It has been quite a long time .. more than a year indeed & as i write this , i can only thing of the traffic that is increasing & nothing more. Everyone including the auto driver is not happy about the traffic.
The most striking thing that I saw was that though it's a cool evening, people have their AC in the cars switched on..do they really need it or is it just another ego massage, in turn making their small contribution to Global warming.
Companies run AC's (providing world class facility is what they claim) throughout the day which almost run stale air inside& let out air which is harmful. These are the best companies in the world.
After all the hue n cry of earth dying out with the overall global temperatures increasing by the day, we still don't realise & do anything ( atleast that's my feeling)
Bangalore during summer was the best place to be even 5 years ago, but now the feeling is really not that at all.The temperature in Bangalore if at 30 degrees 10 years ago was really a 'hot summer' but now even 33-35 degrees is 'ok'
Speed is money & what about money which can't even help you live in a healthy way. Where do we go with that speed, few people making a fortune out of it & nothing more is what i think.
Saturday, May 17, 2008
Thursday, March 01, 2007
Where Your Job Is Going A visit to Bangalore, India, a city where tech is hot, the drinks are cold, work is plentiful, salaries are a lot lower
An interesting article on outsourcing from Fortune.
The way we have come along is what it says opening the mind to the thoughts of where individually & community as a whole we would be heading towards in the future.
Every weekday, as the tropical sun begins its swift descent over the Deccan plain, fleets of what the Indians call "multi-utility vehicles" fan out across Bangalore. The Tata Sumos and Toyota Qualises bump along the potholed, muddy residential streets of India's fifth-largest city, stopping to pick up young men and women and carry them to work. Then, as business hours begin in the Eastern U.S., thousands of these young Indians don telephone headsets and do their enthusiastic best to help the American people get their Internet service working, figure out their credit card bills, and order tacky limited-edition collectibles.
After years of wondering what all those fiber-optic cables laid around the earth at massive expense in the late 1990s would ever be good for, we finally have an answer: They're good for enabling call-center workers in Bangalore or Delhi to sound as if they're next door to everyone. Broadband's killer app, it turns out, is India.
It's not just about call centers. In Bangalore some 110,000 people are employed writing software, designing chips, running computer systems, reading MRIs, processing mortgages, preparing tax forms, and doing other essential work for U.S., European, Japanese, and even Chinese companies. Intel, Cisco, Oracle, Philips, and GE are among the multinationals with significant R&D facilities there. AOL, Accenture, and Ernst & Young have big operations in town too. Scores more Western corporations outsource work to Indian companies like Bangalore-based IT services firms Infosys and Wipro.
Meanwhile, GE Capital employs more than 15,000 people in Delhi and other Indian cities who answer calls from credit card customers, do accounting work, manage computer networks, and the like. In Chennai (formerly Madras), a staff of 350 design the PowerPoint presentations that McKinsey consultants around the world show their clients. In Mumbai (Bombay), Morgan Stanley has been hiring equity analysts to help cover U.S. companies from 102 time zones away. There are more than 350,000 people working in IT services and outsourcing in India now; the number is expected to pass one million before 2008.
The attraction of the Indian knowledge workers who get those jobs is that they're paid 10% to 20% of what Americans would expect for similar work--and in many cases they do it better. That has stoked understandable alarm in the U.S. Together with China's rise in manufacturing, it is bringing protectionists out of the woodwork. It is also causing even those of a less reactionary bent to wonder just what it is that Americans will do for a living now that even knowledge work can easily be sent overseas.
And what do those young Indian knowledge workers (they are, overwhelmingly, young) think about this turn of events? Sitting on the terrace one pleasant October evening at a swank Bangalore bar called the 13th Floor (which is in fact on the 13th floor of an office building on M.G.--short for Mahatma Gandhi--Road, the city's main drag), I pose the question to a group of young managers and engineers from Wipro: "Do you feel bad about taking jobs from Americans?"
Several of them respond with a torrent of economic reasoning that would have made David Ricardo, the 19th-century English apostle of free trade, proud. Trade enriches all, they say. The American economy will take the money it's saving by outsourcing and invest it in the growth industries of the future. Besides, the U.S., Western Europe, and Japan will all face labor shortages in a few years as their populations age.
"Try explaining that to the customers I'm talking to," retorts Sapna Sudhir, a 28-year-old with a razor wit who manages IT projects for retailers, mostly in the U.S. "'Let's talk about the transition process,' I tell them. 'I'm going to transition your job to India.' ...There's a lot of hostility." Sudhir waxes conflicted about this for a few moments. Then she slips into the tougher language of her colleagues. "It's Who Moved My Cheese? The cheese has moved. You'd better move along too. This is a capitalist economy. He who bids the lowest gets the job."
That is what the world has come to. An ambitious young woman from a nation that spent the first four decades of its independence floundering in a semi-socialist economic miasma is lecturing Americans on capitalism in the language of a cheesy American business bestseller. And she's doing it at a slick night spot on a road named after the saintly ascetic who won India its freedom. Isn't it magnificent?
So let us step back a moment from the current plight of the U.S. The long-term fate of the earth rests largely with the 95% of humanity that doesn't happen to live within America's borders. About a sixth of the world's people live in India. That's why I've come to Bangalore, a South Indian metropolis of almost six million, where globalization and digitization are having the just the kind of transformative impact that hyperventilating Silicon Valley seers were predicting a half-decade ago.
That India may turn out to be one of the winners of the digital, global, interconnected economy has of course come as a surprise to many people--not least the Indians. The Mahatma had envisioned the nation he helped create as a land of self-sufficient villagers who grew their own food, spun their own cloth, and turned their backs on industrial modernity. India's first Prime Minister, Jawaharlal Nehru, was all for self-sufficiency too, albeit on the national level. And while Nehru felt India had to industrialize to achieve this self-sufficiency, he didn't trust industrialists.
Thus was India set upon the economic course it followed for decades: The government owned most major industries, discouraged foreign trade, and--in order to steer the country's scarce resources away from frivolities--forced anybody who wanted to manufacture a new product to get permission first. (As Nehru put it, "Why do we need 19 brands of toothpaste?") In response, India's economy stubbornly refused to move faster than what came to be known as the "Hindu rate of growth" of 3.5% a year--disastrously slow for a developing country with a burgeoning population.
A currency crisis in 1991 finally put an end to this madness. After being forced to fly the bulk of the nation's gold reserves to London as collateral for an IMF loan, a government led by the chastened Congress Party of Gandhi and Nehru finally started hacking away at India's economic regulations and import tariffs.
Even during the decades of economic stagnation, India did have some things going for it: Much to the surprise of many skeptics in the West, its democratic institutions--elections, a free press, an independent judiciary--survived and thrived. While huge swaths of the Indian populace received no education at all, instruction in the upper echelons of the educational system was of surpassing rigor. And while some political leaders tried to impose the North Indian language Hindi as the national tongue, the true national language of the educated classes remained English.
So while India as a nation remained closed to the global market economy until the 1990s, millions of Indians developed the skills to join it--which many did by emigrating to the U.S., Britain, and elsewhere. A few multinationals, like Unilever and Citicorp, began mining Indian talent aggressively. Bhaskar Menon, a former Citibank executive who now runs an Indian call-center operation called Msource, remembers sitting in on a meeting in 1985 at which Citi's India chief reported the unit's profits for the year to CEO John Reed. "John said, 'This would pay for our stationery in New York--don't worry about it. Your mandate is to export 15 middle-management people to New York every year.'"
The talent hunt has only escalated--since the mid-1990s global firms like McKinsey and Goldman Sachs have recruited students at India's top business schools for jobs in New York, London, Tokyo, and everywhere in between. But starting in the 1970s, another form of talent export that didn't require outright emigration began to evolve in the software business. Indian companies that wanted to import computers had to come up with the foreign currency to pay for them. So the likes of Mumbai-based industrial conglomerate Tata began sending teams of engineers to the U.S. to work on software projects for American clients and bring home dollars. Over time, with the rise of data networks and satellite communications, it became possible to do more and more of the work remotely from India.
That was the genesis of the Indian IT services industry--now led by Tata Consultancy Services, Infosys, and Wipro. Foreign multinationals also eventually saw the wisdom of tapping into Indian talent in India at Indian salary levels: Texas Instruments led the way when it opened an R&D center in Bangalore in 1985. The rise of big India-based tech companies, though, has had special significance in a country that has long associated foreign investment with imperialism (understandably so, as the British Raj began as a purely commercial venture). Software exports may directly account for only about 200,000 jobs in a country of one billion people, but the Indian leaders of the software industry have become hugely influential in the nation's political and economic life. Their message: Economic openness is good for India, because India is perfectly capable of competing internationally.
TCS, Infosys, and Wipro now each boast revenues of about $1 billion a year. That's still tiny in comparison with competitors like IBM's global services division ($40 billion) and Accenture ($12 billion), but it's clear that the Indian pipsqueaks have caught the attention of the big guys. Accenture now has 4,000 employees in Bangalore and Mumbai, up from just a couple of hundred a year ago.
"They have the advantage of stronger brands," says Wipro chairman Azim Premji of his foreign competitors. "We're working on that. They have no experience with the global delivery model. We're masters at it." Premji, whose 84% stake in Wipro makes him the richest man in India, has a habit of making such bold, almost smug pronouncements. "U.S. society is not being reskilled and retooled to stay on top of the emerging environment," he tells me during my visit to Wipro's headquarters southeast of Bangalore. "You need to retool your educational system."
A few miles away, on the sprawling Infosys campus, CEO Nandan Nilekani has no such harsh words for the foreign competition. But he, too, exudes confidence. "There's a sense that the worm has turned and our time has finally come," he says. "A lot of people tell me that the air here is like the Valley in 1999."
Ah, the Valley. The world is lousy with places claiming to be another Silicon Valley. But in Bangalore the claims have an eerie ring of truth. For one thing, as in Northern California, the climate is a big draw--Bangalore is 3,000 feet above sea level and thus has the most bearable summer weather of any Indian metropolis. What's more, like the San Francisco area it boasts fine educational institutions (foremost among them the Indian Institute of Science, founded in 1909) and an openness to outsiders--born of the city's status as a big army garrison since colonial days and as the home of India's defense and aerospace industries since independence. There's even a wine country (okay, one winery) north of town.
The real clincher is that despite constant complaints about the city's insane traffic, skyrocketing real estate prices, and fickle workforce--and constant efforts by other cities, especially Hyderabad and Chennai, to get in on the action--companies and people keep coming to Bangalore. Which, of course, sounds exactly like Silicon Valley in the late 1990s. And while Bangalore was a graveyard of failed startups in 2001, just like the Valley, the very corporate cost cutting that has meant continued lean times in California has brought tons of new business to South India.
India is a developing country, and for all its affluence Bangalore is still a city of power outages (all office buildings and many homes have backup generators), inadequate roads, a third-rate airport, over a million slum dwellers, and lots of wandering cows. But it's become attractive enough that Indian expats are moving back.
"In 2002 I thought, 'It looks like India is the place for global IT,'" says Sean Narayanan, an India-born U.S. citizen whose siblings live in the U.S. and whose parents spend six months a year there. "I had to get experience here." So he left a job with Booz Allen in northern Virginia to work in Bangalore for Cognizant, a Dun & Bradstreet software services spinoff. Narayanan and his wife are clearly ambivalent about the move--they live in a gated community east of town that appears to have been airlifted straight from Florida and are currently planning to stay only a couple of years. But still, they're here. "It's no longer considered hardship duty," Narayanan says.
For another bunch of Bangaloreans, the call-center workers, the very idea of hardship is so, well, dated. In the late 1990s, GE Capital pioneered the practice of putting Indians on the phone with Americans. This first call center was in Gurgaon, then an obscure Delhi suburb. Now Gurgaon is bursting with glass office towers and glitzy shopping malls, and call centers have spread to every major Indian city--including Bangalore. In the process, they've spawned a consumer generation unlike any the country has ever seen. Indian call-center workers may make a lot less money than Americans (salaries start at about $2,000 a year), but they make a lot more money than fresh-out-of-college Indians who aren't computer geniuses have ever made before.
My first encounter with this new India is at the Bangalore offices of Msource, which runs call centers for financial institutions in the U.S. and Britain. I tell the six young Msource employees gathered around me that I've heard call-center workers are materialistic, brand-crazy sorts who drink and smoke a lot. That's right, they tell me. I ask about their aspirations, if they hope to own a house and a car by the time they're 40. Most nod. "I want it by the time I'm 28," says Anshul Pathak, 23.
Actually, although Pathak still lives with his parents, he already has the car. He joined Msource a year and a half ago and proved so good at cajoling American deadbeats into paying off credit card debt that he now trains new hires to do the same. Along with his Maruti Suzuki 800 subcompact, he has a Bajaj Pulsar motorcycle. His mobile phone is a Sony Ericsson T610 with a built-in camera. He banks with Citibank. On nights off he hangs out with friends in bars where he favors the local beer, Kingfisher, but others go for foreign concoctions like Bacardi mixed with Sprite. Or they go to Starbucks-like coffee shops where a cappuccino costs $1--an absurdly large sum to older Indians. Pathak watches American movies, That '70s Show, MTV. He brushes his teeth with Colgate. He owns a pair of Nikes and a pair of Reeboks. While much has been made in the U.S. media of how Indian call-center workers are trained to sound more American, the best "training" of all is simply the lives they lead.
It's not all slavish imitation, either. India at its best is a lot like the U.S. at its best--a nation of staggering ethnic and religious diversity that somehow holds together by dint of tolerance and a sense of shared destiny. And now that India wants to join the material world, it seems churlish for Americans to begrudge it entry. "For the last 20 years, you've been telling countries like India and China to adopt free markets and join the global economy," says Nilekani of Infosys. "Now that we're doing it, you can't just say, 'Stop it!'"
In fact, we probably really can't. India and the U.S. are already entwined in an economic embrace far more intimate than that which has traditionally linked trading partners, one that could be exceedingly painful to get out of. These guys know what we owe on our credit cards, after all.
The way we have come along is what it says opening the mind to the thoughts of where individually & community as a whole we would be heading towards in the future.
Every weekday, as the tropical sun begins its swift descent over the Deccan plain, fleets of what the Indians call "multi-utility vehicles" fan out across Bangalore. The Tata Sumos and Toyota Qualises bump along the potholed, muddy residential streets of India's fifth-largest city, stopping to pick up young men and women and carry them to work. Then, as business hours begin in the Eastern U.S., thousands of these young Indians don telephone headsets and do their enthusiastic best to help the American people get their Internet service working, figure out their credit card bills, and order tacky limited-edition collectibles.
After years of wondering what all those fiber-optic cables laid around the earth at massive expense in the late 1990s would ever be good for, we finally have an answer: They're good for enabling call-center workers in Bangalore or Delhi to sound as if they're next door to everyone. Broadband's killer app, it turns out, is India.
It's not just about call centers. In Bangalore some 110,000 people are employed writing software, designing chips, running computer systems, reading MRIs, processing mortgages, preparing tax forms, and doing other essential work for U.S., European, Japanese, and even Chinese companies. Intel, Cisco, Oracle, Philips, and GE are among the multinationals with significant R&D facilities there. AOL, Accenture, and Ernst & Young have big operations in town too. Scores more Western corporations outsource work to Indian companies like Bangalore-based IT services firms Infosys and Wipro.
Meanwhile, GE Capital employs more than 15,000 people in Delhi and other Indian cities who answer calls from credit card customers, do accounting work, manage computer networks, and the like. In Chennai (formerly Madras), a staff of 350 design the PowerPoint presentations that McKinsey consultants around the world show their clients. In Mumbai (Bombay), Morgan Stanley has been hiring equity analysts to help cover U.S. companies from 102 time zones away. There are more than 350,000 people working in IT services and outsourcing in India now; the number is expected to pass one million before 2008.
The attraction of the Indian knowledge workers who get those jobs is that they're paid 10% to 20% of what Americans would expect for similar work--and in many cases they do it better. That has stoked understandable alarm in the U.S. Together with China's rise in manufacturing, it is bringing protectionists out of the woodwork. It is also causing even those of a less reactionary bent to wonder just what it is that Americans will do for a living now that even knowledge work can easily be sent overseas.
And what do those young Indian knowledge workers (they are, overwhelmingly, young) think about this turn of events? Sitting on the terrace one pleasant October evening at a swank Bangalore bar called the 13th Floor (which is in fact on the 13th floor of an office building on M.G.--short for Mahatma Gandhi--Road, the city's main drag), I pose the question to a group of young managers and engineers from Wipro: "Do you feel bad about taking jobs from Americans?"
Several of them respond with a torrent of economic reasoning that would have made David Ricardo, the 19th-century English apostle of free trade, proud. Trade enriches all, they say. The American economy will take the money it's saving by outsourcing and invest it in the growth industries of the future. Besides, the U.S., Western Europe, and Japan will all face labor shortages in a few years as their populations age.
"Try explaining that to the customers I'm talking to," retorts Sapna Sudhir, a 28-year-old with a razor wit who manages IT projects for retailers, mostly in the U.S. "'Let's talk about the transition process,' I tell them. 'I'm going to transition your job to India.' ...There's a lot of hostility." Sudhir waxes conflicted about this for a few moments. Then she slips into the tougher language of her colleagues. "It's Who Moved My Cheese? The cheese has moved. You'd better move along too. This is a capitalist economy. He who bids the lowest gets the job."
That is what the world has come to. An ambitious young woman from a nation that spent the first four decades of its independence floundering in a semi-socialist economic miasma is lecturing Americans on capitalism in the language of a cheesy American business bestseller. And she's doing it at a slick night spot on a road named after the saintly ascetic who won India its freedom. Isn't it magnificent?
So let us step back a moment from the current plight of the U.S. The long-term fate of the earth rests largely with the 95% of humanity that doesn't happen to live within America's borders. About a sixth of the world's people live in India. That's why I've come to Bangalore, a South Indian metropolis of almost six million, where globalization and digitization are having the just the kind of transformative impact that hyperventilating Silicon Valley seers were predicting a half-decade ago.
That India may turn out to be one of the winners of the digital, global, interconnected economy has of course come as a surprise to many people--not least the Indians. The Mahatma had envisioned the nation he helped create as a land of self-sufficient villagers who grew their own food, spun their own cloth, and turned their backs on industrial modernity. India's first Prime Minister, Jawaharlal Nehru, was all for self-sufficiency too, albeit on the national level. And while Nehru felt India had to industrialize to achieve this self-sufficiency, he didn't trust industrialists.
