DEPRECIATING VALUE OF THE DOLLAR AND THE GATES THAT IT IS OPENING

This article has been written by Sudeep Bhargava of Globaladroit (www.globaladroit.com)

The depreciating value of dollar in comparison to the major currencies across the globe is a matter of great discussion. Indian software industries and the exporters are feeling the pressure because of the depreciating value.

The value of dollar which was as high as 49.5 rupees per dollar a few years ago, has now come down to around 39.5 rupees per dollar. This marks over 18% degradation in the value.

Is this some way a boon for the Indian business system? I feel YES. I firmly believe that this is an opportunity which has been bestowed to the Indian business to INNOVATE. This is time to rethink about the current business models that are being followed.

This gives an opportunity to look into your business models and shell off the “non value adding” steps which are unnecessarily eating into your operational costs. In other worlds, this could be the time to go “lean”. Applying simple lean principles can give the Indian industry the competitive edge that they badly want to be competitive in the world market.

Improving the “way you work” and not only the quality of the final product or service would see the Indian business develop the competitive advantage. Probably there is no better time than this to apply the principles of Six Sigma and Lean which have given excellent results to the Fortune 500 companies.

One key question to ask is how to develop other sources of competitive advantage, such as building high-level capabilities which cannot easily be replicated by competitors, or how to change the mix of activities carried out in India versus other countries.

In order to do this, we will have to change their mindset: We will have to stop thinking of themselves as Indian companies and think more like global companies of Indian origin.
Indian companies will need to analyze their portfolio of costs and move production to where it makes the best economic sense. Already, the Indian IT firms are trying to address rising wage costs by moving production within India to lower cost regions like Kolkata or Bhubaneswar and to Tier-II and Tier-III towns.

The challenge that the Indian economy faces is not that of an economic bubble burst but of moving on to the next growth trajectory and economic development. Going by the model proposed by Porter, India has to embark on a journey that needs sowing the seeds for catapulting India into an innovation driven economy unique value.

India will have to definitely accelerate its reform processes and start working to become an innovation driven economy, as that would determine whether the country would become a developed nation by the year 2020. The focus should be on building processes that would be driven by innovation; this would make the economy resistant to external shocks and vagaries of economic cycles and currency fluctuations.

The bottom line is, our policies should concentrate on enhancing our capability in manufacturing, promote entrepreneurship, and provide incentives for innovation.

A comparison: German vs. Indian way of education.

Before I get into any details; a disclaimer: This post is based solely on my observations while at the University of Köln on exchange and has by no means any scientific basis. So please treat it accordingly. So here goes.

Well the system here is on the other end of the system compared to what we have back at IIMA. Here first of all the Bachelor, Master system and hence have no strict conditions about time limits for finishing the degree, unlike us where there is the usual 4 yrs and 2 yrs. (Though they are now converting to the bachelor and master system to ensure universal acceptability of the degrees) The advantage of their old system was that you could take longer than required and interspaced your terms with as many internships as you wished. I know of people who have 4 or 5 internships before they graduate. This not only helps you to fund your own education, but also get a first hand feel of what you are learning. This coupled with the very open system of courses makes it a potent combination for exploring your career and likes. There is no restriction on the courses you take. A person registered for economics can also take courses in the political science stream or philosophy without anyone questioning him/her. And along the same lines, the responsibility of completing the required courses and credits lies solely with the students themselves. Contrast this with the very fixed and structured system we have back home where everything has been pre-decided based on the stream you choose. If you want to become a electronics engineer, you take courses A, B, C, D and if you want to become a CA you take courses X, Y, Z; but what if I don’t know whether I want to be a CA or an engineer? Well I guess this has something to do with our societal structure and income levels as well where there is not enough time or money with everyone to experiment with their life to see what it is that suits them. Not that either way is better but they are two very distinct ways one more exploratory the other more structured and well planned, pre-decided based on the basic skills essential for one to work as a particular profession.

