Adam Smith (1723 – 1790) identified the division of labour and specialization as the two key means to achieve a larger return on production. Division of labour  is an economic concept which states that dividing the production process into different stages enables workers to focus on specific tasks. If workers concentrate on one small aspect of production, this increases overall efficiency. When employees concentrate on a specific task, with time they improve the necessary skill which is useful for a specific task and they perform better and faster which saves time and money, and enables increased production levels.

Smith found that factories in which employees specialized in only one or a few tasks had greater performance. In his famous example of a Pin Factory which he visited, each employee performed all 18 pin-making tasks. In fact, Smith found that 10 employees specializing in a particular task could, make 48 000 pins a day, whereas those employees who performed all the tasks could make only a few thousand at most. Smith reasoned that this difference in performance occurred because the employees who specialized became much more skilled at their specific tasks, and, as a group, were thus able to produce a product faster than the group of employees in which everyone had to perform many tasks. Smith concluded that increasing the level of job specialization, the process by which a division of labour occurs as different employees specialize in different tasks over time, increases efficiency and leads to higher organizational performance.

Fredrick Taylor (1856 – 1923) aimed at continuously increasing the efficiency of the production process. He divided labour into an elementary division of labour in which every worker was allocated their own tasks that had to be repeated constantly. Everyone was assigned their own program that consisted of successive actions and this was aimed at worker’s levels of knowledge and skills. This brought about considerable time savings and because of this routine, productivity increased rapidly. Taylor felt it was important to select the right person for the right job and to leave the planning and thinking to the specialists.

Division of labor allows economies of scale (ES). Economies of scale are the reduction in per unit cost of production as the volume of production increases. In other words, the cost per unit of production decreases as volume of product increases. Costs per unit can decrease as the volume of production increases for different reasons. ES helps at increasing cost advantages that a business obtains due to more units of output.

Division of labour allows specialization. Firms producing at a large scale employ a large number of workers. This allows the firms to practice specialization by splitting jobs into smaller tasks. These individual tasks are assigned to separate workers. In this way workers spend all their work time on the part they know best and it also allows them to perfect their skills. Overall result of this is that an average unit is produced at lower cost. Specialization also works at management level. For example in an organization you will find Marketing team, Human Resource Management team, Finance team, Operation team, Risk Management Team, Procuring team, Information Technology team etc, etc. On a small scale, a Civil Contractor while construction a house divides the work into civil engineer, supervisor, masons, and site labour, welder, plumber, electrician and interior designer.

Henry Fayol (1841 – 1925) recognized that division of labour leads to specialization and that specialization is considered as part of “the natural order” comparing it to the organs of the body. For example the GI tract (Gastro Intestinal which is responsible for digestion in body) are the mouth, esophagus, stomach, small intestine, large intestine, the rectum and anus. Food enters the mouth and passes to the anus through the hollow organs of the GI tract. The liver, pancreas, and gallbladder are the solid organs of the digestive system. Each of the organs listed herein is responsible for diction of food once it enters our body.

The object of division of work is to produce more and better work with the same effort, Fayol described. Fayol also said that division of labor helps in learning. As business firms grow, they learn from both experience and research. Firms gradually learn-by-doing and become more and more efficient. Firms also learn from research which results in better processes and new formulas pushing their production cost per unit even lower.

This very objective has not been altered in today’s modern business world. In a sense this principle is the fundamental feature of modern economy, allowing for the largest increases of productivity. Peter F. Drucker (1909 – 2005) said that the 20th century has seen a rate of 3% productivity increase per year, hence productivity rose 50 fold since the time of Frederick Taylor, who acted as a catalyst in the development of division of work.

An example of this fact can come from early industrialization, namely the Ford motor company, where Taylor’s system of a scientific approach was applied. Fredrick Taylor was interested in skill development by means of standardization and functional specialization. One worker would assemble the dashboard, another would assemble the wheels, and yet another would paint the exterior. The effects of the division of labour are well known and lead to Ford becoming not just the predominant car maker but also the inventor of the conveyer-belt production system- revolutionizing many industries.

However, one could argue that extremes of division of work could lead to undesired effects. Division of labour can ultimately reduce productivity and increase costs to produce units. Several reasons as causes for reduction in productivity can be thought of. For example, productivity can suffer when workers become bored with the constant repetition of a task. Additionally, productivity can be affected when workers lose pride in their work because they are not producing an entire product they can identify as their own work.

