Management Studies

What is Core Competency ?

2011-04-22T07:17:00.000-07:00

'Core Competency' is one of the most misused words in the Information Technology domain and maybe in other domains too. This short note attempts to explain what it is actually. For a more detailed note one must read the HBR article by C K Prahlad and Gary Hamel ' The core competence of the corporation'.

The main objective of an organization is to develop some competitive advantages. This is because competitive advantages actually leads to better sales and higher profits. But to develop a competitive advantage managers must first understand the industry in which the company is operating. Say for example if the company is a FMCG (Fast moving consumer goods company) then managers can drill down to some factors that are essential to survive and grow in that industry. For example for FMCG industry in India some of the factors are
- Strong distribution or channels
- An efficient Sales force
- Economies of scale
- Quality of product
- Media advertising etc . There can be many more. But which one of these are absolutely critical and essential for success ? These are called Key Success Factors . The Key Success Factors , if handled properly provide competitive advantage to the firm. But that is not enough. Some of these advantages are easy to duplicate or substitute. If a company is able to communicate to the customer about its superiority then customers are actually able to see the value position.

For example a company developed a soap that is of high quality( Quality being a Key success factor in that industry). But other companies can copy quality. Where is the advantage then? Well , this company is able to communicate to its customers about the excellent quality and consumers actually perceive this soap to be of better. This perception is difficult to copy and this is called Sustainable Competitive Advantage. There can be different ways to achieve Sustainable competitive advantage but the value must be communicated to customer in different ways.
- Better Product
- Assets of the Company
- Capabilities of the Company
- The market itself can create barriers
- Synergy etc.

Hold on ! What is Synergy ?
Well different firms and different business units of a firm collaborate together to make a product or provide a service. We can say Synergy is achieved when the ultimate product or the outcome of the service is better than the sum of the individual parts.
For example consider Airtel and MChek. If the alliance has strength then Airtel will be able to offer its huge customer base a very useful mobile payment service. On the other hand MChek , a new company will be able to access potential a few million customers of Airtel. This is synergy. Provided separately users could have still gone ahead and installed mchek. But penetration would be more difficult that way.
Similarly Synergy can be obtained within a firm for different business units.

So we now see the link between Key Success Factors. How Key Success factors if implemented and communicated properly to customers can provide the company with Sustainable Competitive Advantages. We can also see that Competitive Advantages can be enhanced by Synergy.

Now lets see what are the assets or capabilities that lead to synergy. As we can guess assets are easier to share if there is a feasible way to share it. Capabilities are more difficult to share. For example the same distribution warehouses can be used to distribute product items. Similarly the salesman's selling expertise can be used to sell two different products if he has the expertise on both. So we can say that the distribution framework of warehouses and the salesman's capabilities are something that provides advantages to both product lines. Hence this is a core asset or a core capability.

This asset and capability that can be shared by multiple units of a firm or different businesses in an alliance is called the core competency.

Prahlad and Hamel suggested a tree structure where the core competency is the root. The branches are the major products or services. The leaves and flowers are the end features or smaller products.

This is why many companies , for example Infosys/Wipro etc major services companies developed a framework or knowledge base of skills that can be used across the domains, verticals, business units, clients etc. While the movement of engineers may be easy the difficult part is to map it to Synergy and finally Sustainable Competitive Advantage.

The top down approach for a mature company would be
- Determine the Key Success factors in the business ( well try to stick to a few important ones - use research methods like factor analysis , conjoint analysis etc to drill down to few factors)
- Find out what are the competitive advantages that have developed or can be developed. Note , Key Success Factor to Competitive Advantage is a many to many mapping. Many factors can lead to single competitive advantage. Similarly one factor can contribute to different types of advantages.
- Determine whether the competitive advantage is sustainable or not ( Be honest in this evaluation. Please note while skills in a particular programming language may be a Key Success factor , it doesn't provide any sustainable competitive advantage. All companies have such programmers. Companies sometimes use patents to show value to customers. Well if patents are collecting dust its not sustainable competitive advantage. The strength of a patent or its level of implementation, reference in other implementations or patents is what give sustainable advantage.)
- Once the factors for sustainable competitive advantage is determined all that is left is to see which internal strengths lead to that advantage. For example a set of different factors like experience , domain knowledge, skills in programming languages etc can emerge. While it is not necessary but companies can actually try to figure out those competencies ( assets and capabilities) that provide synergy. If a company can identify these core competencies at a business unit level for large companies and maybe at company level for smaller ones that will help them to nurture further growth. This time it will be a conscious decision.

