Management by Matrices

Tuesday, March 23, 2010

Organizational memory and change

My latest column for The Hindu Business Line - Organizational memory and change. Full text follows.

Memory plays an important role in a human being's tendency to change. As a person experiences more, he creates more memories and as a result becomes a product of his memories.In a similar manner, organisations too have memories which are essentially the sum total of experiences of the current members. While these collections of memories or knowledge are certainly useful in building and scaling expertise contained within the organisation, they often become impediments to change.Such organisations find themselves with a ‘culture' that is unsupportive to change and prefers old habits that are unproductive and safe. The only exceptions are tipping point situations where the cost of holding on to memories becomes far greater than the benefits of change.In the face of such situations, some organisations finally reinvent themselves, while others just become extinct or fade away.Another point to be considered is that even in such extreme situations the change process is designed in a top-down way, and thus there is an inevitable resistance through the levels within the organisation, making it all the more difficult to create change when it is most needed.

Designing organisations for change
The question then is whether change can actually be designed to occur well before such extreme situations. The best way to go about achieving this would be the creation of decentralised change protocols at the micro level ‘sub-systems' within the organisational system. This is because the idea of change is closely linked to the idea of ‘spontaneity', or the ability to respond to a situation without stopping to consider the past (memories) or future.It can easily be observed that within sub-systems, the ability to be spontaneous is far higher than within a complex system as a whole. This is because sub-systems have far fewer moving parts, and as a result are able to quickly change to meet new demands. How then can an organisation be designed in such a way that its smaller sub-systems embrace change?

Decentralisation & capacity building
Decentralisation: As organisations get larger, there is a strong tendency to centralise all protocols for change. This leads to tedious bureaucratic processes of ‘approvals' and over-analysis which inevitably quell not just the proposed change initiative but reduce the tendency for future such attempts.Thus, the first key is to decentralise the origination and execution of change initiatives almost entirely to the sub-systems. There would still be ‘rules' to be followed, but these would be known in advance.

Building capacity for change:
The immediate criticism of the first suggestion is that too much decentralisation may lead to excessive risk-taking or poorly thought out initiatives that fail to take into account the larger impact of the changes in the sub-system on the system as a whole.Thus, the second key is to actually build capacity within the sub-systems so that there is a deep understanding of how changes within the sub-system impact different parts of the larger system, as well as the ‘whole' of the system. This capacity could be built into individual change agents within each sub-system.

Emergent change
From the foregoing discussion it may appear that the entire process of change can only be autonomous at the micro level, and not at the macro level as a whole. However, one may argue that the best change for any organisation is the sum total of the spontaneous changes in all its sub-systems.

In other words, if the mechanisms for rapid, spontaneous change are embedded into sub-systems, there is no need to worry about the system as a whole. It will automatically reach the place where it needs to be.
Thus, change at the level of a system is essentially an emergent property of change at the levels of the sub-systems. As such, there may be no need to be too concerned about where the system as a whole is headed as long as the sub-systems have the required capacity to design and execute change. In such a situation, the only ‘central' role in the organisation as far as change initiatives are concerned would be the design of efficient and simple change protocols for the sub-systems, as well as capacity building to understand the impact of sub-system change on the system as a whole.

In summary, any process of change is dependant on the capacity of an organisation to temporarily discard its memories in favour of spontaneous responses to the environment. However, in most organisations, particularly the large ones, this process can happen easily only at the sub-system level. The key then is to ensure that there is adequate intelligence built into all these smaller units that make up the organisation, while believing that the sub-systems' process of change will automatically result in the evolution of the system as a whole for the better.
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Links to older columns:

Tuesday, January 26, 2010

Leadership phases in society

My latest column for The Hindu Business Line: Leadership phases in society .Full text follows:
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Stagnation is the bane of any social order in that it disallows a full expression of society's potential.
Leadership is the lever through which society casts itself out of periods of stagnation towards periods of possibility. There appear to be essentially three phases of leadership in society (or for that matter any institution or organisation). These three phases represent three states of being or collective will, and not necessarily a sequence.

