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CASE STUDY The Case Of Strategy Planning Continued.. THE DISCUSSION
In science, as in love, a concentration on technique is
likely to lead to impotence... Besides this evocative quotation, I have two suggestions for Coolex's CEO, T.R. Jagmohan. One, go beyond the buzzwords, understand what the different schools of strategy-development advocate, and develop your own point of view. And two, focus a little more on doing the right things for the customer rather than letting the strategy-development-process tail wag the owning-the-customer dog. In other words, Coolex needs to go beyond the flavour of the month. Jagmohan is in the rather uncomfortable situation of being half-pregnant--with a vague familiarity with the different schools of thought on strategy. This cannot be resolved by seeking a formula, or a set-menu approach: a Coolex Combo meal, with one serving of core competence, and a growth-share matrix burger, served on a bed of fresh environment analysis. Instead, he must take the trouble of gaining a deeper and complete understanding of the genesis, logic, and content of the different schools of thought on strategy. He should then be in a position to develop his own point of view given his business situation, his business philosophy, and his organisation's culture and mindset. I have seen successful CEOs do this, and their organisations benefit from it. And I have also seen flavour-of-the-month CEOs causing nightmares for their senior managers, who are perpetually trying to keep up with the ideas--and consultants--that are in with the boss, trying to guess how long each will last. If the exigencies of business don't permit him enough time to study, Jagmohan ought to read Strategy Safari--A Guided Tour Through The Wilds Of Strategic Management, by the inimitable Henry Mintzberg. No 1,000-word case-study by lesser mortals can do the job of enlightening him as lucidly. The book uses the analogy of the blind men and the elephant to describe (and critique) 10 parts of the strategy beast, each referred to as a school of thought. The two schools that Jagmohan needs to carefully study are the Positioning School, of which he--and, consequently, Coolex--has been a practitioner, and the Learning School, that Ashish Mahapatra (and Gary Hamel and C.K. Prahalad) represent. They are different ways of looking at strategy, each with its pluses and minuses, with the Learning School scoring over the Positioning School. Jagmohan must then read a book by the Sloan School of Management's Arnoldo Hax, The Strategy Concept And Process--A Pragmatic Approach. According to that tome, the concepts of strategic intent and core competencies constitute a challenge to the industry structure and competitive-positioning paradigm. Hax explains that the resource-based view of the firm--to which the idea of core competence is closely linked--represents a departure from the strategic approach, which regards industry conditions as responsible for creating opportunities for superior profitability. And while the Positioning School tacitly assumes that the industry structure and competitive position contribute roughly the same to performance, the resource-based view believes competitive position contributes more. Jagmohan cannot pick up buzzwords and try to string them together. The Learning School is not about ignoring the external environment or looking inwards--as he seems to think. It is about whether you want to be a shaper or an adapter. It is closely linked to the fact that the present state of industry is a legacy of the Licence Raj, which presents an opportunity for a company--especially a progressive one--to change it. There are two market-driven tests to identify a core competence, and Jagmohan has ignored both: it should provide potential access to a wide variety of markets, and it should make significant contribution to the perceived benefits delivered by the product to the customer. Adopting the Learning School is about strategic intent and stretch and leverage too--these are things that Jagmohan has not even thought of. As Mintzberg says: "(Core competence, strategic intent, and stretch and leverage) have more to do with the characteristic of organisations than with the processes they use." So, is Jagmohan ready for stretch? I would advise him to follow Hax's approach, which strives to offer a unified definition of strategy by combining the conflicting paradigms that Coolex has been struggling with. This is the process that companies like Unilever use. My second suggestion is that Jagmohan worry a bit more about the customer and a bit less about the techniques of developing strategy. As Kenichi Ohmae says: "The heart of strategy is not about beating the competitor; it is about creating value for the customer." This could help avoid the competitive battle altogether. Why is the marketshare of Coolex's flagship business declining? Is there an opportunity to leverage the core competencies of Coolex and add value to customers? Which customers? Are there segments that are more fertile than others? Team Coolex has not addressed these questions, and these are the very issues that are relevant to strategy. Coolex views its businesses as product segments; viewing them as value-based customer segments could help it take the business-mix decision better. Ultimately, this is a function of market attractiveness and the company's ability to compete. If Coolex does not have what it takes to compete in the attractive market for small air-conditioners, are there at least parts of this market which perceive some value in Coolex's core strengths? Or are there key customer values which Coolex can serve by focusing on building certain capabilities? The direction of Coolex's strategic decisions is a function of its understanding of its customers. It lies in its mental model of what the market, viewed from the customer window, will be like in future. But Jagmohan has been pre-occupied with just one element of strategy until now: where to compete. He must also address the next bit: how to compete.
