The Hindu Business Line : Three models to make your company mega

INDIAN industry appears to have arrived on the global scene. Over 40 companies have joined the $1-billion club (in term of annual revenues) and six are in the $5-billion-plus league. More companies are aiming to become mega.

However, developing more products, covering more markets or even achieving higher market share may not by themselves lead to such levels of growth. There has to be transformational growth, with sustainable models in the business, organisational and operational domains, each with core fundamental principles.

Business model

Fundamentally, a company should have a sustainable business model to earn and retain its place in the top league, nationally or internationally. Five basic principles govern the sustainability of a business model, and these are:

Validating aspiration: As per recent Fortune rankings, a `Fortune 1000' firm needs to have an annual revenue in excess of $1.5 billion to qualify to be among the first 1,000 corporations. While `Fortune 500' and `Fortune 100' firms need annual revenues of $4 billion and $20 billion respectively.

Getting into the big league, therefore, requires more than incremental business planning and development.

Fundamental mindset change with respect to scale, scope and pace, and commitment across the organisation for breakthrough performance are a must.

Growing on innovation: Often, new industries are created around "first-time-ever" products. Virtually every company in the Fortune 100 league, be it Ford or Microsoft, is founded on new products, fulfilling a new consumer demand. It is, however, unrealistic to expect all growth to be based on path-breaking innovations.

A reasonably sustainable business model will have a product range operating at different price-innovation points to drive up revenues and profits.

The first-ever mobile phones, for example, were priced Rs 25,000-30,000. Subsequently, as technology became more pervasive, models and volumes proliferated, pushing down prices and expanding demand.

Yet, higher-priced models with even more innovative features (from photography to convergence, for instance) continue to witness growth in demand.

Racing into markets: The earlier a firm enters a developing market, the greater are its chances of achieving a near-pioneer status. Several global automotive firms, for example, are in the Fortune 100 club.

The success of a few Indian pharmaceutical firms in the global generics markets is a home-grown example. Several other markets (textiles, biotechnology, consumer electronics and telecommunications or outsourcing as a phenomenon) can offer such a boost to Indian firms.

The window of opportunity is, however, likely to be small. Indian firms have to show alacrity in spotting the emerging markets and grow at a faster clip.

Reshaping to grow: Firms with rigid and inflexible strategies are likely to lag in today's global race. However well-conceived a strategy, its value diminishes with competition.

Companies must be able to recognise when a business model ceases to be a growth or profit driver. More often, this has to be a fundamental task of the top management. Past successes do not offer assurance of future growth.

If an inability to recognise the need for fuel-efficient small-car technology virtually eliminated the established indigenous car companies in the 1980s, the failure to recognise the developing multi-segment car market has since stunted the growth of the premier small-car maker in India. Thus, the ability to reshape the business model from time to time is crucial for success.

Providing investment resilience

Any company has to first invest before hoping to grow. A company's investment strategy is, often, the most crucial but paradoxical part of a business model — erecting helpful entry barriers can lead to vexatious mobility barriers.

Usually, an investment strategy which is technology-intensive and product-specific pre-empts capacity and provides monopoly returns; but only to an extent. Soon, niftier competitors figure out ways of making the same products more economically.

The key to success lies in combining the principles of modularity, versatility and scalability even within dedicated investments to provide the kind of capital resilience and efficiency that a dynamic business needs. Companies which have built investment strategies around common product backbones, shared process flows and flexible equipment retain their competitiveness even under adverse business conditions.

Organisation model

An organisation model is the principal bridge between an aspirational business prescription and eventual corporate achievement. An optimal organisation model can be interpreted in terms of five prominent principles.

Define performance: Essentially, leadership and performance have to be the key organisational tenets. Effective leadership calls for core functional competencies, coupled with a broader business perspective, team-building capability and networking ability.

Leadership is characterised by an uncanny ability to take considered decisions speedily while motivating people for superior execution. Virtually all Fortune 100 firms have had outstanding leaders, simultaneously envisioning and driving high performance.

Build leadership: Except in a few cases, leadership does not happen automatically. It requires proactive spotting and conscious development by established leaders. Leadership is not only seen at the top but also flows from there.

A large company seeking aspirational performance should have leaders of calibre in all of its critical businesses and most of its functions.

The efforts by transformational companies such as GE in the field of leadership development are worthy of emulation. The larger Indian firms could set up organic leadership development programmes while the smaller ones may need to collaborate with the prominent institutions of management to upgrade leadership capabilities.

Encourage differentiation: Leadership, however, can thrive only in a climate of differentiation which recognises performance-boosting leaders.

