Opinion ’Chalta hai’ is a no-no in business

Chalta hai is slothful business: Currently,most industries in India are very seriously enjoying short term revenue generation through volume business. This trend is not good for the country’s future as the demand led working culture in both exports and home consumption does not allow entrepreneurs to be creative enough to craft the value led market. A simple example of this malaise in our society is that we don’t even produce a hard disk which tiny Taiwan can churn out in a jiffy.

The chalta hai attitude exists in businesses where market demand is flat,such as traditional OTC products,fabrics,khadi,utensils,among others. Having lasted decade after decade in dull vertical categories,they’ve had no inclination for renovation. Whether the market is growing or not,profit is always under pressure. Negligence of on-time market watch can bring dangerous symptoms like obsolescence because an emerging category enters and knocks them off the market. If there is no technology obsolescence,the business can be transformed through intelligent innovation by adding differentiation and customer benefit that’s felt in the product or service. A disruptive platform is required to turn the business and organisational culture upside down. Such a successful displacement example is loom maker Toyoda transforming to Toyota to join the ranks of today’s global leaders of vehicles.

As India’s an emerging society,everybody looks for growth with market expansion. This idea that we have a large enough population so penetration will resolve all growth woes is a woebegone solution. You can see how retail brands are opening store after store with no profitability in sight. In most domains,per capita consumption is far lower than in developed countries. No business institution trains students on how to increase per capita consumption,which is the real indicator of brand fidelity. Only value led propositions can drive per capita consumption growth.

Demand led syndrome: In a demand led market,all you need to do is supply as long as there’s demand. In concentrating on fulfilling orders,you dangerously neglect to plan future strategy. Of course when good money is coming in,you should undertake this generic business,but have you realised that the customer has multiple choices?

Take India’s IT services industry,our biggest money spinner today. It’s a part of the demand led market. After economic reforms in 1991,the huge requirement from foreign companies for India’s coding services became evident. So everybody wanted to enjoy the fruits,irrespective of how much competency and domain knowledge they possessed. In its honeymoon period in 2001,the business was giving operating profit margins of 35-42 per cent. It was an easy entry ticket,making company after company jump in. They invested in whatever would grow revenues right away,that is,good administration,great infrastructure and English speaking manpower.

Then the foreign customers got smart. Not seeing any difference in the generic deliverables from this competitive environment,they started haggling. It’s human instinct after all to negotiate for better price advantage when the market’s aplenty. Indian IT companies had to fall in line,and gave discount after discount to hold on to customers. Quality of deliverables slipped,recruitment levels fell from engineers to BSc graduates. The real demand led market malaise hit them. Profit steadily dwindled to between 25-35 per cent in 2006,and by 2012,margins have plummeted to 18-28 per cent among Tier 1 companies. Obviously,the figures would be lower for the lower tiers.

Choose to deliver value: Indian IT companies do have a choice though. They can go against the wave to create value without leaving this business for another. Instead of being the “order takers” they are today,they can become strategic partners to their customers by adding premium value to the work they deliver. Such value can be supplemented with massive execution excellence and in-depth industry knowledge that will eventually help their customers to shape their own business strategy. Once customers experience that value,they will be ready to part with a better margin.

Need for creative,disruptive platforms: Our business education system needs to impart training on creating disruptive platforms that can change the world. Delivery of out-of-the-box execution excellence by Indian companies to create the value led market needs to be built up. That’s not extra terrestrial or humanly impossible. The first step of leading the market through value is extensive research to understand the gaps in between. Certain investment in research and development is required to interpret those gaps and plug them with 360-degree improvement of products and services. This business model demands micro detailed efficiency and has to be handled very sensitively. To avoid commoditisation that can easily destroy an established business,high technology knowledge is imperative here. And innovation has to become a continuous process to see the future as up-front as possible.

To exit the demand led market is very simple. Just ask any customer why she always pays a higher price for a reputed foreign brand in a given category. Is it for their inventive power,product quality or advertising? She’ll definitely choose the first two options. So the biggest thrust the country needs immediately is how to create a generation of value led market creators.

Shombit Sengupta is an international creative business strategy consultant to top management. Reach him at http://www.shiningconsulting.com