So on one end you have a prescribed guide book. Learn this much and you will be an engineer, the other is more research oriented. Look at the way the courses are structured. Here though there is classroom teaching and the number of contact hours in class are very less compared to India but the amount of time you spend on your own independent study are comparatively higher. Most courses require you to write a thesis / seminar paper where the more research you do , the more thinking you put in the better grades you get. This system is designed to cater to innovation and creativity. Contrast this with a system where you have a lot of classroom teaching with an even larger number of practice assignments. This may not be the case but in my opinion this system is more designed to produce mass engineers who can do what they are taught to do, well mechanically within the predefined frameworks they have learnt and mastered. Though there will always be some who are really good. Recently there was a lot of talk about outsourcing etc where the developed nations spoke about how the developing countries like India and China are poor at innovation and that the best they can do is take away jobs that the mechanical and thus free up the people there to work on innovation and new products etc. Well, it might not be completely wrong either. Look at the professors here. At least at the Univ of Köln, the only time you are called a professor is when you get “a chair” i.e. when someone sponsors you at the University for “Life”. Thus you have guarantee of tenure, lot of freedom to pursue your own research, structure and decide how many and what courses you want to offer etc. At the same time, the fact that you need to have a PhD, need to have published X number of papers in international journals etc makes it very difficult for any lecturer to get a chair. Once you are a full tenured professor, you have your own library, lots of research assistants who are doing their research under you, who help you with not just the administrative work of your courses. So in effect each professor is more like an independent school in himself in a manner of speaking and students go and check the professor’s website for what courses he is offering and register for them etc. They you also inform the univ that you will be taking the exam for the particular course. Also there are very few courses that have “restrictions” on the number of people who can take the course. Their logic is, if someone is interested why stop someone from taking it. (in contrast to back home where people have to bid for courses) I have seen classrooms that are as huge as an auditorium used for lectures and are full. And in a way, since the education system is more geared towards research and less of classroom teaching the student professor ratio though important is not a limiting factor.

I am not saying that one system is better than the other. One is well suited to developing the required skill sets to pursue a decided profession in the shortest possible time and the other is more suited to exploring what you want to do but at the expense of time. Both have their pros and cons but that is for another post :P

Applying Newton’s Laws to NPD - II

In the November issue article we saw how the Newton’s laws of motion can be applied to new product development Ref November issue “Applying Newton’s Laws to New Product Development (NPD)”. This article will deal with the detailed analysis of each component and will provide the mathematical correlation between the two conjectures.

In Newtonian mechanics you have to be in one reference plane so that all the activities like motion, acceleration etc can be defined with respect to it. Similarly, while doing the analysis of NPD we will use two reference planes i.e. Company’s reference plane and Customer’s reference plane. By the reference plane I mean the way things are professed and the way it is conceptualized. As the reference plane changes from the customer point of view to company point of view, there is tremendous change in perception and hence aligning the reference planes becomes a gargantuan task. Even though it’s a difficult task, if done successfully it would prove to be immensely beneficial to the company and the customer.

In the first law we saw that “The customer will remain at rest or in other words not buy your product or will buy the bare minimum of products from you unless he is applied by the intangible force of Value addition”.

To move a football at rest, someone must kick it and to throw a stone upwards, one has to give it an upward thrust. Clearly, some external agent is needed to provide force to move a body from rest. Hence to increase the consumption of the product the companies also have to apply intangible force in terms of value addition.

Let us see what the value from the customer point of view is. Value to the customer is the worth in terms of technical, economic, service and social benefits a customer receives in exchange for the price he pays for an offering. Hence
Value = f (technical, economic, service, social benefits) …….. (1)
i.e. the value is the function of these four major components and is directly proportional to each components. Value is considered as the vector quantity as it has both magnitude and direction as the perception of value for customer is different and that of company is different, with respect to the reference planes discussed. Hence the first law states that if the Value addition is done through the change in any four components of equation (1) the customer will increase the consumption of that product. Value can be considered as the Force in that of Newtonian mechanics:
Force = Value
F = V…………………………..………………..... (2)

In the second law we saw that “The frequency of purchase of your product is directly proportional to the number of problems that the product solves for the customer.”
In Newtonian mechanics
Force = mass * acceleration
F = m * a………………………………………… (3)
Mass and acceleration are the factors, which define how fast the body will move and are directly proportional to the force applied on it. If same force were applied to a heavier body and the lighter body, then the lighter body tends to accelerates faster than that of heavier body.

