Advantages and disadvantages of highly focused companies


The highly focused companies are also profitable. They build formidable core competencies that no competitor can ever match and also build entry barriers that effectively prevent companies from even entering their markets and products. However, they also have some weaknesses. The advantages and disadvantages of such focused companies are discussed in this article.

Introduction

Ashok Leyland. The TVS group. TAFE. The Rane Group. Bharat Forge. Asian Paints. Guess what these companies or groups of companies, have in common? Focus. Of the tallest order. They are heavily focused on serving their end customers. Most of these companies do not see the customer who ultimately uses some end product. Yet, they are so powerful and are global companies. However, they have some weaknesses as well.

Among the advantages that these companies have are:- a) Building of world-class core competencies b) Their knowledge capital c) Highly dedicated markets with profound relationships d) Global supply chain management. Among the disadvantages are:- a) Cash flow problems in a downturn b) Managerial attrition c) Inability to focus on core HR practices and d) Sometimes these organizations become complacent.

Building of world-class core competencies

With over six lakh tools in its tool library, tool making is a fabulous core competency of the Chennai-based Sundram Fasteners, a TVS group company. This organization has also won the Deming Award for excellence in quality processes. It is the sole supplier of fasteners to Tata Motors and among the chief supplier to several global companies. It has plants abroad.

Other TVS companies like Brakes India Private Limited, Sundram Brake Linings. Lucas-TVS or Sundram Clayton have similar core competencies. Their ability to consistently produce world-class products with the bare minimum of rejections is just too good. Customers come to them automatically. This ability to become sole suppliers, for example, is itself a big core competency.

Their knowledge capital

Many of the workers in companies like TAFE or Brakes India Private Limited, in the age group of 48 to 55, would be just eighth standard pass workmen, with over 25 years of service. This does not in any way diminish their core competencies. They are just too good to be in their positions. They would have as much technical knowledge as engineers. Their knowledge of the process and the technical problems that could arise at any stage would be profoundly good. This makes them the best bet for good knowledge banks. This is exactly how the TVS organizations were able to get the Deming Award. This does entail that the PDCA approach, that is, Plan, Do, Check, and Act Approach, should be used as a matter of routine. This is possible in such companies, as the dedication and commitment of workmen, is always a given.

Highly dedicated markets with profound relationships

Name any auto major and the entire TVS group, the Rane Group and Bharat Forge, apart from the likes of Sona Steering Systems, would be present as customers. Their relationships are based on mutual trust built over decades. It never happens in a single day. This relationship is not based on just commercial considerations. The global majors have instituted awards for the Best Supplier of the year and several of these companies have consistently won such awards. This is one reason for the continued success of these companies.

Global supply chain management

Global supply chain management is a big core competency. Once again, it comes after a thorough study of all global markets where the customers are present. These global majors are not only present in Asia but have plants and even R&D centers abroad. In fact, the global supply chain management competencies impose severe restrictions on the likes of Mukesh Ambani or any other major group, who would be tempted to just buy a controlling stake from the market. This is not even possible, as the building of any formidable core competency would take at least two decades.

Cash flow problems in a downturn

The present downturn in the global economy, thanks to large-scale lockdowns in most parts of the world, is a classic example of how the highly focused companies could quickly go into the red. Their cash flow problems will be very acute. While TCS is still profitable and can still make more money, their profits can be used by Tata Sons to provide some cushion to the likes of Tata Motors that would require some working capital in this time of crisis.

This cushion will not be available to the TVS group. Of course, most of them are zero debt companies and they can still borrow from their own excellent group company and the number one NBFC in India, Sundaram Finance. Yet, even this company can also have short-term cash problems, if the lockdown is once again extended.

Managerial attrition

Managers in the best of TVS group or any other focused companies, in say, Marketing, can be frustrated, as their main job is to only manage the supply chains. The market is already assured when global majors place their orders. At best, this would involve a good deal of communication and co-o0rdination with the production departments. Yet, their job description would be limited and their ability to take the risk or perform in an uncertain environment is zero. Their frustration with the repeatability of industrial marketing might force them to switch jobs to the more promising FMCG sector. Finance and HR Managers are also among those frustrated with fairly monotonous roles.

The inability to focus on core HR practices

When the technology produces too many world-class products and when production is the only important core activity, managers at various levels have no time to seriously think of good and progressive HR practices. Of course, knowledge management and development of deep production skills do take place "just like that". The HR professional would perpetually chase the mangers to produce records of on-the-job training and the classroom training can become zero, in a recession. HR can eventually go for a six, more so, when training happens only for the sake of training and does not have a serious connection to the larger and more important HR Sub-systems like Succession Planning and Career Planning. Nothing ever happens in HR and concepts like Mentoring are singularly absent in highly focused companies.

Sometimes the organizations become complacent

In the heavy chemical industry, with a big plant in a rural location, a particular CEO was building a big empire. He had his own weaknesses and the organization was losing good talent. The yes men were very active. When the markets were too good, there was no problem. When there was a downturn, the organization started facing the music. The then UK-returned CMD's son, appointed as the JMD, quickly saw through this game.

The CEO had effectively demolished the formation of any second-line as all strategic decisions were taken by the CEO in an autocratic manner. When the young man diagnosed this key problem, he quickly set right the complacency that had plagued the organization for several years. Some high-quality mangers were brought back and the organization was able to reap the benefit of a more pronounced professional culture. This is exactly what can happen when complacency leads to some decline, at least in the short run.

Conclusion

Given the glorious uncertainties of the global market, it does pay to be a heavily focused organization. There are several advantages to such organizations. However, they also need to go in for some related diversifications and have the cushion to be as profitable as they are in tough times as well. They, of course, have strengths to do so.


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