Devangshu Dutta
October 16, 2007
BOOK REVIEW: HIDDEN IN PLAIN SIGHT: Erich Joachimsthaler
In the midst of extensive or frequent civil works, fluorescent high-visibility clothing contributes to the invisibility of the individual, and can serve as a superb disguise. Similarly, in the midst of extensive research and in-depth analyses, basic insights can go unnoticed.
Erich Joachimsthaler has plenty of examples in his book Hidden in Plain Sight to drive home the point that attention to stuff that is not so obvious to competition can lead to brilliant success such as Sony’s growth through innovative products (the WalkmanT, for one) that met unexpressed consumer needs. Conversely, an inability to spot this can bring even the leaders down, illustrated once again by Sony’s loss of leadership in mobile personal entertainment to Apple’s iPod.
The challenge for companies is to uncover the hidden opportunities by looking into their business from the outside rather than the usual inside-outwards view, and by accurately defining the ecosystem of demand. For most management professionals, this will be harder than it seems.
The exercise begins with the question, “Why didn’t we think of that?” This is intended to remind the reader of how the obvious escapes attention as we sink deeper and deeper into complex analysis and in developing ever more complicated scenarios. And Joachimsthaler sets out a framework that he believes can help larger companies to innovate in a structured way.
Of course, the reader may feel differently, and quote George Bernard Shaw who divided the world into two kinds of people, the reasonable and the unreasonable, and credited innovation to the latter. Or one may agree with Henry Ford who, apparently, felt that customers did not really know what they wanted. He is reported to have quipped: “If I had asked my customers what they wanted, they would have said, ‘A faster horse'”
Yes, at the cutting edge, innovation may seem to be more about the innovator’s creative desire to do something different, and less about “meeting customer needs”. Yet, it is the unmet and, more importantly, unexpressed customer needs, that offer the greatest source of competitive advantage.
This is why innovation seems to spring more from small companies, or companies that are started up around a specific idea that is unique or new. In such a small company or a start-up, typically the founder/innovator/inventor is drawn from the same pool as the target customer. Therefore, while they may be addressing a need they feel acutely, the innovators are unconsciously plugged into their customer’s unmet/unexpressed needs. There are seldom any silos; the whole team is generally focussed on the one problem to be solved.
However, as companies grow larger, functional specialisation emerges — division of labour based on skill-set is deemed to be a more efficient way of doing things. The design folk design based on “trends”, the marketing folk market as they know best, and the manufacturing folk produce to specification and the “demand” generated.
With this speciality of skills taking over, there is a growing disconnect between their efforts to dig for insight and the gold that is “hidden in plain sight”. While data is available in abundance, real knowledge is scarce, and insight just gets buried in well-structured processes and hand-offs between functional silos.
This trend has only accelerated in the past 15-20 years with pervasive information technology that enables the mundane operational process to the most strategic. Never before have management teams been so focussed on information and analyses. As businesses grow, data warehousing and data mining are defined as the competitive cutting edge, pushed along by interested parties (including IT solution providers, but that is another book!).
However, in reality, excessive information is increasingly passed off as knowledge. An inward focus on the management team”s own objectives is often disguised as insight gained on the customer or the market. Functional specialists analyse the market, the latent needs and the gaps in their own way, and if the company is lucky to have some generalists, some of those dots get joined to form a more complete picture.
It is in reminding management of this reality that Joachimsthaler’s book provides a tremendous service. It presents a well thought out model named, curiously enough, DIG – short for Demand-First Innovation and Growth. The three elements laid out sequentially begin with a framework for defining the demand landscape, identifying the opportunity space within it, and then creating a strategic blueprint for action.
Joachimsthaler’s process to define the demand landscape requires managers to put themselves in the customer’ shoes – a process demonstrated with examples from Proctor and Gamble and Pepsi”s Frito Lay. Using the customer’s goals, actions, priorities (there’s the “GAP”), needs and frustrations, demand clusters can be developed and filled out with additional research. The strategic fit between these demand clusters and the brand can then feed into the next steps of identifying the opportunity space.
The filters, or lenses, as the author calls them, are the “eye of the customer”, the “eye of the market”; and the “eye of the industry”. At every step, assumptions and presumptions need to be challenged. Using these lenses, the sweet spot or spots and the growth platforms can be identified, and extrapolated into the strategy. On the downside, the book is clearly about a framework, which may have been best detailed in an article, rather than being stretched over a book.
The author does stress at one point that it is not about “brainstorming”, but about structured thinking. However, he seems to do this in a tone that suggests brainstorming as something vaguely distasteful due to the lack of directional structure.
While examples from the companies studied keep the text alive, yet in places one struggles to correlate the examples with the framework. Indeed, there may well be too much structure to this book, and not enough examples of how inter-disciplinary thinking and functioning can actually produce sustained innovation.