Expression:
Capturing the mood of the times The first phase is the formation of a strong collective mood due to various circumstances. This leads to the arrival of an individual who effectively expresses the current state of the collective consciousness, and is thus elevated to a leadership role. Political history is rife with examples of such leaders who brilliantly capture a prevailing mood to their own advantage. Such leaders may later be viewed harshly by history, but the fact remains that the collective will, at least temporarily, was in sync with the aspirations of these leaders. Thus in this first phase, the leader is very much a part of the collective, and a representative of its wishes. This phase may be termed as an `Expression Phase'.

Evolution:
Arrival of a transformational leader The second phase of leadership in society occurs with the arrival of a transformational leader. This leader's views may often not even match the will of the collective on a number of issues. He may craft a completely new agenda or vision for the future yet unforeseen. Yet, the persuasiveness, and the moral character of such a leader may cause the collective to suspend its current way of looking at things in favour of a completely new future. So, in this second phase, the leader is almost outside the collective, and yet successfully charts a new path for it. This phase may be termed as an `Evolutionary Phase'.

Revolution:
Collapse of old orders The third phase of leadership is a complete erosion of boundaries between the leader and the collective. This tends to occur in certain mass movements where the objectives to be accomplished become so ingrained in the collective that the leader may just become a figurehead, while the collective marches on, often crafting strategies and tactics on the go. This phase is based on a sense of distributed ownership, and is also characterised by a breakdown of existing norms and institutions. This phase may be called as a `Revolutionary Phase'.

The entire process may be quite long drawn, and when finally the goal is accomplished, society reverts to the first phase, wherein a leader is selected who will preserve and maintain the current will of the collective. TRINITY Interestingly, the three phases have a close relationship to the Indian idea of cycles of creation and destruction. The triumvirate of Brahma, Vishnu and Shiva represent the tendencies to create, preserve and destroy at a cosmic level. Thus, the evolutionary phase of leadership represents a creative era in which society reinvents itself. The preservation phase represents an era when society maintains the status quo. The revolutionary phase represents a destructive period when all old ideals and institutions may be cast aside in favour of a desired future state, sometimes without even knowing the precise contours of the future state.

It is interesting to note that in the first two phases, leaders continue to operate within the boundaries of existing institutions, while in the third phase the desire for rapid change far exceeds the need to preserve and work with existing institutions. Also in the first phase, there is a fairly precise articulation of how the future looks, while in the last there is only an articulation of how the future must not look. In sum, viewing leadership through the model of these phases enables us to get beyond the current personality-centric or heroic definition of leadership towards a new definition that is based on the complex relationship between what society `needs' at a given point of time and how it chooses to accomplish the same through a tool called the leader.

Older columns:

Tuesday, December 8, 2009

Strategic Obsolescence

My latest column for The Hindu Business Line - Strategic Obsolescence. Full text follows:

A major cause of the failure of most organisations is their inability to foresee their own obsolescence and remaining stuck in their old ways of doing things. In this article I argue that every organisation must actively plan for its own obsolescence, and work in parallel on future opportunities. In other words, becoming obsolete should be part of the core strategy of a firm.

This entails taking a flexible view on the core purpose of the organisation. Not surprisingly, most firms tend to ignore the possibility of extinction until it’s too late. This is because most of firms’ energies are involved in improving upon past metrics, and very less energy is devoted to the future that is emerging.

Studies show that the average Fortune 500 company only exists for about 40 years. This means that even the largest, most well-managed organisations, are woefully short on vision when it comes to evolving with the marketplace.

Model of innovation

The accompanying graphic demonstrates the implications of strategic obsolescence. Every new industry begins with an early wave of innovators or market creators who create a new market.

First movers have the freedom of pricing and tend to use this to their advantage by skimming the market. As more and more players get in, efficiencies increase and prices fall further as a result. At one point, the market is saturated and prices and efficiencies plateau out. At this point, in most industries the incumbents begin looking for growth by setting up subsidiaries in new markets, and doing more of the same.

Meanwhile, some new innovator may introduce a disruptive product that may act as a perfect substitute to the current product and still be just as competitive on all dimensions. Alternatively, another innovator may be working in a direction where future Government policies are headed (example Green Energy). This is when large, bulky incumbents are taken by surprise and end up facing the possibility of extinction.

A company that invests in its own ‘strategic obsolescence’ will start aggressively investing for the future at every downward slope of the Z depicted in the graphic (similar to the S-curve concept commonly used to depict innovation). Incidentally, the downward slope of the Z also indicates a transition from innovative product to commodity.

