Steve Jobs

To be a revolutionary manager – FIRST BREAK ALL THE RULES


Curt Coffman is the New York Times bestselling author of First, Break All the Rules: What the World’s Greatest Managers Do Differently(along with Marcus Buckingham). He is also a researcher, business scientist and a consultant to Fortune 500 organisations. “Approximately 15% of organisations today are embracing the power of people within the organisation.  At the same time, 95% of companies believe that they are doing so. Businesses are currently operating at only 35% of their capacity, because of obsolete people practices.  There is a maxim from quantum physics that says…“When you change the way you look at things, the things you look at change,”” says Coffman. He will be touring India for ‘First, People 2012’, India’s First HR ‘Un-Conference’ in Goa on September 21 – 22 organised by SHRM India (Strategic Human Resource Management), a subsidiary of the world’s largest HR association, SHRM – The Society for Human Resource Management. In this interview he speaks to Vivek Kaul.
In your groundbreaking work First Break All the Rules you got responses from 80,000 interviews to determine that the best managers are revolutionaries.  Could you discuss that in some detail?
Just in the past 5 years we have interviewed approximately 90,000 managers/leaders across the globe.  Great managers have one objective and that is to facilitate unprecedented performance in every individual.  They form very strong relationships with their people based on trust and friendship.  This allows for high expectations that are motivational and challenging.  They don’t treat everyone the same but as individuals with unique talents, gifts for contribution and specific needs.  There is an opposition to the notion of changing people, as they feel one’s work should draw out the individual’s talent versus attempting to put in what was left out.  Commitment to innovation is seen through embracing the differences in individuals rather than create a blanket of conformity.  Yes, they are the rebels who really drive an organisation’s success – one person at a time.
If the best managers are revolutionaries who are the revolutionaries according to you in the current business scenario?
The great leaders of tomorrow will commit to one thing – making sure every individual in the enterprise has a great manager.  Great managers who are close to the action will trump traditional leadership in driving world-class results.  Leaders atop the organisational chart cannot effectively impact the local workplace and thus need great local managers to create ownership and commitment. The senior leaders of today’s most relevant brands know this intuitively.  Brands like Google, Zappos, Apple, Tata, and Starbucks, know the power of aligning brand (how others see us) with culture (how we see ourselves). Enlightened executives know the power of each individual employee on creating success.
One of the things that comes out from First Break All the Rules is that treat employees like individuals, set specific outcomes, but not the process, and focus on employee strengths instead of calling out weaknesses. Could you discuss that in some detail with examples?
Progressive leaders who are charged with creating a better tomorrow and managers who are charged with creating a outstanding today intimately know what creates a passion for excellence within people.

Destroy PassionCreate Passion
Judge me on how I conform to the “steps” of doing the job regardless of results.Help me know the real outcomes of my job – the real reason you hired me.
Point out precisely who I am not and then help me get better in those deficiencies.Help me discover who I am and then allow me to use my gifts for outstanding contribution.
Work should be serious and hard.Work should be fun and full of energy.
Use fear to drive us.Use hope to drive us.
Always highlight what you don’t want.Create a vision around what you do want.

Do you see many companies following this kind of process while dealing with their managers?
Ninety five percent of all organisations proclaim that people are the key to their success.  Sadly, I must say that only about 15% of global organisations have adopted a 21st century vision about people and the vital role manager’s play in building value. That said, there might be a higher percentage in India.  You have some great brands and enlightened leaders who are savvy enough to recognise who really owns the means of production – every employee every day. Very progressive organisations like Taj Hotels, Voltas, Piramal, Lupin and Manipal to name a few, pay sharp attention to how managers are identified, developed and rewarded.
What do they do differently?
These organisations are keenly aware that a manager’s real job is to increase the productivity and success of every individual. In the past being a manager meant organising “things” and only caring about how they are viewed by the leaders above them.  This is position-ship not leadership. If there was any focus on people, it was seen as a hobby not a primary function of the role. Very talented and productive people have options and we know that ultimately they leave managers, not organisations.  If you have ever had a bad manager, you know exactly what we are talking about.
What is that makes a great place to work?
When people can’t wait to come to work!
But isn’t that very idealistic?