For a smaller company, maybe in the inception of its life cycle, just trying to survive it may not make sense to have a top down approach. Rather they can identify core competencies at base level , then at firm level easily with a bottom-up approach.

The last but not the least is the development of core competencies. Well the core is the smallest part and what's outside the core is still important. I feel companies should focus on Key Success Factors which will lead to Competitive advantages and competencies. rather than trying to develop the core develop natural competencies and let the core develop itself. This would be a conscious development and a controlled one, but not a force fit.

Level 5 Leadership : From Good to Great

2011-04-19T08:51:00.000-07:00

Level 5 Leadership, from Good to Great is a wonderful book by Jim Collins. It talks about good companies that went on to become great by virtue of their leaders.
It is not the objective to evaluate how good the book does in finding Level 5 Leaders. There are some points that Jim Collins did not give examples of Good Companies with similar results that never reached the greatness , and the leadership was the only difference from the great companies. Studies like this are hardly conclusive , but the spirit of the book is in the theme. One can aspire to be a Level 5 leader , immaterial of whether he's the CEO of an organization or not. Perhaps one day a great organization will be created.
So how is this hierarchy defined ?

Level 1 : Capable individual
At this level people concentrate on skills and good work habits. Values are important and knowledge management is critical for success.
Although all of this may sound very simple but people often forget the values of discipline and diligence and cause harm to the organization.

Level 2 : Team Member
An individual has to be part of a team sooner or later to achieve objectives that cannot be done alone. It is important to be in sync with the team and be an excellent team player. The speed of the team is the best speed of its slowest member.
This also sounds simple but how often do we see business units falter because teams do not share information, cooperate or see the larger gains with respect to their individual objectives. Typical Principal Agent issues hamper the greater goals of the organization.

Level 3 : Manager
At this level a person changes gears and starts managing a team of which he was once a member. The change is not abrupt and most organizations promote people who have already displayed their managerial acumen.
The manager's job is very important and he/she has to guide the team according to the organization objectives. At the same time a manager has to take care of aspirations of the team.
This is a very crucial role and probably the first real scope to exhibit one's real leadership skills. A manager has to know the limits set by the organization objectives, yet has to rise above those to pursue the aspirations of the team.

Level 4 : Leader
Very few managers actually elevate to a leadership position. At this stage the manager becomes a visionary and develops the skills required to motivate and stimulate a unit.
This transformation is not a very obvious one. There are several hierarchical managerial levels and when a person becomes a Vice President or a director or maybe the CEO they like to believe that they have reached Level 4. But the truth is that there is an immense inertia to get objectives and work on objectives like a manager. Well that is important because a Level 4 is encompassing the values of all the previous levels. But beyond that the leader must have the vision to cross the boundaries, redefine the boundaries and motivate others to see the same vision.

Level 5 : Final
The author stresses the point that this is an empirical finding and not an ideological one. But for aspirational persons like me perhaps an ideal position is more interesting. So what is Level 5 ?
A level 5 leader has two great qualities , humility and will. Personal humility lets a person relax and see the point of view of others. Whereas professional will lets a leader stay on course of his vision and objectives, they do not quit easily. The author goes on to explain several scenarios of behavior of a Level 5 leader. One can try to find out by self assessment what will he/she do in the same scenario.

Negotiators Checklist

2011-04-10T13:12:00.001-07:00

I was reading a wonderful HBR article by James Sebenius. He talks about the habits of negotiators that often result in a failed negotiation, financial and non financial losses and a lot of frustration.
Generally at the start of a negotiation process negotiators have a few things ready. Out of those the most important thing is the BATNA(Best Alternative To a Negotiated Agreement). Thus it is very important to analyze and deduce the BATNA of the other party. Any negotiation that goes below the BATNA is a no-deal.
Eventually however the process of negotiation can become personal. After all the agreement may be between two companies or governments or organizations but it is humans sitting at the table doing the negotiation.
James Sebenius points out six mistakes that negotiators do
1> Neglecting the other side's problem -> I feel that an important quality that all negotiators should possess is empathy. That will let them understand the other side's problems

2> Let Price Bulldoze Other Interests -> Sebenius calls them "reverse Midas" negotiators. In a strong urge to drive a hard bargain they often fail to notice a potential joint gain. A very important quality at this level is a person's ability of Fairness or Justice. It may seem vague but combined with empathy ability to judge a situation fairly limits the damage of a price based negotiation.

