The changing business paradigm and its impact on Indian SMEs
The changing business paradigm and its impact on Indian SMEs in 2010
It is not the fittest who will survive the change but those who are having the ability to adopt to change – Charles Darwin
Understanding the change that is hitting all of us and managing it has become almost the primary task to survive as a business enterprise
The current change that is engulfing every industry with market volatility, rules being made and broken on almost daily basis, we are witnessing unprecedented churn that will bring in new breed of start ups and many of the old will sink. Many more even in the fortune 500 may not live to exist in the next 5 years. This is not to be mistaken as a passing storm but a permanent changed weather.
Socially people are waking up to the fact all that we have known in the last 60 years and identified ourselves with in terms of prosperity, life styles, challenges, dependence, status symbol etc are completely disconnected with our natural support systems.
Across the coffee table I find the discussion on ‘Greed’ quite intriguing as this is one of the causes of the current situation. ’Greed’ technically means when one has enough one still aspire for more and then get caught into the more and more and more like a bottom less pit. In this state of mind we get into a situation where the greed overtakes the available resources thus a self destructive imbalance..
The idea of making profit out of an activity is Dharma as long as its within the fold of replenishment but when we leave that and drive after more and more profit with little responsibility to the resource and limit our motives only to our enterprise or our compound walls then it becomes Adharma, thus creating an imbalance in the economic cycle.
That’s the reason enterprises driven to grow faster and faster have finally ended up outgrowing their business resources and are way laid today like (GM) General Motors, Lehman Brothers, Enron, Author Anderson, PWC, AIG and the infamous Satyam computers before the acquisition by Mahindra Tech. Many global brands are being bailed out by the governments for the sake of stability in their economies and investor confidence. These are not an isolated case.
There is growing need to unclutter our habits and life styles to go back to our basic values systems. We have even forgotten the small pleasure of life like a garden, family togetherness, eating habits and search for the missing “thing” in Shopping malls. To bridge the real necessities and build distinction of the ‘Greed’ element. Minimize credit cards, mortgage loans, credit facilities which are nothing but the vicious loop if not handled carefully. The question is how one can be careful at all times without weak moments of decision making that too in the midst of myriad distractions. Therefore seeking happiness in simplicity and self reliance becomes evidently of intrinsic value .
Life cycle of organizations were predicted to be 12 years in 2001 and today in 2009 its now come down to 5-6 years. That means any organization with a business model can survive or exist for only 5-6 years now in the current rate of market dynamics if they don’t manage to re-invent themselves or innovate to the next feasible level.
Business ethics and business dynamics have changed forever.
We are now going back to basics in both organizational structures as well as the way we conduct a business.
The HR of today are with the dilemma as we are now a competency based workforce (like in the later Vedic period) .But the values and the life styles known in the last 60 years cannot be applied on the generation E (those born in 1990s).HR practices and performance systems were structured based on the previous generation values. The HR heads (generation Y and X) don’t have a clue as to how to handle the new breed who have more information than the peers and different set of value system. They have wide access to information but low retention power. They are more inclined towards quick fix approach than long term. They are more individualistic than team worker. Passive acceptance has been replaced by rebellious attitude sprinkled with consumerism.
Flexi time means they can walk in their Bermudas to office with result focus and also enjoy the best of life pleasures. The performance management systems of today may not be relevant to their work culture. They are islands of mini America and Europe found everywhere in our cities. A manager can survive with them if he /she enjoy good feedback. In the same manner a trainer or a teacher can survive only with good PR skills amidst such a crowd. The ‘Guru Shisya Parampara’ appears like an echo of the past with increasing consumerism approach in education as well. The new breeds are loud, aggressive, an impatient lot who look upon more to the glamour world as role models. The biggest challenge is making them stick to the organization.
Rules are being made in chaos.
Only to be broken by another
Parents from the middle class families do not encourage children into IT any more. As was the craze from last 20 years
In the next 10 years world over all the economies will slow down as the population growth is already negative. Economies including China will have heavy population of pensioners to run the economy.
While India will have a surplus youthful population of 47 million unless we get into any natural disasters.
How will we manage this kind of population?
We must create opportunities to engage the skills of the population in terms of self employment and job availability out of industries that don’t even exist today.
The Perma frost in Siberia has kept large and heavy reservoir of methane which is 20 times stronger in green house effect as compared to CO2 buried under the soil from ice age. Now they have started to Thaw...
No economist on this earth or scientist or any kind of analyst can accurately predict its impact on the world and the way mankind will be affected once this deposit of methane gets released to the atmosphere.
