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S. Ramachander

Spending on basic research, learning and experiments with technology should top the agenda of managers in this boom year.

IT has been a week of very good news, all in all. The SAARC conference ended on the most optimistic note we have heard in recent times, and the Sensex at Dalal Street scaled dizzy heights on the back of reports of a big spurt in the GDP growth rate to 8.4 per cent. Above all, Tendulkar returned to form; and in the process we nearly beat Australia with a record-breaking total. So perhaps Mr Vajpayee is now qualified for what Napoleon might have called a `lucky general' — at least the party he is heading, in planning early elections, is fervently hoping it is so!

What happens if we actually do have a great year for the economy in 2004? In other words, this might well be the bumper year that the marketing and business heads might well have been praying for since 1997, and which comes but once in four or five years in India. Unfortunately, while the bonanza years do come round, the frequency is never entirely predictable. If one looked at a long-term graph of a company or industry in India, say, since the Seventies, it would seem rather like the Manhattan chart of a one-day match, growing steeply over the past few years (like the slog overs) and yet with a high degree of vulnerability and change, from one year to the next. Paradoxical as it may seem, it is based on this quicksand of a cyclical uptrend that some observers also predict a secular growth or a take-off phase for the economy. This could well prove a premature celebration of an event, although it must happen sooner or later, as our economy goes through slow and steady, yet definitive, structural alterations.

So what must the business leader do in a very good year? He could start by recognising that a turning point in the country's progress towards a globally-linked economy might be approaching. This is not just because of a superficial reading of the outsourcing euphoria and the much-publicised, new service economy, but rather a realisation of the long-term potential of manufacturing industry in this economy. The first thing to consider would be how to use the surpluses of the year's likely additional volume growth. Companies that have been growing at, say, 10 to 12 per cent might suddenly find it possible to see double that growth rate — and a much sharper rise in quantities and profitability. It would be tempting to hoard this additional yield in a conservative mode for a rainy day. Or at the other extreme, one could yield to the temptation to splurge on those items of expenditure where one had cut back on relentlessly during the past few years of `lean and mean' management. The wiser course would, in my view, be to spend more liberally, yes, but on those things that one would not have the heart to in the lean years, but which have longer term payback.

One prime example is all forms of basic research aimed at increasing indigenous innovation capability. I define this as investment of a very high order in special talents and competencies of people. It includes undertaking those studies and surveys from laboratory to the field, which might have been postponed earlier because of the lack of an obvious and immediate impact on the bottomline. Next, spending on learning should also come high on the list of priorities. This includes, in addition to formal research, learning via basic understanding of the global trends in the business, taking part in seminars, exhibitions and colloquia of all sorts where one could listen to the new thinkers and see the developments in the category of business or technology elsewhere in the world. A third linked action would be learning about new and as yet unexplored opportunities to experiment with new technologies, designs and markets, which might hitherto have been considered too risky or expensive to foray into.

Extending educational ventures for a wider cross-section of the organisation would be very worthwhile, and overseas trips can be a useful avenue to stimulate interest and tap hidden potential, besides acting as a motivational device. The resulting wider appreciation of the challenge of global competition across the company would not be a bad thing at all for the organisation's future. Similarly, experimentation as a means of new learning must be encouraged in a year in which, perhaps, it is easier to bear the costs of some speculative exercises. This includes testing new variants, new products, new markets, and new promotional gambits — indeed any action that would have been too costly to consider in the earlier years.

Learning from experimentation is an often-overlooked or undervalued aspect of corporate education. There is good reason for this. In a world that makes heroes of those whose ventures bring in higher profits, mistakes are an embarrassment. The whole atmosphere of worshipping competitive success militates against any bold attempts by the venturesome because failure is seen not as a possible lesson but a blot on their copybook. Little wonder that the seasoned organisation man has honed the balance between exhibiting initiative without actually risking his job into a fine art! This year, one should, I believe, see what happens if one sheds some of those inhibitions. This would imply openly supporting the mavericks more than before.

As every CFO knows, every profitable year is a good opportunity to turn up some of the dirt from under the furniture and sweep it all away in write-offs. What we recommend here is a positive twist to that approach. In a similar vein, this could be a good year also to boldly exit those declining market segments and dying product categories that might have lingered on because of sentiment or inertia — or simply because of wanting to let the sleeping dogs lie. Cleaned up product portfolios will yield invisible returns in the future in the form of better use of management attention and time on the surviving brands and businesses. The visible market impact in stock prices is a usual worry but one can safely bet on the feel-good market taking it relatively easier. Indeed this is true of shedding businesses and restructuring finances, thus intensifying a process that has been vigorously pursued anyway for a few years by Indian corporate groups.

In all of the above, one can note that there is little reference to adding to large blocks of land and buildings or fixed asset costs or indeed any irreversible decision. The advantage of many of these steps is that they can be steadily calibrated through the year. What is a surprise to many is how little learning and experimentation actually costs if managed well, as the sum total of expenditure as a percentage of net sales value on training, education, market research and R&D taken together would show. Some years ago a study showed that it is well under three per cent! So, we do indeed have way to go.

(The author is Director, Institute for Financial Research & Management, Chennai.)

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