Saturday, June 16, 2012

Entrepreneurial Professionalism: Convergence of Leadership Duality

The theories of entrepreneurship and professionalism in management border on extremes at times, equating entrepreneurship to compulsive adventurism and professionalism to ossified bureaucracy. As with most positions, the true mean lies in the middle. Industrial and national development requires entrepreneurship as much as professionalism. This blog post explores the duality and proposes principles of convergence based on a well-known Indian industrial conglomerate group.

The duality

An entrepreneur takes risks to establish something of substantial business value from almost nothing essentially through his vision and passion. A professional optimizes, expands and diversifies an existing business to drive greater value. Almost all new businesses are established through entrepreneurial energy and are developed further through professional panache. Both the classes, entrepreneurs and professionals, thus seek to generate more wealth (revenues and profits) and facilitate better quality of life through products and services that serve the consumers. Yet, both the classes also unwittingly destroy value while performing their roles. This occurs mostly due to the different drivers that trigger the leadership and managerial activity in each class and the different routes taken by both the classes. By and large, one may say that an entrepreneurial way of work and a professional way of work tend to significantly differ, even if both the sets of leaders may have gone through similar streams of education and experience. The fundamental difference relates probably to how the two classes of leaders perceive risk and safety in business.

In an effort to derive synergies, if not wish away the differences, management experts suggest that entrepreneurs should have with them a set of professionals who counter and manage the entrepreneurs’ runaway growth instincts. Similarly, professionals are expected to have entrepreneurial drive to be able to drive businesses with less bureaucracy. While this appears to a great hybrid model, very often the model does not work the way it ought to. The reasons are essentially twofold. Firstly, the organizational ecosystem tends to develop a particular ethos, which is immutable, depending on whether the firm is founder-led or professional-led, in all senses of the power play. Secondly, the incentives or rewards, and the perceptions of risks and penalties work entirely differently for the entrepreneurs and professionals. The way opportunities and challenges are viewed in the decision making approaches tend to be accordingly different. The challenge for both the entrepreneurs and professionals is to explore how the duality can converge to deliver superior value building for all classes of organizations, whether entrepreneurial or professional.

Entry deterrent bets

Business grows on risky bets; bets that the market opportunity that is perceived is real and realizable, the investments will be productive and profitable, and the organization has strengths that are clear and competitive. Entrepreneurs take such bets based on their education, experience and more importantly intuition, with intuition clearly dominating the mix. No research, for example, has ever established the need for iPod, iPhone or iPad. Steve Jobs, who developed these products out of ingenuity and passion, was therefore an entrepreneur par excellence. Professionals do also take bets out of the same three factors of education, experience and intuition but tend to deliberately substitute intuition with analytics. An entrepreneur, almost by definition, never takes a bet which has no risk. That is the typical entrepreneurial way of being ahead of the pack and monopolizing the emerging or latent market. In several ways, a really passionate entrepreneur takes a bet that has a level of entry deterrent risk. This is an interesting concept that gets actualized time and again in entrepreneurial chapters, even in an emerging country such as India.

When J N Tata ventured to set up a luxury hotel in Bombay, now Mumbai (1902), a steel plant in Bihar (1907) and an electric utility in Bombay (1910) under the British regime, clearly each of them was a move with entry deterrent risk; but it laid the foundations of the largest, most diversified entrepreneurial group in India. What Nirma did in terms of affordable detergent powder (1980) challenging the hegemony of established multinational it was a risk even larger companies were not prepared to take; today it is a FMCG giant in its own right. When Reliance decided to enter the privatized oil exploration (2000), not many followed as it was a move with considerable risk. It, however, represented a genetic corporate trend that was uniquely that of Reliance of daring to go early into capital intensive areas (from textiles to oil and telecom as well as retail). When Dr Pratap Reddy established Apollo Hospitals (1983) as the first corporate hospital he was taking as much risk as a skilled surgeon would take in carrying out a complex surgery and the outcome has been equally successful; Apollo is the largest corporate hospital chain in India. Examples abound of entry deterrent risk taking providing significant early mover advantage to entrepreneurs.