Yes, but why should it be?  Knowing what about work gives your people energy and what drains their energy is the most primary step in developing a progressive, people-centered focus. Our most current research reveals that a great place to work is based on the characteristics of relationship, growth, and purpose. Relationships are the foundation of strong culture.  Without them we wither away.  The connections we have with co-workers, managers and leaders are the renewable energy that drives success.  Great organisations promote strong friendships and a spirit of connectedness.  People contribute at exceptional levels when there is another person they trust and feel loyal to.  People are most loyal to the organisations that have helped them grow and develop –  that is why you will see more philantrophic money being given to colleges and universities than any other institution. Great managers help every person know themselves well and thus set people up for success.  When we know our talents and then acquire the right skills and knowledge incredible things happen.
So what is the takeaway here?
We just do our work and relationships differently when we have a sense of pride in the organisation’s mission.  It is the broader purpose of one’s work that makes a difference.  On those days that we feel overworked and frustrated, the higher purpose of our work will pull us through.
Another thing that your research threw up was that an organisation doesn’t have one culture overriding it. It has these many little cultures what you call the “little C cultures”. Could you discuss this finding in some detail with an example preferably?
Everyone uses the word “culture” with little consistent understanding of what it really means.  If culture is the new competitive advantage, we need to become really clear on what it is.  The key discoveries that we have made are that there is no culture without people. Culture exists at three levels – micro (local employee), bridge (manager) and macro (leadership). Each of these cultural charges have distinct roles; Micro to ignite positive/purposeful energy in one-another, bridge is to connect people to purpose and macro is having leaders who are more “interested” than “interesting.” Once key businesses imperatives are defined, the next question should be “what kind of culture are we going to need to drive results?”
Can you explain this through an example?
Steve Jobs at Apple cast a vision for innovation that carved out markets that didn’t even exist.  He was always listening and more interested than interesting (actually he was more interesting because he was interested).  This macro culture is about creating a better tomorrow.  Steve Jobs vision is only achievable when the right people and culture bring it to fruition.  Great managers are attracted to an environment where they can connect individuals to vision. Take the Apple employee as an example – who wouldn’t want to be a “genius” versus a “help desk employee?”
Earlier in the interview you said that most people don’t leave organisations, they leave their bosses. How do you control for something like that?
The steps are rather basic.  It starts with promoting people who are already the spiritual leaders of people.  Great managers didn’t become that way when the official title was given.  Know who these employees are. Don’t make becoming a manager a reward.  Reward great managers who genuinely care about the success and potential of others and know the strengths of each person they work with.  Another step is to not try and change people, but instead draw out the best within them. Don’t make becoming a manager another rung on the career leader.
Why do you say that the worst mission a manager can undertake is attempting to erase a person’s weaknesses?
Great managers will say that people don’t change that much and instead of trying to put in what was left out, let’s draw out what was left in. Neuroscience now confirms that the brain is done developing between the ages of 15 – 22 years of age.  By that time all of us have a pretty well structured network.  There are things that come naturally and others that don’t.  Talent is about hard wiring and explains our predisposition for excellence in certain roles.  Many times we feel as though we can rewire people brains.  It is not possible.  We have never seen a person take a weakness and transform it into a throbbing strength.  There are ways to manage around our weaknesses, like having a complimentary partner who does have the talent and energy for those things in which you do not. Or, you can find a system that makes the weakness immaterial (i.e. grammar and spell check).
You also suggest that it is okay for managers to treat some people as their favourites. Again something that goes against conventional wisdom. Shouldn’t a manager try and treat everyone in his team equally?
Treating everyone the same is true discrimination.  We are individuals with unique strengths, needs and styles.  By legislating one way for everyone, we disconnect people’s distinctive ability to display exceptional performance.
Your latest book is called Culture Eats Strategy. So how does culture eat strategy?
Vision is what could be.  Strategy is our rational plan to get there.  Execution is our continual day-to-day progress toward the desired outcome.  Our rational plans always require human spirit and energy to bring to fruition.   The daily progress we make (or fail to make) is dependent upon our people – our culture.
So how do you define culture then?
Culture is the collision of rational with emotional.   When individual motives, drives and feelings come up against strategy, plans and structure, the end result depends more on the emotion than logic. While evolving a new strategy can be difficult, executing it in the face of existing conventions, routines and ways of working together can be nearly impossible.
