Prized Propositions From The Gurus
Digital ideas dominate the McKinsey & Co. awards for the best writing in the HBR.
The Management Oscars are here. And there are no surprises. The McKinsey Awards-which were instituted 41-years ago by the McKinsey Foundation For Management Research-for the 2 best articles published each year in the Harvard Business Review were announced in its January-February, 2000, issue.
The first-place winner: Unbundling The Corporation (HBR, March-April, 1999) by McKinsey & Co. consultants Marc Singer and John Hagel III, based on their book, Net Worth: Shaping Markets When Customers Make The Rules. Unbundling... is another look at the Digital Era's leitmotif of deconstruction. Companies, the authors posit, are, essentially, involved in 3 different businesses, each of which requires unique skills: attracting customers or market development, creating products or product development, and managing operations. Indeed, Hagel and Singer argue that, in an ideal world, no company would strive to do all 3 functions: it performs all functions optimally only if it chooses to be content with a sub-optimal level of performance for at least one of them.
In the past, companies settled for this local sub-optimisation because the transactions or interaction between entities were replete with inefficiencies. Thus, getting specialist companies to perform each of the 3 functions wasn't really a viable alternative. However, the Net has rendered transaction and interaction costs irrelevant. Thus, companies can now outsource activities they always thought needed to be performed in-house-from other companies, who do them better, faster, and at a lower cost.
The result: unbundling. Hagel and Singer suggest that today's transnationals will first unbundle into large operations management companies, large customer-management companies, and a slew of product-development hotshops. How well the organisations manage this unbundling, and how well they leverage it to achieve both local and global optima will have a bearing on their success.
What does this mean for companies and managers? To begin with, they will have to decide what their core business is: operations, customer-management, or product-development. That done, they should seek to develop a sustainable competitive edge in that business.
The second place winner is Bringing Silicon Valley Inside (September-October, 1999), by former McKinsey Award winner Gary Hamel, a visiting-professor at the London Business School, and the Chairman of the strategy consulting firm, Strategos. Hamel's hypothesis is that large companies can leverage the same factors that create wealth in Silicon Valley to create wealth within their companies.
Wealth is a function of 3 resources: ideas, capital, and talent. In Silicon Valley's start-up-a-minute culture, these 3 resources are free radicals that float freely, and form themselves-quite often in an extremely spontaneous manner-into combinations that create the most wealth. By contrast, ideas, talent, and capital are, often, stationary in organisations, fettered by the system-driven ways of resource-allocation. The problem, argues Hamel, lies in the philosophy of risk-allocation.
This is an Even-If concept that allocates resources so as to minimise risk. However, to create wealth, companies have to move to the philosophy of resource-attraction, a What-If concept focused on the maximisation of wealth. But can large, systems-driven companies really do so? Hamel thinks they can. His reasoning: Silicon Valley start-ups, usually, function in an ineffective way. Large companies, which have extensive resources in terms of capital, ideas, and reach, should find it easy to establish, within their ranks, markets for ideas, capital, and talent. Such markets will ensure that the organisation's resources are not deployed in projects that involve the least risk, but in those that have the scope to create the maximum wealth.
The two McKinsey Award-winners share a common thread: in some way, both are the manifestations of the ability of the Net to create perfect markets, where transactional losses are minimal, and resource-deployment, optimal. But then, we always knew that the Harvard Business Review was the ultimate management rag.
The numbers say it all. India has 3 million Net connections, 22 million telephone-connections, and 60 million TV households, 25 million of which are C&S (Cable & Satellite) households. With idc predicting that the average price of a home pc will fall to Rs 26,539 by 2002-which is 77 per cent higher than the price of a 20-inch CTV-the easiest, and quickest way to increase the Net's reach is to use the existing infrastructure. Already, several companies like Siticable, In Network, Sun TV, and MTNL are experimenting with cable-not telephone-lines as the last-mile medium.
But the hardware could still prove a bottleneck. In January, 2000, Philips and IBM unveiled a technology called Clever Cast. This fulfils 2 objectives. One, it ensures that the prohibitive price of PCs does not hinder the growth of the Net, and, two, it helps content-and service-providers run-or transmit locally-multimedia content. Reasons Ankan Biswas, 46, General Manager (Digital Electronics Division), Philips: ''Given the low penetration of the pc, it is important to find alternative access-modes. Clever Cast is one such attempt.''
The back-end of the technology is a satellite, cable, or terrestrial TV infrastructure endowed with interactivity and the ability to beam, carry, or air streaming audio, video, and other multimedia content. The front-end is last-mile access through cable, and a set-top box that could cost between Rs 8,000 and 10,000. Apart from providing Net-access through tv, Clever Cast allows content-providers like TV companies the opportunity to provide value-added services like shopping and education. Thus, a neighbourhood cable operator can tie up with the local supermarket or pc-training school, and offer content related to e-shopping or education to the households it reaches.
The network requirements: a configuration accommodates the typical small-request-large-response interactivity that characterises Net use. Thus, a high-bandwidth in the forward direction, which is provided either by satellite or cable, and a low-bandwidth in the reverse direction (provided by analog telephone or TV cables) is required. While it is technically possible for satellite-enabled reverse connectivity, regulations do not permit it. This box is smart!