On the flipside, Douglas M. McGregor (1906 – 1964) cautioned that people would get bored doing the same job again and again. Repetition of same work bores people and kills enthusiasm. Fayol probably had recognized this fact earlier in his work. He stated that the division of work has its limits which experience and a sense of proportion teach us may not be exceeded. In more recent years management thinkers have recognized and addressed this issue more intensely.

Karl Marx (1818 -1883) warned that repetition of work leads to process of disaffection. In his view, workers would become more and more specialized, and work would become more and more repetitive, until eventually the workers would be completely estranged from the process of production. While it can have benefits on productivity, the specialization of labour can lead to workers with low overall skills and low enthusiasm.

Leo Tolstoy said that division of labor is a justification for sloth (laziness).

Core competence and competitive advantage

Core competency: Organizations with core competencies enjoy global leadership. It represents the organization’s will to harmonize their multiple resources and skills. It distinguishes the firm in a market place because of its products and service’s uniqueness and because they become difficult to imitate by others. In such an organization, all business strategies revolve around the core competency. Core competencies give a company one or more competitive advantages, in creating and delivering value to its customers in its chosen field. Organizations which believe in spending generously on research and development can and the ones which experiment and investigate the processes can develop core competency. Core competencies lead to the development of core products. Core products are not directly sold to end users; rather, they are used to build a larger number of end-user products. For example, let’s take the example of Honda’a expertise in engines. Honda was able to exploit its core competency to develop a variety of quality products from lawn mowers and snow blowers to trucks and automobiles. Honda can boast of its sharp and competitive engineer’s team who can be credited for its core competency. In another example, Microsoft has expertise in many IT based innovations where, for a variety of reasons, it is difficult for competitors to replicate or compete with Microsoft’s core competences in building software.

The term was popularized by Hamal and Prahalad, back in 1990 in the Harvard Business Review. Peter Drucker was one of the first to mention it in 1964 when he focused on ‘strength analysis’. A core competency comprises of reliable processes, synergy with customers & suppliers, a patent, an industrial design, know-how, unique product development, a brand/s, marketing strategy, business strategy, supply chain etc.

Core competencies are a pack of skills and technologies that are very difficult or impossible to copy or match; skilled employees, tacit knowledge, organizational endowment, collective values, supreme technology, and organizational ethics culture – these are some features which add to the core competency of an organization. The primary reason for 3M’s success is its people. 3M has always motivated its employees to innovate, think different and progress in their relative careers. This company has been blessed with generations of imaginative, industrious employees in all parts of its enterprise, all around the world.

Globally leading organizations are realizing that one of the components of core competency is people. A study was conducted on three hundred and fifty-eight Managers across the Johnson & Johnson Consumer & Personal Care Group (JJC&PC Group) globally to assess if there are specific leadership traits and competencies that distinguish high performers from average performers. The company did not stop only at conducting a study, it designed and organized educational and developmental programs for its employees across different ranks globally, to familiarize employees with the concepts of emotional, social and relational competency, and to share strategic leadership process. These sessions also served as the launch for the newly enhanced leadership models. As usual many other organizations have already replicated them.

Companies with core competencies identify their key business processes, manage them centrally, and invest in them heavily, looking for a long-term payback.

Sony’s  innovations have become part of mainstream culture, including: the first magnetic tape and tape recorder in 1950; the transistor radio in 1955; the world’s first all-transistor TV set in 1960; the world’s first color video cassette recorder in 1971; the Walkman personal stereo in 1979; the Compact Disc (CD) in 1982; the first 8mm camcorder in 1985; the Minidisc (MD) player in 1992; the PlayStation game system in 1995; Digital Mavica camera in 1997; Digital Versatile Disc (DVD) player in 1998; and the Network Walkman digital music player in 1999.
Today, Sony continues to fuel industry growth with the sales of innovative Sony products, as well as with the company’s convergence strategy. The company has never compromised on persistence in R&D.

Back home, a cigarette manufacturing company ITC has got into a wide range of diversifications such hotels, processed foods, biscuits and greeting cards. How does ITC manage this unrelated diversification? Unrelated diversification will succeed only if it is based on the core competency of the firm. ITC has leveraged beautifully on its core competency of distribution, brand building capability and its strength of quality outsourcing.

