Replicating Success. Is there a formula?

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The lure of fourfold economic growth, untapped demand, and unfulfilled aspirations is too strong to ignore. Hence, everyone wants to script a success-replication story – extending the success of a company from the developed world to the emerging world. Enterprises must invest time to look through a comprehensive lens to systematically spot the hidden or nuanced characteristics of a business environment that may not be visible at first glance and then guide the process to identify innovative ways to adapt. In any market. Any segment. And that is an advantage few enterprises will want to ignore. In the context of a specific success replication challenge, the void might not necessarily be the absence of an institution, but rather a certain type of behavior or manner of product usage that is typical to that new market or segment, and therefore neither known nor anticipated by the organization seeking to replicate success. But that must be addressed nonetheless. And this void brought to the organization's notice. Read more:

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Replicating Success. Is there a formula?

  1. 1. Insights Replicating Success Is there a formula? - Anand Arkalgud Let’s consider the success-replication story so many of us are trying to script today. Extending the success of a company, that’s doing well in the developed world, to the emerging world. Economic growth, in the developing world, is 4 times that of developed nations. It accounts for approximately 40% of the world GDP. It consumes over half of the world’s common commodities. Add to this research that points to untapped demand, unfulfilled aspirations and large white spaces in the competitive landscape. The business case is compelling. www.infosys.com
  2. 2. So, why do so many developed market successes end up as emerging market strugglers?Possibly, a misguided approach is to blame. Many companies incorrectly assume that they can replicate their developed world success, inemerging economies, by starting off simply building on their developed world mental model of the business. Of course, they finally gettheir arms around what aspects to change and what not to, in the new market, but it takes an inordinately long time with several rounds oftrial and error. The gaps lies in, what is best explained as the “institutional void” propounded by Harvard Business School Professors TarunKhanna and Krishna Palepu.Khanna and Palepu argue that institutional voids may be found in capital, product and labor markets; each type giving rise to a differentkind of business complexity. For instance, in countries without a strong capital market and governance structure, even the largest businessesneed not make their financial statements public. How can a foreign entrant possibly conduct a competitor analysis without this information?Similarly, if this company chooses to go to a country where the education system is not industry-ready, it has little chance of quickly findingthe right kind of talent that can be readily harnessed to drive business. And so on…Institutional voids are often the reason why a US$ 10 billion corporation from the United States cannot build a similar business in China,using the same mental (extrinsic & intrinsic) model for success. No doubt, some elements of the original model still apply to the emergingmarket context - such as expertise in managing the complexities of business - but there are simply too many differences on the ground,questioning the advisability of a one-to-one replication.Let’s look at these differences execution - to differentiate itself. Customers reacted positively to this information, but it was the analysts who really gave Infosys itsImagine that a hypothetical successful American corporation wings in the U.S., by talking about the company in their reports.is planning to enter an emerging market. During its 50 years Could this have happened, in a place like China, where very fewof existence, the company has, no doubt, developed explicit consulting companies are listed and fewer analysts found? Thecapabilities within its organization in the areas of finance, human answer is obvious.resource management, manufacturing, product design anddevelopment, and so on. In all likelihood, it has also nurtured Clearly, there’s a case for companies to employ a framework toexplicit relationships with partners, suppliers, customers and other analyze their own success, its many drivers - including the tacitmembers of the ecosystem, all of which enable it to create and ones, and then the emerging market they seek to enter to clearlydeliver products, collect payments, arrange financing, and succeed understand the possible gaps in the jigsaw puzzle. They can thenin its endeavors. But it may not have given the same attention to all work to close the void before setting out to recreate success.those implicit relationships – with regulators, lawmakers, analysts, From various commentaries, as well as personal observation, itrating agencies, professional associations and media, to name a seems to me that not many organizations invest adequately infew - that it relies on or takes for granted, which may be less visible making this analysis; perhaps some haven’t thought of it, and othersbut nevertheless critical to its success. may have simply lacked the resources to undertake the exercise.That inattention could change very quickly should the company find But a more likely reasoning is that over time, companies intuitivelythat some of these institutions are absent in its target market. For integrate with the ecosystem of institutions and infrastructure ininstance, if the destination is China, the corporation, accustomed their home markets, and this is so engrained in their mental modelto screening customers in the United States based on the credit (and their business model!) that it becomes hard to change.scores provided by ratings agencies, will find that it is tougher to But what I would