Coolex is, truly, at the cross-roads. Competition is intensifying, and its choice of strategy will play a critical role in its survival. Obviously, the decline in Coolex's share in the central-air-conditioning business from 55 to 40 per cent is a wake-up call. Jagmohan has legitimate reason to wonder about the efficacy of the traditional approach to strategy-planning in his company. Perhaps the conventional way of looking at the competition through the rear-view mirror, and doing just enough to stay ahead will no longer do. If I were Jagmohan, I would not be too worried about the strategies being adopted by my competitors. Instead, I would study my company carefully. To find out whether our products and services meet market needs. To find out whether customer satisfaction is the driving-force behind all our activities. I'd also revisit the quality paradigm. A monopolistic position is a breeding-ground for poor quality. Quality, like personal health, is a matter of routine. It requires continuous nurturing even if a company merely wishes to maintain the status quo. In the absence of such initiatives, the ability to compete will, as a rule, decline. Are continuous improvements in quality a strategic priority at Coolex? While quality is a factor that will contribute to customer satisfaction, traditional strategy-planning exercises are rarely based on customer expectations. Instead, the activities of its competitors remain the company's primary focus. That's why it fails. There is also a relationship between innovation and continuous improvement. All companies need to innovate; however, innovations come about only once in a while. The trouble with most of them is that they become outdated as soon as they are introduced. Given that most companies have access to the same quantum and kind of resources, there are few innovations that result in a sustainable competitive advantage. To retain its competitiveness, a company needs to couple innovation with incremental improvements. Only then can priorities like quality, cost, and delivery be sustained. Strategic business planning should be the result of disciplined strategic thinking, which starts with an analysis of customer-needs, industry-structure, and competitive strategy, and moves on to an understanding of the company's internal workings. Jagmohan and his core team need to do this since it cannot be delegated. Once they do this, they will be able to identify what they need to focus on to succeed. With the right kind of communication strategies, this knowledge can be made to percolate down the organisation. Only then will Coolex's employees receive the right signals. The solution, however, does not lie in merely launching an ambitious survey to understand customer-needs. All too often, surveys conducted to understand customer perceptions remain untouched. I also think Jagmohan is not asking the right kind of questions. In my opinion, the questions that he needs to answer are: can Coolex come up with a distinctively superior product strategy to increase customer satisfaction? Can it generate enough repeat orders, and become the customer's first--and most-preferred--choice? Having done its homework along these lines, Coolex's senior management team should look not just at Airtemp or other close rivals, but also at potential competition from the world's best air-conditioning companies. It must think in terms of what Coolex must do differently over the next 3 years to gain a sustainable competitive advantage. Perhaps it should invest in in-house R&D to achieve this objective. R&D activities not only mean adaptation of technologies from elsewhere, but also the creation of new-generation products, systems, and services. Such investments pay off handsomely over a 10-12-year period. Unfortunately, Indian corporates are not dedicated to the advancement of science and technology. Our interest is limited to buying tried-and-tested technologies from elsewhere. There is, of course, nothing wrong in this. It makes good commercial sense, but we must remember that we will not have access to advanced technology. What we get is what the technology-provider has already used to maximise his benefits, not the latest. This is where the need to develop in-house R&D becomes critical. There is, simply, no option if you wish to be the customer's first--and the most preferred--choice in the global marketplace. In the rapidly-changing scenario, the concept of core competence, which was revolutionary in the Eighties, is a matter of the past. All over the world, we see huge, complex organisations successfully operating for years in many areas requiring many different competencies. In fact, there are cases in which a combination of competencies--not just one--works for the benefit of customers, investors, and employees. I believe the only indispensable core competence is the ability to think strategically, and to align the company's operations in such a way as to optimise the benefits of the strategy. Most senior managers are action-oriented, and focused primarily on results. That will change soon; I believe that, in the-not-too-distant future, senior managers will have to think increasingly about strategy, chart out a road-map for others, and coach them in following this map. This will require a change in the organisation's culture. And Coolex will do well to use this opportunity to prepare for it. The solution to the problems confronting Coolex, and confounding its CEO lie in making this culture work without losing sight of the fact that the only factor that can guarantee success is customer satisfaction. This will put Coolex on the path to a speedy--and permanent--recovery. Actually, this is a golden opportunity for Jagmohan to put his house in order. For starters, shifting the organisational mindset from turnkey-capability to service-provider will do Coolex a world of good.
