Management recap: Birla’s target spotlights the classic ‘rule of three'

As management scholars pointed out after India opened itself up to greater competition in 1991, competitive markets were often seen converging towards a three-player structure.
As management scholars pointed out after India opened itself up to greater competition in 1991, competitive markets were often seen converging towards a three-player structure.

Summary

  • The group’s aim to be among the top three in major financial-service markets evokes a ‘rule of three’ that top leaders of businesses in competitive markets find they must contend with.

The ‘rule of three’ looks ripe for a return to management discourse. At the launch on Tuesday of an online platform designed to “acquire customers digitally at scale" that is expected to become a “full-stack financial services provider," Aditya Birla Group Chairman Kumar Mangalam Birla outlined the conglomerate’s ambitions in this space. Armed with its new app, Aditya Birla Capital Limited (ABCL) is aiming to add 30 million customers in three years to its current user base of 35 million, he reportedly said, adding that the Group intends to rank among the top three players in the fields of lending, asset management and life insurance, given their high growth potential over the next three-to-five years. This aim needed no elaboration. In general, the number ‘three’ is special in many business contexts. Not just as a rule of memory—the top three brands are typically most cited in any market with high rivalry—but also as an organizational principle.

As management scholars pointed out after India opened itself up to greater competition in 1991, competitive markets were often seen converging towards a three-player structure. In many industries, only three companies tended to capture the bulk of sales and profits, leaving little for the rest. With market forces at play and barriers dropping for mergers and acquisitions, this was expected to happen in several sectors. In response to this ‘rule of three,’ business groups with diverse interests embarked on portfolio reshuffles to focus only on enterprises that could be in the top three of their respective fields or were already counted as such. Also-rans, went the rationale, would not be worth the effort and were best sold off as assets that other players would better be able to run. In the three decades since those exercises began, the rule has aged well. It remains in wide use as a test for whether to double down on market participation or withdraw. An in-depth take on the idea was proposed by Jagdish Sheth and Rajendra Sisodia in their 2002 book, The Rule of Three: Surviving and Thriving in Competitive Markets. They took the rule as a guiding force for the formulation of a business strategy in the face of dynamics observed in well-contested markets. In their analysis, success demands a competitive edge that’s acquired best by focusing on three key aspects of a business: customer segments, strategic relationships and core capabilities. Making a difference needs mastery of each. First, they recommend identifying three distinct customer segments to target, so that offerings can be made on the basis of a duly close grasp of their differing but unique needs and preferences. Second, they advocate forging strategic relationships with suppliers, distributors and other stakeholders that could play a vital role in a company’s success. Third, they argue that it’s important for a company to develop and leverage three core capabilities that differentiate them from rivals and generate value. Ultimately, this is the saw that needs to be sharpened to sustain the market advantage acquired. Broadly speaking, this advice has also aged well over the past two decades.

As far as competitive intensity goes, financial services are set for an online pivot that’s likely to favour size even more dramatically, given the winner-takes-all tendency of digital spaces. ABCL’s app will face rivals from Tata Capital, Bajaj Finance and also Reliance’s Jio Financial Services. Let’s watch how this game of apps shapes up. There’s nothing quite like a classic old rule being tested in a whole new space.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

MINT SPECIALS