Examples

A number of industries demonstrate a lack of planning towards strategic obsolescence. American automakers who have always resisted green/ hybrid vehicles may have well found themselves at the cusp of a lucrative new opportunity had they invested in that opportunity many years back. Instead, they face imminent bankruptcies.

Similarly, the conflict between traditional electric utility companies and new green technologies is likely to play out in a similar manner as Governments invest in and incentivise these new technologies, while the existing players may lobby for their own self-preservation.

A lot of technology companies understand this idea quite well because the rate of obsolescence of technological products is far higher than any other sector (the ‘Z’ in their case would be more like a steep step).These firms have entrepreneurial teams that are constantly working on determining what the next wave is likely to be, and iterating new innovations to meet the challenges of the future.

An alternative approach seen today is the acquisition of early stage ventures that are already working on disruptive ideas, and incubating those ideas (even if they turn out to be failures in the future).While it may appear counter-intuitive to invest in one’s own obsolescence, it must be kept in mind that other firms working on disruptive innovations are already doing so. The options then are to either invest for obsolescence or face unexpected extinction.

In conclusion, it is important to view extinction as a given and thus not get too attached to the idea of a core product line that remains static, and oblivious to the changes in the environment. In other words, the firm not only ‘exists’, but is actually a living, breathing entity that is constantly ‘becoming’.

Being indicates status quo, while becoming indicates a vibrant, creative outlook that is open to an ever-changing environment.

Older Columns:

Monday, October 26, 2009

From Alienation to Meaning

My latest column for The Hindu Business Line - From Alienation to Meaning . Full text follows.

It might sound like an unlikely place to find insights into human potential pertaining to the modern world, but Marx’s ideas on alienation continue to be relevant even in the world of free markets. It appears that the long journey spanning centuries from a factory-centred economy to a knowledge-based one hasn’t quite seen a proportional change in the way human capital is viewed. In this article, an attempt is made to bridge this gap by loo king at two concepts which mark the ends of the spectrum — Alienation and Meaning.

Marx identifies four sources of alienation that ‘workers’ in a capitalistic society feel.

The first form of alienation is that between the worker and the product of his labour, as he has no rights to it after production.
The second is between the worker and the process of production — in other words, predictable, well-defined transactions are the order of the day.
The third is alienation between fellow human beings as a result of a class structure or hierarchy that emerges in any organised structure like this.
The fourth source of alienation is alienation from the worker’s human essence, whereby all possibility of creativity and spontaneity are stripped away from a human being.

An important difference between humans and other animals is in the way they interact with nature — while animals interact in a static way to the external world, humans are endowed with consciousness and imagination which allows them the faculty of being able to visualise new future possibilities first in their minds, and then in the world outside.

Of course, all these sources of alienation were originally described in the context of blue-collar or factory work which was the dominant kind of labour in those days. However, quite surprisingly, the entire concept seems equally applicable to the modern world where the ‘worker’ is engaged primarily in white-collar work.
It’s quite astounding that the way work is viewed and structured has undergone so little updating in all these years. It appears that only a few token steps have been taken in the direction of moving away from alienation, without a clear articulation of where the destination is.

In this article, I argue that the ideological opposite of alienation is meaning, and that should be the direction towards which all future notions of work must converge.

The meaning infrastructure
A post-alienation world view would be based on the idea of ‘meaning’. All the four causes of alienation identified above would need to be addressed. The journey from alienation to meaning would need to be accompanied by the creation of appropriate infrastructure. This infrastructure would consist of four key pillars — each mapped to a source of alienation.

The first pillar would be the creation of significant distributed ownership of equity across the firm. This would mean far greater ownership than the token ESOPs that exist in the market place today. Currently, there is an under-estimation of the value of human capital relative to financial capital. However, it is encouraging to see that a large number of firms these days adopt some form of compensation in the form of equity.
The second key aspect of this new infrastructure would be a systematic extinction of ‘job descriptions’, and an emergence of ‘responsibility descriptions’. A responsibility description outlines outcomes, and not behaviours. How outcomes are accomplished is left to the imagination of the employee.

