Climbing to the Top and Staying There: The Indian Evidence

EFFECTIVE EXECUTIVE OCT.2009

STAYING ON TOP ALWAYS

Climbing to the Top and Staying There: The Indian Evidence

-- S Raghunath and Usha Raghunath

ICICI, HDFC and SBI from Indian Banking Industry offer a few lessons to stay on top.

Companies such as GMR Group in commercial aviation infrastructure, Bharti Airtel in Telecommunication, ICICI bank in Banking Services or Wipro in IT services have one thing in common—the ability to innovate and to improve customer facing roles.

Innovate and Improve

In India, airports were traditionally conceived as `ports' for aircrafts, as part of the infrastructure required for aviation, and the business of promoting air traffic was considered the responsibility of airlines and their travel agents. GMR changed the rules of the airport infrastructure game. For instance at the greenfield international airport at Shamshabad, Hyderabad, the rate of return is a crucial aspect. This depends on air traffic related revenue as well as commercial revenue arising from airport retail and hospitality business.

Roping in Service Providers

One of the critical aspects of offering attrac-tive airports to airlines lies in the demonst-rated ability of the airport operators to enter into concession contracts with service providers who would provide world-class service. The evaluation of service providers in good measure considers the concession fee paid, the quality, vision and innovation that concessionaires will bring to the service they offer and the impact on revenue generation. GMR Hyderabad has entered into tie-ups with many companies for several concessions: Reliance Industries for fuel farm operations; LSG Sky Chef and Sky Gourmet for in-flight catering; Accor group for operating a business hotel; and Menzies Aviation for cargo handling. Ground services such as fuel handling, in-flight catering, baggage handling and freight handling impact the cost and quality of service of the airlines. These ground services offer a significant opportunity for attracting business from various airlines.

Improving Non-Flight Revenue

As an international airport depends upon non-flight revenue generated from passengers, they check how many long distance leisure passengers choose to transit through the airport. Understanding the mix of passengers helps plan the facilities that match their needs and preferences as closely as possible. It also depends how passenger movement paths are designed through shops and how the message that it "costs less" to shop at the airport is reinforced. Traditional Indian export items such as gold, diamond jewelry, handicrafts, leather and garments tend to attract attention.

Long to moderate intervals between connecting flights, or moderate flight delays can have a positive effect on airport-based sales. It may give the passengers time to visit food and retail outlets. On the other hand, long queues and delays in immigration and customs will have the reverse effect on passenger flows to shops, catering outlets and other services. The average airport occupancy time may tend to be higher for economy passengers than business and first class passengers. The incremental airport spend per passenger may go up with additional time being available to passengers who have quickly cleared immigration and customs. Usually passengers have to feel relaxed when they shop and they tend to buy closer to the departure gates.

Sales per passenger or sales per square meter are important parameters for analyzing the economic performance of airport commercial facilities. Consumer satisfaction levels and perceptions of value for money are of course measured through customer surveys, as they directly impact sales and repeat business.

Needs of the Customers Come First, While Scaling Up

This has been the core value of these top ranking companies in their respective industries.

For instance, the top three players in Banking and Finance in India currently are State Bank of India, ICICI and HDFC.

In assessing the satisfaction levels of Current Account customers and Savings Account customers of banks, the three principal components of course were:

• Traditional facilities (Demand draft facility, Fixed deposits, Money transfer, Locker facility, ATM)

• Multichannel banking (Debit card, Credit card, Tele banking, Net banking, Demat)

• Internal marketing (Servicescape, Parking space, Attitude of bank staff, Dissemination of information, Query handling, Networking of branches).

Outlook Money commissioned market research agency `C fore' to carry out a survey of bank customers in five cities–Delhi, Mumbai, Chennai, Kolkata and Bangalore. The exhaustive survey covered 5,127 customers of 24 shortlisted banks: the 10 biggest nationalized banks and the 10 biggest Indian private banks (in terms of deposit base) and the only four multinational banks that offer retail banking services. The parameters for success which were highlighted were:

• Service Quality: for ease of opening an account; how courteous, accessible and knowledgeable the staff are; transaction time for services; how innovative the bank is in introducing products and services; how proactively the bank informs customers of changes in deposit rates or service charges; how quickly it redresses grievances; how likely it is to retain customers; and how probable it is that its customers will recommend the bank to others.

• Branch Facilities: that offering a pleasant banking ambience – with comfortable seating, air-conditioning, restroom and drinking water facilities – and easy, uncluttered access to bank stationery makes for good business.

• ATM service: But how often have you faced automated chaos: an ATM that whimsically rejects your card or runs out of cash.

