May 29, 2006

Managers often suffer from a chronic disease, which I call "Internal reference syndrome". While taking decisions and making strategies, they frequently look inside-out and often give scant regard to the outside-in view. The result is plans going haywire with increased frequency.

The inside-out view of the managers is based on the idea of external environment revolving around an organization. But the reality is quite different. Most often, the organization revolves around the external environment, except in a few cases of breakthrough ideas, products, or services that change the environmental landscape. So this inside-out view of things often blurs the reality and leads to decisions which ought not to be made.

This inside-out view plagues the organization in many ways. Following are some of them:

  1. Missed opportunities: Looking from inside results in always trying to fit the world into the internal perspective. But many a time, big opportunities arise when businesses view their internal world from the spectacles of the outside world and then align themselves with the outside world. It’s like re-circuiting the internal wires to optimize the flow of energy and ideas inside a business. Continuous inside-out view tends to overlook the new environmental realities and might result in missed opportunities for the business.
  2. Lack of holistic view: If you look out of the window of your house, the view of outside would be dependent on the length and breadth of your window. And even if there is a window large enough to occupy the wall of your house, the view of the outside world will still not be in entirety. Similar is the problem with inside-out view. Managers practicing inside-out view often don’t see the entire picture of their surrounding and pass judgments based on limited view of the world from their narrow internal windows. And this visual defect very often results in defective decisions that cost the business significant monetary loss apart from waste of time and resources.
  3. Death of creativity: Inside-out view also kills creativity inside an organization. Managers hate to look beyond the obvious as long as the outside world somehow fits into their internal frame of reference. The inside-out approach is basically a process in rationalization rather than exploration. As a result, the creative zing is missing in a business where inside-out view is practiced.
  4. Biased action: Decisions and resulting actions originating from an inside-out approach is often biased towards maintaining the internal equilibrium rather than adapting the business to the changing realities of the world outside. As a result, decisions and actions are never optimized for best results. They are optimized for conformity with internal frame of reference.

How to overcome this tendency to look at issues from inside-out framework?
Some proactive measures and a little bit of change in organizational circuitry can go a long way in ensuring that inside-out view is replaced by outside-in view. Given below are some ideas that may help in overcoming the inside-out approach to managing business:
  1. Internal consultant: Perhaps the urgent need of the hour in every business is an internal consultant, who can bring some reality check as well as balance the inside-out approach with outside-in approach. He should be someone who is not emotionally attached to the existing systems and processes. He should take an outside-in view of the business and critically appraise it from all angles. Basically, he should be someone who can objectively study the organization from both outside-in and inside-out framework in a holistic manner and help the management in shaping strategy based on the business’ strengths as well as the changing realities of the outside world.
  2. Learning organization: Creating a learning organization is another way to discourage inside-out thinking. Often it is seen that the managers become so occupied by running their businesses that they are rarely up-to-date with the trends – academic as well as professional – in their industry or their economic and social surroundings. Even in terms of professional skills and know-how they are seldom aware of the latest developments. All these ensure that they keep on living in past in a world that is changing every moment with new technology, new thinking, new approaches, etc. So the solution is simple and yet not so simple – you have to develop a learning organization that has the both the curiosity of a student and result orientation of a leader or a manager. This learning organization will also keep the organization constantly aware of its external environment thereby keeping it in sync with the world around which it revolves.
  3. Internalization of best practices: From the concept of an internal consultant and a learning organization, a third concept – internalization of best practices – emerges that may help businesses beat the inside-out way of thinking. The combined effort of an internal consultant and a learning organization will result in accumulation of best practices from other industries, competitors, suppliers, etc. Whenever a business comes across a best practice, it should analyze it to find whether it can add value to it if internalized. Many of the best practices can be applied across industries after some modification and internalization. If a business constantly endeavours to internalize potentially value-adding best practices that it may come across, then over a period of time, a sense of heterogeneity will develop in its organizational DNA where “our way of doing” will give in to “the best way of doing”.

To sum up, in today’s world, when chaos and change are the name of the game, managers as well business leaders would do well to come out of the frog’s mentality of viewing the well as the start and the end of the world. Perhaps it is high time they should proactively start cultivating the habit of having a multi-dimensional outside-in view of their organization and business to create a synergy with the ever changing external environment. This will go a long way in ensuring their survival and sustenance.

