LAUNCH OF RELIANCE JIO – ROAD AHEAD
Currently it seems that “launch of Reliance Jio” is talk of the nation. Across the Media a lot is been written about Jio’s astute pricing, optical fiber network, nationwide coverage, eco-friendly towers, handsets from China, revenue models, readiness to embrace 5G in near future, etc.
I am bemused with a fact that no one is writing about Reliance’s naiveté in building & nurturing consumer service business. This is their only second venture into B2C services after Retail (though they own CNBC, but it’s an acquired business). Again Reliance Retail is enjoying top line growth but its profitability is poor (operating profitability of reliance retail 2.26 % as against Trent’s 6.2%, Shopper’s Stop 6.3%).
Historically, Reliance group’s growth engine is predominantly from manufacturing of petrochemicals though they have ventured into manufacturing of bio pharmaceuticals, and solar systems.
In terms of strategic posture, I find three similarities between Reliance Jio and petrochemical vertical.
- Creating scale through large capacity and attracting large volumes (Economies of scale)
- Managing cost through operating excellence
- Creating overcapacity situation (deterring competitors to increase capacity)
Services often depend of individual skill, so the service industry cannot capture economies of scale in exactly the same ways as manufacturers. I feel service providers enjoy economies of scale only up to a point, and rather than benefitting from scale, the most suffer diseconomies in the long run.
Again lower cost essentially does not give you competitive advantage in services. The key in services is “Differentiation”. This will only possible through innovation; not merely by operating excellence.
Today nobody bothers about capacity, as most of them are not averse to outsource. Increasingly companies are outsourcing (e.g. Airtel) rather than owning and managing capacities.
Sometimes organization commits itself to the way of doing business. In this regard, there is an interesting story in Greek mythology.
Icarus is a character in Greek mythology that used a pair of wings, made for him by his father, to escape from an island where he was being held prisoner. He flew so well that he went higher and higher, ever closer to the sun, until the heat of the sun melted the wax that held his wings together and he Sunk to his death in the Aegean Sea. The paradox is that his greatest asset that is his ability to fly caused his demise.
Danny Miller has applied it to business organization. He came up with Icarus paradox – the roots of competitive failure can be found in over use of competencies.
Is RIL over committed to its own recipe of success?
But definitely, a lot is at the stake for RIL, considering the fact that group’s half of the total $9 billion capital expenditure for this fiscal year would go to Reliance Jio.
Can Jio become a successful venture by replicating manufacturing model? Let’s keep our fingers crossed …… let the time only answer this question.