We are already facing failed monsoon, erratic rain pattern, failing crops, soil degradation, farmers migrating to cities in hordes giving up their occupations, food crisis, and unprecedented natural calamities.
Suddenly environmental sustainability is an imperative for all businesses, hitting at their strategic cores with the threat of soaring energy prices, along with the need to be accountable for carbon emissions and to manage the potential risk of not minimizing greenhouse impact.
Once running an environmentally friendly business was simply a socially responsible way to behave. It was feel-good stuff that enhanced a business' reputation, warmed the hearts and minds of customers and shareholders and proved a handy promotional angle as well. But it was optional.Not anymore. Climate change and environmental sustainability made a mega-leap over the past year or so. Its urgency was highlighted by a combination of frightening science, heavyweight spokespeople and an alignment of globally powerful governments committed to cutting greenhouse gas (GHG) emissions, in particular carbon dioxide (CO2), in what may be an uncomfortably tight timeline.
There's not only the issue of ensuring a healthy, habitable world for future generations, but also some serious commercial realities to consider. As part of the supply chains of bigger businesses, smaller players will also need to minimise their GHG emissions, if not strive to be carbon neutral. Although regulation is not currently forcing them to get their environmentally sustainable houses in order, the marketplace will, insist the experts.
In a short time, all businesses will need to know their carbon footprints or run the risks of others not wanting to do business with them and putting their shareholders and customers offside. What's more, companies will need to know not just the impact of their operations but also the carbon footprint of the products and services they are selling as well, so purchasers can factor these into their own carbon calculations
The way to calculate your carbon footprint
This can be as straightforward as using one of the Australian greenhouse office calculators applicable for smaller businesses.
Calculators differ for office-based and hospitality businesses but include standard emissions categories:
• Business travel (by vehicle, public transport and air)
• Office space and contents
• Waste, water and sewerage, and food
The calculators work on the rupee/USD spends or quantity purchased in a particular timeframe.
Defining the scope
Scopes developed by the World resources institute for the GHG Protocol are used as the definitions for conducting audits.
Scope 1: Emissions are direct greenhouse gas emissions from sources that are owned or controlled by a company, such as fuel combustion and manufacturing processes.
Scope 2: Emissions are indirect emissions associated with the generation of purchased electricity.
Scope 3: Emissions are indirect emissions that arise as a consequence of the activities of a company but occur from sources not owned or controlled by the company.
The impact on the business is very huge by Global warming. Most of us are still in the slumber and are bound to be taken unaware.
Petrol reservoirs now being discovered are the scanty level deposits as the larger ones are found first and they are already depleted. We have only another 20 years of life cycle to see petrol. Coal is fast getting depleted so in another few years we will have to struggle to run our GRIDs for power generation as India’s over 80% power generation comes from thermal energy.
Without power supply how will India support its IT capital like Bangalore which uses huge supply to keep it going? Where people leave their systems on for 5 days a week and 7 days a week for the central AC .Are we making arrangement to change over to Green Energy – Solar, gas fired digesters, wind energy, bio mass etc
The Karnataka government has already taken action on one year regulated power cut and austerity measures to face the severe shortage in supply as against demand.
In the next few years we need to see the growth of small wind energy options atop buildings and multiple energy storage options via bio mass, solar, wind energy. The Government will have to give high incentives and encourage innovation where we shall have retailing of energy supply as cheap as Lemon juice being sold on the streets of India. This is unthinkable now but so was the mobile service in 1995-7 .Today we are speaking at 50 paise per call as against Rs 18 per outgoing call in those days.
What is in it for the SMEs
With the wrecking ball of recession battering the world economy, Indian small and medium businesses (SMEs) have started cowering in bunkers. They have stopped talking about growth; its mention now seems to generate a cynical smirk.
Yeah, businesses are facing great difficulties everywhere. The world's strongest economies like the US, Japan and Germany have already sunk into deeper recession while many others are just on the verge of an economic doom. Some of the world's biggest business lions are lying on deathbeds while thousands of SMEs from all over the world have already taken rest in their coffins!
In India too, the situation seems not to so well as everyone is harping on the fear of a would-be recession and our policy makers are warning that the impact of a global slowdown could be more severe in coming days. Already, some industrial sectors like real estate, IT and textiles have started feeling the heat of a slowdown.
How many Indian Industries will be forced to shut down or shift to the new emission level?
We are sitting on a time bomb!!
How do we stay competitive in business and survive in these uncertain times and give up the baggage of the last 60 years of Industrialization and change to a new world order that is evidently in the making whether we like it or not.