May 22, 2006

"The real giants have always been poets, men who jumped from facts into the realm of imagination and ideas."

"Logic and over-analysis can immobilize and sterilize an idea. It's like love - the more you analyze it, the faster it disappears."

"Rules are what the artist breaks; the memorable never emerged from a formula."

May 20, 2006

One thing that I hate about corporate life is the sheer number of reports and managers’ obsession with reports. In a number of organizations, having a plethora of reports on all sort of meaningful and meaningless things is becoming a fashion. I have earlier also written about reports in my post “Reports – The New Corporate Villain”. The sheer annoyance caused by meaningless obsession with reports is forcing me to once again explore it – this time from the frameworks of Economics.

To start with, I have extended the concept of diminishing marginal utility to formulate "The theory of diminishing marginal utility of reports", which states that with increase in number of reports, the marginal utility of reports decreases. The law further states that with addition of reports, although marginal utility declines, the total utility increases up to a point of saturation from where any further increase in number of reports results in negative marginal utility and hence decline of total utility. Simple!

Being an innocent victim of reports since last one year, I can say with quite an authority that excessive reports do more harm than good to an organization. The hidden cost of too many reports is too much.

Reports are necessary and an important tool to manage the affairs of the organization. But beyond a point they become nuisance and create more problems than solve problems. On one hand, a few meaningful reports are helpful in providing insights and aiding decisions; on the other hand, too many reports, mostly meaningless, trigger a chain reaction of decline in productivity in the entire system of the organization.

Here are some insights on how and where too many reports hurt an organization:
  1. Wastage of time: Making reports is generally a time consuming process. It takes time. When the number of reports is large then a significant amount of time goes in making reports while time for doing the real things is reduced. Every manager has only 24 hours in a day. The more reports he has to make, the less time he has to do actionable things.
  2. Execution goes for a hit: Too many reports lead to a general mind-set in the organization where post-mortem analysis, on-paper analysis, etc. gain more importance than execution part. Running a business or any other type of organization is a balanced combination of planning and execution. If one part is missing or if the balance between planning and execution is lacking, then there is a serious problem.
  3. Manager’s motivation: Action is always much louder and interesting than analyzing and planning on paper (read report writing). Of course, analysis and planning are important for making actions decisive. But too much analysis and planning without much action is dull and, over a period of time, can seriously affect the motivation of managers. Results come from actions and managers get motivated by results.

  4. Past haunts, present passes and future is doomed: Most of the reports are basically a post-mortem analysis of something that has happened. Yes, it is important to do it to learn from mistakes, get insights about what worked, and why something worked and something didn’t. But often this insight gathering activity turns out to be an elaborate surgery with anesthesia on dead body. And while the surgery on dead body is being done, the living patients who need surgery to save their life suffer and some even die. Obsession with reports is no different. Too many reports mean living in past, somehow managing the present with divided attention, and never letting the future to come within attention span.
No doubt, the organization suffers as a result of too much focus on reports. Productivity suffers, projects go haywire, deadlines are over-shoot, value addition declines, and chaos sets in.

Though reports are important tool for managing the affairs of organizations, it is more important to effectively manage the reports – its content, context, relevance, and utility – if the organization wants the reports to contribute to value addition and value creation.

Caution: Too many reports are injurious to the health of organizations and people managing them.

May 13, 2006

Over dinner yesterday, my friend, who works for a leading private sector bank, shared an interesting story about stock market psychology that was shared with him by a very senior manager of the bank. Here is the story:

Once upon a time, a man went to a remote village and saw a lot of monkeys there. So he announced that he would purchase each monkey for Rs.10. The villagers were enthralled and they started capturing monkeys and selling them to this gentleman. Soon not many monkeys were around and it became difficult to capture monkeys. So the gentleman announced that he would give Rs.15 for each monkey. Excited by the increased offer price of each monkey, the villagers started finding and capturing monkeys with renewed vigour. After sometime, it became tough to capture monkeys as very few of them were left now. Seeing the scarcity, the gentleman this time offered Rs.20 for each monkey. This increase in offer price meant a lot to poor villagers and they started spending lot of their time and effort in finding and capturing whatever monkeys were left. This continued for sometime. But soon there were hardly any monkey left in the village. So the gentleman announced that he would offer Rs.50 for each monkey keeping in mind the acute scarcity of monkey. He put his staff in the village and left for the city after this announcement.