The Mass can be correlated to the “Mindset Rigidity” of the customer. Changing the perception of a customer is a very difficult task. Due to this impenetrability it becomes all the more essential to look at techniques like change management, newer promotion strategies, influential brand ambassadors etc. But this discussion is beyond the scope of this paper we consider, but Mass in Newtonian mechanics can be regard as equal to Mindset rigidity of the customer. Hence,
Mass = Mindset Rigidity
m = MR……………………………………….… (4)

Higher the mass, higher force is required to move the body. Similarly grueling the rigidity of the mind of the customer, higher force is required in terms of perceived value addition to influence his buying decisions.

Acceleration of the equation (3) can be correlated to the frequency of purchase of the product.
Hence,
Acceleration = Frequency of Purchase
a = FP…………………………………………… (5)
or, Value = Mindset Rigidity * Frequency of Purchase ……………….from (1,2,3,4,5)
V = MR * FP
FP = V/MR
i.e. Frequency of Purchase = f (technical, economic, service, social benefits) / Mindset rigidity
The above equation shows that Frequency of purchase is directly proportional to the value and inversely proportional to the Mindset rigidity.
i.e FP α V
and FP α 1/ MR
Above equations implies that there are two ways to increase the consumption of the product offered by company. The company can provide more value to the customers in terms of the technical, economic, service and social benefits or they can influence the purchasing decision of the customer by changing their mindset rigidity.

In the third law we saw that “For every action of a company on the product front it has an equal and opposite reaction from its consumers”
This can be understood by considering the following fig.

The Value provided by the company is in terms of usage benefits to the customer, his need accomplishment etc and is like force (Va) acting on the product. The product is similar to an object under the Newtonian mechanics. The Value forgone by the customer is the money what he is paying to buy that product and this is also a force (Vc), which is acting on the product but is in opposite direction of (Va). The customer is bound to think, whether he should buy this product or can do without it? If the Va is greater than the Vc then the customer buys the product i.e. the product moves from company’s hand to the customers hand, else the product lies with the company only.

Assessing and truly understanding value in business markets is the stepping-stone to increasing profitability. Hence gauging and communicating what your products and services are worth to customers are very essential for a company’s success. Finally the customers when deciding to buy the product for use, compares the differential gain i.e. the difference between the value and price. The customer would buy the product when the perceived value is greater than the price. For attaining and retaining loyal customers every company should provide a differential gain greater than that given by the competitors.

i.e. (Value – Price)Company > (Value – Price)Competitors for customers to buy your product.
This can be done by providing same value to customer at lower price or providing more value at same price. Rarely does the price and value change at the same time.

When company looks at coming out with tons of new products, it has to check whether the value it is providing is more than the price. But many a times companies make a mistake in judging the perceived value, as company and customer are in different planes. Hence company should carry out pilot surveys and price the new product according to the perceived value. Once this is done, an intangible force works on the customer and the company makes headway in bending the rigidity of the customer. But this is not a one-time fix, the company should constantly gauge the competition and the changing perceptions of the customer and come up with newer deals – i.e. provide higher value at same price or same value at lower price.

Newton had the feeling of “Eureka”, when the apple fell on his head; it was an external stimuli. Similarly a company should keep throwing apples i.e. value at the customer, so that they also get a feeling of “Eureka” and keep buying the product.

Future Strategy for Integrated Logistics Supply Chain Management

Introduction

A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. The supply chain includes not only the manufacturer and suppliers, but also transporters, warehouses, retailers, and even customers themselves. It is an integrating concept, concerned with planning, sourcing, making and delivering goods and services from the initial supplier to the end customer. As the external environment is changing rapidly companies have daunting task to maintain sustainable competitive advantage over a long run period.

