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Decoding the Rs 1 lakh message
Ajit Balakrishnan
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January 11, 2008

It is early January here in New York and the weather had no right to be as warm and sunny as it is today. By any account it has to be freezing and below zero Celsius and the streets have to be speckled with dirty, melting snow puddles. These pigeons that we see hopping along in the square ought to be hiding from the cold in a warm nook of some building. The streets are bustling with people. This is not a sight for early January. People ought to be indoors and the streets ought to wear the deserted January look.

I find myself strolling back from lunch with a prominent technology guru of a prominent Wall Street bank.

"I have finally figured out what 'one lakh' means," he said to me.

"How come?" I asked, genuinely surprised. There have many things I have tried explaining about India to our western friends, but not our numerical system of "lakhs" and "crores". I thought we had left that safely behind in favour of "hundreds of thousands" and "millions". The term "lakh" had seemed so archaic. But here it was, back in the world's headlines with the "Rupees One Lakh car" from the Tatas.

"I believe what the Tatas are unveiling today, their Rs 1-lakh car, is going to change the way the world looks at Indian companies," my tech guru friend said.

"When the Indian software industry made its mark," he continued, "the rest of the world had understood how they did it; Indian programmers were a tenth as expensive as programmers in the West. Then the Indian rupee steeply devalued from Rs 8 per dollar in the mid-1980s to Rs 45+ per dollar in the mid- 1990s, making the cost competitiveness case even more compelling. But the Rs 1-lakh car is different.

"They will get to this target not by using cheaper labour or cheaper materials available only in India. They are going to get to this by bringing into play product design skills, consumer insights, management systems, perhaps even a new business design. In other words, they are going to compete on capabilities, not resources. That's why it is sending a shudder down the spine of many Western executives, not just car industry executives."

Tata Nano: The world's cheapest car

As I walked back to my office my mind strayed to other such moments in industrial history.

Take, for instance, Richard Arkwright's successful effort in the early part of the 19th century to make machines spin yarn of a quality equal to or better than that spun by skilled, hand spinners in India. His innovation made yarn cheaper and thus made cotton cloth woven from it affordable not merely by the very wealthy and it had been till then.

What Arkwright did was not saving labour costs by using machines instead of labour because any such savings were more than offset by the cost of equipment and factory buildings... His real innovation was in the design of work such that workers would all congregate at a fixed place of work (a "factory") and thus work for predictable hours and under tight supervision as opposed to working odd hours at home. Superior work organisation allowed output to be dramatically increased and made cotton yarn widely available, a feat that home-based spinners could not achieve.

The rise of the Western world was predicated first on this idea -- the use of machines to do at one central place what hitherto human muscle power had done in decentralised home-based activity. Then came the use of chemistry to make synthetically and in plenty materials that had been hitherto available in nature in restricted quantities and in varying quality levels and consequentially at higher prices.

Thus indigo from India was synthetically produced and became available in vast quantities and at a fraction of the price of natural indigo; aspirin, hitherto distilled from the bark of willow, was similarly synthesised and millions of ordinary citizens benefited.

Henry Ford created another revolution when he launched his Model T car and brought cars within the reach of ordinary people. He did this by deploying "mass production" techniques -- a new system of arranging a sequence of metal working machine, which did repetitive operations reliably and which could be supervised by the illiterate, unskilled immigrant labour coming off the impoverished farms of Ireland and Southern Italy -- the only kind of labour available to him at that time. Ford's "big idea', mass production, then got deployed in a wide variety of metal working industries and made such objects like the sewing machine and bicycles affordable by all.

The "big idea" behind the Rs 1 lakh Tata car is this -- an Indian company has dreamt up a management system and a business design to build cars that are affordable by people who had never dared dream of owning a car.

The real message of the Rs 1 lakh car is that in one stroke, it is showing the way to Indian managements that a new era awaits -- one where you compete on superior management capability leaving behind decades of attempting to compete on cheaper labour or cheaper natural resources.

It's like the early coming of spring after a long cold winter.

Ajit Balakrishnan is the founder and chief executive officer,
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