Understanding the model itself can be a fairly involved process. The best way to tackle it may be to approach it as a project, and use the DIG framework as a how-to guide for a real problem. If you are a structured, methodical, sequential kind of manager and possibly work in a large company, the book could provide tools to put that thinking to work for innovation in a team. On the other hand, if you are more of a “people person”, you may want to leave this book alone. [For more, here’s the book on Amazon.]
Devangshu Dutta
March 24, 2007
The idea that the “younger generation” is from another planet is age-old, and no different from the notion that “Men are from Mars, women are from Venus.”
However, there is certainly a fundamental cultural shift that is taking place at work that is a product of the social, political and economic changes of the last 20 years or so.
In India’s case, I call this Generation-C (C for Choice). The 20+ year olds or younger who are entering the workforce in India are ones who were born after the introduction of color television in India (1982), who have grown up with the explosion of media options, who have always seen multiple models of colorful cars running around on the roads. They’ve savored the fruits of liberalization during their childhood. Similar shifts were happening in China, having started a couple of years earlier — and Eastern Europe — and South Africa — and, of course, the US and Western Europe.
There is absolutely no doubt that these changes mean something to the attitude that this generation brings through the door, when they walk into work. Expectations of the young are always high; this generation’s seem even steeper.
Secondly – it sounds trite – technology has definitely had a significant impact in how truly fragmented we can be as an organization and yet be functional. Rigid attendance rules need apply no longer. Telecommuting is a reality, if not the norm.
However, however…these changes couldn’t happen without the previous generation@work loosening their shirt-collars and work-habits somewhat. That generation – the baby boomers and Gen-X in the case of the US, other labels in other countries – have challenged earlier norms, started the changes rolling, and Gen-Y is building on them.
“Plus c’est la meme chose, plus ça change.”
Devangshu Dutta
February 7, 2007
In my view, India and China are two countries that can change companies.
Most analyses of “consumer India” are led by affluent analysts primarily based in the biggest cities. These incomplete analyses are followed avidly also by international companies to draw up their India strategy. Most do not even scratch the surface of the diversity of the country, let alone customize the approach.
There are reasonably large and distinct consumer segments in India–many are alien to most companies based in the developed markets, because they have been extinct there for several decades.
The companies that seem to be succeeding are the ones who don’t come in expecting a billion-plus market (or even a “percentage” of that) hungering for their brand/product just as it is sold in the US or Europe. They are the ones who take the time, and show the patience, to understand the specifics that their target segment in India is looking for.
They are the ones who are prepared to to the extra mile in tailoring their offering to India. Some may even launch new products in India and then take them elsewhere.
If you’re prepared to discard the filter of the history of developed markets when looking at India, then opportunities abound.
Devangshu Dutta
August 31, 2006
Mall Mania, Mall Madness – alliterate as you will – it’s a phenomenon that is certainly taking over the newsprint, airtime and, quite possibly, your neighbourhood.
A study published in 2005 estimated that by 2007 over 360 shopping centres would be operational around the country, with approximately 90 million square feet. A meagre increase of 0.08 sq. ft. in per capita shopping space doesn’t seem like much in a country of a billion-plus people.
But most of it is concentrated around the big cities – Delhi and Mumbai account for more than half of the total space projected, with the other metros and mini-metros such as Bangalore, Pune, Hyderabad etc. taking the total up to 90% of the space.
One may argue that money (real estate development) is only following the money (consumers) – after all, there are more consumers and higher incomes in these major urban centres.
But why would mall developers expect Delhi’s consumers to suddenly switch en-masse to shopping in Gurgaon, where 6 malls are already active in a short distance of about a kilometre, 3-4 more under hectic construction in the same area and several more scattered around that suburb? Or why do Mumbai’s developers expect people to drive several kilometres from the suburbs on a regular basis to the centre of town to grace only their shopping centre? It is only such expectations that can explain the gold rush mentality that is overpopulating certain areas with shopping centres and malls.
While per-capita availability of A-grade shopping real estate looks really low, in certain areas we foresaw oversupply, with developers thinking in terms of “property” rather than as retail space managers.
Most shopping centre developers have carried out only cursory studies on the customer catchments that their tenants will be expected to live-off. As a result, conversion of footfall into sales is low for the tenants, except for food-courts, which are benefiting from the window-shoppers rounding off a day or an evening of roaming the malls with a meal. There is a lack of differentiation in product and service offer between the shopping centres and, with nothing distinctive on offer, repeat visits and – more importantly – repeat purchases are a challenge.
Developers in smaller towns seem to be following the same model, scaling up space or scaling it down based on the capital cost vs. expected capital gain and tenancy income. They are pitching for much the same brands as tenants as the developers in the bigger cities.