It's a price-led strategy that Apollo Tyres is treading. Frustrated in its attempts to break into the Rs 400-crore market for passenger-car radials-the company has just a 3.64 per cent share in the replacement market, and no presence in the OEM one-it has played its trump card: price. Thus, the Amazer XL, a radial tyre the company launched in January, 2000, to replace the Amazer, is priced at Rs 1,195-the price at which plain-vanilla cross-ply tyres are sold in India.
But Apollo's price-onslaught, even if it is backed by a 3-year warranty, is unlikely to find many takers in a market characterised by brand loyalty. Explains Sanjay Singh, 28, Manager, Tyre Plaza, a tyre-dealership in Delhi's Kailash Colony: ''Typically, customers ask for the brands that come fitted as original equipment.'' Thus, to make a dent in the market, Apollo will have to gain entry into this segment first.
The company, obviously, doesn't agree. Says Asoka Iyer, 50, Head (Marketing), Apollo: ''We plan to use this pricing-strategy to convert cross-ply users to radial users.'' With the size of the pie going up from 14.40 lakh to 31.20 lakh units a year if the replacement market for cross-ply tyres is included, and with the radialisation-levels for passenger-cars in the country standing at only 50 per cent, as opposed to the First World benchmark of 99 per cent, this strategy could well work. But Apollo will still have to contend with offerings from imported brands like Hankook, Kumho, and Grandtour, which retail Rs 100 cheaper than the Amazer XL.
Apollo's strategy may have been thrust upon it by the need to utilise the 80,000 radials-a-year capacity plant it set up at a cost of Rs 94 crore, the desire to improve dealer-relations, and its brand-image by projecting itself as a company with tyres for anything that moves. But what it could result in is a full-blown price-war. Although tyre-majors MRF, Bridgestone, and jk Tyres have not lowered their prices yet, their dealers have been forced to offer discounts to customers out of their commission to push stocks. If that happens, Apollo Tyres may end up as the company that laid a one-way road to internecine competition. A small step for Apollo, a giant step for the industry.
The machine that changed the world is now all set to transform the Indian Multi-Utility Vehicles (MUV) market. By launching a frills-free (read: minus air-conditioning and power-steering) Family Saloon model of its first offering in the Indian market, the Qualis, at Rs 4.59 lakh, and by introducing 6 variants in a Rs 3-lakh price differential (Rs 4.59 lakh to Rs 7.40 lakh), Toyota Kirloskar Motor has made its intentions clear: it's going head-to-head with MUV-meisters Tata Engineering (formerly TELCO) and Mahindra & Mahindra (M&M). Avers S. Yamazaki, 48, CEO, Toyota Kirloskar Motor: ''Prices are dictated by the market. Thus, ours is a touch-and-try price.''
The company in Toyota's sights, though, appears to be Tata Engineering-the No. 2 player in the MUV market, with a 27.18 per cent marketshare-which has offerings in a similar price-band: the basic stripped-down Sumo se is priced at Rs 3.87 lakh, and the fully-loaded Safari, at Rs 8.22 lakh. By contrast, market-leader M&M (marketshare: 60.17 per cent)-which charges Rs 3.47 lakh for the Commander 7500 2wd to Rs 5.60 lakh for the Voyager-seems to be better equipped to handle Toyota's onslaught.
And the company has attempted to insulate its new offering, the Quadro, against the vicissitudes of price-based competition by offering customisation-options that vary between Rs 6 lakh and Rs 10 lakh.
The Qualis' ability to compete against the Tata Sumo at the low end will depend on how the customer perceives the Rs 72,526 price-differential between the basic offerings of both the vehicles. Says Rajeev Dube, 37, General Manager (Commercial), Passenger Car Division, Tata Engineering: ''Customers base their purchase-decisions on the price-value equation, and, on that count, the Sumo is still the best.''
With more launches planned-Tata Engineering's soft-top Sumo, variants of the Sierra, and M&M's Scorpio and Savari-the MUV market could well end up growing at the expense of the mid-size passenger-car segment. That is one more factor which car-manufacturers in this already-crowded segment will have to drive against.
This was no whisper campaign. The coming of age of the Rs 160-crore market for feminine hygiene products in India was marked by the launch of Procter & Gamble's (P&G) Whisper Ultra (Extra Long With Wings). The launch was unique in several ways: the product is not manufactured in the country, and P&G plans to import it; second, the launch was held at St Xavier's Institute Of Communications as college-students form a part of the target audience; and third, the company's advertisements stressed comfort and convenience-a sea-change from the category-conversion ads P&G has traditionally employed for Whisper.
Explains Vijay Santhanam, 41, Director (Marketing), P&G: ''What this launch probably signifies is the fact that the feminine-hygiene market in India is now mature enough to react to product-differentiation.'' That may be the case-P&G launched the same product a decade back in developed markets-but the launch of the Ultra could be P&G's response to arch rival Johnson & Johnson's (J&J) recent aggression.
Thus, with J&J grabbing a larger share of the market-54 per cent in terms of value according to an ORG-MARG retail audit conducted in August, 1999, although P&G claims that it took some points off J&J by moving its own value share up from an all-time low of less than 40 per cent in August 99, to 45 per cent in December 99-P&G may have brought in a big gun from its international portfolio to stem the tide. If the market moves from one stage to another in the process, that's just a whisper of a side-effect.
- Nita Jatar Kulkarni
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