Essar Steel’s Competitive Advantage in Hinterland of India

Essar's Competitive Cost Advantage

Most of my recent blogs are inspired by the debates and discussions in my class and consequentially this article also has its roots from my class’s current discussion on how Supply Chain Management can become a competitive advantage for its owner. Various famous supply chain examples like MC Donald’s Cold Chain, ITC Choupal etc found their presence in the discussion.

The discussion left out of one of the latest logistic management employed by Essar Steel in transporting iron ore which brought down the cost of transportation of iron ore from Rs 550 per tonne to Rs 80 per tonne. The project is implemented at a small tribal area named Kirandul (a small town mainly houses NMDC colony and is situated in southern parts of Chattisgarh) hence not surprisingly the project is much talked about.

The project connects Bailadilla mines in Kirandul to Vishakhapatnam (a city with a sea port) steel plant of Essar with a 267 km pipeline. Iron Ore mined at the mines of Bailadilla is first crushed into smaller sizes and then is converted into slurry using water. This slurry is then pumped from the mine end of the pipeline which is intermittently re-pumped at three different spots between Kirandul and Vishkhapatnam in order to maintain the flow of the slurry. The slurry received at the other end is fed to a dryer plant and the iron ore is received. The water removed from the slurry is pumped back from Vishkhapatnam to Kirandul via the pipeline which is reused for the pumping and slurry making purpose near the mines.

The project has provided a competitive cost advantage to Essar Steel against its competitors like Tata Steel which still continue to use the normal mode of transportation trucks. The project has made the sourcing of iron ore from Kirandul more viable for Essar Steel operating at about 300 km far from raw material source as against Weber’s theory which suggests to setup manufacturing units near source of raw material for which the  total transportation cost is high.

You can visit my collection of pics illustrating the competitive advantage of Essar Steel Click Here .Read more about the project Here

Marketing Myopia – The Cause of Low Innovation

A recent debate in the class was on the fact that majority of disruptive technologies are made by smaller companies than the bigger/blue chip companies. Incidentally the debate touched upon areas like Marketing Myopia, S-Curve dilemma OR Innovator’s dilemma and process versus agility. This article will web together all the above mentioned concepts and present my inference that marketing myopia is the underlying cause for process orientation and innovator’s dilemma and hence is the major reason for low innovation in the bigger organizations.

NOTE: Paragraphs in italics hence forth are intended as an explanation of concepts for readers non-acquainted with the concepts dealt in the article.

Marketing Myopia: Short sighted and inward looking approach to marketing that focuses on the needs of the firm instead of defining the firm and its products in terms of the customers’ needs and wants. Such self-centred firms fail to see and adjust to the rapid changes in their markets and, despite their previous eminence, falter, fall, and disappear.

Process Orientation & Innovation do not go together: Process Orientation is sometimes a resultant of Myopic View of companies.  Myopic Companies sometimes are so much in love with their products or services (Marketing Myopic Companies) that they design their process in and around for better performance of their product and loose sight of consumer needs especially latent needs which cannot be satisfied by the product in focus and hence we do not find path breaking innovations from these myopic companies. Their innovations are limited to processes and services around their current product only.

S-Curve

S-Curve Dilemma OR Innovators’ Dilemma: The curve is drawn between Growth Rate (Y Axis) and Time (X Axis) for innovations. Each S-Curve represents Growth Rate versus Time Graph for different innovations. It is observed and indicated in the graph after a period of time it is important for an organizations to move on to the newer innovations in order to reap a better ROI in the coming future. In the curve displayed, organization which has adopted innovation represented by Orange Curve should adopt newer innovation represented by Blue Curve. However larger organizations sometimes do not adopt newer innovations, this is called as S-Curve Dilemma or Innovator’s Dilemma.

Innovative companies also sometimes fall prey to marketing myopia. An innovative company which has put in lot of efforts to innovate a product/service and hence the organization’s image is based on that particular innovation would find it difficult to innovate a product/service which will make the earlier innovation non-useable (a disruptive innovation) i.e. becomes myopic with the earlier innovation. Therefore, these myopic companies sometimes either do not adopt or do not innovate newer disruptive technologies. For Example: Microsoft would not like to innovate a new platform which may put Windows into obsolesce as Microsoft’s image is based on Windows.

At the heart of low-innovation is excess of love with product (Marketing Myopia) which inturn causes Process Orientation and Innovator’s Dilemma and hence is termed as THE cause for low innovation in the article.

Indian IT’s Elixir

In this article, I will attempt to dissect the long term strategies adopted by Indian IT Industry and will try to connect the Practical Understanding of Strategy from the dissection with Strategy Lessons taught in the B-School class.

Some theory which will help you understand the article before I begin – A long sustainable growth is a product of long term sustainable strategy adopted  by the industry or the company. A sustainable strategy is one which is rare, unimitable or hard/costly to immitate. Strategy adopted by any player depends on its strengths & weakness and the opuurtinities and threats in the industry. 

For a long time since inception of Indian IT Industry, Indian IT industry has banked on “Low Cost Strategy” for its growth. “Lost Cost” is not a sustainable strategy as it is not a rare and costly strength to immitate. Russia, China and Malaysia are upcoming low cost centers and pose a great threat to the Indian IT Industry. Hence, there is a need to identify new strategies for growth and some of the leading Indian IT Firms have done so. The strategy is “Product Differentiation”.

In a highly competitive industry like IT industry, firms put efforts to differentiate products and offerings. Big 4 definitely have put special efforts to differentiate products/offerings and to serve niche markets. FOR EXAMPLE : Infosys has strength in BFSI, Satyam is well know for ERP and WIPRO is renowned for telecommunication.

Some of these firms even went ahead and tied their earnings and revenues to non-perishable activities (Tying your revenue to non perishable assests is another strategy which I have learnt in the Strategy Class). Non perishable activity in case of IT industry is support and maintainence for their own products. Indian IT companies have now entered into product development. Once a product is deployed, the firm enjoys long term maintainence and support revenues. Some of the firms that have entered Product development are Infosys-Finacle; TCS-Bancs; iFlex-FlexCube.

In the pursuit of Product Differentiation, IT firms have now ventured into quality service offerings like IT consulting which is expected to grow at a CAGR of 40% till 2010, banking on good brand recognition they enjoy among the clients.  Wipro Technologies bought U.S. consulting firm NerveWire Inc, Infosys set up its U.S. consulting unit, Satyam lapped up a U.S. consulting firm, Bridge Strategy Group – These are the indicators of the huge potential that Indian IT firms have indentified in product differentiation.

Furthermore, Indian IT Industry are exploring oppurtunities in Domestic sector which is expected to grow at good rates. Supplimenting this is the ability of Indian IT firms to crack into outsourcing averse nations like Denmark, France etc via business offerings like Sub-Contracting, Consolidation and Partner Strategy.

In the view of all this, I believe Indian IT industry has matured and has the ability to adopt new strategies easily and early. Hence, I infer we will observe few more changes in the strategies of Indian  IT in the years to come.