Could you explain through an example?
Consider a hospital we know that changed out CEOs five times in four years.  The culture, comprised of long-tenured staff, resisted the new CEO and strategy de jour.   As each CEO was replaced, the culture became more and more convinced they could “wait the next leader out.” Our vision is essential, our strategy critical; but however sound, they are dependent upon the culture  – the people  – to deliver the desired results.
(Interviewer Kaul is a writer and he can be reached at [email protected])
(The interview originally appeared in the Daily News and Analysis on September 17,2012. <http://www.dnaindia.com/money/interview_to-be-a-revolutionary-manager-first-break-all-the-rules_1741770>)
Box:
The discoveries of great organisations:
-People practices focus on building excellence (what we want), not preventing weakness (what we don’t want)
-A senior leader’s greatest impact comes from insuring that every employee has a great local manager
-No people, no culture.  Finding talent is a basic to performance, managing talent is the differentiator
-Obsessing over the “right” decision is not as important as insuring that the decision is being made by the people closest to the issue
-Employee purpose is driven by a “line-of-sight” between their work and the ultimate impact it has on the customer
 
 

Why you shouldn’t write off the Tata Nano just yet


Vivek Kaul

A little over three years after it was first introduced Tata Nano is being widely touted as a flop. The car which was supposed to cause traffic jams all over India is not selling as much as it was expected to.
Between January and July this year 55,398 units of the car have been sold. This is 13.3% more than the number of units that were sold during the same period last year. So even though the numbers are looking better this year they are nowhere near the installed capacity that the Nano plant in Sanand in Gujarat has, as an earlier piece pointed out. (You can read the complete piece here).
Numbers of reasons are being pointed out for the Nano flop show. Let me discuss a few here. In the book The Little Black Book of Innovation Scott D Anthony, who is an innovation consultant, points out a conversation he had with a colleague in late 2009. ““Here’s a provocative perspective,” my colleague said in late 2009… “I think the Tata Nano is going to be a disappointment.”… So why was my colleague being so skeptical? “Look at it from a customer’s perspective,” he said. These people could already afford to pay twenty-five-hundred dollars (or around Rs 1 lakh as the Nano was expected to be priced initially) for a perfectly good used car. Instead they consciously chose the scooter.”
Ratan Tata had the idea to build a car like Nano when he saw a family of four struggling on a two-wheeler on a rainy night in Mumbai. But despite the safety hazards people still preferred a two wheeler to a Nano. “Why would consumers choose a scooter? It wasn’t that these people didn’t care about their family. Rather, they didn’t have the space to park a car, or they found scooters that fit into tiny gaps on India’ chaotic streets a much more convenient form of transformation,” writes Anthony.
Another major reason being pointed out for Nano’s failure is it’s positioning. As Rahul Shankar points out in a blog post titled “Why did the Tata Nano fail as a disruptive innovation?” “The Nano was essentially branded as the world’s cheapest car…The truth is that no one wants to own a car that is thought off as cheap. Very few people treat a car as just a machine that takes them from point A to point B. This is basically what the Nano has been reduced to. People want to brag about how awesome their car is and how it kicks their neighbor/friends car’s butt….The advertisements that I have seen for the Nano have unfortunately come off as bland and catering again to the theme of affordability.” (You can read the complete post here)
These are valid points that have been raised. Even Ratan Tata has admitted to mistakes having been made. “We never really got our act together…I don’t think we were adequately ready with an advertising campaign, a dealer network,” Tata remarked earlier this year.
But these reasons notwithstanding, it’s too early to write off the Nano. Nano is what innovation experts call a disruptive innovation. This term was coined by Harvard Business School professor Clayton Christensen. “A disruptive innovation is an innovation that transforms an existing market or creates a new one by introducing simplicity, convenience, accessibility and affordability,” is how Christensen defined disruptive innovation when I had interviewed him a few years back for the Daily News and Analysis (DNA).
An important thing with disruptive innovations is that they tend to work out over a period of time. As Christensen said “It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents.”