Thus was India set upon the economic course it followed for decades: The government owned most major industries, discouraged foreign trade, and--in order to steer the country's scarce resources away from frivolities--forced anybody who wanted to manufacture a new product to get permission first. (As Nehru put it, "Why do we need 19 brands of toothpaste?") In response, India's economy stubbornly refused to move faster than what came to be known as the "Hindu rate of growth" of 3.5% a year--disastrously slow for a developing country with a burgeoning population.
A currency crisis in 1991 finally put an end to this madness. After being forced to fly the bulk of the nation's gold reserves to London as collateral for an IMF loan, a government led by the chastened Congress Party of Gandhi and Nehru finally started hacking away at India's economic regulations and import tariffs.
Even during the decades of economic stagnation, India did have some things going for it: Much to the surprise of many skeptics in the West, its democratic institutions--elections, a free press, an independent judiciary--survived and thrived. While huge swaths of the Indian populace received no education at all, instruction in the upper echelons of the educational system was of surpassing rigor. And while some political leaders tried to impose the North Indian language Hindi as the national tongue, the true national language of the educated classes remained English.
So while India as a nation remained closed to the global market economy until the 1990s, millions of Indians developed the skills to join it--which many did by emigrating to the U.S., Britain, and elsewhere. A few multinationals, like Unilever and Citicorp, began mining Indian talent aggressively. Bhaskar Menon, a former Citibank executive who now runs an Indian call-center operation called Msource, remembers sitting in on a meeting in 1985 at which Citi's India chief reported the unit's profits for the year to CEO John Reed. "John said, 'This would pay for our stationery in New York--don't worry about it. Your mandate is to export 15 middle-management people to New York every year.'"
The talent hunt has only escalated--since the mid-1990s global firms like McKinsey and Goldman Sachs have recruited students at India's top business schools for jobs in New York, London, Tokyo, and everywhere in between. But starting in the 1970s, another form of talent export that didn't require outright emigration began to evolve in the software business. Indian companies that wanted to import computers had to come up with the foreign currency to pay for them. So the likes of Mumbai-based industrial conglomerate Tata began sending teams of engineers to the U.S. to work on software projects for American clients and bring home dollars. Over time, with the rise of data networks and satellite communications, it became possible to do more and more of the work remotely from India.
That was the genesis of the Indian IT services industry--now led by Tata Consultancy Services, Infosys, and Wipro. Foreign multinationals also eventually saw the wisdom of tapping into Indian talent in India at Indian salary levels: Texas Instruments led the way when it opened an R&D center in Bangalore in 1985. The rise of big India-based tech companies, though, has had special significance in a country that has long associated foreign investment with imperialism (understandably so, as the British Raj began as a purely commercial venture). Software exports may directly account for only about 200,000 jobs in a country of one billion people, but the Indian leaders of the software industry have become hugely influential in the nation's political and economic life. Their message: Economic openness is good for India, because India is perfectly capable of competing internationally.
TCS, Infosys, and Wipro now each boast revenues of about $1 billion a year. That's still tiny in comparison with competitors like IBM's global services division ($40 billion) and Accenture ($12 billion), but it's clear that the Indian pipsqueaks have caught the attention of the big guys. Accenture now has 4,000 employees in Bangalore and Mumbai, up from just a couple of hundred a year ago.
"They have the advantage of stronger brands," says Wipro chairman Azim Premji of his foreign competitors. "We're working on that. They have no experience with the global delivery model. We're masters at it." Premji, whose 84% stake in Wipro makes him the richest man in India, has a habit of making such bold, almost smug pronouncements. "U.S. society is not being reskilled and retooled to stay on top of the emerging environment," he tells me during my visit to Wipro's headquarters southeast of Bangalore. "You need to retool your educational system."
A few miles away, on the sprawling Infosys campus, CEO Nandan Nilekani has no such harsh words for the foreign competition. But he, too, exudes confidence. "There's a sense that the worm has turned and our time has finally come," he says. "A lot of people tell me that the air here is like the Valley in 1999."
Ah, the Valley. The world is lousy with places claiming to be another Silicon Valley. But in Bangalore the claims have an eerie ring of truth. For one thing, as in Northern California, the climate is a big draw--Bangalore is 3,000 feet above sea level and thus has the most bearable summer weather of any Indian metropolis. What's more, like the San Francisco area it boasts fine educational institutions (foremost among them the Indian Institute of Science, founded in 1909) and an openness to outsiders--born of the city's status as a big army garrison since colonial days and as the home of India's defense and aerospace industries since independence. There's even a wine country (okay, one winery) north of town.
The real clincher is that despite constant complaints about the city's insane traffic, skyrocketing real estate prices, and fickle workforce--and constant efforts by other cities, especially Hyderabad and Chennai, to get in on the action--companies and people keep coming to Bangalore. Which, of course, sounds exactly like Silicon Valley in the late 1990s. And while Bangalore was a graveyard of failed startups in 2001, just like the Valley, the very corporate cost cutting that has meant continued lean times in California has brought tons of new business to South India.
India is a developing country, and for all its affluence Bangalore is still a city of power outages (all office buildings and many homes have backup generators), inadequate roads, a third-rate airport, over a million slum dwellers, and lots of wandering cows. But it's become attractive enough that Indian expats are moving back.
"In 2002 I thought, 'It looks like India is the place for global IT,'" says Sean Narayanan, an India-born U.S. citizen whose siblings live in the U.S. and whose parents spend six months a year there. "I had to get experience here." So he left a job with Booz Allen in northern Virginia to work in Bangalore for Cognizant, a Dun & Bradstreet software services spinoff. Narayanan and his wife are clearly ambivalent about the move--they live in a gated community east of town that appears to have been airlifted straight from Florida and are currently planning to stay only a couple of years. But still, they're here. "It's no longer considered hardship duty," Narayanan says.
For another bunch of Bangaloreans, the call-center workers, the very idea of hardship is so, well, dated. In the late 1990s, GE Capital pioneered the practice of putting Indians on the phone with Americans. This first call center was in Gurgaon, then an obscure Delhi suburb. Now Gurgaon is bursting with glass office towers and glitzy shopping malls, and call centers have spread to every major Indian city--including Bangalore. In the process, they've spawned a consumer generation unlike any the country has ever seen. Indian call-center workers may make a lot less money than Americans (salaries start at about $2,000 a year), but they make a lot more money than fresh-out-of-college Indians who aren't computer geniuses have ever made before.
My first encounter with this new India is at the Bangalore offices of Msource, which runs call centers for financial institutions in the U.S. and Britain. I tell the six young Msource employees gathered around me that I've heard call-center workers are materialistic, brand-crazy sorts who drink and smoke a lot. That's right, they tell me. I ask about their aspirations, if they hope to own a house and a car by the time they're 40. Most nod. "I want it by the time I'm 28," says Anshul Pathak, 23.
Actually, although Pathak still lives with his parents, he already has the car. He joined Msource a year and a half ago and proved so good at cajoling American deadbeats into paying off credit card debt that he now trains new hires to do the same. Along with his Maruti Suzuki 800 subcompact, he has a Bajaj Pulsar motorcycle. His mobile phone is a Sony Ericsson T610 with a built-in camera. He banks with Citibank. On nights off he hangs out with friends in bars where he favors the local beer, Kingfisher, but others go for foreign concoctions like Bacardi mixed with Sprite. Or they go to Starbucks-like coffee shops where a cappuccino costs $1--an absurdly large sum to older Indians. Pathak watches American movies, That '70s Show, MTV. He brushes his teeth with Colgate. He owns a pair of Nikes and a pair of Reeboks. While much has been made in the U.S. media of how Indian call-center workers are trained to sound more American, the best "training" of all is simply the lives they lead.
It's not all slavish imitation, either. India at its best is a lot like the U.S. at its best--a nation of staggering ethnic and religious diversity that somehow holds together by dint of tolerance and a sense of shared destiny. And now that India wants to join the material world, it seems churlish for Americans to begrudge it entry. "For the last 20 years, you've been telling countries like India and China to adopt free markets and join the global economy," says Nilekani of Infosys. "Now that we're doing it, you can't just say, 'Stop it!'"
In fact, we probably really can't. India and the U.S. are already entwined in an economic embrace far more intimate than that which has traditionally linked trading partners, one that could be exceedingly painful to get out of. These guys know what we owe on our credit cards, after all.
Tuesday, February 27, 2007
Making the most of uncertainty - McKinsey article
In extremely uncertain environments, shaping strategies may deliver higher returns, with lower risk, than they do in less uncertain times.
Hugh Courtney
2001 Number 4
Shape or adapt? For years, executives have regarded the question as perhaps their most fundamental strategic choice. Is it better for a company’s competitive position to try to influence, or even determine, the outcome of crucial and currently uncertain elements of an industry’s structure and conduct? Or is the wiser course to scope out defensible positions within an industry’s existing structure and then to move with speed and agility to recognize and capture new opportunities when the market changes?
As globalization, digitization, and unfettered capital markets raise levels of uncertainty and rewrite definitions of opportunities and risks, this basic strategic choice has morphed into a more complex and high-stakes dilemma. The right strategic bets can return far higher payoffs, far more quickly; the wrong ones carry a much higher risk of systemic failure. Betting big today may fundamentally reshape a market on a global scale to the advantage of a company or quickly produce losses that can throw it into bankruptcy. A company may avoid foolhardy mistakes by waiting for uncertainty to diminish, or it may squander the chance to lay claim to first-mover advantages.
The truth is that no dominant solution exists. You might argue that any good strategy should attempt to shape and adapt by specifying actions designed to increase the probability of some outcomes while simultaneously preparing for others. That approach may work in some cases. Yet the actions a company must take to shape the market are often inconsistent with those needed to adapt. Consider Qualcomm. For the past few years, it has been trying to move the wireless-telephone industry toward its CDMA (Code Division Multiple Access) technology. CDMA, a technical standard that determines how information travels and communicates through a wireless network, is competing with other technologies to become the industry standard for next-generation mobile phones.
Qualcomm realizes that if it wants to shape the industry, it must build a coalition of supporters around the CDMA technology. This approach involves cutting deals with wireless companies to get them on board and convincing consumers that CDMA is superior. To win the standards battle, Qualcomm must be totally committed to the cause or at least look as though it were. If the company tried to hedge its bets by producing chips for a competing technology as well—something an adapter might do—it would undoubtedly undermine its shaping efforts. How could Qualcomm convince its potential partners that CDMA was superior if it simultaneously invested in competing standards?
As the story of Qualcomm illustrates, under uncertainty, shaping actions are often at odds with adapting ones. Shape or adapt is therefore a real choice for most companies most of the time. But how, amid rising uncertainty and ever greater risks, can a company nail down the right strategic choice?
The different shapes of shapers and adapters
An essential starting point is understanding your alternatives. Shaping and adapting strategies may take many different forms. Shapers generally attempt to get ahead of uncertainty by driving industry change their way. Some, like Qualcomm, aim to increase the probability that a preferred technology or business process will become an industry standard. Others grapple with uncertainty by introducing fundamental product, service, or business-system innovations intended to redefine the basis of competition in an industry: think of the low-price, point-to-point air travel model of Southwest Airlines, Dell Computer’s direct-sales approach, or Netscape Communications’ breakthrough Internet browser, Navigator.
Other shapers try to restructure unstable industry environments by making bold mergers and acquisitions, as BP did in the oil industry, or by breaking up integrated companies, as AT&T did in 1996 by spinning off its equipment provider, Lucent Technologies. Other companies, such as McDonald’s in the 1990s, shape nascent markets by replicating business systems in new geographies. Still others focus on shaping the conduct of competitors; in the 1970s, for example, DuPont built its capacity in the titanium dioxide industry ahead of market demand, thus influencing its competitors’ expansion plans.
When a market is stable, adapters try to define defensible positions within the existing structure of the industry in which they compete
Adapters, by contrast, take the existing and future industry structure and conduct as given. When a market is stable, adapters try to define defensible positions within the industry’s existing structure. When high uncertainty prevails, they attempt to win through speed and agility in recognizing and capturing new opportunities as the market changes. They might quickly follow a potential shaper’s lead, as Compaq Computer did when it bet on Microsoft and Intel with early alliances in the 1980s. Other adapters hedge against future market uncertainty when they can identify a limited, discrete set of paths the market may follow. In the late 1980s, for example, software companies could hedge against uncertainty about which PC operating system would emerge as the industry standard by developing products for each of the contenders, notably DOS, Macintosh, Windows, Unix, and OS/2.
Still other adapters build their strategies around constant experimentation in products, services, and business systems. In the credit card industry, Capital One Financial conducted 27,000 tests of products, prices, features, packages, marketing channels, credit policies, account-management approaches, customer service methods, and collection and retention procedures in 1998.1 Finally, some adapters manage uncertainty by building flexible organizations designed to respond to changing market needs. Many professional-services firms, for example, focus on recruiting and developing people with general-management skills that will be valuable to clients regardless of how the market evolves.
With such a broad range of approaches, no wonder business strategists can’t agree on a dominant answer to the shape-or-adapt problem. In fact, even individual companies may not consistently choose one alternative across all issues, business lines, and times. Nor do the data support a one-size-fits-all answer. McKinsey research suggests that 86 percent of the biggest business winners from 1985 to 1995 followed predominantly market-shaping strategies.2 Yet the research clearly shows that adapters too can win big.
Understanding uncertainty
Whether a company should attempt to shape or adapt depends largely on the level and nature of the uncertainty it faces. To put things simply, when it faces very high levels of uncertainty about variables it can influence, shaping makes most sense. Adapting is preferable when key sources of value creation are relatively stable or outside the company’s control.
The logic is straightforward. Highly uncertain markets—in which technology standards are changing, competitors are constantly entering and exiting, and consumers have yet to lock into a limited number of preferred brands—offer the greatest headroom to implement successful shaping strategies. A series of major acquisitions, a bold technology investment, an aggressive product-bundling strategy—all may end up making order out of chaos and fundamentally reshaping a market to a company’s advantage.
In practice, however, executives facing high uncertainty are often biased in favor of adapting strategies. Part of the problem is a reliance on strategic-planning tools and processes that are ill suited to highly uncertain business environments. While standard tools such as Michael Porter’s five-forces framework,3 discounted cash-flow models, and core-competency diagnostics may provide deep insight into untapped strategic opportunities in relatively stable markets, they rarely generate deep foresight into the opportunities that may arise in rapidly changing ones. Without such foresight, it is no surprise that companies favor adapting strategies; after all, successful shaping strategies require executives to define the future they are trying to create.
An aversion to risk is misguided when a company’s actions can strongly influence, if not determine, the outcome of key uncertainties
Since foresight is the key to taking full advantage of the strategic opportunities offered by high uncertainty, companies must reinvent their strategic-planning processes to include such tools as scenario planning and game theory if they wish to be successful shapers. Companies that adopt these approaches can generate the foresight necessary to consider the full range of strategic shaping and adapting options. Nonetheless, a misguided aversion to risk may prevent even the most prescient strategists from favoring shaping strategies in the face of high uncertainty. Precisely as the possibility of shaping the market increases, the appetite—or courage—to do so typically wanes. This aversion to risk is misguided when a company’s actions can indeed strongly influence, if not determine, the eventual outcome of key uncertainties.
Consider the case of Minnetonka, the successful shaper of the US liquid-soap market in the early 1980s. When the company launched its Softsoap brand, a key uncertainty was the plans of its major potential competitors: would Colgate-Palmolive, Procter & Gamble, and Unilever choose to enter the market, and, if so, when? Minnetonka shaped this uncertain environment by aggressively locking up key suppliers of essential liquid-soap dispenser parts, thereby preventing competitors from scaling up their own businesses quickly. At the time, only two companies supplied the plastic pumps that dispense liquid soap. Minnetonka locked up both suppliers’ total capacity by ordering 100 million pumps to support its national rollout strategy for Softsoap. This tactic not only influenced the competitors’ conduct—the source of Minnetonka’s uncertainty—but also dictated it in the short run: the plastic-pump shortage prevented competitors from making a full-scale entry into the market for 18 to 24 months.4
By comparison, Circuit City failed in its shaping strategy for its Divx technology, an alternative to the established standard DVD format for digital videodisc players. An important reason was that Circuit City couldn’t successfully influence a crucial uncertainty: the sales and marketing efforts that other electronics retailers would devote to Divx. Only if retailers promoted this technology could it succeed. Retailers, however, were reluctant to market Divx players because doing so meant handing royalties to Circuit City, a formidable competitor. Circuit City thus had only limited ability to increase the probability that Divx would win the standards war against DVD.
When a company can’t influence important uncertainties, an adapting strategy may be preferable. Hewlett-Packard, for example, faced unpredictable ink-jet printer demand across a variety of countries in the 1980s. HP was then customizing its ink-jet printers for use in different non-US markets at the factory and shipping the printers in finished form to its warehouses, for the company had decided that it was cheaper to customize the printers at the factory than in the field. The problem was that since demand in the various countries rose and fell unpredictably, HP often found itself with excess printers configured for certain countries and with shortages for others.
This uncertainty created an ongoing supply-and-demand mismatch at HP’s warehouses. HP had little ability to influence total demand for printers in the different countries, so it developed a strategy to adapt itself to this key uncertainty: it postponed customizing the printers until it had shipped them to the warehouses and had firm orders in hand. This approach substantially decreased the company’s stock-out and inventory-carrying costs while also slightly increasing production costs, since customizing at the warehouse was more expensive. Net savings from this strategy came to about $3 million a month, according to Corey Billington, who directed HP’s strategic-planning and modeling unit.5
Tailoring choices to the four levels of uncertainty
As a rule of thumb for making decisions, then, shaping makes the most sense when uncertainty is high and can be influenced by a company’s actions. To fine-tune this approach, a company must consider ways of varying how it thinks about shaping versus adapting—depending on the nature of the uncertainty it faces. Uncertainty always takes one of four general forms (exhibit).6 Understanding which form you face is crucial when you decide whether to shape or adapt.
