SANTOSH KENKRE lists out his top four requirements to achieve success in business
Business is difficult. Also difficult is listing out top four requirements for success in business. I have had 37 years of experience in practice as a Chartered Accountant; and 10 years at EDC Ltd., besides vast reading. With this experience of observing different businesses, I will stick my neck out and list such four requirements.
1. QUALITY:
First and foremost is quality of your products and/or services. If the quality is sub-standard, you cannot survive even in the short run, such is the competition today. The litmus test is that, the customer should be ‘satisfied’ with your quality. What does quality mean to the customer? The short answer is: quality of materials, taste, workmanship, technology; less repairs and more life of your products; resale value (in case of machines); more/multiple use of your product; ease of storage and handling, etc.
High value of automation and latest technology will ensure higher quality but one should see cost thereof, apart from marketability of the high quality product. A trained and motivated staff uplifts the quality. Of course, quality of the raw materials is fundamental.
Quality of services: Pre-sale services and after sales service must be customer oriented e.g. repairs maintenance (including AMC), replacement, (of product/parts), payment facility and terms, delivery, installation and commissioning. Ultimate service would be that, after a few years, buy back, or replace your old products (in the nature of machines/equipment etc.) with the products with latest technology.
How courteous, prompt, effective your services are, will also count. In short, the services should be comprehensive with a class. Once, Jack Welch (former Chairman of General Electric, USA), was asked how to compete with China. He replied that you should give such classy services that the buyer does not think of China’s cheaper products.
2. COST
Optimum cost is the mantra, since ‘minimum’ cost may result in poor quality. The cost should be such that when compared to the prevailing market price of your products, you are left with a reasonable margin. Such margin is firstly gross margin (sales price (-) raw materials cost) and also net profit, which is what all businesses work for.
To optimise the cost, one needs to consider materials cost, labour cost, power, AMC, manufacturing overheads, interest, depreciation (and possibility of your machines getting outdated), admin/selling overheads, etc. Zero based budgeting approach can be introduced, which questions every single cost from zero level. Introducing budgetary controls and cost-benefit ratio for each strategic business unit (SBU), can help.
Constant Automation
Outsourcing your non-core production processes can significantly reduce cost, (outsourcing production to outside partner helped Apple to solve one of its biggest problems: inventory).
Production incentives to labour; monitoring wastages, pilferages, spoilages, storing/handling methods, logistics can help. Trying to understand the costing, methods, materials, technology of your competitors helps.
Scout for alternate cheaper raw materials
Elon Musk, in my view, is the greatest entrepreneur the world has seen. He has an unimaginable flair for cost reduction: If a raw material e.g. motor costs USD 6,500 in December, Musk wants such cost to be USD 3,800 by April! His company plots the costs and analyses them every month.
3. INNOVATION / R&D (Research and Development)
Each business should be constantly looking for innovation and improvement in their product, services and operations. Innovation in the product is chiefly achieved by R&D and also following best practices in the industry. The R&D effort may be big or small, but must be there. Internet too provides lot of info on product improvement etc.
I know of a big manufacturing company in Goa which doubled its production merely by shifting from ‘batch production’ to ‘line production’.
Innovation helps in reducing cost, increasing product quality/longevity, enhancing utility of the product and ultimately results in you being most innovative and competitive. Customers prefer an innovative supplier. Nokia did not do anything seriously wrong, but it moved slowly, whereas the competitors moved fast.
In 1997, Wal-Mart reduced its expenses by 2 billion USD through innovative inventory management.
These days, technology changes rapidly and the one to first embrace latest technology can have huge advantage in terms of market share. The most relevant example of this is iPhone from Apple. They add better features to the phone and do away with shortcomings of its earlier model, on a regular basis.
To quote Bill Gates: “The only big companies that succeed will be those that obsolete their own products before somebody else does”.
Innovation in operations/working can be facilitated by seeking suggestions from staff. I had visited the Toyota plant near Bangalore, where they had a robust scheme of rewarding best suggestions. Wal-Mart says that they get the best suggestions from lower level staff e.g. stores clerks, etc. So encourage such staff to suggest and remunerate them for their ideas.
Any operation is worth innovation – logistics, sourcing, maintenance, inventory, warehousing/storage, handling/transport, marketing accounts/finance, etc. Covid-19 has given rise to so many innovations e.g. WFH, video conferencing, etc. Best innovation is automation/computerisation of your machines, production processes and technology. Take for instance, if the machine can produce more quantity, better quality, more range, better features, less cost etc. then your profit can multiply.
At Google, some people talk about ‘10Xing their job’. This remark is inspired by the company’s innovative attitude of ‘shooting for the moon’.
Bill Gates says “Be prepared to experiment with new processes and technology solutions”. He adds “Complexity is the death of all engineering projects especially that involve technology”.
My personal experience in Goa has been that, quite often, businesses have complex processes/requirements which put off genuine people, whilst the bureaucratic type enjoy these.
Bill Gates feels that “Customer complaints can be your best source of significant quality improvements”. So, we need to encourage and seek ‘customer complaints’.
The ultimate innovation which I have ever read about is incidentally in ‘marketing’: Primus Hotels in Tennessee was the first hotel chain (way back 1999) to guarantee ‘no charge for your current visit if you have any complaint about your stay’!
4. COMPETITIVE
This is the acid test: Whatever you may do with your product/services, always be competitive. Be it your cost or quality or prices or terms of sale/payment or service, if the same are not competitive, you can lose business e.g. If your cost is less but quality/features too are poor: Uncompetitive
If your quality/features are high but cost too is high: Uncompetitive.
If your cost is optimum, quality etc. is optimum but after sales service and parts availability is poor: Uncompetitive.
Remember, the customer will evaluate each aspect of your product and decide. With internet, at a click of the button he can Google your product as well as other competitive products.
You need to constantly watch the competitors and immediately ‘copy’ the innovation they do, at any point of time.
Jack Welch narrates a story in his book, Straight from the Gut, about competition: GE thought that a new aircraft engine to meet requirement of 90,000 capacity thrust engine would easily beat their nearest competitor. But, eventually, the competitor delivered 94,000!
Jack Welch advises us never to underestimate the competitor.
About your service, for these to be competitive, it should be: timely, comprehensive, cost effective.
In Straight from the Gut, Jack Welch tackles the issue of competition, quite comprehensively. I would recommend entrepreneurs to read this portion from the book unfailingly.
• What are you most afraid your competitors might do in the next 2 years to change the competitive landscape?
He concludes in the book “At GE, we tried like hell to look at every new product plan in the context of what the smartest competitor could do to trump us”
Note: I have listed the four requirements as above for business success, assuming that some other vital aspects are well taken care of e.g. finance, marketing, HR, etc. I urge all readers to reflect duly on my above submissions. Your feedback is welcome
The columnist is a senior chartered accountant. He is Chairman of Indo-American Chamber of Commerce, Goa; and Director of EDC, Goa. Email: srkgoa@gmail.com