Coolex's success can be attributed to the supply side-driven nature of the environment in which it used to operate. Along the way, the company has built some competitive advantages, like a distribution network, but these are incidental. It is in the fitness of things that Jagmohan and his team take a fresh look at the company's inner strengths. Coolex's fundamentals appear sound, but its focus is a little off-target. The company should track its customers, not its competitors. And, instead of focusing on its core competencies, it should focus on the value-drivers. Value-drivers are, essentially, internal processes that add value--as perceived by the customer--to the company's product-offerings. While value-drivers usually form the basis on which a company can build its strategy, they vary across companies. Jagmohan and his team should identify Coolex's value-drivers from a long list: product-development, product-positioning, marketing, technology-absorption, the ability to deliver easy-to-use air-conditioning solutions, market-development Content with the leadership role Coolex occupies--for reasons that have little to do with its strategic capabilities--the senior management team has been delaying this decision. Now, the company's market position is under threat, and it is time Jagmohan identified a value-driven approach to strategy-development. Another glaring lacuna in the process is that it does not factor in the possible threat that the company may face from innovations in the air-conditioning business. Innovations happen suddenly--often, without notice--and when they strike, the impact on a business is dramatic. It is only by tracking changes in technologies--even those remotely linked to air-conditioning--that the company can maintain its leadership. However, at Coolex, technology-management is conspicuous by its absence, which is a risk that will imperil it, sooner rather later. Jagmohan can address this either through collaborations with global technology-providers, or through in-house research. There is little evidence to show that he has focused on either. There seem to be 2 dilemmas confronting Jagmohan. One concerns the merits and demerits of increasing manufacturing-capacity. The other deals with the contrasting approaches of the traditional and the competency-based methods of strategy-planning. I think there are 3 ways in which Coolex can address the situation even as it enhances the efficacy of its strategy-development process by looking for value-drivers. The first option is outsourcing. Coolex can expand its capacities by identifying a contract-manufacturer, which should help it increase its output of unitary air-conditioners without making sizeable investments. This, coupled with aggressive marketing, should enable the company to increase its share in the unitary air-conditioners market. The second requires the company to diversify into the manufacture of water-coolers and refrigerators--where Coolex can leverage its skills and brand-equity--to build a new business. Again, the company can choose between manufacturing these products itself and outsourcing them from contract-manufacturers. I prefer the latter. The third option requires the company to adopt the joint venture route. Given the growth in the customer air-conditioners segment, a separate company to target it could be created, perhaps as a joint venture with a leader in the unitary and ducted air-conditioner markets. But, before doing so, Coolex needs to work out the modalities of such a venture. Also, Coolex's perception of its core strengths is not accurate. Finance, for instance, is not really its strength. The company could increase its revenues by offering a more flexible credit-schedule to its customers. Its modular payment-schedule, while increasing the efficiency of its working capital utilisation, could well turn away potential customers, who wish to pay for a project only after it has been completed--or even 30 days later--and not in stages. Most of the strengths listed by the senior management team are not core competencies; they are merely positive attributes. Only those that result in adding value--from the customer's perspective, not the company's--are core competencies. Understanding them should be the basis of strategy-development at Coolex.
