Day 329: Only the Paranoid Survive

I’m often credited with the motto, “Only the paranoid survive.” I have no idea when I first said this, but the fact remains that, when it comes to business, I believe in the value of paranoia. Business success contains the seeds of its own destruction. The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing left. I believe that the prime responsibility of a manager is to guard constantly against other people’s attacks and to inculcate this guardian attitude in the people under his or her management.

The things I tend to be paranoid about vary. I worry about products getting screwed up, and I worry about products getting introduced prematurely. I worry about factories not performing well, and I worry about having too many factories. I worry about hiring the right people, and I worry about morale slacking off.
And, of course, I worry about competitors. I worry about other people figuring out how to do what we do better or cheaper, and displacing us with our customers.

But these worries pale in comparison to how I feel about what I call strategic inflection points.

I’ll describe what a strategic inflection point is a bit later in this book. For now, let me just say that a strategic inflection point is a time in the life of a business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end.

Strategie inflection points can be caused by technological change but they are more than technological change. They can be caused by competitors but they are more than just competition. They are full-scale changes in the way business is conducted, so that simply adopting new technology or fighting the competition as you used to may be insufficient. They build up force so insidiously that you may have a hard time even putting a finger on what has changed, yet you know that something has.

Let’s not mince words: A strategic inflection point can be deadly when unattended to. Companies that begin a decline as a result of its changes rarely recover their previous greatness.

But strategic inflection points do not always lead to disaster. When the way business is being conducted changes, it creates opportunities for players who are adept at operating in the new way. This can apply to newcomers or to incumbents, for whom a strategic inflection point may mean an opportunity for a new period of growth.

You can be the subject of a strategic inflection point but you can also be the cause of one. Intel, where I work, has been both. In the mid-eighties, the Japanese memory producers brought upon us an inflection point so overwhelming that it forced us out of memory chips and into the relatively new field of microprocessors. The microprocessor business that we have dedicated ourselves to has since gone on to cause the mother of all inflection points for other companies, bringing very difficult times to the classical mainframe computer industry. Having both been affected by strategic inflection points and having caused them, I can safely say that the former is tougher.

I’ve grown up in a technological industry. Most of my experiences are rooted there. I think in terms of technological concepts and metaphors, and a lot of my examples in this book come from what I know. But strategic inflection points, while often brought about by the workings of technology, are not restricted to technological industries.

The fact that an automated teller machine could be built has changed banking. If interconnected inexpensive computers can be used in medical diagnosis and consulting, it may change medical care. The possibility that all entertainment content can be created, stored, transmitted and displayed in digital form may change the entire media industry. In short, strategic inflection points are about fundamental change in any business, technological or not.

We live in an age in which the pace of technological change is pulsating ever faster, causing waves that spread outward toward all industries. This increased rate of change will have an impact on you, no matter what you do for a living. It will bring new competition from new ways of doing things, from corners that you don’t expect.

It doesn’t matter where you live. Long distances used to be a moat that both insulated and isolated people from workers on the other side of the world. But every day, technology narrows that moat inch by inch. Every person in the world is on the verge of becoming both a coworker and a competitor to every one of us, much the same as our colleagues down the hall of the same office building are. Technological change is going to reach out and sooner or later change something fundamental in your business world.

Are such developments a constructive or a destructive force? In my view, they are both. And they are inevitable. In technology, whatever can be done will be done. We can’t stop these changes. We can’t hide from them. Instead, we must focus on getting ready for them.

The lessons of dealing with strategic inflection points are similar whether you’re dealing with a company or your own career.

If you run a business, you must recognize that no amount of formal planning can anticipate such changes. Does that mean you shouldn’t plan? Not at all. You need to plan the way a fire department plans: It cannot anticipate where the next fire will be, so it has to shape an energetic and efficient team that is capable of responding to the unanticipated as well as to any ordinary event. Understanding the nature of strategic inflection points and what to do about them will help you safeguard your company’s well-being. It is your responsibility to guide your company out of harm’s way and to place it in a position where it can prosper in the new order. Nobody else can do this but you.

If you are an employee, sooner or later you will be affected by a strategic inflection point. Who knows what your job will look like after cataclysmic change sweeps through your industry and engulfs the company you work for? Who knows if your job will even exist and, frankly, who will care besides you?

Until very recently, if you went to work at an established company, you could assume that your job would last the rest of your working life. But when companies no longer have lifelong careers themselves, how can they provide one for their employees?

As these companies struggle to adapt, the methods of doing business that worked very well for them for decades are becoming history. Companies that have had generations of employees growing up under a no-layoff policy are now dumping 10,000 people onto the street at a crack.

The sad news is, nobody owes you a career. Your career is literally your business. You own it as a sole proprietor. You have one employee: yourself. You are in competition with millions of similar businesses: millions of other employees all over the world. You need to accept ownership of your career, your skills and the timing of your moves. It is your responsibility to protect this personal business of yours from harm and to position it to benefit from the changes in the environment. Nobody else can do that for you.