The logistics cost forms a major chunk of GDP and has to improve a lot in developing nation mostly. For e.g. there is an immense potential for cost savings for India if it can bring down its logistics costs from the current level of 13% of GDP to a level similar to that of the US – 8.7% of GDP. The savings would be around $20 billion resulting in a potential 4.3% cut in prices of Indian goods globally, making them more competitive

As the competition is getting stiffer the improved service and reduced costs can only be achieved through better management of flow of goods from plant to user. To capitalize on this opportunity, the focus should be on following:

Thinking of physical distribution process as a system in which all the components and functions must be properly balanced.

Taking a fresh look at the responsibilities, capabilities, and organizational positions of executives in traffic, warehouse management, inventory control and other functions which make up the overall system.

Re-examining the company’s physical plant and distribution procedures in the light of technical advances in such areas as transportation, data processing and materials handling.

In this paper I shall first examine the pressing need for improved management of companies ILSCM and then discuss the future of integrated logistic supply management across the industry, which will depend on huge transformation and what companies should follow. An effective and efficient ILSCM is the key to success as it helps in developing sustainable competitive advantage and strategic fit among process for any organization.

Need of Integrated LSCM (Logistics & Supply Chain Management)

SCM remains a high priority for manufacturers as a way to improve margins, retain & increase market share. Early supply chain management success included improved relationships between warehousing and transportation within companies resulting in reduced inventory and better response times to customer requests for products and services.

SCM then entered a logistics stage where other functional areas within companies joined forces to incorporate manufacturing, procurement, transportation, distribution, and marketing to more effectively compete in the marketplace. This stage was aided by the use of telecommunications, electronic data interface, and other technological advances that made the transfer of information more transparent across the functional areas between companies.

The future Strategy for ILSCM – Matching Supply Chains with Products

The first step in devising an effective supply chain strategy is to consider the nature of the demand for the products one’s company supplies. Many aspects are important – for example, product life cycle, demand predictability, product variety, and market standards for lead time and service (the percentage of demand filled from in-stock goods). The products on the basis of their demand patterns, falls into one of the two categories: they are either primarily functional or primarily innovative. And each kind category requires a distinctly different kind of supply chain. The root cause of the problems plaguing many supply chain is a mismatch between the type of product and type of supply chain.

Functional products include the staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations. Because such products satisfy basic needs, which don’t change much over time, they have stable, predictable demand and long life cycle (usually more than 2 years). But their stability invites competition, which often leads to low profit margins of around 5% to 20% only.

To avoid low margins, many companies introduce innovations in fashion or technology to give customers an additional reason to buy their offerings. Although innovation can enable a company to achieve higher profit margins, the very newness of innovative products makes demand for them unpredictable. In addition, their life cycle is short- usually just a few months- because as imitators erode the competitive advantage that innovative products enjoy, companies are forced to introduce a steady stream of newer innovations. The short life cycle and the great variety typical of these products further increase unpredictability.

With their high profit margins (usually 20% to 60%) and volatile demand, innovative products require a fundamentally different supply chain than stable, low-margin functional products do. To understand the difference one should recognize that a supply chain performs two distinct types of functions: a physical functions and a market mediation function. A supply chain’s physical functions is readily apparent and includes converting raw materials into parts, component, and eventually finished goods, and transporting all of them from one point in the supply chain to the next. Less visible but equally important is market mediation, whose purpose is ensuring that the variety of products reaching the marketplace matches what consumers want to buy.

Each of the two functions incurs distinct costs. Physical costs are the cost of production, transportation and inventory storage. Market mediation costs arise when supply exceeds demand and a product has to be market down and sold at a loss or when supply falls short of demand, resulting in lost sales opportunities and dissatisfied customers.

Right Supply-Chain Strategy

Fig1. Matching supply chains with products
The above matrix shows the matching of supply chain with products. The Efficient supply chain is the process where the supply of predictable demand is met efficiently at the lowest possible cost. The manufacturers focus on maintaining high average utilization rate and they focus on shortening lead time as long as it doesn’t increase cost. The Responsive supply chain process is for responding quickly to unpredictable demand in order to minimize stock outs, forced markdowns, and obsolete inventory. Manufacturers deploy excess buffer capacity in this regard.
For companies to be sure that they are taking the right approach, they first must determine whether their products are functional or innovative. The next step is for managers to decide whether their company’s supply chain is physically efficient or responsive to the market. Having determined the nature of their products and their supply chain’s priorities, manager can employ a matrix to formulate the ideal supply-chain strategy. The four cells of the matrix represent the four possible combinations of products and priorities.