Typically, companies have two options to differentiate and recognise leadership. The virtuous route is to provide a public face to leadership while the more common practice is to treat leadership as an internal affair. Many companies which are professionally managed and operate in open and competitive markets (such as automobile, FMCG, IT and consumer electronics) appear to fall in the former category.

On the other hand, companies which are entrepreneur/family driven and operate in the project and infrastructure sectors appear to motivate leaders through the significant internal powers devolved on them.

Create ownership: A large company is rarely a single ship with one captain. It is more like a flotilla, each vessel with a captain, moving in synchronised formation. Each leader is an essential element in formulating, articulating and implementing corporate strategy, broadly and specifically for his business or function. The greatest test of a leader lies in taking his next tier leadership with him in this process. For this, apex leaders will need to involve business and functional leaders at various levels in development of strategic plans, execution templates and monitoring mechanisms.

Facilitate collaboration: Good leadership is a function of positive team collaboration. Companies get weakened by dominant leaders obsessed with their own individual performance capabilities. Insecure leadership overshadows others in the organisation, while secure leadership promotes collaboration in the organisation. Outstanding leadership creates competition which challenges the leadership in a constructive manner.

A framework of open appraisal and professional collaboration (such as executive boards, management councils, assessment centres and young manager clubs) will institutionalise leadership in a company with the right blend of collaboration and competitiveness.

Operations model

The business and organisation models have to be supplemented by an operations model. High market share and high profit companies are always at risk from the operationally more competitive newer entrants. Scale and scope do not by themselves provide insurance of sustainability.

Even industry-leading companies, such as Sony, Nissan and GM, have faced vulnerability due to poor operational modelling. A competitive operations model has five key principles:

Achieve functional convergence: Functional divergence and disconnect often reduce the overall operational efficiency. If a business model is based on being the fastest to the market, all related functions must work together to achieve the end-goal.

Through concurrent engineering, several automotive companies have been able to cut development times and budgets by half.

Retail chains such as P&G and Wal-Mart have been able to achieve increased shelf availability with reduced inventory by adopting collaborative forecasting between the manufacturing, product sales and logistics divisions. On the other hand, companies which are less competitive are still grappling with the nuances of achieving functional convergence.

Unitise businesses and operations: Conglomerates achieve quicker movement towards the Fortune 1000 or Fortune 500 goal. However, a conglomerate brings in its wake excessive complexity. Unitisation of businesses within the conglomerate structure has helped corporations combine growth with competitiveness.

Within businesses, unitisation of operations has, in turn, helped achieve higher efficiency. The more elemental, reproducible and rhythmic an operation is, the more efficient, adaptable and scalable it becomes. Product design, business design or organisation design equally benefit from the unitisation principle.

Provide scalability: The rapidity of technological change, the emergence of cross-border sourcing opportunities and the burden of sunk costs, especially in low-margin mature products, dictate the need for revisiting the scale-based manufacturing paradigm as a means of mega corporation status.

The business model itself needs to be developed with operational scalability in mind. Most businesses tend to have a predictable core business and an unpredictable scalable business.

Innovative project engineering and management approaches, pre-fabricated construction technologies and multi-programmable flexible manufacturing equipment are now available to help companies manage capacities in tandem with market expansion.

Build efficiency into design: Each business model needs a unique selling proposition (USP) to succeed. For a modern hospital, 100 per cent cure rate in its surgical and intensive care units (ICUs) would be a clear USP.

Design of operation theatres and ICUs with dedicated air-conditioning systems which provide state-of-the-art aseptic management could then be the core design principle for operational and business success. For a modern retail chain, an IT driven SKU management system, complete with RFID technological backbone could be the principal design principle.

The apex management must identify its targeted source of competitive advantage and design it into the operations from the initial project stage.

Identify and manage value chain: Often, the real value chain is quite different from the way a company's businesses and operations are physically structured or organised. Value chain is more expansive in concept than supply chain, which merely provides a transactional end-to-end connectivity for a company with its vendors and its customers.

However, the company's real value chain has to overlap the supply chain or any transactional chain in a manner that value is built for the customer at each stage.

For example, standards based components, and system based technologies enable mass customisation of product designs on-line by the customers themselves, which are then executed by the company. This feature coupled with just-in-time inventory management can lower production costs while providing vendors the needed flexibility.

Thus, to be part of the Fortune club, a company needs a robust business model, a proactive organisation model and an efficient operations model.

It is also necessary to create these models synergistically with supportive core principles that provide sustainable internal efficiencies and external competitiveness.

(The author is a Chennai-based freelance writer.)

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