~~Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company -by- Andrew S. Grove

Day 225: An Uncertain Glory

The issue of accountability relates closely to that of corruption, which has received a great deal of attention recently in Indian political debates. In the absence of good systems of accountability, there may not only be serious neglects of duties, but much temptation for officials to deliver at high ‘prices’ what they are actually supposed to deliver freely, as part of their job. This ‘reward’, aside from being an example of corruption based on official privilege, can also deflect a facility from those for whom it was meant to others who have the means and the willingness to buy favours. Corruption has become such an endemic feature of Indian administration and commercial life that in some parts of the country nothing moves in the intended direction unless the palm of the deliverer is greased.

It is good that this long-standing problem has become a widely discussed issue in recent years, generating a good deal of public discontent. This is as it should be, for corruption is a huge drag on the economy – and more immediately on the lives of the people of the country. However, democracy demands not only that grievances about terrible practices be widely aired, but also that this leads to serious reasoning about what can be sensibly done to remove the problem. The temptation to ‘end corruption’ by summary punishment delivered outside the Indian legal procedures, which seems to attract many people (not surprisingly, given their frustration with the existing legal actions), may be hugely counterproductive. Aside from the possibility of penalizing the accused (which could be erroneous), rather than the tried and the guilty, the procedures of instant summary justice generate the illusion – a costly illusion – that something is being done to change a corrupt system that generates corrupt practices. We have to seek real remedies that work, rather than pleasing retribution meted out to the guilty – or the accused. Corruption is fostered and nurtured by the absence of systems of accountability, which cannot be generated by the favoured gross means of retribution under summary justice. Even establishing some kind of super-powerful ombudsman, with draconian powers that are not tempered by judicial procedures (as in some versions of the proposed ‘Lokpal Bill’), can generate more problems than it helps to solve. When a system is faulty, and gives people the wrong kind of incentives – to neglect one’s duty and to reap illicit earnings without systematic penalties – what has to be amended is the system itself. For example, any system that leaves government officers effectively in sole command – or oligarchic dominance – over giving licences (say, import or mining licences), without checks and invigilation, can become a minefield of corrupt practices.

What kind of institutional change could be considered and pursued? At least three different issues are central to the prevalence of corruption in public services. First, corruption flourishes in informational darkness: by nature, it is a secretive affair. An institutional change that fosters transparency and accessibility of information can be a real force in spoiling the prevalence of bribery and embezzlement. Second, corruption survives in a social environment of tolerance of misdeeds no matter how ‘moral’ people tend to see such misdeeds. A general belief that corruption is ‘standard behaviour’ and has to be tolerated unless the misdeeds are fully exposed and are unusually blatant can generate a situation where bribe-seekers are not under much pressure to reform, whether from others or from their own conscience. Third, corruption can be curtailed through a realistic threat of prosecution and sanction. But prosecution can be difficult to secure in the absence of witnesses prepared to speak out or of documentary evidence, and this can be a major barrier to suing or punishing a bribe-taker, which in turn tends to give a sense of immunity to the civil servants who seek – and get – bribes. There are also other issues involved (some of which were discussed earlier in this chapter), but the trio of informational lacuna, social leniency and prosecutional difficulty are among the factors that help to sustain a culture of corruption.

So what can be done about each of these underlying factors? There has been some genuine progress in tackling the first of these problems – that of hidden information. The Right to Information Act of 2005 has been a major step toward greater transparency and accessibility of information, making governmental affairs much more open to the public and helping to foster accountability as well as reduce corruption.

Though very widely used already, the Act still has enormous further potential, notably through wider enforcement of norms of ‘pro-active disclosure’ as well as of mandatory penalties in the event of non-compliance. Other technological and social innovations, including the rapid spread of information technology and (in some states) the institutionalization of social audits, have also consolidated this trend toward transparency. Here again, there are significant achievements as well as an enormous scope for further gains.

The second issue – that of social leniency – is also indirectly helped by greater transparency of information. For instance, the use of ‘naming and shaming’ demands naming before shaming can be attempted. Vigorous public campaigns and skilful use of the Right to Information Act, combined with constructive use of the media (including ‘social media’), can be of great help in this respect, as well as in altering public perceptions of what is acceptable and what is not. This approach has already been used with good effect in various contexts, from public scrutiny of the backgrounds, including possible criminal records, of electoral candidates to the analysis of tax returns or business deals of public personalities, and can be taken much further than it has been so far. Underlying the reluctance to make larger use of this remedial measure is both what can be called an ‘inertia of social norms’ (a subject which we will take up presently) and a belief – often implicit – that norms cannot change much until and unless some prominent prosecution with punitive judgement draws heralded attention to the transgression involved.