Managers at many companies continue to lament that although they know their supply chains are riddled with waste and generate great dissatisfaction among customers, they don’t know what to do about the problem. The root cause could very well be a misalignment of their supply and product strategies. Realigning the two is hardly easy. But the reward- a remarkable competitive advantage that generates high growth in sales and profit – make the effort worth it.

BPR - Business Process Reengineering

Courtesy: Anurag Kushwaha

BPR(Business Process Reengineering)

Reengineering is the fundamental rethinking and redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed.
(Hammer & Champy, 1993)

Purpose of BPR
· Purpose of reengineering is to ”make all your processes the best-in-class”.

BPR Versus Continuous Improvement

BPR
· Radical Transformation
· Process & Technology Focus
· High Investment
· Rebuild
· Champion Driven


Continuous Improvement
· Incremental Change
· People Focus
· Low Investment
· Improve Existing
· Work Unit Driven

Why Reengineer?
· Customers

• Demanding
• Sophistication
• Changing Needs

Competition

• Local
• Global

Change

• Technology
• Customer Preferences

Why Organizations Don’t Reengineer?
· Complacency
· Political Resistance
· New Developments
· Fear of Unknown and Failure

Performance
· BPR seeks improvements of
o Cost
o Quality
o Service
o Speed

Key Characteristics
· Systems Philosophy
· Global Perspective on Business Processes
· Radical Improvement
· Integrated Change
· Focus on End-Customers
· Process-Based
· People Centred

Think Without Ink-Book Section

by K Venkatraman

Hello friends

This post was originally posted by me at www.books.blogomania.in and is crossposted here.

I read this book around two years back during my MBA entrance preparation. It was recommended to me by one of my friends at IIM L. The book was for the purpose of enhancing Quantitative Aptitude.

It carried lot of techniques to improve quantitative aptitude. It had a nice gel of vedic mathematics and other best calculation practices. But, more than just a mathematical calculations, the book tried to give the direction to the readers regarding their very attitude. The following were the three approaches the author considered.

Pandit

He is a guy who is systematic and cautious, and solves problems using conventional techniques. He believes strongly that problems have to be solved using a step by step approach. When he is solving his problems, you will see him sitting erect in his chair and holding a pen and a book. Pen and paper are his main tools. His dress sense impresses his grandparents. He prefers rice and sambar, or rotis and curry for his lunch. He believes in the “ early to bed and early to rise” principle, and never sleeps in between.

Fundu

Our friend fundu oloves to play around with fundamentals. He experiments with the fundamentals in any problem, till he is convinced of better methods. He does not care for the conventional approach; however, he respects the basics. It is very difficult for anyone to make out what he has written, as he enjoys writing different approaches in his own style. He dresses normally, but with many little variation as a zip instead of buttons for his shirts and one or two pockets in hidden places.

Punter

The punter is strictly result oriented person, who careds a damn for method. He usually starts solving problems from the answer, choices. Rather than going deep into the problem, he tries to read the examiner’s minds. He hates using pen and paper for solving problems. His one and only objective is to crakc the problem in the shortest possible time without writing anything on paper.

His dressing style irritates his parents and grandparents. He eats whenever he is hungry, and sleeps whenever he feels like. He prefers odd combinations like chapatis with jam or bread with sagu etc.

On getting aware about these three approaches, the book didn’t only helped me to improve my quantitative calculations, but also my approach towards life. Earlier I used to be more like a Pandit, but now I am more like Punter.

This book had an ever ending impact on my life. And I would recommend it to every CAT or GMAT aspirant.