Even the most stable business environments can be susceptible to periodic bouts of upheaval that are driven by bold shapers
When confronting a future that seems clear enough to predict, strategists have traditionally favored adapting strategies geared to the existing market. In such stable markets, shaping opportunities often are not readily apparent, and companies believe that locking in a business system that is successful today will most likely produce success tomorrow. Yet even the most stable business environments are susceptible to periodic bouts of upheaval, driven by shapers capable of identifying and developing innovative products, services, and business systems that displace competitors.
Shapers at this lowest level of uncertainty intentionally seek to create chaos out of order. Their efforts are risky, uncommon—and sometimes effective. USA Today transformed newspaper markets so greatly that even the staid New York Times and Washington Post now feature color pictures. And the original overnight-delivery strategy of Federal Express reshaped the sleepy mail-and-package-delivery industry.
However, shapers in more uncertain environments attempt to lower the level of uncertainty, thereby creating order out of chaos. When the future holds a limited set of possible outcomes, for example, shaping strategies attempt to increase the probability that one of the outcomes most favorable to the company actually occurs—as Qualcomm is trying to do with its CDMA strategy and as electric power producers are trying to do with their regulatory strategies in California. Just as a limited number of wireless-telephone technologies are competing to become the next-generation industry standard, so too a limited number of possible actions by California officials could change the nature of regulation in electric power markets. In both cases, companies are attempting to shape the market toward their desired alternatives. Since adapters at this second level of uncertainty must prepare for only a limited set of possible outcomes, hedging strategies may also make sense. PC software companies could successfully hedge their strategies in the late 1980s, for instance, precisely because only a rather limited number of operating-system standards could emerge as near-term market leaders.
By contrast, if a wide range of possible outcomes can be identified, shaping strategies focus on moving the industry toward the "right end of the range." While companies that successfully shape markets with a limited set of possible outcomes create the scenario most favorable to them, in the third level of uncertainty success is defined by the ability to set the broad direction of the market. Internet-banking shaping strategies, for instance, are designed to increase the share of financial-services transactions taking place on-line, and a significant component of Monsanto’s life sciences strategy involves the acquisition of seed companies in hopes that this approach will increase the rate at which farmers adopt the company’s genetically engineered seeds.
At higher levels of uncertainty, hedging strategies become less desirable, since it is difficult to determine if all bases have been covered; instead, successful adapters tend to focus on continuous experimentation (Capital One in credit cards) or on building flexible organizations (professional-services firms). Finally, when an entire industry is in flux, an effective shaper can bring the market to order by setting an industry technology standard, consolidating a group of fragmented competitors, and even offering a new business model for the industry. As uncertainty grows, so too will the chance that other competitors will emulate any company willing to take a stand.
This reality implies, paradoxically, that shaping strategies in the most uncertain environments may involve higher returns and lower risk than these strategies do in situations with lower residual uncertainty. If you believe in a new industry standard, for example, and are willing to invest in its development, your creation could well serve as a "touchstone" that others react to. You would, in fact, be bringing some order to a market in chaos: if your com-pany was a credible player in the industry, your commitment might well persuade others to commit themselves as well. Your belief in the new standard may set off a chain of events that creates a self-fulfilling prophecy. The credibility of Netscape’s management team, for example, was a key factor in its successful attempt to set new standards for Internet browsers when it first launched Navigator.
Other factors
As executives face their shape-or-adapt choices, they must weigh factors beyond the level of residual uncertainty—factors such as the external market environment and the company’s capabilities and aspirations. Shaping strategies, for example, make most sense in markets that offer strong first-mover advantages. One market that may not offer them is Internet-based commerce, which by its very nature invites comparison shopping, thus perhaps undermining one of the most important potential first-mover advantages: brand and customer loyalty. As a result, it isn’t clear yet whether e-commerce shapers such as Amazon.com and eBay have established any sustainable first-mover advantages. Being an e-commerce adapter—replicating good ideas and avoiding bad ones—may offer returns similar to those won by pioneering shapers, without all the risk. Only time will tell.
Similarly, even excellent companies are not cut out to be shapers in all situations. Successful shaping usually requires a clear vision of an industry’s future evolution (as Bill Gates had for PCs); deep pockets; a strong reputation; a leadership position in a related business; world-class technology, innovation skills, or both; and operational excellence. Not all companies have these qualities. As the former chief executive of Iridium, John Richardson, has admitted, for example, its attempt to shape the satellite telephone market was undermined by "inept" marketing and products that "didn’t work" at the time of the company’s service launch.7
Successful shapers share a formidable list of attributes. Managers might therefore be tempted to regard adapting as the easy or fallback strategy alternative. This idea is mistaken on two fronts. First, it leads managers to assume that adapting, unlike shaping, doesn’t require proactive strategic commitments. Nothing could be further from the truth. Following a potential shaper’s lead, hedging against possible future outcomes, experimenting continually, and even building a flexible organization require real up-front commitments—financial and human.
Second, the mistaken idea that adapting is the easy alternative leads managers to assume that passive—not active—management is required to see it through. Yet adapters in highly uncertain environments must be skilled at spotting their new opportunities and threats and at turning on a dime to reorient their companies when necessary. This is hardly passive and hardly easy for many companies. For a company that has difficulty dealing with ambiguity, a bold shaping strategy may be the only way to avoid the dangerous "do nothing" trap.
As strategists make shape-or-adapt choices, uncertainty, perceived first-mover advantages, and the company’s capabilities and aspirations play important roles. No algorithm exists to weigh each factor, nor can a one-size-fits-all answer suit all companies in all situations. One thing, however, is certain: strategists who develop a thorough understanding of the level and nature of the residual uncertainty their company faces can develop a richer set of feasible alternatives and make better-informed choices to shape or adapt.
About the Author
Hugh Courtney is an associate principal in McKinsey’s Washington, DC, office. This article is adapted from his book, 20/20 Foresight: Crafting Strategy in an Uncertain World, Boston: Harvard Business School Press, 2001.
Hugh Courtney
2001 Number 4
Shape or adapt? For years, executives have regarded the question as perhaps their most fundamental strategic choice. Is it better for a company’s competitive position to try to influence, or even determine, the outcome of crucial and currently uncertain elements of an industry’s structure and conduct? Or is the wiser course to scope out defensible positions within an industry’s existing structure and then to move with speed and agility to recognize and capture new opportunities when the market changes?
As globalization, digitization, and unfettered capital markets raise levels of uncertainty and rewrite definitions of opportunities and risks, this basic strategic choice has morphed into a more complex and high-stakes dilemma. The right strategic bets can return far higher payoffs, far more quickly; the wrong ones carry a much higher risk of systemic failure. Betting big today may fundamentally reshape a market on a global scale to the advantage of a company or quickly produce losses that can throw it into bankruptcy. A company may avoid foolhardy mistakes by waiting for uncertainty to diminish, or it may squander the chance to lay claim to first-mover advantages.
The truth is that no dominant solution exists. You might argue that any good strategy should attempt to shape and adapt by specifying actions designed to increase the probability of some outcomes while simultaneously preparing for others. That approach may work in some cases. Yet the actions a company must take to shape the market are often inconsistent with those needed to adapt. Consider Qualcomm. For the past few years, it has been trying to move the wireless-telephone industry toward its CDMA (Code Division Multiple Access) technology. CDMA, a technical standard that determines how information travels and communicates through a wireless network, is competing with other technologies to become the industry standard for next-generation mobile phones.
Qualcomm realizes that if it wants to shape the industry, it must build a coalition of supporters around the CDMA technology. This approach involves cutting deals with wireless companies to get them on board and convincing consumers that CDMA is superior. To win the standards battle, Qualcomm must be totally committed to the cause or at least look as though it were. If the company tried to hedge its bets by producing chips for a competing technology as well—something an adapter might do—it would undoubtedly undermine its shaping efforts. How could Qualcomm convince its potential partners that CDMA was superior if it simultaneously invested in competing standards?
As the story of Qualcomm illustrates, under uncertainty, shaping actions are often at odds with adapting ones. Shape or adapt is therefore a real choice for most companies most of the time. But how, amid rising uncertainty and ever greater risks, can a company nail down the right strategic choice?
The different shapes of shapers and adapters
An essential starting point is understanding your alternatives. Shaping and adapting strategies may take many different forms. Shapers generally attempt to get ahead of uncertainty by driving industry change their way. Some, like Qualcomm, aim to increase the probability that a preferred technology or business process will become an industry standard. Others grapple with uncertainty by introducing fundamental product, service, or business-system innovations intended to redefine the basis of competition in an industry: think of the low-price, point-to-point air travel model of Southwest Airlines, Dell Computer’s direct-sales approach, or Netscape Communications’ breakthrough Internet browser, Navigator.
Other shapers try to restructure unstable industry environments by making bold mergers and acquisitions, as BP did in the oil industry, or by breaking up integrated companies, as AT&T did in 1996 by spinning off its equipment provider, Lucent Technologies. Other companies, such as McDonald’s in the 1990s, shape nascent markets by replicating business systems in new geographies. Still others focus on shaping the conduct of competitors; in the 1970s, for example, DuPont built its capacity in the titanium dioxide industry ahead of market demand, thus influencing its competitors’ expansion plans.
When a market is stable, adapters try to define defensible positions within the existing structure of the industry in which they compete
Adapters, by contrast, take the existing and future industry structure and conduct as given. When a market is stable, adapters try to define defensible positions within the industry’s existing structure. When high uncertainty prevails, they attempt to win through speed and agility in recognizing and capturing new opportunities as the market changes. They might quickly follow a potential shaper’s lead, as Compaq Computer did when it bet on Microsoft and Intel with early alliances in the 1980s. Other adapters hedge against future market uncertainty when they can identify a limited, discrete set of paths the market may follow. In the late 1980s, for example, software companies could hedge against uncertainty about which PC operating system would emerge as the industry standard by developing products for each of the contenders, notably DOS, Macintosh, Windows, Unix, and OS/2.
Still other adapters build their strategies around constant experimentation in products, services, and business systems. In the credit card industry, Capital One Financial conducted 27,000 tests of products, prices, features, packages, marketing channels, credit policies, account-management approaches, customer service methods, and collection and retention procedures in 1998.1 Finally, some adapters manage uncertainty by building flexible organizations designed to respond to changing market needs. Many professional-services firms, for example, focus on recruiting and developing people with general-management skills that will be valuable to clients regardless of how the market evolves.
With such a broad range of approaches, no wonder business strategists can’t agree on a dominant answer to the shape-or-adapt problem. In fact, even individual companies may not consistently choose one alternative across all issues, business lines, and times. Nor do the data support a one-size-fits-all answer. McKinsey research suggests that 86 percent of the biggest business winners from 1985 to 1995 followed predominantly market-shaping strategies.2 Yet the research clearly shows that adapters too can win big.
Understanding uncertainty
Whether a company should attempt to shape or adapt depends largely on the level and nature of the uncertainty it faces. To put things simply, when it faces very high levels of uncertainty about variables it can influence, shaping makes most sense. Adapting is preferable when key sources of value creation are relatively stable or outside the company’s control.
The logic is straightforward. Highly uncertain markets—in which technology standards are changing, competitors are constantly entering and exiting, and consumers have yet to lock into a limited number of preferred brands—offer the greatest headroom to implement successful shaping strategies. A series of major acquisitions, a bold technology investment, an aggressive product-bundling strategy—all may end up making order out of chaos and fundamentally reshaping a market to a company’s advantage.
In practice, however, executives facing high uncertainty are often biased in favor of adapting strategies. Part of the problem is a reliance on strategic-planning tools and processes that are ill suited to highly uncertain business environments. While standard tools such as Michael Porter’s five-forces framework,3 discounted cash-flow models, and core-competency diagnostics may provide deep insight into untapped strategic opportunities in relatively stable markets, they rarely generate deep foresight into the opportunities that may arise in rapidly changing ones. Without such foresight, it is no surprise that companies favor adapting strategies; after all, successful shaping strategies require executives to define the future they are trying to create.
An aversion to risk is misguided when a company’s actions can strongly influence, if not determine, the outcome of key uncertainties
Since foresight is the key to taking full advantage of the strategic opportunities offered by high uncertainty, companies must reinvent their strategic-planning processes to include such tools as scenario planning and game theory if they wish to be successful shapers. Companies that adopt these approaches can generate the foresight necessary to consider the full range of strategic shaping and adapting options. Nonetheless, a misguided aversion to risk may prevent even the most prescient strategists from favoring shaping strategies in the face of high uncertainty. Precisely as the possibility of shaping the market increases, the appetite—or courage—to do so typically wanes. This aversion to risk is misguided when a company’s actions can indeed strongly influence, if not determine, the eventual outcome of key uncertainties.
Consider the case of Minnetonka, the successful shaper of the US liquid-soap market in the early 1980s. When the company launched its Softsoap brand, a key uncertainty was the plans of its major potential competitors: would Colgate-Palmolive, Procter & Gamble, and Unilever choose to enter the market, and, if so, when? Minnetonka shaped this uncertain environment by aggressively locking up key suppliers of essential liquid-soap dispenser parts, thereby preventing competitors from scaling up their own businesses quickly. At the time, only two companies supplied the plastic pumps that dispense liquid soap. Minnetonka locked up both suppliers’ total capacity by ordering 100 million pumps to support its national rollout strategy for Softsoap. This tactic not only influenced the competitors’ conduct—the source of Minnetonka’s uncertainty—but also dictated it in the short run: the plastic-pump shortage prevented competitors from making a full-scale entry into the market for 18 to 24 months.4
By comparison, Circuit City failed in its shaping strategy for its Divx technology, an alternative to the established standard DVD format for digital videodisc players. An important reason was that Circuit City couldn’t successfully influence a crucial uncertainty: the sales and marketing efforts that other electronics retailers would devote to Divx. Only if retailers promoted this technology could it succeed. Retailers, however, were reluctant to market Divx players because doing so meant handing royalties to Circuit City, a formidable competitor. Circuit City thus had only limited ability to increase the probability that Divx would win the standards war against DVD.
When a company can’t influence important uncertainties, an adapting strategy may be preferable. Hewlett-Packard, for example, faced unpredictable ink-jet printer demand across a variety of countries in the 1980s. HP was then customizing its ink-jet printers for use in different non-US markets at the factory and shipping the printers in finished form to its warehouses, for the company had decided that it was cheaper to customize the printers at the factory than in the field. The problem was that since demand in the various countries rose and fell unpredictably, HP often found itself with excess printers configured for certain countries and with shortages for others.
This uncertainty created an ongoing supply-and-demand mismatch at HP’s warehouses. HP had little ability to influence total demand for printers in the different countries, so it developed a strategy to adapt itself to this key uncertainty: it postponed customizing the printers until it had shipped them to the warehouses and had firm orders in hand. This approach substantially decreased the company’s stock-out and inventory-carrying costs while also slightly increasing production costs, since customizing at the warehouse was more expensive. Net savings from this strategy came to about $3 million a month, according to Corey Billington, who directed HP’s strategic-planning and modeling unit.5
Tailoring choices to the four levels of uncertainty
As a rule of thumb for making decisions, then, shaping makes the most sense when uncertainty is high and can be influenced by a company’s actions. To fine-tune this approach, a company must consider ways of varying how it thinks about shaping versus adapting—depending on the nature of the uncertainty it faces. Uncertainty always takes one of four general forms (exhibit).6 Understanding which form you face is crucial when you decide whether to shape or adapt.
Even the most stable business environments can be susceptible to periodic bouts of upheaval that are driven by bold shapers
When confronting a future that seems clear enough to predict, strategists have traditionally favored adapting strategies geared to the existing market. In such stable markets, shaping opportunities often are not readily apparent, and companies believe that locking in a business system that is successful today will most likely produce success tomorrow. Yet even the most stable business environments are susceptible to periodic bouts of upheaval, driven by shapers capable of identifying and developing innovative products, services, and business systems that displace competitors.
Shapers at this lowest level of uncertainty intentionally seek to create chaos out of order. Their efforts are risky, uncommon—and sometimes effective. USA Today transformed newspaper markets so greatly that even the staid New York Times and Washington Post now feature color pictures. And the original overnight-delivery strategy of Federal Express reshaped the sleepy mail-and-package-delivery industry.
However, shapers in more uncertain environments attempt to lower the level of uncertainty, thereby creating order out of chaos. When the future holds a limited set of possible outcomes, for example, shaping strategies attempt to increase the probability that one of the outcomes most favorable to the company actually occurs—as Qualcomm is trying to do with its CDMA strategy and as electric power producers are trying to do with their regulatory strategies in California. Just as a limited number of wireless-telephone technologies are competing to become the next-generation industry standard, so too a limited number of possible actions by California officials could change the nature of regulation in electric power markets. In both cases, companies are attempting to shape the market toward their desired alternatives. Since adapters at this second level of uncertainty must prepare for only a limited set of possible outcomes, hedging strategies may also make sense. PC software companies could successfully hedge their strategies in the late 1980s, for instance, precisely because only a rather limited number of operating-system standards could emerge as near-term market leaders.
By contrast, if a wide range of possible outcomes can be identified, shaping strategies focus on moving the industry toward the "right end of the range." While companies that successfully shape markets with a limited set of possible outcomes create the scenario most favorable to them, in the third level of uncertainty success is defined by the ability to set the broad direction of the market. Internet-banking shaping strategies, for instance, are designed to increase the share of financial-services transactions taking place on-line, and a significant component of Monsanto’s life sciences strategy involves the acquisition of seed companies in hopes that this approach will increase the rate at which farmers adopt the company’s genetically engineered seeds.
At higher levels of uncertainty, hedging strategies become less desirable, since it is difficult to determine if all bases have been covered; instead, successful adapters tend to focus on continuous experimentation (Capital One in credit cards) or on building flexible organizations (professional-services firms). Finally, when an entire industry is in flux, an effective shaper can bring the market to order by setting an industry technology standard, consolidating a group of fragmented competitors, and even offering a new business model for the industry. As uncertainty grows, so too will the chance that other competitors will emulate any company willing to take a stand.
This reality implies, paradoxically, that shaping strategies in the most uncertain environments may involve higher returns and lower risk than these strategies do in situations with lower residual uncertainty. If you believe in a new industry standard, for example, and are willing to invest in its development, your creation could well serve as a "touchstone" that others react to. You would, in fact, be bringing some order to a market in chaos: if your com-pany was a credible player in the industry, your commitment might well persuade others to commit themselves as well. Your belief in the new standard may set off a chain of events that creates a self-fulfilling prophecy. The credibility of Netscape’s management team, for example, was a key factor in its successful attempt to set new standards for Internet browsers when it first launched Navigator.