We need to define a few terms before trying to analyse the situation at Coolex. The first is vision. This is the core purpose for which the organisation has been set up, which it will consistently address, without deflection. Only, the mechanics of achieving this purpose may vary with time and with changes in the macro-environment. For instance, the core purpose of Walt Disney is to make people happy; that of Merck, to preserve and improve human life. But as customer-needs evolved, Disney found different ways of making people happy. The second term that we need to understand is goal. This is a specific objective that the company wishes to achieve in a specific time-span. While it should not make an easy target, it should also not be outside the realm of the possible. Stretch targets always bring out the best in an organisation. There is nothing strategic about goals. The third, and last, term we need to define is strategy-development. This deals with the mechanics of how the organisation can attain the goals it has set for itself, without straying from the core purpose for which it exists. The core purpose of Coolex is to offer solutions to the air-conditioning needs of customers--with products, systems, and services. While the company operates mainly in the systems segment, where its skills in Engineering, Procurement, and Construction (EPC) serve it well, Coolex has set itself a goal of attaining a turnover of Rs 1,200 crore by 2002. In real terms, this works to 25 per cent growth a year. The mechanics of how the company can do this is a function of customer-needs, competition, technology, and Coolex's ability to acquire, or develop the resources required to achieve the goal. Coolex's strategy-development process needs to incorporate both environmental changes and its strengths and weaknesses. Besides, the process should look beyond addressing a 3-year goal. It takes some companies that long to even acquire the skills needed to realise their strategies. It should outline the direction and frame a broad road-map to prepare the organisation for a longer time-horizon. There are many ways by which Coolex can achieve its turnover target even while staying within the confines of its vision statement: it can choose to focus on a specific product segment: central air-conditioning, unitary air-conditioners, or ducting systems. Or, it could decide to look at a particular customer segment: industrial or domestic customers. Or, it could adopt a mix-and-match approach, choosing to cater to the needs of customers in profitable segments in both markets. The ultimate choice would require the company to answer 4 questions:
Before offering Jagmohan suggestions on the direction Coolex needs to adopt, I must make a few observations. A strategy-development process that requires the company to exploit the core competencies that can help it tap emerging market opportunities could, sometimes, fall outside the scope of the vision statement. For instance, Coolex has a proven expertise in EPC activities, which could well be extended beyond the air-conditioning business to civil and industrial construction. Both are fairly attractive businesses, especially for a company with proven EPC expertise like Coolex. But it falls outside the company's statement of purpose, which limits its vision to the air-conditioning business. Two, Coolex needs to articulate medium- and long-term goals in addition to its 3-year goal. It needs to build these goals around not just turnover, but also other financial measures, which will enable it to address emerging criteria like Shareholder Value Added. Three, the company's market analysis should address all segments of the air-conditioning business--irrespective of its presence in them. After all, Coolex cannot decide whether or not it should operate in a segment without having studied it first. Finally, Coolex would do well to study its competitors and anticipate their moves. Based on this, I believe there are several strategic options before Jagmohan and Coolex. The company can focus all its resources on the central air-conditioning business. This is where it enjoys market-leadership, and a renewed focus should help it consolidate its position. Or, it could develop the same business in other parts of the world. It could even strengthen its presence in the unitary air-conditioners segment, which exhibits greater potential for growth. However, setting up operations globally or entering new segments are long-term options that cannot address Coolex's short-term blues. At one level, Coolex's planning process should detail a 3-year business plan that lists all the activities that need to be set in motion to achieve immediate targets; at another, it should be capable of evolving a strategy for a longer period. Only this mixed approach will help Coolex decide on the skills and resources it needs to acquire in the short and the long terms. In the process, Jagmohan will be able to ensure success for his company.
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RAMA BIJAPURKAR
ANU AGA
RANA KAPOOR
K.A. RAMAKRISHNAN