The villagers could not believe their ears – Rs.50 for each monkey. But they were very worried as there was hardly any monkey left. So the staff of the gentleman came to their rescue and offered to sell them monkeys for Rs.35. Villagers thought that they could still make Rs.15 from this deal by buying at Rs.35 and selling at Rs.50. So they agreed.

And the staff of the gentleman sold all the monkeys that his boss had purchased between Rs.10 and Rs.20 to the villagers . He then left the village to call his boss to complete the Rs.50 per monkey deal with villagers. The villagers kept waiting for the gentleman and his staff to return but they never returned!

Moral of the story: Don’t become a Bandar in the irrational exuberance of the stock market.

May 7, 2006

Paradox of Ideal

Posted by Bizaholic | 11:21 PM | , with 1 comments »

When I was in high school, I used to read about ideal gas in my Chemistry book. Well, as the case was – and still is – there is nothing like ideal gas in this world. Similar is the case with management and management education. There are many ideal things yet in real world there is nothing like ideal. Two years into the big bad world of business management, I can confidently say that everything tagged as ideal is non-existent in the real world. Ideal is nothing more than plain theory which is far different from reality.

Then why study and revere ideal? Because ideal provides a perspective to look at things. It acts like a lens to see things more objectively. Without the knowledge of ideal, we may stray frequently into the already chaotic real world. But total dependence on ideal to take various decisions is nothing less than foolhardy and so is the desire to strive to be ideal.

The real world is vastly different from the world of perfect case studies and immaculate theories developed by management pundits. It’s fairly easier to sit in a calm classroom and slip into the CEO’s shoes and utter all the perfect solutions that the CEO should have taken to save his company than actually being the CEO and taking decisions that affect thousands of people, the government, the environment, the profits, and the shareholders. Anyway, it’s always easier to do post-mortem than do the treatment and save a life. Ideal is basically the result of post-mortem. It’s not real but based on the things that happened and analysis of why they happened. As long as the real world moves just like it moved in the past or historically, ideal seems to be doing well. But real world doesn’t move like that. It seldom repeats the same pattern that it followed in the past. This unpredictability results in the ideal becoming a chimera. It was perfect in a particular condition or time, but since the world and situation changes every moment, it no longer fits in perfectly to solve the reality of the present.

Ideal is based on a predetermined set of conditions. It is literally linear in nature and fairly predictable. But in real world, two things never have same conditions. Moreover, real world is complex and non-linear, where there is multi-dimensional interplay of conditions. No single theory fits the situation. Due to this complex nature of reality, finding solutions become a matter of looking at the situation from perspective of a number of ideal situations and then thinking on the feet to find the solution that seems to be the most optimal. But it’s never a case of applying the ideal solution as it is and then relaxing.

So what’s the lesson? The lesson is simple – every situation has a unique solution. The key perhaps lies in looking at every situation from the eyes of various ideal situations and solutions, and then think on one’s feet to come up with a customized approach to handling the situation. Nothing works in isolation. Sometimes many ideal perspectives need to be combined to come up with customized solutions.

If ideal becomes real, this world would be a boring place due to its predictability and calmness. But I’m certain that it is not going to happen ever. So relax and face the chaotic real world to generate customized solutions to live problems.


Posted by Bizaholic | 2:45 PM | , with 0 comments »

"It takes a lot of courage to release the familiar and seemingly secure, to embrace the new. But there is no real security in what is no longer meaningful. There is more security in the adventurous and exciting, for in movement there is life, and in change there is power."

- Alan Cohen

May 2, 2006

Can Unorganized Retail Be Saved in India?

Posted by Bizaholic | 12:34 AM | , with 8 comments »

In India, retailing is the buzz word these days. Everyone is seeing the glorious future of retail. Many retail aficionados have also gone to the extent of writing the obituary of mom and pop stores. Personally, I don't share such enthusiasm. I very strongly feel that if mom and pop stores become extinct, it will not be because of the inherent strength of organized retailing or external environment, but because of their own unwillingness to innovate, survive and flourish.