Core competencies take a long time to build and practice. Organizations which continue the practice with perseverance by adding accuracy and particular sets of skills succeed in building core competency. New sets of skills and newly acquired knowledge should be steadily spread in the organization to facilitate the processes.

Competitive advantage is a business strategy where companies find ways to differentiate themselves from their competitors to attract more business. Service-based industries, such as hospitality, banks, health care use competitive advantage strategies to gain an elevated position in the field. Usually competitive advantage is sought out of one or more functional advantages. Competitive advantages give a company an edge over its rivals and a capability to produce greater value for the firm and its shareholders. The more sustainable the competitive advantage, the more complex it is for competitors to offset the advantage.

There are two main types of competitive advantages: comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm’s ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competitors or to generate a larger margin on sales. A differential advantage is created when a firm’s products or services differ from its competitors and are seen as better than a competitor’s products by customers. Today India can boast of comparatively younger, English speaking low cost labour as one of her competitive advantage. This factor has given boost to outsourcing business in India.

The sources of competitive advantage have their limited life. Therefore, businesses are engaged in a never ending search to find new angles of competitive advantages. It’s all about finding some way of differentiating products and services from the competitor’s offerings. The whole purpose of business strategy is to find new sources of competitive advantage. Wal-Mart’s success lies in their cost cutting. Wal-Mart’s most operational processes are carried out in China because of their labor costs are which are much lower than many countries in world.

Toyota is Japan’s biggest car company and the second largest in the world after General Motors.   The fundamental reason for Toyota’s success in the global marketplace is its competitive advantage which lies in its corporate philosophy, the set of rules and attitudes that govern the use of its resources. The Toyota philosophy is often called as the Toyota Production System. The system depends partly on human resources management policy that stimulates employee creativity and loyalty besides Toyota has also built a highly efficient network of suppliers and components manufacturers. Much of Toyota’s success in the world markets can be attributed directly to its competitive advantage of its policies in human resources management and supply-chain networks.

One of the competitive advantages Hindustan Unilever enjoys is its edge over competitors in procuring raw material at low cost.  The company in past faced slow volume sales in categories such as soaps, laundry and tea, where rivals managed to gain market share through aggressive price cuts. But, HUL managed the price correction soon after sourcing more suppliers who offered the raw material at more competitive prices.

Warren Buffet the most successful investor of all times has always given importance to businesses with durable competitive advantage. He always relies on an extensive research-and-analysis. Buffet says that the global economy is complex and volatile, the economy and the stock market do not move in sync with it. The market discount mechanism moves instantly to incorporate news into the share price and last but not the least the returns of long-term equities cannot be matched anywhere else.

By “competitive advantage” Buffet meant a unique product or service that a business either makes or provides. Even if the employees can walk away from the business but they cannot take the business’s “competitive advantage” with them. Some examples of businesses with competitive advantage Buffet considers – are business’s brand names, for instance, Bell, Pizza Hut, Kentucky Fried Chicken or Wal-Mart. He gives importance to a business’s regional monopoly. We have plenty of brand names in India which enjoy regional monopoly such as Ghadi Detergent, Sasa washing powder, Wagh Bakari Chai, Sapat Chai, and Wai Wai noodles. The regional brands can afford to lose their micro focus from their markets. They have such a grip on their markets that national or international products need to spend tremendous resources to fight their regional counterparts. Buffet believes that durable competitive advantage companies can pass on their saving to their shareholders, and their investors.

When we think of best deal we think of Wall mart. Owing to its size it has enormous bargaining power with suppliers and sells at heavily discounted prices. They are low cost buyer and seller- Here the margins are traded for volumes; the advantage is buying at the cheapest price and selling at lowest prices to induce customers to its stores all over the world.

According to Hamel and Pralhad, the process of developing core competencies starts with the strategic intent of being a leader in the market by leveraging the resources. This thought of being a leader in the market is called strategic intentand it points at identifying various opportunity gaps.

Just as entrepreneurs change the face of business, social entrepreneurs act as the change agents for society, seizing opportunities others miss and improving systems by inventing new approaches, and creating solutions to change society for the better. While a business entrepreneur might create entirely new industry, a social entrepreneur comes up with new solutions to social problems and then implements them on a large scale. The new breed of social entrepreneurs are focused on their enterprise, they have workable solutions for dormant and rigid social problems.