Other factors
As executives face their shape-or-adapt choices, they must weigh factors beyond the level of residual uncertainty—factors such as the external market environment and the company’s capabilities and aspirations. Shaping strategies, for example, make most sense in markets that offer strong first-mover advantages. One market that may not offer them is Internet-based commerce, which by its very nature invites comparison shopping, thus perhaps undermining one of the most important potential first-mover advantages: brand and customer loyalty. As a result, it isn’t clear yet whether e-commerce shapers such as Amazon.com and eBay have established any sustainable first-mover advantages. Being an e-commerce adapter—replicating good ideas and avoiding bad ones—may offer returns similar to those won by pioneering shapers, without all the risk. Only time will tell.
Similarly, even excellent companies are not cut out to be shapers in all situations. Successful shaping usually requires a clear vision of an industry’s future evolution (as Bill Gates had for PCs); deep pockets; a strong reputation; a leadership position in a related business; world-class technology, innovation skills, or both; and operational excellence. Not all companies have these qualities. As the former chief executive of Iridium, John Richardson, has admitted, for example, its attempt to shape the satellite telephone market was undermined by "inept" marketing and products that "didn’t work" at the time of the company’s service launch.7
Successful shapers share a formidable list of attributes. Managers might therefore be tempted to regard adapting as the easy or fallback strategy alternative. This idea is mistaken on two fronts. First, it leads managers to assume that adapting, unlike shaping, doesn’t require proactive strategic commitments. Nothing could be further from the truth. Following a potential shaper’s lead, hedging against possible future outcomes, experimenting continually, and even building a flexible organization require real up-front commitments—financial and human.
Second, the mistaken idea that adapting is the easy alternative leads managers to assume that passive—not active—management is required to see it through. Yet adapters in highly uncertain environments must be skilled at spotting their new opportunities and threats and at turning on a dime to reorient their companies when necessary. This is hardly passive and hardly easy for many companies. For a company that has difficulty dealing with ambiguity, a bold shaping strategy may be the only way to avoid the dangerous "do nothing" trap.
As strategists make shape-or-adapt choices, uncertainty, perceived first-mover advantages, and the company’s capabilities and aspirations play important roles. No algorithm exists to weigh each factor, nor can a one-size-fits-all answer suit all companies in all situations. One thing, however, is certain: strategists who develop a thorough understanding of the level and nature of the residual uncertainty their company faces can develop a richer set of feasible alternatives and make better-informed choices to shape or adapt.
About the Author
Hugh Courtney is an associate principal in McKinsey’s Washington, DC, office. This article is adapted from his book, 20/20 Foresight: Crafting Strategy in an Uncertain World, Boston: Harvard Business School Press, 2001.
Thursday, January 11, 2007
Transparency
The word transparency is often used in all corporate governance session/seminars & all the more in b-schools. But the sad thing is that its again only theory, there are hardly 2-3% of the people in the corporate world who walk the talk.
Why can't people be transparent? Is it ego, is it that their weakness will be exposed or may be just that they don't even know what it means or they just want to go along with the things without the crave to atleast change things & become transparent.
There have been many instances that i have been mocked upon for being transparent or saying certain things on the face, i do feel bad about it but later definitely feel that it's the way be. I just hope that this will always remain.
Ask your boss/colleague about when do we start this project, he says immediately & later says take a look at what it's all about so that you understand it, later we'll talk.. the later god knows when it will happen.
After "n" days out of the blue you will have to explain the project & also your action steps !!
Instead it can always be put across in a lot better way to take a look at it & then when he gets more clarity on that we can take it forward but be prepared for it.
Loads of bigger instances that i have come across but for various reasons cannot write.
Is corporate world all about gains only & not relationships? Is it a mad rush for name,fame & money - AT ANY COST.. who knows?
The cause of stress at work is not work alone i feel but all the other unwanted things that come by it.
Hope there will be days to come where businessmen/entrpreuners/Top management become more 'mature' to make workplace a better place to be as we spend around 7 - 8 months a year at our work.
Why can't people be transparent? Is it ego, is it that their weakness will be exposed or may be just that they don't even know what it means or they just want to go along with the things without the crave to atleast change things & become transparent.
There have been many instances that i have been mocked upon for being transparent or saying certain things on the face, i do feel bad about it but later definitely feel that it's the way be. I just hope that this will always remain.
Ask your boss/colleague about when do we start this project, he says immediately & later says take a look at what it's all about so that you understand it, later we'll talk.. the later god knows when it will happen.
After "n" days out of the blue you will have to explain the project & also your action steps !!
Instead it can always be put across in a lot better way to take a look at it & then when he gets more clarity on that we can take it forward but be prepared for it.
Loads of bigger instances that i have come across but for various reasons cannot write.
Is corporate world all about gains only & not relationships? Is it a mad rush for name,fame & money - AT ANY COST.. who knows?
The cause of stress at work is not work alone i feel but all the other unwanted things that come by it.
Hope there will be days to come where businessmen/entrpreuners/Top management become more 'mature' to make workplace a better place to be as we spend around 7 - 8 months a year at our work.
Sunday, January 07, 2007
Science declines but technology advances
SWAMINOMICS
Brilliant scientists like CNR Rao, scientific advisor to the prime minister, can be dead wrong. They say that Indian science and technology are in crisis. Nonsense, technology has never been in better shape.
Rao complains that scientists and engineers are leaving universities and government labs for private sector companies (mainly in software). High attrition of scientific staff is hobbling Indian space and defence programmes. Promising scientists are migrating. India’s share of published scientific papers is falling: Rao says it is down to barely 3% against China’s 12%. In the first half of the 20th century, CV Raman won the Nobel Prize, and SN Bose along with Einstein devised the Bose-Einstein statistics. Nothing similar happens now.
Rao argues that Indian science needs a big step-up in government R&D budgets, higher retirement age in universities, and the slashing of red tape. I agree. But I think this problem pales in comparison with India’s phenomenal success in becoming a global hub for brain-intensive services and manufacturing. Pure science may be in trouble, but Indian technology is booming as never before, and that is far more important.
Tata Motors developed the Indica, beating global rivals like Fiat’s Palio. Tata Motors is now set to produce a one-lakh rupee car, the cheapest quality car in the world. This is a major technological feat.
Our software industry is set to become world number one. Starting from low-end software, Indian companies have risen so fast and competitively up the ladder that price earning ratio of the Indian trio is higher than for the American trio. Corollary: the Indian companies will probably take over the American giants in due course.
Reliance can build oil refineries at 66% of the cost in the US or Europe, and so has the highest refining margins in the world. Brain-intensive manufacturing has made India world class in small cars and auto ancillaries. Hyundai, Suzuki and now Nissan have made India a centre for global export production.
India has developed high skills in computer-aided design and manufacturing, and in tooling. This has sparked a boom in auto ancillary exports, which could cross $2 billion this year. Bharat Forge can go from concept to prototype to commercial production in three months, against six months or more abroad. Superior skills have enabled it to take over rivals across the world, and it should be world number one by 2008.
Multinationals are rushing to India to set up R&D centres. The list includes General Electric, IBM, Suzuki, Hyundai, General Motors, Timken, Astra Zeneca and Texas Instruments. General Electric’s Bangalore lab is its second biggest in the world, and has helped attract back to India many scientists who had earlier migrated. Shanta Biotech and Biocon have established India as a force in global biotechnology. Reliance Life Sciences has been recognised by the US National Institutes of Health for stem-cell research.
Tata Steel’s skills have made it the second cheapest steel producer in the world, so giants like Corus wants to be taken over by it. Fifty years ago, the world’s most economic two-wheelers from Piaggio gave 27 kms/litre of petrol. Today, Bajaj Auto and Hero Honda have developed indigenous models giving over 100 kms/litre. They have thrashed global giants Honda and Yamaha who are used to producing gas-guzzlers abroad. Bajaj once used technology from Kawasaki but now produces much better technology itself.
Less high-profile but more significant may be the mushrooming of new companies to do contract R&D for global ones. Divi’s Labs and Vimta Labs are some new stars in this firmament. So, R&D in government labs may be in trouble, but it is booming in the private sector. In the licence-permit raj, companies had no incentive to do R&D. But competition induced by economic reform means that R&D is crucial to survival. That has changed everything.
Patent applications in India have shot up from 4,000 in 1995 to 17,000 in 2004. Under Dr Mashelkar, the government’s CSIR labs have developed R&D partnerships with private sector companies, a promising way forward.
Why, then, do some scientists bemoan the decline and fall of science? Some (though not all) have the old Soviet mindset, glorying above all in indigenous technology in nuclear energy, missiles and space. Soviet scientists got unlimited sums for strategic goals, without having to worry about cost-effectiveness. This helped them make missiles and nuclear bombs. Alas, this approach was not conducive to producing the most elementary consumer goods of decent quality or price. The Soviet Union couldn’t produce competitive wheat or textiles, machinery or trucks. This led ultimately to its economic and political collapse. That vividly illustrates the very limited relevance of space and defence technology for a country’s well-being.
India needs, above all, technology that benefits consumers through improved products. So, I cheer the fact that India has become a global power in brain-intensive services and manufacturing. Our technology was lousy in our scientific heyday when CV Raman won his Nobel Prize. We are much better off today.
Brilliant scientists like CNR Rao, scientific advisor to the prime minister, can be dead wrong. They say that Indian science and technology are in crisis. Nonsense, technology has never been in better shape.
Rao complains that scientists and engineers are leaving universities and government labs for private sector companies (mainly in software). High attrition of scientific staff is hobbling Indian space and defence programmes. Promising scientists are migrating. India’s share of published scientific papers is falling: Rao says it is down to barely 3% against China’s 12%. In the first half of the 20th century, CV Raman won the Nobel Prize, and SN Bose along with Einstein devised the Bose-Einstein statistics. Nothing similar happens now.
Rao argues that Indian science needs a big step-up in government R&D budgets, higher retirement age in universities, and the slashing of red tape. I agree. But I think this problem pales in comparison with India’s phenomenal success in becoming a global hub for brain-intensive services and manufacturing. Pure science may be in trouble, but Indian technology is booming as never before, and that is far more important.
Tata Motors developed the Indica, beating global rivals like Fiat’s Palio. Tata Motors is now set to produce a one-lakh rupee car, the cheapest quality car in the world. This is a major technological feat.
Our software industry is set to become world number one. Starting from low-end software, Indian companies have risen so fast and competitively up the ladder that price earning ratio of the Indian trio is higher than for the American trio. Corollary: the Indian companies will probably take over the American giants in due course.
Reliance can build oil refineries at 66% of the cost in the US or Europe, and so has the highest refining margins in the world. Brain-intensive manufacturing has made India world class in small cars and auto ancillaries. Hyundai, Suzuki and now Nissan have made India a centre for global export production.
India has developed high skills in computer-aided design and manufacturing, and in tooling. This has sparked a boom in auto ancillary exports, which could cross $2 billion this year. Bharat Forge can go from concept to prototype to commercial production in three months, against six months or more abroad. Superior skills have enabled it to take over rivals across the world, and it should be world number one by 2008.
Multinationals are rushing to India to set up R&D centres. The list includes General Electric, IBM, Suzuki, Hyundai, General Motors, Timken, Astra Zeneca and Texas Instruments. General Electric’s Bangalore lab is its second biggest in the world, and has helped attract back to India many scientists who had earlier migrated. Shanta Biotech and Biocon have established India as a force in global biotechnology. Reliance Life Sciences has been recognised by the US National Institutes of Health for stem-cell research.
Tata Steel’s skills have made it the second cheapest steel producer in the world, so giants like Corus wants to be taken over by it. Fifty years ago, the world’s most economic two-wheelers from Piaggio gave 27 kms/litre of petrol. Today, Bajaj Auto and Hero Honda have developed indigenous models giving over 100 kms/litre. They have thrashed global giants Honda and Yamaha who are used to producing gas-guzzlers abroad. Bajaj once used technology from Kawasaki but now produces much better technology itself.
Less high-profile but more significant may be the mushrooming of new companies to do contract R&D for global ones. Divi’s Labs and Vimta Labs are some new stars in this firmament. So, R&D in government labs may be in trouble, but it is booming in the private sector. In the licence-permit raj, companies had no incentive to do R&D. But competition induced by economic reform means that R&D is crucial to survival. That has changed everything.
Patent applications in India have shot up from 4,000 in 1995 to 17,000 in 2004. Under Dr Mashelkar, the government’s CSIR labs have developed R&D partnerships with private sector companies, a promising way forward.
Why, then, do some scientists bemoan the decline and fall of science? Some (though not all) have the old Soviet mindset, glorying above all in indigenous technology in nuclear energy, missiles and space. Soviet scientists got unlimited sums for strategic goals, without having to worry about cost-effectiveness. This helped them make missiles and nuclear bombs. Alas, this approach was not conducive to producing the most elementary consumer goods of decent quality or price. The Soviet Union couldn’t produce competitive wheat or textiles, machinery or trucks. This led ultimately to its economic and political collapse. That vividly illustrates the very limited relevance of space and defence technology for a country’s well-being.
India needs, above all, technology that benefits consumers through improved products. So, I cheer the fact that India has become a global power in brain-intensive services and manufacturing. Our technology was lousy in our scientific heyday when CV Raman won his Nobel Prize. We are much better off today.
Monday, December 11, 2006
Technology helps hospitals move towards ‘paperless’ zone
Nice to hear/read about the hospitals looking to use technology. This is one of the industries that serves the mankind directly, i always felt that technology can be used to enhance quality of service in the hospitals, be it a small one or a huge hospital.
But at the end of the day we need to see how effective it may turn out to be for the 700 million population in India(~70%) who are rather not so economically strong to get the benefits of these resources.
One good thing is that we are atleast trying to reach there soon.
FANCY a paperless hospital? It may not relieve pain, but carrying a smart card embedded with personal details and a doctor’s notes could reduce the amount of paper that patients carry to the hospital. That vision is yet to materialise. Bandwidth availability and faster IT adoption could make it a reality in the not-sodistant future in at least a few hospitals in India.
On the road to that promising future, India has suddenly seen a spurt in quality healthcare over the past few years, with world-class hospitals like Wockhardt Hospitals, Asian Heart Institute, Apollo Hospitals and Fortis Hospitals, coming up. In these hospitals, as with most new service offerings, it is the information technology backbone that is at work behind the scenes, ensuring that the quality of services and treatment is of the highest order.
Says Vishal Bali, CEO, Wockhardt Hospitals: “Today, digital information is at the core of healthcare delivery in India and diagnosis is becoming more and more information-led.”
What would healthcare and IT have in common? A lot, it would seem. The CT scans, MRIs, 3D and other images are now exclusively the domain of high-tech healthcare machines. The use of semiconductors in healthcare devices (like digital monitors, MRI, CT scan machines and so on) is at $2 billion a year and this is increasing at 17-20% a year. Companies like GE, Philips, Siemens work closely with chip-makers like Texas Instruments and others to embed medical devices with semiconductors.Various vital signs monitors hook up directly to the central hospital servers, allowing doctors to monitor patients remotely. Finally, massive state-of-the-art servers, like the HP-Compaq ML 350, which can store up to 1.2 terabyte of data, are used to house all possible images and information about the patients.
Broadly, IT is used in hospitals in three different ways — in providing hospital information systems (HIS) which looks after hospital administrative functions as well as patient records; in enhancing the delivery of treatment and post-treatment monitoring, and finally in better overall service offering to patients.
Adds Anshuman Khare, IT-Manager, Asian Heart Institute, “We have to create a system with proper backup clusters so that no data is lost.” So what is the exact process that takes place once a patient is admitted to a hospital? On admission, the details of the patient are immediately put on to the network. The paperwork is minimal, and restricted to the doctor’s assessment of medical record and treatment. Every ward has a secretary that would feed these details onto the patient’s record, and subsequently, every single input provided to the patient, whether it’s an X-ray, a path lab report or a MRI scan, is logged in. Thus, various departments of the hospitals are also integrated with the HIS. Additionally, all reports are available to doctors on hospital networks, who needn’t be physically present at the patient’s bedside. Philips and GE have helped greatly in remote monitoring — they’ve designed machines that monitor vital signs and feed them directly into the servers, which allow doctors to check on their patient from several different locations.
It’s here that data security also comes into place, because hospitals don’t allow all doctors to view patient files. Remote monitoring, according to hospital executives, will become a more prominent feature in hospitals which focus on intensive care of patients.
But at the end of the day we need to see how effective it may turn out to be for the 700 million population in India(~70%) who are rather not so economically strong to get the benefits of these resources.
One good thing is that we are atleast trying to reach there soon.
FANCY a paperless hospital? It may not relieve pain, but carrying a smart card embedded with personal details and a doctor’s notes could reduce the amount of paper that patients carry to the hospital. That vision is yet to materialise. Bandwidth availability and faster IT adoption could make it a reality in the not-sodistant future in at least a few hospitals in India.
On the road to that promising future, India has suddenly seen a spurt in quality healthcare over the past few years, with world-class hospitals like Wockhardt Hospitals, Asian Heart Institute, Apollo Hospitals and Fortis Hospitals, coming up. In these hospitals, as with most new service offerings, it is the information technology backbone that is at work behind the scenes, ensuring that the quality of services and treatment is of the highest order.
Says Vishal Bali, CEO, Wockhardt Hospitals: “Today, digital information is at the core of healthcare delivery in India and diagnosis is becoming more and more information-led.”
What would healthcare and IT have in common? A lot, it would seem. The CT scans, MRIs, 3D and other images are now exclusively the domain of high-tech healthcare machines. The use of semiconductors in healthcare devices (like digital monitors, MRI, CT scan machines and so on) is at $2 billion a year and this is increasing at 17-20% a year. Companies like GE, Philips, Siemens work closely with chip-makers like Texas Instruments and others to embed medical devices with semiconductors.Various vital signs monitors hook up directly to the central hospital servers, allowing doctors to monitor patients remotely. Finally, massive state-of-the-art servers, like the HP-Compaq ML 350, which can store up to 1.2 terabyte of data, are used to house all possible images and information about the patients.
Broadly, IT is used in hospitals in three different ways — in providing hospital information systems (HIS) which looks after hospital administrative functions as well as patient records; in enhancing the delivery of treatment and post-treatment monitoring, and finally in better overall service offering to patients.
