IntroductionThe heavily focused companies like Larsen & Toubro, Asian Paints, the TVS group, BHEL, DCW, TAFE, MRF Tyres, and so on have several advantages. They also have some disadvantages. Among the advantages are a) Very good core competencies can be built b) People management has a big focus on multi-skills c) Undivided attention of owner-managers and d) Relative ease with which the company can go global. Among the disadvantages are a) Too much reliance on a single-product category and b) Senior Management roles lack variety and flexibility.
Very good core competencies can be builtCore Competencies of a single product or industry company are very difficult to emulate. Once set, say, over a period of eight years, the accumulated knowledge related to key production processes resides in the minds of thousands of employees. Core competencies impose entry barriers that make it very difficult for any competitor to come inside the particular business and make money. A Foundry of the TVS group may cost just around eighty crores to set up. However, even a big shot like Mukesh Ambani cannot enter such an industry and make money within a short time. Getting technically qualified and experienced manpower is very tough indeed. This makes it even more difficult for the new players to even think of getting into such a business. The production and marketing excellence of Asian Paints cannot be copied by competitors so easily and this is a big plus for the existing companies who can go on building such core competencies. While transfer of skills and competencies is immediate in the case of a new Foundry of the TVS group with dozens of trained personnel posted in the new plant, any other competitor who is new will take at least sixty months to even settle down to a basic level of professional production competence.
People management has a big focus on multi-skillsThis is a major advantage. People at various levels can be rotated to various departments and, in general, such job rotation comes with several advantages. In DCW, a leading manufacturer of Heavy Chemicals, an Engineer who is experienced in caustic soda preparation can also be transferred to the PVC plant. This happens because both the plants are houses in the same production complex. Similarly, those who are experienced in production in the unit equipment factory can be rotated in the supply chain management fiction and even to marketing. This is because there are very good training programs with both the on-the-job and classroom components. The senior managers are also given opportunities to acquire the Executive MBA degree. Such opportunities for job-rotation are standardized. The high performers tend to quickly get too many opportunities as well.
Undivided attention of owner-managersThe fourth and fifth generation of owner managers have occupied key positions in MRF Tyres and companies like Madras Cements. In so many companies, these owner-managers are highly qualified and have both the technical and management qualifications.
The owner-managers are totally involved in every aspect of day-to-day operations and they become professional in every manner possible. For example, in the JK group of cement companies, the younger generation of owner-managers have taken over and are in total command. This process of management control is complete in every company that is heavily-focused and family-managed. In the professionally managed companies, members of the board are also actively involved in various aspects of Strategic Management that includes vital decisions regarding new products, new markets, mergers and acquisitions and the like. The best examples are L&T and ITC.
Relative ease with which the company can go globalSundram Fasteners set up a plant in China. It was easy for them to transfer highly skilled Senior Management professionals and lower management staff and set up a plant. Yes, the plant had to fall in line with the regulations of the Chinese Government, but they did that with relative ease. The main advantage is that their technology was already so highly advanced. The technical hitches were always minimum. This is not so easy with the multi-unit and multi-product companies, as the Management has to always deal with the complexities of a global workforce and regulations of other countries. Infosys Technologies has been able to do this admirably well, since it is a heavily focused company.
The disadvantages need to be discussed too. These disadvantages are always unique to these companies, but they could the same with the multi-unit and multi-product companies as well.
Too much reliance on a single-product categorySince all the eggs have been put into one basket, in the event of a global melt-down, the single product companies that are tier 2 suppliers to the Original Equipment Manufacturer are badly affected as well. When the real estate industry is down, a huge company like SAIL, for example, will be badly hit. Similarly, cement companies are also badly affected. When there is a recession, the organizations resort to even temporary lay-offs. In the multi-product and multi-unit companies, it becomes very easy to bring in capital from a profit-taking company as a temporary loan to tide over difficulties. The loan can be repaid without any interest as the two organizations belong to the same group.
Senior Management roles lack variety and flexibilityTake for instance a sugar factory in a rural environment. Imagine that the company has only two factories manufacturing sugar. It should be noted that sugar is already a heavily Government-controlled industry. Managers in such factories lack the variety of experiences that one gets associated with multi-unit, multi-product companies. To give a simple example, if the company faces a downturn, the mechanical Engineers involved in on the shop floor, will be able to control the contract labor in the factory but they would lack the expertise of a mechanical Engineer who has worked in the Engineering company and also a cement company of a different conglomerate. The mechanical Engineer would have had exposure to the more sophisticated machinery and would be versatile in terms of flexibility. This would be totally absent in the case of the mechanical Engineer in the sugar factory who would have seen only that factory and nothing else.
ConclusionThe main advantages and disadvantages of heavily focused companies have been discussed above. The discussion is based on first-hand observation of this author. However, the advantages sometimes outweigh the disadvantages. This often happens when a single product company does not have good competitors in high growth markets.
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A good article from the author and he has narrated the advantages and disadvantages of highly focused organisations. True. When the product is unique and only one brand is making that product the marketing will be very easy and they can make good money. These days technology is not a big problem. We have the internet and we have global connections. But the main problem is maintaining quality. The first-comer advantage will be there for the companies that are highly focused on a single line production.
But to sustain for long the company should focus on improving the existing products and making it available at a cheaper price. Then they can continue to be the market leaders always. But if they lose that track there is every chance somebody else may grab the advantage. Getting a new customer is difficult but retaining a customer is more difficult. The company should focus on this.