Sunday, September 13, 2009

The Perpetual Corporation: The Leadership Role

The concept of corporation is perhaps the most innovative and enduring byproducts of human civilization and economic development. Corporations are organizations of individuals, be it the founders, managers, leaders or professionals, set up to deliver products and services to the society. Individuals would have to retire but institutions have in them the capability to endure in perpetuity. Companies and businesses may be merged, acquired, de-merged or divested but the corporation survives in its own original form or as a morphed entity.

Some perpetual corporations

Pfizer which was founded in 1849 remains strong as the world’s largest pharmaceutical company. Ford founded in 1903, Mercedes Benz that became operational in 1901, Daihatsu established in 1907, Datsun (now, Nissan) formed in 1914 and Toyota founded in 1934 continue to dominate the global automobile industry. AT&T, founded by Alexander Graham Bell, the inventor of telephone, in 1876 is USA’s leading telecommunications carrier despite the government engineered split into 8 companies in 1984. Ericsson, also founded in 1876, continues to be a leading European telecommunications player. Matsushita (now, Panasonic) founded in 1927 and Sony founded in 1946 are clearly two other global perpetual corporations. Indian Railways, founded in 1849 as one of the oldest railways continues to serve and thrive.

Some companies may partially divest while some may morph but their core character continues to enrich the new corporation. Merck KGgA, founded in 1668 as a pharmacy, evolved as an integrated pharmaceutical corporation, and despite certain divestments and mergers remains as a noted global pharmaceutical company. Tanabe founded in 1678 and Fujisawa founded in 1894 as two of the oldest pharmaceutical companies in Japan may have morphed into Mitsubishi Tanabe and Astellas respectively but their core capabilities continue to dominate. While IBM continues to endure the rapid changes in the technology domain, Microsoft, Google, Oracle, Samsung, TCS, Infosys could be a few other perpetual corporations in technology and electronics fields. What then makes corporations, and their core characters, perpetual?

Institutionalization of competencies

Any of the above examples mentioned above as well as several others not mentioned here point out that technology and management are the basic foundations of perpetual corporations. Continuously innovative automotive technology is an institutionalized core competence in Benz and Toyota. Just-in-time production management system is institutionalized in Toyota. Leadership development, both in businesses and individuals, is institutionalized in GE. In these firms, leaders and individuals may have invented the core technologies or core management processes but it is the capability of the leadership to institutionalize the inventive capability has been the hallmark of such acclaimed ‘best practice’ companies. How can a leader institutionalize core competencies and contribute to a company becoming a perpetual corporation?

Leaders, who look beyond

Leaders must not only grow their companies but also imbue their companies with the strength and resilience to successfully withstand the ravages of the time. This is the only true legacy that the leaders of the companies can leave behind. At first sight, a statement that leaders should look beyond the immediate would appear to be an oxymoron. Leadership is all about envisioning something which others, even managers, cannot see and creating the framework to turn the vision into reality. This definition of leadership unfortunately fits well only on select leaders even in a global context.

The widespread corporate failures, bankruptcies and frauds can be traced invariably to leadership values and styles that fail to put the interests of the companies ahead of the interests of the leaders. The fundamental covenant of all leadership must therefore be to ensure strength, solidity and strategic ability for the firm to exist in perpetuity. Leadership strategies must not only expend cash to build a rosy future but also pool cash to outlast a nasty future. How does this come about?

Leadership is about sustainability

Very often leadership is seen in terms of businesses, products and markets, and strategies to execute them. These are, however, subject to competitive dynamics. The true capability of a leader comes out when he or she develops and implements business strategies that provide sustainable competitive advantage. This arises from a clear understanding, on the part of leaders, of the forces that shape an economy, industry and the firm and creating products that the customer needs.

Successful leaders refuse to be typecast into trademark templates of strategy. Carlos Ghosn, despite his image as a ruthless cost leader, emphasized product innovation and diversification to revive Renault and Nissan. By judiciously combining strategies of innovation and diversification, specialization and customization, and integration and disintegration, product-market combinations that will stand the test of time can be created. Sustainability does not, however, get created only by clever product-market strategies.

Competencies ensure sustainability

Leadership is more about people and processes than about products and markets or even about science and technology. Products and markets, science and technology are the end products of people competencies harnessed through organizational processes. The legacy that a true leader aims to build is the spectrum of competencies in an organization. Sony, Apple and Samsung, for example, are committed to building organizational teams that constantly develop new technologies and practices.