The third element of the infrastructure is the creation of flatter hierarchies that eliminates the needless creation of layers or artificial ‘career paths’ where each step tends to signify vintage rather than genuine upgrade of skills. Again, this concept is already widely in use, particularly in new ventures without the legacy of large, pre-existing hierarchies.

The fourth pillar is the recognition of innovation and creativity as key sources of value addition from the workforce. Currently, the perception of value addition is restricted to increase in revenues and reduction in costs. Innovation is seen as a response reserved only for crisis situations, as opposed to an ongoing process of articulating fresh responses to the environment.

Of course, there are many ways to create meaning, and this is just an indicative set of ideas.
An important quality of the modern ‘worker’ (or indeed human beings in general) is the belief in one’s own uniqueness. This belief translates into a need to create customised experiences for oneself in all dimensions of one’s life. It’s time society updated the way it views work to reflect this desire.

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Previously published articles:

Tuesday, October 13, 2009

Telecom pricing

With the price wars in telecom intensifying each day in what is already the cheapest telecom market in the world, I think the logical next step in pricing innovation will be something like this: Pay Rs. X per month, and use your phone as much as you want.

I think this will happen in the next 12 months. This way the telecom companies will be able to protect or guarantee their Average Revenue Per User even if its at a low level. Of course, price wars will start on the monthly amount as well, and telecom companies will need to innovate further. Also, within the next five years, VOIP may also become a viable alternative to traditional telephony. Interesting times ahead.

Monday, October 12, 2009

Three skills

Seth Godin has an interesting post on what he believes to be the three skill areas that ensure you are in demand as an employee:

Sales
Additive effort (someone who brings in efficiencies)
Initiation (someone who can initiate action... or start something transformational)

I think the three skill areas can be re-articulated as follows:

Someone who can increase revenue
Someone who can reduce cost
Someone who can bring creative ideas to life or create new wealth creating assets.

Seth rightly points out that the last skill is difficult to value. The first two are directly P&L oriented, while the last one is more fuzzy and takes time to enter the P&L, and is also prone to failure i.e. ( a lot of entrepreneurial initiatives tend to fail or fizzle out) .

Wednesday, October 7, 2009

Story of Stuff

A really fascinating presentation - Link

In short, it argues that our entire economy and our self worth is now linked to the idea of being consumers who will infinitely keep the engine of production going, without being mindful of the destruction that this is causing to the environment, as well as the harmful effects on society as a whole.

I think the future lies in sustainable local economies, where most of the basic 'stuff' we need is produced in our local economy or neighbourhood, consumed locally, and then disposed and recycled. If something can't be recycled or disposed harmlessly, it should not be produced in the first place. Also the single biggest piece in this consumption engine is Energy, and hence the sooner we move to green energy the better.

It seems like change can happen more easily in developing and poor economies which haven't yet gone through the entire cycle of increasing incomes and consumption. On the contrary, we have India arguing at climate change forums that developing countries should be spared the burden of contributing to reduced carbon footprints etc. as all that would come at the cost of development. In other words, we are arguing that we will first replicate what the developed economies did, commit the same mistakes, and only then be held accountable for any damage we may caused in the process!

Saturday, September 19, 2009

Brokerage Comparison - ICICI Direct, SBI, HDFC Securities etc

Out of curiosity I did a comparison of brokerages across various providers of trading and demat accounts in India. Here are the findings:

For a delivery based volume of less than Rs. 50 Lakhs per quarter, here are the brokerages across some leading providers of trading and demat accounts.

ICICI Direct =fixed plan of 0.50%, (and a variable plan of 0.25-0.75% which is beneficial only for large investors)

HDFC Securities = 0.50%
SBI Demat = 0.50%
Reliance Money = 0.45%
Geojit BNP Paribas = 0.25% to 0.30%
Edelweiss = 0.30% to 0.50%
Fullerton Securities = Upto 0.50% on pre-paid plans
Angel broking = 0.35%

[Readers may drop in brokerage charges for other service providers and I will update the post accordingly.]

Sunday, September 6, 2009

Life Settlements - The next sub-prime crisis

Undeterred by the mess that it created with securitization of mortgages (the Subprime crisis), Wall Street is now working on a new kind of securitization, that of life insurance policies.

The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

... And investors are not interested in healthy people’s policies because they would have to pay those premiums for too long, reducing profits on the investment...