3> Letting Positions Drive out Interests -> A very common situation where the negotiators overlook their interests or issues and take positions based on a common criteria like price. The people at the negotiating table must be flexible and show genuine signs of resolving the issue or meeting the interest.

4> Searching Too Hard to find the Common Ground -> With different people having different interests it is often hard to find common ground. the negotiators must have the ability to engage deeply in dialogue and drill down to the actual interests and concerns. There must be an active effort to find out the exact differences. The next step will be to prioritize the differences.

5> Neglecting BATNA -> This is especially true from the perspective of hard facts. All deals necessarily have some pros and cons and the negotiators should have the the BATNA in front of them to avoid making mistakes. Probably this is the easiest part to prepare before the start of the negotiation process.

6> Failing to correct Skewed vision -> Evaluating the BATNA of the person at the other side of the negotiation table is equally important. Although there may be a certain amount of uncertainty and information asymmetry the negotiators must have the ability to judge.

Thus we see negotiations that are successful and beneficial to both parties are indeed due to the exceptional personal capabilities of the persons at the negotiation table. In short it can be said that effective negotiators should be soft on the people but hard on the target.

Managers and Leaders

2011-04-03T22:46:00.000-07:00

Employees are often confused when their organization talks about leadership. They assume that leadership automatically comes by virtue of seniority in an organization and the power of their designations. But this is not true.
When an organization talks about leadership it has to nurture the young talents and groom the future leaders. It must create an organization that allows new ideas and revolutionary thinking. The organization cuture will determine if the right people are recruited , or if they are awarded and encouraged.

But first it is necessary to understand the difference between managers and leaders. These are some of the important differences
1. Managers are by virtue of seniority and leaders are by by virtue of of their abilities.
2. Managers are for coping with complexity whereas leaders are for coping with change.
3. A managers core competencies are planning and budgeting, organizing and staffing,communicating, delegating etc. On the other hand a leader is like a visionary who sets the direction and has the ability to motivate the people to see the same vision.
4. The managers scope of work is limited to his project or his direct or indirect reportees. But the leader's scope of work can span beyond than to peers ,bosses and maybe even outside the organization or the sphere of work. Does all of this seem too vague ? Maybe, yes. It is not necessary to evaluate whether someone exhibits leadership behavior or not. The manifestation itself may be rudimentary. It has to be seen whether there is potential in a candidate.

There is a wonderful article by Daniel Goleman which talks about the skills that make a leader. He called it the emotional intelligence. There are 5 components of this emotional intelligence Self-Awareness - The most important factor here is the ability to do realistic self assessment. First one must know the limits , then they can hope to go beyond it.
Self Regulation - Human beings behave are impulsive. There are moments of glory and moments of dejection. But leaders have an inherent capacity to stop and think. They are able to suspend judgement before taking action. They are able to control their impulsive actions Motivation - Leaders can assess themselves and then they have a strong urge, a compelling feeling to achieve something more. This urge generates a passion ,something telling in the mind to go for it.
Empathy - At different stages there are chances of alienation from peers , followers or near and dear ones because of a leader's continuous optimism and urge for achievement. It is necessary to be able to understand the emotional state of the others who contribute to this urge. Thus sensitivity to others and a genuine concern for relationships add to the ability to empathize. Social Skills - This is about belief in oneself and the ability to make others see the same dream. Great leaders were by virtue of their great followers.

So you see what an organization means when it talks about leadership? Well maybe sometimes the organizations are themselves not aware of it themselves and merely harp on the popular rhetoric. But the truth is there is a leader and a follower in every human being each to a varying degree of capacity. Keeping aside the jargons , both these roles are equally important. While a leader may be enshrined in his own vision , the follower may have the emotional quotient to follow multiple visions. Both of these comprise a total human being.