Adds Anshuman Khare, IT-Manager, Asian Heart Institute, “We have to create a system with proper backup clusters so that no data is lost.” So what is the exact process that takes place once a patient is admitted to a hospital? On admission, the details of the patient are immediately put on to the network. The paperwork is minimal, and restricted to the doctor’s assessment of medical record and treatment. Every ward has a secretary that would feed these details onto the patient’s record, and subsequently, every single input provided to the patient, whether it’s an X-ray, a path lab report or a MRI scan, is logged in. Thus, various departments of the hospitals are also integrated with the HIS. Additionally, all reports are available to doctors on hospital networks, who needn’t be physically present at the patient’s bedside. Philips and GE have helped greatly in remote monitoring — they’ve designed machines that monitor vital signs and feed them directly into the servers, which allow doctors to check on their patient from several different locations.
It’s here that data security also comes into place, because hospitals don’t allow all doctors to view patient files. Remote monitoring, according to hospital executives, will become a more prominent feature in hospitals which focus on intensive care of patients.
Bring in futuristic outlook to bridge consumer, marketer chasm
IN ONE of his books, Richard Koh draws a parallel between the theory of relativity and its impact on business. Einstein said the speed of light was constant, and it follows that if two observers are travelling at different speeds, they won’t agree that on the precise time that anything happened. There is no absolute reality, everything is relative.
He compares this with business life and leads on to an interesting point. He says “for precisely the same reason mentioned in the theory of relativity, the organisation’s perspective of what the customer wants will always be different from the customer’s perspective. And it will be wrong in proportion to the distance of the decision-making executive from the customer front line.”
I was thinking on why this happens. One reason is because the customer is himself changing all the time, and the best service providers are merely playing catch up with the customer’s needs, if at all. Organisations go great lengths understanding the needs of the customer, only to find the needs have changed by the time the product or service is out. One way to time this is to get away from “understanding” the needs of the customer to “anticipating” the needs. Now this is a paradigm shift and it will take skill, wits and bets. The challenge is this:
when you ask customers what they want, you are as likely to get a correct answer as the clues in an Agatha Christie. I read somewhere that when Xerox came up with the concept of Xerox machines and did a survey of secretaries they were told the product had no future as carbon was doing as well. Yet, to take an informed bet of the needs of the future is what is required going forward.
The other way to bridge this is to take decision making and product planning from the top/middle of the hierarchy to the bottom of the hierarchy. We make products, and when it comes to deviations, the front end refers it to the bosses, a time consuming process which the customer puts up with. Meanwhile, the customer facing team is not feeling very good facing the customer. One American humorist Dave Barry makes the point tellingly on behalf of a frontline staff: “The most hated group in any large company is the customers. They don’t know about our company procedures or anything about you do, which drives you crazy. At the same time your bosses, who are idiots and who don’t have to talk to customers, tell you day in and day out that the most important person in the world is the customer”.
I think eventually the decision-making will move to the customer himself, at the choice of the customer channel, time and terms. For example, if a product programme allows for a margin of 20% to be brought in by the customer, chances are, eventually, the customer will drag and drop his kind of collateral on a computer screen, and walk away with a zero margin.
It’s not just the way the organisation understands needs, its also the way they profile their customers. The Ford Edsel was the most brilliantly designed car in automobile history of those days, yet it flopped miserably. They learnt the hard way that they had segmented the market by income… the way it was segmented for decades, while the market was giving way to segmentation by lifestyles. In designing products for customers, the biggest clash will come from the “creator fetish”. We all know its technology that is powering change, and we make products and expect customers to love our creation. In his book, “Crossing the chasm”, Geoffrey Moore points out that after the early adopters, there is a major barrier to be crossed, what Moore calls the chasm. The chasm is there because the mainstream market is not impressed with technology per se, they want to see value; and not just appreciate the plaything for technophiles. Its only then that customers let that technology into their lives.
Once the chasm is bridged, and consumers see value, there will be a movement from “impossible” to “inevitable”… two extreme ends of the spectrum . The speed will surprise even the diehard optimists. For example today consumers don’t mind scratching codes and “sms”ing codes to the service provider… since they get to speak wireless .. because its value. In fact, the journey from impossible to inevitable will be sooner than expected.
The author is executive director, ICICI Bank
He compares this with business life and leads on to an interesting point. He says “for precisely the same reason mentioned in the theory of relativity, the organisation’s perspective of what the customer wants will always be different from the customer’s perspective. And it will be wrong in proportion to the distance of the decision-making executive from the customer front line.”
I was thinking on why this happens. One reason is because the customer is himself changing all the time, and the best service providers are merely playing catch up with the customer’s needs, if at all. Organisations go great lengths understanding the needs of the customer, only to find the needs have changed by the time the product or service is out. One way to time this is to get away from “understanding” the needs of the customer to “anticipating” the needs. Now this is a paradigm shift and it will take skill, wits and bets. The challenge is this:
when you ask customers what they want, you are as likely to get a correct answer as the clues in an Agatha Christie. I read somewhere that when Xerox came up with the concept of Xerox machines and did a survey of secretaries they were told the product had no future as carbon was doing as well. Yet, to take an informed bet of the needs of the future is what is required going forward.
The other way to bridge this is to take decision making and product planning from the top/middle of the hierarchy to the bottom of the hierarchy. We make products, and when it comes to deviations, the front end refers it to the bosses, a time consuming process which the customer puts up with. Meanwhile, the customer facing team is not feeling very good facing the customer. One American humorist Dave Barry makes the point tellingly on behalf of a frontline staff: “The most hated group in any large company is the customers. They don’t know about our company procedures or anything about you do, which drives you crazy. At the same time your bosses, who are idiots and who don’t have to talk to customers, tell you day in and day out that the most important person in the world is the customer”.
I think eventually the decision-making will move to the customer himself, at the choice of the customer channel, time and terms. For example, if a product programme allows for a margin of 20% to be brought in by the customer, chances are, eventually, the customer will drag and drop his kind of collateral on a computer screen, and walk away with a zero margin.
It’s not just the way the organisation understands needs, its also the way they profile their customers. The Ford Edsel was the most brilliantly designed car in automobile history of those days, yet it flopped miserably. They learnt the hard way that they had segmented the market by income… the way it was segmented for decades, while the market was giving way to segmentation by lifestyles. In designing products for customers, the biggest clash will come from the “creator fetish”. We all know its technology that is powering change, and we make products and expect customers to love our creation. In his book, “Crossing the chasm”, Geoffrey Moore points out that after the early adopters, there is a major barrier to be crossed, what Moore calls the chasm. The chasm is there because the mainstream market is not impressed with technology per se, they want to see value; and not just appreciate the plaything for technophiles. Its only then that customers let that technology into their lives.
Once the chasm is bridged, and consumers see value, there will be a movement from “impossible” to “inevitable”… two extreme ends of the spectrum . The speed will surprise even the diehard optimists. For example today consumers don’t mind scratching codes and “sms”ing codes to the service provider… since they get to speak wireless .. because its value. In fact, the journey from impossible to inevitable will be sooner than expected.
The author is executive director, ICICI Bank
Tuesday, December 05, 2006
Saudi Arabia's global investor: An interview with Prince Alwaleed
The biggest individual foreign investor in the United States discusses the pace of reform in Saudi Arabia, his investments, and the future of Islam.
Kito de Boer
Web exclusive, December 2006
His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud—or Alwaleed, as he’s known in the Middle East—is a highly successful international investor, a member of the Saudi Royal family (and nephew of the king), and the biggest individual foreign investor in the United States. He first came to prominence in the West in 1991, after paying $590 million for a 14.9 percent stake in then-struggling Citicorp (now Citigroup). His investment quickly became worth billions of dollars when the US financial giant pulled itself back from the brink of bankruptcy and resumed its profitable growth. Most recently, he has attracted headlines by teaming up with Bill Gates to back a $3.7 billion management buyout of the Four Seasons Hotels and Resorts.
Alwaleed’s business empire today includes extensive direct investments (in real estate, banking, retailing, industrial, media, and construction) in Saudi Arabia and elsewhere in the region—such as private holdings centered on his Kingdom Holding (KHC) projects—plus a range of significant minority interests in some of the world’s more prominent companies. Besides Citigroup (where his shareholding now stands at 3.6 percent), his holdings include Fairmont Hotels and Resorts, News Corporation, Time Warner, the Walt Disney Company, Canary Wharf (in the United Kingdom), Apple Computer, and Motorola. Alwaleed is estimated to be one of the wealthiest people in the world.
His significance, though, goes well beyond his business and financial career. A self-described “bridge” between Arab and Western cultures, he combines a traditional Muslim outlook with a passion for market-driven economic and social reform. Alwaleed prowls Wall Street and business boardrooms during the week yet spends his weekends dispensing charity to the Bedouin at his tented desert camp near Riyadh. He finances mosques in his native Saudi Arabia while promoting the cause of women as earnestly as any campaigner in Europe or the United States—proudly pointing out, for example, that one of the pilots of his private plane is a woman.
In this conversation with McKinsey director Kito de Boer in Paris, Alwaleed discusses the pace of reform in Saudi Arabia, global investment flows, and the debate that must take place within Islam.
The Quarterly: How would you compare what’s happening in the Gulf today with the last oil boom, in the 1970s?
Alwaleed: Last time round we rushed into a lot of construction projects, and I think some things then were done haphazardly, but the countries of the Gulf have learned from those mistakes. Governments are now trying to do things properly and with more precision. Much of the basic infrastructure—airports, roads, universities, et cetera—was put in place in the 1980s and 1990s, so political energies in Saudi Arabia can now be devoted to things that will impact the social structure, such as reducing unemployment, building houses for the poor, and other good causes.
A big achievement, in my view, has been the debt reduction program in Saudi Arabia, which has brought down public-sector debt from 118 percent of GDP at its peak to around 40 percent today, with a target of eliminating it completely by the end of 2007. It’s important that the bulk of the excess money be channeled into new industries with added value that can give us a good income in the future.
The Quarterly: How do you feel about the pace of economic reform in Saudi Arabia? Could the oil bonanza be an excuse to slow things down?
Alwaleed: Although some observers assume that the brakes will be put on political reform because of the new oil wealth, I honestly don’t believe this to be the case. For sure, I would like some things to be quicker. First, bureaucracy needs to be cut. When the law establishing the Saudi Arabian General Investment Authority [SAGIA] was enacted, the idea was that it would encourage one-stop shopping for international investors, but I am not certain we are seeing that happen. There is also a need for more competitive tax laws. We have to compare ourselves not only with the rest of the region but with Eastern Europe, Latin America, and Africa. It is a very tough climate for inward investment, and we have to go further than lowering the capital gains tax to 20 percent, from 40 percent. Finally, there are the labor laws, which—although less important than the first two issues—are still not clear enough.
The Quarterly: From the outside, Saudi Arabia sometimes seems to struggle to turn reform ideas into action because, unlike, say, in Bahrain or Dubai, no one person or institution appears to be driving the agenda. Is that fair?
Alwaleed: In the years when he was crown prince and since he became king, a year ago, King Abdullah has initiated major political, social, and economic reforms. In general, Saudi Arabia is now looked at favorably by international investors. We see that in the many companies locating there. King Abdullah would like to move faster, but for him it’s like moving a big yacht—it takes time to turn it round.
The comparison between Saudi Arabia and the Gulf countries, whether it be Dubai, Abu Dhabi, or Bahrain, is not right. These are all city or emirate states, whereas Saudi Arabia is a giant country with a lot of different constituencies: the Islamic constituency, the political constituency, the royal family, the conservatives, and the Bedouin. On top of that we are at the vanguard of Islam, and we have the wider Muslim population of the world—1.3 billion people—looking to us for leadership. To move in Saudi Arabia, with all these entrenched interests, is very difficult.
That’s not to say I’m a defender of the status quo. Far from it. I’m frustrated that women can’t drive—we’re the only country in the world where they can’t—and that while it’s legal to buy a videotape and see it on the small screen, we don’t have any cinemas. These may be cosmetic issues, but they’re important.
The Quarterly: Are you worried that some of your neighbors in the Gulf are moving ahead more quickly?
Alwaleed: Saudi Arabia is the anchor of the region, just as Germany, France, Italy, and the United Kingdom matter economically much more than Slovakia, Poland, or Greece in Europe. I don’t agree that we will be left behind, but we have to take lessons from what is happening now in, say, Dubai and Abu Dhabi. It is quite possible to be politically conservative and at the same time to encourage reform. In Saudi Arabia we have to unlink political conservatism from economic liberalism. There are still some hiccups in this respect.
The Quarterly: Is the balance changing between conservatives and modernizers?
Alwaleed: There is certainly a tension, but the king and the government are very much proreform, and they are moving ahead. I’m not saying they are not conservative too—they are. I am conservative, I am a Muslim, I pray five times a day, but I’m economically and socially very liberal. I don’t see that as a conflict. In my judgment the conservative role is shrinking, or at least not getting stronger, and the king is taking a strong stance against this group. What the US government is doing in Lebanon, in Palestine, and Iraq, though, is not advancing the liberal cause.
The Quarterly: Are events in those territories a cause of instability in the Gulf region? What are the main risks for businesses as you see them?
Alwaleed: I think the Gulf region has learned by now to deal on the economic front with the hot spots around us. While a big benefit comes from the price of oil, the investment boom at the moment is very real. Clearly, terrorism is a risk, but the risk is diminishing. In Saudi Arabia we were not geared up for antiterrorism at the time of 9/11—we were never a police state—so we have been on a learning curve on how to combat terrorism. I am not saying terrorists have been eradicated, but I would say to Western people that the matter is under control and we are weeding them out before acts are committed. The political situation in the region, meanwhile, is very stable.
The Quarterly: Turning to investment matters, do you think the pattern of global capital flows is changing? As an international investor, where do you see the most attractive opportunities in the next few years?
Alwaleed: There’s no doubt that after 9/11 and after the Dubai Ports [DP World] debacle, many investors from our region, including the government of Saudi Arabia and other governments in the Gulf, have been thinking of putting more of their money into Europe, India, China, and the Far East in general. At the end of the day, politics is mirrored in economics and finance; US attitudes toward the Arab and Islamic worlds and toward the Dubai Ports deal have had a negative effect, though not on me.
I can’t put numbers on any of this, but I have seen the trend for some time in the communications I have with other investors. When the Bank of China asked Kingdom Holding to be the Saudi investor in their bank, we received subscriptions for the first $2 billion within three days. Actually, we were oversubscribed.
At the same time, a lot of capital is being invested in the local economies of the Gulf. In the past several months, I have met five or six chairmen of US banks and investment banks that are lining up to come to Saudi Arabia, to open branches and serve the corporate sector and high-net-worth individuals. Studies say that in excess of $1 trillion could flow into the budgets of the Gulf economies in the next two years, even with oil at around $60 a barrel, and if there were to be a slowdown in the world economy the transfers would be huge.
The Quarterly: Apart from oil and property, what other industries do you see emerging in Saudi Arabia over the next five to ten years?
Alwaleed: At the end of the day, any country has to invest where it has an economic edge. During the first boom, Saudi Arabia announced that it was going to be self-sufficient in wheat. Yet we had none of the components that make agriculture feasible in a country—an abundance of water, cheap labor, or soil. We were importing labor, and we were digging wells to find water before exhausting them. That policy was a blunder. As a derivative of the oil industry, petrochemicals is one sector that is likely to be very important. Banking and financial services too. We are planning to build an international financial center in Riyadh to compete with the rest of the Gulf region, though it remains to be seen if it will be successful. Islamic tourism is another potential area for expansion, though I don’t think we’re talking about tourism in the international sense.
The Quarterly: What changes have you been making—or do you intend to make—in the asset allocation of your own global portfolio?
Alwaleed: After 9/11 my investments in the United States actually grew, not just tactically, but strategically. Because of Kingdom’s restructuring ahead of our IPO, we have not really invested a lot recently in the Middle East region. But we intend to invest tens of millions of rials in Saudi Arabia in various sectors, including airlines, real estate in Jeddah and Riyadh, and banking. Elsewhere in the Gulf, we are opening Four Seasons properties in Bahrain and Abu Dhabi and will end up with ten hotels in the region in the next two to three years. But we will not expand in other areas for the sake of expanding—we want to consolidate what we have now.
The Quarterly: Can you tell us about your extensive media interests? Besides the investment angle, is this a way for you to change perceptions of Islam in the West and, indeed, of the West in the Middle East?
Alwaleed: That is a good question. My media investments are worth about $5 billion to $6 billion and are divided into Middle East assets, which are grouped around the Rotana brand and include six television channels and the Islamic channel Alresalah, magazines, radio stations, and a stake in LBC Satellite (LBCSAT); and international interests, which include Time Warner, Walt Disney, and News Corporation, in which we are the third-largest shareholder. In the second phase of going public, we may have another IPO for our media entities.
I must say adamantly that we do not try to influence the political direction of our international media interests. However, given our alliance and strong relationship with the owners of certain entities, like Mr. Murdoch’s Fox News, we try to build bridges and discuss things with them in a logical and pragmatic way. We only ask for the chance to be heard. We are not asking them to be pro-Iraq, pro-Palestine, or pro-Islam, but we are asking them to be neutral.
Most media outlets in the Arab world—at least the print and TV ones—reflect the wishes and the dreams of their governments. So we are not so worried about that.
The Quarterly: What else can be done to bridge the gap between Muslims and the West?
Alwaleed: Through Kingdom Foundation we have established a $20 million Islamic studies program at Harvard University and a $20 million Center for Muslim-Christian Understanding at Georgetown University, in addition to our funding at Exeter University in England. We have set up the only two American centers in the Middle East, at the American University of Beirut and the American University in Cairo, donating $5 million and $10 million, respectively. At the request of President Chirac we have supported the Islamic wing of the Louvre, in Paris, and I am discussing with universities in the United Kingdom the opening of new Islamic-Christian-Jewish centers.
We put our money—more than $100 million—where our mouth is, but it’s going to take a long time to have any effect.
The Quarterly: What can be done to change hard-line attitudes in the Middle East? Do you share the view that education reform has a key part to play in the next few years?