Contemporary economists and management writers like Baptist Say, Joseph Schumpeter, Peter Drucker and Howard Stevenson have defined entrepreneurship with slight variance but the same perspective that entrepreneurs are individuals who create value, those who are innovators, those who are change agents in society etc. Social entrepreneurs are close to all these definitions created by various economists. The only difference being that of social entrepreneur is entrepreneurs with a ‘social mission’, for a social entrepreneur social mission if explicit and central theme.  This affects how they perceive and assess opportunities.  The criterion of the social entrepreneur definition is mission-related enterprise; not merely wealth creation. Social entrepreneurship has gathered a momentum because of large numbers of NGOs and organizations working for a social cause. The description of social entrepreneur can thus be put as follows:

1. Social entrepreneurs play the role of change agents in the social sector by adopting a mission to create and sustain social values.

2. They recognizing and relentlessly pursue new opportunities to serve a mission.

3. They engage themselves in a process of continuous innovation, adoption and learning.

4. Once they accept a mission, they act boldly without being limited by resources in hand.

5. Thus they exhibit heightened accountability for a cause.  They are fewer in numbers.

I give here below account of two young Indians who have turned small ideas into big production.  We are living in a world which is constantly looking for solutions to small and big problems we face every day in our lives. And, let us accept this fact that public administrations cannot work alone and they are more and more looking for innovative solutions coming from civil society. People like Rikin and Anshu are a rare breed of youngsters who have guts to give up their comfortable, prospering careers and bring in some stunning solutions to some societal problems.

Let’s look at Rikin Gandhi’s Digital Green enterprise to understand while he works locally, his innovation has global applicability.

RIKIN GANDHI – CEO of DIGITAL GREEN

Rikin’s story is awesome. He’s an aerospace engineer from the Massachusetts Institute of Technology and a licensed private pilot, who could make a coveted career in the US Air Force as he was chosen by them. It seems so many people who travelled to space, saw earth from up above and wondered why there was poverty and war on this beautiful planet. Many of them after coming back to earth went on to become public school teachers or farmers in the Midwest, this was their way of connecting with people. Stories like these inspired Rikin. He learned through a friend of his who was working on biodiesel project in Maharashtra, about pathetic conditions of farmers. So many of them commit suicides due to mounting debts which they cannot service; their dependability of monsoon and poor quality of infrastructure are unsolvable problems.  Rikin decided to do something for the farmers.

Digital Green is Rikin’s brainchild. He decided to use his handy cam as a tool for social networking with the farmers. The method was simple: the farmers recorded their problems, solutions and success stories; this information is recorded and edited. Further, it is reached via videos to those who need the advice that too from the horse’s mouth – the notional truth from the practical source itself. This gave birth to Digital Green a social enterprise.

Microsoft Research has set up a lab in Bangalore to look at technologies for emerging countries in sectors such as microfinance, education, agriculture and study about how technology can be used to improve the lives of people. Digital Green was initially incubated in the Microsoft Research India lab.

The idea of Digital Green is to use relevant videos to educate the farmers on scientific methods of farming which in turn will help them increase their yield resulting in prosperity. The videos are localized in terms of language and socio –economic background of the audience. Producing and distributing locally relevant videos involving the local community. The videos consists information on farming by farmers, of farmers, and for farmers. The company works with NGOs which play an important role in identifying “resource persons” from the community who can produce the videos and to have the subject-matter expertise for ensuring the quality of the videos. They identify topics of interest and make short videos of local farmers. Distribution also happens through community; some of the community members go back to their respective villages by using Pico projectors which are the size of mobile phone which are used for smaller groups. These groups come together on a regular basis. It could be about sowing, soil standards, nursery raising or weeding based on the season.

Digital Green wants to expand in India and reach out to many farmers in developing nations like Africa. It has built a technology platform with IVR (Interactive Voice Response) so that farmers will be able to interact with each other and ask questions to the experts; thus, scaling up this platform. Digital Green, which received a $3-million grant for three years from the Gates Foundation, has so far covered more than 300 villages and aided over 17,000 farmers in Andhra Pradesh, Orissa, Jharkhand, Madhya Pradesh, Tamil Nadu and Karnataka. India needs many more Rikins today.

