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India Inc needs a strategy makeover

The Financial Express - March 11, 2012

EXCERPTS from Rama Bijapurkar's new book highlight a framework for integrating customer centricity into business strategy

India Inc, since 1991, has operated with the implicit logic that "if you expand supply and manage operations skilfully, you are sure to win". As is evident from revenue and profit growths over the past decade and a half, this logic has served it well.

Consumption growth rose steadily year on year, riding on the back of significant increases in household income as a result of overall economic growth. Consequently, and understandably, the demand side of business did not occupy a prominent place in business-strategy development for India Inc. The strategic focus has almost entirely been to build an efficient and scalable supply machine that could make the maximum hay while the sun shone. Of course, over the past two decades, there have been several anxious moments when demand blips occurred due to environmental shocks, or misplaced bets on which part of the market would grow faster-urban or rural, class or mass-or, just like in the mid-1990s, letting enthusiasm about the so-called Great Indian Middle Class overshadow the data. However, they caused only temporary discomfort and not lasting damage. Also, they were more than amply made up for in subsequent years.

Consequently, India Inc learnt to operate in two modes and to switch seamlessly between them: (i) expanding supply to grab as much top-line or revenue growth as possible in good years and (ii) cutting costs in bad years to boost bottom-line or profit growth, while getting leaner and fitter for the good years to come. The general sentiment on classical business-market strategy issues like competitive differentiation and strategic market choices has been: "Why waste time on navel gazing and existential angst? Just keep moving forward." Competitive advantage was seen to come from running faster and getting to more destinations far ahead of competitors. Making market or business segment choices was seen as putting unnecessary brakes on growth. Why choose what kind of fish you want when there is a tumultuous tide that is sweeping in all kinds of fish into a "one size fits all" net.

Market strategy, a key element of business strategy, has been understood to be synonymous with aggression, no doubt driven by a relentless-growth-worshipping valuation regime, which did not provide any extra multiples for better-quality market share or differentiated market positions. As a result, what has passed for market strategy, which is about determining what game the business as a whole should play in the market and why it deserves to win over others, can best be described variously as 'Land Grab', 'Carpet Bomb', 'Sales Force' (pun intended), 'Star Trek' and 'Brand Voodoo Magic'...

Even at a modest 7% GDP growth rate, India's economy will double in size in the next 10 years and India's consumption story will continue to be awesome. However, the demand side is not going to be as easy to manage in the future as it has been in the past because there are far greater customer, competitor and environment challenges that the next trillion dollars of GDP will pose...

Supply-focussed business strategies may yield good results for another 3-5 years, but they will produce diminishing returns. Trying to respond continuously and tactically to competition moves in the market or to environmental opportunities or threats, without a strong customer-centric strategic compass, will be more confusing and more exhausting. And then, there will come a time, not too far away, when the stock market and private investors will reward those who have not just delivered good numbers year on year, but have a strong and differentiated market position which de-risks the business. In fact, recent equity analysts' reports and questions being asked by late-stage private-equity investors suggest that there is now far greater interest and concern than earlier about the quality of the business engine rather than just about the speed that it is running at. Investors are probing much more into the quality of growth, its sustainability, and whether the systems and processes, structures and governance models and people power to manage growth are well in place. If it is a choice between a short-sprint champion with no evidence of ability to manage and sustain growth and a slow-but-steady marathon runner with a clear future plan, the preference could well be for the latter even among short-term investors.

Clearly, it is time for India Inc to open a new chapter of domestic business strategy that looks beyond building a lean, mean supply machine that fires on all cylinders. It is time to think seriously about business-market strategy, i.e., what the business's market game should be, and to give it the same pre-eminence, if not more, when developing business strategy.

That is what this book is about. It discusses ways and means to bring market and customer focus to business strategy, thus enabling companies to build defensible and valuable market positions. It discusses how to read markets to shape business direction and how to create wealth for the business through addition of value to the customer. It demonstrates how to add the customer thread to the fabric of business strategy.

Getting customer-based in defining business objectives, mission, vision statements and brand identity
tag lines

A fundamental gap in customer centricity in business strategy is the absence of the 'customer' in the mission statement and the absence of all customer-based input into vision and goal setting. We have made the point that vision, goals, or objectives for a business should be specified not just in terms of financials and market share but also in terms of how you want customers to think about you and behave towards you-about what you do for them, how you fit into their lives (how relevant you are to their lives), how distinctive you are as a business, what you do better than your competitors or the other way around, etc.

If we analyse the mission statements and tag lines of corporate brands of most companies, they are all about how wonderful they are and not about what they do for customers. Customer centricity must start from right there: how you think about describing yourself to yourself and to your customers. Mission statements are also usually all about what the company does, and rarely about what they do for customers. "We will continuously delight customers through innovative products and good quality" sounds like a customer-centred statement, but actually is not...

Therefore, if one were to begin at the beginning, it would be with an introspection on what the company's existence actually does for the people it sells to who generate its revenue... An extension of this is to have every critical construct of strategy used in the organisation, 'mirrored' with a customer-based construct, as illustrated in accompanying table. Even further is to ask, for every supply-side comment made during strategy meetings: "So how would these affect customers and what would they do as a result?"

CUSTOMER-BASED BUSINESS ANALYSIS

ConstructInside-business viewCustomer-based view
Market definition Product category Customer need arena or value space
Market segmentation Product segments Customer-based segments
Growth performance Incremental volume of value sales Customer and consumption additions
Market growth trend analysis What is being sold more or less and why Increase from new consumers or existing consumers-who, where
Industry analysis Structure of industry-conduct of players-financial performance of all players combined Structure of customer demand-concerns and conduct of customers-satisfaction levels of all customers combined
Industry trends Product of producer behaviour changes; segment size shifts Customer or consumption behaviour changes, customer segments size shifts
Growth driver analysis Macroeconomic and supply-side variables Macro consumer and people-related variables

This has been excerpted with permission from Sage Indiafrom Rama Bijapurkar's new book "CUSTOMERS IN THE BOARDROOM? CRAFTING CUSTOMER BASED BUSINESS STRATEGY