A great example is the Apple personal computer which took around a decade to establish itself. As Christensen put it “A great example is the Apple personal computer. The incumbent companies of the time were those like Digital Equipment Corporation (DEC) that made minicomputers, which were big machines that sold for lots of money and could handle very complex tasks. When the personal computer burst on the scene, it sold for significantly less money than the minicomputer did…the PC wasn’t as good as the minicomputer for the market as it existed at that time. Apple made a wise decision and first sold the personal computer as a toy for children. Over time Apple and the other PC companies improved the PC so it could handle more complicated tasks. And ultimately the PC has transformed the market by allowing many people to benefit from its simplicity, affordability, and convenience relative to the minicomputer.”
Given this any disruption does not come as an immediate shift. “Disruption rarely arrives as an abrupt shift in reality,” write Clayton Christensen, Michael B Horn and Curtis W Johnson in Disrupting Class —How Disruptive Innovation Will Change the Way the World Learns.
This is something that Nirmalya Kumar, a professor at the London Business School (LBS) agrees with. “What I know about is radical versus incremental innovation. The more radical the innovation is the longer the time customers take to adopt it. People think of Nesspresso as being as a great radical innovation, but what they don’t know is that for 20 years it did not sell a whole lot and then the sales went up in a spike,” Nirmalya Kumar had told me in an interview I did for the Economic Times. Nespresso is a cappuccino maker sold by Nestle.
Amazon, which started off as a bookseller is another great example of a disruptive innovation which took time to get settled in. Another great example from the field of cinema is the movie Sholay. The film was massacred by critics when it released on August 15,1975. As Anupama Chopra writes in Sholay: The Making of a Classic “Taking off on the title of the film, K.L.Almadi writing in the India Today called it a ‘dead ember’… Filmfare’s Bikram Singh wrote: ‘The major trouble with the film is the unsuccessful transplantation it attempts – grafting a western on the Indian milieu.”
The Indian audience had never seen anything like this before. And it thus took time to sink in. The film went onto become the biggest box office hit of all time.
What these examples tell us is that it is too early to write off the Nano, despite the fact that the initial planks on which it was sold are largely not true anymore. “A cheap car that’s not really cheap. A safe car whose safety has been questioned. A poor people’s car that poor people aren’t buying. That sounds like a failure, certainly. But really it’s not. It’s par for the course for almost every breakthrough innovation,” writes Matthew J. Eyring the president of Innosight, a strategy innovation consulting and investment firm, on the HBR blog network. (you can read the complete piece here). “In fact, I can think of only one example of a CEO who pre-announced an innovation that was going to change the world and actually delivered it. That’s Steve Jobs of course,” he adds.
Critics point out that a lot of assumptions that Nano’s initial strategy was built on are not turning out to be true. The two wheeler riders aren’t upgrading to the Nano as they were. It’s no longer as cheap as it was initially promised to be. And people are buying it more of as a second car rather than their main mode of transport. But this is again in line with the way breakthrough or disruptive innovations operate.
As Eyring puts it “There’s nothing unusual about a company having to adjust the price, the production process, the marketing, or even the market of a breakthrough offering. The Nano’s price changes, the new maintenance contract Tata is rolling out to assure buyers of quality, the test drives it’s introducing, the new smaller showrooms, and the new commercials — all widely discussed in the press — should not really be news.”
All these things are also happening with the Nano because Tata Motors went in for a full fledged launch of the car rather than a small one. As Nirmalya Kumar put it “When the product development is radical you always do a small launch. They did a huge launch for Nano. They should have done a smaller launch. With radical innovation you need to keep tinkering and figuring out what is it exactly that the customer wants. This is because with radical innovation pre market testing is not really relevant because the consumers are not good at telling you whether they will buy a radical new product because they have no conceptualisation.”
This is something that Godrej & Boyce did with the ChotuKool refrigeratior. “Long before most people had heard of the low-power fridge ChotuKool, Godrej & Boyce spent quite some time investigating people’s refrigeration needs, designing and redesigning the product, and redoing its distribution strategy, carefully, slowly, and quietly,” writes Eyring.