Why modern retail is a threat?
Indian retail is estimated to be worth Rs 12,60,000 Crore (around $280 Billion). Of these, 97% is unorganized retail made up Mom & Pop stores, Kirana stores, Paan shops, etc. Only about 3% is in organized retail with players like Pantaloon, Shopper’s Stop, Subhiska, Food Baazar etc. And all of a sudden, an extraordinary interest is being shown by big players like Reliance as well MNC giants like Wall Mart to enter this market. In fact, Reliance is quite bullish and ready with a coffer of Rs 3000 Crore and target revenue of Rs 90000 Crore by 2010. And the organized retail segment is estimated to capture 10-12% of the retail market by 2010. This means snatching at least around Rs 110000 Crore of business from small stores that line up your neighbour or the stores that are scattered around the town. And considering the fact that most of the thrust in coming years will be in metros, mini-metros, and bigger towns, the biggest brunt of this organized retail onslaught would be the small stores in big cities. Definitely in a country of over 12 million unorganized retail outlets, this could be a cruel blow. Or, is there a way out for these small unorganized retail outlets which employs roughly 40 millions people in India and is the highest contributor to India’s GDP from service sector?

USP of organized retail?
Organized retail plays the entire game from three strong pillars:
  1. Price advantage due to bulk sourcing and robust supply chain
  2. Variety
  3. Paucity of time
Price is a big factor in purchase decisions all over the world, more so in India. Given a choice, Indian consumers will go the place which offers a 20% discount instead of buying the same stuff from their neibourhood store that sells at MRP. Organized retail players source in bulk hence they get the best price available. As a result of this, they offer heavy discounts on MRP and lure the price conscious customer to its stores. Also, they source directly from consumer goods companies, and get better margin as no intermediary in the chain. All these result in organized players offering 10-20% discount on almost all categories.

Secondly, organized players provide a variety that a small store cannot provide. Small stores play the retail games with a fairly low working capital and hence are extremely selective in what they stock. Organized players, due to their store size and investment capability, are able to keep a variety of brands, thereby offering a wider choice to consumer.

Thirdly, due to hectic lives and changing life style, today’s consumer has paucity of time. She simply doesn’t have as much time as before to do shopping. And this paucity of time is an element that organized retail finds to exploit. A consumer, hard pressed for time, often finds it much more convenient to shop for all her needs under a single roof rather than hop from shop to shop. In today’s fast paced world, time saved in shopping means more time spent with family. So if a consumer gets her monthly ration, clothes, toys, books, stationery, accessories, shoes, etc. all at a Pantaloon or Shopper’s Stop, it makes sense to her as well as makes her happy.

What Mom & Pop stores stand for?
Mom & Pop stores have their own set of uniqueness. They are mainly about three things:
  1. Personal touch
  2. Care
  3. Know their customers and their family well enough.
Just think of your neighbourhood kirana store. He knows that Mrs. Sharma takes Pillbury atta and Mrs. Prasad takes Aashirvad atta. He knows which brand of toothpaste and salt is used by which household in the locality. Every time a consumer visits the shop, half her job is already taken care of by the friendly store owner. So all the while your stuffs are getting packed you can just check some of the new stuff while listening to the latest gossip of your neighbourhood. It’s all so much fun because the store keeper gives a personal touch to your shopping. As a customer you trust him.

Your neighbourhood store is also very caring. He does all he can do to make your shopping experience as comfortable as he can. He treats the consumer like a queen and even asks his shop boy to deliver the heavy baggage full of daal, chawal, aata, sabun, tel, etc. to your house so that madam could not have much trouble. Compare this with the cold behaviour of staff from Food bazaar or any other such organized retail chain. All that the staff of an organized retail chain worry about is how to sell you more than what you need and also what you don’t need.

Your friendly neibourhood store owner knows all about your family. He knows which school your daughter goes to and how old is your son. When you go shopping to his stores he asks you about each and every member of your family and how they are doing. So in one store owner you have someone who is concerned about your spouse’s diabetes as well as your asthma. He makes you feel at home while shopping and you feel that the shop owner is part of your family. For a Pantaloon or a Shopper’s Stop, you are just one of the 40000 footfalls that happen every day.

