Wednesday, May 30, 2012

Following the bright spots and its implication for designing a strategy


In an interview Andrew Grove narrates his experience at one of the exit interviews while being CEO of Intel. Steve, a young employee who is leaving Intel, said, “Andy, if I were you, I would take microprocessors seriously. We should learn how to use microprocessors, how to develop applications and become experts.” Andy said, “Sure” and never paid any further attention to the remark. In fact he says, “It was inconceivable for me to think of it.” Looking back Andy feels, “He was so right and I was so wrong.” What Steve was pointing to was an internal bright spot – the microprocessor business – doing well at the time but without any strategic attention from management. Question is: Can focusing on bright spots be a good option while designing strategy? If so, can it be done systematically??

Strategy answers 2 questions: What game are we playing? How will we win it? At the time of Steve’s exit interview with Andy, Intel was playing memories game and losing it badly. Many companies are in a situation like Intel and figuring out what to do next. Most of the time the attention is put on the questions “What is not working? And why?” In this article I want to explore what happens when the attention is put on the questions, “What is working? And can we replicate it elsewhere?”

For Intel the bright spot Steve alluded to was already quite bright. In most organizations it is much dimmer and needs some digging like that done by archaeologists. When Sudhir Kumar started working with Lalu Prasad Yadav in 2004, Indian Railways was heading towards bankruptcy, fast. Dr. Rakesh Mohan committee had already submitted an eight volume report on the causes of the failure and possible remedial actions. The committee had attributed the falling market share of Railways to high freight rates that subsidized low passenger fares.

When Sudhir Kumar studied the data on freight traffic, he discovered an interesting anomaly. Market share of some of the commodities (like steel and cement) had gone down. However, some other commodities (like iron ore and coal) had held on. What was happening? After analysing it further, Sudhir Kumar discovered that the Railways was providing door-to-door service for the winning commodities. On the other hand, it was doing station-to-station service for the losing ones. This lead to the insight of creating differentiated freight rates based on the value created for the customer. This became a key element of the strategy designed by Railways and it paid handsomely. Point to be noted in this story is that Sudhir Kumar followed the bright spots i.e. he asked “What is working? And can we clone it?”

Peter Drucker referred to this approach as pursuing the “unexpected success” in his book “Innovation and Entrepreneurship” written more than a quarter of a century ago. He begins chapter 3 as follows:

No other area offers richer opportunities for successful innovation than the unexpected success. In no other area are innovative opportunities less risky and their pursuit less arduous. Yet the unexpected success is almost totally neglected; worse, management tend actively to reject it.

Of course, the knowledge of an unexpected success may not come to you on a platter like it did for Andy Grove. Like Sudhir Kumar you might have to go hunting for it. The good news is that there is a systematic approach on how one can go about hunting for the bright spots. See the figure below adapted from Chip & Dan Heath's Switch.


Sources:

Sudhir Kumar story is from “Changing tracks: Reinventing the spirit of Indian Railways” by V. Nalakant and S. Ramanayaran, Collins Business, 2009, pp 112-115.

“Follow the bright spots” approach is explored in detail in “Switch: How to change things when change is hard” by Chip and Dan Heath, Broadway Books, 2010, chapter 2 titled “Find the bright spots”.

Sudhir Kumar’s photo is from IIM Indore site.

2 comments:

  1. Great ! I can perhaps share my experience in exploiting the Bright spot in Tanishq brand. Sale of Diamond jewellery gives us the required profits. Diamond jewellery sale was growing at a CAGR of 25 to 30 % , and so was the market. ( with a market share of 8% ) . In 2009 , the question I had asked the team is that , a) we are great at Branding and giving retail experience b) We are growing at 25% ( and so is the market ) c) Our market share is only 8% , So , WHAT DOES IT TAKE FOR US TO TARGET 100% GROWTH THIS YEAR ( 2009/10 ) , by exploting what we are good at ( Branding & Cust. experience ) . The process followed generated hundreds of new ideas resulting in 80% growth in sale of diamond jewellery. 70% growth in PBT. The share prices took a walk in the northern direction , huge respect from investors , the board members stood up and applauded , and last but not the least , every employee in Titan ( including casuals ) received four months additional bonus.
    Cheers , Thanks for sharing
    LRN

    ReplyDelete
    Replies
    1. Thanks LRN for sharing this inspiring story.

      Delete