GURU SPEAK — JAGDISH N SHETH

Strategic imperatives

Dr Jagdish (Jag) N. Sheth

Dr Jagdish (Jag) N. Sheth is the Charles H. Kellstadt Professor of Marketing in the Goizueta Business School and the founder of the Center for Relationship Marketing (CRM) at Emory University. He is known for his scholarly contribution in customer satisfaction, global competition and strategic thinking and has worked for industries in the US, Europe and Asia. Year 2002 will see the release of his latest book, ‘The Rule of Three’, co-authored with Dr Rajendra Sisodia. Prof. Sheth spoke to The Financial Express on how to plan for recovery. Excerpts:

On how, with silver linings on the horizon, companies should plan for recovery
The best way to plan for recovery is to treat the economic downturn as a ‘wake up’ call and seriously re-engineer business culture and processes from status quo management to aspiration management. This may require change at the top.

On how to manage for recovery even as the slowdown phase is still evident
The fundamental challenges to recovery are management inertia and internal resistance to change. Most good companies fail because they are either unable or unwilling to change when the drivers of business, such as technology, competition, customers or shareholder expectations, have permanently changed.

On the major challenges for corporates this year
Indian corporates will face at least three major challenges in the coming year. First, is lack of scale to be globally competitive. Indian industry has suffered in this regard due to the presence and protection given to small scale industries and the unorganised sector. Second, is the issue of quality. Indian corporates must invest in quality to be globally competitive without increasing the cost. The only sure way to stop global competition is to offer better quality products and services at lower cost; and at the same time be profitable. Finally, Indian corporates must invest in branding. Brands (product or corporate) stand for reputation, quality and positioning.

On managing diversifications and sticking to core competence
It is very difficult to focus on the core business and diversify at the same time. In fact, I will go one step further and suggest that the old conglomerates model of highly diversified domestic Indian corporates is not sustainable in the face of global competition and liberated markets. You cannot find multiple fronts of competition. You must select your battles. But this does not mean you cannot diversify at all. You can diversify into related and value added diversification on a selective basis. If you must diversify from the core, then the best strategy is to separate the core from diversified business, and keep them as stand alone entities both managerially and equity-wise. With all these, it is very difficult to create a balanced corporation that simultaneously manages costs and improves quality and customer support. The only way to do it is relentless leadership at the top and investing in future leadership of the organisation.

On cost management
Cost management is an eternal challenge in competitive markets. Therefore, it is not enough to benchmark and target. There is no finish goal line. It is simply a continuous improvement process with no limits. Yes, cost management will be a key challenge next year. One of the ways to manage cost is through global sourcing.

On the role of government
The best way the government can help is to eliminate protectionism and reduce regulatory bureaucracy. However, government should not provide or encourage subsidies or slow down competition even if it results in industry consolidation and corporate casualties.

On managing globalisation
Indian corporates are already facing global challenges with respect to its domestic markets against global competition and in their efforts to capture world markets. They must simultaneously defend the domestic market and expand internationally. This is what Japan, Korea and Taiwan did successfully. And this is what both China and Mexico are doing today.

India’s economy is permanently linked to global economy since the Licence Raj has been replaced with free markets and WTO participation. What the country needs to do is to focus on its resource based advantage and dominate several key industries on a global basis. It can disengage from the global influences surprisingly by having a much stronger global presence. In other words, the best defence is a good offense!