Alwaleed: Our curriculum in Saudi Arabia is old and obsolete—I say that openly—and we need to do more. In schools we need more science, more English at the elementary level, more mathematics, and more emphasis on the Internet, reflecting the world we live in now. Things are moving a bit in universities, but it’s still the same story. On the religious side, the Ministry of Islamic Affairs has issued a circular that promotes moderate preaching in mosques and takes out anything related to the so-called enhancing of terrorist acts against Judaism and Christianity.
The Quarterly: What misunderstandings between Saudi Arabia and the West most frustrate you?
Alwaleed: In the West, and specifically in the United States, any act of terrorism by a Muslim is blamed on the entire Muslim community. In response to a recent attempted terrorist plot in the United Kingdom, for instance, the president of the United States talked of Islamic fascism. One or 2 people, or 20 people, or 100, or even 1,000 may fall into that category, but you can’t make a general statement about 1.3 billion people. I acknowledge that we have problems inside our Islamic community, but putting all Muslims into one pot and implying Islam is a terrorist religion adds fuel to the fire. This polarization between Islam and Christianity is very dangerous. There is very little difference between Islam, Christianity, and Judaism—they all believe in one God, one day of judgment, and a scripture that teaches about heaven. OK, one says the Bible is the word of God, the other that the Koran is the word of God. There are differences, but we are so close.
The Quarterly: A prominent Middle East editor said recently, “Not all Muslims are terrorists, but all terrorists are Muslim.” Is there a debate within Islam about the way things are going?
Alwaleed: I know that. Not all Muslims are terrorists; unfortunately, most terrorists in Russia, Thailand, the United Kingdom, and Spain are Muslim. I acknowledge that, but we have an issue with that internally in the Muslim community, and this is very dangerous talk for many people. In my view we need a major reform movement in the Arab and Islamic world to change perceptions. We are where the Catholic Church was when it controlled Europe, in the Middle Ages, and the political agenda succumbed to the religious agenda. But who is going to do it? I worry that things may have to get worse before we go in that direction, just as they got really nasty in Europe in the Middle Ages. That’s why I’m doing my best, with others, to bridge the gap, to think about the curriculum, and to take initiatives in the academic arena.
The Quarterly: Have you thought about doing something for Muslims in the region, equivalent to the Harvard and Georgetown foundations?
Alwaleed: It is very delicate to have something within the Islamic community. Right now we only have the Arab Thought Foundation, and while we are thinking of an opportunity ourselves, something new would have to be done by the government. We are seeing some indications, such as the recent conference in Mecca, that the debate is beginning, and it is important that the West should understand this. But we are living in history now. There is a beautiful Koranic verse that says God does not change people unless they change what they have inside them. In 100 years we will see what is happening—5 to 10 years is not enough. Look how long it took for Martin Luther to bring about change in Europe. It is not going to happen in the Middle East unless we have a strong reformer to take the lead.
The Quarterly: Kingdom Holding has been a pioneer in promoting women. Tell us about that, and what is happening generally in the country at the moment?
Alwaleed: I am Islamically conservative—I will do anything to help people, especially in the Islamic community—but I believe in the women’s cause, not just for their sake, but for the sake of the economy and for Saudi Arabia. You cannot have a population that is 50 percent female and have it account for only 4 or 5 percent of productivity. In my company I am trying to set an example. And what I do gets monitored because I have a relatively high profile. I have, for example, hired the first lady pilot, the first lady flight attendant, and the first lady jockey. And I use my media outlets to promote that. The jockey went to the Emirates, and all they talked about was her, even though she didn’t win. On television the pilot pointed out that she was not permitted to drive on the roads, but she could fly a plane and look down on everyone from the air.
Not many others are following at the moment, and a lot of Saudi women are frustrated as a result. But things are changing and will have to change more.
Kito de Boer
Web exclusive, December 2006
His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud—or Alwaleed, as he’s known in the Middle East—is a highly successful international investor, a member of the Saudi Royal family (and nephew of the king), and the biggest individual foreign investor in the United States. He first came to prominence in the West in 1991, after paying $590 million for a 14.9 percent stake in then-struggling Citicorp (now Citigroup). His investment quickly became worth billions of dollars when the US financial giant pulled itself back from the brink of bankruptcy and resumed its profitable growth. Most recently, he has attracted headlines by teaming up with Bill Gates to back a $3.7 billion management buyout of the Four Seasons Hotels and Resorts.
Alwaleed’s business empire today includes extensive direct investments (in real estate, banking, retailing, industrial, media, and construction) in Saudi Arabia and elsewhere in the region—such as private holdings centered on his Kingdom Holding (KHC) projects—plus a range of significant minority interests in some of the world’s more prominent companies. Besides Citigroup (where his shareholding now stands at 3.6 percent), his holdings include Fairmont Hotels and Resorts, News Corporation, Time Warner, the Walt Disney Company, Canary Wharf (in the United Kingdom), Apple Computer, and Motorola. Alwaleed is estimated to be one of the wealthiest people in the world.
His significance, though, goes well beyond his business and financial career. A self-described “bridge” between Arab and Western cultures, he combines a traditional Muslim outlook with a passion for market-driven economic and social reform. Alwaleed prowls Wall Street and business boardrooms during the week yet spends his weekends dispensing charity to the Bedouin at his tented desert camp near Riyadh. He finances mosques in his native Saudi Arabia while promoting the cause of women as earnestly as any campaigner in Europe or the United States—proudly pointing out, for example, that one of the pilots of his private plane is a woman.
In this conversation with McKinsey director Kito de Boer in Paris, Alwaleed discusses the pace of reform in Saudi Arabia, global investment flows, and the debate that must take place within Islam.
The Quarterly: How would you compare what’s happening in the Gulf today with the last oil boom, in the 1970s?
Alwaleed: Last time round we rushed into a lot of construction projects, and I think some things then were done haphazardly, but the countries of the Gulf have learned from those mistakes. Governments are now trying to do things properly and with more precision. Much of the basic infrastructure—airports, roads, universities, et cetera—was put in place in the 1980s and 1990s, so political energies in Saudi Arabia can now be devoted to things that will impact the social structure, such as reducing unemployment, building houses for the poor, and other good causes.
A big achievement, in my view, has been the debt reduction program in Saudi Arabia, which has brought down public-sector debt from 118 percent of GDP at its peak to around 40 percent today, with a target of eliminating it completely by the end of 2007. It’s important that the bulk of the excess money be channeled into new industries with added value that can give us a good income in the future.
The Quarterly: How do you feel about the pace of economic reform in Saudi Arabia? Could the oil bonanza be an excuse to slow things down?
Alwaleed: Although some observers assume that the brakes will be put on political reform because of the new oil wealth, I honestly don’t believe this to be the case. For sure, I would like some things to be quicker. First, bureaucracy needs to be cut. When the law establishing the Saudi Arabian General Investment Authority [SAGIA] was enacted, the idea was that it would encourage one-stop shopping for international investors, but I am not certain we are seeing that happen. There is also a need for more competitive tax laws. We have to compare ourselves not only with the rest of the region but with Eastern Europe, Latin America, and Africa. It is a very tough climate for inward investment, and we have to go further than lowering the capital gains tax to 20 percent, from 40 percent. Finally, there are the labor laws, which—although less important than the first two issues—are still not clear enough.
The Quarterly: From the outside, Saudi Arabia sometimes seems to struggle to turn reform ideas into action because, unlike, say, in Bahrain or Dubai, no one person or institution appears to be driving the agenda. Is that fair?
Alwaleed: In the years when he was crown prince and since he became king, a year ago, King Abdullah has initiated major political, social, and economic reforms. In general, Saudi Arabia is now looked at favorably by international investors. We see that in the many companies locating there. King Abdullah would like to move faster, but for him it’s like moving a big yacht—it takes time to turn it round.
The comparison between Saudi Arabia and the Gulf countries, whether it be Dubai, Abu Dhabi, or Bahrain, is not right. These are all city or emirate states, whereas Saudi Arabia is a giant country with a lot of different constituencies: the Islamic constituency, the political constituency, the royal family, the conservatives, and the Bedouin. On top of that we are at the vanguard of Islam, and we have the wider Muslim population of the world—1.3 billion people—looking to us for leadership. To move in Saudi Arabia, with all these entrenched interests, is very difficult.
That’s not to say I’m a defender of the status quo. Far from it. I’m frustrated that women can’t drive—we’re the only country in the world where they can’t—and that while it’s legal to buy a videotape and see it on the small screen, we don’t have any cinemas. These may be cosmetic issues, but they’re important.
The Quarterly: Are you worried that some of your neighbors in the Gulf are moving ahead more quickly?
Alwaleed: Saudi Arabia is the anchor of the region, just as Germany, France, Italy, and the United Kingdom matter economically much more than Slovakia, Poland, or Greece in Europe. I don’t agree that we will be left behind, but we have to take lessons from what is happening now in, say, Dubai and Abu Dhabi. It is quite possible to be politically conservative and at the same time to encourage reform. In Saudi Arabia we have to unlink political conservatism from economic liberalism. There are still some hiccups in this respect.
The Quarterly: Is the balance changing between conservatives and modernizers?
Alwaleed: There is certainly a tension, but the king and the government are very much proreform, and they are moving ahead. I’m not saying they are not conservative too—they are. I am conservative, I am a Muslim, I pray five times a day, but I’m economically and socially very liberal. I don’t see that as a conflict. In my judgment the conservative role is shrinking, or at least not getting stronger, and the king is taking a strong stance against this group. What the US government is doing in Lebanon, in Palestine, and Iraq, though, is not advancing the liberal cause.
The Quarterly: Are events in those territories a cause of instability in the Gulf region? What are the main risks for businesses as you see them?
Alwaleed: I think the Gulf region has learned by now to deal on the economic front with the hot spots around us. While a big benefit comes from the price of oil, the investment boom at the moment is very real. Clearly, terrorism is a risk, but the risk is diminishing. In Saudi Arabia we were not geared up for antiterrorism at the time of 9/11—we were never a police state—so we have been on a learning curve on how to combat terrorism. I am not saying terrorists have been eradicated, but I would say to Western people that the matter is under control and we are weeding them out before acts are committed. The political situation in the region, meanwhile, is very stable.
The Quarterly: Turning to investment matters, do you think the pattern of global capital flows is changing? As an international investor, where do you see the most attractive opportunities in the next few years?
Alwaleed: There’s no doubt that after 9/11 and after the Dubai Ports [DP World] debacle, many investors from our region, including the government of Saudi Arabia and other governments in the Gulf, have been thinking of putting more of their money into Europe, India, China, and the Far East in general. At the end of the day, politics is mirrored in economics and finance; US attitudes toward the Arab and Islamic worlds and toward the Dubai Ports deal have had a negative effect, though not on me.
I can’t put numbers on any of this, but I have seen the trend for some time in the communications I have with other investors. When the Bank of China asked Kingdom Holding to be the Saudi investor in their bank, we received subscriptions for the first $2 billion within three days. Actually, we were oversubscribed.
At the same time, a lot of capital is being invested in the local economies of the Gulf. In the past several months, I have met five or six chairmen of US banks and investment banks that are lining up to come to Saudi Arabia, to open branches and serve the corporate sector and high-net-worth individuals. Studies say that in excess of $1 trillion could flow into the budgets of the Gulf economies in the next two years, even with oil at around $60 a barrel, and if there were to be a slowdown in the world economy the transfers would be huge.
The Quarterly: Apart from oil and property, what other industries do you see emerging in Saudi Arabia over the next five to ten years?
Alwaleed: At the end of the day, any country has to invest where it has an economic edge. During the first boom, Saudi Arabia announced that it was going to be self-sufficient in wheat. Yet we had none of the components that make agriculture feasible in a country—an abundance of water, cheap labor, or soil. We were importing labor, and we were digging wells to find water before exhausting them. That policy was a blunder. As a derivative of the oil industry, petrochemicals is one sector that is likely to be very important. Banking and financial services too. We are planning to build an international financial center in Riyadh to compete with the rest of the Gulf region, though it remains to be seen if it will be successful. Islamic tourism is another potential area for expansion, though I don’t think we’re talking about tourism in the international sense.
The Quarterly: What changes have you been making—or do you intend to make—in the asset allocation of your own global portfolio?
Alwaleed: After 9/11 my investments in the United States actually grew, not just tactically, but strategically. Because of Kingdom’s restructuring ahead of our IPO, we have not really invested a lot recently in the Middle East region. But we intend to invest tens of millions of rials in Saudi Arabia in various sectors, including airlines, real estate in Jeddah and Riyadh, and banking. Elsewhere in the Gulf, we are opening Four Seasons properties in Bahrain and Abu Dhabi and will end up with ten hotels in the region in the next two to three years. But we will not expand in other areas for the sake of expanding—we want to consolidate what we have now.
The Quarterly: Can you tell us about your extensive media interests? Besides the investment angle, is this a way for you to change perceptions of Islam in the West and, indeed, of the West in the Middle East?
Alwaleed: That is a good question. My media investments are worth about $5 billion to $6 billion and are divided into Middle East assets, which are grouped around the Rotana brand and include six television channels and the Islamic channel Alresalah, magazines, radio stations, and a stake in LBC Satellite (LBCSAT); and international interests, which include Time Warner, Walt Disney, and News Corporation, in which we are the third-largest shareholder. In the second phase of going public, we may have another IPO for our media entities.
I must say adamantly that we do not try to influence the political direction of our international media interests. However, given our alliance and strong relationship with the owners of certain entities, like Mr. Murdoch’s Fox News, we try to build bridges and discuss things with them in a logical and pragmatic way. We only ask for the chance to be heard. We are not asking them to be pro-Iraq, pro-Palestine, or pro-Islam, but we are asking them to be neutral.
Most media outlets in the Arab world—at least the print and TV ones—reflect the wishes and the dreams of their governments. So we are not so worried about that.
The Quarterly: What else can be done to bridge the gap between Muslims and the West?
Alwaleed: Through Kingdom Foundation we have established a $20 million Islamic studies program at Harvard University and a $20 million Center for Muslim-Christian Understanding at Georgetown University, in addition to our funding at Exeter University in England. We have set up the only two American centers in the Middle East, at the American University of Beirut and the American University in Cairo, donating $5 million and $10 million, respectively. At the request of President Chirac we have supported the Islamic wing of the Louvre, in Paris, and I am discussing with universities in the United Kingdom the opening of new Islamic-Christian-Jewish centers.
We put our money—more than $100 million—where our mouth is, but it’s going to take a long time to have any effect.
The Quarterly: What can be done to change hard-line attitudes in the Middle East? Do you share the view that education reform has a key part to play in the next few years?
Alwaleed: Our curriculum in Saudi Arabia is old and obsolete—I say that openly—and we need to do more. In schools we need more science, more English at the elementary level, more mathematics, and more emphasis on the Internet, reflecting the world we live in now. Things are moving a bit in universities, but it’s still the same story. On the religious side, the Ministry of Islamic Affairs has issued a circular that promotes moderate preaching in mosques and takes out anything related to the so-called enhancing of terrorist acts against Judaism and Christianity.
The Quarterly: What misunderstandings between Saudi Arabia and the West most frustrate you?
Alwaleed: In the West, and specifically in the United States, any act of terrorism by a Muslim is blamed on the entire Muslim community. In response to a recent attempted terrorist plot in the United Kingdom, for instance, the president of the United States talked of Islamic fascism. One or 2 people, or 20 people, or 100, or even 1,000 may fall into that category, but you can’t make a general statement about 1.3 billion people. I acknowledge that we have problems inside our Islamic community, but putting all Muslims into one pot and implying Islam is a terrorist religion adds fuel to the fire. This polarization between Islam and Christianity is very dangerous. There is very little difference between Islam, Christianity, and Judaism—they all believe in one God, one day of judgment, and a scripture that teaches about heaven. OK, one says the Bible is the word of God, the other that the Koran is the word of God. There are differences, but we are so close.
The Quarterly: A prominent Middle East editor said recently, “Not all Muslims are terrorists, but all terrorists are Muslim.” Is there a debate within Islam about the way things are going?
Alwaleed: I know that. Not all Muslims are terrorists; unfortunately, most terrorists in Russia, Thailand, the United Kingdom, and Spain are Muslim. I acknowledge that, but we have an issue with that internally in the Muslim community, and this is very dangerous talk for many people. In my view we need a major reform movement in the Arab and Islamic world to change perceptions. We are where the Catholic Church was when it controlled Europe, in the Middle Ages, and the political agenda succumbed to the religious agenda. But who is going to do it? I worry that things may have to get worse before we go in that direction, just as they got really nasty in Europe in the Middle Ages. That’s why I’m doing my best, with others, to bridge the gap, to think about the curriculum, and to take initiatives in the academic arena.
The Quarterly: Have you thought about doing something for Muslims in the region, equivalent to the Harvard and Georgetown foundations?
Alwaleed: It is very delicate to have something within the Islamic community. Right now we only have the Arab Thought Foundation, and while we are thinking of an opportunity ourselves, something new would have to be done by the government. We are seeing some indications, such as the recent conference in Mecca, that the debate is beginning, and it is important that the West should understand this. But we are living in history now. There is a beautiful Koranic verse that says God does not change people unless they change what they have inside them. In 100 years we will see what is happening—5 to 10 years is not enough. Look how long it took for Martin Luther to bring about change in Europe. It is not going to happen in the Middle East unless we have a strong reformer to take the lead.
The Quarterly: Kingdom Holding has been a pioneer in promoting women. Tell us about that, and what is happening generally in the country at the moment?
Alwaleed: I am Islamically conservative—I will do anything to help people, especially in the Islamic community—but I believe in the women’s cause, not just for their sake, but for the sake of the economy and for Saudi Arabia. You cannot have a population that is 50 percent female and have it account for only 4 or 5 percent of productivity. In my company I am trying to set an example. And what I do gets monitored because I have a relatively high profile. I have, for example, hired the first lady pilot, the first lady flight attendant, and the first lady jockey. And I use my media outlets to promote that. The jockey went to the Emirates, and all they talked about was her, even though she didn’t win. On television the pilot pointed out that she was not permitted to drive on the roads, but she could fly a plane and look down on everyone from the air.
Not many others are following at the moment, and a lot of Saudi women are frustrated as a result. But things are changing and will have to change more.
Wednesday, November 15, 2006
American leaders studying the Gita
The world has realised the importance of the Bhagvadgita..When are we? Its not only for leadership but a guide for life to lead life.
