Efficiency -- The underlying trend

Efficiency, a simple word, but it underlines the major trend in almost all sections of life. Every industry and business is pursuing efficiency. This trend is gaining momentum due to declining natural resources, increased competition and regulatory pressure to reduce green-house-gas emissions. Automotive industry is the most affected by all these limiting factors and hence it aggressively pursues efficiency. Toyota invented "Just-In-Time" management to improve the manufacturing efficiency. The auto industry was first mover towards robotic assembly process to reduce assembly time and improve manufacturing efficiency. All these attempts were focused to reduce cost, improve speed and improve quality of the product.

Now companies are focusing more on reducing cost of ownership and reducing emissions. It may be heavily influenced by government regulations (Like CAFE regulation passed in US) and increased gasoline prices but as I see, first wave of efficiency helped companies, second wave of efficiency will directly help consumers. What I mean by this is the first wave of efficiency helped companies to reduce their operating cost, reduce the cost of production and reduce the warranty costs. All these cost savings helped companies improve their profitability. This enabled auto companies to pass some benefits to the consumer by reducing vehicle prices but it also increased overall sales of automobiles.

Now second wave of efficiency is focused on reducing total cost of ownership. Companies are introducing automobiles which are little costly at the start but are extremely efficient and require low maintenance costs. Take example of Ford Eco-boost engine vehicles. Ford's eco-boost engines provide excellent fuel efficiency and are having lower maintenance costs. Hence reducing total cost of ownership. Hybrids are another great example of this trend, these vehicle cost more upfront but over the lifetime of the vehicle, these vehicle cost less to operate. 

This trend excites me because Electric Vehicles are most efficient and have smaller operation costs than gasoline cars and hybrids. See the comparison chart below developed using tools from Alternative Fuel Data Center.

Nissan Leaf has the lowest cost per mile. This is encouraging as the trend of companies pursuing lower cost of ownership will be beneficial to consumers and specially to environment. I see this trend continuing for a long time and expect companies to bring the cost of ownership down further by using smart diagnostics.

To make vehicles more efficient, companies are using techniques such as using innovative materials like carbon fiber, developing manufacturing techniques such as aluminum-steel welding, designing lighter frames, using lower volume engines, using turbo chargers, direct injections and improving engine compression ratios. All these efforts are focused towards reducing cost of ownership. These techniques sometimes increase the cost of vehicle upfront but provide superior performance, more miles per gallon and emit less green-house-gases. 

To sum it all up, I observed two trends, one was improving efficiency at the factory floor and the second one is focused towards improving efficiency on the road. Overall the consumer and the environment will be the combined winners.

Automobiles

I love to talk and write about cars. I am an electrical engineer and not a mechanical engineer but amazing shift in technology has made it easier for me to talk and write about automobiles. Yes, I am talking about shift from massive engines to battery powered electric vehicles. The future belongs to efficient cars. I am careful in using the word "efficient" instead of "electric". The technology is still evolving and there is no single technology that has claimed victory hence auto companies will have to keep evaluating different alternatives. 

I believe that proposed technology should make a business case, you can sell electric car with zero emissions to customers who can afford the high cost and have passion towards zero carbon transport but you cannot sell it to the normal consumer. Outside developed world, even the rich people will not buy those expensive electric cars. Plug in electric vehicle such as "Chevy Volt" and "Prius plug-in" are good option for those who want to drive electric cars but don't want to limit their driving range. Then there are more affordable hybrid vehicles such as "Prius". With current gasoline prices, these hybrid vehicles make most business sense but still the cost is out of reach of mass market. To make a real impact, the technology has to be in reach of average consumer. 


Diminishing resources are pushing world to be more efficient. All industries including housing, automobile, aviation and manufacturing are looking for solutions to be more efficient, conserve fuel and water and reduce pollution. The advancement of technology in automobiles is critical as the industry accounts for almost 25% of our energy consumption and is vital for development and economic prosperity of any country.  

So in my opinion no single technology can be a solution. Governments all around the world should acknowledge this fact and should stop making huge claims and should not set targets without addressing implementation issues. For example president Obama announced a target to have 1 million electric vehicles on the road by 2020. Now such targets can disrupt the evolution of technology on its merit. I am a big fan of electric propulsion technology but that does not mean it is the best. Many other competing technologies such as clean diesel, CNG and hydrogen fuel cell are evolving. Favoring one technology over other will not help. I agree that in the long run fossil fuels will run dry and we will have to develop alternative technologies. But at the same time we can not ignore technologies which can clean up current systems quickly and in a cost effective manner. 

It is important to have efficiency. Energy can come from any source. People say we have to get rid of fossil fuels, I agree but when you think rationally, you will agree that it will take many decades. CO2 emissions saved by having 10,000 electric cars will be lesser than emissions that we can save if we have technology to make all cars efficient by even 5%. I agree that investment in new technology and systems is critical but incremental upgrades and improvements can not be neglected. These technologies get limelight when gasoline prices reach $5 a gallon but disappear when prices fall.


