Fusion Strategy can deliver low-cost solutions to masses: V Govindarajan

Vijay Govindarajan argues that AI and real-time data should be leveraged to radically transform physical products and the companies that make them

Artificial Intelligence (AI) is no longer a luxury for corporations but an imperative that must be integrated with decision-making in real time, says management guru Vijay Govindarajan of Tuck School of Business at Dartmouth College. In his latest book Fusion Strategy co-authored with Venkat Venkatraman, he argues that AI and real-time data should be leveraged to radically transform physical products and the companies that make them. He explains how in an email interview with Kanika Datta. Edited excerpts:    

In the opening chapter of your book you suggest that Indian companies lag global competitors in terms of AI adoption. How far do you estimate the "distance to frontier" for India Inc?
 

In the US, digital giants such as Google, Apple, Netflix, and Amazon have destroyed consumer companies by leveraging data and AI. Google disrupted advertising. Amazon changed strategy in retail. Netflix reimagined the way we watch movies. The IT services boom started in India in the mid-1990s. However, the Indian IT companies succeeded by automating processes, not by dev­eloping new business models. India has the digital talent. It should deploy that talent to make smart industrial prod­ucts such as connected cars, co­nnected tractors, smart homes, and so on.
 

Would catching up involve massive investments or IT tweaks to incorporate the kind of best practices described in your book?

IT is about process efficiency. Digital is about developing new strategy. Tweaks of IT won’t do. We need massive investments in retooling and producing AI talent. Open AI and Anthropic have developed Large Language Models. This is foundational AI. India need not have to invest in such foundational breakthro­ughs. What India needs are AI talent that can build applications on top of foundational models to offer new customer value.

 

Embedding data analytics in your pro­ducts and services, the essence of the “'fusion strategy” would push up costs. Wouldn't this impact a price-sensitive economy such as India?
 

Value gets trapped in analog products. Fusion Strategy unlocks that value. Consider Indian ride-sharing company OLA. It practices Fusion Strategy, digitally linking analog consumers (riders) to analog transport providers (drivers and automobiles), and payments. It uses a digital platform that works in real time, using software enabled by smartphone and mapping technology, while demand and supply matching, mapping, routing, pricing, and payments are executed by AI algorithms. Unlike traditional taxi and auto rickshaw companies that respond to requests for services, OLA proactively uses its data and algorithms to predict likely demand and pre-positions physical assets. OLA is a low-cost mobility solution that the mass market in India can afford. In short, Fusion Strategy can deliver low-cost solutions to Indian masses in areas like transportation, education, health, and energy.

 

Would reorienting a company towards a "fusion strategy" entail reorienting a corporation's legacy organisation structures? In what way and what challenges do you think Indian companies are likely to face given the family/promoter-driven nature of India's corporations? You have outlined principles and practices in Part Three but can they be applied to Indian companies given the nature of governance?
 

In my work with companies, I’ve observed that world class companies manage data and AI as corporate resources. Companies are finding that the biggest impediment to becoming an AI-first company is that data is siloed within functions and divisions. This lack of coordination will significantly inhibit companies from transforming to win against newer competitors without such legacy constraints. Today's digital transformation involves reimagining products, processes, and services with a unified view of data to take advantage of AI. Digital giants — such as Microsoft, Google, Amazon, and Apple — have pulled their decentralised and distributed efforts into much tighter organisational structures and processes to become AI-first companies. This implies that they can infuse data and AI into their offerings to disrupt traditional industries even more than they have done before. 
 

Take the case of the Tata Group, which is in many businesses including steel, cars, retail, and so on.  To succeed in the fusion future, Tata Group must develop a corporate-wide vision to look at the next wave of digital transformation with data and AI across the businesses. Such a vision will help harness data and AI across the Tata Group, not to undermine the autonomy of individual business units but to unearth synergies and collective strengths. Digital transformation is less about adopting new technologies than identifying the best organisational structure and processes to use the latest technologies. This is more important with data and AI as the Tata Group has the scale and scope to truly develop new personalised offerings that would be challenging for its competitors without access to such data. Until now, individual businesses in the Tata Group have optimised results at the business unit level—and that too very successfully. Changing that dominant logic is the biggest challenge. I have used the Tata Group as an example. The same logic applies to the large Indian corporations such as the TVS Group, Mahindra & Mahindra, Birla Group, and Reliance Industries.

 

You have described how upstarts are van­q­uishing data giants. Will this happen in India?
 

Upstarts vanquished B2C consumer companies such as those in music, travel, and publishing. There, the products were either pure information goods (Think: Google) or analog products became 100 per cent digital offerings (Think: Cameras). That is unlikely to happen in Fusion Strategy in sectors like automobiles, farm equipment, and aircraft engines. Tractors will never be digitised and disappear. There will be a physical product, but the value will migrate to data and insi­g­hts. Industrial incumbents have strengths and domain knowledge in making reliable quality tractors. Therefore, digital upstarts cannot  disrupt industrial incu­mbents that easily. The best outcome is an ecosystem where digital companies and industrial companies partner to co-create value.

 

A larger global issue is privacy. In India this is yet to be fully fleshed out given the absence of privacy laws. How do western corporations seek to address this?
 

Data privacy is a pre-requisite for success in Fusion Strategy. This must be addressed at two levels. First, there must be regulatory guardrails against protecting customer data. There must be severe penalty if a company abuses customer data. Second, companies must invest to protect customer data.

 

You talk about China recognising data as a factor of production. If this is the future of data, how would it impact economic policymaking?
 

India@100 must be Fusion Strategy. I recommend that we form a India@100 Task Force with Indian policy makers, large industrial houses, startups, educational institutions, and venture capitalists. They must create a blueprint for making Fus­ion Strategy happen. India has the opportunity to become a Global Center of Ex­cellence in producing smart products. That should be the vision for the India@100 Task Force.