Wednesday, December 25, 2013

A closer look at Processes, and Innovation

For ages, the local kirana stores have served main stream for most families, rich or poor, across India. The success of these kirana stores depended on their owners’ understanding of the customers and their needs, in that locality. For most parts the owners did this understanding part exceedingly well. Customers on their part were mostly loyal to the local kirana store as they had grown to specific product brands which they would always find in these stores. The strength for the stores came in the form of stable price and predictable product quality coupled with the short term ‘faith’ loans they provided to their loyal customers. These loans which were mostly interest free and purely on faith played a major role in retaining the customers. The drawbacks of these stores however were the extremely limited product range and the sluggish response time to stock a newly launched product.

The Indian economic reforms which were brought out in the early 90s set path a big change in terms of how the customer shopped. The free flow of money meant customers were asking for newer and better products, fast. Frequent product launch became a norm and the product variety grew exponentially. Customers wanted to see and compare the products before they would buy.
This meant -
          1)      Customers were interested in newer and broader range of products than a predictable small range.
          2)      Product innovation, product procurement and product distribution (time to customer) had to be continuously and radically improved.
          3)      Product availability increased and customer retention became more important.  

All these meant that the local Kirana stores no more had a place in the locality or at least their share was reduced. To overcome these new challenges, the Kirana stores had to set aside their standard operating procedure and get into a more agile and innovative model to reach the customer.  
          1)      They had to widen their supplier portfolio to ensure every new product reached their shelves, quick.
          2)      Remodel their stores
          3)      And more importantly, use Innovative ways to attract the customer.

Stores which did not change mostly were either closed or saw a revenue plateau. The interesting aspect is that some ‘legacy’ Kirana stores continue/d to exist without any change,
          1)      Owing to the locality they were located
          2)      Or by serving those customers who were in a hurry and did not have time to go around a bigger retail shop.
          3)      Or maybe the owner was satisfied with revenue generated.

Having worked for more than a decade in IT outsourcing and knowing the working of many IT services companies; each having varied degree of adherence to standard IT processes, I tried to correlate the working of Kirana stores with some IT services companies. I first separated the IT services companies into the ones which have their own R&D and the ones which do not have their own R&D. When I compared the IT services companies which do not have their own R&D with a Kirana store, I found many similarities.  

Note – I have only listed a few similarities. They do not essentially mean one is same as the other. Also these are generic observations and should not be taken in context to any particular IT organization or a Kirana store.

          1)      IT services companies have a limited range of services (mostly based on the technology).
          2)      They follow a standard process (software development process) which helps them achieve a       predictable model leading to a standard output.
          3)      They know their customers and most often suit their processes to their customers. (For ex - change their finance calendar based on customer recoverable dates).
          4)      If a customer demands a non-standard way to execute a project or a technology that the IT servicing company does not deal with, the IT companies most often have to make changes to their internal process before they can serve the customer.

One point that stands high, in my opinion, which is not necessarily derived in correlation to the Kirana store, is the innovation that can happen, rather the lack of it, in companies which adhere to processes.
Having processes is good as they help give a predictable output but they also hinder innovation, in my opinion. Generating new ideas or finding newer ways to achieve objectives become extremely limited in a well-developed process environment. The reason for this obstruction to creativity is most often the process itself, because any well-established process will be tuned to identify and highlight risks. The process senses any new idea as a deviation and treats it as a risk i.e. essentially no new ideas or drastic changes can occur. If there is an idea, most often it is limited in scope or is mostly developed as an output for a specific requirement.

This, in my opinion, to a great extent explains why we rarely see an innovative product from a pure IT services company. (Indian IT servicing companies are forefront in following the quality processes often maintaining the highest ratings).

If you ask me is it bad not to be innovative, then my answer will be ‘No, it is not’. If you can make money servicing products, it’s still a perfectly good business model. Haven’t many automobile repair centers thrived only on oil changes and tire rotations? So will these pure IT services companies.

If the question is how long can an IT services company look at only services, then it is until the company hits the bell curve plateau. It is important for companies to sense the plateau early and change gears to get back on the growth line. The companies need to arrive at newer ways to increase revenue. It might be by broadening service lines, tapping new markets or by launching products. 

Do we need processes at all?
The simple answer to this question is ‘Yes, processes are required’. Remember innovation is not the end game. Putting the product to production and bringing it to the market in time determines the success of the product, and this requires stringent processes. Not having a set process in the production stage leads to disastrous results. So it is extremely important to have a set and predictable process in place.

It’s important to understand when are processes important and when can they be detrimental. It is also important for companies to understand that innovation is not a process and it’s not predictable. A company without innovation plateaus soon, much like those Kirana stores which avoided change.

~Narendra V Joshi

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