Kohlberg's 3 Levels : Business Ethics

2011-03-31T08:59:00.000-07:00

There is no such thing as absolute ethical standard in business. It is indeed on a case to case basis and sometimes follows no logic. There can be many rules, guidelines, rights granted by an organization, the government or by society or religious gurus. But it remains undecided and complex for each and every situation.
There can be many perspectives to look into a particular situation or series of events or occurrences. The perspectives are
1> Individual level
2> Corporate level ( very relevant for businesses)
3> Systemic level ( where the larger society or the government or maybe the whole country is involved)

We often see in our Bollywood movies where the hero , a victim of injustice fights against the system. But that is merely the legal aspect. Deep ingrained is ethics and in many of the situations all the three (individual,corporate and system) are to blame.

Out of the many theories one that is very interesting is Kohlberg's 3 level theory. Is this a good theory to go ahead in case of a confusion and an ethical dilemma ? Well this theory is not fail proof and there are some criticisms about this. The theory approaches ethics from a justice standpoint where different cultures, different countries can have different approaches.

This theory is based on a life cycle of human development from Pre-conventional states to the Conventional States to the Post Conventional state. With each level , the power of thinking increases and the ability to think and articulate from different perspectives and viewpoints increases.

LEVEL 1	STAGE 1	Obedience & Punishment	This stage is mostly manifested by children. Elders teach them to follow a certain conduct in the absence of which they are punished. This is an elementary state of mind of the child who tries to follow the best way in his/her own realm. Very few of them remain in this state when they grow up. But in certain situations most elders still shift back to this stage.
LEVEL 1	STAGE 2	Instrumental and Relative Orientation	A sense of individuality develops. It depends heavily on the culture and the surroundings. Children recognize that in addition to their own needs they need to follow certain principles for their near and dear ones. This is a very important state because the mind starts to mature and grown up can actually recollect the virtues learnt at this period consciously or sub consciously.
LEVEL 2	STAGE 3	Conventional sense of moral	The stage evolves from a chasm of innocence to a new world of family and friends. But it still remains within the boundaries of the known environment and conformance and obedience take control. However this is the inception when the mind starts to revolve and go beyond the boundaries set by the conventional world of family and friends.
LEVEL 2	STAGE 4	Law and Order orientation	When the mind finally leaves the boundaries it meets new constraints of the laws of the society and the land and the religion. A delinquent mind can severely affect this development because it doesn’t get answers to its questions any more. The cultural evolution lays its foundations which remain till death for most individuals.
LEVEL 3	STAGE 5	A thought leadership stage	Very few people go beyond thinking about themselves and their immediate near and dear ones and start thinking of opinions and arguments of other people. The intellectual capital or intelligentsia consists of this stage where politics, beliefs, values trespass each other.
LEVEL 3	STAGE 6	Moral Guru	A stage where leaders evolve to become thinkers. A universal stage where great people of great nations have thought in a different way, the way that became the societies or nations way in future. This state may conflict with rules and principles and challenge the conventional with abstract arguments to judge good or bad.

It will be interesting to note where Corporates will fall according to this theory, most probably at stage 4 of level 2. Some of them may be at Stage 5 of level 3. Corporates are very particular about ethics and they conduct audits annually to prove this point. This is useful in several situations ,for example
- To attract new talent into a growing organization
- To attract investors
- To attract customers who want to do business with a good guy

But if you are any one of the three stakeholders(employee, investor or customer) stop and think. There you can judge for yourself if you want to do business or not. In the first step you can evaluate yourself as an individual in a Kolhberg model. Then you can evaluate the organization or its individuals in the same way. If you observe there is a sync then there is a match. This can even be fine tuned with situational aspects. What actually to and how to evaluate a particular situation? Ask these questions for each perspective and see if your evaluations match.

For example a simple framework like this can be used.

	Caused it/ Helped to cause it	Could have attempted to prevent it	Had capability / authorization to prevent it	Did it with full knowledge	Did it with his/her own free will
Individual
Corporate
System

How does these tables translate in real life and in real situations ? Probably there is no time or frame of mind to do so but an analysis can be useful for avoiding and reducing the type 2 errors , accept something or do something that is unethical.
A corporate can come in the top ranks of a ethics survey but it is for itself to evaluate and see if it behaved like a Level 3 when it had the opportunity.