It would have helped if Tata Motors had followed a similar strategy with Nano. As Eyring points out “It might not have been easy, but had Tata piloted the Nano quietly, on a small scale, perhaps through a limited production run in a small city like Durgapur in West Bengal or Ranchi in Jharkand, its engineering, pricing, financing, and marketing might have been adjusted far from the limelight to suit the needs of an optimal target customer… the Nano might have made its debut to the wider world with less hype and greater effect. It might not have been a 1 lakh car or even an alternative to motorscooters. But when it first appeared in the mainstream, it would have been right product for the right price in the right market.”
So now the Nano has entered the tinkering phase. And as this goes along Tata Motors will figure out what works and what does not. And this may be totally different from the assumptions the company started out with.
What still doesn’t change is its low price, despite the fact that it never sold for Rs 1 lakh as it was initially expected to. As Nirmalya Kumar put it “That’s the real startling novelty of the product because there is no car available anywhere in the world for $5000.”
The article originally appeared on www.firstpost.com on August 24,2012. http://www.firstpost.com/business/why-you-shouldnt-write-off-the-tata-nano-just-yet-429044.html
(Vivek Kaul is a writer and can be reached at [email protected])

‘Many managers are suckers for the guru who can provide the philosopher’s stone’


Managers like all of us are also suckers for easy answers. “Management as a discipline is in very early stages of development. The equivalent would be the subject of chemistry as it was in the fifteenth-sixteenth century when it was alchemy. For centuries people were looking for the philosopher’s stone which was some kind of catalyst which could turn base metal into gold. Management is a bit like that. So many managers are suckers for the guru who can provide the simple answer,” says Robert Grant. He is a professor of strategic management and holder of the ENI Chair of Strategic Management in the Energy Sector at Bocconi University in Milan, Italy. He is currently in India teaching a course on strategy to the first batch of students at the Mumbai International School of Business, an initiative of the SDA Bocconi School of Management in India. In this interview he speaks to Vivek Kaul.
You have talked about the fact that the knowledge and insight needed to make sound strategic decisions and guide the development of their organisations is best served by strategy teaching that is rooted in theory. What do you mean by that?
Some people would reject the whole notion of business education. Some would say that the best way to become a successful manager is to learn on the job i.e. there is no substitute for experience. Part of the whole notion of having a business school is to say that actually there are principles, and there are things that can be learnt from an analytical approach.
Can you explain this through an example?
You have individuals who appear to be successful managers and the question is what can we learn from them. Can we in anyway generalize about this? So you look at Apple and you say is Apple all about Steve Jobs? Then what was his leadership style? Here is a quirky individualistic, unconventional and a very autocratic management style. And you ask why has this worked? You look at a different company like IBM and its former CEO Sam Palmisano, who had a very different leadership style. You start looking at all these examples and say can we see patterns. Can we see something that we can generalize? Soresearch tries to generalise for this diversity of experience and then the teaching says that here are some principles that we can start applying.
You talked about Steve Jobs and Sam Palmisano two people with very different leadership styles. Which style works more often than not?
Palmisano fits in with a more observable trend you are seeing in large companies where leaders are becoming less the people who make the key decisions. The problem is that most organisations are so complex that the CEO knows maybe 2% of what is going on in that organisation. Also these days businesses have to respond so quickly that they can’t wait for the stuff to get to the CEO level before decisions can be made. So you have to have highly decentralized decision making. So what then is the role of the CEO? Increasingly the role of the CEO is to manage culture and manage the development of people within the organisation, rather than to take the role of the decision maker.
So where does that leave the likes of Jobs?
In many ways Jobs may well have been the one of the last of the old school. This was somebody who was very very hands on. In the early days he was the designer. At one level he was the Chairman of Apple Computers but he was also the project leader on the projects. He was very deeply involved in tiny details which he was incredibly emotionally attached to. So I think in terms of models of leadership probably companies are making some serious mistakes if they say the Jobs way is the way to go.
At some level he was also the biggest marketer of his company…
Yup. He was a great marketing guy because he was the founder of this incredibly successful company that was a major part of a social revolution that took computing, something that had been dominated by governments and large corporations, and taken it down to young people. He empowered young people.
So how do you see Apple performing now that he is not there to lead them?