All successful global firms understand the competency lever of sustainability not merely in terms of technology but in respect of management too. Firms in food and technology sector, for example, are able to straddle even conventional product-market segments characterized by low entry barriers with superior management. These organizations also are able to create pools of talent that ensure smooth leadership succession. Competencies should be continuously adaptive to ensure continued sustainability in the face of environmental opportunities and challenges.

Adaptive resilience

Competencies if they are not calibrated and benchmarked on a continuing basis could result in a level of corporate nonchalance that hurts sustainability. This has occurred in respect of Hindustan Lever in the detergents domain. It has happened in respect of Microsoft with respect to operating systems and search businesses. Sony was a loser for some time due to non-recognition of new technologies in the television domain. These and other firms regained competitive strengths by adapting new platforms. IBM, for example, moved away from mainframes to desktops and servers as well as consulting, thus redefining its core competencies.

The ability of a company to continuously modify or reinforce its core competencies to changing competitive dynamics strengthens its resilience. Very often, professional egos that maintain a “we-are-the- the-best” syndrome end up clouding leadership clarity on the emerging changes in competitive landscape. Leaders must therefore make professional competitiveness and open competitive architecture key ingredients of organizational culture.

Competing for career growth

The American university system is an organizational role model that calibrates professional competencies on a continuous basis. The fundamental barrier to cross over from entry level to the tenure professorial cadre through publications, patents (where applicable) and teaching record inculcates early on the motto that the aspirant has to be competent to be a successful careerist. Thereafter the opportunities and challenges of recognition through thought leadership and fundamental research continue to ignite the active minds in the university system.

In contrast to a university system, corporations tend to be introverted, with inbreeding of silo talent and rejection of superior talent from outside. The leadership has to continuously keep the organization in a state of internal and external competition on the talent dimension. A competent, competitive and collaborative talent pool makes a virtuous organization. GE under Jack Welsh not only mastered the ability to provide direct feedback to week leaders by calling a spade a spade but also ensured due equity by providing the infrastructure for leadership training for the aspirants. When leadership becomes a grassroots capability organizations achieve virtuosity in strategies as well as operations.

Strategic virtuosity

Companies look for simplistic choices in strategy, hoping that quick strategic decisions influence early positive outcomes. Inflexible decisions choosing between inventive leaps and incremental improvements, acquisitive growth and organic development, product specialization and product diversification, manufacturing integration and input outsourcing, and equity financing and debt financing, for example, are made hoping for outcomes that meet preset expectations. Many times singular strategic choices fail to ensure engineered outcomes.

Realistically however strategy is a continuous, and at times iterative and corrective, set of actions (not decisions) – a complex process that integrates shades of multiple strategies and technologies under a dominant strategic theme. A virtuous organization therefore does not look at strategy as a departmental preserve but as a mandatory qualification for the leadership team to be known by that name. Leaders in a virtuous organizations would be willing to be evaluated on their own competencies in an objective framework that combines strategic virtuosity with operational excellence and making the company ‘future perfect’.

Operational productivity

Profligate and unproductive firms lack the ability to generate cash that can help implement futuristic strategies. On the other hand, productive firms build the financial capability to implement virtuous strategies. Productivity is an all-encompassing concept covering development to delivery. By spending less for earning more and by balancing long gestation projects with short gestation earners companies establish a virtuous cash cycle.

Industry leading productivity combines efficiency with creativity, which is a complex task. Creativity is driven by knowledge, passion and serendipity. Productivity is driven by simplification, repetitiveness and learning improvements. Creativity is difficult to measure but the steps that are encompassed by creativity can be measured. Continuous value engineering and project management approaches can help firms discover the synergy of productivity and creativity.

Future perfect

By combining strategic virtuosity with operational productivity leaders can set a winning combination for firms. True leadership competencies are not confined to delivering results in the current performance horizon; rather they are determined also by a passion and ability to plan and execute for uncharted territories. Conglomerates and diversified companies have typically grown by having leaders who could conceptualize and establish projects in new business horizons. Such leaders have an open mindscape that accepts new skill sets and updates native talent.

Leaders need to have a pioneering spirit because they need to not only lead their companies into newer technologies but also manage change in a continuous manner. An ability to appreciate new technologies and bet on them, in research, manufacturing and logistics is a critical attribute of future perfect leaders. Leadership requires taking calculated bets on future while consolidating the present for supporting future investments.

Institutionalization of the several leadership traits discussed in this paper would help corporations become institutions for perpetuity.

Posted by Dr CB Rao on September 13, 2009

No comments: