Lululemon Problems - An Operations Perspective

This was co-authored with Tabitha Pladet, Ace L. D. Mundo and Nidhi Garg

1.      What is the Problem?

When the team was researching on a topic to choose, it came across an article that was published on the Wall Street Journal dated January 13^th, 2014 about Lululemon that said that the supply chain had been the major reason behind the major recall of products, the mismatch in the SKUs, and inconsistent demand planning. The team decided to dig deeper in the problem and find the real cause and come up with a viable solution. (Exhibit 1) From what was evident, following were the key issues that the article identified:

1. Quality problems that led to recall. The yoga pants were see through when users bent.
2. Inconsistent quality led to delay of orders and their deliveries.
3. Delay of orders and their deliveries led to lack of merchandise in the stores that was up to date with fashion trends, a key feature of this industry.
4. Late arrival of matching pants to tops.
5. Incorrect forecasting of sales led to accumulation of stocks.

Before we elaborate on what caused the problems and what could be the best work around for the problem, we would like to briefly mention a little about Lululemon.

2.      Who is Lululemon?

Lululemon or Lululemon Athletic is an apparel manufacturing company that is, at its core, inspired by Yoga practitioners. It innovated on its product line from the late 90’s to become the second in sports apparel volumes to Nike Women’s sports apparel by 2013. It draws a lot of its customers primarily because of the flexibility and the unique quality of Luon one of the special fabrics that Lululemon uses in its clothing line.

The company is head quartered in Vancouver Canada. Its major production hubs are <>

The company was started by Chip Wilson, but he quit after a goof up, that forms the core of our study caused them to lose over $67 million in revenues and a lot more in terms of brand image.

3.      What does the Supply Chain of Lululemon look like?

The supply Chain of Lululemon has the following blocks:

1. Design and Development
2. Sourcing and Manufacturing
3. Distribution and Delivery
4. Wholesale
5. Retail

A pictorial representation is present in exhibit 2.

What we observed was unique about the supply chain is that they use PLM software to manage the demand data (source: exhibit 3). But the sorting of clothes while packing only happens manually. Also, the demand forecasting is more a reactive feature of this supply chain as opposed to a proactive approach. What we saw was there was a challenge in the logistics, and supplier front of this chain. The suppliers of Lululemon own the proprietary of the Luon fabric, and the manufacturing is done primarily by the suppliers and manufacturers. Lululemon just brands the clothes and ships them to their distribution channels using a logistical solution system that is also outsourced (exhibit 3)

The challenge that we as a team anticipate from such a chain are:

1.      Quality Assurance/ Quality Control: Since Lululemon does not own any of the suppliers or the manufacturing process, it points to an obvious challenge that the company would face in implementing a Quality Audit and maintaining a certain standard.

2.      Testing Methods: We looked in closely at the fabric testing conditions that Lululemon was applying in 2012 (exhibit 4) and one concern that was echoed by those watching Lululemon closely was that the tolerance levels of the fabrics wasn’t tested as stringently as it ought to have been. What Lululemon discovered eventually was that small changes in the fabric composition and handling created major noticeable differences in the end product.

3.      Back-Flow of Demand information through the supply chain: What we as a team discovered as a key challenge after looking at Lululemon’s supply chain was that the company was not ready to accept data from the customer in the form of feedback and implement changes that would lead it to achieve its quality and delivery goals.

4.      What is the REAL problem?

When the team investigated the problem during the initial stages, we concluded that due to a flaw in the production, the quality of the yoga pants was compromised. As a result the media labeled them see-through. This led to the recall of the batch by Lululemon. After encountering this issue Lululemon started concentrating its effort on looking at the production and trying to figure out the fault in it. To ensure that no such quality issues pop up again they added more of the inspection and quality control procedures to the process. This increased the quality standards but led to the delay in deliveries since inspection and quality control processes were time taking processes. Because of the delay in deliveries and the recall a batch of shirts arrived the retail stores without the matching yoga pants. In an effort to correct the production process, Lululemon almost forgot introducing new designs in the market as per the new season. This drove customers off the stores. Because of the all this they were not able to forecast the sales and inventory correct and this made them incur the high inventory cost.

But upon deeper investigation we observed that the metrics used to test the fabric was the real issue. Since the lower threshold testing was at fault the quality of products churned out by the quality control was not up to the mark leading to the see-through quality.

5.      How can we best address the problem?

Our team recommends a three-pronged approach towards solving the problem with Lululemon.

Firstly, it needs to set up adequate testing standards as a first reaction to its current see-through fabric problem. To this effect I am sure Lululemon’s current testing and quality team can come up with the best set of solutions to create a process to eliminate this flow.

Secondly, Lululemon needs to identify a better forecasting model that factors in key elements such as demand and arranges its suppliers to react fast to the changing demand. Something that Lululemon can borrow from Zara, (exhibit 5) another JIT supply chain company. Zara does not over produce. The secret to their lean set up is marginal inventory, and limited stocks of key products. Given that their segment needs them to be updated with the latest fashion trends they need to keep changing their design and inventory levels. As a result, they commit to only getting approximately 50% of the expected volume, and the rest it changes depending on feedback from the retail channels. Maybe Lululemon can adopt a modified version of this inventory, and lean method to modify its forecasted demand data and train suppliers to be more agile.

Thirdly, to maintain a strong ecosystem of suppliers, and on time deliveries, the company needs to invest in a strong leadership, and have strong logistic partners. This can become a competitive advantage for the company in the longer run. For example, Flipkart, (Exhibit 6) India started out as an e-commerce company, but is now diversifying into a strong logistics partner for key businesses, including other e-commerce companies.

Exhibit 1: The Wall Street Journal Article

http://www.google.com.ph/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CC8QFjAA&url=http%3A%2F%2Fonline.wsj.com%2Fnews%2Farticles%2FSB10001424052702304549504579318120467741330&ei=yLkJU9_eFcXNiAf514CgDg&usg=AFQjCNHGyyhBj3sLZubziTk9dH7zyrWAlQ

Exhibit 2: Supply Chain of Lululemon

<Tabitha Please Put that Picture here>

Exhibit 3: Evidence of PLM Software Use

http://hawksquawkblog.edublogs.org/?s=Lululemon

Exhibit 4: Evidence of Testing Parameters Used

http://fashionista.com/2013/04/lululemon-admits-to-bad-testing-protocols-in-aftermath-of-see-through-yoga-pants-debacle/

2012 Testing Parameters:

http://www.lululemon.com/files/lululemonathleticaRSL_VERSION+1.4+APRIL+2012.pdf

Exhibit 5: Zara Supply chain

Exhibit 6: Flipkart Logistics (eKart)

http://articles.economictimes.indiatimes.com/2014-02-13/news/47305247_1_logistics-arm-payzippy-sachin-bansal

Binnj and Many new start ups that get it all wrong

The biggest challenge that Binnj faces is the absence of an elaborate market research to generate significantly deep insight about the restaurant business industry that can be the game winner in this case.

Without that insight, and I will elaborate on the kind of insights, creating a business model canvas is tough. What Binnj has is a concept board, where they think that they have an idea and are now in the process of field testing the conceptual product.

I agree, that lean-startups adopt this model, but now that they have invested so much time into the development of the product, I think it’s time they explored how they will come up with their value proposition, their positioning, identify and segment customers, identify the Minimum Viable Product and the Minimum Viable Segment and work towards an acquisition and retention strategy.

For example, if I were to ask them questions such as, how big your market is, and how much are you looking to capture in how much time, these questions would perhaps not earn me quantifiable responses.

Also, one crucial piece that is missing is the financial viability of the product. Without knowing how much the service would cost to design, build, implement, sell, maintain, enhance and earn revenue from, investing too much time in product development does not make sense.

The case only mentions two broad segments, the ERG, and the SMERG clusters. I do not think they have broken down and identified these restaurant chains by location, and come up with a specific plan to acquire those customers. For example, if I were to ask Mr. Hutcherson, who is your customer and why is he your customer, the response I am anticipating, based on the case is an abstract one. Not a specific answer, such as “I intend to target A, B and C restaurants in this location, because they will pay, they do not need to spend a lot to try the product, they can easily adopt this kind of a solution to their existing practices, and that they will perhaps help me leverage their acquisition into future acquisitions.”

I agree prototyping is important, but the hundred day sprint could have been an ill-conceived plan given that the work really requires the business development team members to generate key insights.

I believe that they should sit and work out finances first, to explore the possibility of working out how much the business is worth and how much it will cost to develop. This to me is a significant step. More so because everyone on the current team has other day jobs, therefore, prioritizing and executing tasks becomes a key strategic issue.

The second step would be to generate insight into the restaurant business. Currently they have identified inventory management systems, a standard restaurant menu and lack of opportunity to selectively price items, as some of the pain points. But what if, for example, the clients of the restaurant want the waiter to service them personally and not want to order via an app? Then in that case their solution would fail to take off on a scale that they might have imagined it to take off on. In this case, coming up with a low cost, intuitive and smart application for inventory management might be a more viable solution than a digitized menu.

Third, they ought to clearly map the pain point of the restaurant industry and then come up with a list of features on the app that would solve each key pain point. The next action item would be to list down, on the basis of priority, the features that cut through the segments and those that are specific to one given segment.

Fourth, they should then look at the potential competitors. At this moment, they have identified a few, but that is again based on limited insight. What would be crucial in defining the competitor landscape is the kind of details their research can generate. This would help in coming up with a more focused MVP.

The next step would be to then focus on prioritizing key features of the prototype that can be taken to the field to test and demo to clients. To me, they have failed to identify those particular pain points clearly and subsequently translate them to priority items to their developers.

The next step would be to identify the go-to-market strategy. Currently no one in the team is talking about it. They seem to be building on a direct sales approach, but that limits visibility and adoption, more so because the product might not be “buzz-able” in its current state. Questions such as, how does Binnj look to educate potential customers about the features and benefits of the app, and how does Binnj plan to generate sales-leads through connecting with the elements in the restaurant business, haven’t been explored.

A direct sale is a costly proposition. More so in a B2B product because the typical acquisition costs go up owing to highly diffused landscapes.

Identifying one’s client’s customers and positioning oneself strategically with the client’s value chain is an important element that is missing in this case.

For example, if I am just a fancy, flashy restaurant menu app that runs on the iPad, and my client restaurant adopts it, but the restaurant’s patrons ditch the idea because one of the regulars likes the waiters, they will perhaps not adopt the idea in the long run. What then about the restaurants that doesn’t have such waiting services? Will they know that such a solution exists? Will the sales team be able to reach them?

The agile methodology of developing a product makes sense if they have all these things identified at either the start, or has a strategy in place to iteratively identify such insights in quick time and get product prototypes.

I feel adopting and proceeding with the guidelines mentioned above, would help the team chart a more definite path to take the product towards execution.

CUMI India's China Strategy - My Take

CUMI aims to convert its strategic objective of capturing the Chinese market, both on the material sourcing and market share capture front. It looks to create a unique, defensible and valuable position in China.

Its time tested strategy that worked in Russia and South Africa doesn’t seem to be working in China for CUMI.

To aid in the analysis, data pertaining to competition (local players, international players in the same arena as CUMI is looking to expand in), and data pertaining to successful strategies of international companies that set up in China can be looked at. However, this information is missing in the case.

I think CUMI failed to identify, analyze, and pursue a tailored strategy for China. Using the three Key Performance Indicators of Quality, Time and Cost involved in the process of setting up in China, I can see that a move into China, based on the information presented in the case gives the company a strategic edge in the Time to manufacture same Quality at significantly low Costs, is the logical step forward.

To analyze the political, economic, socio-cultural, technological, environmental and legal situation (PESTEL), I will attempt to break the value chain from the point of CUMI. Further, I will try to evaluate the strategic fit of each element of the value chain into the PESTEL components.

The value chain could have the following components: Product Design, Manufacturing (Raw Materials, Parts Production, Assembly), Marketing, Distribution and Service. Product Design is an element that creates a unique, defensible and valuable position for CUMI at the moment. The objective behind getting into China is gaining a competitive edge in the Manufacturing front. But what I believe CUMI failed to look at could be Marketing, Distribution and service. I will expound more on the marketing and distribution strategies later in the paper.

Russia and China provides a similar political environment, but when the other factors in a PESTEL analysis are considered, China and Russia differ substantially, especially, when it comes to the Economic, Socio-Cultural and Legal factors. Therefore, what may work in Russia or any other country might not necessarily work in China.

The manufacturing component interacts with the political, environmental, economic and technological feasibility of China favorably, making the manufacturing process a good entry point. The various clauses that dictate partnership agreements with the investing companies create a barrier to entering the markets influencing the Legal aspect of a PESTEL analysis.

The other aspects of the value chain require further research in the PESTEL analysis to determine the interactions within.

The country strategy of CUMI seems to have been partner with a local business, enter into a joint venture and then either buy out the partner or stabilize the business.

A successful manufacturing venture in China’s political, economic and legal system in China entails a tough choice between giving up the competitive product development and manufacturing processes for achieving success basis the key performance factors.

The socio-cultural make-up of the Chinese manufacturing industry focuses on collectivist growth. The risk appetite of the Chinese market is far beyond what CUMI is willing to take. Sure the risks are big, but rewards are big as well assuming the company can capture its targeted geographic resources and competitive labor.

I feel one aspect to succeed in a business environment is by attaining resonance with the value chain that you are trying to enter. For example, if CUMI is trying to enter the Chinese market, it should identify what location in the value chain of the Chinese manufacturing industry it will capitalize upon. The opportunities that CUMI can explore is by giving up its edge with regards to the design and process, however create another unique, defensible and valuable position with regards to the value chain. It can explore areas such as distribution and marketing. This would solve the twin objectives of gaining market share and creating a sustainable source of profit that it can leverage.

One very important, yet neglected aspect of the value chain, that I feel CUMI failed to look at is how businesses would use their products. I talk about this from a business-to-business perspective. To elaborate, to create a valuable and defensible position, if the distribution channels for adhesives can be identified, modified and manipulated there is a distinct possibility of coming up with a feasible Mc. Kinseys Game Board (copyright McKenzie).

The other alternative that CUMI can explore is creating a joint venture, this time, however focused on acquiring an adhesive manufacturing company, similar to its strategies in India, Russia and South Africa. This of course would mean giving up its technological expertise (IP), but establishing an R&D facility to enable it to come up with newer products in other geographies would mean that it keeps its position in the value chain outside of China.

Another expensive, yet viable option could be to set up a manufacturing facility that contributes to the production of specific product components and then look at importing to India to deliver the finished product.

The key decision that CUMI needs to make at this juncture is whether it can really risk losing its production intellectual property. This is at the core of the adhesive industry. By production IP, I mean all aspects of its production process, from sourcing supplies, to the workflow, to the finishing of the product.

The implications of such a decision would require CUMI to look into the future to see where the company is headed, re-look at their mission and vision statement to see if the consequences of such a move would require it to invest in certain strategic areas such as R&D and securing the sales and distribution channels of its business-to-business model of operations.

I think CUMI should also revisit the position it aspires to target with regards to the current international value chain. If it currently leverages on just the production processes, CUMI should explore what more can it offer at the other geographic locations that would enable the company to grow sustainably.

If I were asked to suggest a course of action in this case, I would suggest setting up a joint venture to achieve its key objectives of producing cheap, and timely. This would, however, mean that CUMI needs to go back to the drawing board to figure out where in the value chain it would want to be to make it a market leader in terms of strategic positioning. One possible alternative could be that it places itself in the marketing and distribution segment as an innovator due to its product offerings and key strategic partnerships with other national and international steel manufacturers.

The company can then re-look at charting out a definitive plan in terms of where the R&D should be in order to come up with suitable innovations in its product lines so that it can remain an attractive choice for its overseas markets.

To really capture and gain a strategic advantage in China over other players is a challenge. Some ventures have managed to capture the unique opportunities that China has to offer (such as Boeing), however many have failed. For example, Mahindra and Mahindra’s strategic partnership in manufacturing engines and parts has failed in China.

Given the evidence of failures, I feel CUMI should be open to the possibility of establishing and growing alternate lines on business in China, as opposed to the manufacturing edge it is looking at. This, perhaps, is a conservative outlook, but something that the board should be open to adopting if the situation presents itself.

Entrepreneurs I Admire

Five successful entrepreneurs I would like to emulate are:

1.      N. R. Narayana Murthy, co-founder, Infosys.

2.      Kumarmangalam Birla, Chairman, Aditya Birla

3.      Jamsetji Tata, founder, Tata

4.      Harish Hande, founder SELCO (http://www.selco-india.com/)

5.      Ronnie Screwvala, founder UTV

The key competency analysis with examples and scores:

NRN Murthy to me a symbol of innovation, fair play, simplicity, discipline and sheer intellect. These are skills coupled with a humble and down to earth nature of Mr. Murthy that makes him one of my biggest inspirations in the world of entrepreneurship. Having seen him face-to-face by working in the same company, and hearing him speak has indeed been an honor. His company started out in the relatively nascent stages of software outsourcing, even before India opened its doors to FDI. But he saw opportunity, where most saw failure. To implement this he sought out several key innovations, that to me rank in the top five skills every entrepreneur should have.

He is disciplined and this quality of his translates down to the entire workforce of Infosys, the entire 150,000 of his workforce. This quality ranks also, among the top five skills every entrepreneur should have.

Mr. Murthy is smart. When he co-founded Infosys, he relied on sheer smartness of the team. He relied on its ability to make something special out of virtually nothing. To me, that is important. The most important tool in an entrepreneurs’ toolkit ought to be smartness. It can be street smartness, academic smartness, practical smartness, and ethical smartness.

The other amazing trait of Mr. Murthy is his down-to-earth nature and his proximity to his community and the country. I think what differentiates a leader, and an entrepreneur from the run-of-the-mill guy is his ability to stay grounded. To me this is the second most important trait of an entrepreneur.

KM Birla would be an unconventional choice for an entrepreneur, but I chose him simply because he maintains a very low key and quietly does a lot of community development work. To me businesses should not just be focused on making money and growing, but also focused on giving back to society. I admire this quality of Mr. K M Birla, thus mention this. This is perhaps the third quality in an entrepreneur I would like to emulate.

Dr. Harish Hande, is a name not many have heard of, perhaps even less of his start up. SELCO is a for profit social enterprise based out of Bangalore that produces photovoltaic lights, water heaters and cook stoves. His premise was, to dispel three myths, that is:

1.      Poor cannot afford Sustainable Technologies,

2.      Poor people can’t maintain sustainable technologies,

3.      Social Ventures can’t be run as commercial entitites.

To me that is vision, and opportunity, and the fourth most important characteristic an entrepreneur should have. Since 1995 his company has sold and serviced more than 150,000 installations.

Ronnie Screwvala, made money out of entertainment in a big way. So big that he ended up on the Time’s list of 100 most influential people in the world in 2009. He not only gave entertainment a slew of films that were high on commercial and social value, but also a level playing field for talent. He also invested in businesses that were thought to be risky and turned it around. Today he has diversified into communications, news and venture capitalism. He also runs the non-profit Swades foundation. The quality that I admire in him is his eye for the right things such as which businesses to invest in. This is perhaps the fifth most important thing an entrepreneur should have in his toolkit.

JRD Tata laid the foundations of entrepreneurship when the country was under the British rule. He thought up the future and shaped many aspects of India that we today are extremely proud of.  He had something I wish every entrepreneur had, vision and very strong one at that, about his country.

My evaluations on where I stand with regards to the skills mentioned above are:

Smartness, I think I’d get a 2.5, because there is much to learn and refine.

Grounded, I think I am modest, and grounded, but then again, it takes time to really prove such a fact, so I’d give me a 4.

Community Development, Giving back to the Country, I love my country, and one day I hope to help the country out in a way that can really make a difference. I have that drive, so I’d give me a 3 since only time will tell if I do.

Innovation, I would rate myself at a 3.5 in this, because thanks to my engineering training, I am coming to terms with thinking beyond the box, as opposed to linear thinking. But I can say this; I am learning and learning fast.

In five years I look to be in a position where I am developing, honing and planning for my return to India as a social entrepreneur and is for profit in another ten years. The plan is to move to areas that expose me to opportunities that test, train and hone these skills.

Strategic Management - A Reflection

My objective at the end of my MBA is to emerge a better strategic thinker. Someone who can listen, can think, and flesh out, the core from any given macroeconomic phenomenon, business, project, team and eventually personal, situations. I hope to go about this goal using more diversified cross functional knowledge, experience, study and observation of people and situations.

The course opened my mind to include a multitude of possibilities and to apply certain basic frameworks, methods, processes, and ultimately common sense to analyzing and churning out thoughts on a variety of issues.

I must admit at the very beginning that I am no master to coming up with solutions, more a practitioner in thinking about the core, the heart of business issue. Coming up with solutions in my opinion would require a more patient, sustained and dedicated study of a variety of businesses. At this juncture, I am neither qualified, nor do I possess the knowledge to make me a strategic solution maker of repute and acumen, but I certainly am pushing to get there.

Pardon my digression, returning to the course, I would say prior to SM, my instinct was almost always to think about the solution to any given problem first. Malcom Gladwell’s book Blink talks about instinct, and I used to apply similar principles to problems. What I realized later is that most of my thinking is done to rationalize the first instinct I get and what I perceive as right.

This was my strongest notion that got challenged, and eventually changed with Strategic Management.

