Keynote by Wilfried Aulbur, Managing Partner, Roland Berger Strategy Consultants on his book “Riding The Tiger” at the Shared Value Summit held recently in Gurgaon.
“India is a very good training ground if one wants to run a business globally. It teaches you to be agile, to be on your feet, and leverage opportunity wherever you find it.”
“Successful companies in India focus, they know who they are and they know what value they give to their customers.”
When we talk about India to people the only thing that comes to our mind is “Wonderful culture”. India is a great country but at the end of the day it is a very difficult country to do business in. This is a fundamental misconception that people have but I would say that it is possible to do business in India. There are enough companies that can generate value and drive value creation in the country in a very successful manner.
If we look at the world today, we have terrorism, floods, weather phenomenon, brexit, election of Trump and other things, which create significant amount of uncertainty/ challenge in the way we do business. We must react to change very quickly. India is a very good training ground if one wants to run a business globally. It teaches you to be agile, to be on your feet, and leverage opportunity wherever you find it. How can you drive success in India or in a Volatile Uncertain Complex Ambiguous (VUCA) environment? It is not that complicated and no rocket science.
It is the consistent execution of six key levers. The first is operational excellence. Indians want value for money. They are very much focused on making sure you don’t pay too much for the value that you are getting. You should be very focused on running operations extremely efficiently. Maruti Suzuki is about one thing and that is a virtuous cycle – cost down, volume up. They know how to do frugal innovation, design components that satisfy their customers, and are 10-15% cheaper than their competitors. This brings the cost down, allows them to sell which leads to investment in dealers. More dealers mean more volume and more volume means cost down for the suppliers. It also means that there is an opportunity of using scale effects and modularization to launch niche models, again driving up volume, bringing down cost and making sure to have an unassailable position in the Indian market. How did they look at cost down? They focused on details. They have their 3M and various Japanese management techniques that they drove into their organization. They give attention to minute details that drives performance and drives a company.
The second is innovation. India is a market that is simply not China. The roads aren’t that good, electricity is not free, money is not for free etc. So, what one needs in order to be successful is customer-centered innovation that gives you margins that can compensate for some of the difficulties and disadvantages that you have working in this environment. Innovation is critical. For example Godrej has a very simple philosophy, it’s three by three. They have three product categories in which they want to lead and have three regions where they want to be relevant as an emerging market multinational company and that is Latin America, Africa, Asia.
How do they do it? They have hair color in a sachet, which is quite convenient. They innovated it and brought it to India. Next challenge is to bring the cost down by a factor of five to ten and by using frugal innovation, frugal engineering, working closely with the suppliers one can make that happen. It allows me not to compete against the MNC but it allows me to open up a completely new segment. Upgrade my customers from hair powder to hair color in a cream. Similarly, the fast card was an innovation in Indonesia. It was got in India, the cost was brought down, and process was changed though a lot of innovation was done to make it happen. The cost was brought down to one rupee per card and a 170 crore-rupee market was created. This kind of frugal innovation is opening opportunities for nimble companies and companies that are willing to question the status quo.
The third is choices and trade-offs. Successful companies in India focus, they know who they are and they know what value they give to their customers. Bajaj is a company that has one strong philosophy and that is money before volume. They are in the business of making money and not to have market share. The result of that is they are much lower in revenues than Hero but their profit in absolute terms is higher.
How did they get there? They started with scooters i.e. Humara Bajaj, then they came under attack by the Japanese. New technology entered the market and they realized scooters alone are not going to make that happen, so they tried motorcycles. Now in motorcycles they faced a dilemma, as Hero owned the 100cc market, the commuting market in India. Bajaj tried to get into that market but didn’t work. They had 2 options either to be number 1 or to be different. They did not focus on 100/110cc but create motorcycles at 125cc, 150cc. So, it was about power and performance. This was completely different positioning that drove higher margins and drove success in the market. Beyond that Bajaj clearly stated that since motorcycle market is important they would focus on the motorcycle market and not dilute attention to get into scooters. They purchased 49% in KTM, turned that organization into the largest performance motorcycle manufacturer globally. They just beat BMW and that is one of the reasons why BMW was looking at TVS for a joint venture and tying up with them.
Fourth is alignment. It is especially important in an environment like India to make sure that everybody in the company understands what you are all about. You cannot imagine all the challenges that the frontline people face when they are dealing with customers. They need to know the DNA of your company. They need to know what to do in critical situations aligned with your overall philosophy.
A good example of a company that has managed to get people aligned is Indigo. Indigo is about on time performance and hassle free travel. Now how do you communicate on time in your organization? Well one of the low members of your ground crew is keeping tabs on the pilots so if they arrive on time they get a smiley face, they don’t arrive on time and leave on time they get a sad face. It is not limited to pilots but percolates down through the organization. If they have training and they don’t start that on time then the watchman who is recording would give you a sad face and this has an impact on your performance and pay.
The fifth lever is leadership and courage. We have exceptional business leaders in this country. For example, Chand Sehgal who turned selling silver into a $7 billion enterprise; Bharat Forge who bought a weapons factory in one weekend. So, these are people that are outstanding businessmen that have the courage and the vision to drive success and performance. Baba Kalyani at Bharat Forge and his team were sitting in London and suddenly they realized that the gun manufacturing facility of Roark is up for sale. So, they flew to Switzerland, told Roark to stop the auction process (because they were selling the factory via auction houses in pieces) and bought all their 250 packages, flew them to Pune and within six months was able to produce guns with the latest technology. So, clear leadership and understanding of own capabilities.
These are the key levers of successful Indian companies. In a VUCA environment this is not only valid for Indian companies but also valid for all of us.