What got you here will not help you stay there

What is common between McDonalds, Nokia, Blackberry, Kodak, Flipkart, Indigo Airlines, Hector Beverages (Paper Boat) and Paytm? Honestly nothing except that each one of them has brought in path breaking innovations at different points in time. That is pretty much where the similarity ends. Of these, there is one set which forgot that it was their innovation which had enabled them to scale all the way to the pinnacle of their industries and started focusing on efficiency in reaping the benefits of what they had already achieved until they got completely wiped off, and there is the other set which would go down the same path if they forget that what them go them here would not help them stay there for long unless they keep their ears to the ground and keep listening to their customers.

That in fact is the dilemma between innovation and efficiency. When you are starting up new or when there is a crisis, focus on innovation and coming up with something new which will strike a chord with consumers and help you make money is rather pressing. But when the going seems good, there is an uncanny tendency to throw innovation and breakthrough thinking out of the nearest window and direct all attention to reaping the benefits of earlier innovation by bringing in more and more efficiency in the existing operation. Nothing wrong with that and in fact that is what would ensure that the company lives for the day but that is not adequate to ensure longevity 5 or 10 years from today. If out of the original list of Fortune 500 companies in 1955 only 12% exist in that list after 60 years, probability is that from today’s list of Fortune 500, 12% would remain after merely 20 years. Pace of change has accelerated many folds in the last six decades and if companies do not accelerate their innovations at the same pace, survival, let alone being in Fortune 500, itself would be at risk.

ü McDonald’s started way back in the early 1940’s essentially as a barbeque and burger drive-in restaurant. As the number of car owners increased in geometric progression immediately after World War II in the US, so did the business of McDonald’s like many other drive-in fast food restaurants. What has made McDonald’s survive for more than 75 years and increase its presence to about 120 countries with close to 40,000 outlets across the globe and a gross revenue of US$30 billion with a profit of US$5 billion? It is no easy achievement by any stretch. McDonald’s system is an exact science with a rigidly laid down process for everything which needs to be replicated. Its focus on Quality, Service, Cleanliness & Value remains unwavering in whichever part of the world they are operating. However, that does not prevent it from innovating in each of its markets. It introduces new products to serve new markets- McAlootikki, Paneer Salsa wrap in India for example. Strategy has been to pinpoint a market, devise an offering for that market, then codify the offering. That is, in a manner, they have been able to establish a balance between efficiency and innovation. Focus on innovation and once something new is there ensure that it gets executed efficiently. The challenge for McDonald’s would be whether they would be able to come up with healthy alternatives sooner than later as consumers preferences shift from fried to baked stuff and as consumers look for more organic variants.

ü Indigo airlines, an organization which did not exist in Indian skies just about a decade or so ago, is the largest passenger airliner on Indian skies today. It has increased its market share from about 5% just a decade ago to almost 5 times that number. That’s a remarkable increase in market share in such a short period of time and what is even more remarkable that its quest for market share has not come at the cost of its profitability. It is the only Indian airliner which has been profitable in an otherwise turbulent Indian skies. What has led to this phenomenal success of this organization in such a short period of time? There would be many nut primary amongst them was its ability to recognize the increasing need of the Indian consumer for cheaper and no-frills flying experience which would promise an on-time operations more than anyone else. As the per capita income of India rose by leaps and bounds over the last 15 years so did the enhanced desire for air travel for domestic customers. Yet these customers were not willing to pay for the frills and all that they were interested in was on-time arrival at their destinations. Indigo airlines understood this very need and created an entire business model around the same. Of course, once having identified the need, it focused on enhancing the efficiency of its operations to ensure that it delivered on its brand promise day in day out.

ü Nokia, in the year 2006 in India had a market share of almost 80% in the GSM & 55% in the overall mobile handset market. It was the leader by a mile and Samsung did not even have a double digit market share and iPhone was nowhere in the scene. Nokia had known long before others that as much as the functionality of the mobile handset was important so was the look and feel and it came up with attractive mobile phone handsets along with better and improved features which inevitable caught the attention and share of the wallet of the consumer. From a consumer’s point of view, besides the looks, the handset had to be sturdy so that it could be used all the time, it had to have a good battery life so that one need not go back to a charging station every few hours and it had to look trendy to resonate the persona of the owner. Nokia understood the Indian consumer very well and kept focusing on product development. It built on efficiency by investing in manufacturing much ahead of its competitors and it developed a wide and spectacular distribution network across a large country like India where one could buy a Nokia phone at quite literally an arm’s length. It was, no doubt, having the right mix of both innovation and efficiency. So what went wrong? Primarily, somewhere down the line it failed to recognize the changing needs of the Indian consumer (and maybe consumers across the world). It was no longer enough for the handset to be able to take pictures and be sturdy and have a flashlight, what was more important was whether the phone wan intelligent and provided entertainment. In other words, the consumers were looking for smartphones which besides being durable and all that stuff was able to be intelligent. Nokia kept focusing on the hardware and was completely oblivious to the change in operating system which it required. While the need of the hour was the Android operating system, Nokia continued with its Symbian operating system which had given it huge success in the past. As Samsung came with its smartphones and later iPhone was launched by Apple, Nokia started slipping and the hurtle down was rather fast. From having a virtual monopoly on the Indian mobile handset market in 2006, Nokia sold off its business completely in barely 7 years from then in September 2013. What had got them tremendous success was not their hardware nor their distribution system – it was their ability to understand the needs of the Indian consumer and ability to innovate to meet that. That is the precise ability they lost as they went for the proverbial tress while losing sight of the woods.

