Convocation Address of by Shri Kumar Mangalam Birla, Chairman, Aditya Birla Group; Chief Guest for the 6th Convocation of EDI's Post Graduate Programmes held on 18^th September 2004.

However, it is my belief that large established firms, more often than not, turn out to be poor entrepreneurs. Why ? Because, barring the rare exceptions, radical innovation is not their forte. Their response time is often slowed by factors such as bureaucracy, hierarchy and risk-aversion. Radical innovators and large organisations do not go together for another reason – the bulk of the payoff of the innovation goes to the organization, not to the innovator. And most important, some innovations are so radical that they threaten the very foundation of an organization. IBM, for instance, the dominant player in mainframe computers, had little incentive to be the first to introduce the PC – as that would threaten its existing product line. It did so only as a last resort, when it saw that the PC was the shape of the future. So, the genetic makeup of large organisations is such that radical innovations are stalled.

At the same time, globalization also puts small businesses in a bind, because the base requirements for participation in global markets tend to converge towards the most demanding benchmarks – in every function and process – which can pose a severe financial and resource burden for smaller firms even in the developed economies, let alone India.

Add to that the fact that large businesses are under constant pressure to improve their competitiveness – though better products, lower costs and reduced time to market. And very interestingly, the inherent constraints of the large firm – combined with the limitations faced by entrepreneurs – open a wide window of opportunities for entrepreneurs. As a result, the global firms and the small-and mid-size firms and entrepreneurs come together, by the large firms forming complex networks and entering into alliances. They also become central coordinators of networks, whilst small firms take on the supporting and non-core activities of larger firms. It creates a win-win situation.

In short, the point I wish to make is that the activities of large and small firms are increasingly complementary. Large, multinational firms are good at commercialising and internationalising innovations. Small firms are often better at creating innovations, especially the really radical ones. By working together, they add value to what each already has. The small firm may bring to the table a valuable innovation or idea, or a compelling cost advantage. The multinational has conduits to markets all over the world. The small firm can sell its product to the multinational and let that larger firm worry about having to deal with the nitty-gritty of the overseas operations.

What I cam driving at is that one of the key strategic actions for an entrepreneur today is to figure out how best his or her business can latch onto the value chain of the larger players – whether they are global or domestic. For most entrepreneurial businesses, this may perhaps be one of the better starting points. Some entrepreneurs may certainly be in a position to go it alone right from the beginning – if they have breakthrough technology, or some such decisive advantage. But, unfortunately, I do believe that this would be the exception.

Continue..

©2008 This website designed and developed by Entrepreneurship Development Institute of India, Ahmedabad