I can break my learning with Strategic Management into three broad stages: Understanding, Learning and Internalizing phases.

Understanding Phase

I began to realize that the way I was thinking could be improved by listening. In term 1, my focus was strictly on understanding a method of thinking. My whole life till beginning of SM1, I have been a free thinker, where I used to listen to multiple sources, but ultimately discover my chosen path. With SM, I was forcing myself to step into the shoes of my professor, my classmates, and my learning team.

This was a moment where I grappled with the instinct to throw out a solution that I felt was the best and only possible solution to the problem, and was consciously trying to listen, think, and most importantly analyze the situation around which a particular business problem lay.

This was particularly helpful to me to understand the readings and cases we were discussing in class. The external analysis requires the strategic thinker to appreciate the environment, and I had embarked on that path. This was, however, not clear to me at the beginning, and like most things in my life, made a lot of sense when I looked back.

Learning Phase

I began to practice this habit with other subjects, and more importantly begin to narrow down my view to a particular business under discussion. This was rewarding in a lot of ways, because I began to see why taking the decision was important to the proponents of the case.

I was delighted to implement certain techniques I had observed during my understanding phase on my learning team and my peer group.

For example, one of the key realizations that I experienced during the beginning of the course was that time was, in fact, the most precious resource to not just MBA students, but for everyone. Hence, the objective of mine was to use time as efficiently as possible, and I applied that to my learning team. By nature I am not a dictator kind of a leader. I prefer to lead people to think they are moving themselves, and no one is brandishing a whip behind them. I admit, to do this, I have to play the good-cop/ bad-cop, and in certain cases be very passive aggressive, and tactical, but I have learnt that these are essential practices that will help me survive in the corporate world.

Internalizing Phase

This by far, has been the most exciting phase of SM. The skills that I practiced in the second 33% of the course were really coming to play when it came to reaching the core of a business matter. My approach in class was to listen to everyone, and then begin questioning the assumptions made to clarify the direction, that we as a class were collectively, taking.

I wanted the case that we were presenting in class about Rural Banking to be an exercise to really dig to the core of the case issue. This was enjoyable, as I set a deadline for the learning team to come up with the presentation, practice the parts of the presentation and then come up with a set of slides that were not just clear to look at, but also something that is insightful, impactful, and helps us the presenters, and the class to appreciate the key strategic issue in the case. This was when I realized that this methodology had become a part of me with other subjects when I as an individual and my learning team started getting feedback that we were evolving to become more focused, and structured.

Some of my KEY takeaways on my path to becoming a strategic thinker are:

1.      Management is a People Interacting with People activity. What most people ignore is this critical yet simple aspect of Management.

2.      Common sense is the best friend of the strategic thinker, when data pertaining to a certain case or business situation is missing. Assumptions are rooted, most of the time on instinct, experience, and related facts. While it is a good practice to justify reasons behind assumptions, one of the common pitfalls of assumptions is that, it ignores common sense completely.

3.      Strategic thinking requires the practitioner to understand and relate a multitude of complex issues, however, if I as a practitioner cannot explain the strategic issue in simple words to someone such as my mother, I probably did not get the problem right and I need to relook at the way I thought it through.

4.      The devil is the details, more often than not, the world and businesses will throw a variety of numbers and data that will only confuse the strategic thinker. The key acumen lies in identifying the relevant ones and filtering them through the web of data.

I hope to someday become a CEO and sit on boards of companies. To that pursuit, I am convinced that this course is an important stepping stone. My only regrets about this course are:

1.      The time allotted to this course is too less.

2.      This course should probably be rolled out at the end of the MBA, to tie things up well.

3.      This course focused on getting to the heart of the issue, but what would have been really interesting is to push it further to see how making decisions at the heart affects the rest of business.

That apart the course has been a wonderful start to my quest of becoming a strategic thinker of certain repute. 

Asian Business Systems- A Perspective

The Premise: What Intrigues Me

Succession is a key issue in family-owned corporations is a fact that is established. What fascinates me is how we can get insight about succession planning from fields that might not be perceived as corporates, or conglomerates, in succession dynamics.

On the one hand, in Asia, typically family values, patriarchal societies and socio-cultural dynamics shape the choosing and appointment of the next head of family conglomerates. I will however, ignore this aspect and will attempt to look at succession, by trying to draw parallels between two universes in succession planning, one that of business conglomerates, and farming.

