Flexibility

Jun 15th 2009
From Economist.com

In a business context, flexibility can refer to a number of different ideas. Today its most common usage is in the workplace where it refers to such things as flexi-time, variable hours and extended periods of leave. But the word has a longer pedigree in the area of strategy, where it generally refers to a firm’s ability to respond to changes in its environment both rapidly and at low cost. In the (limited) sense that strategy is an unchanging commitment to something, it is the antithesis of flexibility.

A firm’s strategic flexibility depends partly on its liquidity, since its ability to respond speedily is inevitably determined by its access to funds. But more importantly it depends on its organisational structure, on the way in which its various units work with each other, and the freedom they have to take decisions on their own initiative.

The trade-off between flexibility and firmness has been a long-running subject of management discussion. Julian Birkinshaw, a professor at London Business School and author of “The Flexible Firm”, wrote an article in the summer 2004 edition of the Sloan Management Review called “Building Ambidexterity Into an Organisation”. In it he says:

For a company to succeed over the long term it needs to master both adaptability and alignment—an attribute that is sometimes referred to as ambidexterity.

For adaptability, read flexibility; and for alignment, read firmness. The balance between the two, ambidexterity, is a term which Birkinshaw claims was first used in this sense in 1976.

Sumantra Ghoshal (see article) put the dilemma slightly differently. In an article in the Sloan Management Review in autumn 2002 he wrote:

One of the most fundamental and enduring tensions in all but very small companies is between sub-unit autonomy and empowerment on the one hand, and overall organisational integration and cohesion on the other.

Autonomy and cohesion; adaptability and alignment; flexibility and firmness. The words are different though the dilemma remains the same.

For most of the past century, firmness has had the upper hand in corporate strategy. Companies have set themselves on a particular course, and it has taken a huge effort to divert them. A big company, wrote one author at the end of the 1990s, “is a bit like an oil tanker. There is no way it can turn on a sixpence”.

In the 21st century companies have come to value flexibility more and more, and have looked for ways in which they could, indeed, turn on a sixpence. Peter Brabeck, when head of Nestlé, set out at the turn of the 21st century to transform the company from being run “like a supertanker” into being more like an “agile fleet” of vessels, a fleet that called into action different business units to seize different market opportunities as and when they arose.

Some, however, felt that the enthusiasm for flexibility went too far. A senior executive at Yahoo! was reported by the Wall Street Journal in December 2006 as having written an internal memo bewailing the fact that:

We lack a focused cohesive vision for our company. We want to do everything and be everything to everyone…We are scared to be left out. We are reactive instead of charting an unwavering course. We need to boldly and definitively declare what we are and what we are not.

In his book “Does IT Matter?”, Nicholas G. Carr, an editor at Harvard Business Review, found a compromise. Writing of the future, he said:

Successful companies will therefore work to establish and protect distinctive strategic positions even as they use more temporary competitive advantages as stepping stones to new advantages. They will be, so to speak, flexibly inflexible.

No more focus on shareholders' value?

Jack Welch, the much-celebrated father of the "Shareholder Value Movement" seems to have taken an about-turn, describing focus on quarterly profits as a "dumb idea"! 

Apparently, he now thinks, 28 years later, that executives and investors have given a misplaced emphasis to shareholder value after his speech in 1981! It is simply amazing how the global downturn has shaken the very foundations of wealth creation that capitalism is credited with. 

Though the validity of share price as the sole metric of company and management performance has been debated quite often and the recession no doubt calls for a radical rethinking of the role of management, the harsh criticism of shareholder value from one of its erstwhile champions is shocking to say the least. 

The original article in FT can be found here. Prof TTR has also discussed this article on his blog here.

Retail in US: Winning and Losing !

An interesting article by Kurt Salmon partners highlights the real retail winners and that price alone might not be the competitive advantage.

A good read on recent trend.

Internet Users in India

A recent Economist articles shows the Internet users globally. The survey places India in the 7th spot (about 3% of global usage)

However, the survey excludes the mobile-based access and internet cafes. Thus, it might be portraying a very skewed image of the penetration of Internet in India. According to studies, about 100 million subscribers in India have GPRS activated on mobile phones and a sizable chunk of the population still relies on internet cafes as the primary access point.

