling ABC (Activity Based Costing) & Throughput Accounting


Recently, I got into an interesting conversation on ABC (Activity Based Costing) and Throughput Accounting. I was of the view that both have fairly common ground and do not conflict. However, I couldn't garner a convincing argument at that time. Hence this blog post where I attempt to reconcile both ABC & Throughput Accounting. 


Lets begin with Throughput Accounting. Throughput is Sales - Variable Cost. The variable cost here includes the 'True' variable costs like raw materials and to some extent the sales commissions. All other costs are considered fixed and as Operating Expense. Hence, the bottom-line, i.e. Net Profit is calculated as Throughput - Operating Expense. Its obvious that to increase Profit, one must aim to Increase Throughput while keeping the Operating Expense constant.
Considering the scenario where the constraint is internal, Throughput Accounting says that one must evaluate Throughput generated per Unit time on constraint (T/c) for each product of the product portfolio. Then to maximize the overall Throughput, the product with the highest T/c should receive the priority on the constraint followed by the one with next highest T/c.

Now lets come to Activity Based Costing (ABC). ABC claims that traditional accounting do not reflect the true cost of a product. ABC says that the true cost of a product is a function of the activities that go into making of that product. Traditional accounting allocates overheads without taking into account the activities involved in making that product. To clarify this with an example, a product 'SP' requires a special process and hence is routed to a Special Machine. An another product 'GN' doesn't require the special process. The traditional accounting will allocate the overhead cost of Special Machine to all the products based on a cost driver. This would under-estimate the cost of SP and over-estimate the cost of GN. ABC addresses this situation by changing the cost drivers to reflect the activities that go into a product. It would tell us that the fixed cost of that Special Machine is in fact solely dependent on producing SP. 
Lets take another example of procurement activity. Not all product will have same amount of procurement activity going in. Under ABC, the allocation of procurement overhead should be in accordance with the extent of procurement activity for each product. The products with higher procurement activity will have higher allocation. The cost driver can be 'Variety of Sourced Parts in a Product' or 'Weight of Sourced Parts in a Product' depending on the nature of products.


Till now, we have clarified Throughput Accounting and ABC in their own language. Lets proceed further and combine the language.

What ABC does in principle is to treat the fixed costs as variable. By allocating a fixed cost to a product's activity, its treatment changes to 'cost per unit' of that product and hence variable with volume.  In Throughput Accounting, the same fixed costs are Operating Expense. So within the context of Throughput Accounting, the ABC treats even the Operating Expense as variable. TOC (Theory of Constraints) proponents may term this against the tenets of Throughput Accounting, but lets continue to examine further with TOC spirit. 

Lets examine the assumption that true variable costs are only raw materials and sales commission.
Consider the earlier example of products SP & GN. Assume that SP has a higher T/c (Throughput per Unit time on Constraint) compared to GN. Hence SP needs to be produced and GN to be shelved. This would increase Throughput and hence Net profit (assuming that Operating Expense remains same). Refer below:



But if we were to eliminate SP, then the corresponding Special Machine will no longer be required. It can be sold off and all associated costs are erased. The Operating Expense will reduce, maybe to the extent to compensate the loss in Throughput to yield a higher Net Profit than before. Refer below:
 


Is this against the basic tenet of TOC which says that the objective of a company is 'To make money now and in future'.  No!! In the end its about Profit, not Throughput. But then, how do we resolve the following conflict.



The conflict can be resolved with an injection: 'ABC helps to locate other quasi-variable costs which are hidden inside Operating Expense. '




Lets challenge this new understanding by applying it to our products SP and GN:

  • If, SP has higher T/c compared to GN. Hence the initial product portfolio decision would be to produce SP and eliminate GN.
    • Now, ABC tells us that the high cost of a Special Machine is associated only with SP. So, we include the cost associated with Special Machine as the variable cost for SP and recalculate T/c. If T/c is still higher for SP, then we produce SP as before. But if T/c is lower for SP, then the decision should be to eliminate SP and produce GN instead. The assumptions are that market doesn’t become a constraint if either SP or GN is produced and the Special Machine can be sold at its Net Depreciation value.

    • What if market becomes the constraint for GN and we cannot eliminate SP completely. Then no benefit will come as Special Machine and its associated cost will still exist. Then we take out the cost associated with special machine from variable cost and go back to our decision of producing SP. Hence, the cost associated with Special Machine is variable with make or eliminate decision for the SP product, not with each SP unit.

  • What if we sell the Special Machine and contract a third party to perform the special process? Then the cost of special process becomes variable with each unit of SP. ABC will help bring that out. Then, we recalculate Throughput and T/c by including the variable cost of third party process. If T/c of SP is now lower, then we choose GN and produce it to market demand. Rest of the constraint time is allotted to SP.

From the above discussion, one can at least conclude that both ABC & Throughput Accounting need not be at loggerheads and ABC can be leveraged within Throughput Accounting for effective decision making.


In a broader sense, ABC based management is generally used in organizations to identify the high cost activities and hence prioritize them for improvement and reduce wastage. In Throughput Accounting context, it would impact and reduce the Operating Expense. TOC initiatives are more strategy oriented and aimed towards bringing significant impact. ABC based management is more process improvement oriented. And both are not in conflict. I have tried to clarify the same in my previous post on how strategic performance models co-exist with process improvement models. Of course, caution should be exercised to align them and ensure that improvement activities do not create new bottlenecks or hurt global optima.

To conclude, in TOC spirit, both Throughput Accounting and ABC are not in conflict and there is harmony between them. 

Having put forth my viewpoint, I now invite readers to debate it to further improve our understanding.