More here

Some clear flaws that could make this the next bubble are:

1. With better health care facilities and medical research, people will end up living longer thereby reducing returns on these 'life settlements' for investors like banks.

2. Some currently fatal diseases may soon have cures, causing the value of this new product to plummet.

3. A large market may emerge where people buy insurance policies just to 'flip out' and sell it to a bank. This is exactly what happened with real estate mortgages, where a whole bunch of people bought houses simply hoping to flip out as the underlying value of their homes went up.

4. Life insurance companies will blow up due to larger payouts being paid as a result of a greater percentage of policies NOT lapsing (a lot of long term policies lapse because the insured / dependents may no longer need the benefits).

5. Life insurance premiums will go up, implying that more and more people who actually need insurance will no longer cover themselves. As it is the poor are already on the fringes of the mainstream financial market.

6. The best returns on this investment product will be gained when the insured person dies sooner than later - there may well be some strange consequences to this.

7. A big market would develop for sub-prime policies (policies of people who are likely to die sooner). This product would be in the highest demand. Some rating agency will slap a AAA rating on it. Either 1. or 2. listed above will cause a major blowout.

The article linked to above implies that Wall Street is going ahead full steam on this new product. Awesome.

Thursday, August 13, 2009

Prospect Theory

Check out this old post on prospect theory.

Tuesday, August 11, 2009

Netflix culture and values

Here's an interesting internal presentation from Netflix on their company culture and values.

Among other things, the presentation argues that in order to preserve a high level of freedom as the organization transitions from start up mode to large organization mode, the organization will actually hire more and more star performers. In other words, you maintain freedom by hiring more responsible people who are good performers. I don't see how that is practical. A ten employee company can easily hire 2-3 stars and increase head count by 20-30%. However, a 1000 employee company would need to find 200-300 stars in the market place in order to maintain its star ratio as it were. This seems quite hard to do.

Culture

View more presentations from reed2001.

Saturday, August 8, 2009

New Look

Testing a brand new visual identity and template for Management by Matrices.

Monday, July 20, 2009

Argentina's peculiar coin shortage

For well over a year now, small change has been hard to come by there. Stores hang “No Coins” signs in their windows, and offer candies instead of change. Taxi-drivers round up—or down—to avoid giving up precious coins, while smaller merchants sometimes turn away business if you have only bills to offer them. The government has fined banks thousands of pesos for refusing to hand over coins, and, in October, the city’s subways became temporarily free when the booths ran short of change. For the average Bonaerense, everyday transactions now entail a complicated calculation of where coins can be acquired and when they will be needed.

More here

Thursday, July 9, 2009

Tata Docomo's launch

Tata Docomo's GSM service is being launched in a very Web 2.0 way, with a Twitter page ,Youtube Channel , and a very 'social' website with user comments, page ratings, share links for facebook etc. I see

a very strong brand in the making - one that could challenge Vodafone. The pricing innovation of having a 1 second pulse rate is also a first. Of course, the actual network coverage and customer service will be the final decider, but all the preceding steps have been executed quite well.

Incidentally, Docomo has a strong R&D focus in Japan, which makes it the only player that is creating new technologies as opposed to just using existing ones. That's a fantastic source of long term competitive advantage in the face of 'commoditization' of telephony.

Tuesday, June 2, 2009

Bing Review: Microsoft’s first web winner

For a change Microsoft gets it right with Bing. Bing clearly wins over Google on the following counts:

1. Visual Appeal- reminiscent of Ask.com’s earlier avatar.
2. Speed – it’s just as fast as google.
3. Clean categorization of ‘Related searches’, using Powerset’s technology (I presume)
4. A preview feature that helps you read content from the target site before clicking.
5. An overall philosophy focused on getting as much of the information you need from the search engine itself before actually clicking and going to a site, thereby making it a decision engine.
6. A spectacularly clean integration of Travel and Shopping into the search engine in a manner never seen before, including the special Bing Cashback discounts that you can avail by clicking through and buying products via Bing search results. (This feature is available on the US version of the site.)
7. Finally, Bing looks like it was designed for ‘real’ users, while in retrospect Google looks like it was designed more for geeks than regular users.

In short, Microsoft has surprisingly achieved the next frontier in search. Google may well outdo it in the future, but Microsoft has set the agenda for sure.