Thus it might be interesting to find out the exact penetration of internet in the countries. Not sure, but such surveys might be a good surrogate measure for targeting the next IT/BPO hubs and with skewed results the odds might be against India.

An Interesting bit - Interview with Kotler

Just found this while surfing through the net. The article talks about changing trends in consulting business model.

A nice readoverall.

Another long tail - Is it dangerous?

I am sure almost all of us would have heard about the long tail (skewed normal curve) ever since the present financial crisis has been in news. This is with respect to unanticipated risk and the kind of losses it might create. However, what I am talking about here is another long tail, that of products and their customization.

The companies in their quest to capture all consumer surplus have tried to produce more products, services and their variants to suit the needs to each and every consumer. e.g. One American telecoms company, offering a wide range of packages for different consumer groups, was reckoned to have 377m different possible combinations of its services, many of which, of course, were never requested.

This is the concept of the long tail, discussed by Chris Anderson in his book “The Long Tail: Why the Future of Business is Selling Less of More”. The basic idea is that if we plot a graph of the products/services of a company on x-axis and their sale on y-axis it presents a long tail, since more popular products form the peak while the less requested, though more in number, have lower sales.

A recent Economist article talks about the same phenomena.

Given the current economic scenario does it makes sense for the companies to move so much towards product innovation or have companies landed in trouble due to offering too much variety and hence increasing their cost structure. This approach might make sense in case of e-commerce solutions where the S&A expense can be significantly reduced and hence increase the variety but does it make sense for physical products delivered through traditional channels. Is it time that we should adopt Ford's T-Model theory or something like what Apple does - more product innovation but very commoditiesed?

A Change of Guard... Back to the Consultants!

As Barack Obama assumes office at the White House in the coming week, he has inherited the responsibility of pulling out the American economy from its worst ever recession since 1929. And guess whom has Mr. Obama turned to for advice? Well, none other than McKinsey&Company. 

This Economist article  speaks about the several posts in the Obama administration that would be held by McKinsey alumni. Prominent among them are Ms. Nancy Killefer as the Chief Performance Officer (a newly created post) and Ms. Diana Farrell as the Joint Deputy Director of the National Economic Council. 

These appointments can be contrasted with those in the Bush administration such as Treasury Secretary Hank Paulson and White House Chief of Staff Josh Bolton who both came from Goldman Sachs. Evidently, the collapse at Wall Street has also resulted in the new administration distancing itself from people who carry the now-tainted reputation of the erstwhile envied investment banks. 

Interestingly, as the article mentions, this change in appointments is reflective of the overall macroeconomic scenario during the Bush and Obama administrations. The Bush administration needed people who would be instrumental in leading American dominance over the booming financial markets. But now that the financial meltdown has begun to suck the air out of almost every industry, the focus has shifted from efficient capital allocation to problem-solving. And this is where McKinsey alumni, with their immense experience in advising governments, can add value.  So, things could probably look positive for prospective consultants at the big consulting firms. But probably, it is still too early to tell. 

India's Enron?

Well, the first week for this blog has turned out to be not so great for India Inc. The Satyam revelation has sent shockwaves across the business community of the country. And it is not merely the stock markets which will feel the tremors. 

The rise and rise of India Inc. over the last two decades owed its strength to a new generation of entrepreneurs from non-business families who had survived the pessimism and bureaucracy that had long plagued the country. The youth of India found hope in the achievements of these new business stars. And now, in a moment, that sense of admiration has been replaced by shock and disbelief. 

The misrepresentations and gaps in corporate governance at Satyam are sure to wind up into a long legal battle which might even take the auditors down with Satyam. Whatever the outcome of the legal battle, the most immediate fall-out is the erosion of trust in India's flagship industry across the globe. And in a services industry that relies on trust to sustain long-term customer relationships, it might take years to undo the damage. 

Efforts need to be put in place to check such lapses of corporate governance and ensure that prompt action is taken against the people found guilty in the misrepresentation. The incident also raises a question on the role and effectiveness of auditors who have been hired by the company and might be reluctant to report any inconsistencies in order to keep their contracts. 

One might be interested in reading more about the impact of the Satyam fraud at

http://www.economist.com/business/displaystory.cfm?story_id=12898777