The social entrepreneurs seek to create systematic change in the society for a cause.  While doing so though they act locally, their actions have the potential to stimulate global improvement.  The cause can be education, health, economic development, environment, racism, socially weak people, and arts, anti corruption, old age, prostitution etc.

Ian Macmillan, Director of the Wharton’s Entrepreneurs research Centre defines social entrepreneurship as a process whereby creation of new business enterprise leads to social wealth enhancement so that both society and the entrepreneur benefit.   These benefits according to Macmillan can be creation of jobs, increased productivity, enhanced national competitiveness, contribution of the cause to the GDP of the nation, enhanced image of the cause in the globe etc. The social entrepreneur has enlarged vision and heart of gold.

There are limitations to define social entrepreneurship because a wide range of opinions exists on this topic.  There are many scholars who are still researching this topic in various universities in the world. This subject is being discussed for past two decades, though social entrepreneurs existed for ages.

I cannot resist from giving the example of Goonj.

GOONJ of ANSHU GUPTA

Anshu Gupta is popularly known as the Clothing Man. He started his career as a freelance journalist. He left his flourishing career in 1998 to start GOONJ. Anshu’s mission in Goonj is to make clothing a matter of concern.

GOONJ works on the basic issue of clothing. Usually one talks of ‘roti, kapda aur makaan’ meaning food, clothing and shelter. It’s a matter of disgrace – the women in economically weak households who don’t have enough clothes to wear, have a big problem during their menstruations; they don’t have a piece of cloth for using. In the absence of a clean piece of cloth, menstruation is a disaster for a woman, which goes on for 30 to 35 years in her life. This subject is taboo. For your information – in the Sunderban Delta of West Bengal even today women use the same piece of cloth for over a year. Even if it is almost like stone, they still use it, because there is no access to a piece of cloth.  That is the height of poverty – the non-accessibility to basic necessities. Visualize how many clothes we discard without a thought.  In the village surveys conducted by our health facilitators as part of their training, it came out strongly that menstrual hygiene and sanitation were a major concern leading to vaginal and reproductive tract infections. Most of the women were using cloth, which was not being washed and dried properly, resulting in poor hygiene.

In 2004, when Anshu and his associates started talking about the issue, they discovered how even urban women feel uncomfortable talking about it. So when Anshu and his group googled ‘sanitary pad’ or ‘sanitary napkin,’ there was hardly any research or work happening on this topic. They could only find information about fancy disposable products from different countries. The group realized that they need to work in this direction. No cloth is ever wasted. The most vital of all products that Goonj makes are sanitary napkins of its own design. Each set has three parts: a waist-string, a small absorbent pad and a palm wide strip to hold the padding in place while its ends are tucked under the waist-string. Ten sets are packed with care into a drawstring pouch for women to receive without embarrassment.

The left over clothes are converted to school bags, tote bags, quilts, and mats. A great quantity is converted into narrow tapes to be used as drawstrings for petticoats. The ultimate, unusable waste is chopped up and stuffed into pillows and quilts.

GOONJ has emerged as the largest non -monetary resource agency while people also call it one of the largest civic participation movements!! It runs is a unique resource mobilization initiative that provides clothes, sanitary napkins, and other basic amenities to millions in rural villages. With an emphasis on mindful giving and dignified receiving, Goonj also provides a constructive channel for the growing quantities of waste from urban households.

Goonj does it all on a shoestring budget. In exchange for clothes, Goonj requires its beneficiaries, the rural people to take on community development projects. So far, thousands of people have undertaken more than 900 community projects, from building bridges to repairing roads etc. Rather than receiving bad, ill-fitting donated clothes for nothing, because of Goonj’s mission, community members receive well-suited, often-tailored, second-hand clothes.

Goonj’s passion is to encourage graceful giving and graceful receiving. Goonj wants people to give mindfully; the clothes they donate are of great value by recipients. Goonj is quietly creating magic with other’s waste. On an average every year this NGO recycles 1 million kilogrammes of textiles that urban Indians no longer want or need and they make 2 million sanitary napkins for rural areas. The next time you want to throw your used clothes, think for a moment about Goonj. This NGO has earned many national and international awards.

I salute Rikin and Anshu for their untiring and pioneering work!!!