There is competition for customer traffic between the shopping centres and large stores (such as Mumbai’s newly opened Hypercity, across the street from InOrbit Mall, both developed by the Rahejas), between the shopping centres and the traditional high street, and between large format stores and speciality malls.
For the most part shopping centre development in India in the recent years has been seen as an aspiration to be fulfilled – hence, the most important factors have been the size of the shopping centre, quality of fixtures, marquee tenants who can provide the glamour or the legitimacy). The focus has been more on the “positioning”.
The business will begin maturing and will begin taking developmental leaps forward when centres are seen as commercial infrastructure to be planned with the end-consumer in mind, and to be serviced over a certain lifetime.
Until then, we can look forward to announcements of many hundreds of shopping centres, the launch of a few hundred, and the conversion of many of those into uses other than as shopping centres within a few months or years of their launch. And for investors also it might be a game of Roulette rather than Patience.
Devangshu Dutta
March 3, 2006
In February, just before the mega-blitz of “India Everywhere” at the World Economic Forum, the Indian government took a step forward. Amidst shrill outcries from its coalition partners and domestic anti-FDI lobbies, it finally decided to bell the cat, and let foreigners invest in retail again!
About a month has passed since the cabinet announcement, the dust has settled, and it is a good time to consider what has happened.
Since the initial euphoria of the early-to-mid 1990s when international retailers entered the market including companies such as Benetton (50% JV) and Littlewoods (100% subsidiary), this revised policy provides the first opportunity for large global companies to participate in the Indian market’s growth.
The key questions being raised are:
What Is Allowed, and Who Might Enter?
Let’s first deal with what the government has actually allowed. In a nutshell, a foreign retailer can set up a company in India in which it holds 51% equity, the balance being held by an Indian partner. This subsidiary can operate retail stores in India under one brand name. All products in the store must also carry the same brand name, and this branding must have been applied during the process of manufacturing.
This means that, as yet, a foreign department store selling multiple national and international brands cannot set up its own 51% owned operation in India. Nor can a supermarket or hypermarket chain like Wal-Mart, Carrefour or Tesco, sell their wide range of products under any name but their own, if they decided to take a majority stake in a retail operation.
In theory, you could have a Wal-Mart store selling Wal-Mart cola (not Pepsi), Wal-Mart butter (not Amul or Mother Dairy), Wal-Mart chocolates (not Cadbury’s), Wal-Mart cookies (not Britannia or Sunfeast), Wal-Mart T-shirts (not USI or Duke). You could have Tesco jeans (not Levi’s or Numero Uno) or Carrefour luggage (not Samsonite or VIP). This obviously dilutes the consumer proposition of the store, which may then have to primarily focus on a single-point agenda – such as low prices – to draw consumer footfall.
On the one hand, the cabinet decision clearly allows companies such as Starbucks and The Body Shop to step in with a majority stake, provided the branding is clearly by the primary name (store name) – thus, you may not be sold the famous “Tazo Tea” in Starbucks, but get “Starbucks Tea” instead.
However, to a brand such as Starbucks, this policy change is significant as its international expansion is largely through owned operations, especially in potentially large and strategic markets such as India. Starbucks would now have the option of not only controlling the retail operation through a 51% ownership, but also the raw material sourcing, storage and wholesale operation.
On the one hand, this may mean nothing to a retailer such as The Body Shop, whose international strategy in Asia has been largely driven through franchise relationships. This is true now of India as well, as The Body Shop announced its master franchise arrangement with Planet Sports in India.
A retailer such as Gap would need to set up separate retail operations for Gap, Old Navy, Banana Republic and Forth & Towne. There obviously are ways to consolidate operations even with the diverse retail corporate structure, but it does mean that the foreign retailer will be operating several corporate entities in India.
An existing company such as Benetton does not benefit from this change in regulation. In 2005 Benetton actually increased its stake in its joint-venture to 100%, but in the bargain had to forego the stores it was running. Its current network comprises entirely of franchise stores, and will have to remain so, unless Benetton reduces its stake to 51% in order to be able to run stores in India, which is highly unlikely.
Other existing international brands such as Levi Strauss, Adidas and Nike are not retailers in themselves, and are not dramatically affected by the change in policy at all. All of them operate subsidiaries in which they have complete or majority ownership. Brands such as Tommy Hilfiger, Wrangler and Lee are also present through licence or franchise relationships, and unlikely to change their strategy.
Will Global Retailers Come?
All of this obviously raises the question whether government regulations preventing foreign investment in retail were or are actually keeping foreign companies out of the Indian retail market.
The answer to that is both “No” and “Yes”. The reason is that companies that are looking at international expansion apply criteria that are specific to their own business needs which can lead to very different evaluations by each company.