The Weakest Link
Perhaps the weakest link of the organized retail is price. If small stores manage to remove price disparity then a good chunk of business in certain categories might remain within the fold of unorganized retail. But breaking the price advantage of organized retail players is not easy. It’s extremely difficult and perhaps cannot be broken with conventional means. Something outrageously innovative or out-of-the-box is needed by Davids of retail to handle Goliaths. And fortunately, there seems to be such solution, at least visible to me.

Cooperative collaboration
The solution may lie in cooperative collaboration. Can a cooperative movement a la Amul happen in retail field to challenge the organized retail? Perhaps yes, with ample doses of innovativeness and entrepreneurship.

The essence of this cooperative collaboration lies in combining the intrinsic customization provided by unorganized retail with the sourcing power of a large organized retail. If unorganized retailer can match the price offered by organized players then a large base of consumers will prefer doing business with the friendly unorganized retail. This endeavours to create a powerful ecosystem of small retailers with collective bargaining powers matching that of organized retailers.

It will entail central sourcing of consumer goods by the cooperative and then passing out the goods to individual retailers along with the price advantage. It will be more or less similar to the sourcing done by the big retailers. But in the case of cooperative retailing, the goods will have to reach small stores instead of select malls. But scattered distribution of centrally sourced goods might not reduce the cost advantage of cooperative retailing. The distribution cost will not be more than the maintenance and manpower costs of organized retail chains. So at the end, price advantage will be at least equal to that of organized retail chains, or even slightly more that them.

One can start with metros, the most vulnerable to organized retail, and cater to typical kirana products like soap, oil, detergent, food items, commodities (rice, pulses, flour), and other household/ grocery items. These items are basically stranglehold of small retailers and protecting their turf in this segment is vital. Based on the response and learnings, this retail cooperative system could be extended to mini-metros and other emerging cities.

Even leading FMCG companies which cater to kirana and other such small retailers can be roped in to support them. These companies will be more than happy to strategically support this kind of cooperative retailing. Companies are never comfortable with the whims and fancies of organized retail chains and would do anything to retain their influencing power on consumers. Strategically supporting cooperative retailing can serve the purpose well for companies considering the collective size of unorganized retailers.

The key perhaps lies in coming together of a few visionary entrepreneurs who can see the value that can be created and the impact that can be made on millions of lives.

May 1, 2006

...No Time To Stand and Stare

Posted by Bizaholic | 6:19 PM | , with 0 comments »

"Leisure," by W.H. Davies.

What is this life, full of care,
We have no time to stand and stare?

No time to stand beneath the boughs
And stare as long as sheep or cows.

No time to see, when woods we pass,
Where squirrels hid their nuts in grass.

No time to see, in broad daylight,
Streams full of stars, like skies at night.

No time to turn at Beauty's glance,
And watch her feet, how they can dance.

No time to wait till her mouth can
Enrich that smile her eyes began.

A poor life this if, full of care,
We have no time to stop and stare.

Such a lovely poem with loads of wisdom! What is life meant for? And what we are making our life to be? Are we aware what we are caring so much for?

Day after day life is becoming fast paced. We are slowly becoming cogs in the wheel of so called development and prosperity. And we are becoming emotion blind as well as emotion deaf. All our waking hours are spend thinking about one cause of worry or the other. Typical life in metros or mini-metros is more like work, travel, and a little time with family (if you reach home early).

But what about waking up every morning to see the first rays of Sun, or to gaze at sky in night and admire the moon and twinkling stars? Either these little pleasures of life have became luxury today or perhaps we are too occupied with drudgery of life to even think of them. How long it had been since the last time you stopped near a flower plant to admire the beauty of the flower or to admire a butterfly romancing the flowers? You see kids frolicking in the mud and you smile but just the other moment you are reminded by your mind about meetings, deadline, shedules, etc. and you rush to your next destination. Why so much rush? Why this urban madness? Why cannot we admire life in its totality and experience the rich and varied beauty that is all around us?

Isn’t it time that we just empty our minds for sometime and let the beauty of little pleasures of life fill it? I think life would be much more worthwhile and fulfilling then.

It’s also a time to ask this question: Do we want to be an automaton made of nuts & bolts or a human-being made of feelings and emotions? Ponder over it.