Lord Krishna says in the Gita that whenever there is trouble in the world, he will return. Similarly, leaders seem to emerge when needed. While many may wait for God or a leader to emerge when there is trouble, some cannot be passive. They will not leave it to God or others to improve the world: they will take steps themselves. Such people are leaders. What makes a leader and how leaders can be developed, are questions that have intrigued people for centuries.
A recent article in Business Week says the Bhagvad Gita is supplanting Sun Tzu’s The Art of War in the US as the favoured Eastern text for ideas about leadership. Concerned that the models they have followed so far may no longer be appropriate, American executives are looking for new role models. This article reminded me of the dilemma of an engineering college in Pune in the 1970s. It did not have an IC engine and continued to offer its students a steam engine for their laboratory work.
Though the essence of the process of combustion can be studied within a steam engine as well as an IC engine, the systems of combustion management , which students also want to learn, are very different in the two machines . Similarly, though at heart the essence of leadership is eternal, the skills that leaders need vary with the circumstances in which they must lead.
When two great leaders, Lee Kuan Yew of Singapore and Narayana Murthy of Infosys met some months ago, Mr Lee suggested to Mr Murthy that it was time for him to enter politics and improve the quality of governance in India. Mr Murthy humbly replied that running a company was very different to running a democratic country and he did not have the skills required. Thereby he questioned the simplistic notion that successful corporate leaders could be role models for the management of a democratic state.
Jack Welch was the most successful CEO of the twentieth century according to CNN Money. During his years at GE, the firm’s revenues increased 400%, its profits 800%, and its market value 3,400%! While achieving this, CNN Money explains, Welch managed 993 acquisitions and 81,000 layoffs. It is inconceivable that the head of a democratic state, confronted with a sluggish economy, could acquire other countries and fire under-employed citizens!
The skills leaders need are inseparable from the context in which they must lead. Sun Tzu will remain a good source of wisdom to win a war. But the Gita may provide better lessons for living in harmony with the world and with one’s conscience too. Therefore, in the drive to teach leadership through books and seminars, we must offer models that fit the needs of our times.
CEOs that create great wealth for their shareholders are good models for running a company. But they may not be appropriate models for many vital issues that must be addressed in the world today. Disillusioned by a spate of corporate scandals and by the macho but mindless invasion of Iraq, Americans need new role models. In India too we need leaders who win by inclusion and who secure peace and not merely win wars.
Therefore, the interest in the Gita in the US is encouraging, as well as the revival of Gandhi as a role model for Indian youth in a very enjoyable Bollywood movie, an idiom they can relate to more easily than erudite discussions of his philosophy.
MANY leadership summits that showcase powerful and wealthy leaders and popular books on leadership fail to get to the heart of leadership. Books that present lists of the common traits of leaders expect that others will become leaders by applying these lists in their lives. Such lists may describe the management systems that leaders employ to get to their goals, but not the process of combustion within: they do not explain what makes leaders emerge.
In contrast to such lists, Warren Bennis , an authority on leadership, describes the process of emergence of leaders in his book, Geeks and Geezers. He says that while leaders may come in many forms and have very different traits; all leaders are born in a ‘crucible’ within which, through an intense alchemy, they acquire their leadership mettle.
The concept of the crucible and the spark that sets off the alchemy was lucidly explained by a young man who had set his heart on conquering India. Alexander the Great, when 16 years old, told his secretary, Eumenes, “The gods put dreams in the hearts of men; dreams that are often much bigger than they are. The greatness of a man lies in that painful discrepancy between the goal he sets himself and the strength that nature granted him when he came into the world.”
This simple and profound statement points to three eternal truths about the essence of leaders. A leader has a passionately desired goal in his or her mind. A leader has the honesty and courage to admit a personal incapacity to reach that goal. Nevertheless, he strives to improve himself to obtain the goal and thus emerges as the leader we recognise.
Gandhi and Alexander, both great leaders , were very different persons: one a man of peace, the other a hero of war. Gandhi was a small man with a big dream. Like Alexander, he also had a goal he pursued relentlessly — though unlike Alexander’s his goal was to throw off a conqueror of India. His autobiography My Experiments with Truth recounts his lifelong efforts to find a better way to reach his goal and acquire the personal strength necessary.
We need more leaders in India in many walks of life. Our young people need appropriate role models, not all of whom may be powerful or wealthy. Moreover, any movement to develop leaders in India should hark back to some eternal truths. To become leaders, young people need opportunities to reflect deeply on the context in which they must lead and to ignite the spark within themselves. Because, to become leaders, they need much more than the style of leaders: they must care for others, have commitment to a cause, and the courage to take the first, difficult steps — the wisdom that Krishna gave to Arjun.
Taken from Economictimes - The author is chairman, BCG India
Lord Krishna says in the Gita that whenever there is trouble in the world, he will return. Similarly, leaders seem to emerge when needed. While many may wait for God or a leader to emerge when there is trouble, some cannot be passive. They will not leave it to God or others to improve the world: they will take steps themselves. Such people are leaders. What makes a leader and how leaders can be developed, are questions that have intrigued people for centuries.
A recent article in Business Week says the Bhagvad Gita is supplanting Sun Tzu’s The Art of War in the US as the favoured Eastern text for ideas about leadership. Concerned that the models they have followed so far may no longer be appropriate, American executives are looking for new role models. This article reminded me of the dilemma of an engineering college in Pune in the 1970s. It did not have an IC engine and continued to offer its students a steam engine for their laboratory work.
Though the essence of the process of combustion can be studied within a steam engine as well as an IC engine, the systems of combustion management , which students also want to learn, are very different in the two machines . Similarly, though at heart the essence of leadership is eternal, the skills that leaders need vary with the circumstances in which they must lead.
When two great leaders, Lee Kuan Yew of Singapore and Narayana Murthy of Infosys met some months ago, Mr Lee suggested to Mr Murthy that it was time for him to enter politics and improve the quality of governance in India. Mr Murthy humbly replied that running a company was very different to running a democratic country and he did not have the skills required. Thereby he questioned the simplistic notion that successful corporate leaders could be role models for the management of a democratic state.
Jack Welch was the most successful CEO of the twentieth century according to CNN Money. During his years at GE, the firm’s revenues increased 400%, its profits 800%, and its market value 3,400%! While achieving this, CNN Money explains, Welch managed 993 acquisitions and 81,000 layoffs. It is inconceivable that the head of a democratic state, confronted with a sluggish economy, could acquire other countries and fire under-employed citizens!
The skills leaders need are inseparable from the context in which they must lead. Sun Tzu will remain a good source of wisdom to win a war. But the Gita may provide better lessons for living in harmony with the world and with one’s conscience too. Therefore, in the drive to teach leadership through books and seminars, we must offer models that fit the needs of our times.
CEOs that create great wealth for their shareholders are good models for running a company. But they may not be appropriate models for many vital issues that must be addressed in the world today. Disillusioned by a spate of corporate scandals and by the macho but mindless invasion of Iraq, Americans need new role models. In India too we need leaders who win by inclusion and who secure peace and not merely win wars.
Therefore, the interest in the Gita in the US is encouraging, as well as the revival of Gandhi as a role model for Indian youth in a very enjoyable Bollywood movie, an idiom they can relate to more easily than erudite discussions of his philosophy.
MANY leadership summits that showcase powerful and wealthy leaders and popular books on leadership fail to get to the heart of leadership. Books that present lists of the common traits of leaders expect that others will become leaders by applying these lists in their lives. Such lists may describe the management systems that leaders employ to get to their goals, but not the process of combustion within: they do not explain what makes leaders emerge.
In contrast to such lists, Warren Bennis , an authority on leadership, describes the process of emergence of leaders in his book, Geeks and Geezers. He says that while leaders may come in many forms and have very different traits; all leaders are born in a ‘crucible’ within which, through an intense alchemy, they acquire their leadership mettle.
The concept of the crucible and the spark that sets off the alchemy was lucidly explained by a young man who had set his heart on conquering India. Alexander the Great, when 16 years old, told his secretary, Eumenes, “The gods put dreams in the hearts of men; dreams that are often much bigger than they are. The greatness of a man lies in that painful discrepancy between the goal he sets himself and the strength that nature granted him when he came into the world.”
This simple and profound statement points to three eternal truths about the essence of leaders. A leader has a passionately desired goal in his or her mind. A leader has the honesty and courage to admit a personal incapacity to reach that goal. Nevertheless, he strives to improve himself to obtain the goal and thus emerges as the leader we recognise.
Gandhi and Alexander, both great leaders , were very different persons: one a man of peace, the other a hero of war. Gandhi was a small man with a big dream. Like Alexander, he also had a goal he pursued relentlessly — though unlike Alexander’s his goal was to throw off a conqueror of India. His autobiography My Experiments with Truth recounts his lifelong efforts to find a better way to reach his goal and acquire the personal strength necessary.
We need more leaders in India in many walks of life. Our young people need appropriate role models, not all of whom may be powerful or wealthy. Moreover, any movement to develop leaders in India should hark back to some eternal truths. To become leaders, young people need opportunities to reflect deeply on the context in which they must lead and to ignite the spark within themselves. Because, to become leaders, they need much more than the style of leaders: they must care for others, have commitment to a cause, and the courage to take the first, difficult steps — the wisdom that Krishna gave to Arjun.
Taken from Economictimes - The author is chairman, BCG India
Friday, October 13, 2006
Work & Career - Is this the reality
Problems, issues always there & i get a feeling of this how the world works atleast the 'corporate' world that i was keen to be a part of.
People just cant' keep things simple, do their work & get out. They want to make other's life miserable by which they feel that their life will be better.
People need to act in a way which they are totally unlike themselves ( Being Pseudo). Designations are of prime importance rather than the actual person, respect a person for the position rather than the person is the norm.
Showing supremecy is a very important thing, else you are not considered important or you are taken for granted.
At the initial part in your career we run behind the 'CTC', the brand of the company & keep running behind it for quite sometime.After a point where you are a part of the senior management, trying to please others, trying to be right but cannot be as your 'competition' will do better for some time if you take that path which others do not want & a lot more things.
Does this mean all your life in your career you can never find solace in the place where you earn your bread & butter? I dont know but i am sure there are places where people enjoy working (atleast i'm enjoying my work right now & also in my prev 3 jobs, i've had great colleagues & good immediate bosses) but i've seen my peers & also my good friends ( who are much senior to me) really not happy with what they are doing.
Being a part of the senior management was fun, even today i'm sure it is & has its own plus points but i only realised that there is another side to it too. Good that i atleast got to see at in the inital part of my career, i now know for sure 'ALL THE GLITTERS IS NOT GOLD'.
I saw the movie corporate & i think this movie relates a lot to reality of the corporate world but i'm sure there are atleast 10 - 15% organisation who are unlike that & are quite ideal in theor way of work.
People just cant' keep things simple, do their work & get out. They want to make other's life miserable by which they feel that their life will be better.
People need to act in a way which they are totally unlike themselves ( Being Pseudo). Designations are of prime importance rather than the actual person, respect a person for the position rather than the person is the norm.
Showing supremecy is a very important thing, else you are not considered important or you are taken for granted.
At the initial part in your career we run behind the 'CTC', the brand of the company & keep running behind it for quite sometime.After a point where you are a part of the senior management, trying to please others, trying to be right but cannot be as your 'competition' will do better for some time if you take that path which others do not want & a lot more things.
Does this mean all your life in your career you can never find solace in the place where you earn your bread & butter? I dont know but i am sure there are places where people enjoy working (atleast i'm enjoying my work right now & also in my prev 3 jobs, i've had great colleagues & good immediate bosses) but i've seen my peers & also my good friends ( who are much senior to me) really not happy with what they are doing.
Being a part of the senior management was fun, even today i'm sure it is & has its own plus points but i only realised that there is another side to it too. Good that i atleast got to see at in the inital part of my career, i now know for sure 'ALL THE GLITTERS IS NOT GOLD'.
I saw the movie corporate & i think this movie relates a lot to reality of the corporate world but i'm sure there are atleast 10 - 15% organisation who are unlike that & are quite ideal in theor way of work.
Wednesday, September 27, 2006
Chaos by design : Google
A nice article about Google , its startegic thinking of intentional chaos & how that would bring in money.
The nice thing about this article is that atleast it does not talk about ROI on a product or a set of products.
It gives the impression that there is accountability but one does what he really feels, its not a number game but just committment towards a project!
Wow, feels really good to hear atleast about such companies.
I'm personally a great fan of google merely because of the company culture which I have heard from people, their way of functioning etc..
Good read if
1. You want to understand what you can bring to the table as a manager
2. Wanting to start a company which will be different in more than 1 way..this could be worthwhile to generate more innovative ideas..
Chaos by design - October 2, 2006
The nice thing about this article is that atleast it does not talk about ROI on a product or a set of products.
It gives the impression that there is accountability but one does what he really feels, its not a number game but just committment towards a project!
Wow, feels really good to hear atleast about such companies.
I'm personally a great fan of google merely because of the company culture which I have heard from people, their way of functioning etc..
Good read if
1. You want to understand what you can bring to the table as a manager
2. Wanting to start a company which will be different in more than 1 way..this could be worthwhile to generate more innovative ideas..
Chaos by design - October 2, 2006
Tuesday, September 26, 2006
Monday, September 18, 2006
Trends to watch out
Those who say that business success is all about execution are wrong. The right product markets, technology, and geography are critical components of long-term economic performance. Bad industries usually trump good management, however: in sectors such as banking, telecommunications, and technology, almost two-thirds of the organic growth of listed Western companies can be attributed to being in the right markets and geographies. Companies that ride the currents succeed; those that swim against them usually struggle. Identifying these currents and developing strategies to navigate them are vital to corporate success.
What are the currents that will make the world of 2015 a very different place to do business from the world of today? Predicting short-term changes or shocks is often a fool's errand. But forecasting long-term directional change is possible by identifying trends through an analysis of deep history rather than of the shallow past. Even the Internet took more than 30 years to become an overnight phenomenon.
Macroeconomic trends
We would highlight ten trends that will change the business landscape. First, we have identified three macroeconomic trends that will deeply transform the underlying global economy.
1. Centers of economic activity will shift profoundly, not just globally, but also regionally. As a consequence of economic liberalization, technological advances, capital market developments, and demographic shifts, the world has embarked on a massive realignment of economic activity. Although there will undoubtedly be shocks and setbacks, this realignment will persist. Today, Asia (excluding Japan) accounts for 13 percent of world GDP, while Western Europe accounts for more than 30 percent. Within the next 20 years the two will nearly converge. Some industries and functions—manufacturing and IT services, for example—will shift even more dramatically. The story is not simply the march to Asia. Shifts within regions are as significant as those occurring across regions. The United States will still account for the largest share of absolute economic growth in the next two decades.
2. Public-sector activities will balloon, making productivity gains essential. The unprecedented aging of populations across the developed world will call for new levels of efficiency and creativity from the public sector. Without clear productivity gains, the pension and health care burden will drive taxes to stifling proportions.
Nor is the problem confined to the developed economies. Many emerging-market governments will have to decide what level of social services to provide to citizens who increasingly demand state-provided protections such as health care and retirement security. The adoption of proven private-sector approaches will likely become pervasive in the provision of social services in both the developed and the developing worlds.
3. The consumer landscape will change and expand significantly. Almost a billion new consumers will enter the global marketplace in the next decade as economic growth in emerging markets pushes them beyond the threshold level of $5,000 in annual household income—a point when people generally begin to spend on discretionary goods. From now to 2015, the consumer's spending power in emerging economies will increase from $4 trillion to more than $9 trillion—nearly the current spending power of Western Europe.
Shifts within consumer segments in developed economies will also be profound. Populations are not only aging, of course, but changing in other ways too: for example, by 2015 the Hispanic population in the United States will have spending power equivalent to that of 60 percent of all Chinese consumers. And consumers, wherever they live, will increasingly have information about and access to the same products and brands.
Social and environmental trends
Next, we have identified four social and environmental trends. Although they are less predictable and their impact on the business world is less certain, they will fundamentally change how we live and work.
4. Technological connectivity will transform the way people live and interact. The technology revolution has been just that. Yet we are at the early, not mature, stage of this revolution. Individuals, public sectors, and businesses are learning how to make the best use of IT in designing processes and in developing and accessing knowledge. New developments in fields such as biotechnology, laser technology, and nanotechnology are moving well beyond the realm of products and services.
More transformational than technology itself is the shift in behavior that it enables. We work not just globally but also instantaneously. We are forming communities and relationships in new ways (indeed, 12 percent of US newlyweds last year met online). More than two billion people now use cell phones. We send nine trillion e-mails a year. We do a billion Google searches a day, more than half in languages other than English. For perhaps the first time in history, geography is not the primary constraint on the limits of social and economic organization.
5. The battlefield for talent will shift. Ongoing shifts in labor and talent will be far more profound than the widely observed migration of jobs to low-wage countries. The shift to knowledge-intensive industries highlights the importance and scarcity of well-trained talent. The increasing integration of global labor markets, however, is opening up vast new talent sources. The 33 million university-educated young professionals in developing countries is more than double the number in developed ones. For many companies and governments, global labor and talent strategies will become as important as global sourcing and manufacturing strategies.
6. The role and behavior of big business will come under increasingly sharp scrutiny. As businesses expand their global reach, and as the economic demands on the environment intensify, the level of societal suspicion about big business is likely to increase. The tenets of current global business ideology—for example, shareholder value, free trade, intellectual-property rights, and profit repatriation—are not understood, let alone accepted, in many parts of the world. Scandals and environmental mishaps seem as inevitable as the likelihood that these incidents will be subsequently blown out of proportion, thereby fueling resentment and creating a political and regulatory backlash. This trend is not just of the past 5 years but of the past 250 years. The increasing pace and extent of global business, and the emergence of truly giant global corporations, will exacerbate the pressures over the next 10 years.
Business, particularly big business, will never be loved. It can, however, be more appreciated. Business leaders need to argue and demonstrate more forcefully the intellectual, social, and economic case for business in society and the massive contributions business makes to social welfare.
7. Demand for natural resources will grow, as will the strain on the environment. As economic growth accelerates—particularly in emerging markets—we are using natural resources at unprecedented rates. Oil demand is projected to grow by 50 percent in the next two decades, and without large new discoveries or radical innovations supply is unlikely to keep up. We are seeing similar surges in demand across a broad range of commodities. In China, for example, demand for copper, steel, and aluminum has nearly tripled in the past decade.