Monday, May 11, 2009

Insight Institutionalization

My latest article for The Hindu Business Line appears here: Weaving Insight into an Organization's DNA. Full text follows.

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In Meno, one of the dialogues written by Plato, Socrates contends that all knowledge pre-exists in an individual; all he needs is the ability to find out what is already inside him. It appears that Socrates was referring to the ‘insight’ or ‘inspiration’ dimension to the creation of new knowledge.

A lot of times, new insights appear to us in a flash, out of no logical process based on facts. This statement holds true today too, as a significant portion of new knowledge creation is often based first on insight and subsequently on ‘finding evidence’ to support the conclusion.

Whatever the truth of this assertion, it is hard not to see that insight/ inspiration are key tools for knowledge creation. However, these two dimensions find little place in modern organisations.

Focus on facts

For long, fact-based approaches have assumed a prime position in management thinking. One reason for this could be that facts are not subjective and hence leaders may view facts as a risk-free way to push through initiatives, make decisions and find solutions to problems. However, it is increasingly becoming clear that decision making is a far more complex process, where the whole is often greater than the sum of the parts.

Systems Thinking is a form of analysis in which problems are solved not just by understanding a component or part of a system, but rather by looking at its inter-relationships with the ‘whole’. Such an analysis would clearly need more than just an analysis of facts; it would require inputs from more nebulous things like ‘inspiration’ and ‘insight’.

In the model depicted in the accompanying graphic, an attempt is made to understand how ‘insight’ is a function of many parameters — facts being only one of them. Data in the external world becomes information through its organising. Analysis of this information leads to partial insight. This is fulfilled through further contributions from past experiences of the decision maker, as well as the creative force of inspiration.

In the absence of experience and inspiration, it may well be argued that all decision making could be entirely done by machines and there is no need for human intervention. Moving on, codified insight becomes knowledge, which when acted upon becomes a practice. Practice in turn generates further data and so on.

Institutionalising insight

Unfortunately, most organisations do not invest in institutionalising the insight process. This means that ‘best practices’ may be discovered accidentally and not be scaled up to the entire system. Also, people end up sticking to existing norms, processes and approval mechanisms without questioning whether or not things could be any better. Here are some thoughts on how insight could be institutionalised.

Acceptance of failure: The first step is the creation of a culture that is extremely accepting of failure. It is not hard to see that the ability to see new creative possibilities is closely linked to a tolerant view of failure.

Investing in cross-functional skills: Organisations rarely invest in the creation of cross-functional skills amongst managers. One of the biggest threats to insight realisation is ‘silo-based’ thinking, where individual divisions seek to maximise their own self-interest, leading to highly non-cooperative political environments. In such environments, people tend to focus only on their ‘parts’ without realising that the ‘whole’ is greater than the sum of the parts.

For instance, most multi-product companies routinely fail in implementing effective cross-selling programmes because of this very reason. Once an investment is made in the creation of individuals who appreciate the ‘whole’, the above problems would diminish.

Hubs for insight realisation: To close the gap between insight and implementation, it would help to have hubs or teams that focus exclusively on realisation of insight in the real world.This would be done in the form of quick pilots, which if successful would scale up to become new practices.Often, line managers do not have the bandwidth to focus exclusively on such initiatives as they would come in the way of fulfilment of regular responsibilities or achievement metrics.

The role of new insight and knowledge creation in an organisation cannot be underestimated.Today, rapid advances in technology mean that the duration for which any organisation can hold on to a ‘competitive advantage’ is severely compressed.This implies that institutionalising insight is key to sustainability through the creation of new sources of competitive advantage.Hence, it is important to respect the role of insight and also understand that its source lies not just in fact-based analysis.

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Older columns:

Monday, February 9, 2009

Service before Profit

My latest opinion piece for The Hindu Business Line appears here: Service before Profit
Full text follows:

We live in a world where the simple greed of private enterprise has led to a large scale economic recession. Yet, there is no serious discourse happening on whether things have fundamentally changed in the manner in which business is to be conducted in the future. As Governments announce bailout packages of unheard of proportions, it is abundantly clear that we are witness to an extraordinary period of ‘Keynesian’ State intervention in private enterprises and t he economy. This is as good a time as any to reflect on the fundamental motivations that drive business organisations and the role they need to be playing in the post-Industrial Revolution era. In fact, this period of time may well mark the last bridge between industrial era ideas of enterprise and the knowledge economy.