• Cards Grievance Redress: quick access and response at bank's helpline numbers, not giving you the run around, a sympathetic hearing, and a prompt response.

• Speed of loan disbursal

• Phone/ Netbanking.

Of all these factors the most important aspect of change which all businesses have had to take into consideration has been the growth and influence of computerization and the Internet. People and organizations at every level of Internet sophistication face the same burning question: How should they change in order to succeed in a digital world?

Have the most successful Indian retail banks been able to meet this challenge better than the others? It seems so. They have responded by using technology in every sphere of banking - including ATMs, net banking and e-payment facilities. The more closely integrated technology is to the normal day-to-day banking needs of the customer, the more successful that bank will be in mobilizing new accounts, expanding its reach geographically and providing a larger number of banking services from the convenience of the workplace or home, at the touch of a keyboard. The introduction of new technology challenged and puzzled customers a bit in the beginning and innovations henceforth made the interactions simpler and more personalized.

S Raghunath is professor of Corporate Strategy & Policy at Indian Institute of Management, Bangalore. He recieved his Phd from Gujarat University and was a postdoctoral fellow at the Graduate School of Business, Stanford University. His main areas of research include MNC Headquarter-Subsidiaries Relationships, Structuring and Managing Alliances and Joint Ventures, Issues in Managing Outsourcing , Role of Independent Directors in Company Boards, Sustaining Growth of IT Companies in India, and Evolution of Network-based organizations. He has worked as Visiting Professor at many foreign universities including INSEAD, France; EUROMED, Marseilles; RMIT, Melbourne; and School of Business, University of Buckingham, UK. He has been working as Visiting Professsor at HEC Paris since 2008. He has also held various positions in several organizations and has published several articles in various magazines and journals, both national as well as international. His "Managing International Technology Alliances: Evidence from the Frontline" was nominated for the Fourth Annual McKinsey/SMS Best Conference Paper Prize at the Strategic Management Society 21st Annual International Conference held in San Francisco, California, USA ,2001. He has also won the Top Ten Best Teachers Award For Executive Education. Usha Raghunath has 15 years of professional experience in training and organizational development for a wide range of industries and institutions. She took her MBA from Open University Business School, Milton Keynes, UK, her MA from Delhi University and MEd from Annamalai University. She is also actively involved in several non-profit organizations.

The Culture of Entrepreneurship

Companies such as Bharti Airtel have a culture of entrepreneurship and a business, technology and financial risk management model. Risk assessment and mitigation ability have allowed the organization to outsource key aspects of its business. Again the use of technology to ensure robust processes to help the organization scale up rapidly has been vital. Brand management has been highly effective and Airtel ads have top of the mind recall value and have a distinct flavor to it.

Bharti Airtel seems aligned to the recommendations of a study conducted by Rosabeth Moss Kanter. In her book titled Evolve, she elucidates the core principles of e-culture: treat strategy as improvisational theater; nurture networks of partners; reconstruct organizations as online and offline `communities'; and attract and retain top talent. Airtel has not only outsourced core aspects of its business, but built a network of partnerships both on the supplier and delivery side of the business.

Product and Service Innovation Orientation

Searching for new and unusual solutions to problems has been rewarding for many companies such as OnMobile that has innovated aggressively around call-er tunes. OnMobile offers mobile operators in India its caller tune solutions, leading to over 37 million caller tune users being serviced every month by the company.

This mobile value-added services (VAS) company, estimates that the Indian VAS market will grow from $1.5 bn in 2008 to $7.8 bn by 2013. In the last four years OnMobile has increased its revenue nearly ten times to Rs. 406 crores. Its annual operating margins are robust as they are above 30% in the industry where profits are low.

In conclusion we would like to draw upon the findings of a large scale study of 1100 companies in ten countries and interviews with some of the most successful leaders (Bailom, Matzler and Tschemernjak, 2007).

The two key conclusions of this study are:

1. The success of a company is determined not so much in the market, but inside the company itself. It is not so much the structure of the markets, the attractiveness of the industry or the rules of the game within the industry which are the decisive factors. Instead, above average success depends very significantly on the ability to innovate (like Airtel has to come up with a new global business model and ICICI has to find ways to scale effectively to reach the millions of customers across India, where technology access is still limited) and market orientation (understand what the customer is currently expecting from a service provider and gearing up to provide those services or products and provide a seamless and effortless experience for the customer). Make sure you understand and develop your core competences and then you can even outsource major chunks of your business and still remain successful.

2. It is not individual management methods and tools, but ultimately the top management team's attitudes, values, thought patterns and approach which form the basis for sustained success. While efficient processes help you do things right, it is necessary to do the `right things' to ensure sustained success.