The world's resources are increasingly constrained. Water shortages will be the key constraint to growth in many countries. And one of our scarcest natural resources—the atmosphere—will require dramatic shifts in human behavior to keep it from being depleted further. Innovation in technology, regulation, and the use of resources will be central to creating a world that can both drive robust economic growth and sustain environmental demands.
Business and industry trends
Finally, we have identified a third set of trends: business and industry trends, which are driving change at the company level.
8. New global industry structures are emerging. In response to changing market regulation and the advent of new technologies, nontraditional business models are flourishing, often coexisting in the same market and sector space.
In many industries, a barbell-like structure is appearing, with a few giants on top, a narrow middle, and then a flourish of smaller, fast-moving players on the bottom. Similarly, corporate borders are becoming blurrier as interlinked "ecosystems" of suppliers, producers, and customers emerge. Even basic structural assumptions are being upended: for example, the emergence of robust private equity financing is changing corporate ownership, life cycles, and performance expectations. Winning companies, using efficiencies gained by new structural possibilities, will capitalize on these transformations.
9. Management will go from art to science. Bigger, more complex companies demand new tools to run and manage them. Indeed, improved technology and statistical-control tools have given rise to new management approaches that make even mega-institutions viable.
Long gone is the day of the "gut instinct" management style. Today's business leaders are adopting algorithmic decision-making techniques and using highly sophisticated software to run their organizations. Scientific management is moving from a skill that creates competitive advantage to an ante that gives companies the right to play the game.
10. Ubiquitous access to information is changing the economics of knowledge. Knowledge is increasingly available and, at the same time, increasingly specialized. The most obvious manifestation of this trend is the rise of search engines (such as Google), which make an almost infinite amount of information available instantaneously. Access to knowledge has become almost universal. Yet the transformation is much more profound than simply broad access.
New models of knowledge production, access, distribution, and ownership are emerging. We are seeing the rise of open-source approaches to knowledge development as communities, not individuals, become responsible for innovations. Knowledge production itself is growing: worldwide patent applications, for example, rose from 1990 to 2004 at a rate of 20 percent annually. Companies will need to learn how to leverage this new knowledge universe—or risk drowning in a flood of too much information.
Companies need to understand the implications of these trends alongside customer needs and competitive developments. Executives who align their company's strategy with these factors will be the best placed to succeed. Reflecting on these trends will be time well spent.
Source: McKinsey quarterly
What are the currents that will make the world of 2015 a very different place to do business from the world of today? Predicting short-term changes or shocks is often a fool's errand. But forecasting long-term directional change is possible by identifying trends through an analysis of deep history rather than of the shallow past. Even the Internet took more than 30 years to become an overnight phenomenon.
Macroeconomic trends
We would highlight ten trends that will change the business landscape. First, we have identified three macroeconomic trends that will deeply transform the underlying global economy.
1. Centers of economic activity will shift profoundly, not just globally, but also regionally. As a consequence of economic liberalization, technological advances, capital market developments, and demographic shifts, the world has embarked on a massive realignment of economic activity. Although there will undoubtedly be shocks and setbacks, this realignment will persist. Today, Asia (excluding Japan) accounts for 13 percent of world GDP, while Western Europe accounts for more than 30 percent. Within the next 20 years the two will nearly converge. Some industries and functions—manufacturing and IT services, for example—will shift even more dramatically. The story is not simply the march to Asia. Shifts within regions are as significant as those occurring across regions. The United States will still account for the largest share of absolute economic growth in the next two decades.
2. Public-sector activities will balloon, making productivity gains essential. The unprecedented aging of populations across the developed world will call for new levels of efficiency and creativity from the public sector. Without clear productivity gains, the pension and health care burden will drive taxes to stifling proportions.
Nor is the problem confined to the developed economies. Many emerging-market governments will have to decide what level of social services to provide to citizens who increasingly demand state-provided protections such as health care and retirement security. The adoption of proven private-sector approaches will likely become pervasive in the provision of social services in both the developed and the developing worlds.
3. The consumer landscape will change and expand significantly. Almost a billion new consumers will enter the global marketplace in the next decade as economic growth in emerging markets pushes them beyond the threshold level of $5,000 in annual household income—a point when people generally begin to spend on discretionary goods. From now to 2015, the consumer's spending power in emerging economies will increase from $4 trillion to more than $9 trillion—nearly the current spending power of Western Europe.
Shifts within consumer segments in developed economies will also be profound. Populations are not only aging, of course, but changing in other ways too: for example, by 2015 the Hispanic population in the United States will have spending power equivalent to that of 60 percent of all Chinese consumers. And consumers, wherever they live, will increasingly have information about and access to the same products and brands.
Social and environmental trends
Next, we have identified four social and environmental trends. Although they are less predictable and their impact on the business world is less certain, they will fundamentally change how we live and work.
4. Technological connectivity will transform the way people live and interact. The technology revolution has been just that. Yet we are at the early, not mature, stage of this revolution. Individuals, public sectors, and businesses are learning how to make the best use of IT in designing processes and in developing and accessing knowledge. New developments in fields such as biotechnology, laser technology, and nanotechnology are moving well beyond the realm of products and services.
More transformational than technology itself is the shift in behavior that it enables. We work not just globally but also instantaneously. We are forming communities and relationships in new ways (indeed, 12 percent of US newlyweds last year met online). More than two billion people now use cell phones. We send nine trillion e-mails a year. We do a billion Google searches a day, more than half in languages other than English. For perhaps the first time in history, geography is not the primary constraint on the limits of social and economic organization.
5. The battlefield for talent will shift. Ongoing shifts in labor and talent will be far more profound than the widely observed migration of jobs to low-wage countries. The shift to knowledge-intensive industries highlights the importance and scarcity of well-trained talent. The increasing integration of global labor markets, however, is opening up vast new talent sources. The 33 million university-educated young professionals in developing countries is more than double the number in developed ones. For many companies and governments, global labor and talent strategies will become as important as global sourcing and manufacturing strategies.
6. The role and behavior of big business will come under increasingly sharp scrutiny. As businesses expand their global reach, and as the economic demands on the environment intensify, the level of societal suspicion about big business is likely to increase. The tenets of current global business ideology—for example, shareholder value, free trade, intellectual-property rights, and profit repatriation—are not understood, let alone accepted, in many parts of the world. Scandals and environmental mishaps seem as inevitable as the likelihood that these incidents will be subsequently blown out of proportion, thereby fueling resentment and creating a political and regulatory backlash. This trend is not just of the past 5 years but of the past 250 years. The increasing pace and extent of global business, and the emergence of truly giant global corporations, will exacerbate the pressures over the next 10 years.
Business, particularly big business, will never be loved. It can, however, be more appreciated. Business leaders need to argue and demonstrate more forcefully the intellectual, social, and economic case for business in society and the massive contributions business makes to social welfare.
7. Demand for natural resources will grow, as will the strain on the environment. As economic growth accelerates—particularly in emerging markets—we are using natural resources at unprecedented rates. Oil demand is projected to grow by 50 percent in the next two decades, and without large new discoveries or radical innovations supply is unlikely to keep up. We are seeing similar surges in demand across a broad range of commodities. In China, for example, demand for copper, steel, and aluminum has nearly tripled in the past decade.
The world's resources are increasingly constrained. Water shortages will be the key constraint to growth in many countries. And one of our scarcest natural resources—the atmosphere—will require dramatic shifts in human behavior to keep it from being depleted further. Innovation in technology, regulation, and the use of resources will be central to creating a world that can both drive robust economic growth and sustain environmental demands.
Business and industry trends
Finally, we have identified a third set of trends: business and industry trends, which are driving change at the company level.
8. New global industry structures are emerging. In response to changing market regulation and the advent of new technologies, nontraditional business models are flourishing, often coexisting in the same market and sector space.
In many industries, a barbell-like structure is appearing, with a few giants on top, a narrow middle, and then a flourish of smaller, fast-moving players on the bottom. Similarly, corporate borders are becoming blurrier as interlinked "ecosystems" of suppliers, producers, and customers emerge. Even basic structural assumptions are being upended: for example, the emergence of robust private equity financing is changing corporate ownership, life cycles, and performance expectations. Winning companies, using efficiencies gained by new structural possibilities, will capitalize on these transformations.
9. Management will go from art to science. Bigger, more complex companies demand new tools to run and manage them. Indeed, improved technology and statistical-control tools have given rise to new management approaches that make even mega-institutions viable.
Long gone is the day of the "gut instinct" management style. Today's business leaders are adopting algorithmic decision-making techniques and using highly sophisticated software to run their organizations. Scientific management is moving from a skill that creates competitive advantage to an ante that gives companies the right to play the game.
10. Ubiquitous access to information is changing the economics of knowledge. Knowledge is increasingly available and, at the same time, increasingly specialized. The most obvious manifestation of this trend is the rise of search engines (such as Google), which make an almost infinite amount of information available instantaneously. Access to knowledge has become almost universal. Yet the transformation is much more profound than simply broad access.
New models of knowledge production, access, distribution, and ownership are emerging. We are seeing the rise of open-source approaches to knowledge development as communities, not individuals, become responsible for innovations. Knowledge production itself is growing: worldwide patent applications, for example, rose from 1990 to 2004 at a rate of 20 percent annually. Companies will need to learn how to leverage this new knowledge universe—or risk drowning in a flood of too much information.
Companies need to understand the implications of these trends alongside customer needs and competitive developments. Executives who align their company's strategy with these factors will be the best placed to succeed. Reflecting on these trends will be time well spent.
Source: McKinsey quarterly
Thursday, September 14, 2006
Steven Covey - 8th Habit
I am sure most of us will have heard about the book ' 7 habits of highly effective people'
Covey has come up with another one the 8th habit, not that it was missed out but its i feel a move from being effective to being great.
Just a review of the book ..
The 8th habits is: Find your Voice & Inspire Others to find Theirs. The essence of this habit is that you will find your voice when you can say that you are 100% involved in what you are doing with your life. By 100% involvement, what is meant is that your body, mind, heart and spirit are all engaged in the adventure - whatever that is for you.
The idea is very simple. Whatever you are doing right now with your life, ask yourself these questions. Is it serving my body, mind heart and spirit? In other words, is it serving your bodily needs: does it allow you to make a good living; does it more-than pay the bills; does it feed and clothe you and your family and provide you with a lovely home? Secondly, is it serving your need for mental stimulation: do you find it truly stimulating, engaging and challenging? Thirdly, is it serving your emotional needs: do you just love it and are you passionate about it? Finally, does it serve your spiritual needs: do you believe it is the right thing for you to be doing with your life? If you can answer those four questions relating to body, mind, heart and spirit with a resounding 'yes', then it can be said that you have 'found your voice'.
Covey says that the reality in business today is that there are very many people who have not found their voices or perhaps they have lost their voices. The result of this cane be seen everywhere. People may go to work just to earn money i.e. to serve their bodily needs but do not really put their creativity, talent and intelligence into the job.
Perhaps the job is serving more than your bodily needs: perhaps it is also mentally stimulating you but, if you won the lottery, you might immediately resign because it is not really what you want to be spending your time doing if monetary considerations were not present. Perhaps, most difficult to imagine is having a job that provides the money, is indeed stimulating and you love doing it, but it is still not the right thing for you to be doing. The cost to business of employing people who don't really understand or even care about the Vision and Mission of the company is a loss of the 'voice' of the organization.
Covey has come up with another one the 8th habit, not that it was missed out but its i feel a move from being effective to being great.
Just a review of the book ..
The 8th habits is: Find your Voice & Inspire Others to find Theirs. The essence of this habit is that you will find your voice when you can say that you are 100% involved in what you are doing with your life. By 100% involvement, what is meant is that your body, mind, heart and spirit are all engaged in the adventure - whatever that is for you.
The idea is very simple. Whatever you are doing right now with your life, ask yourself these questions. Is it serving my body, mind heart and spirit? In other words, is it serving your bodily needs: does it allow you to make a good living; does it more-than pay the bills; does it feed and clothe you and your family and provide you with a lovely home? Secondly, is it serving your need for mental stimulation: do you find it truly stimulating, engaging and challenging? Thirdly, is it serving your emotional needs: do you just love it and are you passionate about it? Finally, does it serve your spiritual needs: do you believe it is the right thing for you to be doing with your life? If you can answer those four questions relating to body, mind, heart and spirit with a resounding 'yes', then it can be said that you have 'found your voice'.
Covey says that the reality in business today is that there are very many people who have not found their voices or perhaps they have lost their voices. The result of this cane be seen everywhere. People may go to work just to earn money i.e. to serve their bodily needs but do not really put their creativity, talent and intelligence into the job.
Perhaps the job is serving more than your bodily needs: perhaps it is also mentally stimulating you but, if you won the lottery, you might immediately resign because it is not really what you want to be spending your time doing if monetary considerations were not present. Perhaps, most difficult to imagine is having a job that provides the money, is indeed stimulating and you love doing it, but it is still not the right thing for you to be doing. The cost to business of employing people who don't really understand or even care about the Vision and Mission of the company is a loss of the 'voice' of the organization.
Monday, September 11, 2006
BLUE OCEAN STRATEGY
The concept of BLUE OCEAN STRATEGY that I came across sounds very interesting & fascinating, I do feel that as we see India growing there are huge untapped areas that can be catered to & there lies a great opportunity for any aspiring people who want to make a difference to the world we live.
Though I have not read the book, it definitely looks like the book that's worth a read.
Here is an excerpt from one of the online customer reviews on Amazon.com by Peter Leerskov about the book:
What is a BLUE OCEAN STRATEGY? The authors explain it by comparing it to a red ocean strategy (traditional strategic thinking):
1. DO NOT compete in existing market space. INSTEAD you should create uncontested market space.
2. DO NOT beat the competition. INSTEAD you should make the competition irrelevant.
3. DO NOT exploit existing demand. INSTEAD you should create and capture new demand.
4. DO NOT make the value/cost trade-off. INSTEAD you should break the value/cost trade-off.
5. DO NOT align the whole system of a company's activities with its strategic choice of differentiation or low cost. INSTEAD you should align the whole system of a company's activities in pursuit of both differentiation and low cost.
A red ocean strategy is based on traditional strategic thinking - e.g. Harvard's strategy guru Michael Porter.
A blue ocean is created in the region where a company's actions favourably affect both its cost structure and it value proposition to buyers. Cost savings are made from eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates.
Examples of strategic moves that created blue oceans of new, untapped demand:
- NetJets (fractional Jet ownership)
- Cirque du Soleil (the circus reinvented for the entertainment market)
- Starbucks (coffee as low-cost luxury for high-end consumers)
- Ebay (online auctioning)
- Sony (the Walkman - personal portable stereos)
- Cars: Japanese fuel-efficient autos (mid-70s) and Chrysler minivan (1984)
- Computers: Apple personal computer (1978) and Dell's built-to-order computers (mid-1990s).
Blue Ocean Strategy provides a framework to start thinking about new opportunities.
Blue Ocean Strategy offers both a process and a set of supporting tools that practitioners can use to navigate. It begins with a ?strategy canvas? that visually maps the current industry environment in two dimensions. The horizontal dimension includes the range of factors on which an industry currently competes and those factors in which it invests. The vertical dimension shows levels of performance against each factor, measured qualitatively. A strategy canvas is a conceptual tool remarkable in both its simplicity and its usefulness. It can be used to understand the current strategy of a company and its competitors, to communicate the strategy, and to imagine business directions. To do the latter, Professors Kim and Mauborgne recommend that a company create several alternative, radically different strategies, each aimed at delivering superior value to potential ? not existing ? customers by:
Reducing cost by eliminating some factors that the industry takes for granted and reducing other factors below the industry standard.
Enhancing differentiation by raising some factors well above the industry standard and creating additional factors that the industry has never offered.
Though I have not read the book, it definitely looks like the book that's worth a read.
Here is an excerpt from one of the online customer reviews on Amazon.com by Peter Leerskov about the book:
What is a BLUE OCEAN STRATEGY? The authors explain it by comparing it to a red ocean strategy (traditional strategic thinking):
1. DO NOT compete in existing market space. INSTEAD you should create uncontested market space.
2. DO NOT beat the competition. INSTEAD you should make the competition irrelevant.
3. DO NOT exploit existing demand. INSTEAD you should create and capture new demand.
4. DO NOT make the value/cost trade-off. INSTEAD you should break the value/cost trade-off.
5. DO NOT align the whole system of a company's activities with its strategic choice of differentiation or low cost. INSTEAD you should align the whole system of a company's activities in pursuit of both differentiation and low cost.
A red ocean strategy is based on traditional strategic thinking - e.g. Harvard's strategy guru Michael Porter.
A blue ocean is created in the region where a company's actions favourably affect both its cost structure and it value proposition to buyers. Cost savings are made from eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates.
Examples of strategic moves that created blue oceans of new, untapped demand:
- NetJets (fractional Jet ownership)
- Cirque du Soleil (the circus reinvented for the entertainment market)
- Starbucks (coffee as low-cost luxury for high-end consumers)
- Ebay (online auctioning)
- Sony (the Walkman - personal portable stereos)
- Cars: Japanese fuel-efficient autos (mid-70s) and Chrysler minivan (1984)
- Computers: Apple personal computer (1978) and Dell's built-to-order computers (mid-1990s).
Blue Ocean Strategy provides a framework to start thinking about new opportunities.
Blue Ocean Strategy offers both a process and a set of supporting tools that practitioners can use to navigate. It begins with a ?strategy canvas? that visually maps the current industry environment in two dimensions. The horizontal dimension includes the range of factors on which an industry currently competes and those factors in which it invests. The vertical dimension shows levels of performance against each factor, measured qualitatively. A strategy canvas is a conceptual tool remarkable in both its simplicity and its usefulness. It can be used to understand the current strategy of a company and its competitors, to communicate the strategy, and to imagine business directions. To do the latter, Professors Kim and Mauborgne recommend that a company create several alternative, radically different strategies, each aimed at delivering superior value to potential ? not existing ? customers by:
Reducing cost by eliminating some factors that the industry takes for granted and reducing other factors below the industry standard.
Enhancing differentiation by raising some factors well above the industry standard and creating additional factors that the industry has never offered.
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