The Industrial Revolution

The Industrial Revolution was brought about by inventions like the steam engine and the invention of other technologies that enabled the mass production of goods at centralised locations and their subsequent distribution to markets. It may be argued that the seeds of a consumerist society were first sown at this time. Clearly, if you had the technologies at hand to efficiently mass produce goods, then it is only logical that at some point you would like to sell things to people who don’t need those things in order to keep the revenues coming in. Additionally, if shareholders demand growth in profits above all other considerations, the vicious circle becomes complete. In other words, all incentives point towards the creation of short-term bubbles in the quest for short-term gains.

Service Oriented Organisation

The post-industrial world clearly needs a new definition of what a business organisation exists for, particularly because service- and knowledge-based industries assume centre stage in it. It could be argued that this ‘new’ definition needs to place the notion of ‘service’ at its very heart. That definition could be as follows: ‘A structured social and economic entity designed for the efficient and scalable delivery of service to society in a financially and environmentally sustainable manner.’

It is important to note that this definition of an organisation does not include the word profit. Instead, it emphasises that a business needs to be viable both financially and environmentally. Man’s conquering of nature was an important characteristic of the Industrial Revolution, but the problems that the world faces today (climate change, for one) makes it clear that there is a need to get back in synch with nature.

In some ways, the definition also aims to integrate the western protestant work ethic (which some say helped achieve the Industrial Revolution), with the eastern notion of work as an offering (or service) to a higher power with no anticipation of results. Eastern philosophies pay more attention to the actual process of work and the attitude towards work as opposed to the results it produces. In our current context that means focussing on the everyday act of service to a customer as opposed to things like ‘ticket size’.

Implications of Service-Oriented Organisations

There are many implications arising out of using service as the primary metric of success. The first impact is on the notion of customer segmentation. Customer segmentation would now refer to the addressable group of customers who need a particular product or service, not necessarily those who can afford to buy it. Only when there is a genuine need can you genuinely ‘serve’. Everything else is mis-selling.

Secondly, it impacts the entire notion of pricing. Typically, businesses use pricing itself as a ‘strategy’, whereby a price is set on the basis of the value perceived by a customer as opposed to being based on the actual value of the product. When the former strategy is used, pricing becomes all about manipulation of customer perception, value through branding and positioning. In the new order, marketing and communication would centre around the communication of value and not the artificial creation of value.

Thirdly, shareholders would be rewarded more through dividends and less through capital gains. In other words, the excessive obsession with growth and diversification that characterises current industry would make way for a greater emphasis on quality of service and retention of customers while focussing on core competences. Of course, this does not apply to early stage businesses that are yet to scale up. Here, we are referring primarily to the large, well established players in any industry.

Finally, there would be an impact on human capital. It is not difficult to surmise that employees in a service-oriented organisation are likely to be more loyal and satisfied, and contribute more, simply because serving other people is far more meaningful than serving only a ‘bottom line’. It is easy to witness this phenomenon in public sector companies, which have a larger goal of ‘nation building’ that goes beyond mere profit.

None of these implications are beyond imagination. In fact, most successful organisations already use similar principles in various ways. Finally, it must be re-emphasised that a serviced oriented-organisation does not shun profits, but rather has its own way of looking at profits as part of a larger scope of end results and not the sole metric of achievement.

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Previously published pieces:

Tuesday, January 6, 2009

When work is invisible, so are its satisfactions

Pretty interesting perspective on how the intangible nature of the work done by knowledge workers leaves them dis-satisfied at the end of it : link

Monday, December 8, 2008

The Free sourcing ecosystem

My latest column for The Hindu Business Line appears today - The Free sourcing ecosystem
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The first wave of outsourcing was enabled by major trends such as the rapid advances in information technology and communication, opening up of national economies and availability of skilled labour markets in these countries. Initially, outsourcing was viewed as a way to ship ‘non core’ activities out of the parent organisation to specialists offering the same service at a low cost. However, a study of the competitive advantages possessed by players in any indu stry would reveal that the notion of ‘core’ and ‘non core’ is gradually blurring.