Laws allowing or preventing FDI in retail are only one of the several factors that any global retailer would look at, when considering a market.
Other factors, such as various market options possible at the time, the state of development in the market, existing sourcing and other relationships, scale and scope of investment required vs. the rate of return expected, the risk factors involved, and the retailer’s own business strategy, all play a part in their decision-making process.
Thus, in one company’s case India may be the hottest market in which it would like to open a store at the earliest possible date this year, while for another company India may be of interest only after 5-7 years.
Opening single-brand retail to foreign direct investment, therefore, is at best an encouraging signal that the government has provided. It is unlikely to prompt international retailers to look at India any sooner than they might otherwise have.
The second key issue is whether FDI itself is of any consequence to whether the retailers enter India. This again is related to the individual retailer’s own strategy and business context, as well as how they perceive the risk-return ratio.
Thus, while China may not have any restrictions on foreign investment in retail, western retailers may still prefer to go with a local partner due to the differences in cultural and market nuances. Even in other unrestricted markets international retailers may prefer to enter through licensees or franchisees because the effort and investment in setting up their own company may not be compensated by the size of the opportunity, or their own investment strategy may not be in line with setting up international subsidiaries.
Some companies such as Wal-Mart, Tesco, Gap and Starbucks prefer to invest in international operations themselves, as ownership gives them a higher degree of control over the business. Of course, both Tesco and Wal-Mart have set up joint ventures in markets that are starkly different in cultural and business norms from their home markets but, by and large, where feasible these companies prefer majority or 100% stake in the business.
Other companies, such as Mothercare, Debenhams and The Body Shop, have expanded their international presence through franchises. Their premise is proprietary product and an enormously powerful brand that translates well across cultures. These companies have taken the less intensive route of franchise. In India, too, they have signed master franchises. Mothercare has assigned master franchise rights to the Rahejas’ Shoppers Stop. Debenhams and The Body Shop have both signed up with Planet Sports (soon to be renamed Plant Retail), which is also the franchisee for Marks & Spencer.
Thus, while allowing FDI may help some companies, it is unlikely to have investors beating down the door in a rush to enter.
What Does FDI in Retail Mean for India?
Permission for foreigners to invest in retail businesses in India obviously mean different things to different stakeholders in India.
For real estate owners, especially shopping centre developers, new entrants are always welcome, since it provides a wider basket of brands to present to the consumer, and the opportunity to differentiate one shopping centre from another.
To existing retailers, it does mean potentially more clutter in the market, possible higher marketing expenditure for them to maintain their position. However, it also means that more players can encourage the growth of the market, which otherwise can end up looking stale and in-bred. Brands that are entering the market for the first time can also bring fresh ideas in terms of merchandise, store planning and display, advertising etc.
To the question of whether Indian retailers are prepared to handle the competition, I would say that, while global best practices help, retail is a uniquely local business. Indian retailers who bother to listen to the consumer and constantly upgrade their own business are possibly in a stronger competitive position than a foreign brand that wants to impose its own alien sensibility on the market.
For suppliers, new brands bring in new avenues for business growth. Many of the international brands will look to increasing their sourcing from India, to take advantage of local labour costs and skills, or to down-play the disadvantage of duties on imported merchandise. Thus, especially for suppliers of fashion goods this is definitely a growth opportunity. Retailers might even prefer to work with the supply base from which they already source for their operations in other markets. Thus, the growth opportunity exists for exporters – the question is how many of them are willing and able to make the transition to begin supplying locally.
Not only do new retailers bring the prospect of increased business, but also the possibility of better systems and skills, improved product development, and in all, an opportunity for the supply base to upgrade itself. This will certainly have a positive fall-out for exporters, since their business is likely to become overall more competitive globally, too.
Let’s consider another stakeholder, who we tend to miss – the government itself. Organised retailers, including global companies, tend to be more constrained by law than a retailer from the unorganised segment. Based on that assumption, a large international retailer (and his Indian counterpart) will set up a local company that will carry out business by the book, recording all sales and purchase transactions. All local sales and purchases will be subject to VAT and sales taxes, while all imports would be documented and therefore subjected to import duties. All of this means more revenue for the government.
On the other hand, do foreign retailers pose a threat at all?
Well, there is certainly a threat to those retailers who insist that the market needs to remain structured the same way that it has been for years, and who refuse to upgrade their own business. There may even be a threat to the large Indian corporate retailers who are competing on the basis of their scale relative to the rest of the market. With the presence of global retailers with deeper pockets, these large Indian retailers will no longer be the big boys on the block. But the positive outcome for the many seems to outweigh the negative outcome for the few.
What I would certainly like to see is how quickly the government translates the promise of opening into a concrete plan that can benefit the Indian consumer, the Indian supplier, the Indian real estate market and the government itself.
