Wednesday, August 24, 2005

The need for a quality bias

In India everything seems to happen four years later than you expect it to happen. I'm trying to figure out if there is a way to speed things up. The all too often discussed reasons of red-tapism, inefficiencies of our legal system and ineffectiveness of our governmental agencies are becoming a rather boring and fruitless part of social conversations in our country. I don't want to be part of such conversations.
I think it's this bias towards cheaper products and services that seems to slow down the economy, making it poorer. It's a cycle that feeds low quality and perpetuates poverty. Now I'm not suggesting that the guy asking for a higher price for his services is necessarily a better vendor but the guy who made a lower offer had probably overlooked contingencies or factored in an excess amount of luck in drafting his offer. Cash flow problems that result from unaccounted contingencies lead to delays in implementing projects and sometimes into projects that never end. I can hardly think of a project in India that finished anywhere close to the scheduled date and within budget. I have no objections to buying products cheaply but excessive focus on costs can make us victims of low quality. Everybody is for quality but provided it is also at the cheapest possible price. Businesses ending up buying low quality products because of their excessive focus on the purchase price may end up with a) Lesser number of customers b) Cost overruns due to frequent maintenance or replacements and c) A higher cost in supporting and selling it's products and services. Gary Hamel and C K Prahalad in their book 'Competing for the Future' warn businesses of lower profitability from- 'A downward spiral of customer expectation where, ever poorer service begets ever lower expectations and ever more price sensitivity.' Most people trying to reduce cost by focusing on the purchase price, end up with contrary results. Excessive focus on purchase price has kept higher quality vendors away from the Indian market and resulted in a drain of high quality professionals to markets where quality is better appreciated. So the Indian market now has abundance of low quality products and service vendors willing to work at lower margins. Lower margins in turn leads to – a) Poor investments in product improvements b) Use of capital equipment for longer than their recommended life span c) Under budgeting for planned and capital expenditures, leading to higher unplanned and unexpected expenditures in maintenance and emergency replacements. So these vendors who start out as low cost alternatives eventually pad up their price to cover for all the unexpected maintenance and repairs. That's a double whammy - low quality at high costs. True sometimes what starts out as poor quality, in time improves as has been the case for Japanese and Korean products that started at the lower end of the product sophistication and moved up to occupy the top slots. But that happens only when there is overriding quality vision driving businesses. In the absence of such a vision, external market conditions play an important role in determining the fate of a business. Right now the Indian market place breeds low quality at high cost. That's bad news for Indian businesses in a rapidly integrating global marketplace. Unless we as businesses and consumers change our buying habits, Indian products and services are likely to fall into a mediocrity trap. Quality doesn't necessarily mean high costs; in fact many times it means lower costs. The paradox is that the lower cost may be hidden beneath a higher initial purchase price.


Roshan said...

hi Tarun, interesting article. Agree wholeheartedly but for the last statement. I dont think the purchase price for customers is higher. It's definitely cheaper when you take into account the money that developers of poor software spend in supporting their customers etc. What I feel is lacking is clear planning and budgetting to reveal these costs. Cheers,

SolTalk said...

Hi Tarun, came across your blog while surfing the net and read your very interesting article on the "Age of the Entrepreneur"! The lack of the "quality focus" somehow seems to pervade almost all of our country's activities, not just the IT industry. Although we have made a lot of progress on that front in the recent years, I think a lot more needs to be and can be done. All we have to do is ingrain the "pursuit for perfection" in all that we do. We must change our "chalta hai" attitude so that we become internationally competitive and recognised for our quality just like the "Made in Japan" mark has done for that country. This will clearly change the price to quality connection. Also adding to what roshan has mentioned, once we change our focus, clear planning and budgetting will also follow and thus lead to better products at reasonable prices. Looking forward to many more interesting blogs from you!!