ü Blackberry, another great company of the last decade, has virtually ceased to exist now. BlackBerry was an innovative company that understood before other market players the smartphone concept and its importance for the future development of the telecom market. BlackBerry launched the first smart mobile phone – BlackBerry 957 – with Push email facility and integration functions with an enterprise e-mail solution. The Company registered 226 per cent increase in revenues by the end of 2005 compared to 2004. From slightly less than US$600 million revenue in 2004, it increased its revenue 3 folds in 7 years before its decline. Apple launched its first iPhone in 2007 and Google came out with its android operating system thus allowing Samsung and HTC to go aggressive on smartphones. Blackberry, which was considered as the best-in-class phone for emails and was the darling of the working class, tumbled down from its pinnacle at the start of this decade and has virtually gone out of business for all practical purposes. All because it ceased to innovate keeping in mind consumer’s changing needs and preferences with time.

ü Kodak was one of the most successful and innovative companies of the 20th century. It established a dominant position in the film business across the globe. However, it missed the shift towards digital cameras altogether. Final blow was the shift from printing photographs to sharing on electronically which did not require printing. Kodak kept focusing on photography whereas consumers were shifting to sharing photographs as the world shifted first to digital cameras and then the cameras went inside the mobile phones. When the going was great until late into the last century, Kodak considered innovation as “nice to do thing” but not something on which its life depended upon. It is not that Kodak did not try digital photography but did not give it the criticality that perhaps it deserved and it is also not true that Kodak did not realize the significance of sharing and it did venture in that direction as well – Kodak did acquire a photo sharing site called Ofoto in 2001. However, spotting something and doing something about it are very different things. Kodak filed for bankruptcy in 2012 and that marked the end of an organization which had been so successful just a few decades ago and had been a household name for decades across the globe.

ü Hector Beverages, the makers of Paper Boat, has created and marketed a product which has become a instant hit with the urban Indian consumer. Paper boat’s brand promise is based on two broad aspects - drinks and memories. From the actual product- which includes much loved Indian flavours like Jal jeera, South Indian rasam or golgappe ki pani to the stories associated with them, the brand hits all the right notes and leaves a very happy after taste in the minds of the customer. The geographical target was crafted with a view to reach out to communities that had left their native homes to other parts of the country in pursuit of work and domestic demands. The Company has grown leaps and bounds in the last few years and has grown in excess of 50% per annum, albeit on a very low base. The challenge for the Company is to make money. While its top line has shown tremendous growth but so has its losses. If they are not able to turn profits soon and in a healthy manner, survival itself could come under question. Hector Beverages has to really think and think hard how the brand becomes a profitable one besides being a household name which it has become.

ü Flipkart, the pioneer of e-retail in India, has been losing ground in the last couple of years. This was the Company which introduced e-retail in India way back in 2007. They took the e-retail model from the US and adapted the model for India with concepts like “cash-on-delivery”. The credit for initiating the revolution in retailing in India about a decade ago does go to them without a doubt. Quite rightly they shifted focus on efficiency to develop scale of operations and market size once having introduced the model. The results were for all to see with the valuation of the company going all the way up to US$ 15 billion in just a span of few years. However, lack of any new innovation in the last 3 years does not augur well for the Company. It has been losing money quarter on quarter and so has been its market share. Unless the Company is able to come out with another innovation and do so rather quickly, it may well be on the verge of hurtling down a slippery slope.

ü Paytm has become a household name in India, especially in the last few months post de-monetisation. A company which has a history of just about 6 years and was a complete unknown entity just a few years ago Agreed that circumstances in the last few months have enabled them to a very large extent but then it is all about being in the right place at the right time. They understood a latent need of a large proportion of Indian consumers of the need to transact using mobile wallet and with growing usage of mobile phones and smartphones seized the opportunity of creating a market for m-wallet as it is called. As on date, there are about 200 million registered users of Paytm with one in every six Indians using the same and that’s a tall order for any company which started just a few years ago. What needs to be seen is whether the company can continue to innovate while it focuses on enhancing efficiency of its existing operations or it just gets engrossed in the latter and forgets about what got it the place of prominence in the first instance.