The case with Apple is like all companies that have visionary powerful founders who go on to be their leaders. The key is can that intuition and vision of the founder, become embodied in the capabilities of the firm. The fact is that Jobs had from several years before his death increasingly distancing himself as the chief decision maker of the firm. This must mean that in terms of the culture of the company, the systems by which the products are designed, how they understand the market, technology, their users, and many of the intuitive level skills that Jobs had, have actually become embodied in the capabilities of the organisation. It’s the same with every entrepreneurial company. Can the company make the transition from a company which is entrepreneur led, family led, into an organisation which is professionally managed but has managed to embody those skills.
Does that happen?
It does happen. You look at Walt Disney. The values and the quest for quality entertainment orientated towards children and families is something that has become embodied in the set of capabilities at Disney. Wal-Mart has a culture where cost efficiency is almost like a religion. Avoiding all waste and looking for new solutions to keep costs down, was something that was a part of the protestant upbringing of Sam Walton. But it has been transferred into the company. So I think it does happen. And it has to happen if the company is going to make that transition.
In one of your research papers you write “I frequently observe a propensity to fall back on ideas and beliefs that amount to little more than folk wisdom.” Could you talk about that in a little detail?
Management as a discipline is in very early stages of development. The equivalent would be the subject of chemistry as it was in the fifteenth-sixteenth century when it was alchemy. For centuries people were looking for the philosopher’s stone which was some kind of catalyst which could turn base metal into gold. Management is a bit like that. So many managers are suckers for the guru who can provide the simple answer. Hence, all the time you have people coming up with the philosopher’s stone. These fads in management come and go. Go back to the late 1970s and the early 1980s market share was the in thing. If you need to get anywhere in business you need to have market share was the in thing. The way to get market share is penetration pricing. This is what the Japanese companies were doing. So that was the sort of thinking that dominated that era. It made sense but not in others. Since then we have had wave after wave of notions, typically given tremendous appeal by the fact that people espoused them are usually fantastic performers. People like Tom Peters for example.
I was about to take his name…
HaHa. To give them their credit most of them have a key value but it is all within a context. One of the ones that was most influential was CK Prahalad and his core competence of the corporation. For many business leaders this was a kind of a revelation that rather than going out there thinking about what does the customer want, it made more sense to start looking inside, what the hell do you well as a company? The article was written 22 years ago and now you look back and say, core competence, that is just one single thing. Now when you look at companies you say there is a whole network of things and the key is the way in which they all fit together. The tremendous danger is this belief that there can be a single idea that provides a universal solution.
How does folk wisdom prevalent in organisations at various points of time influences decisions made by senior executives in companies?
If you look at the lead up to the financial services crisis a phenomenon that you saw particularly among the retail banks was internationalizing. So nearly all the US banks, and major European banks said, we have to have a position in China. They bought minority stakes typically in Chinese banks. Look at Royal Bank of Scotland, which was a Scottish bank, and present only in Scotland. Then it acquired NatWest in Britain. Then they started acquiring banks elsewhere in Europe, in United States and Asia as well. Bank of Santander did the same thing. HSBC internationalized as well. Other banks like the UniCredit Bank started to say we need to get into the game. I remember having this executive seminar with one of the Italian banks and I asked them what are you doing right now? And I was told we are internationalizing. And when I asked them why? Because we are living in a global world, was the answer that came along. So what? This sort of notion of globalisation just takes hold of people and it almost becomes an excuse for not really thinking about what really makes sense.
So globalisation is the current fad…
It is one of the current fads. The question that needs to be asked is globalisation creating any value for many businesses? In the case of retail banking you acquire banks in different countries. Then you ask are there any benefits of having them under common ownership? For starters you have to put them under the same brand. But then the regulations in different countries are different. Hence banks in different countries have to be separately funded. They have to meet the reserve requirements specific to that country. The markets are very often different and so you can’t launch the same products. So you say, well hang on, does this make sense? The same is true about telecom. Vodafone is the most international company and yet in every country it has to acquire licenses, has to establish structure etc. So the question is where are the economies of scale? So they say, maybe the economies are in sourcing. And then you start sourcing phones on a global scale. But in Japan they want Japanese phones simply because those phones had higher standards than what consumers in the UK were happy with. So you start saying where is the value being added here?