A Parallel: Farming

To draw a parallel I would like to explore, one of the oldest forms of succession planning in practice. Asian Economies are influenced a great deal by farming, and it is one of the oldest forms of businesses still driving growth in the region. Therefore, I look at farms.

Factors Affecting Succession Planning in Farms: Initial Research

Education

A study of Israeli Family Farms[1], suggests that level of education influence succession decisions. The study found a strong positive correlation between levels of education and succession planning in farms. Here, too the objective of farms is to maximize the value of the asset, from generation to generation as in businesses.

Ownership

A study by ARMS[2] reveals that the probability of a successful succession plan increases approximately 4.4% if the business is organized as a sole-proprietorship.

Detailed Agreements, Communication and Finding the “One”

What I found particularly interesting was a study by NCFTN[3] that suggests farm-owners should deliberate and agree upon things such as “machinery sharing arrangements and leases, or partnership arrangements”. What amazed me was the similarity between farm successions and business succession as evident from this checklist provided by the Ontario Ministry of Agriculture and Food[4].

The detailed plan outlines the importance of identifying an heir apparent, laying out a comprehensive plan with vision, mission, strategic objectives of the farm, financial position, the roles and responsibilities of all stakeholders, the division of land labor, assets, and diversification plans (if any), and then testing if the chosen-one will be able to carry out the responsibilities that the current farm owner(s) has (have) outlined for the coming years. It also highlights the importance of communication between all the stakeholders that elaborates on the reasons for succession and the strategic objectives of pursuing a succession deliberation. The studies reveal that at the core of all successful succession strategies is effective and seamless communication.

The study by ANZ[5] reveals that in most family run businesses, agro- included, a measly 10% are considering succession or have a plan in place. This survey also includes family owned businesses where one would expect a more realistic succession plan for the future. This brings me to the importance of a “Charismatic Entrepreneur”[6], the able, effective communicator, who can establish himself/herself as the next successor early on for the founder or the owning generation in the conglomerate. This person clearly establishes his/her presence in farms/ businesses and therefore makes the identification of the “one” easier. However, not all farms/ businesses have such an individual.

Key Influencer

The other key insight into succession planning that I came across was the presence of the key-influencer, or key-advisor. This person sits in on the deliberations, the key business decisions such as: asset assessment, liabilities, debt planning and other key factors that affect succession planning.

Tying it all Together: My Hypothesis

            The similarities between farming and businesses are staggering. Three key success factors for businesses, Commitment, Knowledge Continuity and Pride[7], which affect businesses, also affect farming. Farming goes through similar stages of growth as businesses do. Therefore, I feel that studying farming may help us identify more such factors that affect succession planning.

            It would be interesting is to find correlations between: socio-cultural set-ups, colonial influences, farming practices, and crop/ livestock objectives of farms and succession strategies. This can then help us look at equivalent businesses in terms of scale, size, earnings, gestation periods and market capitalization of businesses and predict succession strategies that can be adopted. This however, is only my wild hypothesis.

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[1] Intergenerational Succession in Israeli Family Farms, Ayal Kimhi and Noga Nachlieli, May 1998, http://ageconsearch.umn.edu/bitstream/20811/1/spkimh01.pdf

[2] Factors Affecting Succession Decisions in Family Farm Businesses: Evidence from a National Survey, A.K. Mishra, H.S. El-Osta, 2007 Journal of ASFMRA http://naldc.nal.usda.gov/download/36666/PDF

[3] Farm Succession Planning, Andrew Branan, JD http://www.cefs.ncsu.edu/publications/dairyconferenceproceedings/07managingfarmtransitionsbranan.pdf

[4] Farm Succession and Planning Steps and Checklist, March 2010, Peter Coughler, Christine Wenger http://www.omafra.gov.on.ca/english/busdev/facts/10-025.htm

[5] Passing the Baton: Strategies for building a sustained family business across generations, ANZ New Zealand http://www.anz.co.nz/resources/9/0/903b5162-1d0a-480d-bcab-1322294f5200/passing_baton.pdf?MOD=AJPERES

[6] Family Business Succession in Hong Kong: The Case of Yung Kee by Fu-Lai Tony Yu (HKSYU) and Diana S. Kwan (CUHK)

[7] Three Key Dimensions for Doing Business in Asia: Family Corporations, The Diaspora, and the Informal Economy, 2012, by R.V.L. Uy and Prof. F.L. Roman, AIM, 2012.