urge enterprises to see is the huge upside for thoseget similar information out there. Or the enterprise may discover, at willing to make the effort. Because, while an institutional void cana significant cost, that the judicial system in India could take years pose a challenge, it can also spark breakthrough innovation. Andto decide a case, which back home may be mandated by law to be give a substantial first mover advantage.resolved within 30 days! The prepaid mobile business in India, China and several countries ofAnd it’s not just entities from advanced markets that face this Africa is a case in point. Telecom companies couldn’t possibly apply,problem. Take the example of Infosys, India’s technology solutions to these countries, the postpaid model - which was so successful inbellwether, which enhanced its brand in the U.S. on the strength the U.S. where it is easy to ascertain a customer’s creditworthinessof its execution excellence. When the company researched U.S. as well as collect dues. So they negated this constraint by comingcustomers’ rating of suppliers, it found a big gap between the up with a prepaid model. And despite the subsequent proliferationcustomers’ expectations from execution and what was actually of network operators, those who got into the market first gaineddelivered. Infosys used this knowledge - and its own strength in the most.2 | Infosys
  3. 3. Here’s another example. Consider Infosys’ acclaimed educational are constantly watching what others are buying and following suit.campus. It has cost the company the equivalent of a space shuttle Now, what if an enterprise found a creative way to address this issue,launch to build its training center. But this was a response to a by empowering the consumer, rather than relying on governingshortage of adequately trained, motivationally aligned, business- institutions for the solution?ready human resource in India. Today, spurred by the hugecompetitive advantage this creates for Infosys, it is a clear modelthat others are seeking to emulate. Companies that move first to But, this isn’t only about emerging markets.close an institutional void through meaningful innovation create While the institutional void concept and surrounding frameworkbreakthrough advantage for themselves, and erect barriers that has been developed in the context of emerging economies, it cantheir rivals take years, if ever, to overcome. be extended beyond. In the context of a specific success replicationThis leads to some interesting hypotheses. Developed world challenge, the void might not necessarily be the absence of anorganizations need scale to succeed in emerging markets. Unlike institution, but rather a certain type of behavior or manner ofthe markets of Europe and the U.S., where companies, big and product usage that is typical to that new market or segment, andsmall, have a similar chance of succeeding, thanks to the affordable therefore neither known nor anticipated by the organization seekingcost of doing business, fewer voids and an institutional framework to replicate success. But that must be addressed nonetheless. Andwhich protects the interests of small firms, in emerging markets, the this void brought to the organization’s notice.scales are heavily tipped in favor of size. And it is size which makes Enterprises must invest time to look through a comprehensive lensit possible for conglomerates, such as the Reliance Group in India to to systematically spot the hidden or nuanced characteristics of aafford the cost of addressing an institutional void, and subsequently business environment that may not be visible at first glance andcross-leveraging the initiative across their entire organization. then guide the process to identify innovative ways to adapt. In anyThe second one is that it is not always necessary to take the market. Any segment. And that is an advantage few enterpriseschallenge head-on; sometimes it may be possible to work around will want to ignore.the void. Consider the distrust of baby food that prevails amongChinese parents. A credible mechanism to certify the safety of theseproducts is the logical solution. However, in its absence, parentshave resorted to a workaround solution: those who can, ask theirfriends to bring these products from abroad, and those who cannot, About the Author Anand Arkalgud Vice President & Building Tomorrow’s Enterprise (BTE) Expert, Infosys Limited Anand’s professional journey started in India just under two decades ago, and then traversed Australia, the United States and China, where he has lived and worked in a career spanning different industry segments, and service lines. Anand now leads a group of Infosys experts who endeavor to partner with key clients to future proof their enterprise. He is also passionate about and leads efforts to identify opportunities and challenges for companies in emerging markets. Until early 2011, Anand was responsible for establishing and growing Infosys business in the Greater China region. He has played a key role in Infosys’ emergence as one of the fastest growing multinational business and IT consulting company in China. Before moving to China, Anand was a senior member of the Hi-tech and Manufacturing practice with Infosys in the US. Anand holds a degree in Instrumentation technology from the University of Mysore, and an MBA from the University of Queensland, Australia. Infosys | 3
  4. 4. About InfosysMany of the worlds most successful organizations rely on Infosys todeliver measurable business value. Infosys provides business consulting,technology, engineering and outsourcing services to help clients in over30 countries build tomorrows enterprise.For more information, contact askus@infosys.com www.infosys.com© 2012 Infosys Limited, Bangalore, India. Infosys believes the information in this publication is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledgesthe proprietary rights of the trademarks and product names of other companies mentioned in this document.

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