It is probably fair to say that at least half of the Fortune 500s today are operating on an obsolete business model. Technology disruption and business model innovation have shortened the life of many once great firms. The financial crises simply accelerate the pace of destruction. There’s a lot of myth about business model transformation let alone the definition of a business model.
A successful business model creates a heuristic dominant logic that connects technological potential, unique capabilities, knowledge bases with the realization of economic value and create an additional bottom-line (social or environmental). We want to see innovation that not only reduces cost, but also create new jobs. What good is any innovation when no one has money to buy whatever low price the product can be sold for. Expect to see more social enterprises that create new jobs.
This is the worst time to be a CEO or senior executive as the rules are changing fast and experiences may not very useful. Most of what we’ve learned in MBA schools may not applicable. Innovation and entrepreneurship are what is needed, unfortunately those are not the skills that are being developed commonly in larger organizations.
Peter Drucker (economist and management scholar) was a big believer in entrepreneurship, innovation and capital formation. He favored companies that took big risks and spent lots of capital on R&D. He hated companies that had nothing better to do than buying back their stock. Executives forgot that they are not banks and their jobs is to find innovative opportunities to invest and to create new shareholder value.
Drucker once said. “ Goverment is only good at three things: Inflation, taxation and making war!” He once bluntly told a US president, “Government is obese, muscle-bound and senile.” Yet he wasn’t against government, per se. He wanted a strong, healthy, vigorous government. To accomplish this goal, he recommended privatization of many state services.
His idea of “social institution” is very interesting. He felt that the private sector - major corporations and nonprofit institutions - was the only “free, non-revolutionary way” to a stable, prosperous society. Business and private charities provided a superior alternative to socialism and big government. When he first suggested the private sector as the ideal “social institution” after World War II, He was considered a renegade.
On the subject of social enterprises, what do you think MBAs can learn from the dabbawalas? (it means a box person, people in Mumbai who is employed to collect freshly cooked food in lunch boxes from the home and deliver them to the workplace). I wish there are service like that in America. Most of our modern B-school education is about analytic models, technology and optimization, the dabbawalas, by contrast, focus more on “human and social ingenuity”.
Large corporations have invited the dabbawalas to explain their model to managers to inspire them. The dabbawalas, who all receive the same pay, are also seen as paragons of “bottom up” social entrepreneurship. C.K. Prahalad says they show how a home-grown business can help lift workers at the “bottom of the pyramid” out of poverty. They also contradict the stereotype of developing-world laborers as low-wage economic victims.
The Mumbai Tiffin Box Suppliers Association is a streamlined 120-year-old organization with 4,500 semi-literate members providing a quality door-to-door service to a large and loyal customer base. It is probably one of the best ran organization in India with sophisticated logistics management. It works like this.
After the customer leaves for work, his/her lunch is packed into a tiffin provided by the dabbawala. A color-coded notation on the handle identifies its owner and destination. Once the dabbawala has picked up the tiffin, he moves fast using a combination of bicycles, trains and his two feet. In the dabbawalas' elegant logistics system, using 25 kms of public transport, 10 km of footwork and involving multiple transfer points, mistakes rarely happen.
The interesting thing is, according to industry info, one mistake for every eight million deliveries is pretty standard. So how do they achieve virtual six-sigma quality with zero documentation? For one, the system limits the routing and sorting to a few central points. Secondly, a simple color code determines not only packet routing but packet prioritizing as lunches transfer from train to bicycle to foot. Forget UPS, think dabbawala. More important, it is a social enterprise and provides plenty of employment. That’s a real innovation. Not only fulfilling customer unmet needs, it actually creates jobs.
One dabbawala earns around Rs 5,000 to Rs 6,000, every dabbawala contributes Rs15 per month to the association. The amount is utilized for the community's upliftment, loans and marriage halls at concessional rates. All problems are usually resolved by association officials whose ruling is binding. No union, no marketing, no Six Sigma,no HR, just lots of collaboration.