Two technologies which I believe have potential to replace gasoline powered cars is plugin electric and hydrogen fuel cell. Plugin electric vehicles will still use some amount of gasoline but these systems provide higher benefits per dollar spent. Hydrogen fuel cell can really make a mass impact but there are huge challenges that need resolution. We are fortunate to live in this time when new technology is revolutionizing the way in which we move from one point to other. Which technology achieves market parity and wins the next revolution is still not decided but the race is getting exciting every day. 


Signing off
Nikhil Parchure 

Entrepreneurship

I always think about “which qualities will make an entrepreneur successful?'”. I tried to list few qualities which I think are essential.

1. Persistence: This is one of the most important characteristics. Many people think passion is more important but I give importance to persistence. Passion can motivate you to pursue things of your interest but if you want to be a successful entrepreneur then you have to be persistent with boring and least interesting things. These background tasks can make or break a business. You may have a great idea and a nice product but in today’s business world regulations, administrative functions and paperwork is equally important. Just your passion will not help you get through these hurdles, but if you are persistent enough then you will.
2. Spontaneity: Today’s world does not wait. If you don’t act now then your chance to grab an opportunity is gone. World is becoming extremely competitive. Internet has opened doors to many entrepreneurs and everyone is looking for that next big thing. So if you do not act right now, then you should just forget about catching up.
3. Vision: This quality is recognized by almost everyone. Unless you know where you are heading, you cannot take correct decisions and identify strategy to reach your target. Vision is pivot on which your wheel of business is going to revolve. Connecting the dots (As Steve Jobs says) is important and again web provides easy access to these dots. But presence of vision is critical in identifying these dots.
4. Resourceful: Gone are days where entrepreneurs could survive by being an expert in a particular field. Today, world demands networked and resourceful managers who can make things happen. Internet has played a major role in this. Knowledge is available more easily than ever before and hence people who are resourceful can catch up with the extremely knowledgeable.
5. Flexible: Days of ego are gone. Today you have to be extremely flexible. Accept partnerships and co-operate even with your rivals. Those who resist this either shut down their business or remain a small insignificant company.

There are many other attributes I can think of, but those are all related to one or more of these attributes. Again, having all these attributes does not guarantee success. This unpredictability makes entrepreneurship such an exciting adventure.

“Stay hungry, Stay foolish”- Steve Jobs.

Signing off

Nikhil Parchure

Brands … What matters the most

 

Brands!!! Companies spend billions of dollars in creating and establishing brands. Every product has a market leader with strong brand presence. Products with top brands dominate the sales in each sector. That makes me wonder why brands are so important and why they are relevant.

I am not a big fan of branding as a consumer. I believe many times established brands charge more just because of brand name. The brand associates itself with certain lifestyle and hence those products are priced higher than other products with similar application without offering any significant technological or material advantage. But still people buy those brands with huge price premiums. May be one reason is knowledge.

Compare two products a digital camera and soap detergent. Assume that you are buying these two products for same dollar value ($1000 each). What is your thought process? Do you care which brand to buy for soap? I personally do not care that much but I do care which digital camera I am buying. I am thinking why? As said if I am having same dollar value to spend then I must be spending same time on both the products. There comes the part of knowledge. We all know from years of experience that there is no special technology in Soap. Manufacturers may claim 100 different reasons but basic product is same and even if you buy unknown brand you are certain to get a usable product. (Provided you really don’t search for a bad one).

Digital camera is different. There are so many specification differences, feature sets and minute details that consumer is not aware of. You are not comfortable and confident to judge the product based on specifications only as you are not having detailed knowledge of the product. So the best way is to go for popular brand and assume market is right.

So brands benefit from lack of knowledge on part of consumer. If consumer is extremely knowledgeable then he will look at specifications, components used to build the equipment and decide which product to buy. This is another reason why brands usually do not work well in business to business environment. Businesses have skilled purchase managers who knows exactly what they want, who knows from experience what specs product should have and what performance is expected. 

So as consumers get more knowledgeable, the process of establishing your brand will get difficult, companies have to come out with truly innovative products to win over consumers and price premiums enjoyed by established brands will certainly come under pressure.

Signing off

Nikhil Parchure

Land Fights Part 2

I am really happy to read the following article in Mint.

http://epaper.livemint.com/ArticleImage.aspx?article=21_07_2011_010_001&mode=1

Tata steel has looked at land acquisition as a challenge and not a problem. I am delighted with the approach also requesting all readers to take a look at earlier post http://nikhilparchure.blogspot.com/2011/06/land-fightshurdle-or-challenge.html and comment.

Thank you