Indian companies face the spectre of disruption
Anand Mahindra is a closet seismologist. He can sniff a tsunami coming the way of his business and is scrambling to mitigate its impact. The chairman of the Mahindra & Mahindra group signed an agreement with online transportation network start up ANI Technologies Pvt. Ltd which operates Ola cabs in India, last week. Ola isn’t a direct threat to car-maker Mahindra but Anand Mahindra has judged quite shrewdly that while its disruption of the taxi business is immediate and in progress, eventually it will impact the whole of the auto sector.
Indeed, the dread of disruption should be striking fear across Indian board rooms as entrepreneurs around the world unleash innovative new technologies, processes, pricing systems and products which are changing the very nature of businesses, leaving incumbents gasping for breath. Last fortnight, Reliance Jio shocked Indian telecom’s existing giants by announcing that it wouldn’t charge customers for voice calls which currently contribute 70% to the revenues of Bharti Airtel Ltd, Vodafone India, Idea Cellular Ltd and other incumbents.
But if that was a game changer, think of what is likely to happen when one of the many new technologies, for instance Light Fidelity (LiFi) by Scottish startup pureLiFi, hits Indian shores. LiFi is a technology that uses common household LED (light emitting diodes) light bulbs to enable data transfer, boasting speeds of up to 224 gigabits per second. While still in its infancy, its threat is real and paradoxically, if its turns commercially viable in the next few years, Jio could find itself facing the same kind of shock and fear that it has wreaked on the market.
Already Reliance Industries Ltd, among the world’s top 10 oil companies (according to Platts Top 250 Global Energy Company Rankings 2016), is facing up to the threat of ongoing disruption to its core business. If energy costs keep dropping in the face of growing investments and demand for renewable energy, refining may not be quite the lucrative business it has been.
The threat of disruption is widespread. Even front-line industries that have re-engineered their businesses, find themselves hit by waves of change. Executive search consultants Russell Reynolds Associates does an annual survey of more than 2,000 C-level executives on the impact of digital technologies across industries. Its ranking for this year includes, besides obviously affected industries like media, telecom, consumer financial services, retail and technology, less obvious ones like insurance, consumer products and non-profits.
Twenty years ago, India’s software services companies introduced the world to the concept of offshore development and remote management of routine and complex business tasks. In the process, they built a $150 billion industry. Yet, over the last few years, this industry finds itself shaken up by major disruption as technologies like social, mobile, analytics and cloud computing offer alternatives to clients. In November last year, N. Chandrasekaran, CEO of market leader Tata Consultancy Services Ltd, told Mint: “This is the biggest phase of technology disruption I am seeing.” Read here
More than the disruption itself, it is the velocity of change that constitutes the biggest threat to companies. The boom and bust in the US shale gas industry, though well chronicled, still serves as a cautionary tale. Over the last 10-12 years, US-based producers of shale oil made rapid improvements in the technology they deployed for drilling and fracturing. With this ability, they could step up production in a given field in a short span of just about six months at a capital cost which was way lower than what competitors would need. The result was a boom in shale oil production to as much as 50% of US crude oil, from around 10% just a decade ago. With oil above $100 a barrel, this meant a rollicking party for shale gas companies. But with the glut came the gore as oil prices collapsed to under $50. Bloomberg reported that since the start of 2015 and till May this year, 130 North American oil and gas producers and service companies have filed for bankruptcy owing almost $44 billion. Read here
Corporate history is littered with the remains of companies that were caught out by change. But in the past, there was a long gap between the first warning signs and the final rites. Think Hindustan Motors Ltd whose die was cast the day the first Maruti 800 rolled off the lines in 1984. But the erstwhile market leader dragged on till 2014 before the last of the Ambassador cars finally faded away into the sunset.
Today though, that leeway isn’t available to anyone. So, if I were a plastics or polymers manufacturing company like Supreme Industries Ltd or Nilkamal Ltd, I would be very, very wary of the advances in 3D printing.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.