The illiterates in the next decade will not be those who cannot read or write but those who are unable to un-learn and re-learn.
How to survive this
Step one – Analyze
1) Understand the nature of the downturn as this one is a long one. Japan in a similar situation in 1991 took 18 years to stabilize. USA and its dependent world economies may not take so long but surely it will be a long journey out of the tunnel.
2) Loss of competitiveness due to currency rate volatility. There is strong possibility of US Dollar being replaced as the world’s sole currency of transaction shortly which can throw the international trade into chaos for some time till EU Dollar take over.
3) Loss of consumer confidence
4) Heavy burden of consumer and corporate debt
5) Poor management skills within indigenous industries
7) Fear driven market knee jerk sentiments
6) Poor data Infrastructure
8) Unrest in employees
9) Purchase Orders being kept on hold and shrinking market share
Step Two - Measures
Unprecedented situations require extra ordinary solutions. Present challenges call for
1) Deep introspection for selection and adoption of remedial measures.
2) Extensive cost cutting,
3) Campaign to repeal outdated laws, rules and procedures,
4) Strict adherence to basic norms appears desirable.
5) New acquisitions, partnerships and markets must be explored and successfully tapped
6) Efficiency must be rewarded.
7) Adherence to ethical norms
8) Rigid quality control would certainly bring out the winners.
9) Plan a response that can reduce the effect of the recession.
10) Invest in Management education; promote business health checks, business mentor schemes.
11) Reduce bureaucracy streamline government services
12) Invest in IT infrastructure
13) Utilize tax planning to reward internationally focused business and embryonic strategic businesses.
14) Support entrepreneurship. It will play an increasingly important part in re-energizing our economy. It is the engine of growth, jobs and opportunity. Commercial finance providers must then be supportive in providing access to facilities that keep pace with growth.
15) Support and expand business investment schemes frugally.
16) Relentlessly innovate to find better way of business practices and develop business cultures that competition cannot easily replicate.
17) Shift from Cluster management to collective management. Use your resources to survive as an industry and not dwell in isolated islands by active industry participations and associations for sharing solutions; market information and brainstorming.
18) Smaller enterprises can emerge stronger and adoptable as they are able to migrate to new business models very quickly. Virtual teams, teleconferencing, skype VOIP can replace the way business development functions across different geographical territories and still remain price sensitive.
19) Every recession has created a new set of entrepreneurs and industry trends so let not the fear of the situation numb the SSI units. Stuart Watson, partner at Ernst & Young recently said: “The current environment is creating opportunities for entrepreneurs. It is easier to hire skilled labour and find available premises to let for new businesses. Those most likely to succeed are those with small start-up costs, quick routes to market and most importantly, those that will deliver to customer’s cash savings. Microsoft was created out the recession of 1971
Here are some inspiring examples: The US passed legislation in 2007 to phase out the bulbs with high emission by 2012 when there was no alternate market that even existed. At that point of time it sounded absurd. Today we see innovation having found a solution in two years time with many innovative products that have rolled out already which are not only the old bulbs invented by Edison but also meeting the low emission parameters
The Indian Supreme Court had upheld the HC order on 31st July 2009 ruling all vehicles older than 15 years from the Kolkata Metropolitan Development Authority (KMDA) area, would go off the roads after a decade long battle to minimise pollution.Nearly 2,25,000 trucks and tankers in the state are also likely to go off the roads due to the HC decision.
Few organizations and leadership who have been able to visualize the change have pushed their people into relentless innovation as a measure to remain competitive. Some of the ground breaking incremental innovations that is worth noticing is Tata Motors switching to hybrid engines for their NANO and INTEL introducing in coming years a car that can give mileage for 80 kms on 1 liter of water. The Product named 6th Sense which will replace the experience of mobile communication. The Flying Car to be launched in 2012.Reliance giving 100% connectivity to rural India. Cisco launched the Virtual conference product in Bangalore last year which is called ‘Teleporting’ which is a physical imaging via optical fiber transmission in 3 secs across anywhere in the globe which will reduce our carbon footprint in the coming years. All these are change inducers who will change their respective domain forever. Out of the above most of them are from small enterprises.
The future will be dominated by SMEs and SSI units unlike all the last 60 years
The decision taken now and the actions we exhibit in the present and next few years will determine "how we shall exist".
The change is inevitableKishor Jagirdar is a practicing Strategic Management Specialist and a Change Management activist. Founder of Infopace Management Pvt Ltd