HOW TO CREATE A BUSINESS PLAN

2011-03-29T00:03:00.000-07:00

TEMPLATE:- Use this template to create a business plan

SECTION 1: THE PROBLEM

Defining the Pain Points
Who feels the pain?
What is the extent of the Problem?
Customer validation of Pain points

SECTION 2: THE SOLUTION

The Solution in Detail
Logistics of Fulfillment
What is new in the Solution
The Value Provided by the Solution

CUSTOMER VALUE PROPOSITION
CUSTOMER VALUE
PRICING Strategy

How to ensure Quality of Service?

CONNECTED ACTIVITIES
IMPLEMENTATION
CAPABILITIES
SUSTAINABILITY

Business Idea Validation : Potential Customer validation

The Framework

SECTION 3: THE MARKET

Total Addressable Market

COMPETITION (PORTER's 5 FORCES ANALYSIS + INDUSTRY OVERVIEW)
GO TO MARKET STRATEGY including Contingency Plan
MARKETING & PROMOTIONAL STRATEGY

SECTION 4: THE TEAM

The Founders Profile
What is the team good at doing?
Advisers and their Profile

SECTION 5: OPPORTUNITIES AND THREATS

SWOT ANALYSIS
VIDE ANALYSIS

SECTION 6: COST STRUCTURE

What is the Break Even Period?
Financial Statement to validate Break Even
Financial requirements Breakup

CUSTOMER MANAGEMENT

2011-03-28T23:08:00.001-07:00

The marketing strategy of a typical B2B company lets Product Managers, Account Managers etc to converse or deal with potential large clients. Unlike a B2C scenario there are some differences in B2B.

B2C vs B2B

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- In B2B there are fewer customers. So increase in market share has to come from 'share of wallet' of each customer

- In B2B customers are more informed and advanced than B2C.

- In B2B there is no one decision maker. There are many stakeholders. Identify them

- Demands in B2b segment are derived demands of B2C segments. An indicator that India has now 500 million +mobile subscribers indicates mobile telephony and associated business is going to be important in B2B.

- Business buyers have to make more complex decisions. There are lot of things that play in the minds apart from cost and product performance.

- Typical selling cycles are very long.

Thus B2B sales follow a unique pattern

1> Prospect -> initially when a RFP, RFI, POC, Demo, ITB stage is on there is a prospect to add a new customer to the block to buy some product.

This is "Switching Stage".

2> Customer -> When the sales is made ,say for 100,000$ an initial sale may not be significant for the seller or the buyer, but it is an important step.

This is "Switching Stage" to "Satisfaction Stage". Most customers switch at this stage if they are not satisfied.

3> Client -> Multiple repeat purchases makes the customer a client. Generally the next 5-6 purchases depends on the satisfaction levels of the first product. It is very important to manage customer issues at this point. The new sales can be cross sells or up-sells.

This is "Satisfaction to Trust Stage". The client starts believing that the company has the cpability and intent to give good products.

4> Supporter -> After buying over several million $ of products if the customer is still happy he will spread the word, typically to 6 other important sources. An unhappy customer can talk to potentially 15 other sources. It is thus very important to make good cross sells.

This is "trust to commitment stage". The client's trust has to be reinforced each and every time. This will show that the good product and service was not luck but company strategy implementation.

5> Advocate -> An advocate goes beyond spreading the good word of mouth. They actually start working with the company to improve the solution.They start believing in the solution themselves."This is committment to loyalty stage"

Any company at this threshold should be careful not to develop a nexus or fall a victim of anti trust cases. At this stage the strategic views are intertwined.

6> Partner -> They become involved in the marketing and selling decisions of the company.

Thus a customer who becomes a partner is the best possible outcome of customer loyalty relationship.

The above steps merely reflect how the customer relationship grows at each stage and doesn't stop just with customer retention or repeat sales. It is important for the product manager/tme to manage the customer for profit and for relationship in different ways.

The bonding with the customer happens in this way

1> Financial Bonds -> Much of it is done via discounts, bundling, loyalty programs etc. This is a penetration strategy and helps to get an account. This is easily replicated by a new entrant or a rival.

2> Social Bonds -> There are personal relationships to build. Faceless names should be removed and interactions encouraged. Sometimes sales and POCs reach this level where customers feel free to call TMEs/PMs etc to ask for additional stuff, some more changes, some more clarifications etc. This should be encouraged. It means the social bonds between two people are getting created. It is more difficult to break than loyalty points.