It is on the third front – effective prosecution– that very little has been done so far. It is, of course, not surprising that acts of corruption are often difficult to expose and establish with sufficient confidence to justify prosecution. But even a relatively small number of cases of successful prosecution, if they are stringent and well publicized, could have important deterrent effects on the incidence of corruption. Yet conviction rates are so ‘ridiculously low’ (as the Law Commission of India put it in its 160th report, submitted in 1999) that the Prevention of Corruption Act has not even achieved this minimal objective. The problem goes well beyond the routine difficulties of establishing guilt in corruption cases.

~~An Uncertain Glory: India and Its Contradictions -by- Jean Drèze and Amartya Sen

Day 171: Book Excerpt: Why Growth Matters

The liberalization program since 1991 has paid off handsomely. India grew at a striking 8.5 percent annual rate during the eight years spanning 2003–2004 to 2010–2011. Therefore, at first blush it may seem that the battle for Track I reforms has already been won and nothing more need be done. This may even be the view of some within the current United Progressive Alliance (UPA) government, which came to power in 2004 and has chosen to focus almost exclusively on the promotion of social programs—Track II policies.

Yet, it would be wrong to think that Track I reforms have been fulfilled. If truth be told, India is far from done on Track I reforms for two broad reasons. First, the potential for growth remains grossly under-exploited. The economy remains subject to vast inefficiencies. Removing these inefficiencies offers the opportunity not only to arrest the recent decline in growth but also to push the economy to a double-digit growth trajectory. Second, the poverty reduction that directly results from growth, in terms of enhanced wages and employment opportunities per percentage point of growth, can be increased: India can get a larger bang for the buck.

As regards the first issue, productivity remains well below the potential. For instance, according to a 2007 Government of India report, 57 percent of the workers were employed in low-productivity agriculture, which produced only 20 percent of the total output in 2004–2005. And even within industry and services, 84 percent of the workers were employed in enterprises with fewer than ten workers, and these enterprises are generally characterized by low productivity. Employment in larger private-sector enterprises has been extremely low in comparison to other countries such as South Korea, Taiwan, and China and has been growing at best at a snail’s pace.

In services, firms with four or fewer workers accounted for 73 percent of the employment but only 35 percent of the value added in 2006–2007. Even more dramatically, approximately 650 of the largest service sector enterprises produced 38 percent of the value added but employed only 2 percent of the workers that same year. Larger firms also show dramatically higher growth: value added grew at the annual rate of 28.2 percent in firms with five or more workers but only 4.5 percent in the smaller firms between 2001–2002 and 2006–2007.

Manufacturing exhibits a similar pattern. The point is best illustrated by comparing the employment patterns in apparel in India and China. In 2005, 90 percent of apparel workers in India were employed in enterprises with eighteen or fewer workers. In comparison, only 2.5 percent of the Chinese apparel workers were in such small enterprises the same year. At the other extreme, India employed 5.3 percent of the apparel workers in enterprises with more than two hundred workers, compared with 56.6 percent in China.

Clearly, huge scope remains for improving efficiency and accelerating the growth rate through progressive expansion of employment in the formal sector. The productivity figures are per worker, of course, rather than for total factor productivity. But total factor productivity is certain to yield the same conclusion because the astonishingly small enterprises are characterized by inefficiencies that should translate into overall inefficiency in that they get much less for the same input than the large enterprises.

Our second reason for continuing with additional Track I reforms is that they would make growth even more inclusive. While all evidence indicates that the acceleration in growth since the 1980s has helped reduce poverty, this effect is far more muted in India than in countries such as South Korea and Taiwan in the 1960s and 1970s and in China more recently.

The key reason for this difference has been the nature of the growth. Whereas growth was driven by rapid expansion of highly productive large-scale firms in labor-intensive sectors, such as apparel, footwear, toys, and light consumer goods, in these other countries, it has been propelled instead in India by capital-intensive and skilled-labor-intensive industries, such as automobiles, two-and three-wheelers, engineering goods, petroleum refining, telecommunications, and software. This difference has reflected itself in a rapid movement of workers out of agriculture into gainful employment in manufacturing and services in South Korea and Taiwan in the 1960s and 1970s, and in China more recently, but in a continued heavy dependence of workers on agriculture in India.

To put the matter concretely, South Korea grew at an annual rate of 8.3 percent between 1965 and 1980. During this period, the proportion of the workforce employed in agriculture in the country fell by 25 percentage points from 59 percent to 34 percent. Simultaneously, the workforce employed in industry rose from 10 percent to 23 percent and in services from 31 percent to 43 percent. Alongside, real wages grew at 11 percent per year.

In sharp contrast, the share of agriculture in employment in India fell proportionately so gradually that, with the workforce growing, the absolute number of workers in this sector actually rose between 1993–1994 and 2004–2005. With the output share of agriculture having shrunk to 20 percent in 2004–2005, an extremely large proportion of the workforce depends on a very small proportion of income. Further Track I reforms are needed to create good jobs for these underemployed workers.

~~Why Growth Matters -by- Jagdish Bhagwati