More information about it can be found at www.trytwi.com

Excerpts from Lecture by Alyque Padamsee

Excerpts from Lecture by Alyque Padamsee...had a lecture by Alyque Padamsee today. Here are some interesting ideas and excerpts..afterlistening to him i have no doubts abt why he is so famous...Idea management. Which is the only global indian brand - hotmail that too only cos Sabeer Bhatia happens tobe indian.In contrast a brand tht made a country famous.. Nokia..So why did microsoft pay him $400 mil ?? why would you pay such a huge sum to make emailavailable to people for free ...ad revenues ? only a small percent... it was bcos it gave MS a ready database of targetaudience to whom it could sell software. The people who register are in marketting jargonhis target segement, today it has close to 200 mil users, thus it gives MS a straight offthe jacket list of computer users whom it can target to sell its software. This is what billgates paid sabeer bhatia for... thus success = idea + entrepreneurial skillso how do you get ideas ??So you need "to take advantage of the unexpected" e.g of innovations by chance ???1. Post-it : developing a superglue and realised that it comes off.. 2. Viagra : developing a medicine for the heart and they found it had other benefits3. Walkman : Akaio Morita visited a exhibition of electric goods in europe and saw adictaphone... learnt tht it can be used to record letters to your secretary when you aretravelling, which you can then hand it to him/her when you are back. He bought it, and laterwhen he was partying at a dicso he liked a song being played there and recorded it on thedictaphone. Later when flying back to tokyo he was playing tht song back and booommmm....the idea of a walkman...So how to develop your creativity... everyday look at what you do and say how can i improveit ... while brushing your teeth, think is there a way i can better this toothbrush ??maintain a dairy and do it daily.. since most ideas are building up on innovation...e.g mobile phone -- telephone..neumatic tyre, bulbs tht consume less electricity..Innovations at Lintas..1. Five Star Loo - Lintas made profit of Rs 5 lac and they were discussin where to spendit.... they finaly spent it to update their loo so tht it was better than the one atOberoi...sounds crazy..the benefits... the next day when he came to find there there was a long Q outside the loo..and they were relatives of employees who wanted to see the famed loo...Seeing this he then invited the then MD of HLL to a meeting.. a long meeting.. and finallywhen the MD had to use the LOO.... and Lintas got a big order plus recommendations...2. Mother Terresa donations - Board members used to come late for meetings.. So he put a jarwith a photo of Mother Teressa. You pay Rs 100 per min you are late for charity...Initially they got lots of money for charity.. but then soon it dropped .. :P get thepoint..His Star Campaigns..1. Hamara Bajaj - The scooter was soon on the verge of being outdated and Bajaj neededatleast 2 yrs before it could upgrade its product due to the huge capex and it was needed tohold the sales of bajaj for this time frame.. Turning negatives into positives - the huge bulky frame was ugly to look at but it alsocarried more load, and due to past history, there was this sentimental value to a bajajscooter... it had been in the family for a long time..and was like a family member and hencethe "Hamara Bajaj" positioning a family scooter.2. Liril - They wanted a soap to counter Hamam on the freshness front. What does a middleincome group houswife think about in the 10 mins tht she gets to herself when she is bathing?? and research revealed .. she hums songs..and thinks about escape from the dailydrudgery.. and thts waht the liril ad is supposed to portray.3. KamaSutra Condoms - At that time, they found tht 90% of the people had heard about Nirodhbut only 2% used it, the reason.. they found it repulsive enough to make them forget aboutsex.. and hence KS had the tag line.. "for the pleasure of making love". The Ad councilhauled him for the ad.. his rebuttal .. what do u use condoms for ?? i'm just saying it..ucant punish me for saying what is true...btw why KS ? kamasutra is too long and embarassingto go to a chemist and ask for...so the principle is ... "makeing it desirable is making it buyable"4. Public Service ad... don't drink sugarcane juice from open stalls.. duing the time whenthere was a wide spread fear of an epidemic of jaundice, cholera and dysentry...the ad.. i rem seeing it on tv.. just a glass of juice being made.. a the saying.. "In justRe 1 a glass you can buy jaundice, cholera and dysentry". Only 30 secs ad. No explicitmention of sugarcane n e where, and no "Instructions" about what not to do.. so in hiswords..this is the differnece between propoganda and communication.. propoganda givesinstructions... communicatiom motivates.So branding is about making an impact on the emotional retina of the consumer...