3> Customization Bonds -> The social bonds turn the TMEs/PMs and the customers into a learning relationship. Both parties learn and share details intimately. Customers ask for customizations and the seller can become flexible and know what the customer wants, why he wants it and more. This is POC or post sales. Once a customization is done customers feel they are locked in and want more.It goes beyond social bonds and much stronger to break even if the original employees leave.

4> Structural Bonds -> This is much after the sales. Account managers must take care of the customer and their issues. It must be noted that 70% of customers defect due to perceived indifference. Their voices are not heard. So the A/C managers should look into joint investments and shared processes.

Bonding Self questions

1> Whether the request is within the control of the company

2> Whether the request is not within the scope of the company.

______________________________________________________________________________________________________________________

The OLD concepts via the NEW

OLD = Product Marketing ( Brand Management, USP )

THEN = Segment Marketing (Enterprise ,SP )

NEW = Customer Marketing ( customer loyalty ,share of wallet)

There are two approaches

1> A particular set of needs of all customers

2> All the needs for a particular set of customers (Cisco,IBM - solutions)

For any such dealings the costs-benefits of the company can be like this

1> Acquisition -> -ve

2> Base Profit -> Same for all customers every year

3> Revenue Growth -> Increases over the years for each customers

4> Cost Savings -> Increases every year for each customer

5> Referrals -> Increases over lifetime of customer

6> Price Premiums -> achieved with customer loyalty

Note: ABC must be used to gain proper advantage of customer lifetime value

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How does the Process happen ?

IDIC framework -> Identify,differentiate,interact,customize

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Straight Rebuy -> Buyer reordering without any modifications

Modified Rebuy -> Buyer wants to modify product specs,prices,terms of suppliers for next set of materials

New Task -> Buyer buying for first time

Systems buying -> Packaged solution from single supplier ( for turnkey ops)

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Strategy for KAM (Key Account Management)

1> Pre-KAM -> Identify accounts that have potential to become key accounts

2> Early KAM -> Explore opportunitites for the KAM customers.Examine strengths and weaknesses of customers

3> Mid KAM -> Increase in relation with Top management than Sales people.

4> partnership KAM -> Sensitive commercial information is shared. Joint problem resolution becomes the focus

5> Synergistic KAM -> Joint venture in the market.

6> Uncoupling KAM -> End of partnership to prevent a cartel and too much dependency

KANO MODEL

2011-03-28T23:05:00.000-07:00

KANO MODEL is a simple model whose inputs can be used to create and measure software quality.

The concept of Kano model arrives from the fact that a product evolves in this way

Core Product -> Generic Product -> Expected Product -> Augmented Product -> Potential Product (See below)

In this evolution process a measurement of quality is traditionally one dimensional. For Example Performance is “Goodß or à Bad “ or Customer Satisfaction is High or Low etc

Kano model tries to evaluate quality on the basis of 2 dimensions. It broadly translates to 3 important types of features

1> Basic or Must Be or the Dissatisfier -> Features customers will not tell us unless something is missing or wrongly done. Product comparison is not done here, if a feature is missing customers will not even consider this product. This is a POP (Point of Parity) area.

2> Performance -> This is where customers speak most and compare products. All traditional models use this approach only.

3> Excitement/Delighters -> Customers do not talk about this, and are mostly unaware of such features. This is where demos can delight a customer and in turn make it a competitive advantage over other products. This is what we can call POD(Points of Differentiation)

4> Dislike -> Some stuffs we can do without

There is another important thing to note. A must be (Dissatisfier or hygiene) factor is noticeable only till a certain point, beyond which there is no use of improving the feature because customer satisfaction doesn’t improve much. However in case of a Delighter beyond a certain point the customer satisfaction increases exponentially.

The fun part of this is that most features evolve as a delighter, over time become a performance metric and before the next year becomes a Must Be. Software Products and features are copied too easily and too fast. A POD can be easily copied or substituted to a POP where it yields no more advantage to the company.

Using responses from a focus group or a complete survey one can clearly figure out the details of a product.

We can find out how satisfied or dissatisfied a customer is using these equations’

• Users’ satisfaction coefficients = (A + O) / Total responses

• Users’ dissatisfaction coefficients = (O + E)/ Total responses

These results can be carried on further to create a QFD and measure detailed aspects of quality. But that is another story.