MANAGEMENT SPECIAL: Guru Speak: Ranjay Gulati, Professor - Art of Subtraction

Guru Speak: Ranjay Gulati, Professor - Art of Subtraction





Removing costly features from a product or service is a proven way to go in emerging markets says Harvard's Ranjay Gulati

A few months after being sworn-in as the Prime Minister of India, NarendraModi announced that he was doing away with the Planning Commission. According to Professor Ranjay Gulati of Harvard Business School, it made perfect sense given the kind of world we are operating in today. “Taking decisions under extreme conditions requires a model of leadership where you need to improvise. The earlier model of planning and organising is no longer relevant -you can't rely on plans any longer,“ he says. This change in approach has a direct implication on leadership and decision making, whether you are a political leader or a CEO.

Gulati cites the lesser known story of the second nuclear plant at Fukushima -Fukushima Daini -which didn't blow up after the tsunami in Japan in 2011 though it was located barely 10 kms away. After the tsunami, there was one power line and diesel generator still intact, but three reactors lacked the power to achieve the cooling required to avoid the meltdown that eventually took place at the other plant. The site superintendent talked through the situation with his team, going over what everyone knew, and more important, acknowledged the evolving reality in which they were operating. The team worked through the challenges that kept coming up, resting only when the last reactor went into cold shutdown.

“In such a turbulent world, leadership is not about finding the right answer. It's about giving people confidence that you will eventually find the answer,“ says Gulati. For this to happen, it is essential for a leader to be flexible and open to adjustment. You can't get hung up on a business plan. “It can't be that `this is my plan and this is what my plan says and I will do what my plan says'. Plan is an ephemeral thing. You need flexible, adap tive leadership who can take decisions with incomplete information,“ he says.

Gulati was in India recently to take business leaders through a session on how they can grow their organisations profitably by focusing on customer centricity. In a competitive marketplace when you can't rely or lean on a superior product or brand, you need to be vigilant and align yourself with customers and connect with them in a meaningful manner. “Companies tend to fall into a competency trap and continue to focus on what they are good at and not what the customer wants,“ says Gulati. While Kodak is an obvious example, Volvo is another company that seems to have fallen into this trap. While the company stood for safe cars in 2000, now that safety features in cars are a given, it still continues to talk about safety. “Customer needs change rapidly and talking to the customer isn't always a solution. They may be able to articulate what their problems are but they do not necessarily know what the solution is. In a dynamic and changing market with more competition and greater choices companies need to learn how to maintain the edge,“ he says. One way for companies to survive is by playing in the middle. Organisations compete at different ends of the market, and often, it's the middle that gets squeezed out. However, in many emerging economies, the middle is emerging as the acceptable alternative. When looking for the acceptable alternative, ascertaining the threshold of minimum acceptance needs deep thinking. In a value conscious environment like India, determining the threshold becomes a huge play because of the size of the middle class. However it's also fairly complicated as it's a far more diverse segment. The idea is to find an acceptable alternative ­ the way Zara isn't high fashion, but it also doesn't cater to the lower end of the market. “Operating in the middle needs more sophistication and it's a hard task,“ says Gulati.

His advice then to leaders, is to learn to subtract.Not the basic mathematical subtraction they learnt in elementary school but taking out things from the business which don't add value. Addition is easy, but often companies end up add ing things that the customer doesn't really see value in.

Banks are the biggest offend ers, throwing in all kinds of freebies which customers don't really care about.

“Subtracting is much more challenging. It's about taking out cost, taking out features from a product or service. Companies are scared because they don't know what to take out,“ says Gulati. That doesn't mean it can't be done successfully. When SouthWest Airlines first came in, they took the travel agents out of the equation.Similarly, Micromax reduced camera quality to sell its phones at a lower price.

However, there's no universal answer how to get this right. The problem with subtraction is also that typically it is finance which is in charge of these decisions and they rarely look beyond the numbers.Meanwhile, the sales and marketing guys who have their finger on the consumer's pulse are averse to this idea ­ they love to add features. So it's very hard to drive growth without a keen awareness of customer centricity and understanding what the customer sees value in.

“The trade-off on costs, service and solutions is much more significant in the middle. Companies, especially in emerging economies, need to become more adept at this as this is where the growth is,“ he says. Mastering the art of subtraction to find this acceptable threshold becomes crucial then for companies that want to survive in the middle.

By Priyanka Sangani CD ET13MAR15