Fall protecting nets

As opposed to the entrepreneurial trend of taking entry deterrent risks, professionals tend to have the practice of establishing fall protecting safety nets. The safety nets established by professionals range from scenario development to staged execution. Many times, professionals by virtue of their knowledge and experience, have the ability to ideate far more profoundly than entrepreneurs would. However, the time taken to convert ideas from concepts to constructs traversing collaboratively as well as contentiously through a whole series of analytical and consensual exercises dilutes leading ideas into trailing projects. Also, even when taken up for execution the projects tend to be sequentially stage-gated with options to make “go or no-go” decisions after detailed reviews at the end of each stage gate. The time lost in that sequential stage-gated process leads to significant delays in go-to-market. Interestingly, quick-thinking and rapid-acting entrepreneurial organizations turn into deep-thinking and slow-acting professional organizations all too soon as a result of which the lag between right ideation and smart execution increases over time. For example, Microsoft ideated the tablet computer in 2000 but Apple walked away with smart execution in 2010!

There are several examples of how fall protecting nets delay market development and penetration. Several Japanese companies have been ahead of Hyundai in India, including Toyota which did its feasibility studies for entry into India at the same time as Hyundai (around 1995). Yet, Hyundai entered earlier and became a much bigger volume player in India much faster than Toyota. The difference has primarily been due to the stage gates that Toyota set for itself, from market research to market entry. On the other hand, Hyundai has been less concerned about error-proofing its corporate strategy than achieving diversified and accelerated market entry. While this may be seen as a company specific observation it may also be seen as a national culture too, given the repetition of similar pattern between Korean and Japanese firms in a wide range of industries. The question, therefore, is whether entrepreneurial skill which is considered an individual skill could be extended into a corporate competence. The example of Tata group of India illustrates that it is indeed possible to converge the duality of entrepreneurial and professional approaches to achieve superior competitive advantage.

Convergence of duality

Tata Group is one of India's largest and most respected business groups. Tata Group's name is synonymous with India's industrialization. The Group gave India her first luxury hotel, first steel plant, hydro-electric plant, inorganic chemistry plant, first global software services company, first integrated automobile company and created a reservoir of scientific and technological manpower for the country. Its Trusts have instituted the first integrated engineering and biology educational infrastructure, Indian Institute of Science in 1909, the Tata Institute of Social Sciences in 1936; India's first cancer hospital, the Tata Memorial in 1941, and in 1945, the Tata Institute of Fundamental Research, which became the cradle of India's Atomic energy program. Today, Tata Group comprises 100 operating companies in seven business sectors: information systems and communications; engineering; materials; services; energy; consumer products; and chemicals. The Group has operations in more than 54 countries across six continents, and its companies export products and services to 120 nations. It has been also in the forefront of India’s largest and most effective global acquisitions including, Tetley Tea, Corus Steel, Jaguar-Land Rover, and Daewoo Heavy Vehicles. In terms of specific product innovations too, the Group has been ahead of the rest in the Indian industry, more so in the automobile industry, with a slew of continuous product innovations.

There are a few principles of entrepreneurial professionalism, which though could be commonly espoused in various other firms, are practiced rather uniquely in the Tata Group. Some of these are: a national fervor (from the very inception of the group in 1868), continuing iconic group leadership, across generations (JN Tata, JRD Tata, Ratan Tata), visionary leadership at the top (a 14 member group level board of directors), world-class leadership talent at firm levels (organic succession in each firm), defined group, firm and business structures, impeccable value system (5 core values of Integrity, Understanding, Excellence, Unity and Responsibility), heightened social responsibility (from hospitals to educational institutions in factory communities and other cities), robust corporate governance (mix of talented independent directors at firm level), commitment to technology, quality and safety (continuous knowledge audits), top-class cadre build-up from the bottom (massive graduate and post graduate recruitment programs and Tata Administrative System), responsible competition and competitiveness (fair industry practices), and globalized outlook (internationalization through physical overseas expansion and global acquisitions).

Typically, the Tata model comprised balanced and bright leadership at all levels and in all firms, including a good and healthy combination of technical leadership and business leadership. The model also comprised a vision that combined technological modernity and business competitiveness with social sensitivity. The sum of the parts proved better than the parts and the wisdom at the top helped to provide the right balance of entrepreneurship (as demonstrated by an endless stream of business firsts) and professionalism (as demonstrated by an endless saga of expansion and diversification). The Group could take risks that were entry deterrent for its competitors despite having fall preventing safety nets that did not slow down progress. The Tata group validates the hypothesis of this blog post that it is indeed possible to achieve the best of entrepreneurial and professional leadership based on the right principles, effectively practiced.

Posted by Dr CB Rao on June 16, 2012

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