Vodafone hasn’t been doing terribly well in India…
Another of the link to this globalisation is to say where do we need to be internationally? Emerging markets. Why do you need to be in emerging markets? Because that’s where the growth is. But growth doesn’t necessarily mean profitability. All those banks that went into China most of them have sold of their holdings now. The car companies are still rushing into China building plants. In China they growth of capacity in automobiles is faster than the growth of demand. So you have the same excess capacity that you have in Europe and North America and so most of these companies are not making money in China. When it comes to telecom the emerging markets are pretty much close to saturation. India has a brutally competitive market in telecom. This is not a market where France Telecom or AT&T can say hey if we move in we are going to make a lot of money. To a lot of extent there is this sort of naïve thinking that just because you are in a growth market you are going to make money.
What has been the impact of increased volatility and unpredictability of the business environment in the last few years upon the strategic planning processes of companies?
What this means that you can’t forecast. So you have to have a planning system which is based upon the notion that actually you don’t really know, what is going to happen next week, let alone next year. And that is a major challenge. Though you don’t know what the environment is going to be you still need to make investments. The oil companies are making investments in oil fields and majorly into gas fields. These fields aren’t going to come on stream for another six, seven, eight years and then they are going to last for another 20-30 years. But nobody knows what the price of gas is going to be in six month’s time, let alone in ten years.
So the companies need to function more and more like venture capitalists?
I think you are onto something here. What companies increasingly need to do is not so much as manage a portfolio of major businesses necessarily, but at least have a portfolio of options. So they are looking at the future and saying we don’t know what is going to happen. But maybe we can engage in some in alternative scenarios now and make relatively small investments, so that if the market develops in this way, we can expand on that base and really exploit that opportunity.
Can you give an example to explain that?
Some of the technology companies are quite good at this. If you look at Google and ask what is it doing, you realise that wow it’s all over the place. And yet it is doing things that make sense in an environment of uncertain change. It started Android its mobile device operating system with the realisation that even though it was dominating search within PCs, laptops and so on, the internet access was increasingly going to move to mobile devices in the days to come. So that was a threat to Google because the question was that would these mobile devices be compatible with the Google search engine? So they decided that maybe if we have our own operating system then we can ensure all our applications are going to run on it. Then of course RIM and then Apple became the dominant players in the mobile business. Apple likes its close garden. It likes to control its own applications through its own app store and so on.
So what happened?
Google exercised the Android option, which was basically an embryonic protocol operating system. It then said we are going to launch this, we are going to invest in this, we are going to talk to major handset makers and provide them with the necessary tools to support it and so on. This despite the fact that Android was free and Google wasn’t making any money out of it. But it became a way of ensuring that their Google search engine and other Google products could make their movement into the mobile sector. Then they start saying what are the threats that we face in terms of our desktop applications? We are dependant upon Microsoft because our search engine runs on the Microsoft browser, internet explorer. It also runs on the Microsoft operating system. So again they said lets introduce Chrome. It’s an option. It’s not a massive investment. But it’s their own browser. And then they came up with the Chrome operating system as well. And it becomes an alternative. In fact they haven’t had to make a massive investment in rollout because Firefox’s Mozilla has eroded Microsoft’s clout and Microsoft is no longer dominant in the browser business. That’s one way of interpreting what companies are doing.
This approach you talk about might be possible in technology because expenses are not huge. But what about other businesses?
You look at the oil business. Nobody knows what the price of oil is going to be. Nobody knows if the House of Sa’ud is going to fall. Maybe that could be next domino. Nobody knows if the Israelis are going to bomb the hell out of Iran. So there is all that uncertainty in this business. So companies are hedging their bets. They are making investments in shale gas. They are taking minority stakes. The Chinese are taking stakes in the oil sands of Canada. But most of those are just minority stakes. But it’s enough for them to say that if it looks like that we are going to lose a lot of our upstream oil reserves, if the price of oil is going to rocket, then we are in a position now to understand enough about this business either to expand it internally or acquire a majority stake. Just looking at the options approach it means that you are building flexibility. It is building your ability to adapt.
(The interview originally appeared in the Daily News and Analysis on August 20,2012. http://www.dnaindia.com/money/interview_many-managers-are-suckers-for-the-guru-who-can-provide-the-philosophers-stone_1730122))
(Interviewer Kaul is a writer and can be reached at [email protected])