While some players possess advantages in product design, others do so in distribution and some others in customer service. It is not difficult to imagine a future in which enterprises focus only on one kind of specialised activity in which they possess competitive advantages over other players and do not participate in other activities. Such an ecosystem would consist of highly specialised firms that come together in various configurations to innovate, produce and distribute goods and services to customers. What kinds of players would such an ecosystem of enterprises consist of?

Artists — Product and Design organisations: These would be knowledge-oriented enterprises that thrive on the study and creation of knowledge. Their primary function would be in the arena of product design and research and development. The revenue source for these companies would be the creation of intellectual property which would in turn lead to licensing opportunities. This model is not unlike that of an artist who creates an original body of work for which he can earn royalties over an extended period of time.

Craftsmen — Production companies: These are companies and individuals that are engaged in the act of actually producing goods and services. In other words, the role they perform is that of a craftsman or artisan who mass produces objects of a given design. The specialised skill they bring to the table is the ability to efficiently mass-produce products through appropriate use of resources and technologies. Additionally, these entities may also add value through product customisations and tweaks that build on existing intellectual property. The end product would either carry the brand of the production company or that of the product and design company.

Socialisers — Distribution companies: The role of socialisers is primarily to ensure that the output of the craftsmen reaches society through marketplaces. These are companies with distribution infrastructure that may support multiple products of the same industry or different industries. The underlying assumption is that in the end, the customer has the final word on product choice. The role of the socialiser is to ensure availability of all options. The revenue stream for these entities would be in the form of commissions from various production companies they serve.

Fulfillment providers — Service companies: Service companies would engage primarily in the arena of customer fulfilment and after-sales support. Once again, these companies may operate across products and across industries. Outsourced call centres are an example of entities that perform this function today. These entities benefit from economies of scale and are hence able to offer highly competitive prices to the production companies.

End customer (Co-creators and Evangelists): The end-customer is also an important part of the product life cycle. The first role he plays is that of an influencer through evangelism of good products. The second role he plays is that of a co-creator of new products. The views of the end-customer directly affect future design of new products. In this way, the end-customer is closely linked to the design companies and has an active say in the kind of products and services he would want to use.

For each industry, the combination of players that would come into play in this ecosystem would be different. Let’s look at how a model like this fits into an industry like asset management (mutual funds and so on).

In the ‘free sourcing ecosystem’, the ‘artist’ role would be performed by companies that purely specialise in research and creation of portfolios of instruments to invest in. There would be no ‘craftsmen’ because the product in this case is not a tangible, physical one. The ‘socialisers’ would be the various companies — like online trading portals, distribution companies and so on — that distribute these investment products . The ‘fulfilment providers’ would consist of BPOs that handle operations and after-sales support. The ‘end customer’ would be a co-creator whose inputs would influence future product design.

Depending on the industry under consideration, some players in the ecosystem may be absent. However, the broader idea is of a marketplace of specialised enterprises that freely come together in various configurations and freely separate and plug into configurations with other enterprises if things do not work to mutual benefit. It is not difficult to see that an ecosystem like this will ensure that there are minimal inefficiencies in the entire value chain from product innovation to product consumption.

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Friday, October 24, 2008

Fixing the subprime mess

Firstly, I'm no expert on this subject, but here's something I've been thinking of as a possible solution to the crisis.

Make all mortgage payments of existing homeowners in the US to be 100% tax free for a period of say 5 years. This would make the net cost of payments lower for the end customer and hopefully reduce foreclosure rates. It would also provide an incentive to households to divert as much of their income as possible to mortgage payments (after all they get to own their houses as well as pay less tax to the government). This in turn may help housing prices to stabilize instead of going down, and all those potentially worthless mortgage backed securities may finally have some value.

(PS: This is just an idea that popped into my head - haven't quite done enough research on the financial crisis to verify if this will work)

Update:
Very interesting news item on the CNBC site on the increasing rate of foreclosures in the US.
McCain wants the government to actually buy out mortgages.
"The administration is not doing what I think they should do, and that's go in and buy out these bad mortgages, give people mortgages they can afford, stabilize home values and start them back up again," McCain said in a live interview with his vice presidential running mate, Sarah Palin.

It looks like McCain is approaching this problem from the right direction in so far as recognizing that a possible solution likes in 'bailing' out end customers which sets a virtuous cycle in motion, as opposed to just bailing out financial institutions.