Strategy; Competitive advantages: Fighting with the five forces

TRIMILLENNIUM MANAGEMENT: COMPETITIVE ADVANTAGES
Fighting with the five forces

By Maneesh Srikant

Maneesh Shrikant, Dean of the SPJIMS Transnationals operating in India will not be clueless when it comes to matters concerning competitive advantage in this millennium. New York, London, or Milan-or whichever international capital they use to refer as their corporate headquarters because it is based there-will evolve, after the consideration of factors like localisation, their competitive strategies. Management practices within an organisation follow an evolutionary pattern. Companies begin by first competing on the basis of cost. However, once companies within an industry achieve comparable cost-structures, the focus shifts to quality, then variety, and, finally, to responsiveness.

In the Indian context, the sequence in which companies adopted these strategies may have been different, but the strategies themselves remained the same. Inevitably though, the better companies first adopt sophisticated strategies. This helps these companies differentiate themselves along a more advanced dimension. Other companies replicate this, but, by the time they succeed in doing so, the better companies have moved on to the next higher dimension.

Competitive advantage in the Western context has an external focus. It underscores several assumptions. One, there is a demand for a product or service that falls short of supply. Two, the market is structured in such a way that it has some characteristics of perfect competition. Third, the market is, in effect, regulated by a zero-sum game for total gains for competing organisations.

The top rung of the Indian corporate strata will, probably, with or without the aid of consultants, be able to do the same. However, I am worried about the capacity of traditional Indian companies, with turnovers of between Rs 50 and 500 crore, which are productive assets and repositories of decades of useful experience. Western management mantras may or may not help them in this millennium. However, I believe there are 5 ways in which these companies can compete in the emerging global marketplace.

QUANTUM RESTRUCTURING. Indian companies need to improve their operational efficiencies if they wish to succeed. This demands a high level of internal focus. Having operated in a permit-raj economy for over 4 decades, most organisations have begun the millennium, despite a decade of open-market competition, with problems that range from over-staffing to low productivity of materials, money, and machines. Poor communication, outdated work-practices, and close-to-obsolete technologies only compound this.

The most important priorities for these companies are fewer people, less hierarchy, and improved communication and co-ordination. Many companies initiated restructuring efforts, but the focus of these efforts was more on the reduction of staff than on the restructuring of management processes. Benchmarking, by virtue of highlighting the company's performance as compared to best-in-class, could well prove to be a source of competitive advantage for companies wishing to restructure their operations.

DISCARDING OUTDATED AXIOMS. Many Indian companies will feel the need to restructure their operations in this millennium. However, irrespective of whether they benchmark their operations as a starting-point, most of them are destined to fail unless accompanied by a shift in the attitude of senior managers. The greatest threat to competitive advantage in the 21st Century comes not from the transnationals or disintermediation, but from the Indian corporate sector's habit of endowing senior managers with tremendous authority and holding them responsible for little.

Indeed, the lack of individual accountability extends to the organisation too, with the company not following any scientific performance-management system. Will the senior management teams of Indian companies realise this, and change for the better without coming face-to-face with bankruptcy or ruin? One doesn't know, but thanks to the unique amalgam of macro factors, this millennium could just bring about such an eventuality. The very ability of managers to change, then, could be a source of competitive advantage for Indian companies.

MARKET CREATION. The Indian market has one unique characteristic: it boasts of latent demand for products and services. Some of these are waiting to be discovered by companies innovative enough to launch products targeting them. Even in the 1990s, few companies leveraged this to their benefit. New-Age entrepreneurs and companies, ahead of the competition in terms of strategic intent, are the prime movers of efforts to tap these markets.

The existence of these markets is, by itself, not a source of competitive advantage. But, over time, a firm that taps these opportunities acquires expertise in risk- and capital-management, product-development, and marketing that translates into a sustainable competitive advantage.

COLLABORATIVE ADVANTAGE. India has companies of varying sizes. These operate in a diverse spectrum of industries and in varying positions of the value chains in these industries. This heterogeneous nature of the market can, by itself, be translated into a source of competitive advantage. Companies can band together and create interdependent vertical and horizontal clusters for producing, distributing, and servicing goods. These clusters of suppliers, buyers, and distributors provide a cost-quality-service capability far superior to that provided by a vertically-integrated entity. Networking, informal partnerships, and alliances are possible vehicles for developing such clusters. I term this collaborative advantage.

COMPETITIVE CONTEXT. Infrastructure provides the context within which firms operate. The economic term for infrastructure is externality: something whose quality influences the efficiency and effectiveness of the business. The infrastructure scenario in India is only bound to get better. Internationally, utilities are strong, successful organisations. Over time, they acquire expertise in project-management. And then become major players in the infrastructure sector of countries opening up their economies. I see those companies venturing into this sector in India leveraging the skills they acquire to become players in utility markets in Asia and Africa.

In conclusion, the 5 propositions I have enumerated should form the core agenda for organisations in this millennium. They will help them re-invent themselves. But, if they are lax in doing so, their very existence could be threatened.

Maneesh Shrikant is the dean of the S.P.Jain Institute of Management studies

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